This was no Autumn Statement for growth

The measures announced today by Osborne will increase output by a meagre 0.1 per cent.

Today’s Autumn Statement was a strange creature. The Chancellor has gone to great lengths to implement a bunch of expensive supply side measures to help the economy grow. But at the same time, the Office for Budget Responsibility appears to have gone in the opposite direction, suggesting that it’s the demand side, not the supply side of the economy that is where the problem lies. That would imply a rather different set of measures to the ones we saw today.

In the run-up to today, the government set a few hares running about how it was going to reallocate current to capital spending to boost growth. Since capital spending tends to raise economic output by more than current spending, building schools and roads could provide a sorely needed boost to the stagnant economy. Just what the doctor ordered. And such a shift was exactly the sort of thing the Social Market Foundation advocated last February as a way to provide a fiscal stimulus without deviating from the Chancellor’s deficit reduction plan.

In the event, the investment is a pretty paltry £2.3bn next year and £3bn after that. On its own, that might boost output by about the same amount: a piddling 0.1 per cent of GDP in each year. Unfortunately, even this microscopic growth measure is all but cancelled out by where the funds have been raised from. The decision to uprate benefits by just 1 per cent for three years will suck demand out of the economy from next April, all but off-setting any stimulus effect of the investment plan. Quite apart from the fairness debate, if you need to save money from the welfare bill, it would have been far wiser to wait until the economy is back on its feet.

By contrast, one bright spot – and it was only a spot – was the decision to raise £600m from limiting pension tax relief for top earners. Cutting spending on measures that encourage people to take money out of the economy is an excellent example of a demand-friendly cut. Well done the Lib Dems. They should have done more.

Unsurprisingly, then, for all the infrastructure investment chat, the OBR estimates that the measures in the Autumn Statement will increase output by a meagre 0.1 per cent. This was no ‘Autumn Statement for growth’, whatever the rhetoric.

What this statement was really about was supply side measures, and here the Chancellor has really pulled out the stops. Raising the personal allowance and capping fare rises will make work pay more for the middle classes. Eroding benefits will sharpen work incentives by making life more uncomfortable for those out of work or on low wages. The populist fuel-duty give-away will cut the costs for firms and families. And the corporation tax cut will marginally encourage investment. But it is very unlikely that these measures will do anything to stimulate growth, in the short-term at least.

And here the OBR seems to be saying that the Chancellor has misdiagnosed the problem. Last month the SMF replicated the OBR’s models for estimating how much of the current deficit will remain once the economy gets back to normal. Had the OBR stuck to its models, they would have said that the demand shortfall in the economy was relatively minimal. In that world, supply side policies might make some sense. But today, the OBR junked its models wholesale, adopting a totally different technique. Now they’re saying that the economy is suffering from a large and increasingly persistent shortfall in demand.

The biggest threat to the supply side of the UK economy is from a yawning output gap. Weak demand means that unemployed workers will slip into permanent inactivity, while capital will depreciate. Incentives to invest will remain weak, and banks will see no advantage to calling time on their zombie company clients. This is all very bad news for our future prosperity and our society. But action on demand from the Chancellor has been entirely rhetorical today. Frenetic activity on the supply side looks like fiddling while Rome burns.

Chancellor George Osborne delivers his Autumn Statement in the House of Commons. Photograph: Getty Images.

Ian Mulheirn is the director of the Social Market Foundation.

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Justin Trudeau points the way forward for European politics

Is the charismatic Canadian Prime Minister modelling the party of the future?

Six months after Canadian election day, Justin Trudeau’s Liberal party continues to bask in the glow of victory. With 44 per cent of support in the polls, the Liberals are the most popular party amongst every single demographic – men and women, young and old, and people of all educational backgrounds. 

While most European mainstream parties only dream of such approval, this is actually a small dip for the Liberals. They were enjoying almost 50 per cent support in the polls up until budget day on 21 March. Even after announcing $29.4 billion in deficit spending, Canadians overall viewed the budget favourably – only 34 per cent said they would vote to defeat it.

Progressives around the world are suddenly intrigued by Canadian politics. Why is Justin Trudeau so successful?

Of course it helps that the new Prime Minister is young, handsome and loves pandas (who doesn’t?) But it’s also true that he was leader of the Liberals for a year and half before the election. He brought with him an initial surge in support for the party. But he also oversaw its steady decline in the lead up to last year’s election – leadership is important, but clearly it isn’t the only factor behind the Liberals’ success today.

Context matters

As disappointing as it is for Europeans seeking to unpack Canadian secrets, the truth is that a large part of the Liberals’ success was also down to the former Prime Minister Stephen Harper’s extreme unpopularity by election time.

