In this discussion with CEME Senior Research Fellow John Kroencke, Andrew Haldane discusses his view that economic growth is a failed lodestar for policy, presents the case for increasing opportunity for those at a disadvantage, and considers the problems with British public finance.

This is the first entry in our Conversations with CEME Series which features a member of CEME in conversation with a leading voice from economics, business, policy, and faith communities to grapple with these defining challenges of our time. Through conversations with experts who approach these issues from diverse perspectives, we aim to explore not just the technical dimensions of our current predicament, but the deeper questions about purpose, meaning, and values that lie at its heart. In an era in which purely economic solutions seem insufficient, these discussions seek to illuminate new pathways forward that acknowledge both the practical constraints we face and the moral imperatives that must guide our response.

The edited transcript follows the introduction to the guest.

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About Andrew Haldane 

 

Andrew Haldane was the Chief Executive of the Royal Society of Arts (RSA) until June 2025.

He was formerly Chief Economist at the Bank of England and a member of the Bank’s Monetary Policy Committee. He was the Permanent Secretary for Levelling Up at the Cabinet Office from September 2021 to March 2022.

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Transcript of Discussion

This transcript was edited to make points by both speakers clearer. It has been approved by both.

John Kroencke: To start us off, Tyler Cowen has this phrase: The Great Forgetting.

What he’s getting at when he talks about it is how people, including economists, have forgotten many of the kinds of insights of basic economics and even the major findings of the last 40 or 50 years. This is even more true of people who discuss policy in newspapers and don’t even introduce the basics of the standard Economics 101 response to a policy proposal or the findings of the literature.

Do you agree with that point of view? Has your opinion changed on the importance of basic economics as a rule of thumb?

Andy Haldane: I don’t know about a great forgetting. There’s been, a narrowing, I think, with, maybe to some extent, parts of economics forgetting its roots in moral philosophy – and therefore, an underemphasis of the social part in social science, and insufficient thinking about how other social sciences, psychology, sociology, anthropology, might bear upon their discipline.

I think the profession is now trying to integrate more of those insights into mainstream thinking, and policy. We’re not there yet, but there’s a growing acknowledgement the narrowing went too far, the mathematization of the subject went too far and the distance from real human behavior meant that we had traveled too far. Some of that is a fair critique and has been, at least in part, responded to.

KROENCKE: I would imagine political economy constraints would be relevant as well; that is, how politics is practiced by politicians, and this disconnect between the literature and idealized policy responses, and the real politics involved.

HALDANE: And the role of politics and institutions generally. Institutions have sort of been taken out the equation in terms of how we think about economies, yet we know institutions, both political and non-political, are foundational to economic success.

Elements of other of the social sciences are finding their way back into the economic mainstream. As I say, the kind of engineering approach to economics, perhaps draws excessively on insights from the natural sciences and insufficiently on insights from other social sciences and the arts and humanities.

KROENCKE: One thing that keeps recurring is this kind of discussion about how focused policy is on growth and whether growth per se is the primary goal of economic policy. In recent years, you’ve had this spread of kind of ‘growth, yes, but only of a certain sort’ thinking. So, things like ‘sustainable growth’ or ‘inclusive growth’ or any of these other types of constructs.

In response to this, Paul Johnson of the Institute for Fiscal Studies had this piece, a couple weeks ago, basically saying that people should focus on the core of economic growth and the social benefits that result from growth instead of only focusing on certain types of growth. Did you read that piece or have any thoughts on that?

HALDANE: I didn’t read Paul’s piece, unfortunately, but I can see what he was getting at.

I mean for, for me, growth, whether at the national or individual level, is at best an imperfect proxy of what we should be seeking when it comes to public policy. Longer, larger lives, are for me, what it’s all about. Longer in the sense of remaining healthy, which is foundational, to living a good life, and larger in terms of the opportunity set available to you.

We can’t, and shouldn’t seek to equalize outcomes, but we absolutely should seek, to equalize and open up opportunities to people. We know that is foundational to wellbeing and happiness. We furnish people with the best opportunities to flourish and whether they do so, of course, is in part down to them.

