Do you remember the Plan for Growth? Probably not. Does Rishi Sunak? Unclear.
This was supposed to be the government’s long-term blueprint for the UK economy after it scrapped the 2017 industrial strategy. Strategic economic thinking shifted from the business department to the Treasury and was watered down in the process.
Faced with an outcry, the chancellor and the business secretary wrote a joint letter arguing that the Plan went further than ever on “critical policies and guides the government’s longer-term growth strategy as we build back better”.
It has barely been heard of since — despite the fact that the building back doesn’t seem to be going so well.
The Plan didn’t get a mention in this week’s disastrous Spring Statement, an effort rightly panned for its failure to address near-term challenges of surging energy prices, a cost-of-living crisis and protecting vulnerable households.
The longer-term ambition to boost business investment may not fare much better. And the Plan for Growth is part of the issue.
The chancellor on Wednesday promised more tax breaks against business investment, after his two-year super-deduction ends next April. Weak UK capital investment underpins half the productivity gap to Germany and France; a higher corporate tax rate with more generous incentives is a new approach to stimulating investment after years of cutting business tax rates failed.
The Office for Budget Responsibility, however, on Wednesday halved its peak estimate of the investment brought forward by the super-deduction. Amid waning confidence, investment intentions have fallen, it noted. A Deloitte survey last December found only a quarter of CFOs expected the policy to have a positive effect on their spending.
In fairness, there were always limits to a shortlived tax break: the average investment cycle in manufacturing, say, is seven years. Sunak’s people-capital-ideas of the Spring Statement also echoed the thinking from his Mais lecture last month, and the skills-infrastructure-innovation framework of the Plan for Growth.
The apparent approach is to pull a fiscal lever or two and hope the result happens to fit with the priorities of the government or the needs of the country.
That is unlikely to be sufficient. “Companies invest because they see opportunities for growth and profit down the line, not because you shift their marginal tax rate,” says George Dibb, at the IPPR. “You need both co-ordination of the economy and the government to give very clear signals as to its direction of travel.”
What’s odd is that other parts of the government are still talking in far more strategic language. The levelling-up white paper, co-authored by former chair of the Industrial Strategy Council Andy Haldane, had 12 “missions” to define what is required in a cross-government effort on a seemingly intractable problem. The various strategies launched across government in recent months — from innovation to net-zero — sometimes struck a more activist tone.
There are several problems here. First, it is hard for businesses to keep up with this fragmentation in strategic thinking. Second, these aspirations will struggle without cross-department co-ordination and political oomph of the sort unlikely to be provided by Treasury (which is just worried it will be asked for cash, which by the way it will be).
Third, that lack of harmonisation and backing results in slow and ineffectual “market making”, to borrow a phrase from that noted standard-bearer for big government and interventionism, the CBI.
This isn’t just about public money (though some helps). The market, say, is still waiting for a policy framework to underpin investment in hydrogen, something that has clearly held back spending and is absent despite the likelihood that it will ape the success of contracts for difference in offshore wind. The energy transition has taken on greater urgency, given Russia’s invasion of Ukraine, and a new energy strategy, expected next week, could unlock huge investment but requires a vast push across policy, regulation, planning and more.
One option, beyond a reverse ferret on the idea of a proper industrial strategy with associated institutions, would be an emergency council of the type put in place after the financial crisis, the National Economic Committee. The Treasury’s ambitions to boost UK business investment may fall short without a more explicit plan and more muscular implementation than what’s currently on offer.
helen.thomas@ft.com
@helentbiz
Source: Economy - ft.com
