Since last week’s Budget, the debate about the economy has focused on the need to reduce the unsustainable size of Britain’s public sector. George Osborne was unequivocal that this should and will be achieved. But if Britain is to shake off recession and pay off its debts, there also needs to be a boom in economic growth. The most pressing question facing the country is: how will Britain earn its living in the future?
The Times is today hosting a CEO summit that will bring together leaders from both business and politics. One hundred CEOs of British businesses will discuss how best to rebuild Britan’s economy, and George Osborne, the Chancellor of the Exchequer, will deliver the keynote address.
The huge deficit has posed two fundamental questions for Britain. The first, determined by constraints on public spending, is what is government for? Secondly, what are Britain’s prospects for growth? The public sector, by definition, cannot endlessly drive growth. It can only thrive on the back of it. So the fundamental issue — in the light of the expected fall in the forecast in the trend rate of growth — is how to create an environment more conducive to investment and the expansion of business in this country.
Growth will not be achieved by unnecessary regulatory intrusions and subsidies. But that does not mean that government does not have any role at all. The essential preconditions for growth are directly influenced by public policy. British business requires an educated and skilled workforce; an effective and reliable infrastructure; and easy access to technology, capital and information. In those areas, the state clearly can help business.
Last week the Chancellor set out a bold plan to reduce corporation tax to 24 per cent over the lifetime of this Parliament. That provided a welcome signal that, as he put it, Britain is open for business. The past few years have been deeply damaging to Britain’s reputation as a place to do business. Endless new employment laws, the bank bonus tax and ministerial decisions on income tax and pension thresholds have given the impression that the British government may arbitrarily swoop on talented earners and their businesses. That must not continue.
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Over the past ten years many companies — in accountancy, management consulting, and construction in particular — have become increasingly reliant on public sector projects. Research by the consultancy Oxford Economics suggests that 2.3 million private sector jobs are now directly reliant on public sector spending. Oxford Economics calculates that the public sector purchased almost £80 billion of services from the private and voluntary sectors in 2007-08, on top of the £140 billion it spent on goods.
Much of this work will dry up under a new administration which is determined to roll back the state. Business needs to wean itself off government handouts. Business should not look to government for financial assistance and regulatory protection. Businesses should also be able to expect that ministers will provide them with the kind of certainty about tax and regulation they need to make long-term investment decisions.
In the coming year it will be imperative for ministers to listen to business at all levels. Governments are used to talking to the big companies represented by the Confederation of British Industry, but it will also need to engage with the small and medium-sized enterprises which are the lifeblood of the economy. This summit is, we hope, the start of a more detailed exchange of views.
The Government has set itself one definite target. It is now aiming to eliminate the structural deficit altogether by the beginning of the next Parliament. An even greater ambition yet would be to lift the rate of growth by improving the environment for business in Britain.