Osborne's omissions on growth, by Malcolm Prowle

23 Mar 11
While most people would support the government's aims in promoting economic growth, the question mark is whether today's Budget will deliver what is needed

The coalition government came to power with a flagship policy of reducing public spending and high levels of state borrowing but to achieve this they require reasonable levels of economic growth.

Things haven’t worked out well so far and in his Budget Statement today, Chancellor George Osborne confirmed that the Office for Budget Responsibility is predicting lower levels of growth in the UK economy than originally expected. GDP growth in 2011 is now expected to be 1.7% rather than the 2.1% previously forecast

A large part of the Budget speech focused on government plans to make UK business more innovative, competitive and attractive to foreign investors and thus stimulating economic growth. In this way the Chancellor hopes to create a growing private sector to provide employment for those displaced from the public sector and to generate additional tax revenues. The Budget highlighted four aims with a variety of detailed measures:

  • Simplifying the tax system and reducing the tax burden on business as an encouragement to investment
  • Reducing the burden of regulation on businesses
  • Improving our much neglected manufacturing base with the aim of increasing exports
  • Improving the skills base of the UK workforce

Some of these business related measures will have implications for local and public authorities across the country including proposals for local authorities to keep growth in business rate revenues (and thus they have an incentive to promote business growth in their areas) and requirements for planning arrangements to be altered to put a premium on projects concerned with business growth.

While most people would support these government aims and many of the detailed measures proposed, the question mark is whether the chancellor’s package will deliver against his aims. I see two major problems that need more attention than Osborne is giving

  • A dilapidated regional infrastructure that is inhibiting economic growth in many parts of the UK. While the chancellor announced a few additional schemes, there are many years of neglect to be addressed through increased capital investment that would, at the same time, create jobs.
  • A poorly performing education system (with thousands of pupils leaving school with no qualifications) which has big implications for business and economic growth. The 2010 PISA report on schools performance underlined the urgent need to reform our school system.

While the Budget measure that will probably make the biggest newspaper headlines (and gain the chancellor most plaudits) is that concerning relief on fuel duty, I suggest the key issue for the budget is growth. If economic growth is delivered then the chancellor will be vindicated but it seems unlikely that years of neglect will be solved by one Budget.

Malcolm Prowle is professor of business performance at Nottingham Business School and a visiting professor at the Open University Business School

Did you enjoy this article?

AddToAny

Top