Let UK Industrial Strategy determine growth and economic optimism – to avoid the spirit of managed decline
Jim McConalogue, 22 November 2022
In order to recession-proof our public finances, it is clear that a balance had to be found between paying off our debts and caring for the poorest in society, whilst still creating the conditions for growth, enterprise and investment for a stable economic recovery.
That balance has not yet been found, simply because there are so few cheerleaders outside the traditional anti-growth coalition who are prepared to revitalise the economy, push for growth and encourage a spirit of economic optimism.
The narratives of the permacrisis and the leading prophecies of doom are alive and well across the political parties and in the corridors of power. A new economic message must be found to reignite our high-achieving economic potential. If we choose only to bludgeon the risk-takers, the innovators and company leaders with tax rises and cancellation of well-used tax reliefs, it suggests there is no answer for growth or our long-term economic prospects.
There are several challenges for government, certainly – the war in Ukraine, surging energy prices, high inflation, labour shortages, the social impacts on those who can’t (or won’t) work through to putting the icing on the Brexit cake. But what can we do to resolve those challenges? Handing our future economic potential to a high tax regime, weekly strikes costing the economy billions in revenue, eco-vandals bringing our cities to a standstill, or Westminster’s net-zero advocates acting on a wing and a prayer that the mass-compliance with green regulation will somehow generate growth, shall get us nowhere.
Rather than ‘batten down the hatches’ and pretending this isn’t going on, this is a perfect opportunity to build constructive solutions. The Westminster love-in with casino economics and free market fundamentalism has failed. The alternatives of far-fetched agendas of even greater climate investment, even higher taxes and myopic, unsustainable programmes for first-time buyers or ‘green jobs’ foretell the vision of an economy wishing to be shrunk to the size of a pea.
The solution comes with fixing our broken model of national capitalism. We have just cut R&D tax credits, a major source of enabling investment in innovative companies. Why? Consumers were told energy reliefs are slackening in four months, while businesses were told close to nothing, even though it’s likely that energy bills will make or break them. Why? A worked-out industrial strategy on the other hand would have set out for government the priorities on sectors to back and spending priorities. An industrial strategy will tell you what, in blunt terms, is worth focusing on to generate jobs, growth and tax revenues for the future, how to reliably generate prosperity for all, and what policies and areas of economic life are either self-preserving or not worth retaining.
Certainly, the UK is in recession. But a government slashing the exemption for capital gains tax and cuts to the dividend allowance for the innovators (responsibly seeking a return on their investment) signals a government that is giving up on growth – and with it, the idea of responsible, national capitalism.
Dr Jim McConalogue is chief executive of Civitas