Leading article: Business and government still need each other

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Is British business falling out of love with New Labour? We only ask because the chairman of the CBI, Sir Digby Jones, has warned that the Government risks losing its business-friendly credentials. And while Sir Digby may have many reasons for firing this shot across the Government's bows now, it is still a pretty striking statement to make.

Next week promises to be a crucial week in the business calendar. With the CBI annual conference, the Chancellor's pre-Budget report, and the publication of the Turner Commission's report on pensions, it would be a poor lobbyist indeed who did not sense an opportunity. But even if there are elements of special pleading and grandstanding in what Sir Digby has to say, the Government would do well not to dismiss his strictures out of hand.

This government has prided itself from the start on its positive attitude to business. It sees this, along with its concern for fiscal responsibility, as what distinguishes it from previous Labour governments and a key element in its record three election victories. The freeing of Bank of England interest rates from political control, a determination to keep taxes low and encouragement for labour market flexibility were all calculated to sustain business confidence.

In many respects, these policies worked. Unemployment in Britain is among the lowest in Europe; interest rates and inflation are also low, while growth has matched Treasury forecasts. There have been signs for a while, however, that this may be changing. Last month the OECD cut its forecast for UK growth in the current year and suggested that tax rises might eventually be needed. The Chancellor had earlier adjusted the dates of the economic cycle in a way that made it easier for him to keep his "golden rule".

The worries voiced by Sir Digby will only add to the Chancellor's woes. He cited lack of investment in infrastructure, burgeoning regulation and concealed increases in tax which, he said, were sources of increasing frustration to his members. And he expressed concern about energy supplies and costs to industry this winter, accusing the Government of poor planning for an "energy gap" that it should have seen coming before.

He reserved particular criticism for the deal concluded by the Government with public sector workers which gave existing employees the right to retire at 60 on a full pension, while private sector workers faced higher contributions and a longer working life.

But he also cited the Treasury's failure to enforce planned cuts in civil service numbers and to meet its targets for relocating jobs outside London. School-leavers' continuing lack of basic skills in English and maths was another complaint.

Seen from this perspective, the Government's management record, and the Chancellor's in particular, starts to look less impressive. Targets have been set, initiatives announced and commissions entrusted with finding solutions to longer-term problems, only for nothing to happen or the proposed solutions to be rejected - the Tomlinson report on the school exam system, for one - as too unpopular, disruptive or expensive. Speculation yesterday that the Treasury might reject key aspects of Lord Turner's recommendations on pensions seemed only to confirm Sir Digby's fears.

It is too early to say that business is ending its relationship with this government; each still needs the other and there is time, still, for conciliation. But a tipping point is approaching and the Chancellor needs to take the grumbling seriously. At stake may be his own prospects of becoming prime minister, as well as those of Great Britain plc.

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