Ahead of the budget, businesses are waiting with baited breath to see if this government finally produces a coherent strategy for growth. I know from my personal discussions with BIS ministers that they are committed to the growth agenda. But I do not feel that their commitment has been matched across the rest of the Tory led coaltion. In fact, I fear that BIS is being pushed aside by other departments. As a result, current government policy on the economy and growth is politically driven, fundamentally economically flawed and incoherent in its application. This is something that concerns us all, because without growth we will never cut the deficit and we will never have the jobs we need to get our country moving again.
Despite the charge of political scaremongering, Labour is not alone in giving such warnings. The CBI and FSB, amongst many other trade and business organisations, have lambasted the government over a lack of growth strategy. Richard Lambert used his final speech as Director General of the CBI to urge the government to rethink the path it is going down, stating that the government has “taken a series of policy initiatives for political reasons, apparently careless of the damage that they might do to business and to job creation.” The FSB last year also stated that “the missing link in the government’s deficit programme is the need to create growth.”
What is so astounding is that this government links all its policies back to the need to cut the deficit, and yet ignores the importance of job creation and growth in dealing with this very issue. Richard Lambert pointed out in the same speech that whilst the deficit was partly a result of public spending last year increasing 3% from 2008, above all it was because tax receipts were down by 13%. One would reasonably expect, in a policy designed to eliminate the deficit, that there would be a balance of measures designed to cut public spending and get economic growth. Yet the government has focused fervently on the first and have completely ignored the latter.
This is completely ludicrous. A 1% rise in GDP brings in £7.7 billion in tax receipts. If the government were to achieve a 1% annual growth in GDP over the lifetime of this parliament they would bring in an amount equivalent to half that the chancellor aims to cut. Put another way, a focus on growth rate of 1% or more would make Osborne’s plans for fiscal consolidation more feasible, as well as sparing vital public services from the axe.
It is the responsibility of BIS to push and push the government to prioritise economic growth. But it has failed to do that. What we need is BIS to fight for growth and stands up when other departments implement politically calculated policies that damage growth. Unfortunately for business and the country as whole, we do not currently have that. Political motivations are trumping economic calculations.
The localism agenda is one example. The abolition of Regional Development Agencies and their replacement with Local Economic Partnerships has stripped away a core of local business support and put in its place bodies that, whatever their potential in the future, have yet to deliver the creation of a single job. More worrying still, proposed changes to local government structures suggest that LEPs will be able to contribute less, for instance, to the planning process than the RDAs which they replace.
Another example is new regulation on immigration. The BIS select committee, which I chair, has been presented with evidence suggesting that the arbitrary, Tory-imposed cap will have immensely negative impact on recruitment of highly skilled people for vital, iconic businesses from international financial institutions based in the city to hi tech start up enterprises across the regions.
The challenge is whether Vince Cable and BIS as a whole can get other departments to contribute to a joined up growth strategy. When economic forecasts are constantly being revised downwards, we need a BIS team that punches above its weight and is not marginalised in government policy making.
So I hope that the announcements at the recent Conservative spring conference go further than generating headlines and form part of a wider re emphasis on economic growth in the upcoming budget, with provisions for positive regional development, support for SMEs and for the restructure of access to capital and credit. Most importantly, to get the economy working we need to get people working. This needs to be a Budget that focuses as much on job creation as deficit destruction.
Growth and fiscal consolidation are not two distinct strategies. They are two sides of the same coin. The old proverb “look after the pennies and the pounds will look after themselves” has some application here. Look after growth, Mr Osborne, and the deficit look after itself.