We needed a programme of deficit reduction that offered hope rather than despair
A nation profoundly worried about its economic future can relax. As a result of last week's budget and the lowering of corporation taxes for a second time, Mr Martin Sorrell, CEO of the sprawling advertising conglomerate WPP, will bring his headquarters back to Britain to pay UK tax at a much lower rate than when he left. Young men and women wondering how to prepare for an economic future that seems murky and uncertain when already so many of their friends are unemployed can be reassured. Businesses can invest again with confidence. Spirits will be revived. Mr Sorrell is coming home.
I am sure that George Osborne meant what he said at the end of his budget speech about how making, creating, designing and inventing were at the heart of his vision for Britain, so how depressing that the first symbol of the success of his new strategy is Mr Sorrell's choice of tax jurisdiction. There is an enormous literature on the drivers of economic growth. Multinationals' choice of tax jurisdiction barely figures. Indeed, the most magisterial survey by the University of California's Professor Peter Lindert shows the opposite ? that growth is higher in advanced countries with a higher public investment in social, intellectual and physical assets, which tends to be associated with higher rather than lower taxes.
But evidence should not drive policy. Much better to roll out a self-satisfied businessman on Radio 4's Today programme praising the virtues of low corporation tax, which will boost his own share price and already extravagant personal remuneration closely tied to abundant grants of shares. Such is today's Britain ? lost, disoriented and suffering an almost complete absence of principled political and business leadership.
At least we know where we stand. The chancellor has set out what he believes will turn his growth vision into reality ? the publication of "The plan for growth" along with the budget. It opens with Mr Osborne and business secretary Mr Cable jointly declaring what they consider drives economic growth and it makes an interesting list. Number one is the creation of the most competitive tax regime in the G20. Then follows the need to make the UK the best place to start, finance and grow a business. Third is the encouragement of investment and exports to rebalance the economy, and last the creation of a more educated workforce that is the most flexible in Europe. What they then do is to flesh out what they plan under these headings, and then apply them to eight sectors which they consider growth champions, from life sciences and space to retail and construction.
Welcome back the thinking developed by the National Economic Development Office, proposed by Conservative chancellor Selwyn Lloyd in 1961 and abolished by John Major 30 years later. Neddie spent those years being dismissed by Treasury officials as an irrelevance as Britain would be fine courtesy of North Sea oil, free markets and the City of London.
Now confronted by a sea of personal debt, a dysfunctional financial system, productive capacity geared to servicing a nonexistent consumer boom and a still-shrinking high-tech manufacturing sector, even the Treasury is a convert, though with extreme reluctance and much internal debate at the wisdom of being sucked into the mire of how actually to promote growth.
This is why the exercise is so unconvincing. Neddie routinely did better. One of the four means to growth ? rebalancing the economy through encouraging exports and investment? is an end, the consequence of getting things right rather than their cause. Another ? creating a competitive tax regime ? is as much ideology as growth-inducing. Only two principles are genuine means to driving growth and even then as many issues are raised as answered. It is a startling discovery to learn that the fast-tracking of land planning applications is considered crucial to business formation or that getting 10,000 first-time buyers on the housing ladder is an indispensable platform for creating an educated, flexible labour force. Rather than thinking through a plan for growth from which measures are then derived, this is shoehorning budget measures into the varying preordained categories and then calling them a plan, in short, turning the growth process on its head.
The prioritisation of what matters is scarcely credible. The annualised and ongoing cost of the corporation tax changes by 2015/16 (including the reductions last June) that so pleased Mr Sorrell will be over �5bn a year as the government scrapes together a one-off �100m for extra science investment and a one-off �100m to create 50,000 apprentices. Imagine not giving a damn about Mr Sorrell's choice of tax jurisdiction or the value of his long-term incentive plan and investing �5bn a year in science and apprenticeships by 2015. The country would be transformed and the opportunities for our kids immeasurably improved. Mr Sorrell and his ilk would want to be in Britain because of the rich opportunities for economic growth. But it means sensible levels of taxation.
What was required last Wednesday was leadership and mobilisation ? embarking on a programme of deficit reduction that offered hope rather than despair. There should have been an uncompromising commitment to innovation and investment in the budgets of both last June and this March, even while retaining some of the cuts. There should be no cuts in capital investment at all; instead, public investment in our physical infrastructure, our knowledge base and our social capital should have been stepped up, both because it is so needed and to boost faltering levels of demand so crucial to the growth process.
Some of the strain should have been taken by the aggressive launch of the green bank as a national infrastructure bank with sufficient capital to underwrite the financing of all the cancelled �80bn of public investment over the next four years. For the green bank to be allowed to lend �3bn in 2015 as the growth plan provides, although an important breakthrough, is not the point. Other increases in investment, especially in schools, apprenticeships, science and universities should have been paid for by a slower rate of deficit reduction. The other cuts should have stood, despite the protests, and corporation tax reductions rescinded.
The result would be the same destination ? the elimination of Britain's structural deficit, but two years later than the coalition plans. Growth would have been higher, spirits lifted, optimism generated and youth unemployment would have fallen. But that takes daring, imagination, leadership and a firm grasp of growth economics, qualities in short supply in 2011 Britain.
Source: http://www.guardian.co.uk/commentisfree/2011/mar/27/will-hutton-growth-plan-bad-for-uk
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