Statecraft without statism: governing for shared prosperity in an age of austerity

The task is to seek material gains through a new, less transactional politics.

Whoever governs from 2015 will have to do more than repair the public finances, as tough as that will be. If shared growth is to be saved, an incoming administration will need to be radically reformist at the same time. This will mean fixing the structural failures that caused living standards to falter for all but the richest before 2008, restoring the three conditions of shared growth: fuller employment, a strong link from productivity to pay, and a sustainable welfare system for families. It will mean little less than re-crafting the state for new times.

Consider fuller employment. Simply returning the UK to a pre-crisis employment rate requires 850,000 more jobs. Even if the UK now emulates the strongest sustainable period of employment growth in the past 20 years –the late-1990s jobs boom – this will take until late 2016. We will not come close to this without steady growth.

But fuller employment won’t flow from growth alone. It will also require reform. The UK population aged 65 and over is growing twice as fast as the population aged 16–64, meaning unprecedented employment among over 65s is needed to stand still. And with soaring childcare costs undermining incentives to work, parents as well as older workers will need more support if people are to move into the new jobs we create.

What about productivity and pay? Anaemic demand has caused an unprecedented collapse in real wages and spikes in job insecurity. But around one in five UK workers were already paid below £7.50 an hour before 2008, trapped in sluggish swathes of our jobs market that have expanded over time. Meanwhile, the link from productivity to pay has eroded; only 18 per cent of pre-tax income now goes to the entire bottom half while 10 per cent goes to the top 1 per cent. None of this will change until growth returns.

But just as with employment, growth won’t be enough. Addressing low pay will require reform. In a society that is older, more unequal and increasingly online, the growth sectors of the future aren’t just hi-tech knowledge industries that create well-paid jobs but also low paying industries like social care, hospitality and logistics. The UK’s skills system and the structures in our jobs market don’t encourage good quality versions of these jobs. They need an overhaul.

Finally, what about welfare? How will families with children keep up with childless households as growth returns? No level of employment or wage growth can fulfil this function. Assuming that we don’t want to send children out to work, the task of sharing growth with larger households is necessarily one for the tax and benefit system – it’s one reason that tools like Child Benefit were created.

The squeeze on these forms of support is unlikely to end until growth returns. But even once a recovery takes hold, no-one seriously believes that today’s approach to family support is a sustainable settlement. In 2015, the UK will be left with two illogically separate systems of means-tested child support, Child Benefit and Universal Credit. Meanwhile, the coalition’s cuts work mainly by freezing and squeezing support rather than re-sculpting it. No party has yet set out which parts of the system should be protected or extended and which will need to be run down over time. Such decisions will be needed if the system is to be made sustainable.

So, ambitious reform is needed to save shared growth. How can this be delivered when there’s no money? One thing is clear: the answer can’t be to use the same approach as the last government, when so many major reforms relied heavily on a growing spending envelope, whether through large pay hikes for GPs’ extended opening hours, vast capital spending for early academies, or simply funding reductions in child poverty without contentious cuts elsewhere. Next time around, there won’t be money to oil the wheels.

In thinking about how to drive reform without money, a useful place to start is Jon Cruddas’s recent critique of New Labour’s statecraft. He argues that New Labour became managerial and bureaucratic, focusing overwhelmingly on material goals that under-emphasised culture, community and family and also became pre-occupied with state remedies. The result was a transactional approach to social problems like child poverty that had some major successes, for example, raising 1.1 million children above the poverty line, but that was also both too reliant on new spending, and too liable to lead to change with shallow roots.

The call for a richer, deeper statecraft – both less purely materialist and less instinctively statist – is a useful one when thinking about a post-2015 agenda on living standards. But it has both strengths and weaknesses. On the one hand, it must be right that shared growth won’t be saved unless progressives break away from a cold arithmetic of cash transfers and distributional charts to argue for more structural reforms. On the other hand, by far the greatest challenge we now face is a material one of falling living standards. Now is hardly the time to retreat into a post-materialist politics of pubs, patriotism and parks.

So the task is to seek material gains through a new, less transactional politics, obsessing less with static charts of winners and losers and more with economic empowerment through reform, embracing an instinct to spread power in the market. That means rejecting power hoarding in the central state, including policy solutions that see poverty reduction as something done for people rather than with them, and shifting away from cash transfers towards structural reforms like investment in pro-employment public services and the institutions in which they are provided.

What could that mean in practice? On employment, the priorities are services that give individuals and families more freedom to boost their own incomes through work, like childcare and elderly care, and fully functional re-employment and support services for older workers as extensive as traditional job search services are today.

What about pay? A minimalist approach of ‘skills supply plus a minimum wage’ has proven a grossly inadequate response to the modern challenge of low-wage labour. A fuller response would make the Low Pay Commission worthy of its name with a broader, more strategic remit, advising the government on how to reduce the extent of low pay and assessing the ‘affordable wage’ that major sectors could pay without employment effects. This would need to be backed with stronger sectoral institutions to address the coordination failures that stop UK employers from investing in skills, and particularly long-term training relationships with young people. It will also require detailed work to raise demand for skills – for example, through the greater use of occupational licences.

The long-term view must be grounded in a recognition that shared growth depends as much on reform as on recovery. Broad-based real income growth won’t return until its three foundation stones – fuller employment, a stronger link from productivity and pay, and a sustainable welfare system for families – are back in place. Achieving this in the austere environment of the next parliament will require a new way of governing. It is a no less material agenda than those pursued by progressives in the past. But it will need a richer, more confident and less statist approach to reform than the last government, requiring a statecraft that is appropriate for new times.

 

James Plunkett is director of policy at the Resolution Foundation. He writes in a personal capacity.

A fuller version of this article first appeared in the February issue of Juncture.

Jon Cruddas, the head of Labour's policy review, has criticised the last government for becoming too managerial and bureaucratic. Photograph: Getty Images.

James Plunkett is director of policy and development at the Resolution Foundation

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North Yorkshire has approved the UK’s first fracking tests in five years. What does this mean?

Is fracking the answer to the UK's energy future? Or a serious risk to the environment?

Shale gas operation has been approved in North Yorkshire, the first since a ban introduced after two minor earthquakes in 2011 were shown to be caused by fracking in the area. On Tuesday night, after two days of heated debate, North Yorkshire councillors finally granted an application to frack in the North York Moors National Park.

The vote by the Tory-dominated council was passed by seven votes to four, and sets an important precedent for the scores of other applications still awaiting decision across the country. It also gives a much-needed boost to David Cameron’s 2014 promise to “go all out for shale”. But with regional authorities pitted against local communities, and national government in dispute with global NGOs, what is the wider verdict on the industry?

What is fracking?

Fracking, or “hydraulic fracturing”, is the extraction of shale gas from deep underground. A mixture of water, sand and chemicals is pumped into the earth at such high pressure that it literally fractures the rocks and releases the gas trapped inside.

Opponents claim that the side effects include earthquakes, polluted ground water, and noise and traffic pollution. The image the industry would least like you to associate with the process is this clip of a man setting fire to a running tap, from the 2010 US documentary Gasland

Advocates dispute the above criticisms, and instead argue that shale gas extraction will create jobs, help the UK transition to a carbon-neutral world, reduce reliance on imports and boost tax revenues.

So do these claims stands up? Let’s take each in turn...

Will it create jobs? Yes, but mostly in the short-term.

Industry experts imply that job creation in the UK could reflect that seen in the US, while the medium-sized production company Cuadrilla claims that shale gas production would create 1,700 jobs in Lancashire alone.

But claims about employment may be exaggerated. A US study overseen by Penn State University showed that only one in seven of the jobs projected in an industry forecast actually materialised. In the UK, a Friends of the Earth report contends that the majority of jobs to be created by fracking in Lancashire would only be short-term – with under 200 surviving the initial construction burst.

