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Seven questions on growth for George Osborne and Vince Cable

Tim Montgomerie

The Office for Budget Responsibility has good news for George Osborne today. It expects growth to equal 1.7% this year, compared to the original forecast of 1.2%. No wonder Labour MPs - who long warned of a double dip recession - have gone a little quiet.

Britain's long-run growth rate is still a concern, however. On ThinkTankCentral, Eamonn Butler of the Adam Smith Institute warns that our national debts won't be repaid until 2041 if we use all proceeds of growth to repayment purposes. Quite simply, we need more growth.

On tuition fees, science investment, schools reform, welfare reform, health and safety deregulation, trade promotion and changes to corporation tax the Government is doing many good things. Today it signals its determination to go further. Vince Cable and George Osborne are forming a new star chamber to encourage every department to foster growth. The Business Secretary will also be launching a consultation on how we improve UK competitiveness. My own view is that the toughest decisions on growth have been ducked. Here, then, are seven suggestions/ questions for Mr Cable's review...

Will you accept that some tax cuts produce dynamic effects and can raise revenue and growth? The headline in today's FT (£) looked encouraging: "Osborne to review tax on multinationals". The first few lines were also encouraging: "George Osborne will set out his stall on Monday for restoring Britain’s tax competitiveness with a consultation on a far-reaching overhaul of rules blamed for the departure of several multinationals in recent years. The Treasury will propose making the tax system more “territorial” by restricting its right to impose tax on profits earned in low tax jurisdictions, as part of a drive to make the UK “the most competitive corporate tax system in the G20”." But then comes the killer line (my emphasis): "The Treasury faces a delicate balancing act in designing a cost-neutral package in which it will juggle a range of allowances and reliefs, in a bid to minimise the winners and losers from the proposed reforms." Why cost-neutral? Surely the Exchequer will benefit from keeping/ attracting international businesses to London. Just as with its analysis of the 50p tax band the Coalition is tieing its hands by not allowing a dynamic model to be used by the OBR/ Treasury. Lord Forsyth is pressing for this to change but not yet, it appears, with much success. The Government appears locked in the "Static-Analysis Entitlement Trap".

Why don't you fund the scrapping of economically harmful taxes by introducing economically less harmful taxes? My top candidate for abolition would be the anti-enterprise 50p tax. Putting aside my belief that abolition might pay for itself its abolition could be balanced by a new tax on expensive property purchase. Not ideal, I know, but more economically justifiable. There are plenty of other types of taxes that could and should be lower if the whole system was simplified (already on Osborne's agenda) and rebalanced.

Are trains the correct transport priority? The Coalition's flagship policy is a £17bn hi-speed rail network. Would that money be better spent on Britain's roads? I honestly don't know the answer but has a proper cost/benefit analysis been completed? In today's Times (£) new Tory peer, Lord Wolfson, makes the case for more investment in the roads network: "The under-investment in roads is [obvious]; it manifests itself every day in the form of frustrating traffic jams. Roads are the economic arteries of the nation. Their inefficiency inhibits trade, deters investment, limits employment and adversely affects our quality of life. The building and improvement of roads could easily be self-financing. All Government needs is the will to invest and the means to charge road users more directly for road improvements (at the moment we pay for roads indirectly through tax on petrol)."*

Are you doing enough to keep energy prices low and reliable for manufacturers? I fear not. I fear we are still pursuing expensive green energies that will push up UK costs without reducing the world's carbon footprint. Quoted in today's FT (£) Dieter Helm, professor of energy policy at Oxford university, warns:  “By 2015 or 2016, the irony is that all these people who want to build wind farms offshore might end up relying on coal-fired power stations to keep the lights on. The big unknown about offshore wind is how often it will work.” In City AM, last week, Allister Heath set out alternative, business-friendlier ways to a greener future.

If we are going to have an industrial policy, should it be biased towards green companies? The Civitas think tank has examined the dangers of a skewed industrial policy.

Should we have a counter-cyclical regulatory policy towards the banks? The political temptation is to bash banks now but it is better to let them expand now and then regulate them more tightly when the economy is hot again.

Should we be introducing emergency legislation to stop strikes being called by small numbers of militant union members? For the fourth time in two months London's tube workers begin a 24 hour strike today. As spending cuts bite strikes are likely to multiply. The British economy should not be held hostage by the unions unless strike action is supported by majorities, or at least significant pluralities, of the relevant workforces. Consideration should also be given to no-strike deals in essential services in return for compulsory arbitration. More here.

* Simon Wolfson's piece (£) also offers interesting thoughts on planning and immigration.

> See the Comment section's "Go, Go, Go" series.


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