The stated aim of the Government is to boost economic growth through investment while maintaining a sound economy by bearing down on other forms of spending to keep within fiscal rules. This is intended to allow us to grow out of our difficulties by generating enough income to gradually reduce the debt burden and generate the revenue to improve living standards in the medium term.
The assumption is that higher economic growth requires a tight focus on higher investment including public investment. After 15 years of neglect of all public services this assumption is clearly wrong. The most valuable public infrastructure in any country is the infrastructure that already exists. That is why it was built first. In the UK, public infrastructure is crumbling through years of neglect, and is performing poorly due to inadequate operating funds and insufficient and poorly trained staff. The biggest impact on growth will come by remedying those problems. This will have a much quicker and more visible impact than grandiose investments that will take years to complete. It involves providing a substantial real increase in funding for local government. It also requires a shelving of the hugely disruptive reform of local Government structure that is currently planned, and that is a major distraction at a time when local authorities are in acute financial distress. We also need action to address the expensive legacy of Tory privatisation of natural monopolies in water, energy and transport.

The Government appears to think of private sector growth in terms of big firms investing huge amounts in mega projects. The kind of growth that will happen more quickly and will transform more lives is about unlocking the potential of millions of people through practical improvements in local infrastructure and in the incentives to work and to invest.

The benefit system for example at present places obstacles in the way of people wishing to work or to work longer hours, and actually encourages people to stay on disability benefits for fear that any work they take might prove temporary. If the work doesn’t last, they are exposed to debt, uncertainty and the risk of extreme poverty while waiting for benefits to be reinstated.

Spending more money to alleviate poverty and raise living standards is not only good because it improves lives but will also have a positive impact on economic growth. Unlike the wealthy who currently benefit from unnecessary tax breaks, the less well off actually spend their income, and they spend more of it locally. Transfers of cash to people who need it help to support hundreds of thousands of local businesses providing shops and services in their local area, and providing employment at a fraction of the cost of larger scale enterprises. Because it is spent, and spent locally, a larger share of the expenditure will flow back to the treasury in revenue from VAT, national insurance and income taxes.

This more local approach to raising the economic growth rate can also support the innovation and investment in new technologies that Government is keen to see. Entrepreneurs want to live and therefore invest in a pleasant and peaceful country with well maintained roads, good education and health services, pleasant parks and libraries and museums. They want access to a skilled workforce- which means allowing our universities to continue welcoming foreign students and researchers as well as a more relaxed attitude to immigration and allowing our young people to travel freely. It would help if we also committed wholeheartedly to a closer relationship with Europe- with the aim of eventually rejoining.

Where is the money for higher spending in these areas to come from? I think there’s scope for reducing the investment spending ambitions. The more ambitious large scale projects could be postponed with little short term harm. It seems absurd for a country as strapped for cash as we are to be discussing new runways at Heathrow and major investments in nuclear power. Whatever the rationale, these will not deliver in a time frame we should be discussing when the population is faced with so many short term problems. There’s definitely scope for altering the tax system in ways that place more of the burden on the better off. This needs to focus on taxation of capital and reforming the financing of local Government.

We should also be very wary of calls for us to spend more money that we don’t have on totally unproductive defence spending. The MOD has a long and inglorious history of spending huge amounts of money on kit that proves to be ludicrously expensive and entirely redundant for the tasks they are required to undertake. Our Governments in recent years have also shown an unpleasant tendency to use lethal force against civilians and often in conflicts for which there’s no public support. Continuing to sell arms to genocidal Israel is just the latest example where we are clearly on the wrong side. The idea of spending further billions on nuclear weapons is particularly obnoxious. We should resist calls for more defence spending, and slow down any response we are forced to make. We don’t need it, can’t afford it. Trump (and probably Putin) will be gone long before it makes any difference.
In summary: let’s have a more efficient and equitable tax system, and focus our spending on fixing up what already exists and on alleviating the suffering of so many in our population. This will not only improve living standards more quickly, it will also be a more effective way to generate the GDP growth that Government says it wants.

Turning to the debt and the consequent

The Guardian leader on 30 th January rightly says that Ms Reeves approach lacks ‘compassion or moral purpose.’ This is because it confuses means with ends. GDP growth only matters if it makes life better- a point also made by the heckler quoted by Aditya Chakraborti’s piece in the same edition (‘That’s your bloody GDP. Not ours.’)

The short term goals of Labour economic policy should be to improve the living standards of those who are struggling, and to rebuild our public services. The medium term goal should be to build a society and economy in which improvement in living standards and in public services is continuous and sustainable- environmentally and economically.

The two short term goals require a lot more money than Labour currently plans to spend, and a significant change in how it is raised. The current proposals, partly inherited from the previous government, include an increase in taxation paid by those on relatively low incomes and a decline in the real value of benefits. 

Raising the revenue needed without further harming those who are already struggling requires abandoning the foolish commitment not to use the most efficient and equitable methods of raising more revenue. We need income and corporation tax increases, a serious effort to end the over generous treatment of capital gains, and a reform of our property taxes.

It will be argued that a big, redistributive tax package to fund public expenditure increases and increased welfare provision will discourage private investment, and might reduce overall GDP growth. However, it also puts a lot more money in the pockets of people in every region of the country, people who will spend that money locally. That will boost ‘our  bloody GDP’, rather than further inflating the London economy. Untangling means from ends, it may be worth trading off a a slightly slower economic growth rate for a better distribution of that growth across the country.

There is also an argument that a large tax hike now to fund fundamental improvements would be preferable to a timid reform that leaves the economy struggling into the indefinite future with a mountain of debt, sluggish growth, terrible public services, collapsing infrastructure and stagnant living standards. Our tax burden is high by UK standards, but is still far short of some successful European countries. The private sector might be persuaded that bold measures today will create a better environment for future investment than the endless dreary trudge set out by the Government.

Two complementary measures would make a positive private sector response more likely. The first is an unequivocal commitment to a close relationship with the EU, preferably  including a commitment to seek to rejoin the single market. This is the one measure that would unequivocally deliver the increase in economic growth that the Government wants to see. The second is increased financial support to enable local authorities to provide the services they are required to, preferably combined with far less interference in how they spend it. Local people are those best placed to decide how best to use limited resources. 

My final point is that this agenda is hard enough, and the Government needs to stop inventing new and challenging tasks that are costly and difficult and do not contribute to the main goals. This is not the time to ask local authorities or Government Departments to plan for major re-organisation and reform. It is definitely not the time to embark on discussions about a third London Heathrow runway that will not see aircraft flying until long after this Government has departed. 

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