Let It Grow, Let It Grow, Let It Grow

This week we learned that the UK economy shrank by 0.5% in the last quarter. George Osborne blamed the snow, conveniently forgetting that much of continental Europe experienced the same arctic conditions. Meanwhile Sir Richard Lambert, the outgoing head of the Confederation of British Industry, heavily criticised the government for having no economic growth strategy.

Sir Richard is right, when it comes to growth the government has some policy gimmicks but no actual strategy. Back in October last year a 'Local Growth' White Paper came out, awkwardly titled 'Realising Every Place's Potential'. Although the paper wanders erratically across planning, housing, sustainability, and region-bashing, the main message is summed up by this quote:

A further feature of earlier approaches was the belief that planning could both determine where growth should happen and stimulate that growth. This approach failed as it went against the grain of markets. Regional and other strategies stifled natural and healthy competition between places and inhibited growth as a consequence.

This makes it pretty evident that the new plan is to have no plan. The government doesn't think it needs a growth strategy. It considers the encouragement of economic growth not really any of its business; all it needs to do is destroy as much of the public sector as it can, and the economy will grow like Japanese knotweed. This is a very simplistic form of neoclassical economics, based on the lovely myth of perfect free markets. So as to ensure that the Department of Business Innovation and Skills doesn't look like a waste of space, though, a couple of policies have been announced.

Technology and Innovation centres are to be established, the first of which will allegedly open in less than two months. Next to nothing is known about what these are or what they'll do, other than the fact that they got £200 million funding in the Spending Review.

The other policy trotted out as supporting the economy is the Regional Growth Fund. This consists of £1.4 billion over 3 years, scraped together from various government departments (BIS, CLG, DEFRA, DfT, and the Treasury) for projects to 'rebalance' the economy away from the public sector. Regional Growth Fund is caught in something of a Catch-22. Public sector bodies categorically cannot apply for it. Private sector organisations can, but must ensure that they aren't breaking the rules on state aid, which try to prohibit the government from propping up certain companies at the expense of others. State aid rules are complex, hard to understand, and greatly restrict the monetary support that businesses can get. As you can imagine, this presents problems. Nonetheless, the first round of the fund (a maximum of £300 million) attracted nearly 450 bids totalling well over £2 billion.

£1.4 billion may sound like an awful lot of money, but it is trying to replace multifarious infrastructure and transport funds, on top of the £6 billion spent in the last few years alone by Regional Development Agencies. For all their faults, RDAs provided business support and economic strategy. They are being wound up at the moment and their functions centralised or simply stopped. They will not be replaced, unless you count the completely unfunded Local Enterprise Partnerships, which I am not inclined to.

How successful is the No Plan economic plan likely to be? To date the signs aren't encouraging. The government is ignoring the fact that the public sector used to spend a lot of money in the private sector. And the fact that the private sector relies on public services and infrastructure to operate. And the fact that business confidence is heavily linked to government policy. And the overall state of the world economy in relation to the UK. The economy is shrinking, and the cuts have barely started yet. VAT hadn't risen yet in the last quarter, either.

The UK is vulnerable to economic forces far beyond its control. Rises in petrol prices, which the press have been up in arms about recently. Rises in food prices, as we import so much of what we eat. Rises in cotton prices, as we import almost everything that we wear. Inflation is therefore rising whilst the economy contracts. Stagflation, as it is charmingly known, was a feature of the 1980s. Inflation now is nowhere near what it was then (4.8% compared to over 20%), but give it time. Peak Oil is on its way.

The government wants private sector growth, which would require internal demand and/or exports to pick up. Demand for products and services within the UK is unlikely to grow given high and rising unemployment, limited credit availability, and higher VAT. Faced with reduced government support for the young and elderly, people will tend to save more. The disaster that is housing policy will increase costs in that sector, too. House prices will continue to rise as new supply gets scarcer.

Demand for UK exports has grown as the value of the pound falls, but is limited by the economic troubles of our main export partners (the US, Ireland, and the rest of Europe). Moreover, our major exports are cars, weapons, and financial services. Car demand is influenced by the likelihood of unemployment and wider economic climate (alarming), credit availability (poor), and petrol costs (rising). Weapons demand is influenced by government defense spending (being cut). Financial services got us into this mess in the first place.

Despite all this negativity, I am aware that I live in one of the few places to be prospering economically. The high-tech cluster around Cambridge is one of the few bits of the UK to be a net contributor to the Treasury. But at the moment the government isn't interested in what's holding this area back; overloaded transport infrastructure, unaffordable housing, and loss of public sector co-ordination and expertise. These are market failures which cannot be fixed by the private sector.

The government has lost sight of the basic fact that you have to invest money to make more money. That's practically the only policy lever it has left, in any case. National interest rates have little influence on levels of inflation or the cost of new borrowing nowadays. Regulation and tax incentives for business aren't popular with our neoliberal coalition. Their No Plan is to spend less to make more, probably based on a hunch.

