It’s as if the coalition wanted to fail

Allister Heath
IMAGINE you were trying to cripple private sector growth and throttle the recovery. Yes, I know only a fool would want to do that. But seriously – what would you do? Here are a few ideas.

For a start, you would try and tie up businesses with as much red tape as possible. You would promise a one in, one out regulatory regime – and immediately ignore your own pledge, adding far more rules than you take away. Then you would tax jobs with increased national insurance. You would target key decision makers and executives with some of the highest taxes in the world, taking the top rate to 52 per cent (and an extra 13.8 per cent employers’ national insurance). You would drag millions into a 42 per cent rate. You would increase capital gains tax to 28 per cent and fail to index for inflation, better to reduce the incentives to invest.

You would create an educational system that fails to educate millions and trap a large chunk of the population in poverty. You would promote an entitlement culture that denigrates hard work. You would make sure the government spent as much of GDP as possible, in the knowledge that public sector productivity is negative and that billions are wasted. You would cheer when you found out the public sector is spending more than half of GDP for the third year in a row, according to the OECD.

You would relentlessly criticise the City firms that employ hundreds of thousands. You would try and regulate their salaries, slap new taxes on their balance sheets, make them objects of public scorn and do you best to make their lives less pleasant and less predictable. You would plot to make large institutions uncompetitive and hopefully relocate their activities and headquarters abroad.

You would turn a blind eye to almost all European regulations, and gold plate everything that comes to you. You would pass ever more stringent green regulations and taxes on carbon to make sure that it ceases to be viable to make things in the UK. You would prevent the expansion of airport capacity. To guarantee that people’s purchasing power be cut, you would give your blessing to out of control inflation. You would force banks to hold more capital, reducing the supply of credit.

Oh, wait. My anti-growth nightmare is actually a fairly accurate description of reality. Many of these policies are the relic of governments bygone, of course. Sure, the coalition has introduced a few good pro-growth measures – yesterday’s planning reform was an improvement, corporation tax is being trimmed, tax is being reformed to retain HQs in Britain and to incentivise entrepreneurs, and…er, that’s about it. The education reforms are fantastic but will take years to have an effect on the economy. The deficit plans have helped confidence and kept borrowing costs in check, but they are a necessary and not sufficient condition for growth. The weak pound isn’t enough.

Very few of the many business leaders I have spoken to in recent months believe there has been a serious improvement in the UK’s competitive climate over the past year. Almost all are disappointed by the coalition’s supply-side and tax measures; there has been a significant worsening of the mood on that front. No wonder, therefore, that the recovery is disappointing. Judging from many of its actions, it is almost as if the government didn’t want to succeed.
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