387. Spring Statement Verdict with Economist Paul Johnson (Extract)

Summary

The Rest Is Politics
Episode 387: Spring Statement Verdict with Economist Paul Johnson (Extract)
Release Date: March 27, 2025
Host/Authors: Alastair Campbell & Rory Stewart
Guest: Paul Johnson, Director of the Institute for Fiscal Studies

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Introduction

In Episode 387 of The Rest Is Politics, hosts Alastair Campbell and Rory Stewart engage in a thought-provoking dialogue with Paul Johnson, the esteemed Director of the Institute for Fiscal Studies. The conversation delves into the implications of Rachel Reeves' Spring Statement, dissecting the current state of the British economy, the challenges hindering growth, and the persistent issue of low productivity. This summary encapsulates the key discussions, insights, and conclusions drawn during the episode.

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Current State of the British Economy

Rory Stewart initiates the discussion by painting a vivid picture of the prevailing economic sentiment in Britain. He highlights a general sense of economic malaise, referencing low consumer confidence and a perception of the UK as the "sick person of Europe." He further criticizes the American administration's stance, which purportedly exacerbates European pessimism by portraying European economies, including the UK, as "completely hopeless."

Rory Stewart (02:27):
"There's a general sensation of depression. Consumer confidence is pretty low. We see ourselves as a bit of a sick person of Europe."

Paul Johnson provides a nuanced perspective, arguing that while the UK economy isn't the worst performer in Europe, the continent as a whole has experienced a slowdown since the 2008 financial crisis. He emphasizes the long-term repercussions of stagnant growth, noting that consistent underperformance since 2008 has severely impacted average earnings.

Paul Johnson (02:27):
"We are still suffering the consequences [of the 2008 financial crisis] in a big way. Had we grown since then at the kind of rate that we were used to for the previous 50 years, average earnings would be about £10,000 a year higher than they are now."

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Factors Hindering Economic Growth

The conversation shifts to dissect the myriad factors impeding Britain's economic growth. Rory Stewart seeks Paul Johnson's insights on what the government can do to spur growth amid existing challenges.

Paul Johnson identifies several critical factors:

1. Post-Financial Crisis Changes: Reduced access to credit for companies, decreased turnover of businesses, and diminished job mobility have collectively stifled growth.

2. Government Policies: He criticizes recent government actions, including significant hikes in employer National Insurance contributions and increased regulations, which he argues are counterproductive to fostering a growth-friendly environment.

3. Brexit and Political Instability: The aftermath of Brexit and prolonged political uncertainty post-2016 have further dampened economic prospects.

Paul Johnson (04:50):
"A big hike in employer national insurance contributions, big increases in regulation, including employment regulation and so on are not going to help in the short run. Brexit clearly hasn't helped, put it mildly."

Alastair Campbell echoes these sentiments, expressing concern over the government's emphasis on stability amidst evidently fragile economic foundations. He points out the apparent contradiction between Labour's electoral mandate for change and the government's current stance on maintaining existing economic institutions.

Alastair Campbell (05:10):
"Her big sort of thing was, you know, we've got to deliver stability. And I, I at times felt a slight clash between this idea that we have to have stability, but basically we're all accepting that the, that, you know, that the foundations are pretty weak, that growth isn't there."

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Government Policies Impacting Growth

The hosts and Johnson delve deeper into specific government policies that may be undermining economic growth. Johnson emphasizes that while the government's focus on stability is commendable, certain policy decisions are likely exacerbating the very issues they aim to mitigate.

Paul Johnson (04:50):
"They’re probably damaging it at this moment rather than helping it, despite their long term rhetoric, in the right direction."

Critical policies discussed include:

• Employer National Insurance Increases: Johnson argues that substantial hikes in employer National Insurance contributions can strain businesses, potentially leading to reduced hiring and investment.

• Regulatory Burdens: Increased regulations, especially in the employment sector, may hinder business flexibility and innovation.

• Brexit-Related Uncertainties: The ongoing ramifications of Brexit continue to create an unpredictable business environment, deterring investment and complicating trade relationships.

