Andy Haldane is one wonk with two guvnors. The Bank of England’s former chief economist has in the past year been tasked by both the Conservatives and Labour with developing their respective plans to “level up” Britain. Now, he’s frustrated with the lot of them. Neither party, in his view, is willing to spend enough.
“We need to be much more ambitious about how we think about fiscal policy generally. There’s not so much as a fag paper to put between Labour and the government when it comes to fiscal rules and fiscal rectitude right now,” he told me. “That, for me, really lacks ambition at a time when it’s still, by any historical standard, incredibly cheap for governments to borrow.”
The former central banker helped to write the government’s strategy for a more geographically balanced UK economy: a flagship policy in the 2019 Conservative manifesto. He has chaired the government’s Levelling Up Advisory Council since last June, supporting Michael Gove, the Levelling Up Secretary. Last September Gove’s opposite number, Lisa Nandy, hired Haldane to run Labour’s equivalent plan for regional growth. In April he was appointed one of seven members of the Economic Advisory Council to Jeremy Hunt, the Chancellor.
When we spoke, however, he reprimanded both parties. “I’m being equally critical of both parties for lacking boldness and ambition when it comes to fiscal plans and fiscal rules,” he said.
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Haldane was speaking to me at the New Statesman’s Regional Development Conference on 11 May. Having hurtled over from the wrong Birmingham station with a minute to spare, he nevertheless looked unflustered in a suit and smart green tie – hooking one leg over the other, leaning back with his microphone and delivering a calm but forceful critique of our politicians’ timidity.
“At a time where the social return on that public investment is so considerable, because of the polycrises we face – economic, social, environmental – we need to be a bit bolder, and a bit more ambitious, in how we put the public balance sheet to work today, in nurturing and building those public goods of tomorrow that would help beat back those polycrises.”
Labour, in common with the government, has committed to reducing national debt as a share of GDP. A fixation with balancing the books on both sides intensified after Liz Truss’s unfunded tax cuts spooked financial markets last year.
“This is not a clarion call for fiscal profligacy,” Haldane said. “I’m saying what you borrow for really, really matters. If you are borrowing today, in an investment way, to nurture public goods, assets of tomorrow – they might be clean air, clean water and a flourishing biosphere, I don’t just mean HS2 – that is an investment worth making that pays off over the medium term, well in excess of the current cost of borrowing.”
This calculation, he argued, is “dead easy: you compare the cost of borrowing with the social return on that investment. That cost of borrowing, in real terms, is still really, really cheap by any historical metric. And the social return on that investment right now, I would say, is extremely high. Given the growth malaise we face, the climate crisis we are encountering, the social insecurities many within society face, what better time than now to make that investment? I would.”
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Born in Sunderland and educated in Leeds, Haldane, 55, is committed to breaking “the Treasury orthodoxy” of Whitehall. His past interventions have included praising the Occupy movement, warning of a regression to a “pre-industrial” workforce and demanding a “fundamental rethink and refresh of our model of capitalism”. During the Corbyn era, he was even spoken of as a potential Bank of England governor under a left-wing Labour administration. That did not come to pass but his influence as a heterodox thinker endures.
Haldane is now pleased to see a “game of leapfrog underway among the main political parties” on levelling up, as Gove and Nandy compete to outdo each other’s plans.
Looking ahead to a possible change of government at the next general election, Haldane urged Labour to prioritise its devolution agenda in its first term. In a major commission last year, the former Labour prime minister Gordon Brown announced proposals to overhaul Britain’s power structures, including abolishing the House of Lords. Yet some party insiders suggest such a significant and complex agenda would be postponed until after an initial five years in office.
“We see Lisa [Nandy] on one side of the aisle and Michael [Gove] on the other saying very similar things about what they intend to do by way of levelling up; that gives me confidence there will be continuity,” Haldane said. “There’ll be differences in flavour, but similarities in direction of travel. I think we saw through Gordon Brown’s report a great leap forward for all matters devolution and decentralisation, which I hope is made good on early in the next parliament if Labour come to power.”
But he cautioned that the deep regional disparities in the UK will take “a generation or more to redress”, and described progress so far as “patchy at best, in terms of outcomes on the ground”.