But that for me is the objective of public policy and of a good life which is related to growth but is not umbilically tied to growth. So, this is not a question of what particular flavor of growth: ‘Is it sustainable?’ or ‘Is it inclusive for me?’ For me that’s the wrong question, because while that might make it a less imperfect measure, it misses the bigger point, which is there that it isn’t the right end objective for a good society.

KROENCKE: What would you say about people who push back on the secondary concerns in the UK context, where the level of income per capita is much lower and the economic growth has been much lower than in the US since the financial crisis.

If I were to put this forward it would be something like: we’ve seen a widening gap between Europe and US, and whereas they might say in the US that on the margin growth is less important and it’s all these other things decaying that we should worry about, in the UK, on the other hand, incomes especially outside London are far lower, and growth is still the primary thing. So, while growth may be a proxy for all of those things we care about, it is the feature that is most relevant for improving the lives of Brits and overcoming the state’s fiscal challenges.

HALDANE: The comparison of the US and UK underscores my point: one of the reasons the US has done relatively better in growth terms is because it widens the opportunity set for many people. It provides a longer, stronger ladder than much of Europe.

That has provided dynamism to the US economy and enabled it to grow. But equally, for all the reasons you say, we know that the US has not been a singular success on that front because there are many people for whom the ladder hasn’t become longer and stronger.

That’s the issue of rising inequality or stasis in living standards. Both need to be addressed. The US is an example of the importance of what I say in terms of both in explaining what’s gone right there: strong growth – and what’s gone wrong: too few opportunities for those in the lower half of the distribution.

KROENCKE: In terms of setting out how we think about policy in the abstract, often the focus is either enabling growth, or on correcting market failures. The basic premise is: ‘this is the problem with leaving it to the market and here’s how the state can address it.’

Do you think the market failure aspect has been lost in recent years as myriad policies get proposed to achieve disparate ends, but the theoretical rationale or justification for the policy is hazy?

HALDANE: I don’t know about lost. I think it’s too narrow of a lens through which to view the case for public policy and action. Let me give a couple of examples of that to make it concrete.

Some problems we face are not just existing markets not working as we wish. They’re more a case of markets being missing completely. This isn’t a friction in the market, it’s the absence of a market.

When it comes to, say, tackling environmental and biodiversity challenges. The markets for dealing with that are largely either fledgling or absent. Even if you take something more basic, like the market for education, for many people, especially those on the lowest rungs of the ladder, that I mentioned before, they have been excluded from that market: it’s missing for them individually. I think missing markets are as important as failing ones.

Also, this binary distinction between what is done by the market and by the state, with the state stepping in when the market’s failing, is too simplistic, too binary a view of the way the world works. The greatest leaps forward, for humankind have tended to come from some partnership – not  just between the state and the market, but between the state and the market and the key third pillar as Ragu Rajan called it, which is civil society in its many various forms.

The magic happens when the three of those, the public sector, the private sector and what’s sometimes called the third sector, but I wouldn’t call it that because it’s definitely not third on my list, join hands and operate in partnership to get stuff done.

The problem when they don’t is not a market failure because there isn’t a market for that per se. It’s not a market issue; it’s a cooperation and coordination issue between private actors, public actors, and civil society actors. When they’re able to coordinate and play their respective roles, society tends to thrive. When we come to overly rely on one or another of those three, society struggles.

So, to cast this as just ‘more market’ or ‘more state’ risks missing out the third pillar, civil society, which is the civilizing force on the first two. It’s the moral compass of the first two. It’s the societal glue that binds together the first two.

So, I have a different mental model in my head when I think about who the key actors are and the balance between them and the reason why they need to cooperate, and it’s the model I’ve just outlined.

KROENCKE: Do you think the history of civil society in the UK, especially in the 19th century, is just kind of out of mind in the popular imagination?

Obviously, as you know, the UK during that time was one place in which these kinds of strong networks and civil society institutions were acting in many domains, in part because the state wasn’t as large. To some extent in the US, we still find this with faith-based community organizations and other civic non-profits are being quite active in social welfare work.

