Mais lecture: “Labour’s cast-iron commitment to delivering value for money”

Below is the full text of the Mais lecture delivered by Anneliese Dodds to the Business School at City University London tonight. 

It will not have escaped this audience that this is an unusual Mais lecture. The first to be delivered by a woman. The first to be given with the UK formally outside the European trading bloc. And the first to be undertaken during a global pandemic.

That pandemic has occasioned a recession which is the steepest in our country in 300 years, and which has also been worse in our country than in any other nation in the G7. Combined with the highest number of excess deaths in Europe, this means the UK has suffered a double tragedy.

Any consideration of how we recover from the crisis and build a better, more secure future must face up to why we have been hit harder, in many respects, than others. We need a more resilient economy. That can only be achieved through responsible economic, fiscal and monetary policy. Responsible, because it must face up, openly and transparently, to long-term challenges rather than duck them; and focus on ensuring our country’s economic health, rather than promoting short-term political advantage. Over the last decade, economic and fiscal policy have lacked responsibility – threatening our ability to recover in the short term, and to thrive in the long-term. Tonight I will outline Labour’s framework for the resilient economy Britain needs.   

The first Mais lecture was given in the year I was born, 1978, by the then Governor at City University and Governor of the Bank of England, Gordon Richardson. His opening remarks speak to us today:

We are now at an historical juncture when the conventional methods of economic policy are being tested. The principles on which we have conducted economic policy since the war are having to be reassessed, because, with changing conditions, we are no longer so certain of being able to achieve what once seemed possible.

In the middle of the deadliest wave of coronavirus so far, current events provide just such a historical juncture. The methods and principles of economic policy that have held sway during my lifetime are being severely tested, and too often they have been found wanting- requiring an even more fundamental reassessment than that which Richardson called for in 1978.

The Mais lectures given over the last forty years have overwhelmingly concentrated on endogenous threats to the UK economy and financial stability, from inflation to unemployment. Coronavirus, when it arrived, provided an extraordinary, exogenous threat.

However, the way in which the virus affected our economy was in part determined by the resilience, or otherwise, of our existing economic model. A quarter of UK households lacked financial resilience entering this crisis, with less than £100 in the bank. 3.6m people were in insecure work when the pandemic hit- a situation that has hampered the effectiveness of self-isolation, a crucial tool to get the virus under control.

Peoples’ pre-existing health status, itself influenced by socio-economic inequality, has been repeatedly linked to poor health outcomes, such as the disproportionate impact of coronavirus on Black and minority ethnic communities.

Low corporate resilience has meant many businesses taking on debt to get through the pandemic. And a proclivity to short-termism in economic decision-making has created numerous cliff edges and policy U-turns, fuelling instability for businesses and workers.

Coronavirus has accelerated many pre-existing trends within the UK – flexible working, digitalisation, and, in some cases, the transition towards net zero – that will shape the economy of the future. Yet this crisis has also impaired many vital sectors of our economy that were not otherwise undergoing, and did not need to undergo, fundamental structural change.

There are some who would argue that the twin processes – of acceleration and impairment – should be allowed to just ‘work themselves through’. That the businesses and individuals left standing once the pandemic ends will be, by definition, the strongest. That rising unemployment and looming insolvencies are merely the ‘shaking out’ of activities that were becoming less economically viable even before the crisis hit. That government should duck any responsibility to protect and build economic capacity. I profoundly disagree with that view.

For the first time since the end of the Second World War, this crisis has involved government acting to close down normally legal economic activity for the greater good. It has, rightly, taken on that responsibility – albeit often, sadly, too slowly. But government must also act strategically, in a targeted manner, to support economic activity, both now and in the future. To plan, not just for the next general election, but for the economy that our children will inherit.

Right now, that requires ensuring that the great acceleration does not occur in ways which will harm our economy. Online retail now covers over a third of purchases by value in the UK, including many purchases of essential items. But the digital divide means many consumers have not been able to participate in this trend, just as many of their children have been shut out of e-learning. Smaller businesses have faced an unequal playing field when using intermediated services like online platforms. And the explosion in app-based work has precipitated increasingly vocal health and safety concerns among those employed within this new ‘gig economy’. So while this acceleration has incredible potential, its downsides have not been actively and responsibly managed. 

