From the TUC

The Plan for Growth: An initial TUC Response

23 Mar 2011, by in Economics

Today’s Budget was trailed as a ‘Budget for Growth’. Indeed, today’s revised forecast from the Office of Budget Responsibility, downgrading its growth prediction for the UK from 2.1 per cent to 1.7 per cent this year, shows just how necessary a Budget for Growth was. And alongside the Red Book, the Government published a Plan for Growth. So how does this measure up?

In the foreword to the Plan for Growth, the Government sets out some of the challenges. In education, we have fallen back in excellence in maths. 50 per cent of all manufacturing jobs have been lost in the last 10 years. Our share of world exports have fallen from 4.4 per cent in 2000 to 2.8 per cent in 2009, whereas Germany’s share has increased from 8.5 per cent in 2000 to 9.0 per cent in 2009. These are important developments and we needed a Budget to confront them.

The biggest rabbit that the Chancellor pulled out of the hat in terms of growth was that corporation tax rates in the UK will be cut by two per cent, not one per cent, this year and will be down to 23 per cent by 2014. Now none of us like paying taxes, but if corporation taxes are cut, either another tax has to go up or even more spending cuts are required. What’s more, George Osborne quotes Germany’s success, without introducing policies to achieve something similar here. German companies pay an effective corporation tax of about 30 per cent. The reason is simple: Germany doesn’t try to compete through tax competition, it competes instead by being the best at what it does. To be fair to the Coalition, it is trying to learn from some of Germany’s innovations. Today’s announcement (actually, it was a re-announcement) of the first Technology and Innovation Centre in advanced manufacturing borrows from the German Fraunhofer model. But if we enter into tax competition, we simply enter a downward spiral. Every country in Europe will try to introduce lower and lower corporation taxes and others will need to pick up the tab.

The Government is right to worry about a fall in excellence in maths. The TUC worries about this too. This is why our Budget Submission highlighted an analysis of the Comprehensive Spending Review by the Institute for Fiscal Studies, which showed that there would be real terms cuts in overall funding for schools in England, even taking account of the pupil premium. The Chancellor didn’t take the TUC’s advice and scrap the spending cuts, introducing a plan B instead, so we can only assume those funding cuts will continue. Which isn’t good news for promoting excellence in maths. 

Of course, there were aspects to today’s Plan for Growth that the TUC can and should welcome. The new Technology and Innovation Centre for high value manufacturing, mentioned above, is important. An additional £100m in 2011-12 for science capital development to provide facilities for the commercialisation of research, accommodation for SMEs. and new research capabilities is good news. It is not quite true to say, as George did, that the science budget was protected last year; it was protected in cash terms, which amounts to about a nine per cent cut in real terms over the course of the Parliament. It also comes in the wake of a £1.4bn cut in capital spending on science by the Department of Business, confirmed at the end of last year. But £100m is £100m, whichever way you look at it, and scientists will be glad this new money is there. The nine new university-based Centres for Innovative Manufacturing by 2012, whilst already announced, are also supported by the TUC.

But the biggest myth of all, one that is extremely dangerous, is that exempting small firms from sensible regulations has anything to do with growth. Last Friday, Scarlet comprehensively set out the dangers, to flexibility and to women’s employment overall, of proposals to scrap the planned extension  of the right to request flexible working to parents of 17-year olds,  and to give small firms a three year exemption from the new additional paternity leave scheme. Of course, nobody wants needless red tape, but surely in 2011, an advanced economy like the UK doesn’t have to choose between going for growth and supporting Mums and Dads at work. 

The TUC wanted a Budget for Growth today. What we got was a growth strategy largely based on tax competition and undermining rights at work. An opportunity missed by George Osborne.