By any objective measure Osbornomics has failed.
At best, the former Chancellor’s economic policies merely stalled the post-recession economic recovery. At worst, they have stunted growth, further entrenched economic inequality and exacerbated social division throughout the country. The Liberal Democrats can take some encouragement from the fact that, when in coalition, they were able to moderate the more insidious and ideologically-driven elements of Osborne’s economic doctrine. One must only look to the unmitigated disaster of the Chancellors post-election budget where, for example, he sought to slash disability benefits as one example of what unfettered Osbornomics may have looked like.
For decades however, under both Labour and Conservative governments, the UK has suffered from persistently high levels of both wealth and income inequality. Socially, politically and economically, the geographic divide between north and south has grown. The north-east of England has for years been ignored when it comes to public investment with almost 25 times as much spent on infrastructure per resident in London. Osborneís proposed Northern Powerhouse appears to have done little to mitigate the long-standing effects of decades of under-investment in both people and infrastructure.
In purely demographic terms, the wealth divide between the old and the young is growing exponentially due to the institutionalized, structural deficit in public spending on the young (e.g. education and training) versus the elderly (e.g. pensions and health care).
It is only right that the whole country should be entitled to benefit from the spoils of globalization. A country purposively (and, arguably, politically) divided into two economic blocs – one sustained by high levels of investment in infrastructure and commerce and the other sustained by high levels of public welfare expenditure, with revenues from the former subsidizing expenditure on the latter – is both unsustainable in the long-term and utterly inequitable to those trapped in the vicious circle of state dependency.
With Osborne now departed amidst the post-Brexit turmoil now engulfing the UK, it is surely incumbent upon the Liberal Democrats to present a positive, progressive and liberal economic vision for the country.
Under a liberal economic plan, the UK’s overriding policy objective would be to concentrate first and foremost on seeking to bridge the equality gap that exists in the UK, thus seeking to guarantee that the proceeds of economic growth are more evenly distributed across the country. Investments in education, training and infrastructure should be prioritized in order to ensure the sustainable, long-term economic development in areas outside London and the South-East.
A liberal economic plan would address the existing, unsustainable welfare budget by offsetting any reductions in current welfare expenditure by making a commensurate investment in people and infrastructure which, along with greater devolution of centralised powers to local communities, would not only empower people to take personal responsibility, it would provide them with the tools needed to achieve it. Long-term and sustainable economic development in the regions would more than offset the short-term cost.
However, a truly liberal economy should concern itself not only with empowering those who currently lack the skills, facilities and opportunities to take control of their own future. It should work for everyone, to free us all from the archaic social and professional constructs which an increasingly globalised and technology-driven society is making ever more redundant. The absurdity, for example, of millions of people living and commuting for hours every day into a small, densely populated area such as London in order to sit at a desk and interact with people all over the world via telephone and email to the inevitable detriment of both the environment and their physical and mental health has never seemed more obvious. Current expenditure on transport could easily be re-diverted to investment in telecommunications technology, allowing more people to work remotely and flexibly.
A liberal economic plan would prioritise and provide leadership to drive the countryís long-overdue diversification from both our historic reliance on manufacturing and heavy industry and our current dependence on financial services and its integration into a more, geographically-broad, diverse and technology-driven economy. A liberal economy would be outward-looking and appreciative of the positive social and economic effects of migration. It would seek to draw us closer to our trading partners in Europe by mitigating the effects of a ‘Brexit’, ideally by re-engaging with the country and winning the argument on the merits of the UK’s continuing membership of the EU.
Finally, and most importantly, a liberal economic plan would represent a long-term, progressive alternative to the excesses of Labour’s traditional tax and spend agenda and a departure from politically-driven austerity, which has done so much to tear the country apart. The Liberal Democrats are, perhaps more than ever, best placed to set out a positive economic vision for the country’s future.
Let’s begin.
* Ciaran McGonagle is a Liberal Democrat member originally from Derry, Northern Ireland and based in Colchester. He is a solicitor working in financial services in the City of London.
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20 Comments
A country’s wealth is increased by increasing productivity (GDP per head).
The UK’s productivity has stalled for over 10 years. This applies to the private and public sectors, and including professional services.
For example, there is much scope for using computer systems to improve the effectiveness of services and making products.
The government is responsible for tackling this in public services but the private sector is responsible in the private sector.