A responsible government should recognise which sectors are facing destructive interruption and accord them the temporary support necessary to see them through. As this crisis has starkly revealed, ‘viability’ is very much in the eye of the beholder. Getting this wrong has serious implications. Short-term, pandemic-influenced impacts, unless cushioned, can have long-term consequences.

Once an entrepreneur’s business has failed, they will have less confidence to try again. Once a young person has been unemployed for a prolonged period, lifetime earnings can be up to a fifth less than that of peers who stayed in work. Once high streets have lost a critical mass of businesses, a downward spiral of reduced footfall can take hold.

The welcome arrival of several vaccines – including the UK’s own Oxford/AstraZeneca vaccine – means an end is in sight. Support for interrupted economic activity need not be indefinite. The terms of the debate around viability have changed, because we can envisage a moment when we emerge from the crisis. The prospects for key UK economic sectors like hospitality and the performing arts are now immeasurably improved, compared to the depths of the first lockdown.

However, the arrival of a vaccine does not mean an end to future pandemics, nor to other forms of external threat to our economy. As my constituent, Toby Orde, has demonstrated, policymakers have traditionally paid extraordinarily little heed to the potential for crises like the current pandemic, and indeed to other challenges like the climate crisis. So we must act, now, to ensure that we never again enter a crisis like this in such a state of unpreparedness, so lacking in resilience.

The core elements of Labour’s framework for resilience are the monetary, fiscal and economic policies that are needed not just for the 2020s, but for the 2030s. So that we are resilient not just to future public health threats, but also to the climate crisis and disruptions to international trade; and are also resilient to threats to our economic competitiveness, via muscular industrial and competition policies, and by improving the relative returns to innovation.

The toolkit of monetary policy has dramatically expanded over the last twelve years. As interest rates have hovered at or even below zero, central banks have turned to quantitative easing on an unprecedented scale as a means of boosting the flow of capital through the economy- doing whatever it takes, to use Mario Draghi’s commitment made at Lancaster House in 2012.

Central bank independence – introduced by a Labour government here in the UK – is essential for the tough, transparent and coherent macroeconomic policy framework that is necessary for a resilient economy. As former Governor, Mark Carney rightly summarised, the UK’s monetary policy regime is both democratically legitimate and highly effective.

The role of independent central banks as the arbiters of monetary policy and guardians of the macroprudential framework has obviously substantially increased, since the Global Financial Crisis exposed the inadequacies of the then framework and precipitated substantial innovation – with much of this led initially by Gordon Brown. The last nine months have, in my view, indicated the strengths of the new framework. In March last year we saw what the Bank of International Settlements described as a massive and unprecedented response by central banks and other authorities around the world, which did indeed prevent the sudden stop in markets leading to another financial meltdown.

However, there remains the risk of financial crisis. This could arise from the dark corners of the global economy, to use Olivier Blanchard’s memorable phrase- perhaps from developing economies running into acute debt difficulties – in part because private creditors have so far not been compelled (nor have they volunteered) to offer the same degree of forbearance as their sovereign counterparts. Or it could arise from the development of innovations such as digital currencies, and the risk some may pose to financial stability. The Bank’s prudential role, through the PRA, remains essential. 

The Bank’s monetary policy role also continues to be essential – and I want here to be crystal clear that this role must continue to be exercised independently.

The Bank’s quantitative easing measures – on a scale that has seen asset holdings double in the last year, and its balance sheet set to represent half the stock of the UK’s total outstanding debt – are, clearly, within its mandate, and consistent with the Bank’s symmetrical inflation target. Andrew Bailey, the Governor has made clear that at no point did the Bank believe its job was just to finance whatever debts the government issues. That clear division in responsibilities must continue. As Chancellor, I would ensure it would.

The division of responsibilities has been important, because without the credibility of the Bank’s interventions, the cost of public sector borrowing at such a precarious moment would have become highly contingent on the appetites of private investors, hampering the government’s ability to put economic measures in place to support workers and businesses through the crisis. As the Governor said in May, the credibility of the overall framework – including the Bank of England’s independence and its ability to exercise choices at moments such as these- has meant that the Bank can help to spread over time the cost of the coronavirus crisis to society. 

Independence was important not just during the crisis but will continue to be so as we enter the recovery. We have lived through an extended period of low interest rates, with lively debate around the reasons for this – from demographic factors, to savings gluts occasioned by consolidation of market power and reduced corporate investment, to the ‘race for yield’, to structural weaknesses in the UK economy – and how these factors interact with low productivity growth.

For now, financial markets have priced in low rates for the long term. For as long as that is the case, government must make use of benign circumstances to avoid choking off recovery via premature and politically-motivated fiscal tightening – an issue I shall return to in a moment. But it would be an irresponsible economic policymaker who planned on the assumption that low interest rates will continue indefinitely.

I may not share the Chancellor of the Exchequer’s confidence that people have been sitting at home, building up some savings and that the spending of these savings will necessarily be what turns around our economic fortunes. Not least because this is a very partial picture. Survey evidence suggests that more households have seen their incomes fall than rise during the pandemic, and that a quarter have suffered from financial strains when it comes to paying bills. Savings are therefore concentrated in a small group of higher income households, and there is some indication that many of those who have built up savings during the crisis are intending to retain rather than spend them.

Longer-term, we cannot discount the possibility that trends, including demography, may exert upward pressure on inflation. But government itself can influence the impact of those trends, for example by enabling greater female participation in the labour market through improved childcare and by engaging in other more active labour market policies, thus reducing the ratio of retired to employed people. Above all, government can ensure that responsible action is taken, so that fiscal and economic policy are much more strongly focused on resilience, and the responsibility placed on monetary policy is proportionately reduced.

Independent central banks cannot do everything on their own. They cannot be, as Mohammed El-Erian has put it, the only game in town – nor were they designed to be. Over-relying on monetary policy levers for economic growth – as the UK has arguably done for the past decade – can lead to undesirable outcomes. Without accompanying fiscal action, low interest rates and gargantuan quantitative easing programmes can exacerbate inequality and concentrate economic gains in the hands of those who were already asset-rich, at the expense of those who rely on income from their labour. Risky indebtedness, especially combined with a highly unequal distribution of assets, can exacerbate inequality.

Instead, a truly responsible macroeconomic framework requires independent monetary policy to go hand in hand with a much more strategic use of fiscal policy. It is to that subject which I now turn.

No-one could reasonably expect any government to have got everything right in these unprecedented circumstances. Decisions to close down whole sections of the economy for the good of public health, as governments around the world have been compelled to do over the last twelve months, are neither simple nor taken lightly.

But some responses have been better than others. The fact that our recession has been worse than that of any other economy in the G7 suggests there have been significant flaws in the UK government’s approach. The Treasury has appeared continually focused on the need to extricate itself from the pandemic-related economic support packages it initially introduced – despite the fact that this has often been in direct contradiction to the public health evidence of continuing health challenges. This has led to a high degree of instability, which will harm the recovery, leading to greater scarring. The public’s health has been opposed to economic outcomes, ignoring the impact of fears around the virus on consumption, and the much larger economic costs incurred by restrictions being imposed later than they should have been.

One indication of this failure to understand the link between health and the economy was the Chancellor’s refusal to accept SAGE recommendations for earlier, stronger measures against coronavirus during the autumn. Another has been the government’s apparent tolerance of continuing problems for low-income people who need to self-isolate, arising from the low scope and scale of support. Failure to grasp this nettle has been linked to increased transmission – and far greater economic costs.

A familiar pattern has emerged since the outset of this crisis. Plans have been chopped and changed, often at the last minute. Support has been linked to arbitrary dates in the calendar rather than progress in tackling the virus. Businesses and workers have found themselves unable to plan for the coming days or weeks, let alone months, because of the stop/start nature of government schemes. Meanwhile, the schemes themselves have failed to evolve, to deal with gaps in coverage, poor targeting, and the general lack of forward-looking conditionality.

This reflects the current government’s apparent ‘time-inconsistency problem’: an unwillingness to look beyond the next general election, and ensure that our country is fit for the challenges of the coming decades. Indeed, from last summer onwards, there has been frequent speculation that the government is planning an early consolidation, which they hope might enable tax cuts, just before the next general election. This approach is clearly driven by electoral, rather than economic considerations. Instead, as the OECD, IMF and IFS have indicated, we need a more responsible approach to fiscal policy – one which focuses on strengthening our economy in the short to medium term, so that it is well set-up for the long-term.

