A national action plan to protect the economy and begin to repair the country
In the wake of the vote to leave the European Union two immediate actions are necessary: supporting the economy through the present extreme uncertainty and preventing recession; and in doing so, starting to deal with the severe cleavage indicated by the results of the referendum.
For this reason on Friday the TUC issued a national action plan.
In the very immediate aftermath of the result, Mark Carney was quick to act to reassure markets and support sterling. In his speech on Thursday he raised the possibility of further monetary policy action including more quantitative easing (QE) and even a rate cut. But Carney also made it clear – perhaps as clear as his position permits – that this is not enough:
“one uncomfortable truth is that there are limits to what the Bank of England can do. In particular, monetary policy cannot immediately or fully offset the economic implications of a large, negative shock. The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policymakers. These will be driven by much bigger decisions; by bigger plans that are being formulated by others”.
Post-referendum fiscal policy was initially under the shadow of a ‘punishment budget’, and unsurprisingly George Osborne quickly retreated. The TUC’s immediate post-referendum poll found that such a budget would have been opposed by 65 per cent of leave voters and overall by more than three to one. Osborne also suspended his worthless fiscal surplus rule. Perhaps this was to be seen to do something in response to Carney’s rebuke. But the pledge to not do stupid things is hardly enough. Today’s new announcement of corporation tax cuts take us no further and gives little impression of a coherent and proportionate approach.
In the meantime the referendum results have put into stark relief a deep cleavage in our country that must be ignored no longer by policymakers. While much commentary has emphasised difference, the reality is that there is more unity than difference. Outside London and Scotland, the scale of the exit vote was remarkably consistent. Results have generally been reported as the share voting to remain or leave in a particular (NUTS1) region.
But if we look at the share of local authorities within each region returning a majority remain, the results are even starker. Of all English local authorities outside London and the south east, only 14 per cent voted to remain in the EU. (If authorities with Russell group/major universities are excluded – for example the West Midlands has only Warwick voting to remain – this falls to 9 per cent).
LAs returning a remain vote by region, percentage share
What is going on here is that areas which have seen sustained economic decline and/or the virtual disappearance of manufacturing voted strongly to leave. That suggests that the main objective of government economic strategy in the medium-term must be to boost demand across the whole of the country and to begin to revive local economies with initiatives aimed at regenerating local industry. And the same is true of the short-term, because demand is what will suffer most from the economic impacts of Brexit.
Our plan calls for a modern industrial strategy that operates on a regional level as well as aiming at climate goals.
Up front we call for emergency aid (for example through guaranteeing bank and other loans) to be made available for firms hit by extra costs (automotive, aviation, agriculture, retail and financial service industries are immediately the most vulnerable), and assistance for those firms affected by the devaluation forced on sterling.
But government also needs to act urgently to sustain confidence in the economy, and that requires early announcements about public investment in infrastructure projects that are hardly unfamiliar:
- a construction programme for 75,000 to 100,000 homes a year, including new council housing;
- announcing further expansion of high-speed rail, including detailed plans for Crossrail 2 and HS3, and additional support for HS2;
- giving the go-ahead to a new runway at Heathrow, in line with the recommendation of the Airports Commission;
- support for a new generation of nuclear power stations;
- rolling-out ultra-fast broadband across the UK and other spending on information and communication infrastructure;
- a full-scale carbon sequestration programme for power and industry, focussed on carbon capture pipeline and storage infrastructure (CCS) in key industrial regions;
- increase in the proportion of UK expenditure on renewable energy sources, likewise aimed at the industrial heartlands; and
- an expansion of domestic energy efficiency programmes, including community energy projects.
These projects must be financed by new government borrowing rather than spending cuts or tax increases elsewhere. Even in the wake of the referendum, the rate of interest on government borrowing has fallen to new record lows. It is now increasingly widely understood that increasing such spending is likely to be better rather than worse for the public finances.
These actions depend on the involvement of trade unions, businesses, devolved nations, English local enterprise partnerships, combined authorities and city regions as well as the relevant government departments.
The TUC is also calling for the protection of all workers’ rights guaranteed by Europe once Britain leaves the EU, and protecting as far as possible the UK’s access to the single market. And we will be releasing further reports this week calling for action against racism in the wake of the referendum result, and also ways to manage migration better for Britain.
Urgent action on the economy is needed now, but in the longer term, the government – and the whole political class – must better understand the cause of the deep wounds evident across the country, and return to fundamental questions around globalisation and the role of international finance. We have previously pointed that the IMF’s article ‘Neoliberalism Oversold?’ is a fundamental and incredibly important challenge to a consensus that has dominated policymaking and political thinking for decades – and, we would argue, brought Britain to the decision to leave the EU.
Image: Rob Albright