Growth plans stuck in the 1980s

business and industry, economy, jobs, personal finances, political events, taxation, UK politics

Author(s):  Nick Pearce
Published date:  23 Mar 2011
Source:  Financial Times

Enterprise zones, relaxation of planning laws, a bit of deregulation here and there: these do not amount to a serious long-term plan for growth. To achieve that, the economic mindset of a political class that came of age in Thatcher’s shadow will have radically to change.

Britain’s rightwing press has watched with alarm as Ed Miliband, Labour leader, focused his attack on the squeeze on living standards that the deficit plan of George Osborne, chancellor, will bring for ordinary families. Mr Osborne’s moves in today’s budget to cut fuel duty, and delay planned rises in air passenger duty, at least shows he is responding, even while sticking firmly to his Plan A for reducing the deficit.

Mr Osborne’s concessions today are largely symbolic – the sort the Treasury can always fund, even in straitened fiscal times. Even the new increases in the personal tax allowance give least respite to low and middle income families. In short, the squeeze on living standards will not abate.

Mr Osborne did seek to head off the charge that his government is indifferent to rising youth unemployment, by funding more apprenticeship and work experience places. These are useful measures, but none are as generously funded as Labour’s Future Jobs Fund, which the Chancellor scrapped last year. Their palliative effects for young people out of work will be limited.

The generational injustice of cutting support for the young whilst protecting pensioner benefits endures. So too does the basic distributional unfairness cemented by last year’s June emergency Budget, and following autumn Comprehensive Spending Review.

Taxing private jets and chasing down tax avoidance are helpful proposals for those wishing to burnish “progressive conservative” credentials. But such decisions are marginal when compared to moves to cut spending, reduce tax credits and raise value added tax taken last year. With the framework for deficit reduction firmly set, this was always going to be a something and nothing Budget.

Mr Osborne deserves some credit for seeking to integrate tax and national insurance, however. Ever since he first flirted with flat taxes in 2005, he has been attracted to tax simplification plans. This is how he hopes to leave a legacy of structural reform.

The idea is good, but also fraught with political difficulty: pensioners could lose out, whilst migrants would gain from access to non-contributory social security. It is thus hardly an election-winning formula – so we should expect it to be planned carefully, over time.

It is on the issue of economic growth, however, that this Budget is most lacking. Mr Osborne’s announcements were a mix of standard 1980s thinking – cutting taxes, red tape and regulation – and the odds and sods of a Whitehall machine that is bereft of new ideas for shaping Britain’s economic future. In style, it was reminiscent of one of Gordon Brown’s shopping list of budget measures.

Enterprise zones, relaxation of planning laws, a bit of deregulation here and there: these do not amount to a serious long-term plan for growth. To achieve that, the economic mindset of a political class that came of age in Thatcher’s shadow will have radically to change, opening itself up to the potential for a modern industrial strategy, state investment in infrastructure and business growth, a structured approach to innovation, and new ways of thinking about skills and productivity.

 
 

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