When making international comparisons, he concluded that “almost everyone’s doing better than us [the UK]… Pretty much every country on the planet now is engaged in very active industrial policy and regional policy… An arms race of reindustrialisation is under way. We need to play catch-up in that arms race.”
He cited the example of the US Inflation Reduction Act, which includes investment and incentives for renewable energy technologies, and the EU’s decision to stimulate its own clean energy market in response. “And where are we? We’re currently way back, and we need to do much better than that, not just on net zero, but beyond.”
Now chief executive of the Royal Society for Arts, a think tank focused on practical solutions to social challenges, Haldane is well respected in UK policy. As a former member of the Bank of England’s Monetary Policy Committee, which sets UK interest rates, his views on monetary policy command particular attention. As we spoke, his successors on the Monetary Policy Committee raised interest rates by a further 0.25 percentage points to 4.5 per cent – the highest level since 2008, and the 12th consecutive rise as the Bank of England struggles to reduce the UK’s 10.1 per cent inflation rate.
“What I’d be doing in this situation is probably pressing the pause button, actually,” he revealed. “I think there’s a lot of tightening in the pipeline already, most of which we haven’t yet seen the full effects of, as it hits people’s mortgage payments later in the year. The recovery is still on pretty unsteady legs.”
What are the consequences for the public when the Bank doesn’t “press pause”? “It’ll be a somewhat tighter squeeze. It increases a bit the risk of us actually entering recession this year, there’ll be impacts for the labour market from joblessness.
“I personally think we can afford to take a bit more time to get inflation back down to target. That would be a price worth paying for keeping the economy moving and jobs in place.”
Rishi Sunak has pledged to halve inflation this year, but prices have been falling slower than forecast. Will the government hit its target?
“For this year, it’s pretty much nailed on, barring catastrophe,” replied Haldane. “The halving was never the most ambitious objective.” This is because “energy prices shot up so far, so fast last year. They’ve now come right back down, and that means – at least in terms of headline inflation measures, which include energy and food – they’ll come down pretty rapidly, starting probably next month.”
Yet he warned: “The real issue is getting inflation down towards the [Bank of England’s] 2 per cent target. That’ll be much harder yards. If it were me, I’d be taking my time for those final hard yards.”
The Bank has also developed a habit of antagonising the cash-strapped public. Andrew Bailey, its governor, caused outrage last year when he told workers not to demand pay rises. Huw Pill, its chief economist, last month lamented a “reluctance” to relinquish our “real spending power” and accept we’ll have to be “worse off” to tackle inflation.
Haldane said of his successor: “We are as a country poorer – about that, there’s little doubt, because the price of the stuff we buy in, like energy and food, has gone up more than the price of stuff that we sell. That was the point I think Huw was making.”
He admitted, however, that the “question of how the burden of that is shared societally” is “understandably super-sensitive territory for a whole heap of people right now, who have faced stagnant or stalling or, most recently, regressing real incomes”. He advised “anyone in the public policy domain, in the public sphere actually, needs to be super-cautious in calls for restraint or for moderation when people really are struggling”.
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As audience members asked Haldane questions, he told more hard truths. We in the UK are “exceptional” at research, but do development “disastrously”. Skills are the “greatest structural Achilles heel” of UK business (“we are a largely innumerate nation”).
Yet Haldane’s work on levelling up – whether for the Tories or Labour – is not really about infrastructure and skills. It’s emotional. He has travelled around the country and heard what people say they need for a better quality of day-to-day life. “The cultural, social and environmental raw ingredients of place-making are every bit as important as the economic and commercial and business ones,” he said.
When residents of “struggling” areas are asked in surveys what matters most, he noted that they “don’t say jobs and income, actually – they say safety and security: ‘I want a high street with shops I want to go to’; ‘I want schools where my children feel safe’; ‘I want green spaces where we can go out and enjoy ourselves’; ‘I want libraries and youth clubs to be thriving, rather than being shut down’.
“Social infrastructure matters to people every bit as much. We have chronically under-invested in it, and that now needs to change.”
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