Two-party politics is back in the United Kingdom with a bang, after 25 years away, and with it has come a retro vibe to the economic debate too. There's talk of re-nationalising key industries such as energy, water and railways; proposals for more public spending and an end to austerity; accusations of financial black holes, tax bombshells and soaring borrowing. You can practically hear the coffin lids creaking as Thatcher-era warriors from the political left and right rise from their graves to re-fight old battles. But it isn't quite like that. The issues may look similar, but they're different in their modernity. Economic history isn't repeating itself, although at the moment it rhymes.
Take housing. Eight years of quantitative easing-driven ultra-low interest rates and 30 years of not building enough homes have pushed house prices way out of reach of most people in their 20s and 30s. The new divide isn't between white- or blue-collar workers, or working classes against middle or upper, but instead it's between asset-owning older people and the insecure, struggling generation behind them. Student loans are steadily eroding the old middle-class stitch-up of access to higher education, but Labour party leader Jeremy Corbyn's policies to reduce student debt still resonated on polling day.
The quest for social justice is morphing into a search for generational fairness as we watch. Government debts create huge generational questions too, because they pile up IOUs that have to be repaid by our children and grandchildren, rather than by us. If we borrow to pay for today's spending, we're expecting future generations to pay the bills for our lifestyle today. The traditional remedy of letting economic growth take care of the problem, by making the bills more affordable as the country gets richer, won't work here. Most of the IOUs are embedded in Britons' pay-as-you-go state pension and benefits scheme.
They dwarf the government bonds that make up the rest of the debt. And it's structural, so even if we grow our economy, the pension and benefits schemes' liabilities won't get more affordable. They will just grow with us. And this is where today's economic climate rhymes with Britain's history most strongly. Because if most government borrowing looks increasingly unfair for future generations, there are only two other ways left to fund good, reliable public services: Either more austerity, or higher taxes.
But the answers of the 1980s are incompatible with the situation we find ourselves in today. There are limits on how far you can raise taxes in a world that's gone global, because trade, companies, jobs and people are far more mobile than they used to be. If we push taxes up too far, a lot of them will simply move. And if we choose the wrong taxes to raise, they will feed through into higher prices in everyday essentials, which will hit the least well-off hardest. Having said that, those Thatcher-era warriors shouldn't start licking their lips, because continuing austerity poses problems too. Our public services are miles more efficient than they used to be, so a lot of the easy savings have already been made. The next rounds of finding new ways to do more with less are undoubtedly necessary, but they will be a grindingly slow, painstaking process rather than a sudden gush of cash. There's no magic money tree here.
So we will need to look elsewhere, to find new answers. A UK sovereign wealth fund is a good option, where those whopping IOUs in the state pension and benefits systems are funded by a big pool of investments just like a company pension scheme. It wouldn't only be generationally fair, but socially just too. We'd create an asset-owning society, where high and low earners alike have equal stakes and rights in the investment fund that underpins their pensions and benefits. And we'd have a cushion against the next big economic shock, so we could rebound faster and afford stronger and better public services.
Or we could improve our productivity. Getting even slightly more efficient, so our economy does more with less, would be worth billions. It would unlock extra cash without having to raise taxes and make austerity less painful. Prices would be lower, so hard-pressed families could afford a better standard of living. Our exports would be more competitive, so we could thrive in a post-Brexit global economy. There'd be no need to refight those 1980s battles after all. The trouble is, at the moment Britain is rubbish at productivity.
Britain is saving less, investing less and building less economically vital, growth-promoting infrastructure (things such as roads, rail and ports) than other countries. It takes a German worker four days to produce what Britons make in five, so they work longer hours for lower pay. Brexit could help here, by letting Britain import things more cheaply once the European Union's high tariff barriers are gone. Building lots more houses, so it costs less for young people to rent or buy, will be essential. Ending rip-off tariffs on everyday utilities such as gas or electricity, by making them fight harder to keep their customers, will cut costs for companies and hard-pressed families alike.
The Taylor Review should make low-paid work more secure and less exploitative. A sovereign wealth fund would provide the patient capital that Britain's infrastructure projects need. And relentlessly modernizing everybody's skills, as new technologies make existing ones redundant two, three or more times in a working lifetime, will be essential. So the stakes are pretty high, but it would be a mistake to revisit the conflicts of the 1980s. The strongest historical rhyme is with the postwar governments that created new institutions such as the National Health Service and the welfare state, helping to forge a new society and build a new nation.
Whether Britons voted for it or not, Brexit offers a similar chance for the generation to match the hopes and ambitions of their forefathers. This government will be the first post-Brexit administration, with a once-in-a-generation opportunity to recast the kind of society and economy we want Britain to be. We can create a new, stronger, more socially just and generationally fair society; a better Britain with the financial strength to use its post-EU independence effectively, as an international force for good in the world. Attlee, Beveridge, and perhaps even Churchill himself, would be proud.
The writer is the Conservative MP for Weston-super-Mare
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