A Budget for growth

The budget is four weeks away. The economy is set to zig-zag in and out of low growth throughout 2012. Pressure is mounting on George Osborne, the Chancellor, to deliver a ‘Budget for Growth’.

In the short-term, low growth is a symptom of low demand.

The ‘high’ politics of Budget 2012 is the choice between maintaining the present course and hoping demand from private companies and households will increase, and stimulating demand through tax-cuts and public spending funded through borrowing at the risk of higher interest rates.

But climbing up the political agenda is the question of how to increase long-term economic growth.

At issue is whether a full-frontal industrial strategy should be developed. Lying in the space between the free market and deregulation, and state ownership and picking winners, the new industrial strategy would back sectors of the economy that will make the nation less dependent on the city and pay for our public services.

The Coalition does not have to start from scratch to build a new industrial strategy. It can do what governments all too often fail to do: learn from their predecessors.

Under the Coalition, innovation, capital investment, new technology and skills have been identified as key to long-term growth. Indeed, the list is little different to Labour’s list.

By the end of the last Labour Government, the main economic ministries in Whitehall had started to appreciate that it was increases in innovation, capital investment and new technology that increased demand for skills. As these three buttons were pushed to increase economic growth the demand for skills followed. In short, Labour eventually grasped that skills are a derived demand.

There are three implications for a Coalition industrial strategy.

Innovation, investment and technology must take centre-stage. The strategy must not be collapsed to skills. And the strategy must distinguish between meeting the skill demand of employers derived from greater innovation and investment, and increasing the general supply of skills to the economy. 

But if the way in which the Coalition thinks about skills must change in the context of an industrial strategy, the same can be said about innovation.

Innovation is not just limited to big companies and world beating research centres at universities. Small and medium-sized enterprises innovate too and further education colleges often help them to do so

At present, innovation and higher education is the responsibility of one directorate at the department for Business, Innovation and Skills, and further education is the responsibility of another. They need to be brought together, with funding to both colleges and universities made available to assist companies to innovate and grow.

As well as bringing innovation and skills policy more closely together, a new industrial strategy should bring business support and skills policy more closely together.

In Germany, employers are obliged to pay membership fees to local chambers of commerce in return for business support including help with taking on apprentices. It should be noted, however, that this is a business support levy rather than a training levy.

Meanwhile, in the context of apprenticeship policy in this country, it has been suggested  that a statutory levy should be imposed on employers to pay the administrative costs of sector skills councils to enhance their capacity to engage employer in apprenticeships. An alternative would be to create Sector Business Development and Skills Councils funded through a mandatory levy to assist companies to innovate and engage in apprenticeships.

Such an approach would strike the right balance between regulation and growth, and business support and skills.  

Mark Corney is policy adviser to the Campaign for Learning and writes in a personal capacity