Now is the time to do this while we have low unemployment and the opportunity to export more to non EU countries once export duties are lowered.
This is very strong on wealth redistribution (a common enough theme here) and very light on wealth creation.
At least it didn’t reccomend “invest in infrastructure and skills and green technologies” like all the others.
The shift to teleworking will actually benefit a few specialists (and is a miserable existence like a monk in a cell illuminating manuscripts).
David Evershed is right.We need leadership on productivity.
i agree with you both – increasing productivity is key. I think the challenge is overcoming the long-term stagnation that exists in large swathes of the country by increasing public investment and incentivising private investment in new industries.
I am not really advocating greater wealth distribution and would actually prefer targeted tax cuts and relief to incentivise private sector productivity.
A liberal economic plan would break up the concentrations of wealth in Britain and return the levers of power to the people, instead of merely redistributing the wealth created by an unfair economic system. Our focus should be on removing inequality at the root through structural reforms, and enabling opportunity in every area.
“Finally, and most importantly, a liberal economic plan would represent a long-term, progressive alternative to the excesses of Labour’s traditional tax and spend agenda and a departure from politically-driven austerity, which has done so much to tear the country apart. ”
So we are going to have a budget and balance of payments surplus, full employment, a strong pound, zero inflation, borrowers will be able to borrow at current low rates, but Pensioners will get 5% on their savings?
If not this then what? And how are you going to deliver it? That’s quite a hard question which I doubt anyone will attempt to answer.
Hi Peter
What I would like to see is a shift away from both
(I) funding growth through increasing taxation and welfare spending (labour) and
(ii) attempting to fund growth by simply cutting welfare and leaving the private sector to fill in the gaps (Osborne).
Id rather see a system whereby the welfare bill is reduced organically by prioritising education spending and public spending in poorer regions. My hope would be that, over the longer term, we would have a higher skilled work-force, be less dependent on one or two industries which leaves us strategically vulnerable and have less need to continue to fund an unsustainable welfare system.
Im not claiming that we would end up in a position of full employment, zero inflation etc, simply that we would be on a sounder, long-term footing.
Ciaran
I have been and am a massive advocate of something you so well allude to here , the madness of commuting when home based work can substitute , or, I would call them , pop up offices ,where there is demand !
We need to combine the best of a dynamic and enterprise culture , wit the best of state involvement , and green with it all !
A sort of free trade thus ,that means the economy and all who are involved in it ,is truly free ,because it is really fair .
Free and fair trade , a social market economy , an enterprise CULTURE! Yes , that word again !
Do you mean a liberal economy or a Liberal economy?
One can tackle neither wealth inequality nor income inequality by tinkering with sharing the proceeds of growth (especially when their isn’t any)
Given that both labour and particularly the coalition ran up huge deficits, they can hardy be described as tax and spend, more spend and don’t tax enough.
A liberal economic approach would be one that redistributes wealth and income because it believed that a more equal distribution of both would lead to increased economic growth, less state dependency and a more liberal society.
Let’s see what happens after Brexit. There is a good chance that those areas that are suffering will suffer even more.
“A liberal economic plan would address the existing, unsustainable welfare budget by offsetting any reductions in current welfare expenditure by making a commensurate investment in people and infrastructure which, along with greater devolution of centralised powers to local communities, would not only empower people to take personal responsibility, it would provide them with the tools needed to achieve it. ” Sounds Liberal, but a translation into Plain English would help. I think it means, cut the welfare budget and put the money into infrastructure and local budgets. Sounds good, but no-one so far has managed to cut the welfare budget without cutting off support to people who desperately need it, worsening the wealth gap and worsening expensive heath problems. The only way of cutting the welfare budget significantly without that is to invest not only in infrastructure, but in soft measures like effective heath promotion and community development and in pushing up the income of people at the bottom of the heap. Moreover, infrastructure development would need to be heavily loaded towards benefiting the poorest parts of the country, prioritised ahead of HS1 or new airport runways.
A combination of good and bad ideas (along with some noticeable gaps) buried under some inaccurate and impenetrable language.
The North East is often cited as an under invested place but it will continue to be even under a significantly increased investment process. The “northern powerhouse” as set out by Osborne was insufficient to what was needed but could actually produce something.
The absence of mention of how the incentives of the tax system create concentrations of wealth and how to address that is noticeable. The lack of mention of a LVT too.
