During Manchester Policy Week, four leading thinktanks debated what government might look like beyond the General Election and towards 2020. In an abridged version of his speech at the event IPPR North’s Director, Ed Cox (pictured above, standing), says there is life beyond the current austerity measures – but only if there are significant changes to present policies.
Come 2015, we are likely to see public services on their knees, an economic recovery fuelled by household debt and a housing bubble, and a cost of living crisis dominating public concerns – all for the prize of running a budget surplus in 2019/20, five years behind schedule.
So what would IPPR advise an incoming government should do?
For starters, a key priority must set some new fiscal rules. The Spending Review which is due to take place in 2015 will be the most important for an entire generation. And rather than it becoming another round of horse-trading between departments about the size and scale of cuts, it needs to be underpinned by a very different set of principles and processes.
Firstly, it should set the Spending Review period for a full five years to bring stability and continuity to the process but beyond that it should set a target for the ratio of public debt to GDP right up until 2025/26.
Having a 10-year target of say a 15 percentage point reduction to 65% by 2025 allows some room for government to spend more or tax less when the economy is weak but then crucially to reverse that policy if and when the economy starts to grow.
Secondly, it should commit to lifting the ratio of public sector net investment to GDP to two per cent by 2019/20 and then maintaining it there. The UK invests far less in its major infrastructure than most of its OECD rivals and capital spending of this nature levers in private investment and has wider multiplier effects than most other forms of public spending.
And this investment must take place across the whole country and not just in London and the South East which currently enjoys some 86% of all transport infrastructure investment.
Thirdly, government should reassess the balance of deficit reduction burden that falls between spending cuts and tax rises. Whilst Osborne set out to achieve an 80:20 balance over the lifetime of this parliament it is currently running at 96% cuts and 4% tax rises. The Institute for Fiscal Studies says that it is implausible that this can continue and so any incoming government will have to look at how it might raise taxes in a transparent, progressive and fair manner.
Finally, Spending Review 2015 must put a much greater emphasis on spatial rebalancing.
At present London is the only place in the country where we spend more per person on economic affairs than we do on welfare payments; we believe that this should be true in every region. For if we are going to reduce the apparent dependency on public spending in the regions then we have to invest in economic growth.
This brings me to the second key priority for an incoming government: drive economic growth through decentralisation to the cities. Through our Northern Economic Futures Commission, IPPR North showed that just halving the output gap between the Northern regions and the national average would increase national economic output by £41 billion.
All around the world now, policymakers are looking beyond their big hubs like London, Tokyo and Beijing as the most rapid and resilient growth is taking place in the world’s mid-sized cities. Unlike so many of our European neighbours we are way behind on this agenda and the untapped potential in England’s core cities should be the focus of any new industrial strategy or regional policy.
We have identified five big drivers that would unlock Northern potential, but all require central government to let go and allow the city regions – currently led by LEPs and emerging combined authorities – to drive their own plans for growth.
We want to see local skills hubs and the devolution of skills and welfare to work funding. We want to see a Northern Innovation Council and sub-regional partnerships with more responsibility for foreign investment and trade. We want to see the devolution of major transport infrastructure funding, franchising and other transport powers to a powerful Transport for the North body much like Transport for London.
And we want to see the decentralisation of housing finance to allow local authorities to re-balance the amounts spent on housing benefits with their investment in affordable house-building. And above all we want to see serious fiscal reform with more revenue raised and spent at the local level, giving city regions the tools they need to grow their economies and compete on a global stage.
Finally, we must focus on public service reform and the welfare state, for there would be no point in restructuring the public finances and driving economic prosperity if we were to turn a blind eye to the importance of reconfiguring the relationship between the state and its citizens.
At IPPR we are slowly setting out the case for a more relational state. Whilst the state might be quite good at addressing linear or transactional business, it is increasingly challenged to address more complex problems where the causes are multiple and inter-connected.
Gone are the days when national government can pull a lever and the economy and society will change in response. IPPR North gets this, and we know that there is untapped potential in our local businesses and cities. We know that there are better ways of running public services together.
We know that there is life beyond austerity – we simply need the fiscal flexibility and political freedom to go out and prove it.