Throughout almost ten years in power, Harper shifted Canada markedly to the right. His Conservative government did not just alter policies; it started changing the rules of the democratic game. While centre-right governments in Europe may be implementing policies that progressives dislike, they are nonetheless operating within the constraints of democratic systems (for the most part; Hungary and Poland are exceptions).

Which is why the first weeks of the election campaign were dominated by an ‘Anybody But Harper’ sentiment, benefitting both the Liberals and the left-wing New Democratic Party (NDP). The NDP was even leading the polls for a while, inviting pundits to consider the possibility of a hung parliament.

But eight days before election day, the Liberals began to pull ahead.

The most important reason – and why they continue to be so popular today – is that they were able to own the mantle of ‘change’. They were the only party to promise running a (small) deficit and invest heavily in infrastructure. Notably absent was abstract discourse about tackling inequality. Trudeau’s plan was about fairness for the middle class, promoting social justice and economic growth.

Democratic reform was also a core feature of the Liberal campaign, which the party has maintained in government – Trudeau appointed a new Minister of Democratic Institutions and promised a change in the voting system before the next election.

The change has also been in style, however. Justin Trudeau is rebranding Canada as an open, progressive, plural society. Even though this was Canada’s reputation pre-Harper, it is not as simple as turning back the clock.

In a world increasingly taken by populist rhetoric on immigration – not just by politicians like Donald Trump, Nigel Farage, Marine Le Pen and other right-wingers, but also increasingly by mainstream politicians of right and left – Justin Trudeau has been unashamedly proclaiming the benefits of living in a diverse, plural society. He repeatedly calls himself a feminist, in the hope that one day “it is met with a shrug” rather than a social media explosion. Live-streamed Global Town Halls are one part of a renewed openness with the media. Progressive politicians in Europe would do well to take note.

Questioning the role of political parties today

Another interesting development is that the Liberal party is implicitly questioning the point of parties today. It recently abolished fee-paying, card-carrying party members. While this has been met with some criticism regarding the party’s structure and integrity, with commentators worried that “it’s the equivalent of turning your party into one giant Facebook page: Click ‘Like’ and you’re in the club,” it seems this is the point.

Colin Horgan, one of Trudeau’s former speechwriters, explains that Facebook is “literally a treasure trove for political parties”. All kinds of information becomes available – for free; supporters become easier to contact.

It was something the Liberals were already hinting at two years ago when they introduced a ‘supporters’ category to make the party appear more open. Liberal president Anna Gainey also used the word “movement” to describe what the Liberals hope to be.

And yes, they are trying to win over millennials. Which proved to be a good strategy, as a new study shows that Canadians aged 18-25 were a key reason why the Liberals won a majority. Young voter turnout was up by 12 per cent from the last election in 2011; among this age group, 45 per cent voted for the Liberals.

Some interesting questions for European progressives to consider. Of course, some of the newer political parties in Europe have already been experimenting with looser membership structures and less hierarchical ways of engaging, like Podemos’ ‘circles’ in Spain and the Five Star Movement’s ‘liquid democracy’ in Italy.

The British centre-left may be hesitant after its recent fiasco. Labour opened up its leadership primary to ‘supporters’ and ended up with a polarising leader who is extremely popular amongst members, but unpopular amongst the British public. But it would be wrong to assume that the process was to blame.

The better comparison is perhaps to Emmanuel Macron, France’s young economy minister who recently launched his own movement ‘En Marche !’ Moving beyond the traditional party structure, he is attempting to unite ‘right’ and ‘left’ by inspiring French people with an optimistic vision of the future. Time will tell whether this works to engage people in the longer term, or at least until next year’s presidential election.

In any case, European parties could start by asking themselves: What kind of political parties are they? What is the point of them?

Most importantly: What do they want people to think is the point of them?

Ultimately, the Canadian Liberals’ model of success rests on three main pillars:

  1. They unambiguously promote and defend a progressive, open, plural vision of society.
  2. They have a coherent economic plan focused on social justice and economic growth which, most importantly, they are trusted to deliver.
  3. They understand that society has changed – people are more interconnected than ever, relationships are less hierarchical and networks exist online – and they are adapting a once rigid party structure into a looser, open movement to reflect that.

*And as a bonus, a young, charismatic leader doesn’t hurt either.

Claudia Chwalisz is a Senior Policy Researcher at Policy Network, a Crook Public Service Fellow at the University of Sheffield and author of The Populist Signal: Why Politics and Democracy Need to Change