Mark Littlewood: The Coalition must create a culture of entrepreneurship, rather than entitlement

Mark Littlewood is Director General of the Institute of Economic Affairs. This is an edited version of remarks he gave at yesterday's 'Going for Growth' conference, hosted by ConservativeIntelligence.

Going for growth is the key challenge for the Coalition. In fact, pretty much all their eggs are in the growth basket. If GDP does not show a marked and impressive upward swing over the coming years, then the government’s overall strategy becomes much considerably harder to realise.

You can still start to get the deficit under control in a zero growth world. You can still encourage an upsurge in volunteerism in a Big Society. You can still attempt some structural reforms of our antiquated health and education systems. But these things become a whole lot easier – or at least considerably less difficult – if you’re witnessing 3% growth in the economy, rather than dealing with flatlining GDP figures which may even have been tipped into the negative because of a bad bout of snow.

Frustratingly, the government has turned to the “growth agenda” rather late. Fiscal retrenchment and the Big Society have been the consuming themes of the Coalition’s first nine months.

They’ve talked a big game on deregulation, Nick Clegg’s Freedom Bill was supposedly going to be the most substantial recalibration of the relationship between the individual and the state since the 1832 Reform Act. When it finally emerged last week, despite containing a raft of basically welcome proposals, it is doubtful it will even be considered the most substantial recalibration of the individual and the state to take place this year.

In some areas, they’ve stemmed the flow of anti-enterprise regulation, The “one in, one out” approach has helped, but has hardly led to a rolling back of the vast amount of red tape which hampers business. One can only hope this will follow in due course.

The budget, it seems, will focus on supply side reform. But whether it amounts to a little helpful tinkering, as opposed to the start of a genuine revolution, remains to be seen.

A good start would be to embrace the wide-ranging set of policy proposals recommended by the Institute of Directors last week – a clever blueprint for encouraging economic growth without having to spend any government money.

On tax reductions, the obvious retort is that there is no room for manoeuvre, given the deficit reduction strategy. But that disregards the Laffer curve. We may now be on the “wrong side” of this curve in terms of government revenue. The 50p rate, for example, is very probably reducing the overall tax take. It may well be possible to have our cake and eat it – reduce taxes, stimulate growth and watch as tax receipts rise.

A major challenge for the UK over the coming years is to create a culture of entrepreneurship rather than entitlement. That won’t happen by accident. The truth is that the Coalition’s ambitions in this area are really rather modest. Things could be worse, of course. Being modestly ambitious is better than not being ambitious at all. But unless the government discovers a more passionate voice around supply side reform – to at least match the apparent fervour surrounding the Big Society – then the best they can hope for in this area is a very modest legacy. That might not be a catastrophe for Britain, but it would be a major disappointment.