Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science.
Jeremy Hunt has now been Chancellor for just over five weeks. In that short time, he has stabilised the Government’s finances and restored confidence in the markets. But more than that, he has also been able to offer price protection for benefits for pensioners and working age families and provide some extra resource for the health service and education. It is a masterful performance.
What he is doing ranks alongside the chancellorship of Ken Clarke, brought in after the fiasco of our departure from the ERM and, going further back, Roy Jenkins, brought in after the devaluation of sterling in 1967.
Those Chancellors are praised by the economists for their stewardship of the public finances after a catastrophic loss of economic credibility. But there is just one awkward feature of these precedents. The governments they served then went on to lose the elections of 1997 and 1970. Is there any chance of it being different this time?
There is one difference already. The Prime Minister did not change then – the Chancellor did. This time, there is a new Prime Minister as well. Indeed, he is someone who warned from the backbenches very presciently about the risks of unfunded tax cuts. So it is just possible that the political liability will be rather diminished – though so far that is not what the polls suggest.
There is possibly a narrow route forward. It would be open in the event of a real sense of economic recovery. At last, there is a proper debate about how dire our economic performance is and what we might do about it.
And there is a striking difference between two different official forecasts. The Bank of England paint quite a bleak picture of our growth prospects. They think that the poor performance since the financial crisis of 2008 is the new normal. But the Office for Budget Responsibility see us getting back to a trend growth rate of 1.75 per cent a year though only after 2024. This view sees our poor performance since 2008 as more of an outlier. Which view of the world proves correct is the big economic issue of our times.
The challenge for the Chancellor and the Prime Minister is to develop a clear and credible strategy for growth. Rishi Sunak’s Mais lecture at the beginning of the year rightly defined the three key elements as people, capital and ideas. The Chancellor took that further in the Autumn Statement when he went so far as actually to identify key sectors – digital technology, life sciences, green industries, financial services and advanced manufacturing – where we should try to shape a better regulatory framework post Brexit. And in his CBI Speech yesterday, Sunak boldly focused on innovation as a key driver of growth. All this adds up to a sustained attempt to develop a growth agenda, rather deeper and better thought out than just tax cuts.
Now the hard work starts of turning this strategy into real effective policies to get us growing again. We can avoid getting into an argument about whether or not the Government’s plan is an industrial strategy. The Conservative Party has got rather hung up on that term. Conservatives still fear it just means a return to bailing out British Leyland.
But that ignores the many constructive ways in which successive British Governments, including Margaret Thatcher’s, have intervened to boost particular business sectors. She actively recruited Japanese car companies to set up in Britain and enjoy the benefits of the Single Market. She promoted the mobile phone regulatory regime that would help Vodafone become a global player. A plan for growth means thinking strategically about how to boost the performance of the economy, and that can’t all be hands-off “horizontal” policies applying across the whole economy. It also unavoidably becomes “vertical” policies about particular places and business sectors.
The decision not to allow the sale of the Newport wafer fab is a vivid example of how these sort of decisions are unavoidable. The onus is now on the Government to come up with a semi-conductor strategy which follows through on that decision. It is great that the Chancellor committed to nuclear power and Sizewell C in the Autumn Statement. But there are also fantastic economic opportunities for us in becoming a world leader in small modular reactors and then nuclear fusion.
This week sees the biennial negotiations at the European Space Agency where the wonderfully enthusiastic George Freeman will be negotiating to get a key role for British industry in the space projects of the future. Keeping up that focus on innovation, week in week out, adds up to the best possible way of promoting growth. More than that, it promotes a sense of optimism and pride in what we can do.