The problem with trying to effect a screeching change of economic direction in the middle of a Parliament – or at least a significant problem, for there are several – is timing.
A ‘long-term’ plan for growth is all very well, but it doesn’t have any chance of being implemented if it doesn’t secure the by now decidedly short-term objective of winning the next election in 2024.
When you account for the time it will take to legislate for various parts of the Chancellor’s exciting new septemberprogramm, then allow for however long it will take for the private sector to respond to incentives and start generating growth (assuming they do), two years suddenly feels like quite a tight timescale.
It is all the bolder because the Government has hardly fulfilled the promises it made to the electorate – especially the millions of voters who backed the Conservatives for the first time – at the 2019 election.
There are some good reasons for this; most obviously, the pandemic consumed both all the Government’s attention and a vast amount of money for the first two years of the Parliament, leaving less time and cash for levelling up than anyone could have envisioned in 2019.
But it does mean that the Government might have been expected to make a priority on sealing the deal with those voters. Instead, Truss seemed in the early days of her premiership to be deathly allergic to even saying the words ‘levelling up’.
All of this is worth bearing in mind when assessing Kwasi Kwarteng’s proposals for ‘Investment Zones’ (outlined in a handy box on pages 17 and 18 of the above-linked Growth Plan), for they seem to be as close to a ‘Trussonomics’ version of levelling up as we have yet seen.
Whilst ministers seem not to have worked out all the details yet, the basic idea is that the Government will bundle together a series of pro-growth reforms – time-limited tax cuts, planning reform, and so on – together and grant them en bloc to areas that bid for the privilege.
At the same time, Truss is reportedly proposing to roll several ‘levelling up’ funds into one pot in order to try and reduce the Treasury’s control.
(This last might have a secondary benefit: if it is designated as a UK-wide fund under the relevant provisions of the UK Internal Market Act, it could make it much easier for ministers to authorise spending on particular projects in Scotland, Wales, and Northern Ireland, side-stepping Michael Gove’s preference for UK-wide projects and the Treasury’s concerns about exceeding the Barnett Formula.)
If Investment Zones are this Government’s answer to levelling up, the big question is whether they’ll work, or end up as yet another plot-against-Mercia fiasco like previous efforts by Whitehall to try and order economic growth around the country. Unfortunately, at this admittedly very early stage the auguries aren’t great, because the success of the model seems to hinge on planning reform.
People from Truss’s campaign are a bit vague about the origins of the IZ idea. However, the most likely contender seems to be this paper on ‘full-fat freeports’ from the Adam Smith Institute. Here is the author setting out how such things could genuinely spur economic growth, rather than simply move it about:
“A full-fat freeport could liberate businesses from the distortions created by taxes and regulations… The biggest distortion in Britain and the one with the highest potential for boosting growth when removed is our planning regime. Freeports offer an opportunity to create areas where building factories, laboratories, and other business infrastructure is fast and painless.”
Early rhetoric around the IZs has indeed included stuff on planning, specifically housing. There is a clear temptation for the Government to try and woo sceptical Tory backbenchers by indulging their (“breathtakingly disingenuous”) pretence that ‘levelling up’ should mean shifting housebuilding away from the South, where it is needed, to the North, where it isn’t.
But even so, the boldness on that front already seems to be petering out. The FT reports that early internal debate about packaging the proposals with “radical planning reforms” have been shelved; another report ends on this scathing note:
“Whitehall insiders said the radical nature of the investment zones had been “overhyped” in terms of the scale of ambition. “We’ve gone from the OxCam Arc to an industrial estate in Cornwall,” said one.”
Such retreat, at such an early stage, simply reflects that Truss, and perhaps the Conservatives in general, are in a no-win situation on growth. Even setting aside the particular political problems about her change of course and inability to seek a fresh mandate in a snap election, the blunt fact is that the major drags on the British economy are very popular with a dominant portion of the Tory coalition.
One suspects that Truss, who spent the leadership contest denouncing (perfectly sensible and necessary) housing targets as ‘Stalinist’, would probably prefer not to be scattering a freeport archipelago across the country in lieu of general liberalisation.
She and Kwarteng probably grasp Ant Breach’s argument that a big part of creating sustainable economic growth in the North is freeing up more disposable income for consumers in the South… principally via planning reform. Yet, unsurprisingly, southern local authorities seem markedly less keen on becoming Investment Zones.
Perhaps IZs will do some good. Conservatives hoping to hold on in the Red Wall and return to government after the next election must certainly hope so. But the path to strong, sustained growth is blocked by powerful forces, and those forces vote Tory too.