Britain has just endured the worst economic decade of modern times, and official forecasts for the next five years, offered in the spring budget, predict more of the same. Yet Philip Hammond, the chancellor, began his otherwise low-key budget speech declaring he was feeling Tiggerish.
There was light at the end of the tunnel, he said, with day-to-day spending now balanced and the national debt set to fall in three years’ time. The government would meet its self-imposed fiscal mandate. If the Office for Budget Responsibility (OBR) remained upbeat in the autumn – you never know – he might be able to allow some extra public spending, building on the concessions he was already making. Hurrah!
At any other time, Hammond’s statement would be regarded as an extraordinary admission of defeat – a supine acceptance of a completely unacceptable economic performance and one that abdicated stewardship of Britain’s public services to the next economic judgment of the OBR. Lifting this year’s growth forecast from 1.3 to 1.4% does not represent a breakthrough in optimism. Nor is a forecast that growth in the next five years – if all goes well – will average 1.4%, well below how the British economy has performed for decades, anything other than bleak.
You can only be Tiggerish if your guiding star is the national debt rather than rising living standards, a robust social contract and an economy which everyone believes will deliver a better tomorrow. Brexit Britain is already such a diminished place that we are now apt to be happy that by 2023 real wages will have finally got back to where they were in 2008 – the longest period of stagnation ever. Also, output is now 20% lower than predicted back then. At least we may have avoided a Brexit recession.
Only just. It is a combination of world boom and British consumers unexpectedly running down their savings that has averted a recession – even while the rise in business investment is the shallowest for more than 50 years. The OBR says that the next few years are unusually hard to predict. If the uncertainty lifted and Britain’s trade relationships were guaranteed (say, by staying in the EU, although the OBR cannot spell this out) there could be a boom. If there is an unexpected discontinuity (like a hard Brexit) then the economy could slide into recession.
It goes for the middle way – but even that implies less stimulus from trade over the next decade as we lose access to European markets. There is no disguising the truth. Brexit is a debacle. The OBR even assumes that immigration continues at only a slightly diminished rate; so we get all this Faragist-induced economic pain and we’re not even keeping out the hated foreigner.
Equally dismaying: in a week when Unilever moved its headquarters to Rotterdam and vultures circle over one of our great engineering companies, GKN, neither the government nor the opposition has any coherent philosophy of wealth generation that might lift these dismal forecasts. True, the government champions an industrial strategy and the Treasury tries to promote restricted pools of long-term, patient capital for hi-tech start-ups, but it is all done in the shadow of Brexit, deemed to be unavoidable, and the overwhelming fixation with lowering the national debt. Instead, it needs to be shouted from the rooftops. Never in any economy has growth ever been associated with either high or low levels of national debt. It is the obsession of particularly morbid Micawberish accountants.
Labour is at least free from that – but while it too champions an industrial strategy and a national investment bank, now crucial with the withdrawal of the European Investment Bank from British lending, it is all done within the fixation of regaining statist control of the commanding heights of the economy. Another statement needs to be hurled from the rooftops. Sustainable growth in no economy ever has been associated with statist direction and control.
What is required is the kind of alchemy Unilever judges available in the Netherlands, however imperfect, and for which GKN, as it fights for its life from predators only interested in personal enrichment, must ache. Dynamic, purposed enterprise, aiming to build great companies, flourishes best in complex ecosystems that offer the long-term time horizons, incentives to innovate, ownership stability and mobilisation of people that generate wealth. Thus the Netherlands offers shelter from hostile takeovers, structures to promote engaged long-term shareholding and an amazing training system.
Try as it might, Unilever could not interest the government in reproducing this in Britain: it might have upset its dominant Faragist right. For such ecosystems are designed by the state, certainly, even while it abstains from directing and controlling – a philosophy that neither the Tory party nor the state-control-obsessed Labour leadership seems capable of embracing.
On one count Labour does score. Taxation will need to rise in the years ahead, and Jeremy Corbyn’s willingness to say so – even if he hides behind the fiction that only the really wealthy need pay – is a long overdue injection of realism into the debate.
For there is no Brexit dividend, as the shamelessly economically ignorant Jacob Rees-Mogg keeps claiming. The Institute for Fiscal Studies computes that just to stop public spending falling as a proportion of national income, while balancing the budget will mean another £30bn of tax increases by the mid 2020s, with £11bn on top to pay pensions and meet the demands of the elderly on services. Inheritance, companies and property will need to be more highly taxed – but so will everyone.
All these choices would be less invidious if Britain had stayed in the EU because our growth would have been higher. It needs to be said again. Pity our poor country, misled by fantasists and unable to do what needs to be done. But that is the hallmark of all countries in irreversible decline.
• Will Hutton is an Observer columnist
