Growth plans: a brave attempt, but time to change course
What a long way we’ve come in 18 months. In those first, heady days of Coalition Government, we were told that deficit reduction was the answer. Growth, it seemed, would take care of itself. Then there was the Growth White Paper that never was. But with economic growth flatlining, George Osborne has been forced to take action. Hearing his list of initiatives reminded me – and plenty of others, it seemed – of what The Guardian has described as ‘Brownite micro-tinkering’. So how will his new growth measures stack up?
First of all, those growth forecasts. The Office for Budget Responsibility (OBR) has downgraded its forecast to a growth projection of just 0.9% in 2011 and even less, a paltry 0.7%, next year. Trade unions have been calling for a serious growth strategy since this government was elected. How right we were to do so.
Looking down the list, the two biggest announcements on growth seem to be the £20bn National Loan Guarantee Scheme, to lower the cost of loans to small businesses, and a further £20bn to finance infrastructure. Those are large figures, so we can be sure this money is not coming from government coffers. The National Loan Guarantee Scheme, the so-called ‘Credit Easing’ announced in Osborne’s speech to the Conservative Party Conference in October, is taking its £20bn from the Bank of England, according to the Guardian. The money for infrastructure is due to come from pension funds.
Some observers, notably Alistair Osborne in the Telegraph, scoff at the idea that this will work. The Government says it has signed a Memorandum of Understanding with two groups of pension funds to deliver this cash, although the small print of the Autumn Statement hedges its bets, saying the Government “will target up to £20bn of investment from these initiatives”. So what is the likelihood of achieving this target? It’s an important question. After all, the Government ‘targeted’ the paying off of the deficit over five years, but only the hardiest of souls now expect that to happen.
The TUC can half welcome the announcement on energy-intensive manufacturing. About £250m will be used over the spending review period to reduce the impact of policy on the costs of electricity for the most energy-intensive industries. The TUC has lobbied hard on this and we welcome the package as a first step in the right direction. But the Government needs to develop a full strategy for the energy intensive manufacturing sector, widening its sectoral scope and providing energy cost relief and an ambitious technology investment strategy. It may seem counter-intuitive to call this a victory for green campaigning, but if we lose those industries, the likelihood is that they would go to countries with much less emphasis on reducing carbon emissions than the UK.
The Government speaks of a package of measures to deliver better value for the UK from public procurement. I guess that all depends how you define better value. The small print commits to negotiate a radical simplification of EU Public Procurement Directives, to ease burdens on business. Those are the same directives that enable contractors to specify that apprenticeships or sustainability is written into contracts. The TUC will fight hard to protect those measures. Of course, apprenticeships are a short term cost, but as we know through experience, a lack of quality apprentices is a long term disadvantage.
Finally, I welcome the additional £200m on science, including an £80m investment in the Institute for Animal Health and £25m for large scale technology demonstrators. Whilst I have a very different view of the growth agenda needed for the UK to that of the Coalition Government, I believe David Willetts, the Science Minister, is battling hard for science and he has the TUC’s support.
All in all, if I were a BIS Minister (The Department for Business is responsible for the Government’s growth strategy) I’d be amazed that I was able to say anything about growth, given the paucity of funds available. But the problem is not today’s announcement. The problem is that the Government strategy is simply wrong. Austerity is prolonging the economic pain. It’s time to change course.