It wasn’t meant to be like this. Labour left office in May 2010 with growth of 1.1 per cent in the second quarter of 2010. Yet nearly 18 months and two growth reviews later, growth has stalled and the government is still searching for a convincing programme for growth.
It is not credible to suggest that the UK’s flatlining economy is solely down to decisions taken at home – just take a look at any copy of the FT from the last few months – but Labour should be making the argument more strongly that the government’s refusal to deviate from its austerity programme is making a very bad situation worse.
It really is quite something for a government to inherit GDP growth of 1.1 per cent and turn it into growth of just 0.1 per cent a year later. Part of the explanation is that the two big engines of growth trumpeted by ministers last year – business investment and exports – have yet to materialise. Business investment remains subdued, having partially rebounded last year after a dramatic 18.9 per cent fall in 2009. Businesses have strong balance sheets but are not investing. Survey upon survey shows that business confidence has fallen this year, fuelled by uncertainty about the economy. Exports are faring better, but are heavily dependent on what happens in Europe, hence David Cameron’s belated call for Angela Merkel and Nicholas Sarkozy to take a ‘big bazooka’ to the eurozone’s woes.
The latest unemployment figures were the clearest possible demonstration that, as Liam Byrne said, the government’s plans are hurting but not working. Despite this, the government is sticking to its Plan A. So what can the government do to stimulate growth? Here are a few ideas.
The government and the Bank of England have recently announced two new monetary policy initiatives aimed at stimulating growth. The first, a second round of quantitative easing, is past its sell-by date. In the current mood of uncertainty businesses will probably sit on any new cash and Ed Balls was right to strike a cautious note in Labour’s response. Credit easing could have a bigger impact if it addresses the continuing problem of affordable credit for small firms, consistently highlighted by Chuka Umunna and John Denham.
The government’s fiscal plans leave very little room for manoeuvre, but any spare money should be used to kick-start private spending, preferably starting with housebuilding. The CBI recently said that boosting activity in the housing market and construction sector could be a ‘game-changer’ for growth. The suburbs of many of Britain’s cities were built in a depression, and with very low interest rates the next few years could be a house building renaissance. Labour introduced several stamp duty holidays, but why not abolish stamp duty altogether for properties under £250,000, or at least announce a lengthy holiday – say two years? This would send a clear signal that the government is serious about helping first-time buyers and kickstarting a housing recovery.
Targeted infrastructure spending and action to support young people into work should also be priorities. Cutting national insurance for under-21s would create a real incentive for a business to employ a young person.
This is not a fully developed ‘Plan B’, but decisive action in any one of these areas could have a stimulating effect on the UK’s stalled economy. George Osborne will deliver his autumn statement in six weeks’ time. Here’s a start on what Labour’s new top team should be calling for in it.
Photo: wallyg
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