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.

ELLIE FOREMAN-PECK FOR NEW STATESMAN
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Craig Oliver, Cameron's attack dog, finally bites

A new book reveals the spiteful after life of Downing Street's unlikely spin doctor.

It must be hard being a spin doctor: always in the shadows but always on-message. The murky control that the role requires might explain why David Cameron’s former director of communications Craig Oliver has rushed out his political memoirs so soon after his boss left Downing Street. Now that he has been freed from the shackles of power, Oliver has chosen to expose the bitterness that lingers among those on the losing side in the EU referendum.

The book, which is aptly titled Unleashing Demons, made headlines with its revelation that Cameron felt “badly let down” by Theresa May during the campaign, and that some in the Remain camp regarded the then home secretary as an “enemy agent”. It makes for gripping reading – yet seems uncharacteristically provocative in style for a man who eschewed the sweary spin doctor stereotype, instead advising Cameron to “be Zen” while Tory civil war raged during the Brexit campaign.

It may be not only politicians who find the book a tough read. Oliver’s visceral account of his side’s defeat on 24 June includes a description of how he staggered in a daze down Whitehall until he retched “harder than I have done in my life. Nothing comes up. I retch again – so hard, it feels as if I’ll turn inside out.”

It’s easy to see why losing hit Oliver – who was knighted in Cameron’s resignation honours list – so hard. Arguably, this was the first time the 47-year-old father-of-three had ever failed at anything. The son of a former police chief constable, he grew up in Scotland, went to a state school and studied English at St Andrews University. He then became a broadcast journalist, holding senior posts at the BBC, ITV and Channel 4.

When the former News of the World editor Andy Coulson resigned as No 10’s communications director in January 2011 because of unceasing references in the press to his alleged involvement in the phone-hacking scandal, Oliver was not the obvious replacement. But he was seen as a scandal-free BBC pen-pusher who exuded calm authority, and that won him the job. The Cameron administration, tainted by its association with the Murdoch media empire, needed somebody uncontroversial who could blend into the background.

It wasn’t just Oliver’s relative blandness that recommended him. At the BBC, he had made his name revamping the corporation’s flagship News at Ten by identifying the news angles that would resonate with Middle England. The Conservatives then put this skill to very good use during their 2015 election campaign. His broadcast expertise also qualified him to sharpen up the then prime minister’s image.

Oliver’s own sense of style, however, was widely ridiculed when he showed up for his first week at Downing Street looking every inch the metropolitan media male with a trendy man bag and expensive Beats by Dre headphones, iPad in hand.

His apparent lack of political affiliation caused a stir at Westminster. Political hacks were perplexed by his anti-spin attitude. His style was the antithesis of the attack-dog mode popularised by Alastair Campbell and Damian McBride in the New Labour years. As Robert Peston told the Daily Mail: “Despite working closely with Oliver for three years, I had no clue about his politics or that he was interested in politics.” Five years on, critics still cast aspersions and question his commitment to the Conservative cause.

Oliver survived despite early wobbles. The most sinister of these was the allegation that in 2012 he tried to prevent the Daily Telegraph publishing a story about expenses claimed by the then culture secretary, Maria Miller, using her links to the Leveson inquiry as leverage – an accusation that Downing Street denied. Nevertheless, he became indispensable to Cameron, one of a handful of trusted advisers always at the prime minister’s side.

Newspapers grumbled about Oliver’s preference for broadcast and social media over print. “He’s made it clear he [Oliver] doesn’t give a s*** about us, so I don’t really give a s*** about him,” a veteran correspondent from a national newspaper told Politico.

Yet that approach was why he was hired. There was the occasional gaffe, including the clumsy shot of a stern-looking Cameron, apparently on the phone to President Obama discussing Putin’s incursion into Ukraine, which was widely mocked on Twitter. But overall, reducing Downing Street’s dependence on print media worked: Scotland voted against independence in 2014 and the Tories won a majority in the 2015 general election.

Then came Brexit, a blow to the whole Cameroon inner circle. In his rush to set the record straight and defend Cameron’s legacy – as well as his own – Oliver has finally broken free of the toned-down, straight-guy persona he perfected in power. His memoir is spiteful and melodramatic, like something straight from the mouth of Malcolm Tucker in The Thick of It. Perhaps, with this vengeful encore to his mild political career, the unlikely spin doctor has finally fulfilled his potential. 

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories