Industry | 2010.03.29
Budget 2010: The march to sanity begins | Will Hutton
Alistair Darling\'s budget is the first serious effort to support innovation and investment since the war
Britain\'s public finances are not shattered. The national debt is not out of control. There is no public debt emergency. The apocalyptic talk of runs on the pound, debt downgrades, and collapsing financial market confidence forcing up interest rates unless an axe is taken to the size of the state, was hugely hyperbolic. The chancellor\'s level-headed handling of the crisis, yesterday presenting a budget that will plausibly return the public finances to sanity, has become one of Labour\'s greatest assets.
Risks plainly remain with the highest ever levels of peacetime public borrowing. But they should be manageable and worth taking for the wider economic gains, notably averting what might have been an economic calamity. The prospect is that by the middle of the decade the public sector deficit will be some 4% of GDP, with the stock of debt peaking at below 80% of GDP – though getting there will involve a sharp reduction in the real wages of many public sector workers, swingeing cuts in public investment, and £19bn of tax increases.
The greater risks are very different from public debt, which dominates the national conversation. Is enough being done to reform the structures of an economy so dependent upon easy credit? Britain has for more than a decade invested too much in property, mortgage-addicted banks and shopping malls – and too little in the innovation that will create jobs and exports.
Our private sector has been poor at innovating, competing internationally and creating jobs. During New Labour\'s bubble economy years, more than three-quarters of jobs generated outside the south were in the public sector – paid for by bubble tax receipts. No more. The public sector pay bill is to rise by 1% a year for two years, and little more thereafter. The hiring spree is over.
Britain has to develop a more dynamic private sector that can generate jobs and compete internationally. Without it the prospects for employment and economic activity in many parts of the country will be dire – and, as worrying, by the end of the decade our growing international debts will replace our public debt as the No 1 economic problem. Until the financial crisis, the government was carelessly insouciant, with Brown, Blair and successive secretaries of state at the old DTI as non-interventionist as any free market fundamentalists. But the financial crisis and the return of Peter Mandelson to government has led to a policy transformation.
The raft of measures added yesterday is beginning to put Britain on the map (if still far short of what the South Koreans, Swedes, Canadians, Germans and even Americans have done). But it is the first serious effort to support innovation and investment since the war: institutions modelled on Germany\'s Fraunhofer organisation are to be created to translate scientific ideas into commercial propositions; there is to be a £4bn UK Finance for Growth fund; income from patents will be ringfenced from taxation; there is to be a green investment bank and a strategic investment fund; Lloyds and RBS are to lend more than £105bn, with bonuses depending on achievement; and a policy will stimulate energy investment with a carbon price floor. Ideas like these have been cordially ignored since 1997, those who advocated them being cast as anti-business or anti-City. Now, at the very last, they are being embraced.
Interestingly, similar – or exactly the same – ideas are being advanced by the Conservatives. Not one was challenged yesterday by Cameron or Osborne – indeed, some (the green bank) they had already announced. But Britain has a long way to travel if it is to move to a high-investment, high-innovation economy. Yesterday\'s importance was that the journey – tremulously – is beginning.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]2010-sanity-innovation-darling
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