The confluence of events in the last few years have done no wonders for the economic performance of any country, but the longer-term performance of the British economy in the wake of the financial crisis is even more worrying. With the prospect of a sustained fall in real disposable income due to general inflation and, in particular, the severe rise in energy prices, the importance of renewed economic growth is only clearer. Indeed, we need to be clear that economic growth is a moral imperative. A growing economy is essential to the welfare and well-being of the whole nation, enabling all to flourish. Naturally, there will be political debate over the means and extent of the distribution or redistribution of the proceeds of growth, but the case for economic growth in principle needs to be made again and with clarity.
As Sam Ashworth Hayes argues by some measures the average employee earnings in the UK have never recovered since the financial crisis and won’t until at least 2027. One can debate the statistics but the fact that it is even debatable speaks volumes about recent economic performance. Other figures like the historic levels of taxation and the predicted steady rise in government spending in part due to demographic burdens only add to worries about the future.
It is easier to wish than to will, of course, but a clearly articulated vision for growth rather than managed decline or intentional degrowth is at the heart of a moral vision for the economy. With the defenestration of Boris, whose magical thinking applied to both national and personal finances, there are some signs of serious interest in economic growth by all the leadership candidates. Perhaps the most interesting was the now eliminated Kemi Badenoch who in her announcement said some interesting things about governing and economic performance in this context, one of which I reproduce below:
“Lower taxes yes, but to boost growth and productivity, and accompanied by tight spending discipline”.
The part I have italicized is important because it suggests an escape from both the more ideological support of all tax cuts and bean-counting pessimism; deregulation and tax cuts in support of growth and within a fiscal discipline is a responsible position. Stian Westlake, also in the Spectator, situates the more pessimistic attitude in the unique institution of the Treasury which combines budgetary, financial, and economic policymaking, unlike similar institutions in other countries where these roles are split among government agencies. As Westlake writes:
“The accountant mindset goes hand-in-hand with a historic pessimism about the government’s ability to improve the UK’s economic growth. The Treasury’s prior is that tax cuts, deregulation, public investment and other policy changes can do little to increase the UK’s rate of economic growth. Better the bird-in-the-hand of the tax increase or the spending cut today than the two-in-the-bush of higher national income.”
As a result of a similar assessment, Badenoch suggested splitting up the Treasury and creating a new office to focus on improving economic growth to in order to weaken the role of the Chancellor whose incentive for the accountant mindset “creates,” as Westlake writes, “a sort of learned helplessness in the rest of Whitehall that ends up costing the taxpayer more.”
One hopes that candidates for the highest office in the land will reflect seriously on the opportunities for growth rather than simply continuing on with high spending, high tax and middling economic outcomes. Rishi Sunak, in his Mais Lecture suggests interest in reviving economic growth through some policy levers, but as Philip Salter wrote at the time there needs to be more work into the details (a point that applies to all candidates). The former Chancellor recently wrote that, “my ambition is that the UK should become by far the richest country in Europe within the next 15 years” before highlighting three areas of policy divergence with the EU that Brexit allows and that may enable growth.
It is a shame that it took the current situation to revive talk of economic growth, but thankfully arguments for economic growth are becoming more prominent among all plausible major candidates in the next general election (including Keir Starmer who recently said not only that “Labour will fight the next election on economic growth” but that “the first line of the first page of our offer will be about wealth creation”). Strange times, indeed. Of course, there are a great deal of hard-to-solve problems related to economic growth, but it is at least inspiring that there is more consensus about the major issue.
In a follow up blog post, I will address the crucial role of housing markets in contributing to the problem of poor economic performance (and their role in improving future economic performance).
John Kroencke is a Research Fellow at the Centre for Enterprise, Markets and Ethics. For more information about John please click here.