The belief in Tele-working goes back more than half a century yet peoepl still pay vast amounts and put themselves through hell to schlep in to major centres across the world so I don’t see it being solved any time soon. That is before you consider the impact of the isolation of home working and how it can reduce learning and development. A balance is needed (and to some extent will have to be self-generated by employers). Hybrid arrangements may be possible to balance these things but again too much faith in any approach will end up misplaced.
The education and training side has often been focused on a “how much” approach, as opposed to the “what” being prioritised. Along with the the odd tax issue.
As to the reducing dependence on Financial Services, Brixit will probably take care of that but not in a positive way and simultaneously erode the tax base giving other issues.
Simon Banks
“infrastructure development would need to be heavily loaded towards benefiting the poorest parts of the country, prioritised ahead of HS1 or new airport runways.”
So are you suggesting banning private investment by businesses in building new runways?
As for the Infrastructure spending on the “poorest parts of the country” is not really a viable option. It will need to be to support areas outside of London which have the best potential to see a positive return on the public investment (like the cities that have the potential to cluster). Cutting off infrastructure in Manchester to spend it on Caithness, Sutherland & Easter Ross, Cornwall and West Wales is not a workable solution. Any change in investment will have to focus on potential from the investment (that doesn’t rule out the poorest areas but there will be some middling areas that will benefit significantly).
I largely disagree with this article. For starters there is nothing original enough to merit the label Osbornomics.
By a number of objective measures, however, coalition economic policy was successful. Two million more jobs – mostly full-time and skilled. Fastest growth among major economies. Falling income inequality (look it up!) Unprecedented investment in skills/apprenticeships.
Everything has been derailed by the political errors of a) holding a Brexit referendum and b) voting to leave, and we should certainly blame the current government (but not ‘Osbornomics’) for a) and the economic consequences that brings.
Frankly it is long past time to stop debating whether the government in 2010 should have tried to halve the deficit in 4 years rather than eliminate it in 5, as if this represented some grand difference of moral principle (Osbornomics versus Corbynomics?), rather than, as it was, a calculation weighing up the different risks of going to slowly or too quickly. Nobody has been moved by that debate and it is time to look forward.
The Northern Powerhouse, too, is a good idea, though it had barely got started, and now has to be in question.
I don’t agree that the “density” of London is the problem – make London less dense and there will be more travelling to get to any part of it.
I do agree there is an issue of intergenerational unfairness that needs to be addressed and I don’t expect it to happen, tragically, until the massively entitled, always voting baby boomers die off – after having voted to trash the economy via Brexit as their parting act of “class war” against all other generations.
And on the whole “prevention is better than cure” approach to welfare and inequality – this is a noble sentiment but I’m not so sure that a lack of this sentiment has been the problem. Finding actual preventions that are cost effective is not easy, and if you can think of one you are a hero.
Ciaran agree with devolving economic power .The Northern Powerhouse is a good concept but has not been adequately resourced to become a reality .The Midland Engine could be a major economic driver in terms of manufacturing industry .Why are we still chasing a third runway in the south east when we could use Birmingham International as part of an integrated transport hub.?We still need to develop the green and circular economy which Osborn stalled .But we need a different construct if we are to develop a flexible and adaptable workforce able to sustain themselves as the pension age is extended This means lifelong learning and skills development a policy close to many Liberal Democrats hearts. We cannot put all the tax burden on the younger workforce to sustain an aging population with complex health problems .
It’s not just the big-picture ‘Osbornomics’ that has failed. The Tories have over nearly 40 years astonishingly mismanaged the public sector. And even more alarmingly, they’ve mostly got away with it by hiding behind a smokescreen of flimsy or non-existent logic.
The root of the problem was nailed by Gladstone with his observation, “Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear”.
So, Tory distrust/fear has brought us the byzantine, top-down, horribly expensive and scandalously dysfunctional administrative overgrowth of regulatory oversight by the likes of Ofsted, Monitor, the FSA and many, many more.
Teachers are terrorised and demoralised, told by remote bureaucrats (in Whitehall? At academy chain HQ?) precisely how they are supposed to interact with the children in their class down to the colour coding of marking according to some. This can only destroy professionalism, initiative, humanity and accountability while guaranteeing substandard outcomes and staff aiming for early retirement.
