London School of Economics commission calls for income statistics to be published alongside quarterly GDP figures
Politicians should track progress in repairing Britain’s recession-scarred economy by measuring how the average household is faring instead of focusing on GDP alone, according to a report by a panel of heavyweight economists.
The London School of Economics Growth Commission, in findings published on Thursday, calls for statistics on median household income to be published regularly alongside quarterly GDP figures, and to be used as a measure of whether government policies are working.
The high-level panel – including Nobel prizewinner Chris Pissarides, ex-BP boss John Browne, the three former Bank of England rate-setters Richard Lambert, Rachel Lomax and Tim Besley, as well as the LSE’s John Van Reenen, director of its centre for economic performance – offers a series of prescriptions for tackling the long-term failings of the UK economy.
They argue that tracking median household income in the runup to the financial crisis would have revealed that the benefits of growth were being swallowed up by a small segment of society. “Increasing inequality is not an inevitable byproduct of growth, especially if policies are pursued that make growth more inclusive,” the report says.
In what they bill as a “manifesto for growth”, the authors argue that in three areas – human capital, infrastructure, and long-term investment – the UK risks falling behind its international rivals.
They call for a boost to education, through the creation of a “flexible ecology” of school types, and longer probation periods and better rewards for the best-performing teachers, to improve the chances of children from low-income families.
The authors would also like to see a “new institutional architecture” for major planning projects, to prevent politicians delaying decisions for decades and ensure the economy’s long-term needs are met on the basis of the best expert advice.
“Nowhere is the problem of UK infrastructure better illustrated than by airport capacity in the south-east, where generations of politicians have prevaricated to a point where there is serious risk to London’s position as a major hub.”
Under the regime advocated by the economists, there would be a national-level infrastructure strategy board, to give independent expert advice; an infrastructure planning commission to draw up and approve plans for specific projects; and a new infrastructure bank to provide a mix of public and private finance.
Channelling long-term investment to promising small businesses is another major shortcoming of the UK economy, according to the report, which calls for the government to boost competition in banking, and encourage alternative sources of finance, including by removing the tax advantages of debt-fuelled takeovers.
The latest official figures, published by the Bank of England on Thursday, show that net lending to businesses continued to decline last month.
The panel is also highly critical of the prime minister’s decision to promise a referendum on Britain’s EU membership, saying: “Calls to leave the EU through a referendum are not only misguided: they create the very uncertainty that will damage investment and productivity right now. It is analogous to the needless self-inflicted wounds that the US is causing in its debates over the debt ceiling and fiscal cliff.”
Presenting the report, Tim Besley said that while the coalition was focused on short-term deficit reduction, commitment to a series of longer-term reforms could help to “crowd in” private sector investment and deliver a growth dividend. “We lack a heart of government to drive this through,” he said. “There’s very little at the centre.”
However, business secretary Vince Cable insisted: “The government is implementing an industrial strategy in partnership with business to tackle the very issues the LSE’s Growth Commission report identifies.”