While many of the immediate – and deeper – causes of the financial crash of 2008 rested elsewhere, in the years leading up to it the UK’s economy was becoming unbalanced. The public sector deficit is one aspect of this imbalance. But it is not the only one. Much less discussed is another side of it, the corporate sector – Britain’s companies, large and small – behaving as long term savers, spending less than they earn.
Labour, along with just about everyone else, missed this shift in the behaviour of the corporate sector balance. Previously, it had been cyclical; since 2002 it has become permanent. In the future, Labour must cope with the consequences of this shift and find ways of addressing it.
In order to give the corporate sector surplus the status it requires, in this Fabian Report, Peter Kenway, Dan Corry and Steve Barwick advocate that it should explicitly appear within a new golden rule, to capture the way that reductions in the public sector deficit depende upon reduction in the corporate sector surplus.