What is a “Budget for Growth,” and how can one be delivered? These questions have been preoccupying civil servants across Whitehall, policy folk in think tanks, and the press since the coalition announced in November that it would be reporting back on its “Growth Review” in the 2011 Budget.
While foreign events rightly moved discussion of the impending Budget further back in last weekend’s papers, there was extensive coverage of the potential for targeted tax cuts and reliefs and incentives targeted at particular industries or sectors. The obvious problem with a number of these is that they cost money, and this is something the coalition does not have in spades. However, even if it did, should it be spending money trying to deliver growth to the economy? The evidence would suggest not — in fact, the opposite is the case.
This comes down to the difference between creating and allowing growth in the economy. Is this just semantics? No — government should be letting the market and entrepreneurs drive growth, not trying to micro-manage the economy. In practical policy terms, the difference is easy to see. At the micro level, this is the difference between trying to pick particular companies as “national champions,” or protecting certain areas of the economy, and trying to nurture all sectors equally. At the national level, it is the difference between using large regional subsidies to try to reduce income differentials and forming a regulatory landscape where all businesses, wherever they are, are allowed to reach their potential.
The Chancellor needs to trust businesses and economic actors. So what practical measures could he announce tomorrow that would enable business to stimulate the economy? Here are two key examples:
1) Making real reductions in planning constraints. In More Homes: Fewer Empty Buildings, Policy Exchange recommended that the government make it much easier to convert empty commercial buildings into new housing. This would increase housing supply and bring down prices, as well as providing a welcome boost to the UK’s construction industry. But this would just be the first step towards a more collaborative and efficient planning system — much more needs to be done, and progress on this will be vital in ensuring that all of the UK grows.
2) Making real reductions in red-tape. Vince Cable has recently announced a raft of measures, including a moratorium on domestic regulation for small (less than 10 employees) firms. But what about the rest of the firms? And what about regulation from Europe? The implementation of the EU’s Agency Workers Directive in October will lead to yearly costs to business of around £1.5 billion by some estimates. The government must push back this timescale and consider what can be done to reduce these costs. It must also be more ambitious to reduce regulation and red-tape: “one in one out,” even if successfully implemented, will only halt the rise of regulation, not reduce it.
These are both areas where reform will need to continue after the Budget and Policy Exchange will be continuing to push for reform. But, overall, if Mr Osborne is serious about setting the country on a path to increased and sustained growth, he must stand up and commit to forming a landscape where the country is allowed to grow — not forced to.
Ed Holmes is a Research Fellow in Policy Exchange’s Economics Unit.
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