The real value of Britain’s roads, railways and office gossips

Morning all,

It’s been a big week for rain, and thus for those who enjoy complaining about the rain. In selfish news, there was too much river for my kayaking course to go ahead – I can’t believe the organisers didn’t let us take advantage of Bedfordshire’s newest water feature – the A421. I encourage those miffed by the Met Office’s forecasts to take a leaf out of Moo Deng’s book and find joy in the damp.

On a more serious note, we’ll publish our take on tackling fuel poverty next week (and we’re tackling skills shortages tomorrow), so watch for those analyses. Below, we have drinks, drama, and debt (leave your Party Conference jokes at the door).

Have a great weekend,

Mike

Interim Chief Executive
Resolution Foundation

Sussing stagnation. In a week that saw England hit a record low in planning permissions, you may not need a reminder that Britain is a stagnation nation. And we’re not the only ones who’ve noticed. If you’re looking for a (very) long read, settle down with this one. The authors identify the main problem with the UK economy as the planning system, which has held back investment in energy, housing, and infrastructure – think reservoirs, power stations and transport links – meaning that we’ll be stuck with our stagnation for a long time to come. The piece contains plenty of long view analysis of the previous 100+ years of policy and infrastructure investment, along with cheery facts like “on a per-mile basis, Britain now faces some of the highest railway costs in the world.” For a no-holds-barred pro-growth view from across the pond, check out Noah Smith’s fairly strident response (highlight: “Change is scary, and ensuring people that the government will prevent change is what I call a “stasis subsidy” — a promise that looks cheap in the present because it incurs no fiscal costs, but creates huge economic costs down the road. The UK is paying those costs now.”) The new Government has accepted this challenge, but it remains to be seen how much ground they can make up in five short years. You can read our take on their promising start here.

Banning booze. Scores of lobby journalists will have awoken in Liverpudlian hotel rooms this week swearing off the bane of booze. But what happens on a societal scale when alcohol sales are forbidden? This paper examines the consequences of South Africa’s sudden and unexpected ban on the sale of alcohol in the summer of 2020, as part of their pandemic lockdown policies. The outcomes were fairly stark: the alcohol ban reduced the number of people (almost all men) dying from unnatural causes by at least 120 per week, a 14 per cent fall. Outside of the impact on mortality, reported instances of assaults fell by 33 per cent, and those of rape fell by 19 per cent. All in all, it’s a strong factual grounding for policy discussions around the relationship between alcohol consumption and harmful outcomes.

Selling services. Do you remember all that talk of the Brexit cliff-edge? The mixture of anticipation and uncertainty effects meant UK firm behaviour already began to shift shortly after the Brexit referendum, but before any barriers were put in place. This paper examines precisely how services firms responded in anticipation of these barriers. Essentially, firms were significantly more likely to change the way they sold to the EU (rather than elsewhere). Whereas before they may have operated through cross-border sales (selling online or over the phone), many began to export through an affiliate in an EU country instead. This was much more the case in IT, advertising, and merchanting services than in other sectors. On the one hand, this is positive news – these responses are underpinning our comparably strong performance in services trade since our departure from the EU. The downside is that exporting through affiliates means fewer jobs in the UK and more in the EU, meaning these exports are contributing less to our real economy than if our exporters had kept operating through cross-border sales.

Grim gossip. There’s a somewhat busybody-ish argument which runs that gossip can be good (Gossip Girl / Gordon Gekko crossover reboot?). The thought runs that gossip can be ‘pro-social’, in that it discourages selfish or dishonest behaviour. But this study finds that there are concurrent negative effects: as gossipers share more negative information, then so cynicism increases among communities, as people begin to overestimate the scale of selfish behaviour in their midst. Sound familiar?

Pondering postcodes. The overused term ‘postcode lottery’ is often employed to evoke the randomness (and unfairness) of inconsistent service provision across the country, and this article explores the evolution and implications of the term, which emerged in the 1990s in reference to access to specific medical treatments within the NHS. Over time, its meaning has expanded to encompass broader issues of regional inequalities in state provision and health outcomes, like life expectancy. The authors point out that it was initially coined as part of critiques of the internal market Margaret Thatcher introduced to the NHS, which some argued was at odds with its founding principles of universalism and equality. It’s a phrase that has been employed by entities from across the political spectrum, both to defend universal healthcare against market reforms and to rationalise place-based inequalities by rendering them more abstract. More recently, its use has widened to pointing out patchy provision in social care and education, as the row around levelling-up trundled on. Essentially, the authors conclude that its longevity and efficacy as a turn of phrase is tied up with the strong emotional connection many British people feel to the NHS and the clarity of the principles on which it was founded. But that doesn’t mean it isn’t also an easy-to-reach-for cliché whenever any form of local devolution (which most of us think is a good thing) leads to – horror! – different approaches in different area.

Chart of the week

One of the most consequential sentences uttered at Labour Party conference may be Rachel Reeves saying that it’s time that the Treasury moved on from just counting the costs of investment, to recognising the benefits too. Economic kremlinologists (guilty as charged…) have been speculating what this could mean, with one interpretation being a tweaking of the Government’s fiscal rules to allow more public investment spending in the upcoming Budget. We’ve long argued that Britain must be an investment nation if we’re to boost growth and improve public services. The new Government has made welcome first steps in this direction via the setting up of Great British Energy, Green Prosperity Fund and National Wealth Fund. But these are small fry in the context of £26 billion of investment cuts pencilled in over the parliament by the last Chancellor Jeremy Hunt. The problem facing the Chancellor is that, while boosting public investment is good for growth, borrowing to invest might break the Treasury’s self-imposed rule that (broadly speaking) debt as a share of GDP needs to fall over the medium term. One option is to tweak the rule to exclude certain public sector bodies, but the Chancellor could go even further by focusing on a broader balance sheet, such as public sector net worth. Such a rule would consider both government debt and other liabilities (e.g. unfunded public sector pensions) but also its assets – its roads, buildings and wider infrastructure. As COTW shows, Britain fares very poorly on this more comprehensive measure of a nation’s wealth. We’ll never have the oil and minerals that deliver stonking levels of net worth in Norway and Australia. But the selling off and stripping back of the public realm over recent decades has left Britain in a far worse state than many of our peers. The bottom line is that we need to stop living off our past and invest more in our future if Britain is to prosper. We need an economic strategy that delivers on this objective, and fiscal rules that can fully assess its success.