A friend has sent me a copy of an article Will Hutton wrote in 2022 for Prospect Magazine on an assessment of the state of the UK economy after 12 years of Tory-led small-state doctrine, deregulation and low taxation. Early in the article Hutton provides a useful list (in no particular order):
1. Poor productivity;
2. Threadbare welfare services;
3. The menace of predatory finance;
4. Inadequate human capital;
5. Systematic aversion to risk-taking;
6. Paucity of public investment;
7. Carelessness about who owns our national assets;
8. Lack of economic resilience in critical sectors (ranging from energy to water);
9. Overheated property prices;
10. Exit from the EU's single market;
11. Impotent regulatory agencies;
12. Weak business investment.
Two years later, and thus after a full fourteen years of the Conservative "free market" experiment, there seem no reason to alter the list. All the Opposition Tory Party seem to offer now is more of the same - indeed to "double down " on it.
Hutton points out, however, that then (and now?) Keir Starmer's Labour Party "fails to work out feasible practical reforms, [thus] leaving a vacuum."
Later in the article Hutton provides a list of things the UK is still "good at." These are (again in no prearticular order)
1. Pharmaceuticals;
2. Aerospace;
3. Financial and business services;
4. Creative industries;
5. .Beverages (like Scotch whisky);
6. Tech-driven start-ups (around our leading universities.)
This list has some interesting overlaps with one produced by Larry Elliot and discussed in a earlier post. (See https://keynesianliberal.blogspot.com/2024/10/what-are-we-still-good-at-makiing-and.html)
Both the above lists provide useful anchors against which to assess the relevance and likelihood of success of any measure proposed by our still new government.
So far they have expressed an intention to improve the public infrastructure and the political response, supported and amplified by the hugely hostile press, has been to bleat about the the taxes proposed to finance this. We need to move on, recognise the need for higher taxation (preferably on unprotrusive "rent" rather than productive exchanges).
And, as Hutton points out, the longer we resist re-aligning ourselves with our neighbours in Europe, the more difficult we make our return to the ranks of well run, equitable, and efficient first-class nations.
So far they have expressed an intention to improve the public infrastructure and the political response, supported and amplified by the hugely hostile press, has been to bleat about the the taxes proposed to finance this.
ReplyDeleteMainly because the taxes are going to discourage the very growth they are supposed to promote. To go through the list:
1. Poor productivity: productivity is especially poor in the public sector. Labour's response has been to throw money at pay rises with no strings attached requiring productivity increases. This means that public services will continue to be poor, they will just cost more money, ie, productivity will actively decrease.
2. Threadbare welfare services: welfare already takes up far too much of the public spending budget, which is itself too high. We are becoming not so much a country as a health service and a welfare system with a navy (and not much of a navy). We need to recognise that welfare services, while vital, are not the productive part of the economy. If we take the analogy of a company, welfare services would be the admin, finance, HR and It departments: necessary so that the bits which do the real work of the company can function effectively, but not what it's all about. Re need to refocus ourselves away from thinking that the purpose of the economy is to pay for welfare and towards thinking that welfare is only there to support the real economy, and realise that we are currently in the situation of a company which is spending far to much on admin, HR and IT and not leaving anything over to do the actual productive work. The welfare bill needs to be drastically cut.
3. The menace of predatory finance: Not sure what this means.
4. Inadequate human capital: this certainly isn't going to be fixed by increasing taxes so that anyone bright and ambitious has no reason to stay and instead leaves to countries where they can actually keep the fruits of their labours!
5. Systematic aversion to risk-taking: What's the point of taking risks if, when they pay off, the government is just going to take most of the reward in tax?
6. Paucity of public investment: The problem isn't that we don't invest enough in public projects; we invest huge amounts in public projects. We invested billions in HS2. The problem is that we get too little for it, because instead of being spent on actually building things, the billions are spent on environmental impact assessments, and fighting planning appeals. If we had just abolished the requirement for environmental impact assessments, we could have built HS2 for the amount that was already spent on it before it was canned. So no there is no 'paucity of public investment'. What there is is a waste of the money which is put into public investment.
