The economy: how do we adapt?

There is page after page of newspaper analysis and comment of yesterday’s mini budget but the top line critiques of the package may be rather confusing to those without the time or inclination to dig deeper. Darling is criticised simultaneously for doing too little to boost the economy (there is widespread scepticism about the impact of the VAT cut), for borrowing too much and for raising taxes in two years to help pay for that borrowing (in fact, the Government’s main medium term strategy to tackle the deficit is tight restraint on public spending from 2010 onwards).

There is a widespread view in the print media that the Government has somehow cheated in managing to achieve higher popularity ratings while the economic news worsens. Today is payback time. George Osborne is back on form and no one is asking whether, at a time when we should be boosting people’s confidence, it is responsible for him to say everyone earning over £19,000 will soon be worse off. In fact someone on that salary will - according to the Conservatives’ own figures - lose five pence a week!

But Labour can’t complain. Whatever the merits of yesterday’s package we shouldn’t be starting from here. It’s true – as I have said in the past and Larry Elliot said more elegantly than me yesterday - that most of us played our part in fuelling the debt bubble. It is also true that by wanting low taxes and action to tackle inequality and improve public services, public opinion created the political dilemma to which more Government borrowing was the answer. But politics is about leadership. This Government, and those like me who have advised it since 1997, have to take responsibility for not explaining the real choices and stopping the party before it all got out of hand.

Unless the whole of society is willing to follow the Government’s model and go deeper into debt, it is difficult to see how things will improve. Indeed the best bet must be for a very long period of sluggish growth. Even if things do pick up slightly next year, with interests rates already very low and the Government not able to offer any extra fiscal stimulus, it is difficult to see how a crawl back to recovery will become a march.

So we are back to the question of how we adapt. On the one hand, we have to lower our expectations as private and public sector consumers. On the other, and more positively, we must explore and exploit untapped social capacity.

To take one example, there is already a social care funding crisis. Unless we can reduce unnecessary dependency and increase voluntary effort the care gap will grow into a chasm. Public funding won’t help us out, nor can we expect people to suddenly start saving lots more for their old age. If there is an answer it involves some combination of mobilising voluntary effort, increasing the productivity of public investment (especially so it goes into maintaining people in independence rather than paying for dependency), fostering innovation (so, for example, we can create an effective intermediate labour market of people, many of whom may be retired themselves, being paid for a few hours caring work here and there), and much better collaboration between the different agencies and NGOs working in the field.

If things are going to be as tough as many people suspect, social care is only one of the many needs that are only going to be met thought this combination of pro-social behaviour and innovation. As I will be telling an RSA meeting in Leicester tonight, there couldn’t be a more important time for the RSA and particularly its talented and conscientious Fellowship to be turning outwards and asking what difference it can make.