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Let me level with you

Let me level with you

The government’s paltry spending plan for levelling up shows a lack of real ambition. If Britain is to reinvent itself, its leadership must think differently about debt, tax and spending


Transcript

As you might remember, Liam Byrne, the then outgoing Chief Secretary to the Treasury, left a note for his successor after the Labour election defeat in 2010: “I’m afraid,” he wrote, “that there is no money.” Well this week, Michael Gove, the Conservative cabinet minister, took 332 pages to say much the same. 

I’m James Harding, the editor and co-founder at Tortoise, and in this week’s editor’s voicemail I want to talk about the real failure of Britain’s leadership – not Partygate, but the seeming political paralysis when it comes to thinking differently about how we pay for our ambitions as a country. 

Levelling up – the watchword for bridging the economic gap between the South East and the rest of the UK – is what Johnson describes as “the defining mission” of his government. And yet Michael Gove, the minister for levelling up, found that there was no new money. This week, he set out the government’s plans to 2030 to remake the map of Britain. And a lot of departmental public spending was redirected or at least rebadged. But even the money specifically earmarked for levelling up – money that had been previously announced – amounted to £4.8 billion. And that might sound like a lot of money, but it is 0.004 per cent of government spending. It seems that the note in the top drawer of the Chief Secretary to the Treasury’s desk still reads: “I’m afraid there is no money.”

This is because Britain is not having the conversation about whether it really wants to take the risk on investing in itself.   

The costs of public service are rising. The trend rate of growth is significantly slower. And yet politicians, both on the Right and the Left, seem unwilling to discuss making a really big change to the economic formula. They don’t want to scare the markets, they don’t want to scare the public, they don’t want to scare the horses.

Instead, what this government – and to be fair, the Labour opposition – tells us is that they want to a) keep a lid on borrowing b) that they intend to cut taxes at the same time as increasing funding to public services and also c) make once in a generation public investments in greening the economy, fixing the skills crisis, reviving productivity growth and remaking the map of opportunity in the UK.

To my mind, the silliest and most unhelpful statement on public policy last year came not from Boris Johnson but from Rishi Sunak, the chancellor widely admired for his competence and considered thinking. It was when he told Conservative Party Conference this: “Just borrowing more money and stacking up bills for future generations to pay, is not just economically irresponsible. It’s immoral.” Yes, that’s right: he said “immoral”. Not only did he, in effect, close the government off to rethinking the balance of debt, taxation and spending. But, by implication, he was arguing that higher taxes are more moral than increasing government debt. And, sure enough, when it came time for the Budget, Mr Sunak had raised the level of taxation in the UK to its highest rate since the 1950s.

The levelling up white paper showed the price of Sunak’s “morality”. The government doesn’t have the money to do what says it wants to do; in fact, it’s struggling even to find the money to do what it needs to do. 

If you look beyond the daily, even the weekly, news, you can’t help but see the scale at which the world is changing around the UK. Simply keeping up is proving expensive and hard to do. Britain’s army had over 300,000 personnel in 1988, the year Michael Gove finished university and started his working life; today, it’s less than half that. The costs of healthcare have, in that same time, have more than tripled. The country’s 15 year-olds are generally keeping pace on international literacy and numeracy scores, but they are falling behind students of the same age in Canada, Korea, Hong Kong, Shanghai and Beijing. And that’s before you even begin to think about social care, energy costs, cladding. 

No.11 Downing Street must surely feel like pretty much every other household in the UK today: the bills just seem to keep on coming and they’re all getting bigger.   

I’m not an economist, but what I’d really love to understand better is why we’re not having a discussion about breaking the mould – whether we can move to a fundamentally different split between taxation, debt and spending.

Because the UK government’s debt to GDP ratio – i.e. how much the state has borrowed as a percentage of the overall output of the national economy – is just over 100 per cent. Germany’s is much lower, generally under 60 per cent but it has bumped up to 70 per cent through pandemic; the US, which I know is a different case because of its size and the power of the dollar, is 130-plus per cent; Italy is higher still, north of 150 per cent; and Japan has laboured under years of much, much higher national debt, 250 plus per cent.

But just consider that range. Surely that range suggests the UK can, at least, ask whether it wants to take a bigger mortgage out on itself. Whether or not it wants to take a different kind of bet on its own future. Because if you were to increase the government debt to GDP ratio to, say, 120 per cent, 125 pre cent, it would make hundreds of billions of pounds available. If Britain really wants to remake its public services to take on not just health care but social care too, if it really wants to modernise its Victorian transport infrastructure, if it wants to do what it says it does, to reskill and reboot productivity and if it wants to lighten the tax load on businesses so that business itself can invest in the future, it is surely going to have to find the funds. 

I know that this isn’t for free. I know that Rishi Sunak is right that future generations will have to pay. But if you read Michael Gove’s white paper, you have to come to the conclusion that those generations are going to pay in thwarted ambitions without it.

Unfashionable as it is, I’m an admirer of Michael Gove. (I have to say this, when I do say it, at a safe distance from my friends who are teachers who, dating back to his time as education secretary, still loathe him). But here’s the thing: we can’t be endlessly bitching about the dog-whistles and soundbites of our politicians, then mock a minister for taking an intellectual swing at the problems of the world when he’s in government. And Gove – alongside Andy Haldane, formerly of the Bank of England – doesn’t shy from a great sweep of history. In fact, not only do they frame their vision as a modern Medici model, but the report starts in Jericho 10,000 years ago and charts the rise and fall of the world’s largest cities since then: among others, Babylon in 500 BC, Rome 200 AD, up to London in 1850 and it takes us all the way up to the modern day. (In fact, along the way, we learn that Polonnaruwa in Sri Lanka was the world’s largest city in 1180 – rarely does a government white paper offer information that might come in handy in a pub quiz).

The most tangible idea of course in the white paper, that itself is a big web of promises, is to create more MCAs – more Mayoral Combined Authorities, i.e the kinds of local governments or regional governments that you get in Birmingham, Manchester and London, where metro governments have greater power over infrastructure and investment. Frankly, it’s not a new idea – George Osborne started pushing it years ago – but it is a good one. And if you’ve been listening to these editor’s voicemails for a while, you’ll know that it would be particularly churlish of me not to cheer. If you go back and listen to ‘The Local Pandemic’ in March 2020, you’ll hear the sound of a person – me – in the throes of a political awakening, someone previously bored by the policy wonks bashing on about devolution and then, suddenly, getting it. 

But this is where the political reorganisation runs into the financial reality. What’s left unresolved in Michael Gove’s white paper, even in the case of these metro mayors, which is just one idea, is what kind of meaningful ability they will have to raise funds, either through taxes or debt, and so in effect, what resources, what power might really be at their disposal. Instead, what they’re left with? Well, they are waiting on paltry Whitehall handouts that don’t go a fraction of the way to making up for lost revenue from a decade of government cuts to local government: if you read our daily Sensemaker email, if you’re a member of Tortoise you’ll get it every day, but if you read it you will have seen that Birmingham for example has received £53 million in levelling up grants, but it is still way, way off the £600 million a year that it has lost in real terms since 2010-11. And this is a pattern in British politics – a pattern that, to be fair, is older than this government. What we do is we prioritise things rhetorically, but don’t match it financially – and then we’re surprised that the public’s confidence in government and politicians themselves slides. 

This white paper is informative and it is important. But it’s not going to level up Britain. And that’s because, when it comes to what it takes, we’re not levelling with ourselves.