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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer, an FT contributing editor, is chief executive of the Royal Society of Arts and former chief economist at the Bank of England
The most powerful thing a powerful person can do is to give that power away. Power should be to politicians as money is to philanthropists; it is in the act of giving that they receive. Nowhere is that truer than when it comes to restoring growth to the UK’s stagnating economy.
Finance ministers like to play the role of magicians, producing rabbits from fiscal hats. The last Autumn Statement in the UK saw 100 bunnies produced from a single hat that, weeks earlier, was said to be empty. Unfortunately, having spotted the sleight of hand, the Office for Budget Responsibility (OBR) revised down their projections for medium-term UK growth.
To restore sustainable economic growth, the UK’s next chancellor needs to adopt a different approach. Their first fiscal trick should be to chop themselves, and the institution over which they preside, in half.
The most powerful and consequential act of Gordon Brown’s decade-long chancellorship came on his first day in office. That was to cede power for the setting of monetary policy to the Bank of England. In giving, he then received a golden decade of low inflation and interest rates and sustained economic growth.
Today’s conditions are less propitious, which is why the next chancellor needs to follow the Brown playbook but with greater boldness, distributing more powers to those best able to deliver sustained growth. This pro-growth strategy should have two elements, one national, one regional.
First, there should be a separation of the Treasury’s finance and economy ministry functions. The Treasury has always pursued a fiscal-first strategy, ensuring the nation’s books are balanced over the medium term to avoid funding crises. This is a crucial role and requires a singular institutional focus supported by appropriate fiscal rules. But that focus has meant policies to deliver sustained growth have played second fiddle. The Treasury’s fiscal-first strategy has come at the expense of too little attention to growth and too little sustained public investment in the infrastructure and social capital needed to support it.
To break this cycle, growth should be given equal billing with fiscal sustainability as a policy objective. That can be achieved by creating a new economy ministry with an explicit growth mission. And to ensure growth is balanced geographically, this new economy ministry should be based at the Treasury’s new campus in Darlington.
Past attempts to shift the UK’s growth focus away from the Treasury ran aground politically, which tells us that no growth plan can survive without buy-in from both the first lord of the Treasury (the prime minister) and the Treasury itself. Responsibility for the UK’s national growth mission should sit, statutorily, with a tripartite body comprising the prime minister, chancellor and economy minister. The PM would have the casting vote in the event of a trade-off, or stand-off, arising between fiscal and growth objectives.
To give this body the support it would need to design and deliver a growth plan, a high-powered secretariat of independent experts should be created, modelled on the US Council of Economic Advisors. This would mean that analytical, as well as policy decision-making, powers were no longer centralised in the Treasury.
The second, complementary act of power-shifting should be through a full-throated commitment to devolution, both of local spending and taxation. Existing proposals from both main UK parties, while pointing in the right direction, are incremental shifts from a heavily centralised starting point that again makes Britain an international outlier. To harvest the full fruits of local growth, power-sharing needs to be far bolder.
That means redrawing the terms of existing devolution deals for Wales, Scotland, London and, in time, Northern Ireland, as well as empowering the English regions. To bridge any emerging gap between local powers and responsibilities, stronger accountability devices would be needed for the UK’s nations and regions. Among these, I see an important role for citizens assemblies in keeping local leaders’ decisions attuned to the public’s needs.
It would be naive to think shifting powers alone would be sufficient to kick-start UK growth. But bold governance shifts like this are necessary conditions for stirring it from its slumber. The next government, by giving power generously, could ensure it and we all receive economically in the years ahead.
