Tom McCarthy: How the IoD sees a route back to economic growth

Another week, another set of gloomy predictions for the year ahead. The Government has come in for criticism for having plenty of plans for cuts but little to say for itself when it comes to how we get the economy growing. The IoD recently published a report setting out its view on how we can get the wheels turning. Here are the key ideas. The first – a round of quantitative easing – has already been implemented.

In The Route Back to Growth, 15 proposals are identified which, if implemented by the Government and other policy makers, could make the UK one of the most competitive advanced economies in the world by 2020-25.

As well as boosting demand in the short term with an immediate round of quantitative easing, the IoD proposals are designed to improve radically the supply side of the economy, with tax, regulatory and planning reforms being central.

The proposals include:

To boost demand in the economy the Bank of England, at the next Monetary Policy Committee meeting, should launch a second round of Quantitative Easing with an initial injection of £50 billion;
To improve investment flows and encourage enterprise and job creation in the private sector, the Government should declare that Corporation tax will be reduced to 15% by 2020;
To kill the perception that the UK is high-tax country and demonstrate that the UK welcomes talented entrepreneurs and highly skilled professionals, the Government should restore the top rate of income tax to 40p;
To halt the gradual erosion of the UK’s flexible labour market and enhance job creation, the Government should revisit its unambitious employment law review and deregulate. The IoD has set out today nine specific deregulatory measures and called for EU employment powers to be returned to national control.

Launching The Route Back to Growth, IoD Director General Simon Walker, said: “No aspect of economic policy is more important than returning Britain to a growth trajectory. Without the belief that UK economic growth is expanding, confidence will wane, international investment will dwindle and British consumers and taxpayers will be left picking up the crumbs at the tables of faster growing competitors.”

The 15 key Route Back to Growth proposals are:

Monetary policy – Quantitative easing; launch QE2 in October with an initial £50 billion
Fiscal rules – A new 35% of GDP public spending target by 2020
Taxation – Remove the 50% top rate of Income Tax
Taxation – Extended Corporation Tax cuts to 15% by 2020
EU policy – Use future Treaty and/or budget negotiations to repatriate key employment powers
Infrastructure – Ring-fence transport, energy and ITC infrastructure spending
Energy policy – Do no harm – don’t sacrifice UK competitiveness for green credentials
Education – Further expand free school provision with profit incentives
Taxation – End the £100,000 personal allowance anomaly
Competition policy – Intensify competition policy both domestically and within the EU
Regulation policy – Radical civil service reforms to promote de-regulation
Employment Law – Nine major changes to free up the labour market
Planning – Incremental ‘Green Belt’ and developer rights to propose, and reduce political influence over infrastructure planning
Public sector performance – Greater decentralisation of public sector pay
Public sector pensions – No watering down of reforms to unfunded public sector pensions