One after another, Britain's recent prime ministers have promised to revive the country's economy. One after another, the promised growth eluded them.
Andy Burnham, who will formally become the new prime minister on Monday, came with his own version of this promise: “Good growth in every British postcode.”
Your plan? Empower local officials to make their own economic decisions. Burnham has promised to bring about “the biggest change of our lifetimes in the way the country is run.”
Burnham has not revealed the details of her economic agenda. But his priorities are emerging in his speeches and recommendations from his advisers. The New York Times spoke with five economists and political strategists who are playing a role in formulating Burnham's economic vision, several of whom spoke on condition of anonymity to speak openly about policies that were not yet final.
In addition to so-called devolution of power, Burnham has said she will put more public services under public control, while quickly addressing the high cost of living.
But Burnham will face the same economic challenges that her predecessors suffered: a heavy public debt burden, persistently high inflation and low productivity growth. Those problems are compounded by the inevitable legacies of the country's decision a decade ago to leave the European Union, which has dragged down the economy, and years of too little public investment. Nervous consumers are saving a lot, rather than spending.
Burnham faces formidable economic problems, but at the bottom is stagnant growth.
The British economy has been sluggish since the financial crisis of 2008. Gross domestic product per person is only 7 percent higher than at the beginning 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, such as how to finance the clean energy transition and support an aging population, “would seem a lot easier if we had faster growth,” he added.
Many of the big economic problems, such as high debt and huge demands on public spending, are not unique to Britain. But Burnham is limited by limitations created by himself and his party. Fearful of scaring off international buyers of British government debt and further raising borrowing costs, it has pledged to comply with tough debt and spending rules formulated by Rachel Reeves, whom it is expected to replace as chancellor in the coming days. Burnham will also inherit a party that promises not to raise any of the country's three most important taxes, including income tax.
Burnham comes to the premiership after almost a decade as mayor of Greater Manchester in the north of England. The job gave him power over transportation, housing, policing, and skill development through adult education and training. Burnham highlighted the virtues of local government control over central government as a political signature and has promised to devolve even more powers from Westminster across the country.
Britain is “extraordinarily centralized,” said Diane Coyle, a professor of public policy at the University of Cambridge who has influenced economic policymaking in Manchester for much of the past two decades.
Power, especially in the financial sphere, is monopolized in London, a level of centralization that is remarkable 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 (OECD).
Centralization has led to two big and 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 per cent higher than the British average, and has been for the past two decades.
Here Manchester is instructive. The city, which was an industrial powerhouse in the 19th century, suffered during the second half of the last century amid rapid deindustrialization. But it is staging a resurgence. The city has become a model of growth with impressive amounts of inward investment and productivity gains. Burnham's hope is that Manchester's resurgence, the seeds of which were planted before he was mayor, can be replicated across the country.
The critical advantages of devolution, Coyle said, are that officials get better information on concerns such as what skills local businesses need in workers, and can better synchronize education and training policies to meet those demands.
The recommendation was backed by the OECD, which said on Wednesday that if Britain could reduce gaps in regional productivity it could boost overall economic growth. Local policies could be used to get more young people into jobs and improve transport, both main culprits of regional inequality in Britain.
Getting there will be difficult. Britain is a patchwork of local authorities, with overlapping borders and shifting responsibilities. Some control surveillance. Others waste collection. As power has become centralized in London, the ability to effectively manage economic policy has been depleted in many parts of the country.
Britain has become “too fragmented and too centralized,” said Neil Lee, a professor of economic geography at the London School of Economics. There is now a broader political consensus to try to address this, he added.
The outgoing government had said it was working on a plan to give local officials more control over how they spend a portion of national taxes. Those efforts are in the early stages and it remains to be seen how Burnham will carry out her vision of devolution.
Several of his other proposals are also long-term. Burnham has said she will design a 10-year plan to reduce the cost of water, housing, energy and transportation by taking “greater public control” of these public services. Given the fiscal constraints it will face, that likely means tighter regulation and more partnerships between government and business, not widespread nationalization.
Will any of this generate economic growth? Maybe, economists say, though not quickly.
In the short term, Burnham faces a citizenry impatient for change and is expected to announce measures to address the cost of living.
The new government can be expected to take “some striking measures to address the cost of living,” perhaps on energy prices, rent or social housing, said Danny Sriskandarajah, executive director of the New Economics Foundation, a think tank that has been among those advising Burnham.
Recent years have shown how the plans of British political leaders can go off course. The British economy is very sensitive to shocks from events abroad due to its openness to trade and its dependence on foreign bondholders.
Earlier this year, faster economic growth and reduced borrowing appeared in the offing, with inflation expected to eventually return to the central bank's 2 percent target. But then US and Israeli attacks on Iran sparked a war that drove up energy prices. Household energy bills have increased on average 13 percent since a couple of months ago. Expectations of interest rate cuts, which would reduce mortgage costs, have faded.
Burnham will have to fight these shocks to achieve her own economic agenda, including an improvement in living standards.
Otherwise, inflation-adjusted disposable income will fall, Sriskandarajah said. “And no government is going to survive that.”
