Inundated; crumbling; overwhelmed: there could hardly have been a more graphic physical representation of the fragile state of Britain’s infrastructure than the floodwaters surging down the streets of our towns and cities and into shops and living rooms in the past few days.
And the government can’t say it wasn’t warned. Our story today reveals that experts had left ministers in no doubt that skimping on flood defence spending was exposing a growing number of households to risks.
In 2014, too, the National Audit Office pointed out that spending cuts were forcing the Environment Agency to neglect some of its “assets” – the floodgates, culverts and sea walls that protect the public from the ravages of nature. “Current spending is insufficient to meet many of the maintenance needs the agency has identified for its flood defences,” the NAO said.
Chronic underspending on flood defences is partly a result of the failure of public policy to keep up with the rapid changes in the state of scientific knowledge about climate change and its likely impacts on Britain.
Extreme weather was expected to become more common, but even climate experts have been taken unawares by the recent frequency of the kinds of events that were previously expected to happen only once a century.
And Westminster is ill-equipped to keep pace: the Bank of England governor, Mark Carney, has used the phrase “tragedy of the horizon”, to describe the failure of politicians to tackle problems that manifest themselves over the course of decades, rather than neat, five-year electoral cycles.
The comprehensive review of public spending on the nation’s flood defences promised by Liz Truss must tackle that challenge head on. Yet unsound flood defences are just one result of Osbornomics, the doctrine that cutting the deficit on the public finances must be prioritised over everything else, and it must be done by slashing spending across the board.
The chancellor has relentlessly – and very successfully – portrayed his deficit-cutting drive as essential to shore up Britain’s economy against future shocks. Run a deep deficit year after year, he argues, and you leave the country open to the risk that investors lose confidence in the Treasury’s ability to keep servicing its debts – and that way lies Greece.
Yet there are several holes in his argument. First, savage spending cuts are just one strategy for balancing the budget, and not necessarily the most successful one. They can be self-defeating in two ways: first, by undermining the economic growth that is ultimately the best route to ensuring Britain can pay its way in the world; and second, because, as the events of recent weeks have shown, they can create problems that cost more to resolve than the Treasury saved in the first place.
The Environment Agency calculates that it saves at least £8 in damage, loss and clean-up costs for every £1 spent on flood defences, in some cases more. With the government able to borrow over 10 years at less than 2%, cutting spending sharply, as the Treasury did after the coalition government came to power in 2010, only to be forced to spend more on bailing out (and baling out) the victims when poorly maintained flood defences are overwhelmed, is the very definition of a “false economy”.
But other examples may reveal themselves in the years ahead, as Osborne presses on with his pledge to establish a surplus in the public finances by the end of this parliament.
Prisons are underfunded and understaffed; deep welfare cuts are likely to create costly social and economic problems that the state will ultimately have to resolve; failing to tackle the shortcomings of social care creates knock-on costs for the NHS. Even if the chancellor succeeds on his own terms and eliminates the deficit, he will not necessarily leave the economy better protected against the next global crisis, when it comes.
Public debt levels are only one measure of an economy’s vulnerability; private debt is also important, as, indeed, the chancellor acknowledged when he set out his economic philosophy in the Mais Lecture in 2010.
Just as a heavily indebted government can be plunged into a budget crisis if interest rates abruptly rise, households and firms can rapidly run into trouble if they have borrowed heavily before a shock hits. And a rash of loan defaults can affect banks’ bottom lines.
Britain’s households did start to pay off some of their debts in the aftermath of the 2007-08 financial crisis, and debt-to-income ratios are lower than they were in the run-up to the crash. But they remain eye-wateringly high by historical standards.
Unsecured credit, on personal loans and overdrafts for example, is picking up at what Bank of England chief economist, Andy Haldane, recently called “a rate of knots”, and while wages are finally starting to rise for those in work, one impact of £12bn of planned welfare cuts will surely be to drive more struggling families into debt. Few experts believe a reckoning is imminent, but an economy in which households are deeply in hock is not well equipped for the future.
Britain’s yawning trade deficit, currently running at an average of £2.7bn a month, is another warning signal that suggests the chancellor is failing in his bid to build an economy that can pay its way in the world. Stirring rhetoric about creating a “march of the makers”, and unleashing a “devolution revolution”, is all but meaningless if niggardly Treasury spending cuts are undermining the conditions for businesses to flourish.
Indeed, the recovery that has made this one of the fastest-growing major economies over the past 12 months looks depressingly like the “two-speed” growth model familiar from years past. House prices are picking up sharply, manufacturers are squealing about the strength of the pound and the bankers are back in their pomp. It’s business very much as usual, not the rebalanced, reformed economy the chancellor once told us he aspired to build from the wreckage of the financial crisis and the recession that followed.
As the muddy waters recede, the government will re-examine how much it should spend, and where, on shoring up homes and businesses against more floods. But public policy-makers should also reflect deeply on the damage that continues to be visited on Britain’s economy, and on vital public infrastructure, by the singleminded pursuit of deficit reduction.
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