Coalition's new growth plan another damp squib

 
Allister Heath
FOR those of us returning to work after a summer break, it feels as if not very much has changed. The City is still subdued, reeling from tough conditions and the regulatory onslaught; the Eurozone remains in crisis, endlessly debating the latest variant of its latest plan to delay its demise; and the British government is unveiling, yet again, a lacklustre and depressing “growth” plan which is likely to achieve the square root of nothing. The only ray of light comes from the Paralympics, a beacon of optimism, but the Games will be over in a week’s time, leaving behind them the increasingly chilly winds of Autumnal reality.

It is not as if the coalition’s “growth plans” – perhaps better described as aspirations – are all bad. A couple are even pretty good. But most are singularly unambitious, a rehash of previous announcements, and confirm that the government – regardless of the outcome of this week’s ministerial reshuffle – is not serious about pushing through a genuine supply-side revolution to liberate the economy.

It would be great to see the housing market properly liberalised, making it easier to build more of the right kinds of homes in places where they are most needed. The only problem is that this was meant to have happened already earlier this year but the legislation that ended up being adopted was a hopeless, useless compromise that achieved little. If anything, matters are now worse than they used to be, with even private individuals seeking to build their own homes being hit with a vicious Community Investment Levy. The previous reform was captured and destroyed by vested interests; it is hard to imagine why the next one won’t be. A partial liberalisation of the labour market would be a great thing, though the details – a tax and red tape free class of jobs for some low-income workers, and a capping of unfair dismissal payouts – are far less radical than those discussed last year during the review led by Adrian Beecroft. Once again, this smacks of cowardice and coalition infighting.

Even these good ideas are spoiled by the bad ones: the creation of a state bank to lend to small businesses is a terrible policy, as is the proposal for the government to guarantee yet more mortgages and infrastructure projects. The coalition has learnt nothing from America’s errors over the past decade, and cannot grasp that subsiding credit always ends in tears. Governments are even worse judges of risk than private banks are, and the last thing taxpayers need is to be saddled with the liabilities for a new generation of sub-prime projects. And what about airports? No decision has been taken on any of the alternatives; a solution is at least 15 years away, a disgraceful state of affairs.

It is a shame that Osborne won’t listen to those in his party with fresh ideas. David Davis, Cameron’s former rival, will today become the latest to outline an alternative. Davis draws on the experience of other countries, including Switzerland, which has a bigger financial sector than Britain, and depends on exports to the Eurozone, but is doing better than us. Among his policies are much flatter taxes and, over time, substantially lower public spending, as well as a more rational energy policy that ceases to genuflect at the green altar. It’s the kind of roadmap that could save Britain – yet tragically, it is nowhere near being on offer from a government that has forgotten how to think.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath