The days of the great state are back. The plans announced by Rishi Sunak last week mean public expenditure as a percentage of the economy is on its way to reaching levels not seen since the Thatcherite revolution was about to begin in the late 1970s. The followers of the Iron Lady have kittens to the prospect.
It is worth saying that the economy has changed dramatically over the past four decades, with the manufacturing sector accounting for a much smaller share of national output and the service sector growing in importance. Since the 1980s, the UK has had a large and persistent trade deficit in goods, only partially offset by a surplus in services.
The relative decline in manufacturing has meant that the economy has produced less greenhouse gases, but that doesn’t give the big picture, as Britain has outsourced its carbon emissions to other parts of the world. world. Coal factories and mines have closed in the UK but have opened in China.
Britain’s biggest cities have been able to reinvent themselves as hubs for the retail, leisure and hospitality industries, but cities on the outskirts of built-up areas have not been so lucky. There has been a shift in the economic geography of the country which has allowed some places to thrive while leaving others far behind.
The notion of ramping up is not new. Governments have been aware of regional imbalances for decades and have tried various methods to regenerate communities where basic industry – be it coal, shipbuilding, cotton or steel – is in decline. In the first decade of the 21st century, Labor governments recycled the tax revenues of a booming city into regional aid, but when the financial crash happened, the money taps were turned off by David Cameron and George Osborne.
This has left a problem for the current generation of Conservatives. Deep discontent in parts of Britain that felt left out contributed to the Brexit vote and the loss of the ‘red wall’ from Labor, but now those who supported Boris Johnson – first in the referendum of 2016 and again in the 2019 general election – expect the government to deliver.
To do so, Johnson and his ministers must repudiate much of what happened in the 2010s. Last week’s budget, which announced real funding increases for every department in Whitehall, was one of them. example.
Sunak said additional funding for education would allow per-student spending to return to 2010 levels by 2024, coming close to saying Osborne’s cuts were not a good idea. Likewise, spending on the early childhood provision tacitly admitted that getting rid of Labor’s Sure Start program was a mistake.
But as Paul Johnson, director of the Institute for Fiscal Studies has pointed out, the increase in education spending by 2024 will be 2% per year on average, compared to 4% per year for health. Over the 15 years from 2010 to 2024, the comparison is even more striking: education spending up 3% after adjusting for inflation, and health spending up more than 40%.
âThe fact that the Chancellor saw fit to draw attention to the fact that per pupil spending in schools will have returned to 2010 levels by 2024 is perhaps a statement of a remarkable lack of prioritization. to the education system since 2010 â Johnson said. âA decade and a half without spending growth despite, although tasteless, economic growth is unprecedented. Spending per student in higher education and sixth-year colleges will remain well below 2010 levels. This is not a set of priorities that seems consistent with a long-term growth strategy. Or even level up.
In truth, Boris Johnson’s Tories have become something of a hybrid: a large state party in favor of an active industrial strategy with a low-tax, market-oriented party. It’s a messy compromise, and one that makes life much easier for those who are less in conflict over their support for a more interventionist economic approach.
A brochure to be released this week by the campaign group Rebuilding Britain, calling for measures to strengthen the manufacturing sector, illustrates this point. Unsurprisingly for a body from the anti-EU union group, he sees Brexit as an opportunity rather than a threat, but his argument that a more prosperous economy requires a stronger industrial base would be supported not only by leavers , but also by many remaining as well.
Policy recommendations include a more competitive pound, a UK buying strategy, greater investment in skills and technical training, increased state aid with a strong regional bias, and an expansion of public ownership starting with steel.
It would be easier for ministers to see all of this as a throwback to the ‘bad old days of the 1970s’ if much of the Rebuild Britain agenda was not already part of the current policy mix. The fall in the value of the pound sterling since 2016 has made UK exports cheaper; the Chancellor admitted that the UK is lagging behind other countries in terms of skills; the Prime Minister announced over the summer new state aid laws to replace EU rules on taxpayer-funded bailouts and business support; and the railways are again under state control.
Sunak is clearly uncomfortable with all of this and wants a different direction of travel. But the tax cuts in the budget were small compared to spending increases and tax hikes announced earlier this year. The impact of the Chancellor’s favorite project – free ports – will be tiny compared to the increased role of the state prompted by demographics, climate change, the pandemic and past political failures.
Rebuild Britain isn’t the first lobby group to feel the way the wind blows. It is unlikely that this will be the last.