No – it’s not a Heart of the South West plan. They are still searching for suitable levers of power to grasp.
It’s not a detailed plan following up the Government’s White Paper:“Industrial Strategy – Building a Britain fit for the future”, Nov 2017, with its five foundations of productivity (Ideas, People, Infrastructure, Business Environment and Places) either.
Last week John McDonnell, shadow chancellor, unveiled plans for an investment revolution. He proposed all new governments should be obliged to set productivity targets with a revamped Bank of England, and act on them.
McDonnell commissioned Graham Turner, a City economist who advises hedge funds and investment banks, to produce a report. In an interim report, published in December, Turner found our financial system was taking money from sectors such as manufacturing and lending it to invest in property.
Promising growth in new tech sectors was overwhelmingly concentrated in and around London. Politicians and regulators have not ensured that banks play their part in supporting the growth of new businesses. Instead, banks have entrenched their focus on unproductive lending. Turner’s team recommended fundamental transformation of our financial system. Alongside the Bank of England’s (BoE) existing inflation target it should set a 3% target for annual productivity growth, backed by new powers that steer the financial system towards investment to maximise productivity growth.
Most comment of this idea was critical. As David Smith, Sunday Times economic editor, pointed out: by decade, productivity growth averaged 2.2% in the 1970s, 2.4% in the 1980s, 2.3% in the 1990s, 1.4% in the 2000s, and just 0.5% since 2010. It is not impossible: there have been 11 years in the past 45 when productivity has grown by 3% or more, years of strong economic growth or falling employment.
Monetary policy and financial stability, the Bank’s responsibilities, have no direct links to productivity and adding to its targets merely makes it more likely that it will miss its central one, controlling inflation.
Last autumn, Mark Carney, BoE governor, criticised those who wanted the central bank to solve problems such as productivity. The BoE “cannot deliver lasting prosperity and it cannot solve broader societal challenges,” he said, adding that calls for it to solve poor UK productivity “confuse independence with omnipotence”.
Philip Aldrick, economics editor of The Times, however, took a different view:
“The thing is, though, the closer you look at the powers the central bank has, the more Mr Turner’s proposals seem like common sense. Since the 2008 crisis, the Bank has been given a vast array of tools. It can ration household or business lending, it can drain or flood an economy with finance, it can direct banks how to behave, it can deploy £750 billion of cheap liquidity to grease the financial system, it can inject billions of pounds into the economy through quantitative easing and it can change interest rates.”
“Despite Mr Carney’s claim, the Bank is almost omnipotent but chooses voluntary impotence because using its power would be to stray into politics. For Mr Turner, the Bank’s “deliberate passivity” is contemptible when “credit guidance” could help to fix the nation’s productivity woes. What’s the point of all that power if the Bank doesn’t use it, especially since 2013, when its mandate was updated to “support the economic policy objectives” of the government? If nothing else, his paper asks the question.”
When our Council Leaders accepted HotSW’s ambition, without any detailed action plan, to double economic growth in 18 years, primarily by elevating productivity growth to levels never before sustained, did they realise just how radical a plan might be needed? And will they now be backing Labour’s or something equally tranformative?
John McDonnell’s Guardian article:
Interim Report (good source of financial data):