This short-termism has been overlaid with irresponsible brinkmanship over the Brexit negotiations that led to a deal being struck on Christmas Eve, with businesses scrambling to prepare for new trading arrangements coming into force in a matter of days.

The combination of turbulence in business support, a failure to get a grip on the public health crisis, and last-minute chaos around Brexit have led to a situation where the UK has gone from being a highly stable business environment, to one characterised by instability and uncertainty.

That instability has been growing over the last ten years, when the UK has been subject to sixteen different fiscal targets. The most recent legally-binding framework, set out by Phillip Hammond in 2016, involves three targets for borrowing and debt, and a cap on social security spending. In November of last year, the Office for Budget Responsibility assessed the government to have missed all four targets in its central scenario. In fact, consecutive Conservative Chancellors have missed every debt and deficit target they have set themselves.

There must be a responsible fiscal framework in place: based on pragmatism rather than dogmatism; and on the overall resilience of our economy, rather than narrow political considerations. The question is, indeed, not whether there should be rules in place– but whether those rules are the right ones and whether they are properly implemented.

Before the onset of the current crisis, the IFS provided a useful analysis of fiscal rules and how they might most appropriately be set. It suggested a rolling, forward-looking target of current budget balance which allows the government to borrow for additional investment spend when interest rates are low, and which provides flexibility during times of economic shock. The IFS suggested that in a crisis scenario, a so-called fiscal anchor could be set to limit the amount of permanent tax cuts or further increases in day-to-day spending that is announced.

This provides a responsible approach, focused on economic resilience: targeting a balanced budget over the cycle but still allowing for flexibility in times of crisis and for productivity-enhancing investment. Those sensible principles would underpin the fiscal framework that an incoming Labour government would set for itself.

Both public and private investment have been heavily constrained over the last ten years. Targeted investment in infrastructure will be key to improving productivity, as well as other measures I will discuss later. Indeed, the government has implicitly acknowledged the investment gap, by exempting investment spend from current budget balance targets and focusing on limiting debt-interest spending in relation to revenues.

A responsible approach to government debt is also critical here. George Osborne made debt reduction a major driver of his economic policy and the rationale for stark reductions in government spending, yet debt increased from £1tn to £1.8tn between May 2010 and February 2020. In the eleven months since then, it has risen to £2.1tn.

Even before the crisis, the IFS was arguing for an approach that considered the projected path of public sector net debt over a longer horizon, taking account of a broader set of public sector assets and seeking to strengthen the government’s balance sheet. That longer-term, more responsible approach is even more essential as we consider how fiscal rules should be best designed following the current crisis.

Essential, too, is honesty about the nature of the debt that has been accrued in the last eleven-month period. There are precedents for taking a much longer-term approach to paying off significant debts – the most notable being those arising from the Second World War, which the UK only finally repaid in 2006. We should consider learning from this example, and investigate if there is appetite and the potential for the UK to issue gilts with much longer maturities.

To summarise – a responsible approach to fiscal policy requires a set of rules around both annual deficits and the stock of debt, that simultaneously demonstrates a prudent approach to the public finances, and leaves space for investment in the future and the ability to adapt to crises.

But a responsible approach to the public finances must also include consideration of the quality and effectiveness of public spending. Too often this is left out of the conversation altogether, leading to a situation where poor investment decisions are made and not subject to rigorous evaluation.

We must move beyond the post-2010 consensus, and instead ensure that public spending is controlled and directed to ensure resilience.

First, we need far greater transparency around the tax and spend decision-making process. Budget decisions are not currently subject to any formal equality impact assessment. That must end. In addition, the Red Book’s projection of tax take and public spending is currently restricted to the next five years. Where possible this should be extended to include a projection of revenue and spend over ten years, and estimates for the ten years beyond that, giving an overall 20-year budgeting horizon. Doing so should enable more honest and fruitful debates over issues like social care and yawning gaps in pension provision, where in the last decade there has been a total failure in Westminster to grasp the nettle.

