Margareta Pagano: When are Cameron and Osborne going to get real and devise a proper growth policy?
The coalition needs to stop the gimmicks and the phoney war over bankers' bonuses and create a viable economic strategy
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Sunday 29 January 2012
Here are some facts.
The UK's economy is stagnating and we could be heading for the first double-dip recession since 1975. In the last quarter the economy shrunk by 0.2 per cent, putting annual growth at 0.9 per cent. And although the official numbers are nearly always wrong and may well be revised, the auguries are not good.
Unemployment is at a 17-year high; one million youngsters are out of work, and the Bank of England predicts that the private sector is contemplating more job cuts across just about every industry from banking to haulage.
Still more worrying is the sharp collapse in manufacturing output – down 0.9 per cent, the steepest fall since the start of the recession in 2008. This is the most disappointing news of all as the hope had always been that private companies – and the revival of manufacturing and exports in particular – would pick up the slack from those jobs being lost in the public sector.
So what are the politicians doing? Out to lunch as far as one can tell. Nick Clegg seemed to be the only one with a spine last week, calling for an immediate increase in the tax threshold to £10,000 to reduce the burden for low to middle income Britain. Otherwise our political masters have been either wasting time prattling about Sir Fred Goodwin's gong, or gallivanting around Europe annoying our neighbours. Labour's front bench was equally spineless, spouting off the predictable blame-game stuff while David Cameron made a bad error in showing off his Euro-bashing credentials again.
Why Cameron chose Davos to tick off his fellow European heads of state about the perilous state of their countries is beyond me; it's neither friendly nor helpful at such a fragile time. That he may be right is beside the point, and, if he's not careful, they'll bring back passport control. Instead, the Prime Minister might have been better served had he suggested how the Continent might work together to improve growth and productivity, for that's the only way out of this crisis.
It was this time last year that the Chancellor, George Osborne, also speaking at Davos, urged the UK's captains of industry to start spending the £65bn or so they have squirrelled away for a rainy day. But the UK's industrialists haven't listened to him, and there is more, not less, cash on deposit. New investment in capital and plant is at rock bottom while a lot of British money is flooding overseas, mainly to tax havens if the chaps I've been talking to in Jersey are right.
Why aren't they investing? That's what Cameron and Osborne should be asking. It's too easy to criticise the EU for its punitive workplace regulations when ministers are doing absolutely nothing about reforming our own labour rules. A question of do what I say not what I do, perhaps?
All the industrialists I speak to say they are being clobbered by soaring energy costs and stifling regulations, whether it be new green taxes or tax on R&D investment. More pertinent is the cost of employment for small businesses. There's been nothing to encourage the UK's 4.6 million SMEs to employ more: if each one took on one extra worker, unemployment could be slashed.
We're still in a deleveraging recession, not a destocking one as in previous recessions, so different tactics are needed. Tim Morgan of Tullett Prebon made a good point when he said last week that neither the Government nor Opposition has come clean with the public on one key point – that "every traditional economic policy lever has been tried, and has failed".
We've had low interest rates, devaluation, stimulus and quantitative easing in spades. He's also right to say that relaxing the deficit-reduction plan to spend more will upset the markets, but doing so to cut taxes and boost growth might work. And tax cuts, particularly for low- to middle-income earners, would boost growth and pay for itself.
That's why we need a plan for growth, one which doesn't mean abandoning the deficit-reduction strategy. But if the country does go into a double dip, then spending and welfare payments will go up again and tax revenues will go down. Then it won't be long before the UK's triple-A rating goes down with it.
Part of the problem is that the coalition appears to believe that it has a genuine growth policy. It doesn't. We have a parody of a policy that has been masquerading as one, along with gimmicks like the Mary Portas review to save the high street.
Now is the time for big ideas. The Government should stop the phoney war with the banks over bonuses: if it doesn't approve of Stephen Hester's pay package at Royal Bank of Scotland then it should be renegotiated, not debated through the newspapers. A contract is a contract and should be respected – or changed.
Instead, Cameron and Osborne should get their gloves off over the real issue : lending to SMEs. Then we need bold tax incentives for companies to take on the young via more apprenticeships, tax breaks for R&D, tax cuts for the squeezed middle and serious resources – time as well as money – should be invested in education to ensure we have the best and the brightest.
Osborne has worn his hairshirt well; now it's time to see the true colours underneath. A Plan G would be start.
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