Poor skills and political instability are holding back investment in the UK
The criticisms came in response to questions from MPs on the Treasury committee on whether the government’s ‘plan for growth’, as laid out in the Spring Budget, would actually improve productivity and attract business investment.
Torsten Bell, chief executive of The Resolution Foundation, told MPs the government should be “very concerned” and “very disappointed” with the level of business investment it has encouraged since 2016, and suggested the latest Budget would do little to help.
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He criticised five major changes to the corporation tax regime in just two years as an example of the factors creating an uncertain environment for businesses to build and grow in the UK.
Business investment and public sector investment were both “too low”, he said, and that is a “long term driver of our gap in productivity with France”.
On 15 March, Chancellor Jeremy Hunt revealed a new mantra of the four Es – “enterprise, education, employment, everywhere” – to try and boost UK growth.
In the questioning, Labour MP Angela Eagle asked if inconsistency from a “chopping and changing industrial strategy”, including the new slogan, meant the country lacked a sense of direction for improved prosperity since leaving the European Union.
Diane Coyle, professor of public policy and co-director of the Bennett Institute for Public Policy at the University of Cambridge, said: “Absolutely.”
Broad trends and productivity across the G7 have been quite similar, but the UK has fared worse, particularly post 2008, she pointed out.
Coyle said there “is not really a mystery about some of the things that we need to fix [including] skills, government investment and planning infrastructure”.
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Speaking about innovation zones, Coyle was pessimistic on the “small scale” of what she otherwise described as an “interesting idea”.
She told MPs: “It is a five year horizon. If you break [government investment] down for each zone, and year by year, it is just over £4m in capex.
“So, over a five year period, you might build a lab for that much amount of money. But it is not going to transform anything.”
Asked about labour market changes that could attract investment and improve productivity, Tony Wilson, director of the Institute for Employment Studies, said measures announced in the Budget, such as the extension of free childcare, would probably increase labour participation by “a small amount”.
He added, “this is a skills issue”, which he said the Budget largely ignored.
Wilson told MPs: “Really very little was mentioned in the Budget on skills, which is a surprise because these are skill shortages as well as labour shortages, and given the focus on enterprise there was really nothing looking at adult skills or trying to better incentivise and support investment in workplace skills.”
Political instability was also a factor in putting off business investment in UK plc, MPs heard.
Paul Johnson, director at the Institute for Fiscal Studies, said: “Political instability is a problem for companies looking to invest. And that is clearly part of what is going on here.”
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