Alongside transparency and long-termism, there must also be a relentless focus on value for public money. And here recent events have been deeply concerning. As a stark headline in the Financial Times in November put it, UK’s high spending delivers worse outcomes than peers.

The quality of spend forms no part of the remit of the Office for Budget Responsibility when it delivers its forecasts and assessments at the time of the budget. Nor does it appear to feature within the Chancellor’s remit, if one considers the scant attention paid to this over recent years. As a result, in the words of the National Audit Office chairman, Lord Michael Bichard we have:

…become a nation which is good on ideas, ambitions and aspirations but weak on achievement … We are wasting billions of pounds when resources are tight and at the same time failing to deliver policies, many of which could help some of the most disadvantaged people in our society.

Lord Bichard’s speech was given this time last year, before the pandemic hit. Since then we’ve seen example after example of waste and mismanagement. The government’s Test, Trace and Isolate system is projected to cost £22bn, much of which could have been spent on more effective, locally-provided services rather than outsourced national contracts which have not delivered. That follows on from £16m frittered away on antibody tests that didn’t work; £150m on unusable face masks; £12m on an app that had to be scrapped; and a system which enabled those with political connections to be ten times more likely to obtain government contracts than those without such connections.

Current problems with financial control follow a decade of failed and failing projects. The 133 projects within the government’s Major Projects Portfolio amount to £442bn in whole life costs. But in 2018-19, 42 of those projects – a third of the total – saw their delivery assessed as appears unachievable or in doubt. This has to change.

A far stronger approach is needed – one which embeds both a concern with and accountability for value for money, at the heart of government. The National Audit Office and Public Accounts Committee already do a valiant job in this area. However, far too often ministers have ignored the lessons arising from their investigations. That must end.

As Chancellor, I would invite the Comptroller and Auditor General to submit an annual report to Parliament, bringing together the NAO’s findings throughout the year into a single assessment of the effectiveness of public spending in those areas the NAO has examined. I would commit to government responding to that report – and indeed all NAO recommendations – with clear, tangible commitments to improve the quality of public spend. And I would ensure that at each year’s Budget the government would set out its own assessment of the effectiveness of public spending, open to external challenge and scrutiny. This approach – hardwiring value for money and financial control into the budgetary process – would focus on real outcomes, not eye-catching announcements designed to raise expectations today, only for them to be dashed tomorrow. It is Labour’s cast-iron commitment to delivering value for money for the British people.

This responsible approach – pragmatic rules covering the debt and deficit, longer-term and more transparent budget planning, and government accountability and the commitment to provide value for money – would lay the groundwork for a sustainable, resilient recovery from the current crisis. It would ensure that public spending is disbursed in the interests of those who need it the most, and to build our country’s long-term resilience.

An effective macroeconomic framework, with monetary and fiscal policy working hand in hand, is essential for a responsible approach to our recovery. But the role of government in economic policymaking is about much more than effectively managing the flow of tax and spend. Government must also have a strategic response to the two overarching challenges to our economic resilience. 

First, ensuring we are resilient to future exogenous threats, from the climate crisis, to future pandemics and other disruptive events and, relatedly, disruptions to international trade. Second, acting to improve the UK’s economic competitiveness, through industrial policy, modern competition policy, and improving the returns to innovation. The rest of my lecture will consider how a responsible approach to economic policy can help tackle each of these different challenges to our nation’s resilience.

Since the Stern review, economists have repeatedly warned of the costs of failing to act to tackle the climate crisis. Yet progress has often been painfully slow. While the UK has reduced domestically-produced emissions, much of this reduction has come from comparatively low-hanging fruit, not least the remarkable success of offshore wind power.

This year’s COP conference, a mere ten months away, offers an historic chance for governments to work together to prevent even greater damage to ecosystems and ultimately, human life. Hosted in Glasgow, it offers the opportunity for the UK to show genuine leadership.

Action cannot come too soon. Last year’s damage to critical rail services and tragic loss of life in North East Scotland was the first, and unlikely the last, transport disaster to be linked by engineers to the climate crisis.

Government must act responsibly to combat the climate and ecological crisis, both on its own terms and as a core element of securing a jobs-rich recovery. The Oxford Smith School and many others have demonstrated how ‘green stimulus’ is not only environmentally productive, but economically productive as well.

