George Osborne must ignore the siren calls – and take steps to raise potential growth

The CPS' Ryan Bourne gives its hitlist for the 2013 budget.

Over the past few weeks, we’ve heard from advocates of more government spending to attempt to stimulate the economy, advocates of shock-and-awe tax cuts to stimulate the economy, people suggesting the Government needs more interventionist long-term planning for the economy, and calls from back-bench Conservative MPs that this should be a‘cost-of-living’ budget.

Following more than £500 billion of deficit spending, £375 billion of QE, interest rates at their lowest level in the history of the Bank of England, a sharp fall in sterling, and with inflation continuously above target, it is difficult not to agree with Sir Mervyn King that most of our economic problems are structural. Years of a stagnant economy despite extraordinary monetary and fiscal policies suggest that in the wake of the crisis we are now suffering from a sustained fall in potential growth on unchanged supply-side policies – which, even if you do believe that stimulus spending policies work, cannot be solved by more short-term borrowing or money printing. Those convinced the economy just needs a kick-start to push it into a new equilibrium of self-sustaining recovery should look at Japan’s recent economic history.

Nor would increasing the structural deficit by borrowing significantly more for tax cuts be sensible. With public sector net borrowing still over 8% of GDP and debts already above the level known to permanently retard growth for two decades, adding to the deficit significantly, two years before the uncertainty of another general election, poses significant risks in bond markets (and even if we print to hold yields down, merely transfers to a problem for sterling).

The Budget then needs to recognise that the UK has a medium-term growth problem. It should therefore contain policies to raise our medium-term growth rate. This is the main insight which drives the 20 recommendations which we set out in Take the Long View, ahead of next week’s Budget. We suggest a three-pronged approach addressing fiscal strategy, supply-side reform and a robust pro-competition agenda in certain oligopolistic industries.

Support is waning for the Government’s fiscal agenda, but in truth cuts to investment expenditure and tax hikes were front-loaded and cuts to current expenditure were back-loaded. For a developed country like the UK, evidence suggests that cutting the latter not only has a far smaller impact on short-term growth, but also enhances medium-term growth. Abandoning the overall plan now, just as it about to start cutting in the right areas, would be madness. In fact, if anything the level of current spending cuts are inadequate. Because of ring-fencing of several large items, current spending overall is actually forecast to increase in real-terms over the course of this Parliament by 0.7%. But this assumes growth will generate large increases in tax revenues to close the deficit. As we mentioned above, we do not believe this will happen on unchanged policies. So further cuts to current spending, in part used for enterprise inducing tax cuts, should be implemented to enhance the economy’s medium-term growth rate.

To decide where these cuts fall the next spending review should examine all spending without any ring-fencing, particularly focusing on areas which have the smallest effects on short-term growth, like pensioner benefits, retirement ages, and eligibility for a host of other transfers. A failure to re-open spending in this way risks some budgets being savaged to protect areas of which have seen significant largesse over the past decade.

On the tax side, the spending review should be supplemented by better resourcing of the Office for Tax Simplification and giving it a more strategic role over efforts to simplify and restore trust in our tax system. Substantial pro-growth tax reform, along the lines of broadening bases and lowering rates, is an area which the Coalition has so far done little.

On the supply-side, the key aim is to raise the productive potential of the economy. A Small Business Incentive Scheme, which includes significant exemptions from regulation for small businesses, should be introduced. Though less sexy, a framework for ‘sunset clauses’ for new regulations should be rolled out and Michael Fallon’s ambitions for deregulation utilised by widening the scope of the ‘One-in, Two-out’ framework further. And the Government should look again at the case for abolishing national pay bargaining, which could substantially enhance public sector efficiency and counter regional inequalities in the medium-term.

Finally, the only sustainable way to address rising living costs for the UK public requires an aggressive pro-market agenda in many oligopolistic industries to enhance innovation and productivity, and to lower costs. Banking, energy, water, rail and education are all necessity industries or state run services where there is scope for much more competition, and there would be much more beneficial long-term effects of removing barriers to entry for new providers, and providing a level playing field for existing market participants, in these than dealing with the symptoms of our current cost-of-living problems through fiddling with changes to certain taxes or subsidies.

