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Charles Levy
Senior Economist
Charles  Levy

A tinkerer’s Autumn Statement

Authors: Charles Levy Charles Levy

05 December 2013

Today’s (5 December) Autumn Statement contained dozens of measures, but lacked a compelling narrative. The chancellor was surprisingly quiet on the big issues facing our economy today. Half a decade on from the credit crunch our economy is far from recovery. Growth is strong, but it is far from stable. To date growth has been driven by household consumption, rather than business investment or exports; a mix which has proved unsustainable in the recent past. We still have almost a million unemployed young people, there are almost 1.5 million individuals working part-time who want full time work and real wages are falling. These are not typical characteristics of healthy economies.

Some of today’s measures we can welcome whole heartedly. Support for exporting firms, additional research funds, and removing the cap on the number of funded higher education places (we have long argued that we need a system which provides for a long term increase in higher education) are sensible economic policies. Investment in JobCentrePlus to help 16 and 17 year olds into apprenticeships and traineeships, additional high quality apprenticeships, and plans to re-integrate young unemployed people without English and maths skills into education are all small steps in the right direction. They fit well with the results of our research on what could tackle the major structural issues in our labour market.

Disappointingly there was also a long list of measures which are likely to represent poor value for money. We have long argued that cuts in fuel duty and modest tweaks to broad business taxes (in this case business rates) are expensive but are unlikely to stimulate growth (see for example our 2013 Spending Review submission). Together these two changes will cost over a billion pounds a year by 2017/18.

Scrapping Employers National Insurance Contributions for 18-21 year olds is a very expensive labour market policy. However, the experience of the Youth Contract, and the regional National Insurance Holiday, has shown us that modest cost changes are unlikely to encourage a large number of employers to hire more young people (my colleague Ceri has blogged). Where individuals lack the skills to run a business, schemes such as these can even be a fast route from unemployment into debt.

But the real gap in today’s statement was a broader narrative about what will drive our recovery and a view on how to tackle the issues in our labour market. There was no vision of the future. The closest we came was a focus on reducing debt. The Chancellor promised to not only eradicate the deficit, but is strengthening his language on plans to run future surpluses to bring down the national debt. But the government’s scope for action on debt is limited by the fortunes of our economy. Public spending is only one side of the coin. A focus on lasting growth would be a logical way to reduce debt.

This lack of a big picture view or story is an issue. Broad narratives help to set the direction of travel and to build investor confidence. In evaluation language this is termed Strategic Added Value. It helps those who have to work with strategies to fill in the gaps. It is what makes the strategy worth more than the sum of its parts.

This week’s Autumn Statement fails on this critical test. The end result is that it is tough to say at the end of the week if we have a better set of economic policies than we did on Monday. They are just a bit different. They have been tinkered with. With a recovery in such early stages, and a labour market facing so many challenges we can’t afford to not take every opportunity to strengthen policy.