It is three years since the 2019 General Election, and everything is rubbish. October saw record strikes going back to 2010. Public services are under horrible strain (see Stephen’s piece), and winter has barely begun. You can understand the strikes: private sector pay growth of 7% – still well below inflation – hugely outstrips that in the public sector. As Martin Wolf highlights, passively allowing a policy of 6% real terms public sector pay cuts cannot be smart, can it? Let alone humane.
The private sphere is in no better shape. Unlike our closer European peers, UK employment is still lower than it was before covid. A depressing recession is scheduled for 2023, one of the worst among international peers. Real household disposable income is going to fall at a way-worse-than-recessionary 7% pace in 2 years. This all at the end of a dozen years of indifferent growth or worse.
There’s an entertaining thread on how Johnson and his crew squandered the giant majority they won against Corbyn three years ago. It is not what I wanted to write about, though I concede it is a question of considerable interest, to more than just the disappointed former insiders. Big state liberals like me long ago had to concede that elements of Johnson’s approach were just what we wanted: more investment, wholehearted support for Net Zero, R&D, bombastic noises around regional inequalities (details to follow). But given the personalities involved – an unserious PM, despised by his dominant adviser, leading a party with at best a shallow belief in the state; the politics – a party hellbent on the most destructive, performatively awful Brexit it could find; and the pandemic – the failure of the UK to be on course for radical improvement never felt unlikely.
And that is before the gigantic energy price shock of 2022, which would have set back any government. If 1999 Blair was in charge this year, and Gordon Brown his chancellor with his impending budget surplus, they would still be trailing in the polls. Energy shocks kill governments.
No, to a predictable Remainer like me, it already felt like it had gone wrong long before that election. Put it this way: if you had told me in mid-2018 that four years later the UK would have adopted the hardest possible Brexit, had gone through a pandemic, then seen gas prices spike tenfold, and the prime minister was the former editor of the Spectator, my prediction would be a country in a mess. And I’d have prayed that Matt D’Ancona had somehow strayed into parliament.
What I wonder is how much of the current mess was avoidable, if we go back a decade. What were the worse unforced decisions of the last decade? For while my economic history course trained me to despise “Great Man” explanations, it is an untenable position for politics. You can’t just shrug and say, well, our institutions, geography and culture were just wrong for these challenges. Some ******d has to be to blame – a great Clown theory of Britain’s demise.
Given the right to pick three candidates, these would be mine:
Bad fiscal policy decisions around ten years ago. I am not revisiting the 2010 austerity argument, in particular the question of whether unnecessary austerity immediately after 2010 smothered the recovery. Despite the fact that, before that election, I wrote against the Conservatives’ harsher deficit reduction plan, arguing for something more like Darling’s, and that we did indeed undergo what felt like an economic slowdown from late 2010 onwards.
But that slowdown was massively overdetermined. Banks were deleveraging, the Eurozone was going into an existential crisis, oil prices shot up post Arab Spring, the US had a debt-standoff, and UK fiscal policy was a bit contractionary. Could we have grown more? Maybe. We were certainly in a position of weak aggregate demand, and rates were falling. Running a higher deficit may not have killed us, Kwarteng-style. But monetary policy still had traction, employment was rising. Reasonable people may disagree!
No, my complaint is way more basic. We kept cutting taxes rather than preserving fiscal firepower for public services in the future. We need that fiscal firepower. Even after that economic slowdown landed in the forecasts, and the forecast deficit for 2015 rose from nothing (Nov 2010) to £60bn (March 2013) we carried on raising the Personal Allowance by additional amounts, to a total current cost of over £7bn. An employment allowance was introduced to incentivize the hiring of staff (despite that being just about the only part of the economy that worked): current cost, £2bn? Corporation tax was cut: cost, many billions, now being reversed. And this is before I get onto all the fuel duty freezes, the way we prevented councils from raising money, and budget day gimmicks. The political failure was a simple one: to pretend to the public that they can have the services they need, with a regular diet of budget day tax gifts too. Today’s public sector problems, no matter how much they were triggered by Putin, are exacerbated by that simple, sustained failure of leadership.
The second failure is the most obvious. The Brexit “we chose” has made us much less productive as a country. As the FT puts it, the impact has been “substantially negative”(if you are in the 5% of this blog’s readership that believes Brexit was a fine idea, then rephrase this as “substantially failed to seize wonderful opportunities”). It has hit productivity, trade openness, investment, pretty much every key micro-variable of value. Here is my own chart of business investment from my report on the same. Investment forecasts suffered two hits: one when the votes were counted, a second when the deal was negotiated.
How much stronger we might now be depends on what counterfactual game you want to play. If it is the “no Brexit” version, the 2016 vote going another way, then our economy would right now be stronger and more productive, and the OBR’s forecasts for future growth would have settled around 5% higher than they are. Call it £120bn, and £50bn more tax revenues. The pound would likely be stronger too, so real energy prices would not be such a burden. If we are just arguing about the kind of Brexit that the politics of the Conservative Party and Johnson’s instincts brought about, then maybe the avoidable error is half of that. Who knows.
I know it is very boring to go on about it. But when you actually think about the numbers, what is weird is how little we do.
The final error is more of a niche interest of mine. We never made and stuck to the right industrial strategy choice. That simple choice was to have one, to commit to the broad goals it was always going to have, and not constantly faff around. There is a LOT to do to fix the UK economy. Investment is too weak. Our energy supply is rickety, particularly baseline nuclear provision, but smarter people than I am would add complicated investments in the grid too. We haven’t got the home insulation industry we need. We are struggling to land sufficient battery production capacity to keep our auto industry going post the EV revolution. We have no plan for creating a high-quality, well-rewarded social care workforce, which we will definitely need. We don’t make enough of our excellence at life sciences, or the asset that is the NHS. All of these could only have been improved had we just been grown up about the need for some kind of industrial strategy framework, and kept to it. It doesn’t matter precisely what it is, what combination of sectors, missions or challenges – just anything that involved institutional and political commitment would have done!
Instead, we lurched: Mandelson’s beginnings were killed, then Vince Cable got it going, Sajid Javid killed that, Greg Clark revitalised it, the new crew of BEIS ministers neglected or abandoned it, and now there may be new beginnings again. Name any obvious big frustration- such as the UK not having a pipeline of nuclear capacity coming along – and it would have had a better chance of being solved, had governments just not persistently messed around in this area, had instead empowered BIS or BEIS, insulated the small monies involved from Treasury grabs, and stuck at it.
Those are my three. Had we done better in those three areas, I happen to think the Chancellor might have £50bn or so more to ease today’s difficulties. We could have better income protection against the energy shock, affordable investment incentives, and better-rewarded public servants, nurses, doctors and firemen. It would not have fixed every problem – goodness knows I have no idea what to do to reform the NHS, fix the railways, or any number of other problems. But things did not have to be this rubbish. And that is a reason to be optimistic. If bad policy choices led us here, there are better ones we can make in future.
Freethinking Economist 
£50bn? Is that it? We spent £1tr on QE, £400bn on Covid and maybe £80bn on energy cap, but your big regret would give us £50bn more firepower?
Was kinda hoping you’d focus on the big numbers.