Five ideas that could actually boost growth in the UK

Last week I argued that economic growth is important and that increasing the rate of growth is an admirable goal for any politician. I also complained that Liz Truss and Kwasi Kwarteng didn’t seem to know how to handle it. Tax cuts for the rich, a crude perpetual subsidy on energy spending, all in the face of rising inflation. . . it was always a half-baked plan, not made palatable by liberally dosing it with wishful thinking.

It’s easy to criticize, especially when you’re criticizing this couple, but there was one important realization amidst all their hubris and recklessness: growth matters. The UK economy has been plagued by more than a decade of stagnation and if policies could be found that would boost the rate of growth even into the quarter century before the global financial crisis, it would solve many of our fundamental economic problems.

So what could be done? One way is to downsize the state and leave more room for private enterprise. That sounds good to some, but Kwarteng’s “mini-budget” only belied that goal. Tax cuts don’t shrink the state; make spending cuts. If the government is just borrowing money to lower taxes, the private sector knows the bill will eventually fall.

In recent years there have been a number of serious attempts to think about what it would take to boost the UK’s growth rate. One of these was the Growth Commission of the London School of Economics, which a comprehensive review in 2012. LSE economists recently partnered with the Resolution Foundation to create a report under the auspices of The Economy 2030 Inquiry. At the risk of being seduced by the flattery of economic orthodoxy, inquisitive readers might be curious to hear some of the recommendations.

1. Improving the skills of the British people with a particular focus on improving schools.
   That sounds good, but the balance sheet over the past 12 years is not exactly encouraging. Free schools were introduced in 2011 and according to the Education Policy Institute, were not convincing at primary level, although they did better at secondary level. That is the good news. The bad news is that school spending has declined in real terms since 2010. UK spending on education also depends on private sector spending unlikely to improve the skills of the most disadvantaged.

2. Improve the UK’s infrastructure and create an independent body with the power to advise Parliament and compensate those lost to new developments.
   Here, too, the balance sheet is mixed. A National Infrastructure Commission was established in 2015, but it is not independent and has been reduced to warning the government against making “vague promises”. Speaking of vague promises, I recently wrote about the Transpennine railway and how years of vacillation have resulted in delays, wasted money and ultimately a heavily discounted plan. Londoners can at least enjoy the Elizabeth Line, but London is hardly the source of Britain’s growth woes.

3. promoting innovation.
   Britain’s world-class universities were once thought to have produced a number of invaluable breakthroughs, but these breakthroughs have often not been commercialized due to a lack of funding for risky ventures. That was frustrating enough, but now the question is whether these world-class universities can continue to weather the Brexit-induced headwinds, which are making it harder to recruit teachers from the EU and threatening to damage the UK’s scientific research community largely excluded from the EU – admired the funding program Horizon Europe. The UK has access to Horizon in principle; in practice it has fallen victim to disputes over the Northern Ireland Protocol.

4. encourage business investment.
   Business investment in the UK is much lower than in the US, but also much lower than in Germany or France, countries with much higher tax burdens. Could it be that Britain’s chronically poor investment isn’t simply a reaction to high taxes? Kwarteng is right about looking at ways in the tax system to encourage business investment, but he might also consider one thing businesses value even more than tax cuts: political and economic stability. Great Britain has not been able to offer that in the last 15 years.

5. Think of Net Zero as an opportunity to drive growth and create quality jobs.
   Insulating the UK’s aging housing stock would have been excellent preparation for a brutal winter and a source of skilled construction jobs. Unfortunately, the rate of home insulation has been falling since 2012. And the Net Zero project seems to have few champions in Liz Truss who says there are few sights more depressing than fields full of solar panels.

You may think that none of these valuable ideas will really solve Britain’s growth problem, and you may be right. You don’t just increase the long-term growth rate of an economy. But it might be worth trying some of them. There are certainly worse ideas to boost growth; look around

Tim Harford’s new book isHow to summarize the world‘

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