The government has raised tariffs to protect the steel industry. It also nationalised the UK’s remaining blast furnaces last year to keep them running. Both moves point to the same conclusion: the current economic model is not working. A series of interventions from Labour’s Sir Sadiq Khan and Angela Rayner as well as the Green party leader, Zack Polanski, this week suggests that an economic debate on the centre-left and left of politics is under way. The disagreement is no longer about whether there is a problem. It is where the problem lies.
Sir Sadiq, the London mayor, is right that Brexit has raised costs for businesses and households. Closer EU alignment would improve trade, investment and market access. That matters. But rejoining the EU won’t on its own rebuild the UK’s domestic capability. Ms Rayner points to a real institutional problem. If the Office for Budget Responsibility (OBR) understates the benefits of public investment, the state may be constraining itself unnecessarily. That matters too. However, changing the OBR model is not a strategy.
Mr Polanski’s speech was an important one that focused on cost pressures. War in the Gulf means that the affordability question will continue to dominate British politics. The Green party leader showed sharp instincts in advocating policies to bring down rents and energy and household bills, as well as backing wealth taxes. His critique of conservative fiscal rules reflects the broad, well-grounded dissatisfaction with the government’s self-imposed constraints. Mr Polanski’s emphasis on prices, redistribution and fiscal room matters. But he did not deal with productive capacity.
Since 2008, Britain’s economy has been characterised by both weak productivity growth and a persistent current account deficit. The UK is now highly dependent on imported energy, food and manufactured goods. Real wages have stagnated, reflecting both flat output per worker gains and a decline in labour’s bargaining power. Together these have created a petri dish for a chronic cost of living crisis and alarming levels of wealth inequality. The question is whether Britain continues to treat economic policy as being about managing constraints or breaking out of them.
The government’s steel policy begins to answer the deeper question of what Britain needs to make. It plans to impose 50% tariffs, invest up to £2.5bn in the sector and target 50% domestic sourcing of steel used in the UK. All this points to supply security and industrial muscle being valued alongside price. That should be welcomed. Despite the government’s green steel strategy remaining incomplete, the announcement suggests a growing openness to a more activist state – one that manages the trade deficit, shapes industry and reduces reliance on fossil fuels. But this shift has been forced on ministers after their earlier reliance on cheeseparing pro-market solutions proved both unpopular and unworkable.
Clearly, parts of the political system are beginning to recognise that productive capacity matters and that the market will not reliably provide it. Some have the institutions in their sights: the Liberal Democrats were not wrong in pointing out that the Treasury is too centralised and too short-termist in its thinking. Reforming the OBR is no bad idea. Redistributive measures are needed urgently and price caps would relieve immediate pressures. Britain has no shortage of diagnoses for its economic malaise. What it lacks is a coherent plan.
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