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Yesterday’s GDP figures showed the national economy shrank by 0.7 percent in the last quarter, largely due to a sharp slowdown in the construction sector. Although the latest labour market figures show that employment has been growing modestly and there are always questions about the accuracy of such rapidly produced GDP figures, it seems undeniable that at best the UK economy is stagnating. At worst, the figures are right and we’re in the longest recession since the Second World War.
If ever there was a time for Government to invest, surely it’s now.
The Government is clinging on to Plan A for the moment but now is the time to step up with new policies – whether they’re Plan A Plus, Plan B or even Plan C for Cities – to ensure that this recession does not extend into decades of no growth.
Our retrospective Cities Outlook 1901, launched earlier this month, showed how cities and industries have risen and declined over the course of the twentieth century. It found that failure to invest in skills and in physical infrastructure has negative impacts that can last for decades or longer, for both people and places. Getting this right matters not just for the short term – improved productivity through skills or construction jobs through infrastructure projects – but for the medium and longer term competitiveness of the UK.
Last week’s announcement that Government would underwrite up to £40bn of infrastructure investment plus give up to £10bn to support struggling exporters is a start, and the Chancellor has referred back to this repeatedly over the last 24 hours. But a scheme of this sort can only ever have limited impact, partly because of the tight qualification criteria. Conditions of funding include: being a big project; being a project put on hold because of difficulties raising private finance; being able to get started within 12 months; having a demonstrable impact on economic growth; and being good value for taxpayers. As the BBC’s Stephanie Flanders put it, “…it has to be a perfect project in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own.”
If the Government is to kickstart growth, making some of the smaller-but-high-impact infrastructure projects happen is vital, from unlocking road junctions to improving rail connections between northern cities.
For this to happen requires a ‘Plan C’ – and that means more local autonomy to make things happen. As Greg Clark said in January when he launched our annual Cities Outlookreport, the battle for growth will be won or lost in our cities. More autonomy and incentivesto pool pots of public money in order to access private sector funding (see our reportpublished today talking about local authorities and capital expenditure for more on this) and more power to flex skills and welfare budgets to respond to distinctive local circumstances. These are not expensive changes that could damage the deficit, but they are changes that could make a big difference to growth. Three quarters into a double-dip recession, it’s time for Government to step up a gear and deliver for our cities and their residents.
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