Of course, supervision (“prudence” as Gladstone put it) is necessary so how might Liberals approach it?
Well, for one thing by recognising that one size does NOT fit all, by finding solutions adapted to each circumstance but a big part of that should be by workplace democracy (it’s an old Liberal idea for a reason).
For example my brother’s two children went through both primary and secondary schools where the head teachers would not have survived for an instant had it been up to either parents or teachers who universally despised one head and loathed the other. Both were eventually ‘found out’ by the powers that be but only after many years so the cost of their bad leadership on morale, on student outcomes and on costs is incalculable.
Even in private industry the unnecessary tolerance of poor leadership costs us dear with too many managers who just aren’t up to the job or who see it only as an opportunity for self-enrichment.
So here is just one small agenda where Liberals could embarrass the Tories into action and where that action would quickly make an enormous difference to many people’s happiness and fulfilment and, of course, to productivity.
Hi Ciaran,
If there is one aspect of economic theory that unites all strand of economic opinion it is that increasing taxation doesn’t lead to economic growth. The neo-libs would argue that high taxation suppresses incentives. The PK fraternity would argue that high taxation suppresses aggregate demand.
You might like to focus on is just what you are trying to achieve. You say you don’t want full employment. Why not? We can get unemployment down to about 4% without inflation getting out of hand. Experience shows that. What’s wrong with that? What’s wrong with everyone who wants to work being given a job at a living wage? Is this something we can “afford”? If not why not? Why can we afford to pay people for doing nothing but we can’t afford to pay them a bit extra for doing something that might be of some use?
And what about the deficit? If the amount of spending needed to fully utilise the output of the economy is insufficient should governments run a deficit to make up the difference? They do in practice – even though they say they shouldn’t – so what’s wrong with that?
Tough questions which need answering. That answer, I might suggest, isn’t to be found by looking for something in-between what Labour and the Tories might do.
@Caracatus,
“Given that both labour and particularly the coalition ran up huge deficits, they can hardy be described as tax and spend, more spend and don’t tax enough.”
There seems to be an implicit assumption here that Govts should tax and spend in approximately equal amounts.
So if the Govt needs more revenue it should tax more or maybe settle for taxing the same and spending less.
But have you considered the effect of the economy losing money to pay for more imports than it can cover by selling exports? If there is a net loss is it reasonable for Govt to run a deficit to replenish the pounds?
Or should Govt devalue the pound to make trade balance?
And what if people save their money and don’t spend? Should Govts borrow that back from them and spend instead?
Is inflation the only constraint on Govt spending? If we have to repay the money the Govt borrows, by the Govt running a surplus, how is it that this hardly ever happens? Even Mrs Thatcher ran deficits. Will we have to repay those debts too?
Hi Peter
Nothing wrong with full unemployment although I would query on what basis this could be achieved – are we talking high levels of public sector employment? Reductions in employment rights? Or organic job growth as the economy grows? Certainly a low rate of unemployment as you suggest is indeed desirable and one would hope that with the right level of govt incentives and private sector investment that this could be achieved.
Similarly, on the deficit i agree that running a small deficit is not an issue, particularly in the example you have set out. The govt should absolutely use every tool at their disposal to ensure that output is at optimal levels across the economic cycle. I have no issue with a small deficit in a growing economy. Running a surplus as osborne suggested is almost immoral. Its certaintly not smart.
I think my general point here is that i firmly believe that a lack of equality (geographic, demographic, gender etc) is undermining economic growth and competitiveness and leaves us stratgically vulnerable.
If, after a brexit, financial service firms move wholesale to other member states (unlikely i admit), the UK will struggle to plug the gap. We should also consider the brain drain of young people emigrating on the basis that opportunities and long term prospects are decreasing due to state bias in spending on the elderly.
Hard to set out in 700 words!
“Nothing wrong with full unemployment although I would query on what basis this could be achieved – are we talking high levels of public sector employment?”
Not necessarily. I’m meaning that Government controls aggregate demand in the economy so that it is working clsoe to full capacity and therefore unemployment is minimised.
It means accepting that Government regulates the economy by doing the opposite to everyone else. Spending when everyone is saving and saving when everyone is spending!
And don’t forget that the big savers in our economy are our overseas trading partners who wish to sell us lots of stuff but not buy so much. They save the difference by buying Treasury bonds.