Last week’s Autumn Statement was the first ‘fiscal event’ in ten years that I’ve seen from outside the civil service. Usually it’s been the culmination of work I’ve done, or the confirmation that HM Treasury didn’t agree with it. This time, detached from the feeling of ‘winning’ or ‘losing’, I’ve been focusing on what questions it raises. For now I’ve got 5.
1. What are sustainable wages?
The outlook for wages isn’t good. But what would good look like anyway? Typically the comparisons being made – by either Government, the Labour party or independent commentators – are to a peak that occurred before the Great Recession. The comparison is useful. It’s a reference point that is recent at least and it may well guide views on when people are ‘feeling the recovery’. Yet almost everyone who comments on these issues, including the Chancellor and his Shadow, also hold in some way that the economic model the UK had prior to 2008 was ‘unsustainable’. Shouldn’t we be more interested in what counts as a sustainable level of wages rather than comparing to an unsustainable peak?
2. Can we do anything to boost business investment?
Business investment is forecast to be down 5% in 2013. That’s a disappointing number and, unless it changes, economic growth will falter. The Office for Budget Responsibility (OBR) judges that it will bounce back, going up 5% in 2014. That’s a big turnaround and yet there are no obvious new measures in the Autumn Statement to help secure it. Now it may be that an economy that has under-performed for 5 years is stuffed full of investment opportunities, but the OBR has previously forecast jumps in business investment – and they haven’t arrived. Should we be thinking much more actively about policy measures?
3. What are the right skills policies for an ‘hourglass economy’?
Job creation – as studied by James Plunkett among others – seems to be concentrated in low-skilled and high-skilled areas. The middle is losing jobs. There is a growing constituency of people – led perhaps by Tyler Cowen – that contends this is a long-term trend. Average is over. If that’s right, then what are the right skills policies? The obvious one must be to have enough high-skilled people to fill high-skilled jobs. The Chancellor’s announcement that there will soon be no cap on higher education places is a great start on this. Helping middle-skilled people to go back to university or combine university with work should be the next part. But fundamentally we should also want to cheat, i.e. if the labour market is going to resemble an hourglass, then we want the top half to be much bigger than the bottom half. This goes back to business investment; it also raises the question of science and innovation, on which the Autumn Statement document promises a new strategy; and yes, even more re-skilling.
4. Where does migration policy fit in all of this?
This was a broad Autumn Statement, with the Chancellor drawing on advice from the far reaches of HM Treasury and Government. Did anyone notice the measures for regional theatres in the document? A doubling of the UK export finance facility? There’s a lot in there. Keep reading. But strangely for an economic strategy there was nothing on migration. Migration is relevant to skills policy, as well as to the conditions for business investment. And of course it goes to wages too. Lowering inward migration might drive up the cost of labour. Or it might put off business investment to the extent that the demand for labour doesn’t rise as it might do otherwise. What does the government think? Does its migration policy support the economic strategy, or is it a drag on it?
5. Is it harder to cut during a period of growth?
This killer chart in the Autumn Statement is from the OBR showing that spending on public services (excluding welfare) as a proportion of GDP will drop to 1948 levels by the end of the forecast period. I’m intrigued as to why the OBR chose to include the 1948 reference point. The time series on most of their other charts doesn’t go as far back as that. In any case the big question is: do we believe that this is possible? It has already been said that it was a challenge for the Chancellor to keep up the mood of austerity for this Autumn Statement. Against the backdrop of continuing economic growth (according to the forecast), can there be 10 more fiscal events (2 per year for 5 years until 2018-19) which announce cuts and more cuts and no additional net spending on services?
It’s not a rhetorical question, I’m genuinely interested in thinking about which services become harder to cut during a period of sustained economic growth; and there are some perhaps that become easier to cut. Cuts have fallen into the background in recent weeks but whether we’re going as far back as 1948, or stopping a little way short, there are undoubtedly many more to come.