A plan focused on deregulation alone is very unlikely to deliver the growth the UK desperately needs.
Policy discussion at the Conservative Party conference last week was dominated by the need to get growth going. The Government believes that it will be able to deliver this in a way that previous Tory administrations have not been able to. According to the politicians on the conference fringe panels, it is policies of deregulation and reform that are going to be key to increasing business investment. There has been much less said about how this will be achieved.
The idea is that it is policy failure – be it taxes set too high or planning being too restrictive – that is choking off investment. Deal with this, the argument goes, and the private sector will do the rest.
There are two major problems with this view. The first is that it assumes these changes can be easily made. The u-turn on income tax cuts has shown that this policy might not be so straightforward as it is presented at a lectern or on an event panel. Meanwhile the ditching of the 2020 Growth Zones – special zones with simplified planning (not unlike the forthcoming investment zones, which the tone of conference suggests are expected to do a lot of heavy lifting contrary to the evidence) – also shows this is all much easier said than done.
The second problem with the Government’s view is that it offers a very narrow perspective on what drives growth. Policy failures are not usually the only barrier stopping business investment. Market failures – where a business underinvests because it does not capture all the benefits – are often also problems. For example, consider investment in skills, the decontamination of land, or the provision of transport infrastructure – all these things require public subsidy to deal with them. In instances where there are market failures present, cutting tax and streamlining planning are unlikely to be enough to encourage investment. As our latest report shows, even King’s Cross needed public sector investment to unblock a site that had been a problem for decades. Likewise, Canary Wharf only took off once the Jubilee Line was extended to it.
So far there have been no firm commitments on using public sector investment as one of the tools to achieve the growth the Government is looking for. In fact, the opposite seems to be the case, with public spending declining in real terms and large cuts in the offing.
If the economy is going to grow, policy needs to be targeted on reducing the barriers that are preventing this from happening in the first place. This may sound like a blindingly obvious point to make but given the policies put forward so far, it does not seem like the Government has sufficiently engaged with this question.
If the capacity of the economy is to increase, many places will need public investment to overcome these barriers and leverage in further money from the private sector. More details around the Government’s growth plan, expected alongside Kwasi Kwarteng’s fiscal plan later this month, will need to set this out. If not, the last 12 years of flatlining productivity may look like halcyon days.
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