It’s an interesting week for ideas on how to support growth in the UK economy. Tory peer Lord Heseltine will report on the review he was commissioned to do at Budget 2012.
The original remit of the review was:
‘…how spending departments and other relevant public sector bodies interact with the private sector, and assess their policy to deliver pro-growth policies. This will include a benchmarking exercise to compare how other competing economies implement their industrial strategies.’
Leaving aside the interesting fact that the Business Secretary has already announced the government’s industrial strategy (i.e. not waiting for the comparison with other countries) there are some interesting news stories that have appeared over the last day or so suggesting the scope of this review has been interpreted quite liberally.
For example, in The Telegraph a story suggests Heseltine will recommend changes in the following wide-ranging areas:
* reforms in tax credits to encourage businesses to spend more money on research and development as well as measures to boost the skills of British workers;
* dramatic boost to the Regional Growth Fund, a £1bn pot of money set up by the Coalition to help businesses “in the parts of the country that need it the most”;
* expanding the role and funding on offer to Local Enterprise Partnerships, organisations comprised of business people and local authority staff;
* scrapping dozens of district councils to create a simple structure of local government.
And in the Guardian it is noted that Lord Heseltine may call for greater restrictions on foreign takeovers of UK companies and a greater role for local chambers of commerce.
While we have to wait to hear exactly what Lord Heseltine has to say until Wednesday, we have our own views on what’s most important for growth
Fiscal credibility and economic strategy
The government needs a credible plan for balancing the books but it must be complemented by an equally credible plan for supporting the economy.
Last month we launched our Route to Growth – our suggested means for setting out the architecture of a coherent economic strategy. This strategy set four ambitions for the UK economy:
More companies bringing new goods and services to market
More globally-focused companies growing in the UK
A lower cost of doing business, and
A more productive and flexible labour force.
With measurable benchmarks for each ambition and meaningful accountability to Parliament and the public, we believe this sets the right framework for organising the whole of government to be supporting growth.
But this is only the strategy; we need policies too.
We have our second ambition in mind when we see business investment forecasts in the UK repeatedly downgraded – and we have our own ideas on how to support this. Here's an example:
We think the tax system could be much better used to support growth in capital-intensive sectors like manufacturing if the capital allowances system were better aligned with the reality of modern day equipment.
At the moment it takes 30+ years to write down (depreciate) the value of plant and machinery investment in the UK, whereas the reality is most machinery purchased today would not be economically useful beyond ten years.
Other countries have also shown that more supportive tax environments for capital investment can be used to boost recovery.
Both the U.S. and Canada have seen much stronger growth in business investment coming out of the recovery than the UK and both have generous (though temporary) schemes allowing the write down of plant and machinery investments in just two years or less.