Budget 2012 - Britain's economy needs to be modernised


This article was first published on the Guardian on 16 March 2012. 

Meanwhile Vince Cable, an increasingly ineffectual business secretary – at odds with the roadblocks to reform in Downing Street – watches from the sidelines.

Aside from arguing about the tax burden on the top 1%, Cable pointed out in his leaked letter to the prime minister that, beyond deficit reduction, the government has failed to look "beyond the electoral angle" and has no "compelling vision of where the country is heading". So the government is long on short-term tactics and short on long-term strategy – that is what Cable is saying.

This is deeply worrying. In the context of the biggest squeeze on living standards in a generation and in an age of increasing global competition, we need to reform and modernise our economy so it secures jobs and investment at home and ensures we can pay our way in the world. While governments such as those in Germany, the US and Singapore have placed a strong partnership between productive business and active government at the heart of business policy, the dominant view of Britain's Conservative-led administration is that the best it can do is step back when industry is crying out for it to step up, creating the conditions for our enterprises and wealth creators to prosper and grow.

As Ed Miliband and Ed Balls outlined earlier this week, one of the tests Labour has set for the 2012 budget is whether it puts in place the building blocks for the future of our economy. For this to happen, the following five things need to be in place: first, the emasculation of the Department for Business must cease. Cable's leaked letter reads like a secretary of state in office but without power. His department has faced calls for its abolition by senior Conservative backbenchers, when they should be promoting it as a great office of state, a loud and clear voice for British business. Cameron and Osborne must restore the department to its former glory and give it the status it enjoyed when Peter Mandelson was in charge.

Second, there is no point producing policies with potential to do good if you don't deliver them competently. For example, ministers boast about their regional growth fund but 40% of the successful first-round bidders (announced this week last year) are still waiting for their monies. The simple truth is that the entire RGF project has been mired in delay, chaos and failure – not what business needs.

Third, the government has created an environment that holds companies back and undermines their confidence to plan for the long term and invest – this is because of the policy uncertainty ministers have created. So, last year when the chancellor performed a tax grab on North Sea profits, it put at risk long-term investment in the UK oil and gas industries; in the autumn when the government slashed energy feed-in tariffs, it delivered a body blow to our solar industry. What are they going to do to address this in next week's budget?

Fourth, as Cable's letter notes, businesses are questioning "their ability to find affordable financing for future investment." Here, the government's lack of imagination is astonishing – note its abject failure to consider plans for a British investment bank, which Labour is seriously looking at. Project Merlin was a failure and so the chancellor said his credit easing scheme would ride to the rescue – more than five months on from that announcement, the scheme has yet to be implemented. There is to be news on this next week – we will judge it on the basis of whether it gets finance to robust businesses currently unable to get it.

Finally, the government must use all the levers at its disposal to fill in the gaps, correct market failure, promote strong competition and back our businesses. Procurement is a powerful instrument that can be used to do this but on defence, for example, the government refuses to consider "employment, industrial, or economic factors" in purchasing decisions. The chief executive of the manufacturers' association EEF has slammed the lack of "one linkage or reference to the growth agenda or industrial strategy" in last year's defence white paper. On transport, the government let the £1.5bn Thameslink contract go abroad. On energy, "uncertainty surrounding policy" has caused the UK to slip from third to 13th on the Pew "low-carbon technology investment and development' rankings.

Putting in place the building blocks for the future of our economy is common sense. It is also what businesses and industry tell us they want to see. Cable, Clegg, Cameron and Osborne have so far failed to do what our wealth creators have asked of them – the question is: will they deliver the goods next week?