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‘Myth of trickle-down economic’s’ exposed by RSA Inclusive Growth Commission

‘Myth of trickle-down economic’s’ exposed by RSA Inclusive Growth Commission

🕔22.Sep 2016

Too many people in Britain’s largest cities are at risk of being “left behind” by unbalanced growth because the trickle-down theory of economic wealth does not work, a major study claims today.

The idea, generally promoted by centre-right political parties, that prosperity will automatically spread out broadly across society and a ‘rising tide will lift all boats’ has been disproved by “persistent wealth, health and income inequality” in the UK according to the latest findings of the RSA’s Inclusive Growth Commission.

The RSA report sets out a strategy for the Government to pursue ‘inclusive growth’, and warns:

The centralised approaches which have characterised recent governments have tried and broadly failed to alleviate these trends, which in many parts of the country reflect a pattern that goes back years, if not centuries. The premise that ‘a job, any job’ will do to raise people’s life chances has not stood up to the reality; in-work poverty is greater than workless-related poverty.

It is time for policy makers – centrally and locally – to find a new model, with new assumptions, new measurement tools and new strategies for local economic development.

There is a damaging structural gap between economic and social policy that must be bridged if we are to achieve inclusive growth. This is a challenge for local government as much as it is for central government and it is a recurring theme in this report.

The commission’s interim report is published in the run-up to the Autumn Statement and is timed to challenge Prime Minister Theresa May to expand on her promise that the Government will put itself “at the service of ordinary, working people and will strive to make Britain a country that works for everyone – regardless of who they are and regardless of where they’re from.”

Commission chair, the economist Stephanie Flanders, said the Brexit vote had “shaken up orthodox economic assumptions and revealed the extent of voter dissatisfaction with our current economic model”. She added:

Change is in the air.  We have a new Government, led by a Prime Minister who has called for economic reform in order to deliver an ‘economy that works for everyone’.

The economic system in the UK and other advanced countries is simply not delivering for a large chunk of the population.

Theresa May seemed to grasp that fundamental reality in her first speech as Prime Minister. But to achieve this, we need a concrete strategy for delivering inclusive growth.

This report explores how policy would need to change – not just in Whitehall but across the country. We would like to see the Chancellor make serious commitments to this agenda in the Autumn Statement in November.

The report proposes a policy framework based on:

  • Integrating economic and social policy.
  • Devolution that is social as well as economic.
  • More funding to support inclusive growth at a local level.
  • Prioritising prevention and early intervention.

The commission’s recommendations for a strategy to deliver inclusive growth include:

Inclusive Devolution and the Autumn statement

The Government should set out how the next phase of more ‘grown up devolution’ can promote inclusive growth. This should entail a clear process for social devolution and recognition that more inclusive growth will require more local resources, and filling the gap left by European Social Funding and the European Investment Bank.

Investment in social as well as physical infrastructure

We need to put social capital on par with traditional physical infrastructure when we consider how to invest public resources in future growth.

Putting inclusion in industry strategy

The Government is currently developing a new industry strategy, and this must have a strong local dimension and inclusive growth as one of its central objectives. We recommend an industrial strategy that invests in physical and human infrastructure and sees them as interlinked; is not only about high growth sectors but also raising skills and progression in the lower and middle end of labour markets; and prioritises connecting people to economic opportunities, through better skills planning and provision.

Economic policy and measurement frameworks that prioritise inclusive growth

We need to change the policy and measurement frameworks for major investments to tilt the balance towards more broadly defined growth benefits. The report proposes ‘quality GVA’ as a wider measurement framework for growth, enabling us to measure not just aggregate growth, but also changes in inequality, the impact of investment on deprived populations and how far economic prosperity has spread.

The report also urges the Government to change the way it measures the benefits flowing from major investments to tilt the balance towards more broadly defined growth benefits:

The English devolution deals have created £7.4 billion of additional investment over 30 years, and each of these funds will be subject to Gateway growth reviews after the first five years. This provides an opportunity and a deadline within which to develop with local authorities, HM Treasury and the investment community an agreed basis for a wider measurement framework for growth.

We call this ‘quality GVA’ in which we would want to measure not just aggregate growth, but also changes in inequality, the impact of investment on deprived populations and how far economic prosperity has spread.”

The Commission is the successor to the RSA’s City Growth Commission, led by Lord Jim O’Neill, which helped establish the city and sub-regional devolution deals and policy platforms. The RSA interim report is backed by the Core Cities group of Britain’s largest local authorities.

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