FAIRNESS has rightly become central to the Budget debate. Personally I would like to see the income tax threshold raised, to allow lower earners to keep more of their hard-earned cash. But a bigger test of success for this Budget will be what measures the chancellor can introduce to drive economic growth. By the chancellor’s own calculations, only one third of the deficit reduction programme will be financed through cuts in public expenditure. The remaining two thirds will be achieved through economic growth.
Yet the crisis in the Eurozone means the threats to our future prosperity are now arguably greater than when the chancellor first laid out his spending plans. As the Office for Budget Responsibility’s regular revisions to its economic forecasts keep reminding us, these are no ordinary economic times. This is why growth has to be the focus of the Budget and why we need a Budget for business.
Yet when the government needs to be offering every encouragement to businesses it has become deeply unfashionable to do so. The Labour leader Ed Miliband argues that the state knows best and must intervene to separate business winners from losers, “predators” from “producers”. Of course, there is a role for the state to play in supporting our economic growth. The chancellor is right to be bringing forward infrastructure investment and encouraging pension funds to put up the cash. But harking back to a 1960s-style industrial policy cannot restore our economic prosperity.
Instead, the budget has to recognise that we need a step change in our approach to enterprise. We need to encourage a spirit of adventure, where sensible risk-taking can flourish. Otherwise, entrepreneurs will not take the risks that are essential to creating the next Body Shop, the next Dyson, the next White Company and the next lastminute.com. These are all British success stories, and it is fair to say that Dyson’s success has come from the hard work, patience and ambition of its founder, not because some state-run bank identified the company as a potential winner.
Admittedly, the chancellor’s hands are tied by the need to cut the deficit. But there is still a lot that can be done. In the short term, using the government’s balance sheet to lower banks’ borrowing rates and hence the rates offered to their business customers (credit easing) could provide a much needed adrenaline shot to the economy. In the longer term, accelerating the pace of our recovery means changing the lending landscape for businesses, allowing non-bank institutions as well as innovative, internet-based providers of finance to all compete to offer firms a lower cost of borrowing. The government must look closely at the recommendations to support alternative providers of finance published last week by the Department for Business, Innovation and Skills taskforce chaired by Legal & General chief executive Tim Breedon.
To pay down the deficit and ensure our long term prosperity, re-distribution is not enough. After all, a fair share of nothing is not worth much. We need to be backing innovative and entrepreneurial businesses to grow. This is the real challenge of the Budget.
Sam Gyimah is the Conservative MP for East Surrey and is leading the Beyond the Banks campaign to diversify the SME lending landscape.