The Government's rationale for its Growth Review
The Government has announced a plan to put the UK on a path to sustainable, long-term economic growth. The Growth Review will continue for the rest of this Parliament to provide an ongoing focus on what the Government can do to support growth. The Government’s stated economic policy objective is to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries.
The Government has a rationale for the Growth Review strategy, drawing on their analysis of the performance of the UK in relation to the global economy over the last decade. The main arguments from published material are summarised here:
Over the last decade, other countries have reduced tax rates, removed barriers to growth and supported their exports. However, over the same period, the UK economy has become seriously unbalanced and heavily indebted, masking a decline in underlying competitiveness.
The economy has been underpinned by unsustainable levels of private sector and rising public sector debt. The UK’s share of world exports declined and its current account deficit increased. Growth has been concentrated in a few sectors of the economy and in a few regions of the country, with others becoming increasingly reliant on the public sector.
The UK fell in international competitiveness rankings, with tax rates, regulation, access to finance and planning all cited as being problematic for doing business in the UK. Yet the UK has intrinsic strengths to build on. For example, the UK is an open, trading economy with a flexible labour market, and an attractive investment location for global companies. English remains the predominant language of business throughout the world and the UK’s institutions, such as its legal system, are respected around the world.
The UK is the world’s second largest exporter of services. It has a world-class research base with more top-ranking universities than any country except the US. If these and other strengths are harnessed, more successful British companies can compete in global markets, develop innovative products and services, and so create new jobs and rising prosperity.
The Government is committed to putting the problems in the economy right. This will not be easy. It will involve tough choices about the Government’s priorities.
Since May 2010 the Government has demonstrated its willingness to take decisive action. The June Budget 2010 and 2010 Spending Review set out a credible plan to tackle the fiscal deficit and restore debt as a percentage of GDP to a sustainable, downward path. The macroeconomic stability that this will create is an essential pre-condition for sustainable growth. Businesses will not invest unless they have the confidence that inflation will remain low, long-term interest rates will remain stable, and finance will be available when needed. But economic stability is not in itself sufficient to put the UK on track to deliver long-term growth.
For sustainable growth to be driven by private sector investment and enterprise, the Government needs to act in a way that supports growth rather than hampers it. The UK needs a Plan for Growth.
If you want to find out more, contact one of the team who will be happy to help.
Source: www.hm-treasury.gov.uk/2011budget