Budget blogs: Looking to the longer term
So far this week we’ve outlined the main challenges facing the Chancellor as he prepares his budget, and looked at the sharp rise in insecurity at work, and the hole it’s punching in the public finances. Today’s post looks at the longer term challenge of producing more good jobs and an economy that works for everyone.
First, it’s worth recapping the extent to which we’re failing on that goal now:
- Pay is still well below its pre-crisis peak, and yesterday’s figures show the smallest real pay rise – of just 1.4 per cent – since January 2015
- Growth remains skewed towards London and the South East
- The economy is heavily reliant on consumer spending.
These challenges don’t just affect people’s living standards, they affect the health of the public finances too. The weakness of the economic recovery after the recession, and the slow pay growth accompanying it, are feeding into consistently disappointing tax receipts, and a persistent failure by the government to meet its deficit targets.
A quick look at the OBR’s great new resource showing the history of economic forecasts illustrates the problem. Public sector net receipts (basically government revenues) have consistently disappointed expectations. Our initial look at the forecast figures puts receipts in 2015-16 around £60bn below the 2010 forecast (though this could be a conservative estimate, as OBR analysis shows a heftier shortfall of £85bn). With income tax and NI making up around 40 per cent per cent of government receipts, the long pay squeeze and the increase in insecure work bear a significant amount of responsibility for this shortfall.
Weak receipts in turn feed through into higher government borrowing, with borrowing over £50bn higher in 2015/16 than the government’s expectations in 2010:
It’s clear that an approach to delivering growth based simply on cutting public spending isn’t working, whether your benchmark is decent jobs with decent pay across the country, or reducing the deficit. As we enter a long period of uncertainty about our place in the world, the need for a rethink is ever more urgent.
Rhetorically the government seems to have recognised the need for that shift. The Autumn Statement announced a new £23bn infrastructure and productivity fund at the heart of a new industrial strategy. But the reality is that this will still leave investment (measured as a share of GDP) in infrastructure well below the levels seen in the last parliament.
The Budget is an opportunity to show that this was just a down-payment on the investment that Britain needs. As we’ll outline in our next blog, investment is needed in public services too. It’s also an opportunity to look more strategically at how public spending is supporting the aim set out in the government’s current consultation “to improve living standards and economic growth by increasing productivity and driving growth across the whole country.” We’ve welcomed the green paper’s promise to think more strategically about how government procurement can support key industries. But we also think that the Treasury should be reviewing whether the current system of tax reliefs is up to the job of supporting balanced growth.
A strategy to deliver more balanced growth – and ultimately better jobs and pay – needs to look at what goes on inside companies too. Fulfilling the Prime Minister’s repeated pledge to include workers on company boards should be just the first step in a push to ensure that workers are involved in driving up productivity throughout their companies. That means investing in skills, and driving up the quality of apprenticeships delivered under the new levy. And if those skills are to be used effectively at work, it also means looking at how workers are involved, consulted, and enabled to bargain collectively to improve working conditions across the board.
What goes on in the workplace matters for people’s jobs and pay, but it matters for the health of the public finances too. So the Chancellor could do worse than to look to the workplace, and the talents and ideas of working people, to deliver the step change we need.