Under normal circumstances, at this stage in the economic cycle, one might reasonably be looking for the proverbial green shoots of recovery. This time, however, even a return to growth solves only the most pressing of our problems. Not only must Britain contend, in the immediate term, with the fallout from the worst banking crisis since the 1930s. As the Office for Budget Responsibility warned yesterday, the economic strains of a steadily ageing population are also looming unavoidably large.
First, the here and now. In the face of so nasty a mix of pressures – chronic and acute, domestic and international – George Osborne warrants a modicum of forbearance. The globalisation of the modern world is such that there is a limit to the impact that either he or his counterparts at the Bank of England can have. That said, for all that the dip back into recession may in part be blamed on the eurozone, the Government has been all too lackadaisical in its efforts to foster growth.
In fairness, today will see the launch of the latest plan to get more money into the real economy. The Bank's £80bn "funding for lending" is a creative response to increasingly anguished calls from companies unable to access the loans they need. But it was so long coming that confidence has been eroded still further. It is also far from certain the scheme will prove any more effective than its various predecessors.
Even taken together with supply-side measures, such as reforms of the planning system, however, not enough has been done to help business deliver the growth needed to balance out Mr Osborne's squeeze on public spending.The Government should indeed stick within its borrowing limits, but there is much more that can still be done.
The director-general of the CBI this week made a string of constructive suggestions, calling for, among other things, an end to the confusion over renewable energy subsidies, "diggers on the ground" to deal with transport bottlenecks, and an export finance fund. All are good ideas, as are proposals for more concerted efforts to prioritise public spending in areas of higher economic return – particularly infrastructure investment – and tweaks to investment tax breaks to encourage nervous yet cash-rich companies to expand. Mr Osborne must stop dithering and act bravely.
But what about the long-term future, beyond the current crisis? Here, the challenges are trickier still. The Government's aim is to exploit globalisation, to build on the disproportionate strength of high-end services, such as banking and law, to attract international giants to invest here, while also helping home-grown companies sell more abroad. It is a compelling vision. But it will not be enough to fill the gap.
According to the OBR's analysis, even with normal growth levels, the coming decades will see the Government needing to spend an ever-greater share of the national income on age-related services such as pensions and healthcare, even as those same demographic trends take their toll on the amount of money flowing into state coffers. To have any hope of keeping all-important government debt at a sustainable level, that means another £17bn worth of either tax rises or spending cuts, in addition to the existing £123bn cuts programme, the impact of which is only just starting to be felt.
What we are facing, then, is no brief squeeze, but rather an enduring tilt in the country's finances which the vicissitudes of the financial crisis only make harder to bear. And with that tilt comes a host of unpalatable choices that have been, until now, at least partly obscured by steadily predictable increases in wealth. Alongside broad social questions as to, for example, our tolerance of sharply widening inequality, there are also inescapable trade-offs in public policy that will need to be made.
The list of the questionably affordable is a long one, taking in everything from the renewal of Trident to universal pensioner benefits to the future of Heathrow airport. But the most obvious case in point, this week, is social care. Politicians across the spectrum agree that the elderly should not face the threat of crippling costs that can only be met by the sale of the family home. But talks on specifics have foundered yet again, leaving a feeble policy paper that fails to address the question that matters most: funding. The choice is a hard one, but it can no longer be ducked.
For all the gloom, there is a gleam of hope. According to the OBR, the economic fillip from higher migration might significantly reduce the amounts needing to be either raised in taxes or carved out of spending. As much as anything, then, the Chancellor should be lobbying against his Government's misguided cap on immigration. Now that would be real progress.Reuse content