This Wednesday the chancellor will want to get across a positive message about moving 'from rescue to recovery'. But his difficulties with state-owned banks and underlying growth problems tell a different story
The chancellor has what some might call a conflicted relationship with the state. In theory, he wants to pay down the deficit, hold a firesale of state assets, and generally ‘clear up the mess’ the other lot left behind.
In practice, it’s not that simple.
The Spending Review, for all the pain it will inflict this Wednesday, goes nothing like as far as the Treasury would like. The government’s hands are tied by the proximity of the 2015 election.
Similarly, the heavily trailed reprivatisation of Britain’s state-backed banks has turned out to be a rather more messy affair.
In last week's annual Mansion House speech, George Osborne claimed that the banks – and the economy – are out of intensive care, and moving ‘from rescue to recovery’. It’s just that the healing process, particularly for RBS, is taking a lot longer than planned.
Don’t tell Sid, but – even allowing for the proposed sell-off of the government stake in Lloyds – taxpayers will have a long wait for a return on their £65bn bank bailout.
The chancellor wants ‘a banking system that works for the economy,’ not the other way round. But the facts stubbornly refuse to stack up. Growth levels are still far too weak to make continued state support for under-capitalised banks redundant.
This is where ‘Plan H’ – as the chancellor has dubbed Lord Heseltine’s growth review – could come in. As the former minister for Merseyside argues in July/August's special CIPFA conference issue of Public Finance, free market orthodoxy is ‘simplistic’ and ‘naïve’.
A much more interventionist approach is needed to rebalance the economy, he says; a point underscored by Mariana Mazzucato’s analysis of the ‘entrepreneurial state’ in the same issue.
By skimming departmental budgets – and redistributing funds to the regions via a ‘single pot’ – the total spend could be greatly enhanced, maintains Heseltine. It’s the politics of place writ large.
Plan H also holds some attractions for the Opposition – especially now that it has broadly accepted the government’s spending envelope. As shadow business secretary Chuka Umunna tells PF this month, Whitehall reconfiguration and ‘switch spending’ is increasingly the name of the game.
Redesigning the state – figuring out how to squeeze more from much less – will be the focus of debate at the CIPFA conference.
Ironically, it looks like a heavy dose of state activism could be a key way to achieve it.
This column will be published in the July/August issue of Public Finance
