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Vince Cable, Secretary of State for Business, Innovation & Skills, has today launched the coalition government’s consultation paper A Strategy for Sustainable Growth. In doing so he stated:

“This government has put decisive action on the fiscal deficit at the centre of its agenda. Business in the UK cannot prosper while the risk of a debt crisis hangs over the economy. In this sense, the first and most important growth policy the government has announced is its tough fiscal stance.

“However, if fiscal responsibility is vital for growth, growth too is vital for getting this country back on track, including paying down our debts. We also urgently need a more balanced and sustainable – both economically and environmentally – model of growth to address our long-term challenges. The Labour government left the UK dangerously unbalanced, with an economy reliant on debt, inflated house prices and a swollen financial sector.”

All this is true and taken in isolation the consultation paper makes interesting reading. But whilst the Government is right to focus transforming the supply side of the economy and although many of their principles and ideas are sensible and workable, some policies, notably underinvestment in major infrastructure, will actually work to undermine the stated intention of the Government’s strategy.

The stated aim of transforming Government so that it spends less, taxes less and regulates better, encouraging an enterprise renaissance, maximising competition across all sectors, making the UK a world leader in innovation, stimulating sustained high level of business investment, and creating a world class education and skills system is vital.

However whilst many of the Government’s other published proposals will help achieve this aim, there must be significant doubts about other aspects of the Government’s programme in a number of areas:

Investment

The Government is right to suggest that business investment will be central to economic growth, which is why it is also right that the Government is taking decisive action to cut the deficit. Without large cuts to public spending long-term interest rates could jeopardise future business investment. However, the state needs to continue to invest in key infrastructure such as energy, transport and ICT. Without state and public investment in these areas long-term economic growth is likely to be less than it could be. This is why it is regrettable that the Government is planning to cut infrastructure spending by half over the next 3 years. Infrastructure spending is the only area of public spending that should be ring-fenced.

Education and Skills

There is strong support for much of the Government’s approach to education policy, particularly its plans to encourage more school competition. However, when it comes to skills I am not convinced that the heavy focus on apprenticeships is the right way to go. I do have a lot of time for apprenticeships and they have an important role to play, but ultimately the Government should let businesses and individuals decide what training and qualifications best meet their needs. The Government should not seek to predetermine these decisions.

Enterprise

The Government’s proposals to reduce the headline rate of corporation tax in the June budget were most welcome in delivering a more favourable tax regime that will incentivise entrepreneurs. However, while it easy to talk about helping entrepreneurs, this is not reconcilable with the more intrusive employment regulations that have been introduced. Abolition of the Default Retirement Age and new flexible working regulations are examples of rules proposed by the Government and which will remove another layer of flexibility from the UK’s labour market.

The times are challenging but against a backdrop of global recovery the UK ought to do well if it can again become the best place in the world for business. Much of what is coming out of this coalition government will help that process but it seems clear that the understandable political horse-trading between the Conservatives and the Liberal Democrats is resulting in a number of policies that don’t quite fit well together.

The overall strategy is a bit like a jig-saw puzzle but as all children know, if you force a piece into a slot it doesn’t quite fit into the result is not really satisfactory.

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Category: Political Comment

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