'Once you start thinking about economic growth,” said Robert Lucas, the economist, “it’s hard to think about anything else.” Perhaps that is a sentiment that only a nerdy economist could feel. For the rest of us, there is always the telly.
But we should be at least a bit obsessed with growing. The Office for Budget Responsibility warned yesterday that forecasts for growth this year will be downgraded, making it harder for the Government to reduce its deficit.
We have just come through a recession three times bigger than that of the early 1990s, and Britain is incredibly indebted. Government and household debts are now equivalent to about five years of our national income: nearly twice the rate in the US or Germany. Between 2000 and 2008, Germany’s debts grew 7 per cent, whilst ours grew 157 per cent. We desperately need growth, but how can we achieve it?
A growing economy needs labour, land and capital. So we need to free up these resources.
When it comes to labour, we have an army of 5.5 million working-age people on benefits. That is one for every six people in work, costing taxpayers around £90 billion a year. Welfare reforms need to go beyond the universal credit proposed by Iain Duncan Smith. For those capable of work, there should be much tougher conditions attached to the receipt of benefits. A recent YouGov poll, for Policy Exchange, found that 80 per cent of voters think people should have to work for their benefits if they have been out of employment for a year. As in other countries, we should divert people from claiming benefits in the first place, by asking them to search for work for a week or two before they can make a benefit claim. Those claiming Jobseeker’s Allowance who haven’t paid any National Insurance (such as school-leavers) should no longer have the right to turn down any job they don’t like for the first three months of their claim.
Land in Britain is made scarce and expensive by some of the world’s tightest planning laws. That is why we have some of the most expensive office space in the world. It also pushes up your rent or mortgage, and jacks up the bill for housing benefit. The Government is trying to liberalise planning, but is already meeting resistance. Ministers could do more to make development more palatable. It is essential that the Treasury allows at least half of the money that new developments yield to stay locally, so that communities have a financial incentive. People should also be given the right to vote against new developments. We need a more nuanced approach to the greenbelts which have encircled our cities since the 1980s: not all farmland is beautiful, and not all new homes are ugly. Local people should choose what they want.
When it comes to capital, small businesses complain that banks aren’t lending enough. And if politicians decide to jack up banks’ capital requirements faster than the rest of the world (in line with the forthcoming Vickers report), loans will become even harder to get.
It would be nice to be able to reduce taxes on small businesses and job creation, but that is hard when you have inherited the biggest deficit in peacetime history. Still, more can be done to reduce spending. The Government is sitting on assets worth billions. Social housing is worth a cool £400 billion. So we should revive the “right to buy”, and sell off the most expensive council flats in central London, which are worth millions. Information assets such as NHS statistical data and the BBC archives could be worth a fortune. Bringing the state into the digital age would save a fortune, too. Most transactions with government are still based on paper forms and queuing in offices, making them hundreds of times more expensive than they would be online.
There is much more that can be done to boost growth. Some of the measures required may be controversial. But as the Chancellor knows all too well, a flatlining economy would be more unpopular still.