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Robert Marr: The five mistakes George Osborne must avoid making next week in his efforts to stimulate growth

Picture 2 Robert Marr is a former Conservative parliamentary candidate and Association Chairman, and works as a managing director in publishing.

When George Osborne gets up in the House of Commons on March 23rd to present his budget, few know what he will say, but many will be looking for a clear vision for economic growth. Indeed some say the coalition will be made or broken by the growth story set out at budget time next week.

The coming Budget will be different: no need for the British public to sit on the edge of its collective seat. With all the key spending and revenue decisions for the rest of the Parliament already set out in the Spending Review last Autumn, there will not be much in the way of news about increased tax allowances and new tax rates. If the chancellor doesn’t create a convincing growth story when he presents his budget, there will be a vacuum for the press and opposition to fill. There will also be an irreparable hole in the Coalition’s programme.

The thinking behind this growth story has been going on for many months with the Growth Review itself under joint Treasury and Business Department control running since the end of last year, mostly behind closed doors, and with shifting timelines that has ended with the announcement being included in the Budget statement. If anything, the key importance of a national Growth Strategy has become clearer over time. Its success will be central to the fortunes of the country and therefore the political fortunes of the Coalition and the outcome of the next general election.

There are many keen to influence George Osborne and the Government on the outcomes of the Growth Review, some of whom were present at the excellent ConservativeIntelligence Growth conference the other week. Lobbyists of course have a job to do. If they weren’t all over the growth review, with its unprecedented impact not just on the future of UK industry, wealth and employment, but their clients’ fortunes, those clients would probably be looking for another Public Affairs consultant. As a result we have heard a lot about infrastructure and airports and runways and tax breaks and green growth from lobbyists. The commentariat with their varying special and partial enthusiasms has been busy in the pages of the quality press. The sage of Twickenham, twinkletoes Vince Cable himself, has also spoken out (of which more later).

A lot has already been written what should George Osborne say on March 23rd. So let’s take a different tack and be negative: here are five mistakes he should say “NO” to.

1. No to special interests
All the lobbyists are hard at work, but the best funded, most articulate and best connected don’t necessarily have the best case. And in a world of imperfect information the only certainty is uncertainty as to which investment or tax break will have the best effect. So let's leave the micro-decisions to people and to companies - and only where absolutely necessary to the state. In those limited circumstances where it does fall to the state to set supply-side, micro or industrial policy, then let it come its decisions over time and with full consultation. Which would mean we should hope not to hear too many announcements at budget time after the mostly behind-closed doors Review process. 

2. No to trendiness
Let's take just one example, Google. They apparently have the ear of the Prime Minister, and have been muttering about open access. It sounds great - but what of the content creators, the authors and media businesses who without the ability to capture some reward, would give up on writing and online innovation. (Disclosure of interest – I am a publisher and have ventured with industry colleagues into one of the more obscure corners of Whitehall on this point). One example, but there are many more examples, particularly  in the staggeringly large area of green technology. Something may sound great in the politician's five-minute attention window. It may sound like its good for some favourable headlines. But in fact the playing field is often best left level, however exciting, trendy, newsworthy and tempting the issue behind the proposed tax break or regulation may look.

3. No to industrial policy and manufacturing bias
As we’re taught in Economics 1.01, private transactions freely entered into determine market prices and demand, and businesses creates value add by meeting them. There is nothing intrinsically more valuable about manufacturing that means it should be uniquely boosted. Especially when that boost would be inexpertly administered by well-meaning but fundamentally non-commercial civil servants. (Although it could be worse when directed by vote-buying politicians). Is it really “manufacturing good, everything else bad”? Are we clear anyway on the relative merits of manufacturing and business services - isn’t the software company that writes the code to control a process just as morally worthy as the manufacturer that installs it on its production line? Isn’t a strong manufacturing base just as important as a strong services base, or even a strong financial base?

So let's be careful about breaks or handouts aimed solely at manufacturing, especially bearing in mind that it will be matched with an equal and opposite de-boost from other sectors penalised to fund the subsidy. (So some sympathy is due for Nick Clegg and the Sheffield Forgemasters issue). Manufacturing has declined as a proportion of GDP in all developed economies – the UK, the US, Australia, the list goes on across all the developed world economies. Its just how it is. Industrial policy? Let's leave it to the sixties. Or Peter Mandelson.

4. No to research bias
Controversial I know. Currently Research and Development tax credits work well for the big players, big pharma, for example with its big lobbying power and tax advisors. But it works less well for other less powerful or obvious industries.  Doesn’t most development come from process improvement, incremental innovation, and creativity anyway? Not from the sort of spend easily isolated in the national accounts,  in defined SIC codes and meeting tight definitions of what constitutes R&D. (My own experience of tax breaks for R&D is that it looks more a game of shoe-horning development into the narrow categories that attract tax relief – and when it comes down to it, its better to have a project that creates sustainable profits than one that gets the breaks).

Should we be subsidising powerful industries anyway - won’t the successful drug developer get their reward from future profits, and aren’t they doing quite well already without everyone else paying more tax to enable them to pay less? So an especially big question mark on the Patent Box, the latest R&D wheeze where 10% tax rates are on offer, currently being debated as a component of the Growth Strategy. Eloquently supported by David Gauke MP at the ConservativeIntelligence conference it may have been, but as the IFS noted in their Green Budget it will cost the taxpayer £1,100,000,000 a year with no boost to real activity.

5. No to state imposed hubs
The evidence is quite mixed about Government created hubs, with Canary Wharf one of the few undisputed successes. Natural hubs, Silicon Valley and the nascent Shoreditch new media hub, clearly work. But it's surely a bad situation where 90% of the country is acknowledged to be so taxed and so regulated that industry struggles to succeed unless it's lucky enough to be located in, or ups sticks and moves to, a Government defined Enterprise Zone. Any Zones surely won’t end up in the optimal places from a market perspective: there will be pressure for a distribution across the country, and to places seen as deprived and in need of investment. Which may also be the places where commercial success will be hardest to achieve (remember De Lorean?). Shouldn’t we set out to make all of the UK an Enterprise Zone - low-regulation, a reduced tax burden and with efficient planning processes?

And what did Vince Cable say? “Growth is not something concocted by the state, like a health potion at a chemist. Our job is important but modest: to create an environment for business to expand, invest and innovate...” [Financial Times, 18 February]. Quite right too.

Let's hope the Chancellor says a firm “no” to gimmicks, to special interests, to short-termism and to tomorrow’s headlines. And instead delivers clear direction for a growth strategy founded on creating the stable platform for growth and investment, jobs and progress the UK needs.


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