Make no mistake; Friday’s mini-Budget was a bombshell, upending the economic policy landscape upon which our livelihoods depend and the next election will be fought. It is a huge political and fiscal gamble. It is also incompatible with the idea of levelling up. Left unchallenged, the populist, ‘common-sense’ appeal to unleash business and incentivise wealth creation could reframe our politics for the next decade. Instead of growth, the implicit assault on public services is a plan for stagnation and permanent productivity malaise.
The idea is to deregulate, cut taxes and thereby stimulate growth, quick. By government standing back, business will be able to step forward further and fast. The chancellor makes no apologies for cutting taxes for the rich. Indeed, he makes it a virtue – a means to reward work, enterprise and foster innovation.
The mini-Budget was a deliberate start in weaning of the public off the language and expectations of levelling-up. So there were a few cursory nods, mostly to manage the media response and make the break with levelling up – and thereby the 2019 election mandate - a non-story.
Yet investment in infrastructure is always welcome, as is the promise of reforms to childcare on childcare, due later in the year, designed to make it easier for working families. It is not yet clear whether this will amount to more investment so we eagerly await the detail; previous CPP research found that 46% of women would work more hours if they had better access to affordable, flexible childcare.
But will new investment flood into new low-tax investment zones? A history of Enterprise Zones shows there is little evidence to suggest this. What will happen to communities whose jobs are relocated to these other places? Will this approach lead to a raft of new places feeling left behind?
The strength of feeling that led so many to vote Tory for the first time in 2019 – the feeling that that they and their community were not benefiting from economic growth and prosperity – should not be underestimated. The deep-seated inequalities that the levelling up agenda sought to address are about to get deeper still. New research by CPP reveals the places that will be hit hardest by rising costs: post-industrial towns in the North and Midlands, rural areas across England and coastal places are all at significantly greater risk of poverty and hardship this winter. 71% of former Red Wall areas are identified as in the most vulnerable 25% of places.
Only by addressing these inequalities can we move to a more productive approach that will deliver tangible change for the people and places battered by rising living costs. Yet the chancellor’s statement made ‘redistribution’ the enemy. Instead of being a platform to attract foreign and domestic private sector investment, spending on public services is presented as the route of the problem. Instead of being a platform to drive productivity of people and places across the UK, and thereby raise the national trend rate of inclusive growth and prosperity, it is a drain on the business dynamism of our economy.
Yet that’s not what I’m hearing from business leaders. There might be elements of the fiscal statement they support, whether that’s scrapping the cap on bankers’ bonuses or other pledges to incentivise investment. But none of the measures were top of their priority list. Businesses want a stable macroeconomic environment and high quality public services that mean their people want to live and work in the UK. Firms want access to a pool of skilled labour on their doorstep, not to worry – as so many are already – about how to bus in staff hours away to cope with labour shortages.
For politicians who says they want to smash economic orthodoxies, it is strange that Liz Truss and Kwasi Kwarteng revere the most pernicious of them all. If we’ve learned anything over recent decades, it’s that growth doesn’t benefit everyone by default. Trickle-down economics does not work. Making the rich richer has not generated prosperity for all. In fact even having a job in the UK is no longer a guarantee against poverty and hardship when over two thirds of households living in poverty are also in work. Liz Truss and Kwasi Kwarteng are right to say that our economic model is broken. But they reach back into the past for solutions that have been shown to fail, and, unless their gamble for growth pays off, we’re looking at stringent public service cuts from 2024/25.
Truss models herself on Thatcher, but Thatcher’s faith in trickle-down economics accelerated inequalities within and between the regions of the country so much so that they are still holding back UK productivity some forty years later. Although few said so explicitly – least of all in the Conservative Party – Boris Johnson’s levelling-up agenda was essentially an attempt to reverse the damage caused by Thatcherism.
The new prime minister and her chancellor want a ‘new era for a new Britain’. It is a fine slogan, that oddly isn’t too far from Blair’s pre-’97 ‘New Labour, New Britain'. But as this and the revival of trickle-down economics shows, political memories can be short. Redistribution isn’t the enemy, it is a sign our economy isn’t working for families and communities. We need a long term plan for inclusive growth built on productivity-enhancing investment in public services and infrastructure across the country. Don’t be fooled by anything else.