Economic Theory

How we are paying the price for “Cleggian discounting” today

Earlier this month, a video of Nick Clegg from 2010, in which he had dismissed the possibility of increasing the supply of nuclear energy on the grounds that the effects would not be felt until 2022, resurfaced and came back to haunt him.

In the video, Clegg used “2022” as if it were a synonym for “never”, or at least, for “so far in the distant future that it is not worth bothering with now”. This may have sounded plausible enough to his 2010-audience, but it works a lot less well if you are listening to it in… well, 2022. Especially if that also happens to be the year of the worst energy crisis in living memory.

The problem of political short-sightedness, of which the Clegg video is symptomatic, is, of course, well-known. It is, unfortunately, often the case that sensible reforms are a headache in the short term, while their benefits do not materialise for quite some time. In such a case, the political incentives are fundamentally misaligned. The government that implements the reform will get attacked for it here and now, but they may not get the credit for the future benefits, because by the time those become apparent, that government will probably no longer be in office. What Clegg described in that video was, in fact, politics as usual. He was just unusually open about it.

Nuclear power is by no means the only – and not even the best – example of how we are currently paying the price for the short-sightedness of yesterday’s politics. The Cameron-Clegg government in particular ditched, shelved or U-turned on a number of policies which would hugely benefit us today, if only they had been implemented then. That’s the trouble with the future: it doesn’t stay “the future” forever. That future which the Cameron-Clegg government had no interest in shaping, because it seemed too far away at the time, has now arrived. We are living in it.

The best example has to be the 2012 National Planning Policy Framework (NPPF), which was an attempt to make the land use planning system more development-friendly, in order to get more houses built. The NPPF was never particularly radical, but it nonetheless triggered a furious backlash from various anti-development NIMBY groups. The government quickly caved in, and neutered its own plans. Not for the last time, the NIMBYs had won. As a result, housebuilding numbers remained woefully inadequate, and housing has since become even more unaffordable than it was then.

Housing is the classic example of the mechanism described above. Building houses will always be unpopular in Britain, but the one thing that is even more unpopular is the consequences of not building them. In this area, a future-oriented government would just have to ignore the NIMBY whining, and plough ahead.

Imagine the Cameron-Clegg government had bitten this bullet in 2012, and pressed full steam ahead with their planning reforms, or better still, doubled down on them. Imagine they had unleashed a minor building boom. There would have been no immediate effect, because it would have taken some time for the effects on rents and house prices to filter through. But we would be reaping the benefits now. The housing situation would be less dire, the cost-of-living crisis would be less severe, the economy as a whole would be in better shape – and who knows, it might even have delayed the coming socialist revolution for a little longer, if affordable housing is what it takes to reconcile some members of “Generation Left” with capitalism.

Or take the never-ending saga of airport expansion. One of the first things the coalition government did was to cancel the already approved plan for a third runway at Heathrow. This was, again, easier in the short run, because it meant avoiding the confrontation with the numerous anti-airport campaigns. But it just meant kicking the can down the road. At least until Covid hit, the problem of overstretched airport capacity only got worse and worse, with all the lost economic opportunities that entails.

Imagine the coalition had simply allowed that project to go ahead. The first planes would now be landing on the third runway, and air travel could, once again, be a dynamic growth sector – and we could really do with a few of those right now.

The case of shale gas is arguably a bit more mixed, because the opposition to fracking also had an ideological element rather than just being the result of short-termism. Ed Davey, who was then Energy Secretary, still defends the coalition’s anti-fracking stance today. But even here, it is easier to be ideologically stubborn if the policy you oppose has no immediate benefit. Either way – if the coalition had adopted a more permissive stance on fracking, we could now be in the midst of a minor shale gas boom, which would help with energy bills.

We could, of course, still address all of those issues today. But the benefits would probably not really be felt until around 2030.

Which means that we’re not going to do it.


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

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