HALDANE: Civil society, despite being the third pillar or the third sector, is the one that has always been there. Communities are what makes humans, human. They are intrinsic to us as individuals, as social animals, and preceded by many, many hundreds of thousands of years anything that looked at all like the state or government or private enterprise. They are the DNA of societies, despite them operating often very atomistically and quite invisibly, which is why they’re often written out the script a little bit.

What our economies and societies are missing is a stronger third pillar to help coordinate and keep on the path of righteousness, both private sector actors, who do good things but can also do bad ones, and government – which is in the same position.

KROENCKE: Obviously the fiscal environment in the UK but also across the world has deteriorated and there are further stresses forecast in terms of demography and projected demands on government funds. Some people think the third sector can step in more on things that local authorities have done. I saw a recent case discussed by Archie Hall, the writer at The Economist where he was talking about how in Devon or somewhere, a local authority stopped mowing a verge, and people are attempting to take care of it themselves, but they are running into different sorts of, difficulties. For example, they have to get certain certifications and these kinds of things. This is obviously one anecdote but is this kind of thing one reason why we don’t see the third sector stepping in as much? Are there these things that need to be done and people willing to help out but who, if you make it a chore, don’t want to go through that hassle?

HALDANE: I think two things. I think there are some things the state does currently that in the past definitely and arguably, but more questionably, today might be better done at the community or civil society level. That would be, the case for a more selective, degree of state involvement in some activities.

On the flip side there is some risk in saying that: a risk that this becomes a convenient vehicle for governments to step back and hope someone fills the gap they left. That was among the reasons why, when we last had a conversation about this issue in the UK, which is probably the time of the conservative government in 2010, David Cameron, the then Prime Minister’s Big Society idea that foundered on these rocks. It was because on the one hand he was saying we want a bigger role for civil society – that was the big bit – but on the other, he was simultaneously cutting the state back sharply due to austerity. Those two things jarred, and people rightly or wrong put the two together and said: this is an unworthy reason to support civil society. It’s your safety net for austerity.

So, I think there’s a balance between those to be struck.

KROENCKE: One of your themes through the RSA is Robert Putnam’s work on social capital and social connectivity. Within this there is a mix of longstanding trends since the middle of the last century and recent kind of trends in terms of technology and the atomization of social lives.

Where do you see that work going? What tangible things do you hope to learn and what ideas about potential responses do you hope to see in five years?

HALDANE: I think we already know ample about the importance of social connections and social cohesion. We know enough about the foundational role of social capital to know that we’ve got a problem that needs a solution.

The evidence since Bob’s work is compelling, about the foundational importance of connections, cohesion and capital for nurturing individual, community and national flourishing. The key next bit on which we’ve made far less progress is, of course, doing something about it to turn the tide.

I think what we need, and I’ve written a bit about this, is the sort of radical rethink and reformation of social policy on a scale equivalent to what occurred in economic policy during the Great Depression. We need social capital and cohesion running as a golden thread through every aspect of public policy – from how we design our education systems from the earliest of years, right through into universities and colleges so that those aspects are designed in rather than, as now, designed out. Actually, most of our educational infrastructure is socially stratifying rather than socially connecting and cohesive.

You need to do that in the workplace and in the design of our cities and transport systems. We need to do it in how we think about homeland security in its many various forms. We need to do it in how we think about our communications, both mainstream and social media. There actually are very few aspects of public policy, which is essentially about how people get together, that wouldn’t benefit from this lens.

When it comes to design, the key is to design it into systems from the get-go rather than have it designed out, as is too often the case now. That’s a radical program of reform, and one that is needed for our times. Unless and until you tackle the social capital crisis, you are building an economy on shifting and unstable societal sands, and this is something that our politics is telling us.

KROENCKE: When you say design, I would imagine what you have in mind is design that also enables nested communities to control their own things with the principle of subsidiarity as part of that design process, rather than everything being done by the central state.

HALDANE: This can only be done at the level of local or hyper-local communities. The patterns of cohesion and connections are themselves hyper-local. You have communities often, typically even, sitting next to each other, but not talking to each other.

There’s no way national government could bring the precision surgery necessary to fuse those communities together. It needs local leaders and by local leaders, I don’t necessarily mean local government. This may be a role better played by local civil society organizations.

