Keir Starmer’s mission to target growth is bang on.
Some may question the wisdom of the commitment to secure the highest sustained growth in the G7, dependent as it is on the performance of other economies. But the ambition to deliver ‘good jobs and productivity growth in every part of the country making everyone, not just a few, better off’ is the right one. As the leader of a thinktank that promotes inclusive growth, I welcome Labour’s ambition to achieve this.
But beyond the headline mission statement, what’s missing is an explanation of how an incoming Labour government would allocate public spending to drive growth in an era of fiscal restraint. Public finances are under strain as interest rates remain high and the long tail of the pandemic and austerity pile pressure on public services. Shadow chancellor Rachel Reeves has set tight fiscal rules to demonstrate Labour’s commitment to fiscal discipline, with all day-to-day spending met by taxes and borrowing to invest only as long as debt is falling as a share of GDP. Coupled with Labour’s stated ambition to reduce taxes, how does the party aim to fulfil its mission for fair growth?
To gain insight on how an incoming government might best prioritise spending to drive growth, CPP’s latest report analyses the drivers of productivity amongst UK local authorities to determine where public investment could have the greatest impact. We find that improvements in local levels of health, skills and gender equality in the labour market, alongside greater investment in high value-added sectors, could deliver the biggest productivity gains.
Improving the skills of the workforce is an obvious first point of call for improving productivity, and successive governments have spoken of increasing STEM skills and the proportion of graduates, as well as admitting the need to attract and retain international talent in a competitive global economy. But skills have long been the UK’s greatest example of policy failure, in part because – whilst we have an array of world-leading educational institutions – we fail to ensure a broad base of people in places across the country have sufficient basic and intermediate skills. Our recent analysis confirms our previous research in this area: targeting level 2 skills is associated with the greatest local productivity gains. Add to this an improvement in the proportion of people qualified to levels 3 and 4 in places lagging the national average, and there is the potential for a significant uplift in economic growth.
Almost as much potential to boost growth can be found by targeting an improvement in life expectancy. CPP’s model shows that an increase in life expectancy in lagging local authorities to the national average could increase annual economic output by £53bn. Closing local authority gender employment gaps would add another £23bn.
Taken together, we estimate that by directing policy and investment towards these areas and achieving these targets, the UK could generate an additional £160bn in economic output – equivalent to 7% of GDP. To achieve this, there must be a focus on decent jobs in high-value sectors; a health system based on prevention; further education that supports more people into decent jobs; and accessible, quality childcare, so that more women can participate in the labour market. CPP’s work elsewhere sets out how.
We know that strong and effective public services that support skilled, healthy workers are the bedrock of inclusive growth, alongside an effective industrial strategy and a focus on local delivery. So there is a risk that Labour is currently developing its own version of Boris Johnson’s cakeism. The former PM famously declared himself to be ‘pro- having cake, and pro- eating it’. Labour is doubling down on the line that public money will be in short supply, while promising to deliver higher, fairer growth. Yes, reform of public services is vital, but you cannot achieve the level and pace of transformation required on the cheap.
Labour’s recent rowing back from its £28bn green investment pledge revealed the party’s nervousness to make the argument for investment over the long-term. Its commitment to the current debt-based fiscal rules might signal economic competence, but they are in danger of sewing their own fiscal straitjacket, overly restricting their capacity to govern should they win office.
There is a narrow path to new terrain on Labour’s fiscal rules. I agree with my former colleague, the economist Jim O’Neill, in his suggestion that the rules surrounding government borrowing should be based on whether there is a clear net return on growth. But the party would need to perform some extraordinary pre-election gymnastics to change course now, and it looks to have concluded it isn’t worth the electoral risk, despite mounting evidence – including by CPP – that increasing investment in creaking public services would deliver much needed productivity gains.
If Labour is serious about generating fair growth, it must target better skills, health, childcare and high value-added job creation. At a time when the fiscal climate is so bleak, the party will need to prioritise and explain how, why and where it plans to invest public money. And crucially, if it won’t invest, what risks and trade-offs this policy choice poses – not only for fair and fast growth, but all five of Starmer’s missions for a better Britain.
Charlotte Alldritt is chief executive of the Centre for Progressive Policy
@CentreProPolicy