20 recommendations for the budget

On fiscal strategy

  1. Announce the remit of the 2013/14 spending review. This should include:
    • plans to cut government current expenditure substantially over the next five years with no ring-fences;
    • a programme of reducing entitlement eligibility;
    • a plan to raise retirement ages more rapidly than currently planned.
  2. Widen the remit of the Office for Tax Simplification to establish tax reforms for the rest of this Parliament along the principles of base-broadening and lowering rates.
  3. Pledge no new taxes or further net tax rate rises for the 2013/14 spending review period.
  4. Set out a path to raise the threshold for the basic rate of Income Tax to the equivalent of the gross income of a full-time earner on the minimum wage.
  5. Cut Capital Gains Tax immediately, as it is above the revenue maximising rate.
  6. Commit to further reductions in Corporation Tax.
  7. Re-open negotiations on public sector pensions.
  8. Supply-side reform
    Announce a Small Business Incentive Scheme to include a package of exemptions from regulations for very small businesses. This should include exemptions from: minimum wage legislation for those under 21; requests for time off for training; and pension auto-enrolment.
  9. Adopt sunset clauses for all regulations with a post-implementation audit three years after enactment of each regulation; and bring more regulation into the scope of 'One-In Two-Out'.
  10. Adopt a Consolidated Planning Act and repeal all existing legislation with a single rationalised Act.
  11. Encourage neighbouring local councils to co-operate in identifying sites for new Garden Cities.
  12. Abolish national pay bargaining in the public sector.
  13. Ensure that the recommendations of the Davies Review of airport capacity can be implemented swiftly.
  14. An agenda for competition
    Adopt the "Fair Shares" scheme for the re-privatisation of Lloyds and RBS.
  15. Reduce the regulatory burden on new banks.
  16. Give the Financial Conduct Authority a competition mandate.
  17. Require the legal separation of retail and supply arms of water companies, paving the way for the extension of retail competition.
  18. Encourage far greater competition between operators on the rail network.
  19. Lift the bar on profit-making companies running academies and free schools.
  20. Abandon the planned unilateral carbon price floor and phase out subsidies for renewable energies.
Photograph: Getty Images

Ryan Bourne is the head of economic research at the Centre for Policy Studies.

Qusai Al Shidi/Flickr
Show Hide image

I can’t follow Marie Kondo's advice – even an empty Wotsits packet “sparks joy” in me

I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

I have been brooding lately on the Japanese tidying freak Marie Kondo. (I forgot her name so I typed “Japanese tidying freak” into Google, and it was a great help.) The “Japanese” bit is excusable in this context, and explains a bit, as I gather Japan is more on the case with the whole “being tidy” thing than Britain, but still.

Apart from telling us that we need to take an enormous amount of care, to the point where we perform origami when we fold our underpants, which is pretty much where she lost me, she advises us to throw away anything that does not, when you hold it, “spark joy”. Perhaps I have too much joy in my life. I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

After a while I gave up on this because I was getting a bit too happy with all the memories, so then I thought to myself, about her: “This is someone who isn’t getting laid enough,” and then I decided that was a crude and ungallant thought, and besides, who am I to wag the finger? At least if she invites someone to her bedroom no one is going to run screaming from it, as they would if I invited anyone to my boudoir. (Etym: from the French “bouder”, to sulk. How very apt in my case.) Marie Kondo – should bizarre circumstance ever conspire to bring her to the threshold – would run screaming from the Hovel before she’d even alighted the stairs from the front door.

I contemplate my bedroom. As I write, the cleaning lady is in it. To say that I have to spend half an hour cleaning out empty Wotsits packets, and indeed wotnot, before I let her in there should give you some idea of how shameful it has got. And even then I have to pay her to do so.

A girlfriend who used to be referred to often in these pages, though I think the term should be a rather less flippant one than “girlfriend”, managed to get round my natural messiness problem by inventing a game called “keep or chuck”.

She even made up a theme song for it, to the tune from the old Spiderman TV show. She would show me some object, which was not really rubbish, but usually a book (it may not surprise you to learn that it is the piles of books that cause most of the clutter here), and say, “Keep or chuck?” in the manner of a high-speed game show host. At one point I vacillated and so she then pointed at herself and said, “Keep or chuck?” I got the message.

These days the chances of a woman getting into the bedroom are remote. For one thing, you can’t just walk down the street and whistle for one much as one would hail a cab, although my daughter is often baffled by my ability to attract females, and suspects I have some kind of “mind ray”. Well, if I ever did it’s on the blink now, and not only that – right now, I’m not even particularly bothered that it’s on the blink. Because, for another thing, I would frankly not care to inflict myself upon anyone else at the moment.

It was all a bit of a giggle eight years ago, when I was wheeled out of the family home and left to my own devices. Of course, when I say “a bit of a giggle”, I mean “terrifying and miserable”, but I had rather fewer miles on the clock than I do now, and a man can, I think, get away with a little bit more scampish behaviour, and entertain a few more illusions about the future and his own plausibility as a character, when he is squarely in his mid-forties than when he is approaching, at speed, his middle fifties.

Death has rather a lot to do with it, I suppose. I had not actually seen, or touched, a dead body until I saw, and touched, my own father’s a few weeks ago. That’s what turns an abstract into a concrete reality. You finally put that to one side and gird up your loins – and then bloody David Bowie snuffs it, and you find yourself watching the videos for “Blackstar” and “Lazarus” over and over again, and reach the inescapable conclusion that death is not only incredibly unpleasant, it is also remorseless and very much nearer than you think.

And would you, dear reader, want to be involved with anyone who kept thinking along those lines? I mean, even if he learned how to fold his undercrackers into an upright cylinder, like a napkin at a fancy restaurant, before putting them in his drawer? When he doesn’t even have a drawer?

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war