Growth: What’s not to like?

Growth: What’s not to like?
Photo by Luke Carliff / Unsplash

Somewhere amid the plentiful coverage of the latest Conservative government’s push for “unashamedly pro-growth” policies there has lurked an assumption: that this is what all governments want anyway. Every Chancellor going all the way back decades - from Barber and Lawson to Osborne and Sunak - has wanted economic growth, haven’t they?

And what’s not to like? Stronger growth means more income shared among the country’s inhabitants, especially if that growth is the “good” flavour of growth: productivity growth spread evenly among the population… GDP per capita going up. The more income we all share means the more we have to spend in future, it means suddenly those incredibly expensive bills for the NHS or future pensions no longer look quite so expensive. It means we can spend more on the stuff that matters: education and standards of living.

Growth, goes the conventional wisdom, is the good stuff, to the extent that it’s nearly meaningless to have a Chancellor declare they are in favour of more of it. Everyone loves growth, right?

Except, no. That’s the underlying thrust of something I wrote for the Sunday Times today. Actually it’s not a given that all governments want growth. In fact, the opposite is more often the case.

If you won’t take it from me, take it from one of the more distinguished former Treasury mandarins of recent years, Sir John Kingman. In a speech a few years ago (pdf - worth reading in full) Kingman said the following:

...all Governments actively limit growth the whole time. They operate complex systems whose purpose is to do that. The planning system – a system of development control – is precisely that. So is the migration regime.
Meanwhile. all sorts of regulation can easily inhibit competition and innovation, either because regulation is badly designed, or because stopping competition and innovation is actually what the regulation is intended to do.

The point here is that actually there’s something very radical about being “unashamedly pro-growth”, to the extent that I do wonder whether Kwasi Kwarteng is quite as shameless about growth as he claims to be. The reason governments tend more often than not to be specifically focused on anti-growth policies (not that they ever get branded as such) is because it turns out that actually more often than not people - voters - don’t much like growth.

For a lot of voters, growth means congestion. It means immigration, it means more people, it means less control, it means more competition, it means more inflation. It almost certainly means rejoining the single market, since having less trade friction means stronger productivity growth. So goes the logic of being utterly unashamed about growth: you end up doing stuff which might not necessarily fit with your other political credentials.

Now of course the prescriptions for growth differ depending on whether you're coming from the left or the right. Consider the ideas in Sam Bowman's piece on "boosters" or from Tom Westgarth and Andrew Bennett. But among those who espouse "progress" there is near universal agreement that Britain's planning system is utterly dysfunctional and needs serious attention (for a sense of the dysfunction, do read this Economist piece on it)

Yet it's not just dysfunctional by accident. We didn't sleepwalk into this. It's the way it is because voters, especially local council voters, like it. People who own nice houses in leafy areas will fight very hard to protect those leafy areas. And why shouldn't they fight for what they believe in? And they've done very well. Confronting this isn’t just about confronting a maddening set of regulations (though yes it certainly is this); it’s about confronting a mindset which if anything has strengthened since the Town and Country Planning Act of 1947 - that development should be the exception and not the norm.

Now as it happens I sometimes feel those who attribute every economic problem to our lack of housing can slightly overdo it. Actually it isn't the only reason for this country’s housing crisis - or our productivity problems. A few years ago I made a film about the fact that really we’re facing not one but an overlapping series of very different housing crises: shortages in some places, oversupply in others, poor quality stock in others. I think it still stands up ok today - less because of any brilliance on my part than because so few of these thorny issues have been addressed.

But a shortage of housing in the right places is certainly a big part of the problem. Resolving this would be a seismic change in UK economic policy. Perhaps in time we will actually grasp this nettle. Who knows? Perhaps people will look back at this Chancellor or the next one in a few years’ time and point out that in much the same way as Nigel Lawson confronted a flabby set of monopolies, price controls and over regulated sectors in the 1980s, they did the hitherto unthinkable thing and took on all the vested interests to break the growth logjam. But planning is, I suspect, a far tougher target than, say, the clubby Square Mile city firms of the early 1980s.

In the meantime, a few recommendations: do read Giles Wilkes’ excellent report on Business Investment for the IfG. There is no better tour d’horizon of the current system with all its pecadillos than this pdf.

(No it wasn't)

Though one thing I’d add: for all the sound and fury, Rishi Sunak’s “Super-Deduction” really wasn’t all that super. I think this has been one of the big misconceptions in Westminster in recent years. Look closer and you see it was primarily a scheme designed to mitigate the inevitable forestalling on investment ahead of his big corporation tax rise. More detail on this here. Any comments or corrections on this analysis gratefully received.

But to my mind it does at least answer one of the big questions of the current day: why did the super-deduction not boost investment? Because it wasn’t ever going to!*

*Well, much. Since investment allowances are complex and vary from business to business, it will have benefited some. But not by as much as that clever branding might have had you believe…

In other news, I wrote something about The Queen’s reign and the various economic and social changes that have happened during it. In short: a lot! Quite interesting. Video of the charts here: