Autumn statement: time to be bold
There are signals that tomorrow’s autumn statement will contain some proactive policies to stimulate economic growth. But the chancellor needs to go much further.
Tomorrow’s autumn statement will bring home the hard truth about the state of the British economy.. The chancellor is set to announce his latest economic and fiscal outlook for this year and next, based on revised forecasts from the OBR, and it is likely to contain the grim truth: his plan A to eliminate the current structural deficit by 2014/15 will not be met.
Looking at how the UK has fared this past year we see that real GDP increased by just 0.5 per cent over the year to the third quarter of 2011 and it remains 4 per cent below its peak level of Q1 2008.
So what now? Has the UK economy not been delivering the growth hoped for due to external forces beyond our influence or has this been a result of poor decisions implemented by policymakers? And are we expected to sit back and ride the tide of bad economic times or is there room for a more active policy approach?
Regardless of whether external forces or poor policy measures were responsible for the weak economy, what is certain is the greater room for dynamic policy measures. In response, IPPR has recently released a paper called ’10 ways to promote growth’ which advocates active solutions to counter weak growth, falling employment and squeezed incomes. Our report contains both short term solutions, including boosting faltering demand in the economy, and also addresses the long-term structural weaknesses that prevent sustainable growth in the economy.
In the short term, what is clear is that sticking to policy measures that are not responsive to current economic conditions is destined to fail. Fiscal tightening should be slowed down in order to avoid stifling consumer demand or business confidence. Therefore we suggest that policymakers make the pace of fiscal tightening responsive to growth in the economy. Specifically we recommend a slowing of the fiscal measures as soon as growth drops below 1.5%.
And what of unemployment? In the three months to September, employment was 197,000 lower than in the previous three months, while unemployment was 2.62 million – its highest level since 1994. Unpacking the figures a bit more we find that here in the UK there are now 632,000 women and 532,000 men aged 16–24 unemployed, a 13.4 per cent increase over the last year, revealing the pressing need to create secure routes for young people into employment. To help stem this rise, the government should inject up to a further £2 billion into the Green Deal and use half of the funds to provide a job guarantee in the energy efficiency sector to every young person who has been out of work for over 12 consecutive months, matched by an obligation to take up the offer.
Other innovative solutions put forward by IPPR to ensure sustainable growth include implementing a fully-operational National Investment Bank by 2013, expanding the Export Credit Guarantee scheme while simultaneously encouraging small and medium-sized business to make greater use of this scheme. Additionally, now more than ever is the time for encouraging innovation and we must ensure that industries are able to recruit skilled workers and raise productivity levels. Reflecting its importance, we suggest placing the Growth and Innovation Fund at the heart of the government’s skills policy.
An important week lies ahead for the coalition’s economic policy. There have already been some signs that ministers have been listening to those calling for a more proactive approach to stimulating growth. To adopt some of IPPR’s ideas would not be a sign of weakness by this government. Every good plan should provide for flexibility as circumstances change – Osborne’s current Plan A is no exception.