How to run a country: go for flexibility

29 September 2014

Reform has started an important debate on the role of government in its How to Run a Country programme: but are we putting enough stress on flexibility? The role of government has changed over time much more than the role of the market, as government has had to meet new and often unexpected challenges from the environment.

The key challenge for the next ten years is to raise productive potential. The Office for Budget Responsibility projects that we are heading for a low growth, low productivity future – an economic outlook which would block opportunities and worsen the social and political climate.

Government structure and strategy should be designed to maximize chances of a different future. This means first of all a clear and direct responsibility for central government in setting targets for reducing deficit and debt. For higher growth the aim should be to reduce spending to 40 per cent of GDP to allow people to invest in their own futures with momentum for new producers. Localism can do much but it cannot do that. This has to be the prime role in the next phase for central government.

Beyond this there is great relevance for localism through the City Region concept. According to OFSTED London has led the way in improving results for education – in ten years, the proportion of students achieving good levels of GCSE passes has risen from 30 per cent to 60 per cent. Young people can sense the opportunities and want to take them as they show too in their lifestyle choices. On Public Health England report that teenagers in London smoke less and take more exercise.

Improved education is the key to economic performance – across the generations as good schools also attract more young families. The growth drag and the education under performance is worst in the big cities outside London. There should be a first City Region step of intensive tutoring and mentoring of 8-10 year olds. There could also be collaboration with local academies and private schools on special programmes for young people in the first years of secondary schools. Without cognitive skills there can be no career development or higher earnings. The City regions have to develop a strong and high aspiration programme in education.

The second key aim for City Regions should be to improve the economic environment so that cities can attract new, younger population. London has shown the way as has Edinburgh. In London the South Bank has been transformed by new developments. The boroughs to the north of the river have banned high rise building. Those in the South – mainly Labour controlled have seized the opportunity this has presented for them and are turning the South bank into the bank of the future. By this development they create council tax value in the first round – but they also attract new business for multiplier effects. Localism should be about local incentives to promote local economic growth and the governance system should be designed to give every incentive to do this.

Localism can also create new local incentive to help people into the workforce. There is a huge loss of potential in the 20 per cent of working age adults who are out of the workforce many of them in the cities outside London.

Localism is key to a high growth, high productivity future. The Whitehall drag in terms of unaffordable spending and inefficient programmes has been immense. We need new incentives to create capability and productivity in local areas. One hundred years ago the main focus for government had to be on a social minimum and improved public health. The economy was in fact doing well in the first years of the twentieth century with rapid growth in exports and in new technology in cars, electrical goods and consumer products. However there were many concerns about poor health and low living standards—national efficiency for peace—and war. Now the challenge is in the economy itself. Localism is the key lever for rebalancing the UK economy – and spreading prosperity though the Midlands and North.

Nick Bosanquet, Emeritus Professor of Health Policy, Imperial College and Consultant Director, Reform

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