7. Carelessness about who owns our national assets: Again, not sure what is meant by this.
8. Lack of economic resilience in critical sectors (ranging from energy to water): Again, this is more to do with the red tape that prevents things being built than anything else. Take water. We would have no problem with water if the water companies had been allowed to build the reservoirs they have been trying to build for the last twenty years; but they can't because they are stopped by a combination of environmental regulations and planning objections. Or energy: we would be almost self-sufficient in energy if the government had not banned fracking. And there is also a nuclear power station trying to be built that keeps being held up by ridiculous things like having to do studies to prove that the heat of the water outflow won't harm any fish. Get rid of stupid regulations like that and we would have energy and water resilience coming out our ears.
9. Overheated property prices: Again, caused entirely by regulations. Repeal the Town & Country Planning Acts, allow anyone to build anything they want on any land they own, and in a few years there would be a glut of supply and house prices would crash (but this of course is why no government will do it because they would then lose the votes of all the disgruntled home owners who prize assets have slumped in value).
ReplyDelete10. Exit from the EU's single market: hasn't really caused much of a problem, and (if it leads to a decent free trade deal with the USA once Mr Trump is back in power) could even be a net gain.
11. Impotent regulatory agencies: Impotent? They have stopped HS2; they have stopped us becoming energy self-sufficient; they have stopped us building reservoirs; far from being 'impotent', regulatory agencies have strangled the country half to death!
12. Weak business investment: See point 5. Why invest if the government will just take away any return you make in taxes?
We need to move on, recognise the need for higher taxation
No; we need to move on and recognise the need for lower taxation (and a concomitant slashing of the state and public spending).
And, as Hutton points out, the longer we resist re-aligning ourselves with our neighbours in Europe, the more difficult we make our return to the ranks of well run, equitable, and efficient first-class nations.
Germany is political and industrial meltdown; the French economy is about to collapse; the whole EU is heading for a re-run of the Greek Debt Crisis only this time the ECB has no credibility left. And the continent as a whole has been left far far behind the USA in terms of wealth. Whatever 'well-run, first-class nations' are, 'our neighbours in Europe' certainly do not qualify now, if they ever did.
Whew, what can I say? To take your last point first, I think the average citizen of France, Germany Italy, and the Benelux countries, has a rather better physical quality of life than we do
ReplyDeleteI think the average citizen of France, Germany Italy, and the Benelux countries, has a rather better physical quality of life than we do
DeleteCan you cite sources for that claim?
And can you explain, if the citizens of those countries have such high standards of living, why they are so unhappy with their governments? In France M. Macron has now dismally lost two elections in quick succession; in Germany the government is about to collapse and it looks like they will be crushed in the election in the new year.
Why is that the case if life is so good in those countries?
Well. like us they don't recognise that, economically, we have arrived. As Alexander Pope put it, "Man never is, but always to be, blessed." In these transgender days that incudes women.
ReplyDeleteHere are some figures (in order PPP$ income/head; doctors per 10 000,;ditto dentist, to show the UK's relative position:
Germany, $72 000, 45, 8.5;
France, $62 000, 33, 7
UK, $58 000, 32, 4.9
Italy, $52 000, 42, 8.4
58,000
Well. like us they don't recognise that, economically, we have arrived. As Alexander Pope put it, "Man never is, but always to be, blessed."
DeleteWell, that’s true: it would be the most inhuman (in the literal sense, it would make us less than human) thing in the world to stop striving to make our situation better, wouldn’t it? We must never ever accept what we have and must alway, always keep pushing forwards against the limits of the day. That’s how we advance.
Regarding the chart: income-wise it looks like we’re pretty middle-of-the-pack. And all miles behind the USA, so definitely all the European countries are doing something wrong there and we need to be more like America.
Health-wise we know the NHS is rubbish. Note that all the other countries in the chart do do use a massive state-run bureaucracy to provide their healthcare, but instead use various mixtures of public and private provision combined with a compulsory-insurance model. This is a clear sign that if we want to improve our health outcomes we don’t need to spend more money; we need to put the NHS on the scrapheap where it belongs and adopt something like the German (or the Australian, my personal favourite) model. This is one (probably the only) area where I think you’re right and we should learn from our European neighbours (but of course we won’t and so our healthcare outcomes will continue to be terrible even as the NHS wastes a higher and higher proportion of our national wealth)
Sorry read ‘do not use a massive’
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