June 25, 2012 12:11 am

Government initiatives: Charting a choppy course

Ellesmere Port car plant worker©Bloomberg

There have been bright spots amid the business gloom, such as when General Motors announced that it was to keep open its Ellesmere Port car plant

It was a drizzly cold day that matched the mood of Adam Marshall as he angrily leaned over the table of a Whitehall café and sought to express his frustration with the government: “They’re fiddling while Rome burns,” he said.

It was April and Mr Marshall, head of policy at the British Chambers of Commerce, was annoyed that once again the political debate in Westminster had turned to House of Lords reform, an esoteric perennial. “They should be concentrating wholeheartedly on the economy,” he said, tucking into his lunch. “That’s the thing that matters; everything else is a sideshow.”

Those frustrations boiled over in May after a Queen’s Speech that included several business reforms – some of which companies welcomed more than others – but also other legislation, including the Lords shake-up. The reaction from business leaders on the day was not happy. That weekend, John Longworth, director-general of the BCC, told the Financial Times that the Queen’s Speech was a symbol for the “black hole” in terms of government pro-business policy: ministers had “lost the plot”, he exclaimed.

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IN Blueprint for British Business 2012

If the economy was running smoothly, these complaints could be easily dismissed; legislation is not the only way in which ministers seek to help the corporate world. With the UK in a double-dip recession, however, the mood is increasingly sour. Attempts by William Hague, the foreign secretary, to close down the debate by calling for business leaders to “work harder” only led to further derision.

Ministers say that they have been trying to pull out the stops for more than a year to push through a range of business measures. In March 2011, George Osborne, the chancellor, and Vince Cable, the business secretary, unveiled a “Budget for Growth” with more than 100 different measures. Then, last autumn, they produced an “infrastructure plan”, before – in the spring Budget this year – announcing several measures to please business. These included a cut in corporation tax and a reduction in the 50p top rate of income tax. Sir Roger Carr, president of the Confederation of British Industry, the employers’ organisation, reminded the business group at this summer’s annual dinner in Mayfair – a grand black tie affair – that the Budget had been very welcome and had met several requests from the corporate world.

Most people recognise there is a limit to what the state can do. As Chuka Umunna, shadow business secretary, says: “The market alone won’t get us there; government alone can’t do so either. It will take a degree of calculated risk. It must be a national mission where productive business and active government work together in partnership.”

Among the measures set out in March 2011 was a “business growth fund” financed by the five main banks. It was slow to start dispensing loans and has been criticised for making only 11 investments worth £60m in total so far.

There have been other less successful initiatives, such as an “export enterprise finance guarantee scheme” that has been used by only five companies – even though a companion programme to help companies through an export insurance and bond support scheme has achieved more.

The measures also set out a plan for more than 20 “enterprise zones” around the country, which will have low business rates. These are an attempt to recapture the original zones introduced a generation ago by Margaret Thatcher and Lord Heseltine, the prime minister and environment secretary at the time, in areas such as London Docklands. The new generation of schemes include Mira Technology Park in Hinckley, Leicestershire, and Newquay Aerohub in Cornwall.

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Other initiatives featured a moratorium on new regulations for much smaller companies; reforms to enterprise investment schemes; and an increase in the lifetime limit on capital gains qualifying for entrepreneurs’ relief.

The problem for ministers, however, is that they are pushing a host of initiatives against the strongest headwinds for decades: rising unemployment, the eurozone crisis and the aftershock of the credit crunch.

With banks cutting their lending to companies, and raising interest rates for existing customers, there has been a credit drought for UK plc.

In an attempt to get lending flowing, Mr Osborne launched a new attempt to solve the problem called “credit easing”. This aimed to lower the cost of borrowing, typically by 1 percentage point, for £20bn of small-company debt.

Business groups have grumbled that this has not increased the number of new loans, but it has succeeded in lowering the rates charged. The Treasury wants to build on this by offering guarantees on borrowing by infrastructure providers and by expanding schemes to subsidise house construction. Mr Osborne last week announced a surprise £100bn package to boost the economy, including a scheme to cut bank funding costs in exchange for lending commitments.

Labour would prefer the government to pursue their plan for value added tax cuts, a new job scheme and a “business bank”. But ministers do not want to jeopardise their reputation for “austerity” and are avoiding any “giveaways” that suggest higher debt levels for the nation.

Some of the government’s changes have prompted controversy, in particular the scrapping of nine “regional development agencies” (RDAs) – which used to oversee inward investment – and their replacement with a host of 39 ad hoc “local enterprise partnerships”, with fewer resources and less power.

Instead of the RDAs administering grants to companies, businesses must now apply to a body called the “regional growth fund”, which will oversee £2bn over the three years to 2014. Companies have complained about delays in the grants, while the National Audit Office has questioned the effectiveness of the spending in a report.

Meanwhile there have been bright spots amid the business gloom, not least when General Motors announced that it was to keep open its Ellesmere Port car plant, probably at the expense of a German factory. Overall, Britain’s car industry registered a surplus in the first quarter of 2012, the first in 25 years.

That, according to ministers, was proof that sometimes business does not need any more from the state other than a broadly decent investment climate and a qualified and willing workforce.

Mr Cable says the investment came without any large financial inducements from the government, in contrast to the big grants to lure inward investment in the 1990s. “No, we haven’t been waving a cheque book and the British government is not in a position to do that in any event,” he says.

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