Labour to beef up industrial policy in run-up to next election

Denham says coalition's business team has 'no idea' how to create a climate for growth

The shadow Business Secretary, John Denham, has signalled a lurch to the left in the Labour Party's industrial policy, setting out an interventionist approach to resuscitating Britain's struggling economy.

Mr Denham, talking in his Westminster office, indicated that Labour will reposition itself under Ed Miliband's leadership by aggressively drawing battle lines with the free marketeers of the coalition.

"Good government can create the right conditions for economic growth," he said. "Vince Cable [the Business Secretary] has always been pretty much free market and against active industrial policy. The Government has no real view of how to create conditions for the successful growth of private companies and there's no strategy for jobs."

In an admission that Labour has moved away from the market-led years of Tony Blair, Mr Denham said that "the world moves around you but the principle is always that private business needs to succeed".

Mr Miliband recently announced a two-year policy review, which will see Labour map out its core ideas ahead of the 2015 general election. The Labour leader said last month that the party had not fundamentally changed since Mr Blair took power in 1994.

Beside the shadow Chancellor, Alan Johnson, Mr Denham is undertaking a series of meetings with business organisations and small firms which will intensify in the new year. "The starting point to the policy review is the extent to which the odds are stacked against small companies," he said. "We want to move towards a more balanced economy. We will be challenging the Government's failure to produce any kind of growth White Paper."

Mr Denham said that the coalition's muddled thinking was demonstrated by its inconsistent attitude to tax breaks. The Chancellor, George Osborne, said last month that he will implement the "patent box", which drastically reduces corporation tax on profits on newly patented products to promote R&D investment. Pharmaceuticals giant GlaxoSmithKlein has said that it will invest £500m in manufacturing plants in Britain as a result of the reduction from 28 to 10 per cent. But, the coalition has ignored pleas from the UK's £2bn video games industry to provide tax breaks comparable to those in Canada. The industry argues that this could save or create more than 3,500 jobs.

These differences showed that the Department for Business was "all over the place, with no consistent understanding" of how to boost the economy, Mr Denham claimed.

Mr Denham argued that small firms had been hurt by the failure to introduce net lending targets for nationalised banks, despite the coalition agreement in May highlighting this as a policy option. "The targets seem to have been dropped with nothing brought in in their place," Mr Denham claimed. "Eight months after the election there has been no progress on lending to small businesses."

Mr Denham, 57, who resigned from the cabinet in 2003 over the Iraq War, also blasted the abolition of Regional Development Agencies as "pathetic". He believes that that the replacement Local Enterprise Partnerships (LEPs), comprised of private- and public-sector groups with the budgetary freedom to support local enterprise, will be so small that they will not have the clout of their predecessors. Mr Denham has previously claimed that nearly 800,000 businesses and 21 million people will be excluded by the first round of LEPs, with only 24 approved.

The proposed privatisation of Royal Mail and the coalition's decision to contract it to the country's 11,000-strong Post Office network for only five years post-privatisation, was also questioned by Mr Denham. About 30 per cent of the Post Office's revenue comes from Royal Mail and Mr Denham warned that without that "intra-business agreement" the network would fall to just 4,000 commercially viable branches.

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