By Nick Mann | 15 November 2011
The government should adopt a ‘Plan V’ for long-term economic growth, boosting growing industries and sectors such as higher education where the UK has a comparative advantage, a think-tank said today.In a report analysing the UK’s economic performance since 1997, the London School of Economics’ Centre for Economic Performance also called for particular support to develop sector-specific skills.
Under the plan for a ‘V-shaped’ recovery, the government would work with civil society to identify sectors where the UK has a latent or potential competitive advantage and there is potential for growth.
At the same time, there should be ‘relentless scrutiny’ of government to ensure it is not hindering opportunities in these areas and is working to seize the potential for growth, adds the report, Growth, productivity and jobs.
It warns that potential immigration caps could be ‘highly damaging’ to efforts to put higher education at the centre of the UK’s long-term growth strategy.
‘This is economic suicide, and the government should be doing the exact opposite – making it much easier for the very talented to come to the UK to work and study,’ the report explains.
‘This will boost a major sector, increase innovation and productivity and may even help curtail inequality by providing more competition for the highly educated.’
The long-term plan for growth should work alongside a short-term stimulus package labelled ‘Plan B’. This would involve slowing down the government’s deficit reduction plans, which, it says, could lead to ‘needlessly slow economic growth’.
While acknowledging global demand is currently ‘muted’, the centre says there is significant potential for the UK to grow by increasing its output. The focus should be on capitalising on this rather than cutting spending and increasing taxes.
Policies such as introducing a temporary VAT cut and enforcing less severe cuts in spending on new infrastructure could also have a part to play, it says.
CEP director Professor John Van Reenan, one of three authors of the report, commented: ‘Current policies assume that there is little room for demand expansion – but not only is that far from being proven but the policy of austerity can itself reduce potential output.
‘A change here combined with positive supply side measures would stand the UK in much better stead for the challenging times ahead.’