Cost of Living: Public Well-being

Lord O'Donnell Excerpts

Thursday 20th October 2022 Lords Chamber

[Lord O'Donnell (CB)]

My Lords, I am delighted to contribute to this very timely debate. Noble Lords will be surprised to hear that it marks a big step forward in the policy approach taken by the Government. I had been very dubious about the idea of maximising growth, wondering, “Growth of what?” But, thanks to the Leader of the Commons, we now know that the focus of the current Prime Minister

“is on the wellbeing of every one of our citizens.”—[Official Report, Commons, 17/10/22; col. 378.]

Wow. That is an incredible surprise. I very much hope that the next Prime Minister will continue that emphasis.

Let us be clear: maximising GDP growth is really stupid. It is not something that any grown-up would want to do. As the noble Baroness, Lady Drake, said, GDP basically measures a pound, irrespective of who gets it; one pound to the millionaire counts the same for GDP as one pound to someone on universal credit; and one pound to someone in the richest part of the country counts the same as one pound to someone in the poorest, most deprived part. So how do you reconcile levelling up with maximising GDP growth? They are wildly inconsistent. On top of this, Simon Kuznets, the economist who put together GDP in the 1930s, begged us not to use it as a measure of success; it is a measure of activity.

Having been a Permanent Secretary to the Treasury, I can tell you that maximising GDP growth is completely straightforward. I could do it like that. I could concrete over the south-east of England and build lots of houses or, if you want something a bit more radical, I could explain that we should just get rid of charities and volunteers: we should stop anyone volunteering and tell them they have to get out on the streets and take up prostitution or selling illegal drugs, because both of those count in GDP, but volunteers do not. You would have to be stupid to think about maximising GDP.

There is a far superior goal, which Richard—the noble Lord, Lord Layard—has worked on tirelessly for many years: maximising well-being and, in particular, reducing inequalities in well-being. The simplest way to raise well-being for all is to work on those at the lowest levels of well-being, as the noble Lord laid out. That would mean, first, spending a lot more money on mental health services. We know how to do this.

As the noble Lord said on the cost of living crisis, this is a terms of trade effect. There will be costs and they will hit people on lower incomes in particular. If we respond by cutting public spending, those who rely on those services will be damaged even more. You will have a really bad well-being impact if you go down the route that we are beginning to think might happen.

As the noble Baroness, Lady Drake, said, the Chancellor has a handy little book that can tell him what to do: the Treasury Green Book on investment appraisal. It has supplementary guidance on well-being, which has just been updated. I commend that to the Chancellor—let us hope he is still there. I understand he is not standing to be the next leader, so let us hope he is still around.

Let us imagine that we are going to take this seriously; that we are going to have a well-being approach to handling the current cost of living crisis. What would you do? First, you would look again at the energy support package. You are giving a lot of money to a lot of very rich people. You could target that support much better and get a massively bigger well-being impact using the numbers that Richard—the noble Lord, Lord Layard—mentioned.

Secondly—we have just had this debate—the Behavioural Insights Team, which I am proud to have had a role in setting up, should be working 24/7 to give us the tools and information that can allow us to improve our energy efficiency. We are being far too timid and far too slow. All we need to do is go to Germany. German energy usage is down by 20%. They are turning off the lights at 9 o’clock in Berlin. Public buildings have been ratcheted down. There are lots of things we could do. We need to get on with this now, encouraging people and allowing them to make those really sensible decisions. So, get those going.

Thirdly, seeing the former Permanent Secretary to the Treasury in his place, I know that he will be completely with me on this. We have serious issues in the economy with labour shortages. One of the things we should be thinking very carefully about is, how do we entice the over-50s back into the workforce? What kind of incentive structures should we be providing? Are they really improving their well-being by deciding they have given up on the world of work? There are lots of things about the world of work which enhance one’s status and well-being. There really is something there.

Fourthly, please can we have a bit of stability and predictability in government policy? A very good former colleague in the Treasury was saying to me that if we did have pictures of Chancellors on the wall in the Treasury—which we do not—it would look like the “Employee of the Month”. We have had four in four months. I said this to David Cameron when we talked to the Opposition before the 2010 Election. He said, “Okay, I’ve told you what I’m thinking of doing; what would you like from me?” My No. 1 request was stability among Ministers, so that they get to be in their post for a long time and get to work well with the civil servants. I think that is massively good.

We have lots of uncertainty that is bound to spook financial markets. Uncertainty about which benefits are going to be cut, as the noble Baroness, Lady Sherlock, said, is difficult. We emphasise the poor, which is absolutely right, but I read the piece by James Coney in the Sunday Times on the fact that there are middle-income people who, equally, are very disturbed by what is going on.

The fifth point is something very close to the heart, and which I am working on in my role as chair of Pro Bono Economics. We should be working closely with charities and philanthropists. We have a proud history of generosity demonstrated powerfully by the public’s response to the pandemic and Ukraine crisis. Can we help charities that work to improve employment, boost education and skills, reduce inequalities in life expectancy, and create conditions for entrepreneurship in places that most need local economic revival? I have just come back from meeting some civil servants in Darlington and talking about philanthropy in Newcastle. Lots of things could happen there.

Andy Haldane, the former chief economist at the Bank of England, estimates that the charity sector generates £180 billion of social value every year. Philanthropic investment can bring very distinctive benefits alongside private and public sector investment. Doing things to maximise the impact of philanthropy across the country would be tremendous.

Finally, Ministers should think about the well-being of public servants. The prospect of cuts in real pay and redundancies is bound to damage morale. Treating them with respect and thanking them for their work costs nothing and would be a very good start.