John Eatwell on the need for new management to ensure the UK’s future economic security

The only sustainable way to recover real incomes and hence cut inflation is to increase productivity. Increasing productivity requires investment. Investment requires the confident prospect of growth. Achieving that nexus is the challenge we face.

The past 15 years have been a tough time for world economy. Yet since 2010 in the key variables of investment and productivity, the UK has done consistently worse than comparable countries. Year on year, investment as a share of GDP has been the lowest in the G7. And our productivity gap relative to France and Germany has almost tripled from -6% to -16.

Those 13 years of persistent economic under-performance are the key to why the UK is now locked into low growth and high inflation, with ever rising taxes and interest rates. And why the public realm is in an advanced state of breakdown as despairing public sector workers face ever increasing cost-of-living.

Why has this happened?

In the face of every major shock suffered by the economy over the past 13 years, government decisions have damaged the investment, growth, and productivity.

The cost of rescuing the banks and supporting the economy in global financial crisis left the UK with a high level of debt. In the first half of 2010 the Chancellor, Alistair Darling had steered the economy onto a steady growth path approaching an annual rate of 3% and cutting the debt/GDP ratio. In May of that same year the new Chancellor, George Osborne reversed Darling’s policy. Austerity killed the growth rate stone dead.

Austerity was an attempt to cut the debt by cutting spending. The trouble was that it cut the growth of GDP at the same time. Osborne’s debt/GDP ratio did not fall as predicted. He had chosen the wrong policy.

The next major economic shock to the UK was the vote to leave the EU.

Following the referendum result, the Conservative government took the wrong decision again. Instead of negotiating, post-Brexit, a close relationship with our largest trading partner, they decided on so-called hard Brexit. The result? While the value of French exports has grown by 16% in the past 7 years and German exports by 23%, UK export growth has been 6%.

Next came the double whammy of the pandemic and the war in Ukraine. Last autumn, Liz Truss’s government correctly identified Britain’s fundamental economic weakness when facing these challenges: the slow rate of growth. But once again the Conservatives chose the wrong answer: in this instance fiscal incontinence. And the mini-Budget led soaring interest rates, hammering investment and growth yet again.

The foundation for sustained investment and productivity growth is the complementarity between public and private investment. If we are to build a competitive economy, we need a new relationship between government and industry. A new relationship to be consumated in the pursuit of a single dominant objective – investment, public and private.

For years this has not happened because our economic institutions, public and private, have not been up to the job.

The government must create a new institutional environment, financial and corporate, that sustains the needed investment with ideas, skills, and finance – and, crucially, supported by the confident prospect of future demand. Without that, there will be no investment, however good the projects and however abundant the finance or tax incentives may be.

That is why Conservative policies that cut demand, squeeze the economy, and create financial uncertainty have been exactly the opposite of what is needed.

The UK needs not only to catch-up, but to use our technological and research expertise to leap-frog our competitors, in a world economy that has changed fundamentally since the pandemic. National security will require safe supply chains and strong home-based industries and services. The globalisation free-for-all is over.

As a country, we can’t take more economic blunders. “Holding our nerve” won’t do the job. Our future economic security needs new management. And it needs it now.

Lord John Eatwell is a Labour Peer

Published 27^th June 2023

Kay Andrews on the government’s ongoing failure to deliver on promises made to the adult social care sector

This Thursday, Peers will debate the state of adult social care in the UK – in the context of two seminal reports, new duties on the Care Quality Commission (CQC), and the government’s own plans following its White Paper, The Future of Social Care.

It could not be a more urgent debate, given the recent Budget failed to put any additional funding into the sector and the possibility that Ministers may cut £500 million from projected funding for the workforce. It also comes at a time when that same workforce is short of 165,000 people; when a decade of austerity means that a million people are now waiting months for assessments and care packages; and when unpaid carers are being asked to do more within an ever more labyrinthine system.

Since the pandemic, things have become measurably worse within adult social care and new duties on the CQC from 1st April to implement a new single assessment system may not have the desired impact.

Two new – and radical – reports, however, reflect a consensus of values as well as recommendations. The Health & Social Services Select Committee report, ‘A Gloriously Ordinary Life‘ is focused on unpaid care-giving, looking at interdependent relationships between carers and those they care for, and the sector’s “entrenched invisibility.” (As Chancellor Jeremy Hunt once put it.)  The Archbishop’s Commission on ‘Reimagining Care’ took a wider remit.

