Restore Britain’s new economic policy paper is, in many ways, a remarkable document, precisely because it is so economically absurd. Published last week, it is called The Wealth of our Nation, and at 64 pages it is both tediously long and remarkably lacking in analysis, while being long on assertion.
The report promises lower taxes, lower public spending, much less regulation and a much smaller state. Its authors claim that this will restore Britain’s prosperity and reverse decades of economic decline. They provide no evidence of any consequence to support their claims, which are asserted, but not supported by analysis or much data.
What kind of world do they want to restore?
What struck me most about this report was not any of the individual policy proposals, absurd and undeliberative as many of them are. The real issue is with the society that they are trying to recreate, or as they would no doubt put it, restore.
The paper openly states that it wants government spending reduced to around one-third of national income, which was roughly where it stood before Tony Blair became Prime Minister and, in due course, to return the British state to something like its pre-1997 scale. That comparison is, though, misleading.
Blair inherited the institutions created after the Second World War. The NHS existed. Universal social security existed. Universal education existed. Public housing still played a significant role. The welfare state had been accepted across the political spectrum for half a century.
The society that Restore Britain describes is much older than that. It appears to me to be one in which the state retreats from many of the responsibilities it has accepted since 1945. In that sense, what it proposes looks much more like Britain before the Second World War than it does just before Blair.
There is, of course, a reason why Britain changed after 1945. It was not because the country suddenly became socialist. It was because the economic settlement of the interwar years had failed. The combination of mass unemployment, regional deprivation, inadequate housing, poor healthcare and economic insecurity convinced almost everyone that leaving these matters to markets was simply not good enough. The post-war settlement was not an ideological experiment. It was a pragmatic response to lived experience.
Restore Britain scarcely acknowledges that history. Instead, it assumes that Britain’s current problems arise because government has become too large. That is the central proposition on which everything else in the paper depends. Cut spending. Cut taxes. Reduce regulation. Withdraw the state. And, it claims, prosperity will follow. That is an extraordinarily simple view of how an economy works.
What do we want from the state?
The question in good political economy has never been, “How large should the state be?” The question has always been, “What is the state for?”
Size is a consequence of purpose, not the other way round. A society that wishes to provide universal healthcare, educate every child, invest in science, support disabled people, regulate financial markets, tackle climate change and maintain modern infrastructure will inevitably have a larger public sector than one which chooses not to do those things. The debate is not about percentages of GDP. It is about the society we want to create.
That is why I find the paper so difficult, to the point of being obnoxious. It treats public expenditure almost entirely as a cost. It rarely asks what that expenditure achieves. Teachers, nurses, researchers, engineers, regulators, those building social housing and providing care, as well as all those working for local government officers, are presented as part of the burden that the productive economy must carry. The possibility that they are themselves productive, creating the conditions that allow the private economy to function, is barely mentioned, let alone considered.
This is not, in that case, a paper on economics. It is about ideology. It simply assumes that wealth is created by the private sector and consumed by the public sector, but that is not how modern economies work. Public investment creates private opportunity. Public education creates skilled workers. Public healthcare creates a healthy workforce. Public transport supports and even creates labour markets. Courts enforce contracts. Regulators create confidence. None of these activities is separate from wealth creation. They are integral to it.
Unintended consequences
There is another weakness that runs throughout the paper. It presents extensive estimates of the immediate savings that would arise from cutting spending and reducing taxes. What it does not do is examine the consequences that follow, and seems unaware that any might do so.
So, if social security is cut by tens of billions of pounds, it does not ask what happens to household demand, nor is there any discussion of multiplier effects.
And if public employment is reduced, there is no consideration of what happens to regional economies, but there should be.
Nor, if taxes are cut, does it ask who spends the gains and who saves them?
And, if growth fails to materialise, it does not ask what happens to the public finances?
These are the questions that political economy asks because economies are systems in which everything interacts with everything else.
In fact, the paper admits that its central claim, that lower taxes and a smaller state will produce significantly faster growth, is not actually included in its costings. It is presented as an expectation. That, though, is a serious omission, because the credibility of the whole programme depends upon precisely the second-order effects that I note, and which it ignores.
Learning from the past?
In the end, then, this report does not present a serious or even costed economic programme. It is, instead, a statement of political philosophy. It tells us that Restore Britain wants to recreate a society in which the state once again plays a much smaller role and markets are expected to resolve many of the problems that governments have accepted responsibility for over the past eighty years.
The questions it never answers are the obvious ones. They are that, if that model worked so well, why did Britain abandon it in the first place? And why, when this model was last tried in the 1930s, did things go so badly wrong?
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