EEF’s Steve Radley asks whether the reforms are too radical for our recovery
While the government has hit the ground running with an ambitious and sometimes rushed set of announcements, the issue remains whether these can be pulled together or will the array of often radical reforms prove too much for a
flagging recovery to bear.
Last month marked the passing of the first 100 days of the new government. In the Coalition Agreement, the two Parties promised to create a more balanced economy dependent on a narrow range of economic sectors. As part of this ministers have stressed the increased importance of UK manufacturing.
Looking back to a little over 100 days ago, we faced a different set of worries, as a hung parliament brought the prospect of further political and economic stasis. Could a workable coalition be pulled together, or would we be left with an unstable minority government with another election to follow. In either outcome, it was going to be a question of how a consensus would be reached on tackling difficult and potentially unpopular decisions, not least reducing the deficit. Ultimately however, the primary concern was what impact such decisions would have on jobs, investment and growth? Now just over three months on, at least some of the uncertainty has been removed. We have something of a clearer idea about the coalition’s policy priorities, what they mean for manufacturers and what is yet to come.
Central to the coalition’s agenda is the drive to roll back the state and with that, to reduce dependence on government and publicly funded and delivered services. In part this is a consequence of the current fiscal crisis we’re in, but it also reflects a radical rethinking of the role of government. Programmes that are likely to be supported in future, such as business support and backing for new technology development, are likely to be much more tightly targeted. It is yet to be seen however how a desire from the centre to reduce the amount of top down control will work in practice.
There are three main conclusions that can be drawn from the coalition’s first 100 days.
Firstly, some of the actions have undoubtedly given the private sector a greater degree of confidence. The ambitious, but seemingly achievable, deficit reduction plan should ensure that the bulk of the bad news on tax increases is now out in the open. The Treasury’s commitment to restoring predictability in the tax system will also help businesses plan for the future.
Secondly, progress is evident in some but not all aspects of policy, towards removing barriers to private sector growth. Departments have been quick to move on plans to reduce regulation, improve access to finance and simplify the skills system – all of which, if not tackled, present potential obstacles to growth for manufacturers. Ongoing engagement with business to get these right will be critical.
For capital-intensive sectors however, not all the initiatives have been positive. Corporate tax cuts go some way to a more competitive tax base, but other tax changes could curtail investment and pose a setback to rebalancing over the longer-term.
Finally, the coalition’s ambitious agenda has proved that some reforms are best made at a more deliberate pace. Clearly some rapid decisions were needed to remove uncertainty about potential tax rises, for example. In other areas, such as the localism agenda, there is a risk that precipitate action may result in confusion and unnecessary costs being incurred. The transition for example from, Regional Development Agencies to Local Enterprise Partnerships must bring both businesses and local authorities behind the changes if they are to work.
It is still early days, but what matters next is how the different elements of policy will be pulled together into a coherent whole. Whether spending review decisions are guided by this will be a key test for the coalition’s commitment to rebalancing. With cuts to capital budgets in the pipeline, for example, the government will need to be clear about how it will prioritise much-needed infrastructure investment.
The forthcoming ‘Manufacturing Framework’ and the growth white paper will also need to show that the government can look beyond the business environment and take a more sophisticated, practical view of its role in the economy.
One hundred days in and we have a clearer view of the governments’ priorities, many of which will be supported by manufacturers, and some of which will inevitably disappoint. Yet ultimately, the success of the coalition will not lie in what reforms individual departments can implement. Its success will be determined by whether the government, as a whole, can unify the disparate elements of its economy policy into a coherent agenda for a better balanced economy and stay the course.