Labour and others have demonstrated how accelerating £30bn of capital investment into the next 18 months, focused on environmentally-friendly initiatives, could support up to 400,000 additional jobs. That’s double the ambition of the current government.

But change in this area does not only require investment – it also requires government to move beyond its short-termist approach to planning and regulation. The Bank of England has led the field here, with its plans to deploy an innovative climate stress test to the largest banks, insurers and the financial system; and its energetic engagement within the Network for Greening the Financial System. The Bank is also rightly acting to put its own house in order, having published for the first time in June last year, climate-related financial disclosures of its own operations.

Any responsible government would back the tough regulatory and transparency proposals coming out of these initiatives. But it would also act to set its own house in order. That is why I would ensure as Chancellor, that every single budget line was tested against its contribution to the goal of net zero – with this being essential for economic as well as environmental reasons. Alongside appropriately ambitious investment and robust carbon budgeting, this ‘green pen’ would ensure our country stopped ducking the hard decisions necessary to embed net zero.

The climate crisis may, sadly, not be the only disruptive event which future decades will bring. We must learn the lessons from the current crisis to truly understand what ‘resilient government’ and public services require.

Number 10 insiders have been quoted as saying that at the beginning of the crisis when you pulled a lever, it turned to jelly. A decade of cuts to public services were inevitably going to lead to that sort of risk. Public policy objectives cannot be delivered by a state machinery that has been severely depleted.

However, resilience must not be viewed in quantitative terms alone. While additional empty hospital beds and nursing and other healthcare staff would have massively aided our pandemic response, it has been the incredible flexibility and resilience of our hospitals and NHS that have enabled existing facilities to be speedily repurposed into intensive care wards.

The need for resilience here behoves a longer-term fiscal approach, where, as I indicated earlier, the planning horizon should be twenty years, not the usual five or fewer years until the next general election – an approach requiring the embedding of longer time-horizons into the budgetary process. It will require actions to face up to the threats within the UK’s risk register being fully politically, as well as bureaucratically, accountable. And it will also mean a change in mindset – so that politicians stop over-promising, and under-delivering. So that once a course is set, it is stuck to. So that there is coordination, not just across Whitehall, not just across the various levels of government – national, devolved, local and regional – but also with businesses, trade unions and charities as well.

The benefits of this type of coordination – and problems where it was not in evidence – have been clear during this crisis. Last summer, I visited the Centre for Advanced Manufacturing in North Wales, and saw how the devolved government, industrial and trade union partners had worked together so that ventilators could be built in record time. This experience did not reveal a country inherently unable to produce key materials – quite the opposite. Instead, it indicated how, where government was willing to empower others, and coordinate with them, we could face up to challenges – together. Preparedness for future crises will require identifying the critical nodes for this type of coordination- especially, levels of government beyond Whitehall- and ensuring that they are in a position to coordinate any response, rather than the frequently over-centralised approach so often in evidence during the current crisis.

A third, related, threat to our resilience comes from changes in our trading relationships – either induced through crises or indeed via political choice.

This Mais lecture is the first to occur with the UK now a third country to the European economic bloc for most trading purposes. We are already seeing that the vaunted zero tariffs, zero quotas deal that the UK government negotiated with the EU still involves a significant number of technical barriers to trade and in some cases – thanks to new rules of origin requirements – still results in tariffs. That’s why Labour has been clear that we will keep up the pressure on the government to take the thin deal that currently exists and build on it, including securing outcomes on financial services, data and the other areas where further arrangements still need to be concluded under the terms of the agreement.

But trade with the EU is of course only part of the picture. To take just the most obvious example, in the lifetime of the Mais lectures, China has gone from accounting for less than 1% of global trade to becoming the world’s leading trading nation, accounting for almost a quarter of annual international trading flows. Indeed, the growing significance of the Chinese economy appears to be yet another development which has been accelerated by this crisis.

If the UK is to thrive in an international trading environment that is changing both as a result of our own decisions and of wider trends, then we must maintain our historic openness to trade – but do so on the basis of understanding of trading flows as they are today, not as they are imagined in the somewhat mercantilist mind-set of elements of the Conservative Party.