Both start from the fundamental premise that rather than something people have come to dread if forced to depend on it, adult social care has the potential to be so much better. Something to provide the conditions for a ‘fulfilled’ life as well as the foundation of a good society and a resilient health service. Indeed, the Select Committee report argues that adult social care must become a ‘national imperative’ if it is to become the service we all want. That means investing in strategic funding and the workforce to the scale and depth consistently called for over the past few years.

But reducing invisibility involves insight, advocacy, and representation – as well as money. That is why we need a Commissioner for Care and Support, and a change in the design of policy at local and service level. Only then can the ‘experts by experience’ – those who provide and received adult social care – have a far greater involvement over what they are offered. The Integrated Care Services hold the key to this and must be held to account. In turn, the 2014 Care Act must be revisited and properly implemented.

Demand is changing, as more people are ageing without children, Technology can offer more opportunity for innovation and greater capacity, but information on the ground is extremely patchy. Such basic gaps in data need filling, so that change can happen where, when, and how they can work best. Another obvious long overdue priority must be mandatory standards, to guarantee the supply of supported and adapted housing. People can then leave hospital for home and stay safe.

Much of this is in place and can be built on, but other policy promises remain to be honoured. Unpaid carers have been particularly let down, in relation to respite care, Carers’ Leave, more support in the workplace, and increased benefits to reflect the higher costs of caring.

The question that continues to be asked is ‘Who cares about adult social care?’ If no one cares, where is the incentive for reform? Evidence from every quarter is that the changes sought are the right ones and long overdue. So, when is help actually coming? Perhaps the government will tell us later this week?

Baroness Kay Andrews is a Labour Peer, and Chair of the House of Lords’ Adult Social Services Committee

Published 27th March 2023

Jim Knight on the wider impact of financial pressures facing the UK higher education sector

The other day I woke up as normal. Chris Evans was on the radio and I was surprised to hear him talking about a study that found that Cambridge University contributes £30 billion a year to the UK economy.  Not only was this a more serious story than normal for Chris, but I wondered how it fitted with the warnings from the National Audit Office (NAO) of serious financial stress in the university sector?

This report found that the number of higher education (HE) providers with in-year deficits has risen from 1% to 15% in the last five years and that 20 have been in deficit for at least three years. This covers the full range of types of institution, suggesting more systemic problems.

This really matters. Britain is defined globally by the strength of our universities, and they are in danger of spiralling into financial crisis.

According to Universities UK, the sector contributes £95bn to the economy, and supports 815,000 jobs. We are the third most popular destination for international students globally, and have the highest degree completion rates in the Organisation for Economic Co-operation and Development (OECD). Finally, the research is world class with the third-highest publication output globally.

Behind that strength the university business model is collapsing. They get most of their money from Office for Students (OfS) funding, fee income and research grants. When the Coalition raised tuition fees in 2012 funding was reduced. This was OK for a while, but fees have been capped since 2017, inflation is soaring and OfS funding is nowhere near filling the gap. Government funding of HE is now the lowest in the OECD.

The Institute for Fiscal Studies found that spending on students has fallen by 18% in real terms in the last ten years. UK students pay the highest fees in the OECD and are getting less in return. Universities are already making a loss on teaching domestic students and are having to scrabble about to make ends.

There are big consequences.

The UK economy is struggling with low productivity and low growth. The answer to both is more investment in our people, more of us collaborating better with machines, and more cutting-edge research.

The march of artificial intelligence and robotic technologies means that we can only succeed with higher levels of skills and learning. A healthy university sector is vital for employers and to give workers the skills and confidence to outcompete machines.

The research picture is particularly bleak. OfS data tells us that in 2020-21 only 71% of research costs in England were covered by funding. That gaps needs to be covered from teaching funding or by finding other income or the research will simply dry up.

For university towns the stakes are even higher.

Universities are big employers and property owners. Students bring income to the local economy through rents and consumer spending. Research generates start-up businesses and innovation. Hence Cambridge University adding so much to the UK, especially in East Anglia.

The business models of our universities are falling apart. Without a new financial deal some will fail, and with no idea whether the OfS and the Treasury would be able to save them. Local authorities are going bust and getting help, what about universities?

Rumblings from the Home Secretary Suella Braverman about reducing international student numbers, the removal of EU structural funds, rapidly rising costs, and the ever-present threat of another pandemic all pose new concerns that the OfS and the government as a whole must be alive to.

Universities are often a community’s biggest employer, so we need to be confident that people will not be abandoned should it fall victim to the harsh financial headwinds the whole sector is facing. The stakes are simply too high to be caught asleep at the wheel.

Jim Knight, Lord Knight of Weymouth is a Labour peer and former education minister

Published 23rd March 2023