Ruth Porter: Ideas for growth are staring Cameron in the face. Time for him to get serious about them.
Ruth Porter is Communications Director at the Institute of Economic Affairs.
It is not unusual for the BBC to misrepresent things but Monday’s headline – “David Cameron vows to boost infrastructure projects” – was more misleading than most. His article on Monday was not about government investment but rather applauding the private sector – and so it should be.
The heady times of government ploughing money into public services and infrastructure are, thankfully, largely behind us (with the notable exceptions of the Olympics and High Speed 2 – both projects destined to end in tears). Earlier this year leading economist, Harvard Professor Robert Barro, delivered the Institute of Economic Affairs’ Annual Hayek Memorial Lecture and pointed out that looking across various countries at different times, the one thing we can be sure of is that fiscal stimulus packages do not work in the long-term, and worse, can have negative effects. The myth that governments can spend their way out of recession is fantastical and dangerous.
Although Labour does not seem to have grasped this lesson, at least the Conservatives have.
The government has tried to make cuts, but not hard enough. The Comprehensive Spending Review was a million miles away from being comprehensive, with a mess of salami slicing and ring-fencing only just closing the deficit (and with slowing growth even that low target will not be hit). Latest projections still have the government spending more than 40% of GDP in 2015. Getting our debts under control requires proper public sector reform, substantial cuts and growth. The attempts we have seen at this so far have been half-hearted. The nod towards planning reform from the government is on the right-track, but is Cameron really serious about this? Will we see proper liberalisation?
On strengthening competiveness, we must look to deregulate and reform tax. The government has laudably cut corporation tax to 23 percent, but with a personal income tax rate of 50p almost certainly losing the Treasury revenue, an ever-increasing regulatory burden from Europe and a failure to cut domestic red tape, we can hardly claim to have got to grips with our competiveness issue. There is also a lingering impulse left by the last government to pick winners that has not entirely left with the Coalition still pursuing schemes through initiatives such as the Regional Growth Fund. Evidence shows these taxpayer subsidies are counterproductive - there is no way the government can know the best places to put this investment.
On global trade, the government is right to try and push for more free trade. If it can persuade the Chinese to stop distorting trade patterns, that would undoubtedly be a good thing, but we should be clear trade imbalances are not what led us into recession and centrally planning the world economy is no way out.
Looking ahead to the coming months, the Autumn statement is the government’s next big opportunity to set out a clear vision. But it looks set to bring more of the same with the centrepiece policy being credit easing. At best ineffective and at worst potentially disastrous – with the government effectively guaranteeing loans to businesses that could fail, leaving taxpayers on the hook for the debt.
There is still no clear strategy for growth – this despite the best attempts of centre-right think tanks throughout London, business leaders, trade associations and outspoken backbenchers. There is more agreement on the right over what needs to be in this growth plan than there has been on almost any policy area in recent years. So what is stopping Cameron?
On Monday, Cameron was commending and showcasing some of the successes of private business. He was also highlighting the government’s intention to reform planning regulations. He was not, thank goodness, signalling any kind of desperate attempt to start ploughing government money into hair-brained infrastructure schemes (beyond those already announced). Still it is not enough. If we want to talk up our economy we need a strategy to help it grow. The research has all been done and the ideas are just waiting to be picked up. It is time the Prime Minster got on board.