They’ve been in power for 12 years now, presiding over a decade of growth followed by a deep recession. So why should business back Labour at next year’s general election?
Lord Mandelson, secretary of state for business, innovation and skills, defends the government’s macro-economic record – and argues that his party has a vision for the UK’s economic future. “We’ve managed the economy well over the past ten years, and in response to the international financial crisis we made all the right calls,” he says. “The Conservatives didn’t – and that says as much about their judgment and insight as it does about ours.
“We have also identified what government needs to do in investing in the supply side of the economy and in our science, skills, infrastructure and other capabilities that business depends on.”
But can the government really argue that it has managed the economy well, with public borrowing now at £77.3bn in the first six months of 2009? Some would claim that we went into the downturn with too much debt, and that the tripartite system of financial regulation that Labour introduced contributed to the crisis.
“They are precisely the right issues for business to focus on,” Lord Mandelson responds. “But we went into the recession with the lowest debt in the G7, save for one other member.
“Secondly, every single businessperson I’ve spoken to has acknowledged the government was right to fight back against what happened in the banks and the ensuing recession. That has inevitably meant taking on costs and additional debt, but we have the medium term to rebalance the public finances, and we will.”
Lord Mandelson says he is “confident the measures the government has put in place will deliver growth”. The direction of travel is clear, he insists. That involves a commitment to halving the deficit over four years and getting debt on a declining path from 2017/18 through a combination of tax rises (such as the 50p rate of income tax), spending cuts and the introduction of legislation to enforce fiscal discipline in the Queen’s Speech.
The biggest antidote to the deficit is growth, he adds. “We have to be careful not to act inadvertently or prematurely to choke off the recovery. That means being careful to maintain the existing fiscal and monetary policies for as long as necessary, not prematurely withdrawing the government’s support for demand in the economy, and getting the timing of our deficit reduction policies right in a way that the Japanese government didn’t in the nineties, for example.”
So what’s Labour’s vision for the future of the UK economy? “I think the best industrial policy for the country is open markets, free trade, and tax and regulatory frameworks that favour enterprise,” Lord Mandelson says. But he adds government can or should do more as globalisation increases the competitive pressures facing the UK economy.
He has regularly talked of an “industrial activism” strategy. “This envisages smarter interventions. For example, developing technologies and the step-by-step industrialisation of those new technologies, whether it be digital, biotechnologies or forms of advanced manufacturing and engineering,” he says. Lord Mandelson is also concerned about a structural problem in the financial markets that is hampering small, fast-growing companies’ access to capital to finance innovation and growth: “There too, the government is looking at what we can do in order to complement financial markets and institutions.”
Another important issue for UK companies is the competitiveness of our corporate tax regime, something which has seen companies such as WPP and Shire move their tax domiciles to Ireland. “This does concern me, which is why we’ve made adjustments in response to what WPP and other multinational companies have been saying to us,” Lord Mandelson says, acknowledging that international investors will go elsewhere “if they feel the government has not applied the right policies or the right remedies”. He points out that the 28 per cent headline rate of corporation tax is the lowest in the G7, and that the government deferred a one per cent rise in the small companies rate in the 2009-10 tax year and launched the business payment support service, allowing small businesses to defer £3.5bn in tax during the recession.
But what about the rise in the small companies’ rate later this year, and the 0.5 per cent hike in employers’ national insurance contributions scheduled for 2011? “You can’t have it both ways,” Lord Mandelson replies. “You can’t tell me on behalf of British business that we’ve got to reduce the deficit and then tell me you’re against the measures for doing so.”
Hard choices and compromises lie ahead – whoever is in power.
Next up: Ken Clarke. Stay posted.
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