Planning for long-term growth tells us what we should do in the short-term

Demand-friendly cuts and tax rises will boost UK PLC now.

Two things are striking about yesterday’s report of the LSE Growth Commission. The first is the very strong implication of its conclusions that the path to future prosperity is decidedly one involving, indeed demanding, government involvement in the economy rather than the state stepping back. The second is what its prescription for long-term economic growth says about how we should get the UK out of its current economic malaise.

The first isn’t a political statement. Indeed, the Commission points to evidence that the pick-up in Britain’s relative productivity growth began in the 1980s, and is largely attributable to the policies of Conservative (but also Labour) governments. Most of the growth-enhancing reforms are clear victories for economic liberals: increased labour market flexibility, better active labour market policies, and openness to foreign capital and labour.

But what the report also makes clear is that the benefits of simply removing such barriers to growth has run its course. The authors couldn’t be clearer that “demands for ever greater deregulation and reductions in government spending as a panacea for the UK’s growth problems are misguided.” Rather it is now the state that must act and invest wisely if the UK is to keep pace with productivity growth in other leading countries. Investment in education at every stage from pre-school to vocational training is advocated. The authors argue for new and better government institutions – and indeed public investment – to stimulate investment in transport and energy infrastructure. And a new role is claimed for the state role in subsidising R&D through a business bank, taking “a wider view of the social returns to innovative projects”.

All in all this amounts to a significant increase in state involvement in the economy. It’s also hard to see how this agenda is compatible with the current government’s plan to load future fiscal consolidation entirely onto departmental spending between now and 2018. As SMF research has recently shown, protecting education spending – let alone increasing it – alongside health at the next spending review will impose politically unacceptable cuts on other public services. There will certainly be no scope for increasing public investment in infrastructure, or scaling-up Vince Cable’s business bank.

In other words, the supply siders had some useful insights in the 1980s, on which the recent productivity spurt was largely based. But the prescriptions of advocates for a small state and blanket deregulation are now the road to economic lassitude.

So what about the short term? While the Commission focuses on long-term growth rather than remedies for the current stagnation, there is a strong link between the two. The reforms advocated will take many years, and perhaps decades, to bear fruit. All the more important to start immediately. But with the deficit reduction programme now running to 2018, and an aging population likely to put further pressure on the budget thereafter, action can’t wait until the (hopefully) sunlit uplands of the next decade.

Rather than seeing the short- and long-term as distinct challenges, we must find a way to tackle the current economic problems in a way that lays the foundations for future growth. A huge and immediate investment strategy for our creaking transport, energy and housing infrastructure is the way to square the circle. And the chancellor can do it without deviating from his current deficit reduction plan.

How can this be achieved? With £31bn of further fiscal consolidation in the pipeline by 2018, the chancellor should bring forward cuts to elements of public spending which do little to support the economy, recycling the saved money into infrastructure investment between now and 2018. Prime examples of such "demand friendly" cuts include cutting benefit payments and give-aways to the better-off, and axing financial incentives for rich people to save more.

A growth-boosting deficit reduction strategy relies on funding the investment plan in ways that won’t damage demand in the economy. For this reason, having picked the low-hanging fruit on demand-friendly cuts, some proportion of the necessary £31bn should come from growth-friendly tax rises. Income tax and corporation tax should be avoided. But much higher property taxes would raise money while having little impact on growth. The socially beneficial effects of a well-designed tax on housing allocation is another story. Raising that money immediately and investing it between now and 2018 would kick-start growth and help to leave UK PLC set fair for a productivity boom in the decades ahead. 

Photograph: Getty Images

Ian Mulheirn is the director of the Social Market Foundation.

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How to explain Brexit to your kids

It’s not hard. The Brexiteers’ tantrums are a parody of how children behave.

My parents never sat me down for “the politics talk”. I suspect they were too embarrassed. Like many children of my generation, I was left to develop my own ideas about what adults did in private.

We didn’t have the internet and our arms were too short to open most newspapers (scientists were still working on the tabloid-broadsheet hybrid). Hence we picked up news randomly, either by overhearing snippets on the radio while buying sweets in the newsagent’s or by accidentally watching the start of the six o’clock news following the end of Charles In Charge.

