Devolution and UK Policy Alternatives

This question received twenty-seven responses.

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Around half of the panel (48 per cent) preferred supply-side reform and one fifth (22 per cent) higher public investment. Closer trade ties with the EU and other partners received one tenth (11 per cent) of votes while “none of the above” received two votes (7 per cent of the panel). Greater devolution was preferred by only one panellist (4 per cent) while cuts to taxes on business and investment received zero votes. Two panellists expressed no opinion.

 

Panellists who favoured supply-side reform emphasised the role of the private sector as well as the need to remove inefficiencies in the existing policy framework. Martin Weale (King’s College London) emphasised the role of central government for supply-side reform: “There are plenty of obstacles to doing business and clearing some of these out of the way would be a help. Planning reform in particular, needs to be imposed by central government. At a local level the influence of the status quo is much stronger.” Stephen Millard (NIESR) stated: “I would actually argue for a combination of supply side reforms, higher public investment and greater devolution but -- given we had to choose one -- went for supply side reforms as being the most likely to stimulate the private sector, from where productivity growth has to come.” John Muellbauer (University of Oxford) prioritised reforming property taxation: “I take 'tax simplification' to include reform of probably the most dysfunctional property taxes in Europe. Well-designed reforms could greatly improve labour mobility and the efficient use of the housing stock. They could also enable much more effective land value capture with potential to radically improve the fiscal situation and help fund expanded council house building. Synergies with planning reform enhance the potential benefits.”

 

Morten Ravn (UCL) emphasised gains from closer trade ties with the EU, commenting: “I think a broad sweep of initiatives should be considered but all centred around UK exploiting its comparative advantages. The lowest hanging fruit would be to repair the damages from the awful Brexit deal. This would also spur some growth that would help UK in addressing issues related to inequality and increasing debt burden. Next on the radar should be policy reforms aimed at not only the supply wide but also at parts of the fiscal policy. There is no simple recipe but this is no excuse for addressing the problems.” Angus Armstrong (UCL) prioritised greater devolution, arguing: “The key inclusions for me are (a) skills and (b) borrowing. Productivity growth is about creating new knowledge which depends on having appropriate local institutions to support. The capacity to borrow is important for greater accountability of local officials - although all off-balance sheet transactions should be forbidden.”

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While cuts to taxes on business and investment was not selected by any of the panel, several recognised a role for this policy approach in conjunction with higher investment. Paolo Surico (London Business School) argued: “Public R&D and co-investment projects that crowd in private R&D have the highest potential to improve productivity over the medium term, followed by corporate tax cuts, especially for start-ups and young businesses”. Nicholas Oulton (LSE) commented: “The biggest obstacle to higher productivity is low private investment. So raising this should be the priority. I am tempted by the third option (cuts to corporation tax and more generous capital allowances). But corporation tax does not seem all that high by international standards. There is evidence that the overall burden of regulation and planning obstacles has increased since 2007. So I pick [supply-side reforms], if forced to choose. However I think capital allowances, which currently favour machinery, should be looked at again.”

 

Across the panel there was broad support for multiple policy approaches. Thomas Sampson (LSE) argued: “Raising productivity growth is hard and there is considerable uncertainty over the effects of different policies. The government should avoid putting all its eggs in one basket and instead push forward a range of measures aimed to boosting productivity, which could include devolution, planning reform, tax reform, public infrastructure investment, R&D subsidies, and closer ties with the EU.”

 

A few panellists preferred to instead scale back government policy intervention. Michael Wickens (University of York) argued: “Britain needs less government, not more as these proposals entail. Britain’s problem has been a big switch to public expenditures paid for by higher taxes and higher debt that has resulted in much less private investment, lower business profitability and higher unemployment, especially among the young. For most, higher taxation is not a concern as most of the tax is paid by a small proportion of the population. While this continues public expenditure will always receive majority support as others pay for it. The longer-run result is lower real income growth but this is ignored by a short-sighted electorate. Growth is the result of private, not public sector, economic activity.”

 

Question 2: Place-based policies that raise productivity in lower-performing parts of the UK are likely to generate significant gains in aggregate UK productivity, rather than mainly shifting economic activity from London and the South East.