Making social science accessible

11 Feb 2020



In the 2017 election, both main parties promised to address the social and economic divisions highlighted by the Brexit vote. The Conservatives promised to ‘forge an economy that works for everyone in every part of this country’.

Few – including the current Prime Minister – would claim that they had kept this promise. Instead, pressure on key public services – health, education and the police – has grown, cuts to welfare benefits have continued, while inequality and child poverty (which were relatively stable under the Coalition government) appear to be rising.

Meanwhile, the complete absorption of government time and energy by Brexit has meant that little or no progress has been made on long-standing public policy challenges, most notably the chronic under funding of social care. Policy paralysis combined with continued austerity has meant that there is widespread dissatisfaction with the state of both the economy and public services.

Recent economic performance has also been mediocre. Most independent estimates suggest that Brexit has reduced cumulative UK GDP growth by about 1.5% to 2.5% since the referendum, and in the last year in particular Brexit-related uncertainty has depressed business and consumer confidence, and hence business investment.

So the centrepiece of the Conservative election campaign was the claim that ‘getting Brexit done’ would yield a double dividend. First, removing uncertainty about the timing of Brexit – and indeed whether it would happen at all – would provide an immediate economic boost, as pent-up investment, both foreign and domestic, was unleashed.

Second, with Whitehall and Westminster no long obsessively focused on Brexit, the government would have time and space to focus on its economic priorities – improving public services, investing in infrastructure, and ‘levelling up’ the economic performance of those UK regions perceived to have been ‘left behind’ over the past few decades.

How realistic are these ambitions? It is too early to say whether there will indeed be a ‘Brexit bounce’ – but a ‘Brexit boom’ seems unlikely. While there have been some signs of a modest rebound in business and consumer confidence, from relatively low levels, it is hard to see this translating into rapid growth.

Crucially, as outlined elsewhere in this report, while the election result means that Brexit will indeed happen on 31 January, uncertainty over the UK’s future trading relationship will continue for at least most of this year.

When businesses trading with the EU do not know if they will face tariffs, and what new regulatory barriers and checks will be in place, it is hard to see why that should make long-term investments that are dependent in whole or in part on ‘frictionless trade’ or something close to it. This is particularly relevant for sectors such as automotive and pharmaceuticals (see the section by David Bailey).

Currency markets appear to share this analysis – after rising immediately after the election, the pound fell sharply when the Prime Minister reaffirmed that he would under no circumstances extend the transition period.

So economic prospects in the short term appear to be more of the same. The Chancellor recently expressed his desire to see GDP growth return to the post-war – but pre-financial crisis and austerity – average of 2.7% to 2.8% per year. Few economists think this is realistic – those polled by the Financial Times expected growth in 2020 to be relatively slow, with Brexit-related uncertainty continuing to weigh on investment, although the labour market will remain buoyant and wages will continue to grow.

But there is some truth to the second argument. With the immediate threat of no deal lifted, and a secure parliamentary majority, there should be considerably more bandwidth for other policies.

This is not primarily about taking advantage of new post-Brexit opportunities. Indeed, as we pointed out in our analysis, the Conservative manifesto was striking for its failure to present a convincing economic case for Brexit: the more substantive Brexit-related pledges – that the NHS is not ‘on the table’ in any trade deal, that the UK will not roll back environmental or labour regulations, or that there will be special new visas for NHS workers and seasonal agricultural workers – were directed at eliminating the (real or perceived) downsides of Brexit, not of taking advantage of the (real or perceived) opportunities.

The first chance for the government to demonstrate where its priorities lie will be the Budget on 11 March. Sluggish growth will worsen the fiscal arithmetic. So even with the government (once again) rewriting its fiscal targets to make them easier to meet, choices will have to be made.

Under current plans, austerity – in the sense of funding for key public services either being cut in real terms, or failing to keep up with demand, will largely be over. But that may well not be enough to meet public expectations, given pressures on demand and how far some services have been run down over the last decade; it  means continued benefit cuts for the poorest families, and it certainly won’t address the social care crisis.

The picture is clearer on public investment, where Sajid Javid has explicitly repudiated the Treasury’s early reluctance to borrow to invest even at negative real interest rates. The government appears to have belatedly accepted the consensus view that the UK has under invested for decades – particularly in recent years, and particularly in the north of England – and that the unprecedentedly low level of interest rates offers a historic opportunity to remedy that, as well as addressing the challenges of decarbonisation.

Treasury rules will be changed to favour these new priorities, with a new focus on ‘people and place’. But the crucial challenge here will be delivery. Simply allocating more money is likely to be the easy bit.

Spending it – let alone doing so effectively – will be far more challenging, given the numerous capacity constraints that will tend to slow things down and make them more expensive. These include the shortage of project management skills in the public sector, planning issues, and growing shortages of skilled construction workers.

None of this adds up to a new economic model for the UK. Indeed, in many respects much of this programme looks like New Labour revisited. When ministers talk of ‘levelling up’, civil servants with long memories will be dusting off the files from the Treasury’s Public Service Agreement target (in the mid 2000s) to do precisely that.

And the painful, and often wasteful, process of reversing a long period of underfunding of key public services (while tinkering fitfully with reform) is precisely the challenge Labour faced in 1997 – albeit in a much more benign economic environment.

It is easy to take a pessimistic view of the UK economy after Brexit. As Duncan Weldon writes: ‘For all the talk of a radical change in the economic policy set‐up, it is just as likely that the end result is a very British attempt to ‘muddle through’ with a model which itself is not working and of which one of the key props (EU membership) has just been kicked away. The implication of this is that Brexit will not generate a new model for the UK, but simply an inferior version of the existing one.’

However, as the decade dawns, we should look on the bright side. Many of us thought Brexit could be a ‘reset moment’, with new policies to address those numerous structural issues that have been neglected in the past.

Those hopes, so far, have been dashed. Up to now the government has simply not had the space, time or capability to develop the domestic policy proposals and instruments – on investment (public and private), skills, regional policy and so on – that would be needed. Now it does. Let’s hope they make good use of it.

By Jonathan Portes, senior fellow at The UK in a Changing Europe. This piece was taken from our Brexit: what next? report.


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