The International Monetary Fund could hardly have made it clearer this week. The chronic British disease, the underlying one that marks out the UK from the developed world crowd, is our low economic growth.
The IMF’s revised forecasts for 2023 certainly make stark reading for Rishi Sunak. Last week, at a cabinet awayday at Chequers, Sunak told colleagues they would be judged on five issues at the next election, of which one would be their success in expanding the economy. Yet just a few days later, the IMF revised its UK growth forecast down from the very modest 0.3% increase it posted three months ago to a 0.6% contraction.
With that new forecast, Sunak’s already steep route to electoral success got steeper and more slippery. But this isn’t Sunak’s problem alone. It’s a national challenge, affecting all of us. Strikingly, the UK was alone in suffering this humiliating revision. The IMF is forecasting growth for every other developed or large developing economy this year. That list includes not just all the countries some Conservative writers spend their careers disparaging, like France, Germany and Japan, but also even Russia, despite its wartime sanctions.
To be fair, none of this is to say that global economic growth is either booming or unproblematic. Neither is true. Global growth is slowing this year, and the deceleration is particularly marked across the advanced economies, the US included, not just in Britain. Growth, in developed and developing economies alike, is also a central cause of the global climate crisis and therefore cannot be ignored.
But it is to say that Britain is at the back of the field, and that the gap with the pack ahead just got bigger. There is a danger that Britain loses touch with its competitors. That will be an ineradicable inheritance for whatever government follows Sunak’s. True, not all the reasons lie at the government’s door. Yet many do – two of them in particular.
One is the short-term legacy of the Liz Truss/ Kwasi Kwarteng tax-cutting budget, which led to higher taxes, a spike in borrowing costs, increased interest rates, a contraction in the housing market and a lurch in market confidence. The other is Brexit, which continues to damage UK trade and create major shortfalls in the labour market, not least in the health service. The UK’s high relative dependency on imported gas at a time of sharply increased energy prices has not helped either.
However, to read some of Britain’s rightwing newspapers this week, it is as if the events of last autumn never happened at all. Papers such as the Daily Telegraph and the Daily Mail are not merely in denial about the economic harm caused by Brexit, they also continued to claim this week that the answer to everything is tax cuts. If the economy is failing, there should be tax cuts. If it is booming, it’s time for tax cuts too. This is as daft and meaningless as Douglas Adams’s claim that the answer to everything is 42.
In this, though, these papers speak to and for a significant strand in the Conservative party that is extremely difficult for Sunak to manage, including at Westminster. It’s the strand that sees government as a problem and taxes as bad, that thinks both should be slashed to let growth loose, that backed Truss last summer and that would back Boris Johnson – and maybe even Suella Braverman – if either makes a bid to topple Sunak this year.
All of which leaves Sunak and the more cautious majority of the Conservative parliamentary party in a bind from which they cannot extricate either the government or, more importantly, the country. There is neither time nor resource for the Conservatives before the election. The tasks Sunak set them at Chequers look insurmountable at present.
Many will spare the Conservatives their pity. Yet this still leaves Britain in an economic policy bind, with less policy flexibility than other countries to generate the wealth in incomes and taxes that would enable households to cope, businesses to innovate, and trade and the state to begin the repair of the public services. It is a national crisis, not just a party political one. It would constrain Labour’s options, too.
There is plenty of growth strategy thinking out there for Labour to draw on that does not necessarily involve tax cuts or rises. Support for the new technological and green energy economies through public-private partnerships is many Labour strategists’ long-term favourite. Investment in education and childcare to get more people back into the labour market is another.
But there are more politically charged issues too, like increasing immigration or reforming (not just liberalising) planning laws, both of which would be unpopular with many. Britain must also grasp the Brexit nettle and improve access to and from European markets.
Few of these offer quick fixes, though, and if Britain has fallen further behind the pack in 2024, the gap will have widened and the inequities will have become harder still to overcome. A new government is certainly a necessary answer for Britain’s problems. But no one should pretend it is a sufficient one.
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