Part 1 of a three part deep dive into why the Government appears to struggle to turn its rhetoric on growth and housing supply into delivery.
Last month, fresh out of SPADing for Government, political commentator and author Ben Judah wrote a piece in the Times where he argued the Labour movement must go full steam for rejoin. He argued Brexit had been a calamity, that the trade deals the Government had signed were statistical rounding errors and that Labour was losing ground to the Greens and other parties more comfortable with aligning themselves with a Rejoin message.
For me however, the most revealing paragraph of Judah’s article was buried halfway down his eloquently written opinion piece:
Working in government forced me to admit a higher-growth Brexit is possible. Just not a Labour one. You can push down taxes by curtailing public services and slashing regulation to attract global firms. This is a more American model. But flexible markets and more fossil fuels are incompatible with Angela Rayner’s Employment Rights Act and Ed Miliband’s clean power push. That leaves Rejoin as the only source of a significant growth uplift.
This is the truth of the matter. Moreover, this truth’s ink prints spread across every sector of the UK economy not just the housing sector.
For Judah’s claim that rejoining the EU might be a get out of jail card for UK plc and the Labour party is highly speculative. Moreover, it’s politically a pipe dream for at least a generation even though the likely new Prime Minister Andy Burnham will almost certainly share this line of thinking.
What is clear is the Labour Government is struggling to find a political formula which aligns real growth with its ideology and voting base. For different reasons to the last Government, it is tied up in political knots which simply won’t allow a market led approach to thrive.
Going for growth
Growth means allowing companies to make profit. It means allowing the private sector to take risks so that they can grow their balance sheets, hire workforce and of course pay taxes which can be recycled into public services.
At its heart it means some measure of material deregulation. It means rowing back from constant intervention.
That is something this Government appears unwilling to do. It also something the last Conservative Government struggled with. But towards the end I think the previous administration did at least realise the UK economy was on life support. Under Jeremy Hunt’s Chancellorship they just about held it together through not doing too much more harmful law making.
A revolving door
Last night I caught up with a mid career civil servant pal of mine. My pal was chipper. He had a long summer holiday to look forward to. He was only half joking when he said he and his team could all down tools for the next couple of months as the Government’s political tier reconstituted itself.
Here’s the thing. If you don’t have consistency of leadership, the private sector cannot enter into partnerships with public sector. Every time the game board is changed, you have to reboot the system. That is not a recipe for long term investment and growth.
Post Brexit Growth
Yesterday the CBI came out and said that UK plc doesnt want to rejoin the EU. In reality, they probably think the case is neutral but what they don’t want is another ten years of infighting between the UK’s political elites. At some point, politicians need to focus on the job of delivering public services and finding a formula for growth that the Labour party is struggling to land. Rejoin is a distraction.
Going back to Ben Judah’s article, lets be clear about what Judah is right about though. If the UK is going to succeed in a post Brexit world, it needs to rebase itself.
That doesn’t mean a bonfire of all regulation. But it does mean a reappraisal of what we actually need and what are nice to haves. Because at the moment we have a lot of nice to haves and well meaning principles that this Government is finding terribly difficult to do without.
It’s very easy to blame the UK’s travails on ‘neo-liberalism’ as Andy Burnham has recently done. But as Matthew Syed wrote in the Times this week, its very difficult in any sober analysis to claim that the UK economy is some sort of neo-liberal paradise. Over half the population are on some form of welfare and across many of our sectors, UK plc is asked to wade through dense thickets of regulation and tax.
Let’s take energy policy. Ed Miliband clearly has deep difficulties with oil and gas extraction. Yet the UK is haemorrhaging cash and research by Offshore Energy UK believe that the additional 1.1bn barrels yet to be exploited would add more than £60bn to the UK economy. But further extraction is banned. Moreover, if it was enabled, it would operate at a marginal tax rate of over 80%, similar to London’s housing late stage review system which has contributed to a collapse in residential development.
At the same time, I hear from insiders that Miliband’s relationship with Grid suppliers is breaking down as he attempts to force their hand on a UK only supply chain. The problem is if the UK private sector doesn’t exist to provide some of the downstream engineering and components, you just end up paying a massive premium to force international companies to fake onshore. Better to let the competition enable the best possible price than to warp the market through a 21st century equivalent of Potemkin villages.
The search for growth
As the Government desperately searches for growth, even asking its own regulators for ideas, I am reminded of Ayn Rand’s Atlas Shrugged.
In Rand’s dystopian story, an overregulated US has taxed the private sector out of existence. Every directive, every appeal to fairness and equal sacrifice, every well-intentioned regulation issued in the name of the common good has stripped away another layer of incentive from the people capable of producing something. By the time they need growth most desperately towards the end of the novel, they have legislated themselves into a gordian knot and trust has evaporated between the state and enterprising individuals. You cannot conscript a mind.
That is not where the UK now sits but with every year, the trajectory becomes more visible. The Government wants the output of a dynamic, risk-taking private sector — the tax receipts, the jobs, the balance sheet expansion — without permitting the conditions that produce it. It wants oil and gas revenue gone but the £60bn left on the table somehow spent anyway. It wants the Grid built at pace by suppliers it is simultaneously trying to coerce into an unprofitable onshoring exercise. It wants an upgraded national defense infrastructure but without any real strategy to pay for it.
You cannot have it every which way. Either the market is trusted to allocate capital and take risk, in which case you remove the obstacles and let it run — or it is not trusted, in which case the state must do the building itself, with all the cost, delay and mediocrity that entails. But unfortunately, the UK doesnt have the financial capacity to do the latter. It could do it under Blair because the New Labour Government inherited a thriving economy.
Starmer and now Burnham have not such a lucky inheritance. Moreover, it turns out that you cannot demand the private sector’s output while treating its basic operating logic — profit, competition, price discovery — as something distasteful to be managed and minimised. That diminishes trust and companies and individuals quietly quit or they get out.
No more talk of Brexit and Rejoin, just growth and prosperity
Judah’s article is right that something has to give. He is wrong about what. Rejoin is a constitutional and political project dressed up as an economic one — and even its most committed advocates know it changes nothing for at least a decade. The actual lever, sitting unused in plain sight, is the rebasing he flinches from naming directly: fewer nice-to-haves, fewer well-meaning principles enforced at the cost of the thing they were meant to protect, and a Government willing to let private capital do what private capital does, rather than asking it to perform growth while keeping every hand tied.
In the final pages of Atlas Shrugged, the Government tries to make a deal with the private sector, many of its leaders have gone on strike or left the country. It fails because the trust has gone.
The people remaining, whose identity was bound entirely to a system that has stopped functioning, have nothing left when the system fails. They were never really there at all because they are takers, not makers. And when there is nothing left to take, they turn inwards on themselves.
In the real world of the UK plc, the engine is still there. But the Government just has to stop arguing about who gets to drive it, and let it run.
In part 2 I will look at this specific points in relation to housing.
