Many commentators have noted the absence of specific measures on the economy in today’s Queen’s Speech. Should we be surprised at this brief reprieve from a Government keen to convince the electorate – and the markets – that it’s on the right side of the argument on reviving the economy? Probably not. Most of the choices facing the Government when it comes to growth are non-legislative and the strength of the economy in 2012/13 is not going to depend much on the Bills making their way through parliament.
This is not to downplay the seriousness of the economic challenge ahead. Weak demand is the major challenge facing the UK economy, and the relentless focus on reducing the deficit, and resulting squeeze on public spending and domestic demand, is simply making this problem worse. The Government needs to find ways to stimulate demand in the economy, and most of them don’t require legislation. Here are some key measures that would make a real difference to creating demand in the UK economy now, thus making a difference to city economies, and ultimately national growth:
- More than HS2: Even if we accept the Government’s claim that there has not been a delay in HS2, the silence on other infrastructure projects is worrying. Are all the Government’s eggs in one basket, and is it losing its nerve even on this? The Government intends to cut public infrastructure spending by a quarter in real terms over the next five years, yet we know that investment in infrastructure would create short term jobs in construction (which the latest figures showed was struggling) and has been shown to have long term benefits for growth. Northern cities could also benefit from investment in some local transport projects to unlock congestion, as well as benefiting from the local jobs.
- Triple the New Homes Bonus: To boost house building the Government should triple the size of the New Homes Bonus. The Bonus is currently too weak to incentivise development in high demand areas. The Government should also review barriers to more houses being built in areas where there is greatest demand – we’ll be doing more work on this at the Centre.
- Focus on the places with highest levels of unemployment: Long term unemployment has a long term impact on demand as well as individuals; it means that people lose skills and tend to move into less productive jobs, which in turn makes it harder for local economies to grow and generate demand. More needs to be invested in policies to respond to the challenges of unemployment and they need to have more of a place-based focus. Some cities have seen much greater increases in unemployment than others and initiatives tackling unemployment – such as the Work Programme and the Youth Contract – should reflect this place-based variation. For example, the value of the Youth Contract should increase in cities with the highest levels of unemployment.;
- Deliver on City Deals: The City Deals confirmed so far – Manchester and Liverpool – both contain measures to stimulate demand, from the investment in infrastructure and Earn Back in Manchester to the Enterprise Zones in Liverpool. The Government must now move quickly on its negotiations with the remaining 6 Core Cities and ensure that these have a strong focus on jobs and economic growth. The Government must also decide how and when it will extend City Deal conversations with cities beyond the first round, and be clear about its approach to growth is post-mayors and local elections.
- Stimulate local growth: The Local Government Finance Bill has the potential to incentivise local authorities to be more growth orientated. We recommend that authorities should be allowed to retain at least 50 percent of the growth in the their business rates for at least 10 years.
The Government has already moved quite far from its 2010 "get out of the way" approach but it must and can do more.