On Tuesday, Andy Burnham addressed MPs on the direction in which he hopes to lead the country, which appears to be back to the halcyon days of the 1970s.<\/p>\n
The new prime minister argued that the UK began taking wrong turns in the 1980s under his distant predecessor, Margaret Thatcher, whose influence apparently persists from beyond the grave. \u2018Austerity\u2019 followed, and then Brexit \u2018compounded the damage, ushering in a decade of low growth\u2019.<\/p>\n
These might be good soundbites. But a much better take is that so-called austerity \u2013 in other words, sound money and fiscal discipline \u2013 and Brexit \u2013 leaving the failing EU behind \u2013 are part of the solution to the UK\u2019s economic problems, not their cause.<\/p>\n
Let us start with austerity. Critics have long argued that \u2018savage cuts\u2019 in public spending, especially under the Coalition government between 2010 and 2015, weakened the foundations of both the economy and society. <\/p>\n
There are many problems with this narrative. Most obviously, public spending was not, in fact, \u2018cut\u2019, let alone \u2018savagely\u2019. Even allowing for inflation, total spending was little changed in real terms between 2010\/11 and 2019\/20. <\/p>\n
It could still be argued that spending failed to keep pace with a growing and ageing population, or that the burden fell disproportionately on capital budgets, on local authorities<\/a> and on core government functions, such as the justice system<\/a>.<\/p>\n Enjoying spiked?<\/p>\n Why not make an instant, one-off donation?<\/p>\n We are funded by you. Thank you!<\/p>\n \n \u00a35 Choose an amount<\/p>\n \n Donate now\n <\/p>\n \n Please wait… <\/p>\n Perhaps the mix was indeed wrong in some areas. But in aggregate, the spending restraint of the early 2010s did help to stabilise the public finances after the explosion of borrowing in the wake of the Global Financial Crisis. <\/p>\n The 2010s were also a rare period of relatively rapid growth in productivity in public services, meaning that money was better spent.<\/p>\n The spending restraint was also necessary. Britain may not have been facing a Greek-style financial meltdown, thanks to retaining monetary sovereignty outside the euro. But UK interest rates could not have been expected to remain low indefinitely.<\/p>\n We only have to roll the clock forward to 2026 to see what happens when fiscal credibility is lost. The cost of government borrowing is now surging<\/a> almost everywhere, due to global worries about inflation, interest rates and bond issuance. But yields are far higher in the UK than in other countries \u2013 even Greece. This is at least partly due to specific investor concerns about the Labour government\u2019s fiscal plans.<\/p>\n Blaming Brexit for the UK\u2019s economic problems does not make a lot of sense either. A decade ago, the British people voted to leave the EU<\/a> and restore more sovereignty to the UK government. Westminster has since regained control over laws and borders, run its own trade policy and saved tens of billions of pounds in contributions to the EU budget. On this basis, Brexit has been a success.<\/p>\n Indeed, multiple polls show that support for rejoining the EU crumbles when people are presented with the costs and conditions of membership, and that most still want key decisions to be made by politicians who they can actually vote out.<\/p>\n This democratic choice has also laid the foundations for a stronger economy. Benefits can already be seen in those (sadly, too few) areas where the government has begun to use the Brexit freedoms. Examples include agriculture, where subsidies are now better targeted, and animal welfare, with UK bans on live animal exports and industrial sand eel fishing. The financial-services sector was nervous about Brexit. But after seeing the benefits from pro-growth reforms, the City is now campaigning against closer alignment with EU rules. <\/p>\n Outside the Customs Union, the UK has used its independence to secure faster, better trade deals worldwide and to cut tariffs unilaterally. Just this week, the Labour government was trumpeting the benefits of securing full access to the \u00a313 trillion CPTPP trading bloc of Asia-Pacific nations.<\/p>\n Outside the Single Market, the UK has gained greater freedoms to \u2018buy British\u2019 and provide state aid for UK industries, for good or ill, and to reduce VAT on domestic energy bills.<\/p>\n Looking ahead, there is enormous potential to benefit from smarter regulation of new technologies, including AI, outside the EU. There have already been important Brexit wins in fields such as gene editing \u2013 crucial for raising drought-resistant crops. The savings on contributions to the EU budget will also only grow. <\/p>\n It is nearly impossible to isolate Brexit\u2019s impact from other factors, notably the UK\u2019s relatively high energy costs. But studies claiming that the UK economy has taken a hit of \u2018as much as eight per cent\u2019 fail miserably to do so.<\/p>\n The bewildering array of zombie statistics includes the Office for Budget Responsibility\u2019s assumption of a four per cent Brexit hit to long-run productivity. This was based on a crude average of the results of external studies, mostly done a decade ago, before the final shape of the exit deal was even known. <\/p>\n The OBR also assumed that the UK\u2019s global trade in goods and services would be 15 per cent lower than otherwise. This hit simply has not happened.<\/p>\n Worse still are the \u2018top down\u2019 or \u2018doppelg\u00e4nger\u2019 models. These assume that any divergence in the UK\u2019s economic performance since 2016, compared with mismatched groups of other countries, can only be due to Brexit. This is a tragic case of \u2018confirmation bias\u2019. <\/p>\n The \u2018bottom up\u2019 models, which attempt to isolate the impact of Brexit on particular sectors, are not much better. These typically fail to recognise the temporary nature of the adjustment costs. In particular, business investment was initially held back in the years after the vote to leave, but it has since rebounded as Brexit uncertainty has eased. <\/p>\n A more balanced view is that Brexit has had little overall impact on the economy, so far. Whether it ultimately leaves the economy weaker or stronger will depend on the choices made by the UK government \u2013 which is as it should be.<\/p>\n Some still describe Brexit as a slow puncture for the British economy. In reality, it may turn out to be little more than a bump in the road. And if that road leads us further from the EU\u2019s continuing failures<\/a>, so much the better.<\/p>\n
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