HAMISH MCRAE reveals a growth agenda… in five steps: The Budget matters a lot, but other longer-term Government policies matter even more
Man with a plan: Chancellor Jeremy Hunt
The Budget matters a lot, but other longer-term Government policies matter even more. This week we will learn to what extent Jeremy Hunt has decided to use the leeway he has got from better public finances to rein back his planned squeeze.
All the signals suggest he has decided against rowing back on the increases in corporation tax, as the business community wanted, though there are likely to be incentives for small and medium firms.
Let’s hope too that the City gets the message that it should consider putting more of British savers’ money into British companies, rather than shipping it abroad or piling it into gilts – as we argue it should do opposite. The practical case for investing people’s savings in relatively undervalued UK equities is overwhelming.
But a rational growth agenda needs something else. We are moving to a world where national governments are increasingly protecting their national industries. The most dramatic example of that is the so-called Inflation Reduction Act in the US, which is less to do with keeping a lid on prices and more to do with funnelling government money into US renewable energy companies.
Europe is trying to combat this with its Clean Deal Industrial Plan, but already Volkswagen is pausing investment in battery plants in Europe and may build in the US instead.
This creates a problem for the UK. We have to compete, and we are doing so. It looks as though the Government will support battery production in Britain, as it has to if we are to maintain a significant car assembly business.
But anyone with a memory of the industrial policies of the 1960s and 1970s will feel a shudder. The country piled taxpayers’ money into trying to save failing companies, such as British Leyland. Rather than picking winners, we found to our cost that political pressures encouraged governments to support losers. That gave industrial policy a bad name.
But it would be silly to allow the errors of long-dead politicians to stop the country trying to build more effective policies now. There is a widespread consensus that the country needs to raise its game, and there are also positive signs that it is doing do.
For example, a study by the OECD last week reported that changes in the UK’s immigration policies post-Brexit meant that it had massively increased its attractiveness for high-skilled migrants, moving to seventh place in the world and above Canada and the US for the first time.
So what might a new growth agenda – let’s not call it industrial policy – look like? Here are five possible elements.
First, there is the principle of ‘Do no harm’, the short form of the Hippocratic Oath. Governments can do huge damage, and I worry that the rise in corporation tax to 25 per cent is just that. The Chancellor may feel his hands are tied by the need not to spook markets again. But ask yourself this: will this increase or decrease investment by companies in Britain? I think we know the answer.
Second, reinforce success rather than try to stop failure. No country can do everything, not even the US, so the challenge is to build up areas where the country has a demonstrable competitive advantage. These include the universities, education more generally, some high-tech sectors, the cultural industries and many more.
Third, remove road-blocks. That is not to call for a complete bonfire of regulations or planning controls. Rather it is to suggest politicians listen to businesses and ask what can be done, quite simply, to enable them to grow more effectively. They should in particular listen to small and medium-sized enterprises, because the giant ones can afford the specialist help to get round regulations.
Four, government should get its own house in order. This is not particularly to attack the civil service, because this is a political problem as much as an administrative one. If Ministers are changed every few months, it is very difficult to build coherent policies. We are not good at large investment projects, as the cost overruns for HS2 painfully demonstrate. We are not good at procurement in defence and other areas. We need to learn from the wasteful spending during the pandemic.
And finally, we need a Government that genuinely believes it should support business. That does not mean doing everything companies and financial institutions want. But it means a shift in attitude, and not before time.