Restoring economic growth after a long period of stagnation is a key part of the solution for the UK’s many social challenges, including struggling schools, poor health and rising child poverty. The government’s coming choices on taxes, public spending and investment will be crucial.
Growth, poverty and what policy-makers should do about them were central themes for day two of this year’s Bristol Festival of Economics.
Sparking growth
The first session was a discussion with the authors of two recent books about economic growth. The first – Growth: a Reckoning by Daniel Susskind, an economist and philosopher at the London School of Economics – takes a critical look at growth and asks how it can be made more equitable, for both people and the planet. The second book – Great Britain? How We Get Our Future Back – is authored by Torsten Bell, formerly of the Resolution Foundation and now Labour MP for Swansea West. The authors were quizzed by Ruth Badru, an economist at the University of Bristol.
Torsten kicked off the discussion by asking for a show of hands if anyone in the audience thought ‘things in Britain today are going great’. No one obliged. Asked whether they thought things were going badly, nearly all in the auditorium raised their hands. Torsten said that nationally representative surveys find that 75% think that the country is going in the wrong direction. If Britain is indeed struggling, there have been few better diagnoses of its ills than those provided by Torsten and his colleagues at the Resolution Foundation.
His book says that Britain’s woes are principally affected by two things. First, inequality, which became entrenched in the country in the 1980s. Second, low growth since the global financial crisis of 2007-09. As a result, the UK has gone from level-pegging with other rich countries to under-performing its usual peers: Australia, Canada, France, Germany and the Netherlands. And if you are in a British household at the lower end of the income distribution, you are now about £8,000 a year poorer than your peer-group equivalent.
Daniel’s book provides a similar diagnosis of Britain’s ills, but is more cautious about the ability of growth to produce fruits across the income spectrum. Inequality, he argues, imposes lots of costs, and the government could get plenty of growth with measures that help to reduce it. He also worries about the cost of growth to the planet and its natural resources. This was a point to which Torsten objected, as GDP has largely decoupled from greenhouse gas emissions, ‘it’s no longer the industrial revolution’, he quipped.
Torsten struck an optimistic tone. He is after all a politician now (the book, he claims, is unusually honest because it was written before he was elected). Years of under-performance mean that Britain has plenty of ‘catch-up potential’ but the country should avoid knee-jerk approaches, such as boosterism (‘things aren’t that bad’); remainerism (‘rejoin the European Union (EU)’); utopianism (‘go big or go home’) or fatalism (‘nothing can be fixed’).
Catching-up entails making good decisions of course, but which ones? Torsten’s advice is ‘don’t do stupid stuff’. Just how effective that is as a constraining force on policy-makers remains to be seen. Making good policy is rarely a choice between two options, one labelled ‘don’t touch this with a barge pole’ and ‘boosts growth with a free lunch’.
Yet good stuff that previous governments have done to increase growth and boost household incomes can be remarkably simple. Torsten cited the minimum wage and auto-enrolment into pensions as two recent examples.
Infrastructure is another. Britain hasn’t built a new reservoir since 1992 despite adding ten million to the population. As a result, there’s been a loss of state capacity to execute big infrastructure projects (such as HS2). In recent years the ‘infrastructure theory of everything’ as a means to fix Britain’s ills has become voguish in policy circles. But Daniel is sceptical: he placed more emphasis on technological progress and innovation to get Britain out of its rut.
Poverty and education
Just why growth matters so much was put into sharp focus during the second session, which explored child poverty, poor diets and educational outcomes.
Christine Farquharson (Institute for Fiscal Studies, IFS) pointed out that child poverty increased from 27% to 30% in the 12 years to 2022. Today that means that 4.3 million children live in poor homes. Tackling poverty is hard enough when households are flush, but it becomes very tricky when money is tight.
Just how constrained local authority budgets are was expounded by Hannah Woodhouse, the executive director for children and education at Bristol City Council. Around 30% of the city’s school children are on free school meals; the city is spending an extraordinary amount on residential placements for children; and it is trying to improve both attendance and behaviour by providing services such as wrap-around care.
The audience also heard a voice from the coalface of education. Matthew Poulson head teacher of Barton Hill Academy, a primary school in Bristol, said that too many ‘kids are living in chaos’. He noted that their poor physical health means that they often cannot properly take part in physical education.
Matthew’s school provides every child with breakfast, which has resulted in a better classroom environment. Christine echoed that point from her research with the IFS: hungry children do not learn, resulting in disruptive classrooms and worse outcomes for everyone in the class. Unsurprisingly, the panel welcomed the new government’s commitment to provide free breakfast clubs in every primary school.
The panel also noted the persistent effects of the Covid-19 pandemic on educational outcomes. These were particularly pronounced among children who missed their reception years (aged 4-6) or the transition from primary to secondary school (aged 10-12). Those children tend to have both poorer attendance and disciplinary records than other cohorts. A room full of economists should know the value of nudges and incentives, but they may have been surprised to hear that some schools that Matthew knows are offering pupils new bicycles or dress-down Fridays in return for a perfect attendance record.
The discussion turned to the looming budget on 30 October and what the government might do to improve educational outcomes. As well as the shock of a pandemic, a ‘demographic bulge’ of children is making its way through the education system meaning that overall pupil numbers are soon to peak. This might mean that there could be more funding in the system, but the panel agreed that projections about classroom numbers are very uncertain. Hannah explained that in some cities, this might mean closing some primary schools or consolidating classes.
New government
As the new Labour government approached its 100th day in power, a panel chaired by Richard Davies (director of the Economics Observatory) was assembled to discuss how it has performed so far.
Gavin Kelly (Resolution Foundation), who spent a decade advising politicians in Whitehall, said that although the ‘100 days concept’ is an American import, the first few months of government do matter. Simply, there are things on which it can expend political capital in the early days that become nigh on impossible in years three and four. Gavin gave a thumbs-up to the government’s initial announcements on GB Energy, planning and coming labour market reforms.
Stuart McIntyre (University of Strathclyde) welcomed the fact that the government was now armed with advisers providing ‘evidence-based policy’ and the ‘mood music’ had changed in some key areas such as immigration. Adrian Pabst (National Institute of Economic and Social Research) said that while the government has good ‘diagnosis’ of the problems at hand and many of its early moves were welcome, he thought there had been ‘a lot of tinkering around the edges’.
The conversation quickly shifted to the government’s fiscal rules ahead of the budget. Helen Simpson (University of Bristol) noted that the government had ‘tied its hands’ by saying that it would not raise taxes on income or national insurance, which account for 75% of revenues.
The panel broadly agreed that there may be changes to the capital gains tax regime and possibly to council tax and inheritance tax loopholes, too. Stuart noted that although employment is high, other indicators suggest that the labour market is looking ‘delicate’. Gavin said that the government was at risk of being too timid and that tax revenues needed to be raised by perhaps 1-2% of GDP to ‘get public services off their knees’. Adrian echoed the sentiment, remarking ‘growth is the challenge; investment is the solution’.
Several rounds of robust questions from the audience followed. The government’s £22 billion fiscal ‘blackhole’ was not an illusion, Adrian replied, but some of it was indeed known prior to the Labour government being elected. A new decade of austerity was not looming, Gavin responded, but some unprotected government departments will feel the chill. To address regional inequality, Helen argued that the government could encourage growth in handful of target cities. Rejoining the EU was not likely for a generation or more, Gavin answered, but in due course, the UK government might consider joining the single market for goods and the free movement of labour for under 30s.
And with that, the audience adjourned to ruminate on the day’s discussions – and for some, the festival’s evening session, a live recording of Tim Harford’s podcast, Cautionary Tales.
