Why George Osborne’s £30bn won’t really change anything

This was the U-turn that wasn’t: the time the Chancellor of the Exchequer became a quasi-Keynesian, pumping money into roads, rail and broadband to get Britain’s economy moving in a Brownesque stimulus package.

But it was also the time when nothing really changed – when George Osborne, having ditched much of the previous government’s help for young unemployed people, housebuilding and support for infrastructure, reinvented these policies at bargain-basement rates with the Youth Contract, national housing strategy and National Infrastructure Plan.

It was a time of missed opportunities. The chance to invest at scale in technologies and people-centred services that could set our economy up for the future was foregone in favour of more contracts for big construction firms, more support for carbon-intensive industries, more deals for giant Work Programme providers and more handshakes with the captains of industry.

The prize, we’re told, is economic growth. And growth will certainly keep some firms afloat that might otherwise have sunk. It will support the share prices of established companies, keeping investors happy.

But it won’t make a jot of difference to most of us. Not only because it is set within a context of shrinking spending on infrastructure (from £40bn last year to £24bn in 2013/14) but because the spending that makes most economic difference at the margins – funding for public services and welfare – is still being cut. The first £5bn for capital programmes is coming, at least in part, from cuts to revenue spending, yet it is the latter that directly employs people, putting money into the pockets of low-paid workers and thence back into local economies.

Capital spending can be good and necessary, (and it’s useful to get pension funds investing in infrastructure, even if it will take years for them to stump up the £25bn expected) but it’s a slow-acting potion. It takes time for a construction contract to turn into a job for a carpenter or electrician. Some of the money trickles down, but very little of it trickles down to those that are most hard-pressed. And the jobs created are only as long as the contract lasts.

Roads and schools have their merits, but they don’t add significantly to the productive capacity of the economy. You don’t end up with new technologies or new product lines.

Support for small businesses can also be good and necessary. But the problem, as Robert Skidelsky and Felix Martin point out in this piece for the FT, is that small businesses aren’t queuing up to take extra risks:

‘…borrowing is shrinking for two reasons: over-indebted households and companies do not want to borrow at any interest rate. Among those that are not over-indebted, confidence is shattered – uncertainty is so high that few want to put capital at risk.’

Meanwhile at the bottom of the heap, the Future Jobs Fund, which provided some real opportunities for people to learn practical skills working with voluntary organisations at the sharp end of society, is being replaced by a ‘youth contract’ managed by the same bloated Work Programme contractors that have ridden the DWP gravy train with such panache in the past. You wouldn’t have to be much of a cynic to suggest that their interests are best served by maintaining a steady supply of unemployed youngsters, just as the interests of the companies where they place unemployed people are served by a steady stream of cheap or free labour.

Even if George Osborne’s billions keep GDP positive, ordinary people are unlikely to feel the benefits. As living standards are squeezed, wages fall and Vince Cable cuts employment rights, we appear to be on a path towards a Grapes of Wrath economy where the price of a happy business elite is increasing hardship on the streets. As the Resolution Foundation recently found, even in the good times the living standards of the bottom half hardly improved: trickle-down didn’t work then, and won’t when times are tough.

So what should the Chancellor have done? Not another Brown-style stimulus of car scrappage schemes. Instead, he should have recognised that the economy that eventually emerges from years of stagnation will need to be very different. it must be fit for a changed world in which emerging countries are less willing to act as a cheap labour force servicing our lifestyles, and where resource pressures and climate change will be felt by all of us in ways we can’t fully predict.

Investing at risk in new technologies and business opportunities geared to creating a sustainable economy would have been a start, instead of resorting to the hackneyed bulldozers and concrete approach. Boosting the Green Investment Bank and university-based research and development would be a bonus. A national grid of top-up points for electric vehicles is something government could usefully provide to help prepare us for the future; community-owned high speed broadband and free wifi in all our cities and towns could create a business infrastructure that reduces the need for wasteful travel.

Subsidising installation of solar power would compensate for the removal of the current feed-n tariff and would make it affordable to those who don’t have thousands of pounds to spare, as well as reducing the demand for centralised energy production.

Most importantly, investment should be used to build practical skills among those who are already outside the labour market and who will not find their way back in with a few training courses, qualifications and benefit sanctions. These people need support to become more self-reliant, building skills that enable them to trade within their communities, and developing the confidence to make their own future. Removing the costs of policy failures will be far more effective in the long term than padding out the balance sheets of the big building firms.

We must ask the questions George Osborne (and most of his opponents) don’t: what kind of activity do we need in order to create a flourishing society, not just now but in 20 or 30 years’ time?

Or do we really think we will be happier, more able to reach our potential and better equipped to create a future for ourselves and our children with a few quarters of positive GDP and a few more miles of motorway?