Five years into the longest recession in a hundred years, more than halfway through the Parliament…we need economic growth now. But what will – can – the Chancellor do to turn the UK economy around?
Press coverage to date suggests that this will be a ‘steady-as-she-goes’ Budget, trying to avoid the negative headlines of last March’s Budget (still described by some commentators as an ‘omnishambles’). Despite the UK’s downgraded credit rating and public interventions by the Business Secretary, there will be no abandonment of Plan A. Instead it’s likely that the Chancellor will be looking for cost-neutral policies that will make a big difference and will not be too unpopular – and there aren’t many of those around. Bets are on housing, trying to boost lending to businesses via the Business Bank, some more infrastructure projects (perhaps supported by Qatar?) and then a few sprinklings of other policies, with childcare one that’s been discussed at length in the past few months.
But given the current state of the UK economy, and the lack of growth that has characterised the last two and half years, will this be enough? Politicians, economists and commentators from all sides seem to think not. The Chancellor is under pressure from the left and the right to take more radical action to kick-start the economy. 2013 will be a hugely significant year both economically, and politically, with a General Election looming large in 2015.
So, taking into account the circumstances that the Chancellor is faced with, what does our evidence base and analysis suggest a good Budget for the UK and its cities might look like?
First, it needs to invest more in the long term drivers of economic growth. Most economists broadly agree on what these are: high levels of skills; appropriate infrastructure; innovative businesses; strengths in a range of diverse industries; better management to improve the UK’s poor productivity. The Centre’s Cities Outlook 1901 showed how important it is to continue investing in these areas, especially skills. Previous Budgets have sustained investment in research and development, put a bit more money into infrastructure and talked about skills. This year a good Budget would be one that sets out a long term strategy that gives the private sector certainty about where to invest, and that sustains investment in key areas, especially skills and infrastructure, so that in three to five years, the UK will be in a better position to grow than it is today.
Second, a good Budget would inject some short-term fizz into the economy. Part of the problem is the time that projects take - Government has been bemoaning the lack of shovel-ready projects to put some backing behind. Another part of the problem is demand; despite all the work already ongoing to encourage more loans to small business or kickstart the housing market, demand remains fairly weak. So a good Budget would be one that would back some projects that can happen quickly and are likely to stimulate demand in a range of sectors. This may require the public sector to take a lead in identifying and de-risking these projects through up front investment, so as to make them attractive enough for the private sector to take forward.
The Centre has already written to the Chancellor asking for three specific measures to be included in the First, a bold response to Heseltine that gives cities far greater autonomy over their economic development budgets, to help them better support local economic growth. Second, focusing investment in housing on the most unaffordable cities and sites that already have planning permission, while giving cities with weaker economies a different set of housing incentives to encourage refurbishment and replacement. Third, rethink the way that investment in cities is supported through reforming Urban Development Funds.
The Centre will be publishing a series of blogs in the run-up to the Budget, we’ll be live-tweeting and blogging on the day, and then we’ll be putting up rapid response commentary. And we’ll be following up with a whole series of papers in the run-up to the Spending Review, setting out how working differently with cities could make a big difference to economic growth. It’s an important time to be debating economic policy; if we can make more of our cities economic potential, it could help get us back on the path to growth.