HAMISH MCRAE Reveals a Five-Step Growth Agenda: Budget matters a lot, but other, longer-term government policies matter even more
The man with the 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 room for maneuver available to him thanks to the improvement in public finances to put the brakes on his planned compression.
All signals suggest he has decided not to roll back corporate tax increases, as the business community wants, although there are likely to be incentives for small and medium-sized businesses.
Let’s also hope the City gets the message that they should consider investing more of UK savers’ money in UK businesses, rather than shipping it overseas or piling it into gilts – like we think it should do the opposite. The practical case for investing people’s savings in relatively undervalued UK stocks is overwhelming.
But a rational growth program needs something else. We are moving towards a world where national governments increasingly protect their national industries. The most dramatic example of this is the so-called Inflation Reduction Act in the United States, which has less to do with maintaining a cap on prices than with routing the government money going to US renewable energy companies.
Europe is trying to combat this with its Clean Deal industrial plan, but Volkswagen is already suspending investment in battery factories in Europe and may build in the United States instead.
This creates a problem for the UK. We have to be competitive and we do. It looks like the government will support battery production in Britain, as it must if we are to maintain a major car assembly business.
But anyone with a memory of the industrial policies of the 1960s and 1970s will feel a thrill. The country has hoarded taxpayers’ money to try to bail out failing companies, like British Leyland. Rather than picking winners, we have seen the hard way that political pressure encourages governments to support losers. This has given industrial policy a bad name.
But it would be foolish to allow the mistakes of long-dead politicians to stop the country from trying to build more effective policies now. There is a broad consensus that the country needs to up its game, and there are also positive signs that it is doing so.
For example, an OECD study last week reported that changes to the UK’s immigration policies after Brexit meant it had massively increased its appeal to highly skilled migrants, rising to seventh place. in the world and ahead of Canada and the United States 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 “do no harm” principle, the short form of the Hippocratic oath. Governments can do enormous damage, and I fear raising corporate tax to 25% is just that. The chancellor may feel his hands are tied by the need not to scare the markets anymore. But ask yourself this: will this increase or decrease business investment in Britain? I think we know the answer.
Second, reinforce success rather than trying to stop failure. No country can do it all, not even the United States. The challenge is therefore to create areas where the country has a demonstrable competitive advantage. These include universities, education in general, certain high-tech sectors, cultural industries and many others.
Third, remove roadblocks. This is not to require a full bonfire of planning regulations or controls. Rather, it is a question of suggesting that politicians listen to businesses and ask themselves what can be done, quite simply, to allow them to develop more efficiently. They should especially listen to small and medium-sized companies, because the giants can afford the help of specialists to circumvent regulations.
Fourth, the government should put its own house in order. This is not specifically about attacking the public service, because it is as much a political as an administrative problem. If the ministers change every few months, it is very difficult to build coherent policies. We are not good at large capital projects, as the cost overruns for HS2 painfully demonstrate. We are not good at procurement in defense and other areas. We need to learn from unnecessary spending during the pandemic.
And finally, we need a government that sincerely believes in supporting business. That doesn’t mean doing whatever businesses and financial institutions want. But it means a change of attitude, and not before its time.