Economic Policy

Pursuing, and gaining from, growth

  • Published: Oct 31, 2012
  • Author: Tom MacInnes
  • Category: Economic Policy

Two major reports on the future of the UK economy came out today – one from a politician who was elected to parliament in 1966, one from a think tank set up in 2005. Lord Heseltine’s report deals with how the economy can return to growth. The Resolution Foundation’s report focuses on how that growth can be better distributed to ensure rising living standards for people on average and below average incomes. 

What they share is a rejection of the Thatcherite/ Blairite economic orthodoxy. The Heseltine report is largely about setting up structures and designing the right kind of state intervention so economic activity can thrive. In doing this, it is also a retort to the Beecroft report, which centred on deregulation and weaker worker’s rights as the routes to economic recovery.

The Heseltine report is substantial and fascinating stuff. It is enormously, almost comically wide ranging at times. Before leaving for America, David Cameron’s chief advisor Steve Hilton thought he was commissioning a report on economic growth, and ended up with recommendations as to the structure of local government and the number of annual visits ministers should make to Brussels (at least two). 

In contrast, the Resolution Foundation report is tightly focused and its policy proposals come fully costed. No blue sky, Heseltinian thinking for this (or indeed most) think tanks. The three main proposals relate to improving the proportion of people with intermediate skills, increasing pay at the bottom towards a “living” (or “affordable”) wage and increasing the amount of free childcare. They note that while none of the proposals on their own will make a huge difference to living standards over the next decade, in combination they will increase the average incomes of households on below average incomes.

What all three of these proposals have in common is that they are structural attempts to improve living standards. They all go beyond the individual’s motivation and ability to improve their own lot. It’s worth contrasting this approach to, say, Universal Credit, where a technocratic series of changes to the benefit system are intended to lift hundreds of thousands of people into work and out of poverty, without any thought for wages, childcare or the quality of work. 

There are issues, of course, with the idea that if only the childcare existed, there would be enough jobs for parents to do. The reality is there is a huge shortage of jobs at the moment. This is true when we think about childcare as a tool for tackling poverty, too. In our analysis of child poverty in Wales in 2011, we estimated that an additional 85,000 jobs would be needed (around 8% of the total) in order to increase parental employment sufficiently to get near the child poverty target. 

Nor should we assume that all childcare should be provided by someone other than the parents, who can then spend ever more time at work. But the central point about affordable childcare is that it provides a choice. It allows parents to choose how many hours they want to work. Vitally, it also allows the choice of how these hours are shared between mothers and fathers. 

The reforms to childcare suggested in the report are estimated to cost around £2.1bn – small change, really. The changes they, and the other recommendations, would bring about would not be revolutionary, but they would result in average living standards rising for the first time in a decade. At the launch event of the Resolution Foundation report today, the first commenter from the floor said the report was “timid”. This is not fair. Reports and research such as this has to be constrained by realism in order to be credible. We can’t all be Michael Heseltine. 

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