One of the great bonding agents, and one of the great neglected areas of public policy are institutions that serve as bonding agents for communities You mentioned faith-based groups, which are very important in the States. Here, sports, leisure and cultural activities play a crucial role in bringing people together. We think of those as ‘nice-to-haves’, but they’re actually foundational to a good life because they’re foundational to social connections and a thriving economy.

KROENCKE: One thing I find interesting in the UK is that local authorities’ fiscal attention is increasingly only focused on statutory duties imposed by the central government. So, you have council taxes going up, but by the maximum rate they’re allowed to go up to, because of social care and other duties, which there’s no real public finance reason to have dealt with by the local authority.

It seems like this problem hasn’t been taken care of because the general governance at the local level can’t evolve to focus on things best done at the local level. Do you think there’s any way out of this? First, do you agree with that analysis? Second, is there any way out of this situation such that local governance can be improved, and local communities can flourish?

HALDANE: Yes, it’s the short answer to your questions, John. it’s understandable why local authorities were given a relatively narrow set of statutory duties that they had to fulfil.

But, one, that is too narrow a set of objectives to make for good communities; and two, it inhibits the flexibility of local leaders to make different choices. I mentioned those bits of social infrastructure that are so important to communities. One consequence of them not being in such objectives is that they’ve taken the hit as local authority budgets have tightened up. People have prioritized by statute, social care and bin collection – and the library’s gone, the museum’s gone, green space has gone in a way that has taken the legs out of many communities in a very fundamental way. That was a big mistake.

How do you remedy that? One way is to cast statutory objectives in a broader way. We’ve suggested that local leaders be given the flexibility including financial flexibility to make the choices they think are most appropriate to their area, which is not currently done.

It has been mooted with single financial settlements for mayoral combined authorities, and that’s directionally right. It remains to be seen whether that will give local leaders the flexibility they need to make the choices they think local citizens crave. We need, a real letting go, of both the purse strings and apron strings by central government, allowing local government to do its job and make choices in the interests of local people.

KROENCKE: You had a recent piece looking at Treasury Brain. As an American, I’m used to a system where a percentage of the property value is taxed every year, and that money often goes mostly to the local authorities. They use this to provide various services like schools and police. In the UK, various aspects of that are just completely wrong, and have been for a long time. Instead, there is a relatively small council tax to pay for services and a transaction tax on property sales (stamp duty).

And if we look at stamp duty, it’s an inefficient way to raise revenue. It stops productive economic decisions from being made. But my understanding is that the Treasury is one of the biggest proponents of stamp duty in the sense that it is a reliable source of income and therefore it’s difficult to get rid of despite harming economic efficiency.

Do you think there’s hope of reforming the tax system to enable these types of things to happen?

HALDANE: I hope so. I think it’s going be difficult to reconcile the fiscal arithmetic without coming back to the question of whether our tax system is fit for purpose. Are we taxing too much? Too little? Are we taxing appropriately the different sources of income? Do those tax powers reside at the right level?

My strongly held view is that some tax powers ought to reside at the local level, as would be common, well, in pretty much every country on the planet, to be honest. Very few of them currently do in the UK and that’s part of the devolution agenda that’s hardly got any mileage at all, but ought to have – not least for reasons of accountability. If local leaders have extra spending powers, they should be held to account, by having to raise the money themselves for the local activities they take on and to justify to the local electorate why they’re raising taxes to justify their spending.

That’s a good incentive to keep local leaders honest. There are areas of taxation where the system is crazy. Property is the craziest, where we have a tax on transactions, which most people would argue it is a very efficient way of earning money if you’re the treasury but has a chilling effect on the housing market.

There’s a real inefficiency, which is unhelpful, because moving jobs and houses often go together. So, it is mostly a tax on housing transactions, but actually it is a practice that ends up translating into a tax on job moves. A tax on job moves is a tax on pay because the way you boost your pay is by moving job. And then of course there’s council tax – and that is one of the most egregiously regressive taxes. It’s impossible to justify actually: no one can defend council taxes as currently configured. It’s totally mad – and not just the failure to update to account for price inflation over the last20 years or so, but the very principle behind it is all at sea. So, I think that’s known and that’s been known a long time. Anyone who has thought about it for more than five minutes would tell you that something based on land values would make much more sense, but what is needed is the political will to make that happen, given that it would involve half the population being worse off.

