One of the reasons I stand for Parliament is I want to help create the conditions in which living standards can rise. I want everyone to have the chance to be better off through their own efforts, or to be able to participate in the nation’s economic success if disability or old age means they have difficulty in providing for themselves.
The recent prognosis by the Governor of the Bank of England that inflation could well stay above target for longer came as no surprise. It may be one of his more accurate forecasts, after years of understating the rate of price rises and overstating the rate of economic growth. The bad news is higher inflation could well prolong the period of falling living standards, which started with the collapse during the deep recession of 2008-9.
You would have thought the main objective of the government’s economic policy would be to create the background where living standards can start rising again. You would expect the Opposition, seeking to rebuild their reputation for economic competence after the disaster of the Big recession, to be equally keen to set out views that could help bring about some restoration of living standards.
There are two ways of doing this. The first is to get on top of inflation, so people’s wages buy more. The second is to grow the size of the economy, making sure the extra income generated goes to people who already live here. The first aim does not seem to figure prominently in current political debate. Let me make the case as to how it could be done.The second is proving difficult, with much of the extra effort being made by recent arrivals so it does not add to per capita output and income.
Getting inflation down is not as difficult as it might at first seem for government, because government itself is one of the main causes of it. There are three immediate areas where better public sector management and different policy could make a big difference.
The first is energy. Go for cheap energy, so people on low incomes can afford to keep warm, and businesses can afford to make things here. The government has imposed large extra costs whcih the US, China, India and others do not incur.
The second is transport. Fares are far too high, especially on the railways. The government now accepts that the railway is massively inefficient, but there are few signs of a culture change that might make an impact with lower fares and less subsidy. The poor management of the road network also adds greatly to business costs. The public sector sees private road travel as an easy source of large amounts of revenue which makes us all poorer.
The third is the stifling cost of tax and regulaiton on a wide range of activities. Just consider the very large costs now on buying, improving and selling property. CGT at 28%, high fees for planning permissions and building regulations, high stamp duties. These all stand in the way of more jobs in construction and home improvement. They block off one of the main ways people in previous generations have made some capital.