How to get from Plan A to Plan A+

Terrible events in Norway and the ongoing phone hacking scandal have kept the economy out of the media in the last couple of weeks. Coverage of the latest bail-out of Greece last week was comparatively muted, especially considering how important it is for the eurozone and, by implication, the UK. However, if the soothsayers are correct, it is unlikely that the release of the Q2 GDP figures tomorrow will fail to hit the headlines.

When the Office for Budget Responsibility published their forecast for the UK economy in April they had forecast growth of 1.7 per cent this year, but signs are that tomorrow’s Q2 data will raise stark questions about the likelihood of that level of growth. Indeed, many commentators have revised their UK GDP forecasts down in recent weeks. Citigroup revised their 2011 forecast down to just 1 per cent last week.

With such gloomy prospects for the UK economy, expect calls from many commentators for more action to boost growth and ease the squeeze on living standards.

But, thankfully, with Parliament finally in recess after an extended final week, the risk of politically-motivated but economically short-sighted tinkering is less than it might otherwise be. But don’t forget that, spurred on by their political masters, civil servants across Whitehall are looking for smart-sounding policies to be announced as part of the second phase of the growth review, due to report back at the time of the Pre-Budget Report. This will include such diverse areas as “the rural economy” and “open data”: no doubt important, but hardly likely to accelerate growth in the UK.

Instead of tinkering around the edges, the Government needs a more coherent and ambitious approach to growth: a Plan A+ as some in the media — including The Spectator — have put it. This would not mean spending more. The Government must stick to its budgetary plans in the short term, as not doing so would see us return to the notion that growth can be driven by spending funded by borrowing; a notion that continues to be unsustainable and that would put the long-term prospects of the economy at risk. Instead, more must be done to that reinstate individuals and businesses to the heart of the growth agenda.

There are many ways in which this can be done. First a clearer approach to industrial policy is needed. This is not about picking winners but about being clear about where growth comes from, where the UK has a comparative advantage and where we are world leaders. It is then about ensuring that structural reform facilitates growth in these areas and creates funding for innovative businesses, while encouraging robust competition. The work of the Technology Strategy Board, an organisation that helps support and fund innovative business ventures, is in the right direction — but too many businesses still choose to leave the UK to commercialise an idea, and the approach needs to be communicated better and rolled out effectively across Government.

And then there’s the possibility for more aggressive supply-side reform. For instance, Policy Exchange will soon be publishing a report outlining how a new pro-growth approach to planning and urban development could stop central and local government control constricting the growth of our cities and towns, and hindering business development. The UK also needs to accelerate reform to its welfare system to increase labour supply and productivity. There has been some action here, but not nearly enough.

These two areas are just the start. A longer-term approach to fixing the UK’s creaking transport infrastructure needs to be adopted, and — after recent criticisms of PFI-type deals — new, more cost effective ways of leveraging private sector finance into the sector need to be developed. This would boost construction, ensure that our cities can accommodate growth and allow closer links between clusters of industries across the UK.

These are all areas in which Policy Exchange is working at the moment. Together they will form a coherent and effective manifesto for growth in the UK. This is not about snap decisions based on one or two poor quarters of growth, nor is this about making headlines with policies that sound good but deliver little. It is about sticking to plan A, and backing that up with a greater focus on longer-term structural reforms that allow the UK to grow now and in the future. That’s what the “+” in “Plan A+” ought to stand for.

Matthew Oakley is the head of economics and social policy at Policy Exchange.