The moment Britain leaves the European Single Market will be the economic equivalent of stepping off a travellator onto terra firma – a decelerating jolt, followed by the realisation that you now have to move a lot faster simply to travel at the same pace.
So how, without the propulsion that free access to a market of 500 million consumers provides, can we maintain – or even increase – the speed at which our economy grows?
The answer – and the challenge awaiting the next Prime Minister – is to reorient the whole of government to the task of making Britain the most productive, most inventive, most enterprising country on earth. Just as the designer William Morris urged us to put nothing in our homes that we didn’t know to be useful or believe to be beautiful, so the task facing Ministers is to put nothing in their plans that doesn’t help deliver that overarching goal. This will require a process of decluttering that allows for even less sentiment than Morris was prepared to permit.
The Treasury should do what it shied away from doing in 2010, and turn a moment of potential crisis into an opportunity: to re-evaluate the impact of every one of the 750 billion pounds government spends each year – a process known as ‘zero-based budgeting’. And the new occupant of No. 10 should take the opportunity to revisit the politically-inspired decisions – the budget ring-fences, the favoured constituencies, the endless slew of media- or speech-driven initiatives – that, cumulatively, have bent the government budget out of shape and left the British state unfit for the challenge ahead.
So what principles should guide this process?
In broad terms, the aim should be to replace non-productive spending with productive investment. As Angela Merkel pointed out, Europe as a whole has been living beyond its means for some time – producing 25 per cent of the world’s wealth but consuming 50 per cent of its social welfare spending, much of it financed by borrowing. What is more, that first figure is falling while the second is rising. Welfare spending across the EU has increased from 17 per cent to 19 per cent of GDP in the last 10 years. Some of this is explained by the continent’s highly sclerotic labour markets, which have pushed unemployment spending to 1.8 per cent of GDP across the Eurozone (compared to 0.2 per cent in the UK). But even that figure is dwarfed by the amount spent on pensions – a sum that will only grow as our populations age.
In the UK, despite the claim that “we are all in this together”, pensioners have been deliberately spared the pain of austerity, not least because of their higher propensity to vote. As David Willetts has shown, the effect of the government’s tax and benefit changes will be to make the relatively comfortable, home-owning baby-boomers entering retirement more than £200 a year better off by 2020, while making the struggling, rent-paying millennial generation almost £200 a year worse off. Redressing this balance isn’t just important because of the strain that intergenerational inequality puts on the social contract – a strain made worse by the fact that it was the older generations that voted for the UK to leave the European Union and the younger generations that voted to remain. It is also a simple matter of economics. Our ability to continue to enjoy decent pensions and healthcare depends on the ability of the working age population to pay for them.
Yet as spending on health, pensions and other forms of welfare has increased across Europe in recent years, spending on those things, like infrastructure, that increase our long-term competitiveness, has remained stagnant or even declined. With Britain now having to make its own way in the world, the time has surely come to shift significant resources into those areas – housebuilding, clean energy production, transport, R&D, science, technology and innovation – that support the process of wealth creation. And what better way to start than with a bold and highly symbolic decision to connect British businesses to the rapidly growing economies of the global South and East by giving London an international hub airport fit for the coming century?
But none of these investments will deliver their maximum return if we don’t resolve, as a nation, to invest in the skills of our young people on whom our hopes of a prosperous future outside the European Union now rest.
It was always a complacent indulgence to believe that the so-called ‘global race’ is a “race to the bottom”. Look at the investment that China and other fast growing countries like South Korea have made in skills; at the speed with which they have been climbing the international education league tables; or the urgency with which they have been building their higher education sectors, and it is clear that they are in a race to the top.
The UK starts that race with some sizeable advantages. Our very best schools and universities, like the BBC, the FT, the Economist, our cultural and arts institutions and our long list (second only to the United States) of Nobel prize winners, have given us a global reputation for knowledge transfer, research, creativity and thought leadership. And our proven ability to add economic value – through invention, innovation, design, marketing and advanced manufacturing – gives us a comfortable head-start over those countries whose competitive edge stems from the low cost of their labour.
But significant structural problems remain which, if not addressed, will quickly erode these competitive advantages. Educational inequality in England remains high relative to most other jurisdictions, with too many low-income children still failing to fulfil their potential. As a result, the number of school leavers not in education, employment or training (NEETs) is also relatively high, and stubbornly so, despite the efforts of successive governments to bring it down. And while the cost of attending university has risen, it hasn’t grown as fast as the cost of not attending university. Between the NEETs and the graduates are too many young people who, despite efforts to expand work-based apprenticeships and raise the quality of Further Education (FE), remain badly served relative to their peers in countries like Germany, where parity of esteem between academic and vocational education is a reality, not an ambition.
Of all the challenges we face, however, none is so great as ensuring that our education system equips our young people not only with the knowledge needed to pass exams, but with the understanding, the skills and the character attributes they will need to prosper in the world of work and in society more generally. With a good deal of manual labour having already moved abroad or become automated, and with new intelligent technologies forcing us to rethink what it is that humans, and only humans, can do, so we are going to have to think more expansively about the ‘why’, ‘what’ and ‘how’ of learning. Yes the ability to retain and retrieve information matters, but so too, increasingly, does the ability to think critically and creatively, to collaborate, to take the initiative and to develop the ‘can-do’ entrepreneurial mentality needed to navigate the more fluid, unpredictable and competitive world of 21st Century work.
And it is this last point that seems to me be to be the real lesson of Brexit. Because ultimately, it is through education, not through border controls, that our young people will develop the sense of agency – the belief in their ability to make a positive difference – that is the precondition for “taking back control” of their own, and their country’s, destiny.