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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"Labour are as pro-Brexit as the Tories": what do Sinn Fein's MPs really want from Westminster?

Its seven MPs are much less sympathetic to Corbyn's party than popularly imagined, and won't ever take their seats.

Should the Conservative minority government fall, what is Jeremy Corbyn’s route to power? The counterfactual as popularly understood goes like this: Corbyn would pick up the phone to his old pal Gerry Adams and convince Sinn Fein’s seven MPs to abandon the habit of a century and take their seats.

There are countless reasons why this would never happen, most of them obvious. One is more surprising. Despite Corbyn’s longstanding links with the republican cause, the Labour party is not all that popular among a new intake, which is preoccupied with one thing above all else: Brexit.

No wonder. Sinn Fein’s long game is an all-Ireland one, and the party believe the UK’s departure from the EU will hasten reunification. In the meantime, however, its priority is a Brexit deal that gives Northern Ireland – where 56 per cent of voters backed remain – designated status within the EU.

Pioneered by the moderate nationalist Social Democratic and Labour Party as an antidote to Brexit, designated status would allow the six counties in the North to continue to enjoy the EU’s four freedoms. But the idea is anathema to unionists and the UK government, and Sinn Fein sees little evidence that the Westminster establishment will make it work – not even Labour.

“They are as pro-Brexit as the Conservatives are,” says Mid Ulster MP Francie Molloy. “We’re anti-Brexit. We want to see the right of the people in the North who voted to remain in Europe respected.”

Simmering resentment over what the party perceives to have been broken promises on Tony Blair’s part – especially over legal protection for the Irish language, a key stumbling block obstructing the resumption of power-sharing – makes the already implausible deal even less likely.

“The Irish language act was something that Blair agreed to,” says Molloy. “So when people talk about us taking our seats, they don’t realise we would be backing a Labour government that wouldn’t be living up to its commitments either, and would be just as pro-Brexit as the Conservatives are."

That criticism may well surprise a lay audience whose working assumption is that Adams and Corbyn work hand in glove. But it is perhaps the best illustration of Sinn Fein’s parliamentary priorities: its seven MPs will not in any circumstances take their seats but use their Westminster presence to lobby ministers and MPs of all stripes while running constituency offices at home (they are unsalaried, but claim expenses).

Crucially, its MPs believe abstentionism strengthens, rather than weakens their negotiating hand: by their logic other parties need not and do not fear them given the fact they do not have voting power.

They will use their leverage to agitate for special status above all else. “Special status is the biggest issue that we are lobbying for,” says Molloy. “We feel that is the best way of securing and retaining EU membership. But if we get a referendum on Irish unity and the people vote for that, then the North will automatically join the EU.”

But that wasn’t always the received wisdom. That assurance was in fact secured by Mark Durkan, the former deputy first minister and SDLP MP beaten by Sinn Fein last week, after an exchange with Brexit secretary David Davis at the leaving the EU select committee. The defeat of the three SDLP MPs – two of them by Sinn Fein – means there will be no Irish nationalist voice in the commons while Brexit is negotiated.

Surely that’s bad news for Northern Irish voters? “I don’t think it is,” says Molloy. “The fact we took two seats off the SDLP this time proves abstentionism works. It shows they didn’t deliver by attending. We have a mandate for abstentionism. The people have now rejected attendance at Westminster, and rejected Westminster itself. We’ve never been tempted to take our seats at all. It is very important we live by our mandate.”

If they did, however, they would cut the Conservatives’ and Democratic Unionist Party’s working majority from 13 to a much more precarious six. But Molloy believes any alliance will be a fundamentally weak one and that all his party need do is wait. “I think it’ll be short-lived,” he says. “Every past arrangement between the British government and unionist parties has always ended in tears.”

But if the DUP get its way – the party has signed a confidence and supply deal which delivers extra cash for Northern Ireland – then it need not. Arlene Foster has spoken of her party’s desire to secure a good deal for the entire country. Unsurprisingly, however, Sinn Fein does not buy the conciliatory rhetoric.

“They’ve never really tried to get a good deal for everybody,” says Michelle Gildernew, who won the hyper-marginal of Fermanagh and South Tyrone back from the Ulster Unionists last week. “The assembly and executive [which Sinn Fein and the DUP ran together] weren’t working for a lot of groups – whether that was the LGBT community, the Irish language community, or women...they might say they’re going to work for everybody, but we’ll judge them by their actions, not their words.”

Molloy agrees, and expresses concern that local politicians won’t be able to scrutinise new spending. “The executive needs to be up and running to implement that, and to ensure a fair distribution. If there’s new money coming into the North, we welcome that, but it has to be done through the executive.”

On current evidence, the call for local ministers to scrutinise the Conservatives’ deal with the DUP is wishful thinking – Northern Ireland has been without an executive since February, when the late Martin McGuinness resigned as deputy first minister and triggered a snap election.

The talks since have been defined by intransigence and sluggishness. James Brokenshire, the Northern Ireland secretary, has had to postpone the talks deadline on four separate occasions, and has been criticised by nationalists for his perceived closeness to the DUP.

The final deadline for the restoration of an executive is 29 June 2017. Sinn Fein has called for Brokenshire to recuse himself in favour of a neutral chair. “His hands are tied now, completely,” says Molloy. “The Conservative party were always questionable on where they stood – they’ve always been unionists. The issue now is whether they can act neutrally as a guarantor to the Good Friday Agreement.”

He believes that question is already settled. “Legally, they have to act to ensure that nothing happens to damage that agreement – but we’ve already breached it through Brexit. There was no consultation. The people of the North voted to remain and it hasn’t been recognised. It totally undermines the consent principle.”

Just how they and Brokenshire interpret that principle – the part of the Good Friday Agreement that specifies the constitutional status of the North can only change by consent of its people – will be key to whether they can achieve their ultimate goal: Irish unity.

Molloy and Gildernew say the fact that 11 of Northern Ireland’s 18 constituencies voted to remain in the EU is enough for Brokenshire to call one within the next five years (though polling consistently shows that a clear majority of the province’s electorate, including a substantial minority of nationalists, would vote to stay in the UK). They are confident they can win, though, failing that, Molloy envisages it as the first in several referenda on unification.

But beneath the optimism lies the knowledge that the British government are unlikely to heed their calls. And, willingly absent from the Westminster chamber, they say the UK government’s discussions about Brexit are illegitimate. They see their real powerbase as elsewhere: in Dublin’s Dail Eireann, where Sinn Fein is the third largest party, and the chancelleries of Europe.

“That’s where most of the negotiation will actually happen,” says Molloy. “The EU27 will make the decisions. They won’t be made in Westminster, because the British have already set out what they’re doing: they’re leaving.”

But with seven MPs already lobbying ministers and a united Ireland unlikely to happen in the immediate future, Sinn Fein itself won’t be disappearing anytime soon.

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.

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