Plan B: The Building Blocks of a Progressive UK

by George Irvin

By now, even the most die-hard Tory must realise that the UK economy under George Osborne has flat-lined; like the Python’s dead parrot, it wouldn’t ‘voom’ if you pumped 4 million volts through it.[1]

The highly respected National Institute of Social and Economic Research (NIESR) defines a ‘depression’ as that period of time during which the country’s economic output (GDP) has not returned to its prior peak. During the Great Depression of 1930-34, UK output fell by 7.5% and did not return to its pre-depression level for four years (48 months). Since the 2008 peak, UK output has fallen by about the same percentage. But here’s the rub: NIESR predicts that we’ll take 61 months to escape depression. Moreover, as Osborne tightens the economic thumbscrew, the pain is increasing to such a degree that even City financiers are now worrying about the real economy.

So much for Osborne’s Plan A. The obvious question is what will succeed it and when. The Labour Party, while rightly critical of Plan A, has not exactly been hyper-active in promoting an alternative Plan B, other than repeating that Osborne has gone too far too quickly. However, the centre-left pressure group cum think-tank,Compass, has just published ‘Plan B: a good alternative for a good society’.[2]

Before proceeding, I should own up to being one of the 25 economists who’ve helped draft the document; the main editors are Neal Lawson and Howard Reed, the latter previously chief economist at ippr.  Between them, they have produced some 40 pages of remarkably jargon-free economics setting out how Britain can escape from the prospect of near-Japanese-style economic stagnation.

The Compass document focuses on four main areas: 

  • getting Britain to emerge from recession as quickly as possible;
  • restructuring the economy so as to be low carbon;
  • creating greater equality through fairer taxation and financial sector reform;
  • giving more emphasis to public goods instead of credit-drive consumerism.

How do we escape depression? Britain needs to stop cutting jobs, wages and benefits—stop cutting 2% of GNP every year! Indeed, the report excels at shredding the deficit argument— instead of lowering the public deficit, shrinking the economy through spending cuts may increase it.

State-led investment is crucially necessary to kick-start growth, particularly in greening the economy. We need to reform finance which means not just more regulation, but also ending bankers’ bonuses in the large chunk of the banking sector we still own and, crucially, creating a British Investment Bank. A fairer tax system is urgently needed, one which makes the rich pay more—in particular, Britain must tighten up on individual and corporate tax avoidance which costs the Exchequer in excess of £25bn per annum.

How is this to be financed? In the short term, the remedy is quantitative easing (QE) aimed specifically at implementing a Green New Deal.[3] This step, the authors argue, should be backed by a Financial Transactions Tax (aka a Robin Hood tax), already approved by the EU Commission in Brussels. Part of the proceeds of QE should be used to establish a British Investment Bank, which has been used to promote growth in a variety of differing countries.[4]

Of course, that does not mean that Britain should ignore its structural budget deficit; instead, it should wait until growth is once more well-established at which point the so-called ‘structural’ deficit should be considerably smaller and easier to finance through more effective and progressive taxation.

What about financial sector reform? Here the report recommends a number of steps, starting with the separation of high-street (retail) banking and investment banking (as recommended by the Vickers Commission and in the US by Paul Volcker), and the creation of a British Investment Bank as mentioned above. Additionally, Compass wants a national presence on the high street, perhaps in the form of a revived Post Office banking system. The term ‘mutualisation’ is used, although the report is a bit vague about whether we are to return to the Building Society model. Bankers’ bonuses, it insists, must be regulated and restrained.

There is much interesting new thinking, too. Compass rightly stresses the need to invest in ‘public goods’—collective goods like health and education which benefit society as a whole—thus reclaiming for legitimate political discourse a concept which is dangerously close to extinction.  The document argues for greater emphasis on preventative social care; eg, ‘[f]rom welfare to education and health, we need to switch investment from symptoms to causes and transform the nature of the state as a vehicle to create a strong and more equal society more efficiently and effectively.’[5] Companies should be encouraged to engage their workers more, adopting in some cases German-style worker-representatives on the management board. In other cases, Britain will want to encourage more employer-ownership, as well as greater trade union membership. Crucially, ‘the UK needs to devise new forms of state economic intervention that work’ as well as moving beyond mere GDP growth measures to better indices of quality-of-life improvements.

For the generalist and specialist alike, this report is timely and highly readable. Not only does it demolish any remaining credibility in the Tory-led coalition’s economic strategy, it places it squarely in the context of global austerity, growing instability and the lack of a co-ordinated G-20 response to a crisis now almost certain to result in a second, far-harsher downturn.  And yes, I imagine that most readers on the SEJ website would like to be as optimistic as the authors in arguing that ‘… the demand from below for a new economic paradigm will only grow. It is a paradigm that will prioritise fairness over greed, the needs of productive capital over finance capital, the long term over the short, and the needs of people and the planet over the excessive and underserved profits of a few.’[6]

George Irvin is a Research Professor at the University of London (SOAS) and author of ‘Super Rich: the Growth of Inequality in Britain and the United States’, Cambridge, Polity Press, 2008.


[1] See Larry Elliott: http://www.guardian.co.uk/business/2011/oct/09/uk-economy-quantitative-easing-recover

[2] See http://www.guardian.co.uk/politics/2011/oct/29/plan-b-economy-george-osborne and ‘Plan B; a good economy for a good society’ Compass Report, 31 Sep 2011, http://www.compassonline.org.uk/

[3] See Report, section 2.

[4] See Report, section 2.

[5] See Report, p 6.

[6] See Report, p 8.

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