One after another, economists and financial commentators publicise the message that growth, not austerity, is the UK’s way out of the severe economic contraction caused by the pandemic and responses to it. Some believe growth will be encouraged by tax cuts, and that tax hikes will only deter investment and entrepreneurial spirit and activity. Productivity, or lack of it, was before the pandemic and remains today a weak spot of many UK industries: if productivity were to increase significantly, which is quite possible from its low base, then prosperity will accelerate.
Rishi Sunak has the unenviable task of establishing a framework for growth, while planning to reduce Government debt, which is at an all time high. It is hard to believe that an element of tax increase will not soon be contemplated, but there is a tight constraint due to the current commitment not to increase the core taxes of income tax, VAT and National Insurance. Perhaps ditching that pre-Covid election commitment can be justified by the unforeseeable pandemic chaos, which is not a UK malaise but almost universal.
A return to austerity and major cuts in public services to reduce debt must surely be ruled out as political suicide. It would sound also a death-knell for the levelling-up programme still promised by UKGOV and Boris Johnson, but thus far held back by the financial demands of the pandemic battle. In any scenario, the inequality gap between the wealthy regions and those left behind or simply decaying must be at the front of any economic programme, as it is too destabilising of UK society. People in those areas are underutilised, crying out for work and so they represent a resource which is madness to ignore. Galvanising those regions into action could surely boost UK productivity significantly. So, levelling up is right for many reasons, not just for votes. Infrastructure investment may underpin the programme, but that is yet more UKGOV money to be spent, and more borrowing.
Should not the programme be pursued in partnership with the private sector?
There are also two dependencies, the reversal of which could invigorate the growth and productivity so deeply needed.
EMBEDDED DEPENDENCY CULTURE
There is a perception that pre-pandemic a culture had developed in the UK of people looking to others to solve their difficulties, whether health, financial or social, and the resource they turn to is commonly UKGOV. That dependency culture sits alongside a growing sense of entitlement and finding blame when expectations are not met: whether a bail-out, hand-out or sort out. There is a risk that this culture is embedding further during the pandemic. UKGOV has had to satisfy almost every demand for cash to meet pandemic consequences, whether in healthcare, care homes. businesses, employees staying at home, or simply those on benefits. And it is understandable why. In addition, some sectors are hit especially by the adverse aspects of Brexit, such as fishermen, resulting in necessary subsidy. Also, other disasters from past mistakes are coming home to roost, such as cladding and other shabby building practices, requiring taxpayer subsidy, which cannot be ignored. During Covid time, every cause can sound worthy and refusal to support can be portrayed as cruel, especially when billions always can be found whenever the NHS demands or jobs need protection.
It is going to be difficult to abandon the open wallet approach of Treasury of the last 10 months. Politically, some see this as a creeping Government socialism by the back door. But the culture of expecting Government money to save every life and job needs to cease, and the private sector which generates the taxes to finance those in need has to be released to prosper if the country is to bounce back. It must be time to find solutions to funding in the future for the NHS and major public projects which invest private money as well as public, whether that be for health through insurance arrangements or for projects via separate fund raisings.
Dependence on the State needs to be put into reverse gear as soon as possible before it becomes endemic. UKGOV must learn again to take the hard decisions and “say no” in order to re-establish an air of confidence in fiscal responsibility.
DEPENDENCE ON OTHER NATIONS
A lesson of the pandemic has been the realisation that the UK is over dependent on other nations, which when push comes to shove naturally look to their own interests and are not as dependable as may have been hoped.
The reason UKGOV initially endorsed Chinese Huawei for advanced communications technology was lack of a viable domestic alternative. Pressure has reversed that, and extra cost and delay will result in 5G rollout while an alternative is developed. But Broadband and telecoms are so strategic that they cannot be dependent on any one source, and the UK cannot afford to have no competence whatsoever.
Energy is fundamental to every activity in the UK, and its very survival: to date, the UK remains dependent on so many outside sources, such as imported Liquefied Natural Gas. A high level of self-sufficiency in the future is necessary perhaps for basic freedom not to be at risk, and wind, solar, nuclear and hydrogen may offer that possibility. But oil will be relevant for years as will gas. Much of continental Europe, including Germany, is beholden to Russia for gas, and such reliance on an authoritarian State which is recognised as highly disruptive to Western nations, is a massive Achilles heel. UKGOV’s stated commitment to green energy needs to be proven to be real.
Other core strategic sectors already recognised include life sciences (e.g., vaccines), artificial intelligence and other high-tech industry; and greater self- sufficiency in food is relatively easy to obtain as well as being highly desirable if the battle against obesity is to be seriously fought. There is today a general shortage of microchips or semiconductors: they are essential for the electronics industry, such as phones and cars. The UK has little manufacturing capacity. Samsung of South Korea and The Taiwan Semiconductor Manufacturing Company are world leaders. China oddly is not but is investing mightily to become so. Perhaps the UK needs to catch up. That its world-leading chip design company, ARM, was taken over by non-UK interests a few years ago is now regrettable, and new thinking about keeping strategic industries from certainly possibly hostile foreign ownership is welcome.
To reduce dependency in key sectors is not protectionist but a national interest issue, which the pandemic has proved. UKGOV’s declared plan to invest in science and technology, energy, communications, life sciences and artificial intelligence is a start. The pandemic has proved the leading status of UK research and its scientists, and UKGOV policy of supporting them again needs to play out in practice. The ability to create a vaccine industry in a few months is remarkable, and proves what is possible when the public and private resources combine in urgency. There is a substantial growth and productivity medicine resting in UK scientific excellence. One good thing from the pandemic could be that young people seeking a profession may now see science as real excitement. Focussing on “undependence” in key industries could also be a driver of growth and productivity. If these potential investments can be directed to include fully the left behind regions, perhaps they will help make levelling up a reality.