Environmentalists, in contrast, point to evidence that green energy creates more jobs than similar-sized fossil fuel investments.  And it’s not just climate campaigners who don’t buy the employment promise. Trade union members also have their doubts. Ian Gallagher, Secretary of Blackburn and District Trade Unions Council, told Friends of the Earth that: “Investment in the areas identified by the Million Climate Jobs Campaign [...] is a far more certain way of addressing both climate change and economic growth than drilling for shale gas.”

Will it deliver cleaner energy? Not as completely as renewables would.

America’s “shale revolution” has been credited with reversing the country’s reliance on dirty coal and helping them lead the world in carbon-emissions reduction. Thanks to the relatively low carbon dioxide content of natural gas (emitting half the amount of coal to generate the same amount of electricity), fracking helped the US reduce its annual emissions of carbon dioxide by 556 million metric tons between 2007 and 2014. Banning it, advocates argue, would “immediately increase the use of coal”.

Yet a new report from the Royal Society for the Protection of Birds (previously known for its opposition to wind farm applications), has laid out a number of ways that the UK government can meet its target of 80 per cent emissions reduction by 2050 without necessarily introducing fracking and without harming the natural world. Renewable, home-produced, energy, they argue, could in theory cover the UK’s energy needs three times over. They’ve even included some handy maps:


Map of UK land available for renewable technologies. Source: RSPB’s 2050 Energy Vision.

Will it deliver secure energy? Yes, up to a point.

For energy to be “sustainable” it also has to be secure; it has to be available on demand and not threatened by international upheaval. Gas-fired “peaking” plants can be used to even-out input into the electricity grid when the sun doesn’t shine or the wind is not so blowy. The government thus claims that natural gas is an essential part of the UK’s future “energy mix”, which, if produced domestically through fracking, will also free us from reliance on imports tarnished by volatile Russian politics.

But, time is running out. Recent analysis by Carbon Brief suggests that we only have five years left of current CO2 emission levels before we blow the carbon budget and risk breaching the climate’s crucial 1.5°C tipping point. Whichever energy choices we make now need to starting brining down the carbon over-spend immediately.

Will it help stablise the wider economy? Yes, but not forever.

With so many “Yes, buts...” in the above list, you might wonder why the government is still pressing so hard for fracking’s expansion? Part of the answer may lie in their vested interest in supporting the wider industry.

Tax revenues from UK oil and gas generate a large portion of the government’s income. In 2013-14, the revenue from license fees, petroleum revenue tax, corporation tax and the supplementary charge accounted for nearly £5bn of UK exchequer receipts. The Treasury cannot afford to lose these, as evidenced in the last budget when George Osborne further subsidied North Sea oil operations through increased tax breaks.

The more that the Conservatives support the industry, the more they can tax it. In 2012 DECC said it wanted to “guarantee... every last economic drop of oil and gas is produced for the benefit of the UK”. This sentiment was repeated yesterday by energy minister Andrea Leadsom, when she welcomed the North Yorkshire decision and described fracking as a “fantastic opportunity”.

Dependence on finite domestic fuel reserves, however, is not a long-term economic solution. Not least because they will either run out or force us to exceed international emissions treaties: “Pensions already have enough stranded assets as they are,” says Danielle Pafford from 350.org.

Is it worth it? Most European countries have decided it’s not.

There is currently no commercial shale-gas drilling in Europe. Sustained protests against the industry in Romania, combined with poor exploration results, have already caused energy giant Chevron to pull out of the country. Total has also abandonned explorations in Denmark, Poland is being referred to the European Court of Justice for failing to adequately assess fracking’s impact, and, in Germany, brewers have launched special bottle-caps with the slogan “Nein! Zu Fracking” to warn against the threat to their water supply.

Back in the UK, the government's latest survey of public attitudes to fracking found that 44 per cent neither supported nor opposed the practice, but also that opinion is gradually shifting out of favour. If the government doesn't come up with arguments that hold water soon, it seems likely that the UK's fracking future could still be blasted apart.

India Bourke is the New Statesman's editorial assistant.