This article was originally published on TheMJ.co.uk
Councils must ensure the Government implements the investments it has promised, and that public and private efforts are mobilised to deliver growth, writes Mike Emmerich.
The FT's Robert Shrimsley got it right. ‘Farewell then Singapore-on-Thames. In truth, we never really knew you.' He went on to argue, correctly, that while the Tories killed the post Brexit dream (more like a chimera in my view) of a low tax Britan by accident, in her first budget, Rachel Reeves was quite deliberate.
Not one post-Brexit chancellor has been able to find the magical way of cutting taxes and delivering commensurate cuts in public services of a kind the public are prepared to tolerate. The Labour Budget was a very much more Social Democratic budget than we have seen in decades. But by getting real with the electorate about the gaping holes in the public services that have opened in the last decade it seems to me as importantly a turning point away from the fantasy politics and economics born in 2016.
It seems very likely that the near term impact of the Budget will be a boost to the parts of the economy that need it most now
Lest you are in any doubt, the Budget was a very substantial gamble with the British economy. There really was no good option. The more cautious approach eschewed by Reeves would have amounted to a slow and painful process of decline, waiting like Mr. Micawber for something to turn up to give us hope. The economy has been on a shockingly poor trajectory for over a decade, in part driving and being driven by, a palpable sense that the fabric of the nation, public services and venerable institutions such as local government, are fraying. Far from making hay while the sun shines, much of George Osborne's austerity served to starve us of investment when the conditions were so, so propitious. Rather than death from a thousand cuts Reeves has opted for a giant leap. It is to be hoped that the parachute works, or we are in for a very hard landing.
So what of Reeves's giant leap and how good is the parachute?
It seems very likely that the near term impact of the Budget will be a boost to the parts of the economy that need it most now. The hikes in the Living Wage and extra revenue for schools and hospitals should feed through into growth quite quickly. Yes, that will be dented by the tax rises, but her largesse will put money into the pockets of working people on every street in the nation. Working people's propensity to consume being relatively high (compared to the rich), that should feed through into some feel-good to dispel the summer's gloom. As an aside, pre-Budget I have never heard a chancellor sound so much like a council director of finance, managing down the expectations of the leader and chief. They, like she, can sometimes overdo it.
The question is whether the more pessimistic view the OBR take of the Budget in the medium term will be delivered in practice. They point out that the tax burden is negatively correlated with growth rates across the developed world. This isn't necessarily causal, just an observed fact and one which brings us to the central question. Whether for this government or any other in a liberal democracy, we need to work out how to use taxes to deliver the services people demand at the ballot box in a way that helps grow the size of the economy. If we fail in this endeavour, renewed and yet more fantastic populism and authoritarianism loom here as in Germany, Hungary, Italy, the USA and elsewhere. All of which brings me to the parachute I mentioned earlier, here a metaphor for the British state, and whether it is capable of using Reeves's largesse to deliver a soft landing.
Alongside investment, to achieve that aim, we need to reform public services so that they enable more Britons to play the fullest role they can in our society. This, I believe, is a very big ask of people working in local public services – perhaps the most hard-pressed part of the state. But try we must.
While we don't know the shape of the local government settlement yet, it looks as if the chancellor may have done enough to stave off imminent crisis for many councils. There is a moment for purposeful dialogue to turn the Government's missions into action. We need to present the Government with plausible and real-world solutions. On the growth agenda we need to hold this Government to account better than the last one in two senses: ensuring first that they implement the investments promised and second, that we mobilise public and private endeavour to innovate projects to deliver the growth which has eluded us for too long. The OBR is worried the Budget may crowd-out private investment. Given the scope of what's needed and the potential for the new public investment to help investors manage risk, with smart thinking, there is every possibility to do the opposite, making markets and crowding private investment in. But, as I am wont to argue often on these pages, that is not a job for Whitehall alone. It is on all of us. We have agency. We need to use it.