I'm not quite sure where the Third Way has got to right now. I must look up Tony Giddens again on the subject. But as promised yesterday, I dropped in on Labour List's webinar on 'Bidenomics,' and have written a piece in response, as below.
‘A new Washington consensus is taking shape. I believe it is in our interest to embrace that consensus. But today Britain is little more than a spectator.’ So said Rachel Reeves in her Mais lecture. She didn’t go on to explain precisely what this new Washington Consensus consisted of. Having listened in to the Labour List/Progressive Policy [Washington based] Institute (PPI)webinar, I am even less sure what Reeves meant. Anybody who has heard of Biden’s Inflation Reduction Act may also have heard that it came with a $2 trillion price tag, much of that money to be spent on clean energy. Yet Reeves has resiled from Labour’s earlier £28 billion green investment pledge. But wait! Will Marshall of the PPI said that in total Biden’s spending is nearer to $5 trillion, in new borrowing, sending US debt levels into the stratosphere. If this is the new Washington Consensus, then we’re definitely shying away from it, not embracing it. The economic catastrophe that is always invoked whenever the word debt is mentioned doesn’t seem to have occurred in the US—markets are buoyant and inflation is down. I can see why markets might be buoyant—there’s more money in the system for them to play with. As regards inflation, the reduction owes a lot to the fall in energy prices, a factor also helping to lower UK inflation. We may feel entitled to conclude that Biden’s Inflation Reduction Act is doing what it says on the can—or at least that it is not inflationary. Will Marshall also pointed to reduced unemployment amongst other positive indices to suggest that ‘Bidenomics’ was working. What then is so terrifying about it? In her lecture Reeves spells out what her fundamental building block of her future stewardship of the economy will be: ‘So let me be clear about the rules which will bind the next Labour government. That the current budget must move into balance, so that day-to-day costs are met by revenues. And that debt must be falling as a share of the economy by the fifth year of the forecast, creating the space to respond to future crises.’ The former part, that the current budget should move into balance, I seem to recall was George Osborne’s mantra in 2010 when he launched austerity. The legacy of austerity has been disastrous as we all know, not only devastating lives but undermining investment in productivity. The latter part of her comment, referring to reduced overall debt in five years’ time is precisely the language Jeremy Hunt has used to justify his recent cuts in National Insurance—a five year time scale is perfect for making optimistic predictions—which of course need never be fulfilled on the NIMTO principle, Not In My Term of Office. Where there may be some straws of a new Washington Consensus, they could be found in how the regulatory and planning regimes hold up new developments. There’s not much point having all that money if you can’t spend it. Removing planning barriers is a key plank of Labour’s growth agenda. It’s not yet quite clear what planning barriers are being talked about. We already have rules on taking designated ‘national infrastructure’ projects out of local jurisdiction. On the question of new houses, at what scale will these be built and who by? Will local authorities get the green light to borrow to build (and train builders to boot)? In their heyday, councils with their Direct Service Organisations (DSOs) had a complete supply chain—land, skills training and planning powers. They need those elements to work in harmony again (perhaps too with the return of something like Parker Morris standards!). So much for planning. But on the regulatory side, Reeves in her speech appears to be critical of New Labour’s approach to financial regulation—it was too lax in other words. But she doesn’t finger which regulations should have been strengthened. Are we going to have more financial regulation or less? Although it must be pretty clear by now what the post general election UK economic landscape is looking like, and indeed what the Tory traps for the next government are, Labour’s Treasury team is still holding out on detailing the fat, so to speak, on the institutional bones of their policy. It will be interesting to see, for example, how giving more oversight to the Office of Budget Responsibility will play out. It’s not just Tories who have complained about the OBR’s forecasting abilities. There are also, not mentioned by Reeves many other questions which whilst not necessarily bearing on the issue of growth directly will constrain the next UK government’s room to manoeuvre. Big revenue questions, such as whether to keep the pensions triple lock, whether to make up the shortfalls in local government financing (historic and current), meeting doctors’ and other pay awards, or continuing with the income tax allowance freeze —all these await the next Chancellor’s attention. One has to question the wisdom of promising now to keep corporation tax at 25%, which as Reeves says is one of the lowest rates amongst OECD countries. Why aren’t more businesses from those countries relocating here then? How has that level of corporation tax unleashed UK economic growth? As the Tories now seem to be finding out, talking of a low tax economy doesn’t appear to be boosting their electoral appeal. We shouldn’t emulate them.
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