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Productivity Challenges in Britain

Transitioning to the issue of productivity, Alastair Campbell references the Office for Budget Responsibility (OBR) report, which highlights persistently low productivity growth in the UK. He questions whether Britain's struggles with productivity are unique or part of a broader European trend and probes into potential government interventions to address this issue.

Alastair Campbell (06:08):
"...this relentless focus on our very, very poor productivity. What is it about Britain that we... do seem to struggle more than other economies with improving productivity."

Paul Johnson acknowledges the complexity of accurately measuring productivity due to uncertainties in statistical data but affirms the troubling trend of sluggish productivity growth over the past 15 years. He outlines several contributing factors:

1. Unstable Government Policy: Frequent policy shifts create an unpredictable environment, discouraging long-term investments that could enhance productivity.

2. Regulatory Constraints: Stringent regulations, particularly in planning and housing, limit the ability to expand and modernize infrastructure, which is crucial for productivity gains.

3. Housing Challenges: A lack of adequate housing development hampers workforce mobility and the overall efficiency of the labor market.

Paul Johnson (06:08):
"Over the last 15 years or so, our productivity growth has slowed to barely a crawl over that period... It is a combination of unstable government policy, the very constraining regulations on things like planning and house building and so on, lack of building houses in the appropriate places, and a whole series of things like that."

He underscores that both growth and productivity are interlinked, and addressing the underlying issues can potentially yield improvements in both areas.

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Conclusions and Takeaways

The extract from Episode 387 of The Rest Is Politics offers a comprehensive analysis of the UK's economic challenges post-2008 financial crisis. Key takeaways include:

• Prolonged Low Growth: The UK's stagnant growth since 2008 has had significant long-term economic repercussions, particularly on average earnings.

• Policy Missteps: Certain government policies, while aimed at stability, may inadvertently hinder economic growth by increasing business costs and regulatory burdens.

• Productivity Woes: Persistent low productivity growth is a critical concern, rooted in unstable policies, regulatory constraints, and inadequate housing development.

• Interconnected Issues: Growth and productivity are deeply intertwined, necessitating a holistic approach to policy-making that addresses the multifaceted nature of economic challenges.

Paul Johnson emphasizes the need for a stable, growth-oriented policy framework that encourages business flexibility, reduces unnecessary regulations, and fosters an environment conducive to investment and innovation.

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Final Thoughts

This episode serves as a vital resource for anyone seeking to understand the intricacies of the UK's economic landscape, the impact of governmental policies, and the persistent challenge of boosting productivity. The Rest Is Politics successfully bridges the gap between complex economic theories and accessible dialogue, providing listeners with valuable insights into the forces shaping Britain's economic future.

For the complete discussion and in-depth analysis, listeners are encouraged to subscribe to The Rest Is Politics Plus and access the full episode featuring Paul Johnson.

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Transcript

[Alistair Campbell]

Thanks for listening to the Rest is Politics. Sign up to the Rest is Politics plus to enjoy ad free listening, receive a weekly newsletter, join our members chat room and gain early access to live show tickets. Just go to therestispolitics.com that's therestispolitics.com this.

[Rory Stewart]

Episode is brought to you by Progressive Insurance Fiscally responsible financial geniuses, monetary magicians. These are things people say about drivers who switch their car insurance to Progressive and save hundreds. Visit progressive.com to see if you could save Progressive Casualty Insurance Company and affiliates. Potential savings will vary. Not available in all states or situations.

[Alistair Campbell]

Hi there, Alistair Campbell here. Just wanted to let you know that right now, if you're a member of the Rest is Politics plus, or indeed if you become a member of the Rest is Politics plus, you can enjoy the special episode Rory and I recorded on Rachel Reeves Spring Statement. Immediately after the event, we sat down for half an hour with a very special guest, a friend and sometime hero of the show, the Director of the Institute for Fiscal Studies, Paul Johnson, a man without whom no budget or Spring Statement coverage is ever complete. Question Time, as a result, will be with you on Friday this week. By the way, to join Trip, just go to therestagepolitics.com and here's a little taster of our episode with Paul Johnson.

