Growth, growth, growth: thanks, but no thanks.
The Labour government says it now has an overriding economic objective: growth; growth; growth. The crude logic is obvious enough: rising tides lift all boats; the bigger the pie the easier it is to give everyone a decent helping. Public services can be improved without unpopular taxes. All good.
An obvious question is: what do they mean by growth? At present, there is a debate about how to stimulate the economy: its progress being monitored by provisional GDP data on a short-term, quarterly, or even monthly, basis. Our over-excited media give the impression that the beleaguered government is on a life support system and its survival hangs by a thread. The fact that there was no growth in the last quarter spells disaster. There is serious discussion of sacking an intelligent and economically literate Chancellor for this ‘failure’.
It is nonsensical to think of the economy in this way. Not only are the numbers flaky and frequently revised. And not only do they fail to capture other important indicators of well-being. They are also very short-term. The bigger picture is that the British economy grew at about 2.5% a year on average in the post-war period until 2008 pretty much regardless of the party in power. Since then, the trend has been nearer to 1% a year as we have been hit by successive shocks: the financial crisis; Brexit; Covid; the Ukraine war. Shocks have made economic stewardship more difficult by adding to the pile of government debt. The respected National Institute (NIESR) sees 1% growth as the new trend. With good luck and good management that might stretch to 1.5%. That won’t lift many boats.
The Labour government persuaded itself that it can return Britain to the optimism and – in UK terms- rapid growth of the Blair years. It foolishly believed its own propaganda that the slow-down in the economy since 2008 could be explained by the ‘austerity’, debt- and deficit-reducing, policies of the Coalition and the incompetence of its Conservative successors. Hence a return to ‘sensible’ Labour government would get Britain back on to the earlier trend growth with lots more money for the NHS and other public services and for workers and their families. It hasn’t. It won’t. The government has probably made matters worse by dampening the already depressed ‘animal spirits’ of business through the hike in employers’ NI and the proposed package of new workers’ rights.
I have spelt out the political consequences in earlier notes. Even if the government survives in office due to splits on the political right, the inevitable consequence is a loss of trust in politics and politicians. The ultimate beneficiaries are the political predators who feed off disillusionment and anger. We had a sight of them last year in the anti-immigrant riots with people who make Nigel Farage seem like a gentle pussycat. Smart operators like Elon Musk know exactly how to tickle the tummies of more feral felines.
We all, not just Labour, need to frame political choices in a more adult way: promising less and delivering more in office. That means confronting the public with uncomfortable truths and trade-offs. A starting point is to recognise that, as the writer Janan Ganesh discussed on Jan 14 in a brilliant piece for the Financial Times, the British public want growth, and the fruits of growth, but not all that much.
The government has helped to clarify the choices by asking all the main regulatory bodies to come up with proposals to regulate less in the interests of growth. But the uncomfortable truth is that when regulators suppress growth it is because the alternatives are worse (or, rather, are politically unpalatable). Ofwat for example could undoubtedly unleash investment in the water industry to reduce the appalling amounts of sewage polluting our rivers, lakes and seaside. But it would involve a highly unpopular lifting of the cap on water rates. The Environment Agency is blamed for favouring bats and newts over new houses. But the price of growth - getting more houses built - could well involve turning a blind eye to development on flood plains or in locations lacking water supplies and basic infrastructure. I was myself party, as a youthful Glasgow councillor in the early 1970’s, to high speed, large scale social house-building, some of which soon became uninhabitable and had to be demolished.
The media and communications regulator Ofcom could help the Royal Mail to invest and expand if it ditched the universal service obligation to deliver post to farms and remote communities or charge them more. We could undoubtedly attract more investment from rapidly growing social media companies and oligarchs like Musk and Zuckerberg (and their Chinese equivalents) if growth were prioritised over on-line safety and fair competition. Giving free rein to on-line child pornography, hate speech and other nasties in the interests of freedom of choice and ‘free speech’- and growth - would undoubtedly boost that bit of the economy.
And then there are our successful life sciences industries who face regulatory barriers to growth. They face restrictions on what, for example, they can do with human embryos and cloning research or how much they can use data from clinical trials because of privacy concerns. Our successful financial services industry is inhibited by money laundering regulations (as the minister responsible has just discovered). The banks are straining at the leash to weaken the regulations around ‘ring-fencing’ the casinos (investment banks) which were at the heart of the financial crisis. Mortgage lenders currently want to lift regulations which inhibit another unsustainable house price boom: all in the cause of more growth.
Arguments about growth versus regulation are not new. One of my tasks in the Coalition was to preside over ‘deregulation’ where I earned my reputation as an ‘anti-business’ Business Secretary by dragging my heels. I could see that weakening fire regulations wasn’t a great idea. And I drew the line at letting employers fire their workers at will. I particularly enjoyed teasing my more libertarian Tory colleagues by pointing out that the biggest and most costly regulatory burdens on business came from immigration controls. I still don’t see too many advocates of deregulation on the political right clamouring for a bonfire of immigration controls and a return to the EU Single Market.
I simplify of course. A few modest, sensible ideas are emerging from the review of regulators. But the bigger point is that these regulators are not just bureaucratic obstacles to growth, but agencies set up by successive governments to satisfy the public’s appetite for safety, stability, fairness and protecting the quality of life. In high growth countries escaping from poverty like India and Vietnam, or happy to put up with the rough edges of capitalism like the USA, the trade-offs will be different. But the British public isn’t in either place. It is the duty of politicians to be honest with those promising to speed up growth by cutting corners: thank you, but no thank you.
Sir Vince Cable is a former Secretary of State for Business, and led the Liberal Democrats from 2017-19.
