Britain is 10 years into a low growth trap, facing a recession, approaching an inflationary storm, and no one has a clear economic vision for how to fix it.
Familiar policies have emerged from the Conservative leadership campaign. Tax cuts, free markets, and slashed regulation will – candidates claim – put pounds back in pockets, boost growth and tackle the cost of living.
But most successful economic hubs are competitive on tax and regulation but also make big interventions in infrastructure, R&D and skills. Countries with more spatially balanced economies invest heavily in struggling areas to make sure all their citizens have opportunities.
This recognises where growth comes from in today’s knowledge economy. Across all sectors, successful firms share knowledge between high-skilled workers, who crowd together in cities.
This points to a reimagined role for the state to address market failure – supporting urban densification, bringing together universities and businesses, leveraging government procurement to support industrial strategy, and tackling dominant tech firms to make markets competitive. These are roles only the state can play.
This is the debate the Conservatives should be having. And it can’t wait – on the UK economy’s current growth trajectory, we will be overtaken by Poland in 12 years.
The passive model has vocal advocates, while supporters of a more intentional economic policy are silent, fearful of being dubbed “un-Conservative”.
The madness is that the Conservatives had the beginnings of a more intentional approach to the economy. The Levelling Up White Paper set out the limits of an economic policy that places too much on markets’ ability to generate or distribute growth.
This isn’t just an economic problem – it leaves the government politically vulnerable. The Conservative electoral coalition has a greater tolerance for higher taxes if they mean investment in public services. They want to ban zero hours contracts and improve protections for workers. An electoral pitch based on passive economic policy is a path to defeat in 2024.
Advocates of a more intentional economic approach need to find their voice. Pragmatism is an important Conservative principle and today’s challenges won’t be solved by the state simply stepping back.
A longer version of this note appeared in The House on 19th July.
The Department for Business, Energy and Industrial Strategy will make available £3 million of funding for pioneering space-based solar power (SBSP) projects. They will help cut carbon emissions, improve energy security, and enhance the UK’s reputation as a science superpower. Link
As part of the Government’s plans to level up the country, the Transport Secretary more than trebled investments for rail upgrades in the North to over £9 billion. Link
The Government committed £1.5 billion of funding to launch young people into careers in the aviation industry as part of the Reach for the Sky Challenge Fund. Link