Three years ago this week the Fitch ratings agency downgraded Greek debt sending stock markets tumbling and raising serious concerns about the future of European economies.
Since then, the eurozone crisis has been a permanent fixture in the news headlines but what does it really mean for the future of the UK economy and the public services that depend on the public finances? This feels like an important question, and yet if you look at the Treasury website virtually all you will find is the repeated statement that the eurozone creates a head wind for the UK economy.
The first in the new series of Public Intelligence seminars sought to address this issue at a stimulating event for a high-level audience of invited attendees, hosted by Bloomberg in their London City headquarters.
The inspiration for this first seminar is the observation that there are very few opportunities for senior people in the public sector to get together and to learn, especially about issues that don’t have an immediate deadline. The idea of framing a discussion about UK public services seen through the prism of the eurozone was to unsettle this sense of immediacy and force people to think bigger and longer-term.
The seminar brought together local authority chief executives, senior policy makers and civil servants to hear from two of the UK’s leading economic analysts: Mark Gilbert, London bureau chief with Bloomberg and Jonathan Portes, director of the National Institute of Economic and Social Research and a former chief economist at the Cabinet Office.
The two-hour event was enlivened by some spicy disagreement between the two speakers and the enthusiastic participation of the group. So what did we learn?
We learned that this recession is the UK’s longest. Portes rejected talk of double or triple-dip recession, seeing it instead as an ongoing, continuous slump. And what explains this risible economic performance? While the eurozone may account for some of the difficulties, its impact is probably marginal. For a start, according to Bloomberg data presented by Gilbert, the gap between UK exports to the EU and non-EU countries has almost disappeared in recent years.
A second puzzle was raised by Gilbert. How can growth remain so low when more and more people are at work? Normally there is a strong correlation between GDP and the employment count, yet in recent months this correlation has been broken leading to the the current “productivity puzzle.” Does it mean that the data is underreporting growth? Could we see GDP figures being significantly revised upwards? Or have changes in the economy, for example more people taking part-time jobs, caused a breakdown in the correlation?
Following the presentations discussion ranged widely with the participants relating the big-picture macroeconomics to their own local authorities and public services.
There was discussion about the variability of the economic impact in the UK’s nations and regions; labour market changes, signs of growth in mortgage approvals are not uniformly spread across the country. There was discussion about the impact of immigration and other demographic trends and how they help to reduce the dependency ratio (the ratio of people economically inactive age bands to those of working age) in the UK economy.
However, most of the discussion – perhaps inevitably given the audience – focused on the politics of the eurozone crisis and the impact of the “middle class cuts” still to come.
The politics of the eurozone crisis play at all different levels. They play on the markets (the major concern is the return of Berlusconi), they play in the eurozone (the interests of the German domestic politics dominate) and they play in the UK nationally (David Cameron and George Osborne are keen to blame Europe, but they don’t want to play into UKIP’s hands by overdoing the anti-Europe rhetoric). At a local level the politics of Europe and the eurozone will be caught up in the usual mix of party and personal loyalty and local concerns. What seems clear is that with only 21% of the announced cuts in current spending so far achieved, the impact of the government’s policy of consolidation is still to come. George Osborne’s Autumn Statement (which took place the day before our seminar) announced a further £447 million of budgets cuts for local government, with councils facing up to a 40% cut in their real terms budgets by 2017/18. Implementing these cuts will take councils far beyond efficiency, into the decommissioning of services, raising eligibility criteria and increasing fees and charges.
The debate about the eurozone showed that there are a number of experiments in public policy being carried out by different countries across Europe, when we revisit the debate again next year we will be able to say even more about whose policies worked best for public services and local government.