[Rory Stewart]

Paul, I'd love to come back to this fiscal rule thing a little bit later, and in particular the anxiety, which is presumably that she's again set this very small headroom so there's all the chance in the world that she breaks her fiscal rule yet again and has to fiddle around yet again in the autumn. But before we get onto that, I want to sort of step back and bring listeners into the bigger picture of the British economy. So there's a general sensation of depression. Consumer confidence is pretty low. We see ourselves as a bit of a sick person of Europe. And of course the current American administration is doing its best to reinforce that by suggesting that we and all other European countries are completely hopeless. Can you give us a vision of what it would mean to create growth in Britain, and what it is in your view, is holding back Britain from finding this magical thing that the government's obsessed with?

[Paul Johnson]

There's a big question. I mean, we're not really at the moment the sick person of Europe. Our economy is not growing particularly badly relative to Germany and France and so on at the moment, but Europe as a whole has slowed down over a period. Just to give you a sense of what the lack of growth since 2008 has meant. I mean, there really was a kind of momentous thing, the financial crisis of 2008-2010 and we are still suffering the consequences in a big way. Had we grown since then at the kind of rate that we were used to for the previous 50 years, average earnings would be about £10,000 a year higher than they are now. I mean, that is an extraordinary statistic in a sense, but that gives you a sense of the consequences of what's getting on now for 20 years of very poor levels of growth. So you can see looking forward what the consequences of high growth relative to low growth would be over the next 10 or 20 years. Now, what's holding back growth? Well, clearly something changed post financial crisis. Actually, lots of things changed. Access to credit for companies. Actually we stopped having the sort of turnover of companies as put low productivity companies went out of business and new ones came into business. People stopped moving jobs so much. There was less credit in the economy. So those are things that changed around that time. But more broadly, we do have particular issues in the UK economy. I do think the government is right to identify planning and the issues around being able to build things and build houses and our lack of housing and all those sorts of things. And that's definitely holding back growth. But equally, the government's done some things which are clearly going to make things worse. So a big hike in employer national insurance contributions, big increases in regulation, including employment regulation and so on are not going to help in the short run. Brexit clearly hasn't helped, put it mildly. So there are a bunch of things where we have done things that have been bad for growth. The political instability we had for a long period after 2016 hasn't helped growth. And again, I think the government's right to focus on stability as a good thing. But what worries me a little bit is that for a lot of what they're saying, it all sounds very good in terms of growth. But you look at some of the things they've done in the short run, particularly on things like increased regulation, not reduced regulation, increased taxes, not reduced taxes. And they're probably damaging it at this moment rather than helping it, despite their long term rhetoric, in the right direction.

[Alistair Campbell]

Yeah. And you. So her big sort of thing was, you know, we've got to deliver stability. And I, I at times felt a slight clash between this idea that we have to have stability, but basically we're all accepting that the, that, you know, that the foundations are pretty weak, that growth isn't there. Second point, Labour elected on a mandate of change. And yet her message about the economic institutions has been, you know, let's just stick with what we've got and meanwh we're now going through this period of pretty weak growth. But also the other thing that came through the OBR report, which didn't really come through in her speech or the debate, was this relentless focus on our very, very poor productivity. What is it about Britain that we. Or is this another sort of worldwide European wide problem? But we do seem to struggle more than other economies with improving productivity. What more can governments do about that and why aren't we doing it?

[Paul Johnson]

Well, without, I mean, let preface this that with, with some worries, as ever, actually about the statistics here. The productivity numbers are extremely uncertain and you know, the Office of National Statistics, their numbers suggested extraordinarily poor productivity performance last year, which I'm not actually sure I believe. Okay, this makes life really difficult for governments when our statistical infrastructure is badly, badly fraying in all sorts of directions. But that aside, it's nevertheless the case that, I mean, you're right, clearly over the last 15 years or so, our productivity growth has slowed to barely a crawl over that period. And again, there's no single answer to the question what's driving that poor productivity performance? It is a combination of unstable government policy, the very constraining regulations on things like planning and house building and so on, lack of building houses in the appropriate places, and a whole series of things like that. But do we know exactly the answer to that question? No. Again, there's no single answer. It's very similar to the answer on growth. Growth and productivity are really two sides of the same coin.

[Alistair Campbell]

So if you'd like to hear the full episode, hear everything that Paul and Rory and I had to say about Rachel Reeves and her spring statement, join Become a member of the rest is politics. Plus go to the restispolitics.com.