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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For the first time in my life I have a sworn enemy – and I don’t even know her name

The cyclist, though, was enraged. “THAT’S CLEVER, ISN’T IT?” she yelled. “WALKING IN THE ROAD!”

Last month, I made an enemy. I do not say this lightly, and I certainly don’t say it with pride, as a more aggressive male might. Throughout my life I have avoided confrontation with a scrupulousness that an unkind observer would call out-and-out cowardice. A waiter could bring the wrong order, cold and crawling with maggots, and in response to “How is everything?” I’d still manage a grin and a “lovely, thanks”.

On the Underground, I’m so wary of being a bad citizen that I often give up my seat to people who aren’t pregnant, aren’t significantly older than me, and in some cases are far better equipped to stand than I am. If there’s one thing I am not, it’s any sort of provocateur. And yet now this: a feud.

And I don’t even know my enemy’s name.

She was on a bike when I accidentally entered her life. I was pushing a buggy and I wandered – rashly, in her view – into her path. There’s little doubt that I was to blame: walking on the road while in charge of a minor is not something encouraged by the Highway Code. In my defence, it was a quiet, suburban street; the cyclist was the only vehicle of any kind; and I was half a street’s length away from physically colliding with her. It was the misjudgment of a sleep-deprived parent rather than an act of malice.

The cyclist, though, was enraged. “THAT’S CLEVER, ISN’T IT?” she yelled. “WALKING IN THE ROAD!”

I was stung by what someone on The Apprentice might refer to as her negative feedback, and walked on with a redoubled sense of the parental inadequacy that is my default state even at the best of times.

A sad little incident, but a one-off, you would think. Only a week later, though, I was walking in a different part of town, this time without the toddler and engrossed in my phone. Again, I accept my culpability in crossing the road without paying due attention; again, I have to point out that it was only a “close shave” in the sense that meteorites are sometimes reported to have “narrowly missed crashing into the Earth” by 50,000 miles. It might have merited, at worst, a reproving ting of the bell. Instead came a familiar voice. “IT’S YOU AGAIN!” she yelled, wrathfully.

This time the shock brought a retort out of me, probably the harshest thing I have ever shouted at a stranger: “WHY ARE YOU SO UNPLEASANT?”

None of this is X-rated stuff, but it adds up to what I can only call a vendetta – something I never expected to pick up on the way to Waitrose. So I am writing this, as much as anything, in the spirit of rapprochement. I really believe that our third meeting, whenever it comes, can be a much happier affair. People can change. Who knows: maybe I’ll even be walking on the pavement

Mark Watson is a stand-up comedian and novelist. His most recent book, Crap at the Environment, follows his own efforts to halve his carbon footprint over one year.

This article first appeared in the 20 October 2016 issue of the New Statesman, Brothers in blood