One of the great comedy lines of all time is Eric Morecombe’s retort to Andre Previn’s complaint about his inability to play Greig’s piano concerto. Grabbing Previn by the lapels he says, “I am playing all the right notes, just not necessarily in the right order”
This might well be the motto for the government’s efforts to get the economy growing. They are doing some of the right things, just not necessarily in the right places and not really in the right quantities and crucially not with the right focus. Take the variety of state-sponsored lending schemes launched in the last year. When Project Merlin failed to magic up the boost in small business lending that it was expected to, the government launched (or relaunched) the Small Firm Loan Guarantee Scheme (SFLGS), which according to the department for business, was apparently successful, although it failed to get the economy really moving. Three months after it was launched the SFLGS was effectively replaced by the credit-easing scheme billed as Funding for Lending, which would allow banks to borrow at a cheaper rate.
Fast forward another two months and business secretary Vince Cable was out and about this week promoting an industrial strategy that included a suggestion all this may soon be collected together under the umbrella of some form of British business bank.
The details — whether it would include new cash (unlikely), who would be picking the schemes, sectors and firms to invest in and so on — weren’t included. It was a policy announcement coalition style, in effect little more than a floating of an idea to judge its credibility. A business bank in itself sounds like a sensible idea, although simply rebranding lending schemes or creating a fancy new website to house them all in won’t make businesses any hungrier for lending.
It was a policy announcement coalition style, little more than floating an idea to judge its credibility
Until that demand for borrowing returns (and to some extent that appetite will require the banks to drop some of the more onerous conditions and rates they are placing on lending at the moment), supply side measures will continue to have little impact.
Some commentators immediately seized on the problematic issue of governments picking winners and images of 1970s British Leyland plants were rolled out again to illustrate why this is such a bad thing. The real problem of course is not picking winners, but rather investing in losers. However, picking sectors seems to be more acceptable. Here, too, there are signs the government is playing the wrong tune. While freeing up planning regulations might help the housing sector, allowing a few homeowners to get the eight-foot conservatory they always dreamed of won’t pull us out of recession.
It is welcome to see a broader acceptance of the fact that there is a role for what shadow business secretary Chuka Umuna calls active government. But this activity will naturally involve selecting sectors to back. One sector that too often gets overlooked as a driver for growth is professional services. What role can the professions play in getting what has become known in some parts of Westminster as “this growth thing” moving?
To address just this question, the Professional and Business Services Group (PBSG) has produced an excellent report Seizing Opportunities for Growth, summarising the work of the sector and suggesting what needs to happen to keep things growing in the right way. The sector remains a major contributor to the UK economy, accounting for roughly 13% of all economic activity, employing 3.5 million people and producing £167bn of GDP in 2010. Crucially it is an international business and accounts for 14% of UK exports and returned a surplus on the UK’s current account of £28.5bn in 2010.
But the report makes it clear that despite the success of the sector there is more than can and must be done to protect and enhance this sector. Chief among these is the expansion of digital infrastructure to create what it calls “smart cities” and the opening up of government data for commercial exploitation and innovation.
The crucial point is that if we get the underlying structures, skills and systems right, then there would be less need to worry about government picking sectors or spotting winners, because everyone would be able to benefit from a more productive environment.
Richard Cree is editor of economia