Brexit will have profound consequences for our country’s future. But nowhere more than in questions of the British economy.
In the immediate aftermath of the referendum result the then chancellor George Osborne made it clear that the government’s previous fiscal position and economic strategy would have to change to accommodate the impact of the result. These signals have been reinforced by the new chancellor, Philip Hammond. The Autumn Statement on 23rd November 2016 will be the first opportunity to see what this approach looks like in practice.
This short paper aims to outline a possible approach the government could take in the Autumn Statement. It does not address the specific question of the fiscal envelope in which future spending decisions will be taken, but rather looks at the fundamental structural challenges in the economy, many of which are now set to be exacerbated by Brexit. The contributions range across policies on infrastructure and housing, financial services, business support, skills, welfare and childcare. Each is distinct, but will be informed by a central direction that the government should take in the years ahead.
Britain’s economy is divided. More and more it appears that Britain is not a coherent economic whole with a shared direction. Prosperity has evaded sections of our country, and whilst the United Kingdom provides a mechanism for transferring money from wealthier places to poorer places, the current structure of our economy – and the policies that support it – reinforce this geographic economic division rather than repair it.
Recent decades have seen incredibly unequal economic growth, and change that has left some in our country without a sense of economic purpose. Far too many, have experienced a decade of drift between 2006-2016, with some towns falling well behind growing cities, and some regions barely developing, whilst London canters away. London is effectively an off-shore island-within-an-island, whose property is a reserve currency, and whose employment market in terms of wages, skills and productivity is barely comparable to the rest of the UK. Whilst poverty still persists in the capital, inequality between regions is as much of a problem as inequality within cities.
The data is stark, with infrastructure spending in the capital thirteen times per head what is spent in the North East, while London is 30% more productive than the average across the rest of the country.
The consequences of this economic and power divide for individuals are serious. Economic ill-fortunes don’t just impact the strength and capacities of our country as a whole, they also affect us all individually, constraining our ambitions and diminishing our confidence and ability to achieve. There is a social background to this economic divide which is reflected in low self-esteem and depression.
Britain needs a plan not just to grow our country, but an economic restructuring to remake stagnant towns, giving them an economic purpose, and creating pride and appreciation in places where ill fortune and ill health cluster together. We need to halt and reverse economic stagnation of those places outside London’s core that growth has eluded for too long.
This would have been necessary even had Britain voted to remain in the EU, and Brexit is unlikely to create a benign environment in which to develop such a plan, but such a seismic event should at least open the space for a more rigorous debate about the strengths and weaknesses of the UK economy and the change that is needed to prepare our country for the challenges of the coming decades.
We intend this paper to be a contribution to this debate, offering a mix of long term policy strategies and more immediate measures that could begin to form a platform for rebalancing the UK economy in a post-Brexit climate. In chapter one Alison McGovern will argue that the last decade has seen systematic underinvestment in infrastructure outside of London and will make the case for a more active infrastructure strategy that focuses on areas that have been neglected and prioritises investments that will help to create more connected and prosperous regional economies. In chapter two Chuka Umunna sets out how the chancellor could better support businesses by investing in innovation, encouraging expansion and supporting exports. In chapter three Shabana Mahmood looks at how the government could close the skills gap by working strategically and placing skills at the heart of the welfare system. In chapter four Rachel Reeves makes the case for a move towards universal childcare and removing barriers to work. Finally, in chapter five Chris Leslie sets out the challenges for a new Chancellor to pre-empt Brexit austerity and champion a modern and well-regulated financial services sector.
Labour’s mission is to give a voice to those who are currently excluded from economic decision-making. Our country does better when everyone has a fair chance of success. Many of these ideas, whether on regional banks or the need for increased investment in infrastructure and skills, have been central to the Labour Party’s economic thinking for many years, but they now need to be set within a broader project of responding to the imbalances both exposed and created by the outcome of the referendum.
More broadly, we believe that economic division on this scale is corrosive for progressive politics in general and Labour politics in particular. If these divisions are allowed to widen then it will only become harder to win support for a political agenda based on open economies, strong communities and effective government intervention. The rise of populist politics is at least in part a response to this economic frustration, and will only be overcome by an agenda which both acknowledges, explains and offers solutions to this sense of economic division.
In the end, the Labour Party at its foundation was designed to give power and control to those who depend on our economic fortunes for a decent life. The creation of our party was to make sure the same people working for our country’s future could also govern in the interests of the many, not the few. Nothing has changed: Labour is needed now as it was needed at the turn of the last century. It is time we made good on that mission.