James Ashton: A change of mindset (and another miracle) would really help the economy

An extra £3bn a year from 2015 to kickstart infrastructure is a drop in the ocean
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The Independent Online

Outlook It is the one economic miracle conjured by a Chancellor who has begun to look desperately short of tricks. No matter that Britain has lost its triple-A credit rating, the Budget deficit refuses to be tamed and growth is elusive – there are still many more people in work than when the Coalition was formed three years ago.

So it was to be expected that George Osborne paid tribute to the "energy and enterprise" of British companies, boasting with glee about the six private sector jobs created for every one eliminated by the public sector. And in a Budget bare of good news, it is no coincidence that the biggest announcement is focused on keeping that miracle running.

We had more of the same, with employment forecasts revised up and growth forecasts going in the opposite direction. The two can't keep diverging indefinitely. Osborne is gambling that by pouring oil on an already warmish jobs market, he can really heat up our chances of prosperity and growth before the general election.

Slashing tax on jobs in the form of an employment allowance of £2,000 a year towards National Insurance contributions is designed to inspire, in particular, small businesses to get recruiting. If every other small firm in Britain took on one more member of staff, the dole queue would be eliminated.

I'm not sure the appetite is there at the moment, though. The failure to match improved productivity with this surprise march of the workers raises concern that the benefits of an enlarged workforce are illusory.

It suggests too many part-time, low-paid retail and coffee shops jobs and not enough highly-skilled factory workers or financiers – a kind of short-term gain with the long-term pain of our declining skills base stored up for the future. In addition, instead of being laid off, staff are being kept on but on lower pay with little to do while demand has slackened.

Those export markets that Osborne blamed again for Britain's weak growth figures aren't getting any better soon, especially after that little local difficulty in Cyprus cast another pall over the eurozone, home to 40 per cent of what Britain sells abroad. It is one thing tooling up to provide more goods to sell when the pound is weak, but another in finding buyers when their economy is also on the floor.

A lot is asked of our small businesses. The entrepreneurs that set them up must have bold ideas and not be afraid to risk everything to put them into practice.

Then they must have the confidence to recruit, carve out new export markets, invest in innovation and take on the big boys. It is a big ask to do more, especially when access to finance remains elusive.

There is also an underbelly of small businesses that don't want to expand. They are the lifestyle businesses that tick quite nicely thank you, where recruiting new hands would only keep the boss off the golf course.

Many bosses of bigger firms look away and wince on Budget day, cowed by the awfulness of the numbers. Expectations were low before Osborne took to the dispatch box.

Chief executives want consistency from the Chancellor – nothing that will destabilise their long term plans. The gradual glide south of corporation tax to 20 per cent is a good sign that we are open for business and has been welcomed, but I wait to see evidence of more headquarters being set up here.

More positive was the move on pensions, which will require the Pensions Regulator to factor in growth prospects before demanding that companies spend all their free cash plugging deficits.

Wooing home buyers with another raft of measures to help them afford a mortgage perked up the share prices of the housebuilders. It will take more for them to hugely ramp up plans for the number of properties they are planning to finish.

But that was a high point for the hard hat brigade. An extra £3bn a year from 2015, or £15bn over the next decade, to kickstart infrastructure is a drop in the ocean. We need fewer flagship plans to pour money in here and there that never live up to the gloss of the launch presentation. What is needed is a change of mindset to unclog the roadblocks to construction.

The truth is many private investors don't want to build something from scratch. That is a far too risky home for their capital. They want to back something long-term and reliable – exactly how the Chancellor would like to be regarded as he woos business.

If he pulls that off, it really would be a miracle.