KROENCKE: We’re just in a bad equilibrium that we’ve trapped ourselves into.

HALDANE:  A bad equilibrium and the longer we leave it, the harder it is to escape.

KROENCKE: And on the trap for high marginal tax rates facing people at around £100,000, it’s only getting worse now that thresholds have been frozen, and more people are falling into this category. So, a lot of fiscal traps with dynamic consequences are just getting worse, because of the fiscal problems the country is facing.

Just before we end, I don’t want to miss asking you about leveling up and regional inequality – if you could first set out why you think it’s important and then go into the international comparisons and lessons we can learn from other, countries.

HALDANE: Yes, it’s important. The case is partly economic, because there’s lots of untapped potential opportunity in places. This is untapped opportunity that would make for longer, larger lives, for many more people. There’s a deadweight economic cost from not doing that.

The case is equally well made on social justice grounds. It is unjust to be not offering people in those places, who but for their geography would have, the opportunity to rise and shine. So, for me, this is partly an economic case, but as importantly, a moral one, a social justice one about what makes a good society.

Equal equality of opportunity for everyone plainly isn’t the case right now. Many people are held back by their history. In other words, they’re born into a poor family. Many people are held back by their geography or where they’re born.

And of course, many are doubly damned because they’re a poor person growing up in a poor community and therefore, they’ve faced the double barrier of both history and geography. We need to do a better job of lowering those boundaries in the UK. We are holding back our potential of individuals, communities, and the country as a whole.

The UK disparities are larger than elsewhere, which makes the case even stronger. The barriers are even higher here, so the public policy case for lowering them is even greater.

Ultimately this is down to the holy trinity of people, powers and monies. Local areas need more of all three: they need the powers to be marked with their own destiny; they need more money to make good use of those powers; and they need local leaders in government, civil society and the private sector who can use those powers and monies to drive the opportunity.

That is the recipe from elsewhere. It’s a recipe book. We haven’t fully followed in the UK yet.

KROENCKE: I have two questions on inflation given your long role at the Bank of England. Firstly, why did central banks miss the potential for inflation? Secondly, why did markets miss the potential for inflation?

HALDANE: It’s the same reason for both. I think it does boil down to where you started, which is the Great Forgetting.

The financial crisis 15 years ago happened for a bunch of reasons, but one important reason was that the last person who’d experienced a global financial crisis had left the room. I think the same is true of the inflation we’ve had recently; the last person who’d experienced inflation had left the room.

That was a Great Forgetting and a Great Myopia. We’re prisoners of our past experience. That was among the reasons we missed it this time, both in the private sector and the central bank community.

KROENCKE: Do you think markets are not looking seriously enough at the threat to central bank independence in the US?

Trump at various points says things, then rolls them back. It seems some of that risk has gone away, but can we be certain?

HALDANE: My general sense is that central banks got it wrong, on inflation and that that puts them in a more perilous position than they have been for a couple of decades when it comes to independence.

I do think that puts them in jeopardy to a degree. The discipline effect of markets recently demonstrated in the US will give politicians cause for pause. It will take more than one inflation miss to turn the tide in independence in a significant way.

KROENCKE: Someone like Maurice Glasman, who also spoke at the event with Brian Griffiths where you spoke, or other figures, might view this as markets acting anti-democratically and against the people because of this restraining effect on a democratically elected person. Do you think there’s another side to that argument, perhaps in terms of this being a case of markets stopping someone from doing something that’s going cause economic harm?

HALDANE: Well, Maurice is a great friend and ally, but it is certainly a questionable proposition about whether any one politician at any time could ever be said to be acting according to the democratic will of the people. That is the sort of thing that autocrats say all the time.

I think we’d be careful about using that kind of argument as a justification for, any act and financial markets are a democracy too. Just a different cohort. And so obviously are those at the ballot box. They’re equally important in keeping us on the right track.