The good and bad of the Coalition's growth agenda

Tim Montgomerie

David Cameron is today announcing an expansion of what The Sun calls "Maggie's Enterprise Allowances". 40,000 people who have been unemployed for six months will be offered mentoring and £2,000 of financial assistance to help turn an idea into the reality of a new small business.

The announcement comes at the beginning of what Downing Street is billing as the Prime Minister's "regional jobs tour". In a press statement David Cameron previewed his intentions (quoted in The Express):

“Throughout this year and beyond we will be focused relentlessly on supporting growth and driving job creation across our economy. Backing new enterprises to start up and small businesses to grow will be what transforms our economy and will deliver the many thousands of new jobs we will see created this year. It is vital that we ensure businesses, and those people who find themselves out of work but have the drive and desire to set up their own business, have all the advice, support and mentoring they need.”

The Coalition's record on growth is mixed. On the plus side we have:

1. 75,000 extra apprenticeships.
2. Education reforms, including conversion of many LEA-controlled schools into academies.
3. Putting higher education on to a sustainable funding basis.
4. Welfare reforms that will encourage more people into work.
5. Annual reductions in corporation tax from 28% to 24%.
6. A major Tax Simplification initiative.
7. Protection of science and infrastructure spending from the worst of the cuts and a plan for a £34bn hi-speed rail link to connect north and south, bringing the regions together.
8. A promise of the "best broadband in Europe".
9. Lord Young's review of health and safety red tape.
10. A reorientation of the Foreign Office so that serving Britain's commercial interests becomes a priority.

These are substantial changes but the debit side of the equation is quite concerning too. Early modernisation of inadequate trade union laws has been ruled out by Francis Maude. Christopher Booker continues to document the enormous cost of measures designed to combat climate change but which will handicap business. During the big freeze when we needed more heat and energy the wind turbines stopped turning, generating less than a third of normal capacity. Another worrying area is tax policy. The economy is being burdened by higher VAT, higher capital gains tax and higher tax on top earners. There has been no great shift of taxation from taxing good things to taxing bad things (something which many US Republicans are prioritising). Finally there is the attitude to the City. Lord Heseltine was correct last week to warn against crucifying Britain's most important generator of wealth. Extra taxes on banks and the new EU regulatory regime must be reviewed if London starts losing business to other financial centres.

Growth is the most important ingredient of the G.R.A.N.D. re-election strategy. March's 'Budget for Growth' will be an important determinant of whether this government is re-elected. If we look back to Margaret Thatcher's time in office she was probably guilty of macroeconomic overkill (allowing interest rates to go too high because of the understandable focus on inflation) but she was rescued by microeconomic genius. This genius on the supply side involved cuts in penal rates of tax, trade union laws, abolition of exchange controls, privatisation and deregulation of the energy sector. George Osborne deserves top marks for macroeconomic policy (no longer fully in his control since the Bank of England took over monetary policy) but the Coalition, as a whole, has a mixed record on microeconomic or growth policy. It has time to put that right.