Wanted: a real economic policy from Hammond

Instead of health nannying, the Tories need a strategy that addresses the public’s demands for change

While ministers calculate the optimum sugar content of fizzy drinks, determine which products can be manufactured from plastic, and work out the price of carrier bags, Britain desperately needs an economic policy.

Ask the Treasury to articulate its policy and you normally get a mumbled answer about “dealing with the deficit”. But as important as sound public finances are, fiscal policy is not economic policy, and Britain needs change. Our economy is growing only slowly, and our poor record on research and development, productivity and trade continues. The consequences are plain: average earnings remain lower than before the financial crash 10 years ago.

Britain’s response to the crash has in many ways exacerbated older problems. Loose monetary policy, in the form of super-low interest rates and nearly half a trillion pounds of quantitative easing, has caused a redistribution to the rich by creating an asset bubble. Fiscal policy, which has squeezed public spending for nearly a decade, has delivered a current budget surplus, but stretched public services – and the people who work for them – to the limit.

Few serious economists still believe our most urgent economic challenge is our fiscal credibility. Yet listen to the Chancellor and the public finances – together with his gleeful pessimism about Brexit – are all he talks about. What Britain needs, however, is an economic policy that will deliver sustained growth that everybody gets to share in.

Yesterday’s controversial report by the Institute for Public Policy Research will inevitably be attacked for its support for tax rises. This is not surprising, given the think tank’s centre-left origins. Certainly, its proposals to create English regional authorities, pass environmental legislation that surpasses even the Climate Change Act, and loosen immigration controls suggest that it has not learnt from the greatest mistakes of the Blair and Brown years.

But there is merit in several of the report’s ideas. A National Investment Bank would help to re-industrialise the economy, improve productivity and bring growth to the regions. An “alternative minimum corporation tax” would prevent multinationals from avoiding UK taxes. Increasing taxes on accumulated wealth would mean lower taxes on income, and save younger families from carrying the burden of our ageing society alone. A better approach to corporate governance would not only give workers a say in decisions that affect them, but help firms to make their own decisions for the long term, and so allow a reduction in micromanaging government regulation.

Reducing regulation – and using Brexit to escape some of the EU’S rules, such as its stifling precautionary principle – is overlooked by the report. But ministers should engage with many of its proposals, not only because they are right but because the public demands something different. When Theresa May first became prime minister and articulated the need for change, her ratings soared. When she switched to advocating continuity, her support eroded. If the Conservatives defend a status quo with which the public is unhappy, they risk paving the way for the destructive policies of Jeremy Corbyn and John Mcdonnell.

Regardless of policy, though, this debate prompts a question for Tories. Normally, we argue that it takes a strong economy to make social mobility possible and lift prosperity for all. And this is of course true. But what if the reverse is also true? What if the things that hold back social mobility – inequality of opportunity caused by vast wealth disparities, unequal educational opportunities and the loss of social capital in many communities – are denying us the full potential of the country’s talent, and therefore holding back growth?

Consider the facts. The wealth held by the richest 10 per cent of British households is five times greater than the wealth of the bottom half of all households combined. We have an appalling gap in educational attainment between North and South. We have an equally terrible gap in productivity between London and other cities. And we have a brain drain: while London has 19 per cent of British jobs, it attracts 38 per cent of Russell Group university graduates with good degrees. Meanwhile, Britain has 11 of the 50 lowest-skilled cities in Europe.

We have to think about economic efficiency and fairness not as competing aims but as twin objectives that reinforce one another. And to do that, government must do more than get out of the way. We need a coordinated economic policy that improves infrastructure, builds more houses, increases R&D spending, reduces business costs, trains and retrains a skilled workforce, raises taxes fairly, supports struggling families and communities, makes markets work better, boosts competition, and ensures companies are governed responsibly.

An approach like this demands great change: an end to austerity and a new role for government. But this – not nannying about public health and plastic products – is what the country needs. We need an economic policy, and we need one now.