That mindset has led to new frictions and inefficiencies being introduced into our trade with the EU: complex customs paperwork that will only serve to increase costs, especially unwelcome at a time when so many firms are operating on very low margins. These new frictions will not prove to be the grit in the oyster that produces the pearl of more domestic production; much more likely, they will simply shift economic activities out of our country. The government must act, speedily, to mitigate additional bureaucracy, enabling firms to comply with new procedures rather than punishing them for unintended transgressions, and supporting those firms which face short-term disruption as a result of the new trading regime.

In parallel, it must also adopt a number of practical measures to boost domestic supply chains. These should include considering areas where large employers could pass on government-backed incentives to smaller firms in their supply chain who otherwise would not be eligible, such as investment allowances, R&D tax credits and export finance guarantees. Government should also return to its abandoned proposal to improve speedier payments for supply chain firms. It should make supply chain support a fundamental feature of existing sector deals, while extending those deals to cover a wider range of sectors. And it should honour the sentiments proposed for its new National Procurement Policy, which claim that the new requirements will enable contracting authorities to procure in such a way that they help create new businesses, jobs and skills in the UK, improve supplier diversity, innovation and resilience and tackle climate change and reduce waste.

It must also adopt a trading policy focussed on promoting the UK’s highly-valued reputation as a venue for economic activity, where the rule of law is respected and where contracts – both between private organisations and between sovereign states – are honoured. That reputation should never again be threatened for political purposes. This commitment is especially important for the UK’s financial and related professional services sector, which employs one in fourteen people in our country – and most of them outside London.

Finally, a responsible approach to trade policy would also involve ensuring that the UK’s defences against abusive trade practices demonstrate international best practice. The new regime introduced by the Conservative government means that British companies have some of the weakest protections of any in the world, be it against dumping or the use of slave labour or other unacceptable practices. This is a particular problem for manufacturers of essential materials and components, from steel to ceramics- despite their critical role in many infrastructure developments in the UK.

If we are to truly rise to the challenges and seize the opportunities from the coming decades, we must ensure resilience to these external threats. But a responsible approach to ensuring our economic resilience must also focus on improving the UK’s economic competitiveness.

As Andy Haldane has noted, the productivity gap between the best and least-well performing companies is 80% larger in the UK than in our international competitors. A responsible government would aim to close that gap, by laying the foundations on which innovative firms can compete and flourish.

Part of the answer is about well-targeted investment in infrastructure, as I argued for previously. But it also requires clear, dependable plans on the future operating environment for firms. Government can and should determine what standards will form the baseline on which companies go on to innovate, and make sure that these are open, and interoperable. This means grasping nettles, like the complicated and counterproductive regulatory system for energy distribution and supply in the UK. It means stepping in to tackle barriers to coordination where possible and appropriate. And it means signalling, through the issue of foresight exercises and open communication with business what government expects upcoming technologies and opportunities to be – while remaining agnostic at the level of the individual firm.

Industrial policy cannot be considered in divorce from the challenges of education and training, as David Sainsbury has forcefully argued. The constant chopping and changing around industrial qualifications that we have seen over recent years has been turbocharged by initiative-itis during the current crisis.

Schemes like Kickstart have failed to focus on building up local capacity in further education and training provision, and already, sadly, appear to be leaving behind significant numbers of young jobseekers. Rather than constantly reinventing the wheel, governments should build on those aspects of previous and current programmes which have been effective- such as the strong partnerships between employers, FE, local authorities and charities that underpinned the Future Jobs Fund. They should help people who need it most, not cherry-pick. They should be timely, unlike the government’s Restart fund, which appears likely to only cover a very small proportion of adult job seekers this year. And of course, job search support ultimately only works if sufficient new jobs exist- behoving ambitious action from the UK, in line with that taken in other countries, to promote job-creation. 

Over recent years, deficiencies in the extent and nature of competition have often been missed out of conversations around the reasons for weak productivity growth. However, the increasing concentration of many economic sectors poses major challenges for the dynamism of our economy.

Even before the crisis, the 100 largest firms in the UK accounted for nearly a quarter of total revenue, up 25% since 2004. Of the ten most important consumer markets in the UK – between them accounting for 40% of consumer spend – eight were classed as concentrated, from groceries to utilities, from broadband and telephony to retail banking services.

