Sluggish global growth cannot be an excuse for Britain ignoring opportunities

With Labour currently looking to win the next election by a mile, the centre-left think tank the Institute for Public Policy Research (IPPR) is growing in both influence and attention.

But did the IPPR set a new world record last week for the speed of getting its recommendations translated into actual policy decisions?

Last Friday the group brought out a framework for a green industrial strategy backed by the business groups MakeUK and RenewablesUK.

The main argument was that the frequent changes in industrial policy has led to a decade of low investment and low growth. Since coming to power in 2010, the Conservative government has had 11 different economic strategies, nine business secretaries and seven chancellors.

Lo and behold, the very same day the Treasury announced £4.5bn funding for manufacturing in the UK, the monies to run for a full five years from 2025. The time period is specifically designed to “provide industry with longer term certainty about their investments”. Of course, the Treasury did not respond instantly to the IPPR, but it implies some effective lobbying in advance of the publication.

According to the IPPR report, leading firms say that the lack of a consistent industrial strategy has left the UK behind the US and the EU. These latter two “have been consistently more ambitious in their economic policies over recent years”.

But even a cursory examination of the data suggests that the UK has not trailed the EU at all in terms of economic growth.

Since the financial crisis, between 2010 and 2022, real GDP in Britain grew at an annual average rate of 1.6 per cent. Certainly, this is well below the average in the six or so decades from the end of the Second World War to the financial crisis of the late 2000s, when it was around 2.5 per cent.

The Netherlands, a rather substantial European economy, matched the British growth rate of 1.6 per cent. But what of the larger EU economies? Germany 1.4 per cent, France 1.1 per cent, Spain 0.8 per cent and Italy barely registering any growth at all, just 0.3 per cent a year.

Growth has been low almost everywhere over the past decade, and an absolutely key aim must be to raise the growth rate of GDP. This is something on which Rishi Sunak and Keir Starmer wholeheartedly agree.

The UK, however, has not been outperformed by other major European economies. An industrial policy might well raise our growth rate. But the lack of one does not seem to have been a handicap in terms of outcomes compared to other countries which do have such a strategy.

Except of course America, where GDP grew by 2.1 per cent a year over the 2010-2022 period. Differences in growth rates may seem small, but if we had matched the US our economy would be larger by around £150bn.

President Biden has recently introduced measures such as the Inflation Reduction Act and the Chips and Science Act, which are pumping huge amounts of money into key parts of the manufacturing sector in the United States.

But where America has excelled over the years is in the provision of venture finance not just for start-ups but for scale-up companies.

It is these which are the real source of dynamism in advanced economies. Start-up and scale-up companies account for all the net new jobs which are created. Some longstanding companies do create new jobs, but these are netted out by others of the same kind in which jobs are lost.

We do need a strategy for growth. But it needs to be smart and it needs to be targeted on incentivising both the creation of new firms and their subsequent expansion.

As published in City AM Wednesday 22nd November 2023
Paul Ormerod
Image: PxHere

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