By the time I was nine, the same age my eldest child is now, I had unrealistic expectations of politicians and the democratic process. Due to the fact that I had no idea what anyone was talking about, I assumed everyone in the House of Commons was having serious, informed thoughts about the most important issues of the day.

I now know that the real reason I couldn’t understand what anyone was saying was because what had sounded like “roargh roargh [insult] <braying laughter>” really had been “roargh roargh [insult] <braying laughter>” all along. I’d assumed it was a language I had yet to learn, one of the more specialised dialects of Adult-ese. I’d already wasted one vote by the time I realised that Prime Minister’s Questions was basically Jeremy Kyle with posher accents and minus the lie detector tests.

I don’t want my children to make the same mistakes as me. Thankfully, it turns out Brexit Britain is the ideal place to teach your kids how politics really works. Never has there been a time when those stalking the corridors of power were more in tune with the average tantruming toddler. There’s no point in rational argument; you just have to hope that those in power burn themselves out before too much damage is done.

This particular tantrum has of course been building for some time. The dominant rhetoric of the Leave campaign – like that of the Tory party itself – always offered a spoilt child’s view of the world, one in which you are the centre of the universe, depending on no one else for your survival.

When others point out that this isn’t the case – that perhaps you wouldn’t have a home and food on the table if it wasn’t for Mummy or Daddy, or perhaps the UK would not have a strong economy were it not a member of the EU – you simply tell them they’re being mean. You’ll show them! They’re not the boss of you! So you pack your bags and leave.

If you are six, you might get to the corner of your road, realise with disappointment that no one is following you and turn back, hoping no one noticed you were gone. If you are the UK, you hang around for a while, maybe hiding in some bushes, thinking “any minute now they’ll come looking for me.”

But they don’t, so eventually you think “sod ‘em, I’ll go to my mates’. Unfortunately, you cannot get there without Mummy to drive you. This is a problem. But at least you can tell yourself that you were doubly right to leave, since everything that is happening now is Mummy’s fault.

Never in British politics has the panicked outrage of those who know they are making a terrible mistake been so palpable. It reminds me of the time when I was teaching my eldest son to drink from a beaker. He kept spilling small amounts, which caused him so much distress he’d end up pouring the rest of the juice onto the carpet to make it look deliberate. Whenever I tried to stop him, I’d only make him more panicked, thus even more likely to get juice everywhere.

I have since asked him if he remembers why he did this. He says he does not, but I have told him this is what the British government is doing with Brexit. The referendum was the initial spillage; we now have to sit and watch, biting our tongues, in the hope that the “well, anyhow, I totally meant to do that!” response can be averted.

There is little chance of that, though. When my middle son told his older brother he could fly, he quickly backed down on being asked to demonstrate this by jumping from an upstairs window. Liam Fox would have thrown himself headlong, then blamed Project Fear for his broken neck. Or rather, he’d have thrown someone else – one of the millions of people whose lives really will be ruined by Brexit – then tried to argue that the exceptionally bendy necks of UK citizens could be used as one of the “main cards” in negotiations.

The behaviour is beyond childlike; it is a parody of how children behave. When I asked one of my sons to clean his teeth this morning, he called me a “poo head” and said his teeth wouldn’t get decay. He still brushed them, though.

He did not conclude I was some sinister sore loser out to trick him because his teeth are young and white and mine are old and stained. He still has some basic sense that people who ask you to do things you don’t want to do might yet have your best interests at heart, regardless of who is right or wrong. He did not call me a sneering member of the elite trying to override the will of all toothpaste-rejecting British children (to be fair, I think “poo head” may have been meant to capture that, but at least he only called me it once).

Then again, the teeth in my son’s head are his alone. The consequences of neglect would be his to endure. Those stage-managing the Brexit tantrum are insulated from its most devastating consequences. Thus they can hurl insults, stick their fingers in their ears and take more than a little pleasure in the sheer recklessness of it all. It is not just an extended childhood; it is childhood without having to come to terms with the consequences of your own behaviour, because others will suffer them for you.

I want my own children to understand that what they see now is not what politics should be. That there is not some deep, meaningful logic underpinning what the adults in charge are doing. What looks like bitterness, point-scoring and sheer lack of self-control is, more often than not, just that. We have indulged these people too long. Let’s raise a generation with higher expectations of those who will claim to speak on their behalf.

Glosswitch is a feminist mother of three who works in publishing.