by Pat McFadden
When this government was elected they decided to cut public spending sharply and ditch Labour’s industrial strategy at the same time. The first obviously got the lion’s share of the headlines, but two events in recent days have highlighted the folly of their second decision.
First, Sir Richard Lambert chose his final speech yesterday as director general of the CBI to bemoan the lack of vision from the government on what the future UK economy might look like, or any plan for the future. He talked of politics triumphing over sensible policy on a range of issues from aviation policy to the immigration cap to the cash starved local enterprise partnerships, which are being set up in place of regional development agencies. As Sir Richard pointed out, “it’s not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse”.
Second, this morning’s GDP figures came as a shock to markets. And George Osborne’s attempt to blame the snow will fool no one. The really worrying thing about today’s figures is that they come before the impact of the VAT rise and the spending cuts which will kick in from March. Rather than snow, I suspect the real impact has been on confidence, which is why responsibility must lie at the door of the government.
This government came into office desperately talking up the UK’s economic problems, saying we were next in line for a Greek style crisis. They told the public that there was no alternative to spending cuts on a far deeper and swifter scale than anything planned by Labour. And they no doubt congratulated themselves on framing the argument so that nothing seemed to matter except the timing of deficit reduction.
But a politically-led strategy looks to have been bad economics. Businesses and the public heard all this and took the message on board. And that will have had an effect on consumer confidence and investment decisions.
So what now? The government’s decision to pull their planned growth paper in the autumn now looks much more significant than at the time. Having ditched Labour’s plans to try to rebalance the economy in the wake of the financial crash, they found themselves with nothing to say. The symbol was the cancellation of the loan to Sheffield Forgemasters, but the reality had a wider significance. They had derided a government role in industry as almost corrupt. How could they now back job creation and growth in an active way? This was dismissed as “top down” – the catch all expression used by this administration to avoid governmental responsibility.
The fact is that when cuts are being made in public spending and government expects the private sector to fill the gap, then an active government role in support of the industries and opportunities that can create jobs in the future is needed more than ever.
Labour was later than it should have been with active industrial policy, a reticence born of a desire not to repeat the mistakes of the 1970s. But active industrial policy doesn’t have to be about bailing out the weak. It can and should be about helping the strong do better and gaining first mover advantage in a fast moving technological world.
This government’s abandonment of the Labour approach has only added to the country’s economic problems. And the GDP figures expose their policy cupboard as bare. Sometimes the attractive political strategy turns out to be very far from being the best policy.
Pat McFadden is Labour MP for Wolverhampton South East.