As time goes on it is becoming more and more apparent that the UK economy needs a boost. Simply rolling back the state in order to allay financial market fears is not only not working but it is a fallacy. Moreover, the economy needs measures which target demand in the short term but should not neglect the potential to improve long term factors.
Management Today recently published an article on how they would boost theUK economy. The eight ways to ‘get Britain going again’ are:
1. Torpedo our obsessions with home ownership
2. Make banks work for everyone
3. Get our kids ready for work
4. Stagger income tax
5. Find a British Bill Gates or Steve Jobs
6. Build another London airport, fast
7. Turn on the tourism taps
8. Light a real red tape bonfire
Ideas such as staggering income tax based on age rather than income is not something I would endorse and won’t go in to detail here, although I always welcome new ways of solving problems. Boosting tourism in all of the regions is important and perhaps something which should be linked more explicitly to foreign visits and thus endorsed further by the PM and the Royal family. The tension surrounding another airport is large and is an argument which could continue for decades.
The somewhat more realistic proposals to have a larger effect would be around the housing market, skills and training and small-medium enterprise market.
The issue surrounding house prices is an important one as it is the classic asset bubble. We now have a situation where first-time buyers are priced out of the market with the alternative of high rental properties. This is further skewing the disproportionate share of wealth within the economy.
“In 1953 the proportion of UK home ownership was 32%. The figure for 2010 is 68%. (Comparable figures are: Austria 56%, Denmark 51%, Germany 40%, Spain 82%)”
Taxing empty property will go some way to increasing the supply of rental properties which will drive down the price. An alternative to MT’s suggestion would be to build more houses which would create jobs as well as increase the supply making it more affordable to first time buyers. This, however, is subject to planning issues.
Making banks work for everyone, as MT puts it, is about formally separating investment from retail banks and to hold greater capital reserves. Let’s make no mistake; we need the financial sector and theUKis excellent at providing these services. However, a financial sector with unregulated and unmitigated systemic risk, is unacceptable especially as it makes up roughly 12% of the economy.
But regulation simply tries to cure the symptom and not the illness. There needs to be a deeper understanding of the responsibility that the sector has and in the long term this comes from changing the ethos at degree level, more specifically MBAs.
A greater change in the financial system would be to have specific regional banks which employ local people and lend to local businesses as they know and understand the local risk. This could have profound effects for SMEs in regions outside of the South East and can boost the local economy – boosting the regional economies is key to boosting the economy as a whole. Combine this with reducing the amount of red tape (without jeopardising key rights) will allow SMEs to be started but also hire local people.
More long term approaches are needed, however, and it needs a strong government to push them. We are in serious danger of losing a generation. High university costs, high unemployment, few job opportunities, a vocational stigma, low/unpaid internship necessity to name a few. Ensuring a greater emphasis on vocational careers and combine this with practical experience through apprenticeships is the key. There needs to be a greater reciprocity between local corporates/business and local population/government and this can be encouraged through supportive schemes such as the Future Jobs Fund, which has now been scrapped.
Through this process, we should boost self-employment and emphasise that young people can be innovative in solving problems. Removing the ‘fear of failure’ and attaching as much respect to vocational courses as university courses could lead to ‘finding our own Steve Jobs/Bill Gates’. Moreover, a greater recognition of British talent and championing their achievements will act as an inspiration.
This is as much about a cultural shift as a financial process and it cannot be underestimated. The state can help facilitate this shift using their (limited) regulatory powers and spending power but the real shift will be about reciprocity between local business, local authorities and local population.
Localism, with the correct centrally targeted funding can kick-start the regional economies and will boost the UK economy as a whole.