One after another, recent British prime ministers have pledged to revive the country’s economy. One after another, the promised growth eluded them.
Andy Burnham, who will officially become the new Prime Minister on Monday, arrived with his own version of that pledge: “Good growth in every UK postcode”.
His project? Cede power to local elected officials so they can make their own economic choices. Mr Burnham promised to bring “the biggest change of our lifetime to the way the country is run”.
Mr. Burnham has not revealed details of his economic program. But his priorities emerge from his speeches and the recommendations of his advisers. The New York Times spoke with five economists and policy strategists who play a role in shaping Mr. Burnham’s economic vision, several of whom spoke on the condition of anonymity to talk openly about policies that were still not finalized.
Alongside the so-called devolution of power, Mr Burnham said he would bring more public services and services under public control, while quickly tackling the high cost of living.
But Mr Burnham will face the same economic challenges as his predecessors: a heavy public debt burden, stubbornly high inflation and weak productivity growth. These problems are compounded by the inevitable consequences of the country’s decision a decade ago to leave the European Union, which weighed on the economy, and by years of insufficient public investment. Nervous consumers save a lot rather than spend.
Mr Burnham faces huge economic problems, but at the heart of them is stalled growth.
The British economy has been slow since the 2008 financial crisis. Gross domestic product per person is only 7 percent higher than at the start of 2008, compared with more than 20 percent in the decade before the crisis.
“Growth is the big challenge facing the UK,” said David Aikman, director of the National Institute for Economic and Social Research, an independent think tank. The country’s most persistent problems, like how to finance the transition to clean energy and support an aging population, “would seem a lot easier if we had faster growth,” he added.
Many of the major economic problems, such as high debt and huge demands on public spending, are not unique to Britain. But Mr Burnham is subject to constraints placed on him – and those of his party. Fearful of scaring off international buyers of British government debt and further raising borrowing costs, he has pledged to stick to strict debt and spending rules imposed by Rachel Reeves, whom he is expected to replace as Chancellor of the Exchequer in the coming days. Mr Burnham will also inherit a party that promises not to raise any of the country’s three biggest taxes, including income tax.
Mr. Burnham takes over as prime minister after nearly a decade as mayor of Greater Manchester in northern England. This position gave him power over transport, housing, policing and skills development through adult education and training. Mr Burnham highlighted the virtues of local control over central government as a political signature and promised to devolve more powers from Westminster nationally.
Britain is “extraordinarily centralized,” said Diane Coyle, a professor of public policy at Cambridge University who has influenced Manchester’s economic policy for much of the past two decades.
Power, particularly in financial matters, is concentrated in London, a remarkable level of centralization by international standards. Local governments have less capacity to raise the funds they need than peer countries, according to data from the Organization for Economic Cooperation and Development, or OECD.
Centralization has led to two major, deep-rooted problems: low growth and lagging prosperity in most of the country, and economic overheating in London and the South East characterized by unaffordable housing. London’s productivity is 30% higher than the British average, and has been for around twenty years.
Manchester here is instructive. The city, which was an industrial powerhouse in the 19th century, suffered during the second half of the last century from rapid deindustrialization. But it is a rebirth. The city has become a model of growth with impressive volumes of foreign investment and productivity gains. Mr Burnham’s hope is that Manchester’s resurgence, the seeds of which were laid before he became mayor, can be replicated across the country.
The main benefits of decentralization, Ms. Coyle said, are that officials get better information about concerns such as what skills local businesses need in workers, and can better synchronize education and training policies to meet those demands.
That recommendation was echoed by the OECD, which said on Wednesday that if Britain could reduce regional productivity gaps it could increase overall economic growth. Local policies could be used to encourage more young people into work and improve transport, two major causes of regional inequality in Britain.
Getting there will be difficult. Britain is a patchwork of local authorities, with overlapping boundaries and varying responsibilities. Some control the police. Others waste collection. As power became centralized in London, the ability to effectively manage economic policy disappeared in many parts of the country.
Britain is both “too fragmented and too centralized,” said Neil Lee, professor of economic geography at the London School of Economics. There is now a broader political consensus to try to resolve this problem, he added.
The outgoing government said it was working on a plan to give local authorities more control over how they spend some of the national taxes. These efforts are in their early stages, and it remains to be seen how Mr. Burnham will realize his vision of decentralization.
Many of his other proposals are also long-term in nature. Mr Burnham said he would present a 10-year plan to reduce the cost of water, housing, energy and transport by taking “greater public control” over these utilities. Given the budgetary constraints it will face, this likely means tighter regulation and more partnerships between government and business, not widespread nationalization.
Will all this generate economic growth? Maybe, economists say, but not quickly.
In the short term, Mr Burnham faces citizens impatient for change and is expected to announce measures to tackle the cost of living.
We hope the new government will take “some eye-catching measures to tackle the cost of living”, perhaps on energy prices, rent or social housing, said Danny Sriskandarajah, chief executive of the New Economics Foundation, a think tank which was among those advising Mr Burnham.
Recent years have shown how the plans of Britain’s political leaders can be derailed. The UK economy is very sensitive to shocks from foreign events due to its openness to trade and its reliance on foreign bondholders.
At the start of this year, faster economic growth and reduced borrowing seemed in sight, and inflation should finally return to the central bank’s 2% target. But then U.S. and Israeli attacks on Iran sparked a war that sent energy prices soaring. Household energy bills have increased by an average of 13 percent compared to a few months ago. Expectations of interest rate cuts, which would reduce mortgage costs, have disappeared.
Mr Burnham will need to overcome these shocks to achieve his own economic agenda, including improving living standards.
Otherwise, disposable incomes, adjusted for inflation, will decline, Mr. Sriskandarajah said. “And no government will survive this. »
