THERE is much that this government is doing that is good for growth. Its determination to cut public spending is the only reason we haven’t gone the way of Greece. Reducing corporation tax to 24 per cent is an excellent idea. The coalition’s Entrepreneurs Visa is a good thing – but its effect is partly cancelled out by other restrictions on migration. Some useful infrastructure projects are going ahead.
But with a few other exceptions, the coalition’s growth policies remain lightweight, a host of incentive-destroying taxes are still going up, regulations are being added and its attitude towards business is still worryingly schizophrenic. Yesterday’s speech on growth by the Prime Minister was meant to show that there was more to the coalition’s economic plans than a focus on balancing the books. It merely exposed gaping holes at the heart of its vision and its continued determination to downplay the City’s role in creating wealth.
Cameron’s primary strategy is to “actively get behind business.” That means “being clear about which are the growth industries and working strategically to strengthen them”. Only five industries are identified – pharma, green energy, tourism, advanced manufacturing and aerospace – and described as “the industries of the future.” It would be fantastic to see all those areas grow, though it will be tough to remain competitive in manufacturing. Yet Britain’s real powerhouses – the City, including financial, professional and business services – marketing, media, the creative industries, education and so on are not even mentioned. Technology only gets a small mention, with the gimmicky plan to set up a new Tech City near the Olympics.
Out of an 11-page speech, banks (which pay more tax than any other industry) are given one short paragraph to inform them that the coalition doesn’t believe the industry should be shrunk. They should be thankful for small mercies, but the government is clearly more interested in spin and talking about trendy or politically-useful industries than dispassionately working out where growth is going to come from.
The idea that we “are going to see real changes in the way local economies work” because of elected mayors, a “network of technology and innovation centres”, and “local enterprise partnerships – coalitions of business, council and communities” is laughable. These will, at most, have a tiny impact. What is really needed is a massive shift in incentives to set up new firms, hire people and sell products – as well as a drastic shift in incentives in the labour market.
One option would be to turn whole regions into enterprise zones with zero corporation tax and a right to opt out of red tape. Instead, the latest hike in national insurance and the banking tax will destroy jobs. Yet the coalition understands the fundamental truth of supply-side economics and accepts that lower tax rates creates jobs: its Patent Box, which Cameron boasted about, offers a 10 per cent tax rate on patent income to encourage companies to experiment, innovate and invest in the UK. So if tax cuts work with patents, why not do the same in other areas to boost enterprise?
And surely he cannot believe that he will “make the next decade the most dynamic and entrepreneurial in our history”? More so even than during the great industrial years of the 19th century? All in all, not a great speech.
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