This hyper-concentration can starve new firms of the opportunity to develop, especially in technology. There has been a familiar pattern where new companies- and their plans for innovation- have been ‘killed in the crib’ when they are bought up by major players. The monopsony that many platform-based companies have become, has led to extremely poor labour market outcomes in some areas, with knock-on impacts for households’ financial resilience, as demonstrated forcefully by Jeremias Adams-Prassl. And increasingly, major players have been able to leverage their ability to process data to create very substantial returns – including data provided through collective institutions like the NHS.

The UK’s Competition and Markets Authority is required to examine competition only through the lens of consumer benefit, and even then only partially. Considerations around market concentration and negative spillovers do not appear to be prioritised.

As the CMA gains new powers and responsibilities, now is the perfect time to reconsider if its duties are appropriate and if it is carrying them out effectively. That will be particularly important when it comes to the creation of the new Digital Markets Unit, which must look at power being concentrated in the hands of a single buyer just as much as in the hands of a single seller. Here the UK’s policymakers must learn from the Anti-Trust movement in the United States, and its focus on ensuring a level playing-field for smaller businesses.

Just as recent years have seen a concentration in market power, they have also seen a concentration in control over assets, and increasing returns to so-called ‘unproductive’ assets compared with returns to labour and capital invested in workplaces.

The current crisis has arguably exacerbated this imbalance. Wages have reduced substantially due to the influence of the furlough scheme, and also due to diminished hours linked to the enforced closures of different workplaces and reduced demand, and to practices such as ‘fire and rehire’, which have enabled the reduction of wages of existing staff. 

Recent developments follow a decade-long squeeze on wages, the longest in the UK since Napoleonic times. During that decade, the returns to assets from land to art, other luxury goods and property have all outstripped wage growth. 

Explanations for poor wage performance abound, but most suggest a mix of factors, ranging from a lack of embedded skills provision, to failing employment programmes, to reductions in the heft of coordinating institutions that could underpin sustainable wage growth. While previous Mais speakers understandably warned about the perils of wage-push inflation in a context of high inflation, the last ten years have underlined the dangers of an alternative situation, where weaknesses in wage growth have arguably reduced both aggregate demand and the incentive for employers to invest in the workplace.

If we assume that the primary drivers of inflation are the public’s self-fulfilling expectations of price rises, and the health of the labour market – then signs at present point towards low inflation. This has been compounded by the crisis-induced increase in spare capacity combined with additional cost pressures leading to squeezed margins, lower pay deals and in many cases pay freezes.

All of which mean that the immediate risk we should be concerned about is not the inflationary risk of pay being too high, but the impact of low pay on our individual, societal and broader economic resilience. The rise of more precarious work – often on zero-hours contracts and linked to the delivery- and internet-based economy – will only make the problem of low returns to labour worse, if we do not seek to address it. That in turn will risk rising inequality. 

To tackle that challenge, we need a rebalancing of power in the workplace, such that employees have a more concrete set of rights and a greater sense of control. And it also means a rebalancing of power between companies. It cannot be right that traditional bricks and mortar businesses are treated so differently from their online rivals, including the way in which they are taxed. That disparity must be urgently addressed. 

In conclusion, this crisis occasions a fundamental reassessment of how governments approach economic policy – nowhere more so than in the UK. Too often over the last ten years, governments have relied on monetary policy for financial stability and the promotion of growth, and policymakers have failed to take responsibility for ensuring that fiscal policy also plays an appropriate role. They have also failed to look ahead to longer-term external and internal challenges to economic resilience, and to act strategically to challenge them. 

If we are to deliver a resilient, jobs-rich recovery from this crisis and a stronger, better future for the 2020s and beyond, we must make effective use of all economic policy-making levers at our disposal. That means an independent Bank of England setting monetary policy; a responsible government using fiscal policy to ensure public money is spent effectively and wisely; and action to improve resilience, including in the face of the climate crisis, and to deal with challenges to our economic competitiveness.

Without these changes, the impact of the pandemic – aside from the hideous immediate human costs – will lead to permanent yet avoidable economic scarring. By embracing them, with a responsible framework for a resilient economy, we can play our part in realising our country’s full potential – to our benefit now and to the benefit of generations to come.

Thank you.