Sunday, November 27, 2022
This anti growth coalition is scuppering our prospects
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

It is easy to get depressed at the moment. The days are getting shorter, the weather has been a bit grim and the country's two main official bodies which produce forecasts, the Bank of England and the Office for Budget Responsibility (OBR), both say we are in a recession which will last for some time. Consumers are downbeat and so are businesses.

The big reason I am depressed this Sunday, however, is that what the former priem minister Liz Truss called the anti growth coalition, which infects the Tory party and has a strong foothold in Labour, has been busy scuppering the UK's growth prospects.

All this is happening at a time when the UK economy is doing badly. Productivity has yet to break out of the stagnation it has suffered since the financial crisis, business investment is embarrassingly weak and our long-term or "trend" growth rate is a pale shadow of what it used to be.

There is no pleasure to be gained from this. Maybe it was inevitable that it happened, given what has been inflicted on the economy, quite a lot of it self-inflicted, but reporting on the UK is a bit like supporting a football team that always loses. I have some experience of that too.

Exhibit One was the government's response to a story this newspaper led with last Sunday, which was that some senior figures were contemplating, over time, a move towards a closer relationship with the EU. Such a relationship could be an adaptation of the Swiss model, a series of bilateral sectoral deals, which was mentioned although has become a source of tension between Switzerland and the EU. But there are other models in which a non-member state could enjoy closer trade relations with the EU, improving on the thin and unsatisfactory deal negotiated by Boris Johnson.

Overwhelmingly, that is what business wants from my experience. The current Brexit arrangements are damaging trade, as the Office for Budget Responsibility (OBR) remined us recently, with the UK on track for a 15 per cent drop in trade intensity. Thousands of small and medium-sized firms have given up exporting altogether because of the red tape now involved in exporting to the EU. Combined that with the clear damage to business investment over the past six years, which is not now expected to get back to pre-2016 levels until the late 2020s, and it is not surprising that we have a serious productivity problem.

And yet, at the mere mention of closer trade relations with the EU, Tory MPs, particularly those of the European Research Group, have an attack of the vapours, forcing Rishi Sunak to say that the government is planning no such thing.

He does not want to be the latest revolving-door Tory prime minister to be brought down since the referendum. Many of those giving him a headache and forcing the retreat used to praise the Swiss and Norway models – both non-members – as well as insisting before the referendum that we could happily stay in the single market.

Almost as bad were the pro-EU ultras, not in this case among Tory MPs, who suggested that the EU would never countenance closer relations with the UK. We should not be defeatist about these things, particularly when it makes no sense.

Business also wants, as it made clear last week, alongside the unions, the government to stop loading it with extra burdens by removing EU-derived laws from the statute book and replacing them with UK laws.

There will inevitably have to be closer economic relations between the UK and the EU in future. The current period reminds me of the 1960s, when businesses could see what they were missing out on and pushed hard for membership of the European Economic Community (EEC). Re-entering the EU is not an option now, nor likely to be for a very long time, but a closer relationship is inevitable in future, if not under a Tory party whose Brexit problem goes deep.

In the meantime, we will suffer the economic consequences. When ministers talk about the benefits of Brexit, such as a freedom to carry out gene-editing in this country, I don’t think they realise how niche that is.

If there is a change of government, it is likely to mean a Labour administration under Sir Keith Starmer. For the moment, however, he appears to be as trapped by Brexit as the prime minister, and this is exhibit two.

A few days ago the Labour went to Birmingham to address the CBI conference, with its call for higher immigration ringing in his ears. As Tony Danker, its director general, put it: "First, we have lost hundreds of thousands of people to economic inactivity post Covid," he said. "And anyone who thinks they'll all be back any day now - with the NHS under the pressure it is - is kidding themselves. Secondly, we don't have enough Brits to go round for the vacancies that exist, and there's a skills mismatch in any case. And third, believing automation can step in to do the job in most cases is unrealistic."

It could almost have been a set-up because Starmer used it as an opportunity to call on business to wean the economy off its immigration dependency and addiction to “cheap labour”.

Close your eyes and it could have been Boris Johnson speaking, though without the Peppa Pig references (though Starmer did sneak one in). It is of course, nonsense. During the period of higher immigration, particularly from the EU, employment rates of UK-born and UK nationals also rose to record highs. The fact that British businesses do not invest enough in trading long predates the rise in immigration of the past two decades and is not a cause of it.

Higher immigration than it expected, particularly from the rest of the world, was the main bright spot in the OBR forecast which accompanied this month’s autumn statement. Higher immigration boosts growth and helps the public finances. There were many special factors in the latest figures, but the Office for National Statistics says net migration in the year to June was a hefty 504,000, the highest on record, though many have not yet been integrated into the labour market.

I know exactly what Starmer was trying to do, which was to try to expunge all memories of his previous position and reassure voters worried that Labour would be soft on immigration. But it is depressing that he has to come to this.

My third exhibit is the Tory revolt on housing targets. Sunak, facing his first big party rebellion, of nearly 50 Tory MPs, was forced to pull a vote due tomorrow on the government’s levelling up bill. Those MPs added an amendment to the bill banning mandatory “top down” housing targets in England.

Under the amendment, local authorities would no longer have to take into account the national housing target, which is to build 300,000 new homes a year, in their own planning decisions. These Tory Nimbys forced a government retreat.

It is hard to overstate the despair with which this was greeted in the housing industry. Builders are being loaded with extra burdens at a time when demand is turning down sharply. One industry body suggested that we were heading, not for 300,000 new homes a year, but just 100,000. Planning reforms were supposed to be part of the supply-side agenda intended to boost long-run economic growth. Not for the first time, it is not happening.

These are not the only areas in which policies could be adopted to boost the UK’s long-term growth prospects. But they demonstrate what we are up against. Margaret Thatcher once said: “I can’t bear Britain in decline. I just can’t.” Whether you agreed with her policies or not, many of us can agree with that.