Tackling the deficit, securing low interest rates and reducing taxation for business are all necessary to create the preconditions for economic growth and, in ‘normal times’, they could even be sufficient. However, today’s circumstances require much more to ensure Britain has the capacity to overcome the challenges presented by an increasingly competitive but also volatile world economy, and, above all, the consequences of a reliance on an inadequately regulated financial services sector and an relatively underproductive real economy.
“Europe” can be blamed for many things but it is not the fundamental cause of Britain’s lack of competitiveness – the German manufacturing performance is proof enough that other factors count for more. Instead, we must foster a ‘can do’ attitude where our products and services are sought because of their quality, innovativeness and relevance. Depreciating currencies are all very well but unless they bring rapid changes in trade fortunes and are also accompanied by structural adjustments at home, ultimately only inflation will be stimulated, especially if monetary policy (Quantative Easing) is being deliberately slackened.
There are, at least, four economic policy tools already being sharpened by the Coalition Government but they now need to be deployed with increased coordination and rigour. The first challenge is to more accurately match education and skills output with the requirements of business. Already, the Department of Education is addressing many of the obvious shortcomings in our schools but the interface between business and education is inadequate, requiring, instead, more direct participation by business in establishing education priorities. In essence, this is about creating a more flexible, productive and innovation friendly workforce.
Next, the role of cities should be appraised in terms of developing centres of expertise in technologies and innovation, drawing on the capacities of their universities and corporates. Essentially, this involves ensuring cities become growth poles within their immediate sub-regions – ‘city regions’ and interconnected with other cities. Local Enterprise Partnerships will be decisive in making this happen but city leaderships should also be calibrating and promoting economic potential for further investment.
To make this happen, improved infrastructure, especially transport links, is necessary. The reputation of the Private Finance Initiative (PFI) or, more accurately, Public Private Partnerships – much abused by the last government through, effectively, filling the void created by their own failure to create a sustainable public sector – should not prevent properly structured project finance schemes, based on robust income streams, providing much needed investment in civil engineering, housing and public facilities. There is an appetite in the industry for a simplified ‘son of PFI’ to provide vehicles for private investors to help make things happen.
Last but not least, the development of new technologies can be promoted by providing a sufficient sense of market certainty through public policy. Energy is a case in point, especially with the necessary focus on climate change implications. A good example is the likely benefits of energy storage systems – including large scale electricity banks and battery powered propulsion – where a newly structured market framework could, literally, generate cutting-edge industries. The Energy Bill and the Enterprise and Regulatory Reform Bill (also introducing the Green Investment Bank) will both help to pave the way but strong, reliable signals of commitment by government will also have impact.
In drawing these four policy themes together, it is worth noting that any government attempting to “pick winners” has been, at best, erratic and often disastrous but providing suitable conditions for business to innovate and invest is more constructive. Key facts to get right in order to boost the real economy are the quality of the workforce, capacity of the infrastructure, confidence within business to innovate and encouragement of investors. With a long-term strategy for the real economy and a reformed banking system, the prospects for growth, built on the foundations of sound finance, realistic interest rates and low taxation, will be considerable.