Ed Miliband’s conference-season assault on the Coalition made backing business a hazardous activity for the Chancellor. Yesterday’s upgraded growth forecasts tell a story of a catch-up recovery, but that in itself will not deliver votes at the ballot box in 2015. George Osborne knows he needs these green shoots to blossom and the many to share the gains of the few.
But rather than taming big firms through clampdowns and regulation, he made it clear that he won’t be steered off a pro-enterprise agenda. Saying there would be no “writing cheques to ourselves” to boost progress, this was a financial statement containing a handful of measures to encourage business to earn more. With a bit of luck, they’ll be the ones writing the cheques – to the taxman – and aiding recovery.
You can see Osborne’s current concern. Critics of his austerity drive including the influential International Monetary Fund have been proved “comprehensively wrong”, he asserts. The deficit is falling and GDP is accelerating. The reduction in corporation tax to 20 per cent by 2015 has been cheered to the rafters and there is evidence that it is leading to headquarters relocating here.
Yet the growth we have today, far stronger than predicted in March, is led by increased consumer spending and the bubbling housing market. So although confidence has taken hold, the acid test by election time is to see if trade and investment can supplant those unsustainable sugar rushes to carry Britain through to a robust recovery.
Business investment is falling this year, not rising. Some say it should be interpreted as a lagging indicator – why invest when inventories can be run down? The alternate view is that businesses that sat on their hands during the recession are trying to reap the benefits of the upturn without yet loosening the purse strings – hence lacklustre wage growth, even if employment figures are surprisingly on the upside.
Infrastructure spending must play catch-up too, with the £25bn pledged by willing insurance companies this week a fraction of what is needed to pay for new roads and rail in the latest relaunch of the national infrastructure plan. There is a long way to go to match that pot of cash with the right projects, get spades in the ground and hard hats donned.
And then there are exports. In the same way that the budget deficit begins to be cured by cyclical recovery instead of structural reform, it is hoped that they will rally as huge emerging markets such as China change tack. Soon the Middle Kingdom will need more of the services and skills that Britain is expert on, instead of the nuts, bolts and widgets required for a building boom that favours sales from Germany.
Osborne is intent on doing more than awaiting end-markets to develop to suit our needs. Doubling export finance to £50bn strengthens the arm of trade minister Lord Livingston. Much of it is aimed at small businesses who haven’t carved out export markets before. Maybe then we will sell more goods to China than little Belgium and Luxembourg.
The Chancellor deserves only one cheer for his moves on business rates, a cause on which big business campaigned most vociferously. A 2 per cent cap on increases, but no fundamental reform until 2017, is a disappointment for retailers who are big employers too. Life gets easier for small shops, but it is the large chains that can play the biggest part in rescuing High Streets from decay.
Also missing was a much-discussed measure to let individuals divert their ISA savings into small businesses via peer-to-peer lenders such as Funding Circles. Why not, if access to credit is still seen as a block on companies expanding? Unblocking building projects, tax relief on some trading funds and social enterprise are welcome, but add up to tinkering at the edges. A £9bn crackdown on tax avoiders sounds suspiciously familiar. Will it actually work this time?
Of much more significance is the national insurance relief on employing those under 21. Every little helps to get youngsters into the workplace. This could be the tipping point to persuade small businesses they need to recruit. If it focuses more attention on the type of skills that firms require from school leavers, all the better.
So Osborne wants to coax more from business, but in return there were few giveaways yesterday. Progress has been made, but it’s not enough to merely hope that the recovery will rally from here on in.