Back to the Past or towards Silicon Valley UK? The Autumn Statement and the Overlooked Inclusive Pathway to Prosperity and a Sustainable UK Future
The last few months of British politics have seen the rise and demise of ‘Trussonmics’. Today’s Autumn Statement is a return to the past rather than a vision for the future. Like all Autumn Statements the criticisms commenced before it was delivered. This includes the tensions between raising taxes and facilitating economic growth combined with concerns that spending cuts will undermine the quality of public service provision.
The Truss mini-budget shocked the country and the finance markets, but there were no shocks with this Autumn Statement as the ground work had been put in place by ministers over the last few weeks. Part of this groundwork has involved reacting to emerging political flashpoints, including pensions and benefits and adapting the plan, for example with pensions and benefits to rise by 10.1% from next April. One of the problems with this Autumn Statement can be traced back to the Truss mini-budget. This Statement’s focus has been too much on reassuring foreign markets and investors at the expense of developing a strategy that would reflect the longer-term interests of the British people.
There is a missing narrative to the Autumn Statement, and this concerns the question of – what type of socioeconomy does the UK desire? In other words, what is the direction of travel and how is the UK government going to encourage a reshaping of the country’s socio-economy to meet this vision? The problem is that all political parties need to endorse this vision as without cross-party agreement the outcome is a country that is pulled between competing visions. The Autumn Statement’s vision is partly about transforming Britain into the next Silicon Valley, but this is not a pathway to inclusive sustainable economic growth. There are conflicting narratives here.
The UK vision could be for a society with high quality public services, a balanced national budget and then the level of taxation required to support this and underpinned by strategies and frameworks that support wealth creation by companies and entrepreneurs. This is not the vision set out in this Autumn Statement. This is perhaps a utopian vision.
An alternative approach is to balance the quality and provision of public services with a level of taxation that is deemed to be politically acceptable to some, but not to all. This is about tax rises combined with a reduction in public service expenditure. This seems to be the vision behind this Autumn Statement. This comes with some perverse consequences. Thus, freezing personal allowance thresholds at a time of rapid inflation will reduce household incomes resulting in reduced consumption that will dampen economic growth resulting in job destruction. This approach to taxation then provides a ‘positive’ feedback loop to enhancing recessionary pressures and reducing inflationary pressures.
Another version of this vision could come with expected productivity enhancements in public service provision based on spending less but obtaining better outcomes. The UK has an extremely poor track record for public service productivity enhancements, but there are some exceptions. The NHS will spend any funding that it is allocated, but there will always be problems with service delivery. There can never be enough funding given the current NHS service delivery model combined with the social care crisis. Protecting the health budget in this Autumn Statement is excellent politics but does nothing to create the type of health service that this country deserves and requires.
There is a major tension that sits as an undercurrent in all budgets based around the relationship between taxation, public service provision and economic performance including growth. This is a tension between the wider framework conditions that underpin, support, and encourage economic growth nationally and taxation rates. A government cannot separate its approach to taxation and expenditure on public services from its approach to supporting economic growth. Thus, large tax rises combined with reductions in public spending will act as a drag on economic performance. The government is a major procurer of private sector services and goods, and any reduction in its expenditure will be reflected in job losses.
Another tension is between political approaches that emphasise an economy that works for working people and one that acknowledges the importance of an approach that works for job creators and job takers. The focus needs to be on job creators and facilitating responsible job creators. One of the Autumn Statement’s mantras is about economic growth combined with productivity enhancement. This is the pot of gold at the end of every government’s rainbow. The problem is that facilitating economic growth requires a co-ordinated long-term strategy based around education, skills, infrastructure provision, regulations, fiscal, monetary, and supply-side policies, combined with a focus on enhancing the quality of everyday living across the UK. This is exceptionally difficult as it requires the development of an over-arching framework within which adaptations and improvisions to events can occur. This is a proactive and reactive approach and is not something that can be planned in a few weeks.
This is about developing a society that encourages and supports economic growth from below. This includes encouraging, supporting, and rewarding entrepreneurship and new firm formation. Every school, every educational provider, should be part of the pathway towards facilitating new firm formation and the creation of job makers as well as job takers. Small and medium-sized enterprises (SMEs) are major job creators and there is a tendency for government to focus their attention too much on larger corporations. The Autumn Statement acknowledges the importance of education, but the plan is for more discussion combined with an increase in school budgets. Nevertheless, this increase in school budgets will not cover the costs of school inflationary pressures with this increase best defined as a strategy based on running backwards.
A country that takes economic performance seriously is one that tries to reduce uncertainty and enhance certainty for job creators of all types. This includes a stable and predictable approach to taxation as well as a focus on energy security and trying to minimise energy volatility. Too many SMEs and larger firms are being badly impacted – even destroyed – by soaring energy prices combined with the problem of hard-to-fill vacancies and an educational system that is still not as closely aligned as it should be to supporting the future of wealth creation across the UK. The roots of this energy volatility lie in government inactivity that can be traced back over three decades as Labour and Conservative governments kicked the energy problem further down the road and failed to develop an energy infrastructure suitable for this century.
Hunt stressed the importance of energy efficiency, but this comes at a cost. Thus, hospitals, schools and even government departments will have to spend hundreds of millions of pounds – billions – on energy efficiency, and most schools and hospitals will be unable to afford the upfront capital costs. Government should create a loan fund to cover the costs of this investment by public service providers with payback based on energy savings. The payback for this type of energy efficiency investment can be around three to four years given current energy prices. This type of initiative would ease some of the impacts of school inflationary pressures.
All will label this Autumn Statement as a return to austerity and the media and political debate will focus on government cuts and tax rises. This is unfortunate as the debate needs to revolve around facilitating a diverse economy with multiple pathways open to all to support everyday living. One of Hunt’s ambitions is to convert Britain into the next Silicon Valley, but this is an ambition held by most governments. Governments are unbelievably bad at picking winners and should focus instead on creating a society that celebrates and supports entrepreneurship, and all involved in job creating activities. It is these job creating activities that are then taxed to support public service provision. Thus, all budgets should focus on reality rather than austerity with reality defined around developing, maintaining, and enhancing inclusive pathways to prosperity – to job creation, but framed around a concern for encouraging responsible business.
By John R. Bryson, Professor of Enterprise & Economic Geography, Birmingham Business School