THE ECONOMY

OUR INSIGHT

Taking office in the wake of the Global Financial Crisis, one of the Coalition’s greatest challenges has been to re-ignite economic growth. Alongside reducing the deficit, the handling of this issue is likely to be one which helps determine whether the Coalition is viewed as a success or a failure.

So what exactly is the Government’s growth strategy?  The 2011 Plan for Growth outlined four ambitions:

1.   Creating the most competitive tax system in the G20;

2.   Encouraging investment and exports as a route to a more balanced economy;

3.   Making the UK the best place in Europe to start, finance and grow a business;

4.   Creating a more educated workforce that is the most flexible in Europe.

There have been plenty of critics of this strategy, with many across the left and right of the political spectrum arguing that it lacks coherence.  For instance, Sir Richard Lambert used his final speech as Director General of the CBI in January 2011 to criticise the Coalition for not applying the same rigour it has shown with spending cuts to policies that support growth. Similarly, the British Chambers of Commerce told the Government to get ‘some backbone’ on growth, and the Institute of Directors has described the Chancellor’s strategy as ‘ineffective’ and ‘too slow’. Even the Secretary of State for Business, Innovation and Skills, Vince Cable, has said that the Government ‘lacks a compelling vision of where the country is heading beyond sorting out the fiscal mess’.

Creating a competitive tax regime has been the Coalition’s flagship growth policy, with Corporation Tax being successively cut in each year’s Budget to reach a target rate of 20% in 2015. This will give Britain the joint lowest rate of Corporation Tax in the G20. Similarly, the Government has also taken the politically contentious measure of lowering the top rate of income tax from 50% to 45% in order to attract ‘wealth creators’ and to dissuade them from moving abroad.

To encourage investment, the Government has launched a number of schemes including Project Merlin (an agreement between the Government and the UK’s largest banks to lend £190bn of new credit to business in 2011), the Funding for Lending Scheme (by which the Treasury funds banks and building societies for an extended period, with the price and amount of funding linked to lending performance), the Enterprise Investment Scheme (tax reliefs for investors who purchase shares in smaller higher-risk companies), and adopting Michael Heseltine’s policy of enterprise zones. It has also attempted to bridge the gap between science and enterprise through investment in scientific research centres and the Catapult technology and innovation centres.

To cut red tape, the Government this year launched a ‘One-in, Two-out’ rule, whereby any new regulation imposing a financial burden must be offset by two reductions in red tape.  This follows a precedent set by the Department for Communities and Local Government in May 2012.

The Government has also put much emphasis on its apprenticeships programme both as a means of cutting youth unemployment and creating a more skilled workforce.