This is not to say that no economic growth equals economic doom, far from it. Growth is pointless unless it improves wellbeing, and in any event cannot carry on indefinitely. At the moment government policy seems to be shrinking the economy and reducing wellbeing, although as ever I console myself with the fact that greenhouse gas emissions fall during downturns. Ultimately the UK and the rest of the world will have to reshape our economies to operate within environmental limits. Perhaps a coalition-assisted double-dip recession might set the scene for a lower carbon, less oil-dependent economy? It's a long shot, but hope for a green revolution springs eternal. Even when government economic policy seems entirely misconceived.

The £1,560,000,000 Question

I'd like to draw your attention to a couple of headlines that the mainstream press haven't really covered.

Labour politicians attempt to block Localism Bill. I hope they succeed in getting a longer consultation period, at least. This bill is actively centralist, has nowhere near enough safeguards, and will make the planning system impossible to navigate. I find it hilarious that the government's method of cutting the undoubted surfeit of red tape in planning is to remove the strategic and predictable layer of regional plans, and replace it with an atomised, unwieldy, and capricious neighbourhood layer. Much more work is needed on the Localism Bill, otherwise it'll prove in parts destructive but mostly just chaotic. Since it is meant to have such a huge impact on local communities, shouldn't they get the chance to have a say in what it contains?

'Affordable rent' could add £1 billion to benefit bill. I am so glad that someone has pointed this out to the Department of Work and Pensions. Surely it cannot have been hard to infer that if you increase social rents, housing benefit would have to rise, as the people living in social housing are the poorest and most vulnerable. Incidentally, the headline is slightly misleading - the rise could actually amount to £1.56 billion per annum. If the government intends to chop billions off the benefits bill, this is clearly not the way to go about it. Tellingly, no government impact assessment of the new 'affordable rent' (up to 80% of market rent) system has been published. Perhaps not even undertaken, if an independent research organsisation has to point out this glaring discrepancy.

I'm disappointed that this hasn't been more widely reported. There are two potential implications. Either:

The government has miscalculated the future benefits bill by one and a half billion pounds by not taking into account a shift in social housing policy. That would be an extraordinary failure of communication, planning, accounting, and indeed common sense. It is not a small mistake. With numbers like that, the responsible ministers should be getting serious questions from parliament, at the very least.

Or,

The government didn't factor the additional rent into the benefit bill because they don't intend housing benefit to cover it. That would result in that same one and a half billion a year apparently being paid by social tenants - the poorest, most vulnerable people. The elderly, disabled, carers, low-paid parents, and the like. It does not seem remotely realistic to expect them to be able to afford such rent increases. The average income of a social renting household is £14,800 per annum; 65% have incomes of less than £15,000.

The result would be vulnerable people in their thousands being priced out of housing, all housing. The purpose of social homes is to give those who cannot afford private rent or ownership a roof over their head. If this policy isn't reconsidered, the housing benefit bill will have to rise by billions or endemic homelessness will be the inevitable result. What a choice.

The epithet 'affordable rent' is doubly ironic; either the tenants can't afford it or the treasury can't. The higher rents are supposed to pay for investment in more social housing, to make up for the cuts to the Department of Communities and Local Government's budget. There's a certain cunning about channelling money from the Department of Work and Pensions into affordable housing, I'll admit. Unfortunately, the policy's success relies on DWP not noticing an annual one and a half billion pound overspend.

By the way, just in case you might somehow have temporarily forgotten, we are all in this together.

Happy New Year

It's 2011. The sky is grey, it's raining, and Cambridgeshire County Council are making 450 people redundant this year. Unions expect a further 450 or so jobs to go in subsequent years.

The latest survey of local councils, police authorities, fire authorities, and national park bodies suggests that 102,000 jobs will be lost in total. What's striking about this figure is that it covers the 131 of about 500 such organisations. The other 369 organisations have yet to announce their job cuts. Every local authority will be making people redundant. All councils, police, and fire services are facing unprecedented budget reductions. If anyone still thinks that such cuts and job losses will have no effect on services, they must be entirely deluded.

A local council chief executive has even dared to say what every single local government employee is thinking:

You've got this clown of a secretary of state saying that in well-run councils, the public won't notice any difference, I mean what planet is this guy on?

Public servants aren't supposed to be angry, but you look at this and it's unfair.

It's the big lie tactic that if you tell a big enough lie, and say it often enough, then people will believe it.

Like every other public servant, I am supposed to be impartial. But how can anyone with a conscience remain supportive of government policy when its this destructive? Like every other local authority, Cambridgeshire County Council needs to make savings from all services. That includes protection of vulnerable children, care for elderly and disabled adults, and primary and secondary education. Kids and vulnerable adults will pay for mistakes made by bankers. The same bankers whose bonuses will not be limited by the government.

The most important purpose of the public sector is to protect the people who need it. When the government prioritises an ideological war on public spending above essential health, education, emergency, and social services, it is fundamentally failing to do its job. Public servants picked up on this last year. In 2011 I think the wider population are going to realise what austerity means, and they will get angry too.