Budgeting for a dismal no-growth future

For all their talk of innovation, the Lib-Cons are more concerned with pinching pennies than investing.

James Woudhuysen

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The UK government’s 131-page The Plan for Growth, published with Chancellor George Osborne’s Budget speech last week, speaks of innovation no fewer than 86 times. Clearly the Coalition has become more exercised about innovation than New Labour ever was:

Yet for all the rhetoric about innovation in the Budget, both the official concept of it and the sums of money made available for it are very modest. Accountants wrote more of the Plan than did innovators: everywhere one can detect the dead hand of penny-pinchers in the Treasury. The narrative on innovation as it currently exists is a low-carbon one (58 mentions), drawn up by Vince Cable’s Department for Business, Innovation and Skills. Theirs is a low-investment narrative, despite (or perhaps because of) the fact that, in the 2000s, UK business investment as a share of GDP was one of the lowest in advanced economies (p21).

Above all, the Plan never wants much more than to pare back taxation, public spending and public debt. It is narrow-minded. Why not raise serious political and financial support for scientific and technological innovation – at least as much support, say, as David Cameron has put into his silly Big Society? Couldn’t comprehensive political and economic support for innovation lead toward the kind of growth that could end British officialdom’s incessant worries about… taxation, public spending and public debt? You won’t find questions like these in The Plan for Growth.

The Budget was supposed to be about growth. It turned out to be about our old Dickensian friend, Balancing the Books. Of course, it’s nice to hear the declared ambition of Britain becoming a ‘leading high tech, highly skilled economy’, in which prosperity is to be shared beyond the south east of England. The Plan even offers a modish homily about ‘rebalancing’ British industry and services:

‘We want to remain the world’s leading centre for financial services, yes; but we should determine to become a world-leader in, for example, advanced manufacturing, life sciences, creative industries, green energy, and non-financial business services.’

But we soon learn that:

‘Despite the UK’s strength in research, some measures suggest UK business is falling behind in innovation. Just over 40 per cent of UK manufacturing firms are involved in technological innovation, lower than Germany at over 70 per cent, Sweden at over 50 per cent and Finland at 50 per cent.’

The striking thing here is the complacency of the idea that ‘some measures suggest’ that British business is falling behind in innovation. The truth is that nearly all measures of innovation suggest that Britain has already fallen behind other countries (see ‘A very conservative approach to innovation’, by James Woudhuysen).

So how does the Plan hope to play catch-up in innovation? The short answer: tweaks to taxation; the refinement of planning regulation; and the spending of meagre amounts of exchequer cash.

Tax tweaks

To attract foreign multinationals to Britain through lower corporate taxes, which is the flagship measure of the Budget, might seem clever. But the putative takers of this offer so far, the marketing services firm WPP and the business media conglomerate UBM, are oldish British companies not known for their prowess in technological innovation. It’s a similar story with the Budget’s 21 new Enterprise Zones for places such as Birmingham and Solihull, Leeds City Region, Sheffield City Region, Liverpool City Region and Greater Manchester (p33). Will the chance of avoiding £275,000 in business rates over five years really be enough to start British companies that grow into Apples, Googles and all the rest? It seems unlikely.

For medium-sized firms, with turnovers of £25-500million and which account for about 20 per cent of jobs and private sector turnover, the Budget extends what is termed ‘the capital allowances short-life asset regime for plant and machinery’ from four to eight years. This fiddling with tax relief on fast-depreciating expenditure on capital equipment such as computers may finally make applying to the state for such relief worth all the paperwork involved; but the extra allowance generated between years four and eight is, as the accountants Deloitte attest, ‘likely to be less than half of that up to year four’. Not much of a plan for growth here.

For small and medium-sized enterprises (SMEs), the Budget hopes to increase the rate of tax relief on research and development (R&D) to 200 per cent in 2011 and 225 per cent in 2012. That’s a step in the right direction. But otherwise neither SMEs, nor high-tech start-up companies neglected by Britain’s declining, technology-averse venture capital investment sector, will find much relief in The Plan for Growth.

Development, but only if it’s sustainable

SMEs feel the burden of planning regulation more than do multinational corporations, which can afford to employ in-house lawyers. Yet the Plan is only firm about scrapping regulations as yet not enacted – and these regulations would only have cost business something like £350million a year, which is small compared with the overall cost of regulation in the UK (1).

Again, SMEs wishing to build new facilities for innovation may benefit from a guarantee that all planning applications and appeals will be completed in 12 months. But this is just another New Labourish target, which, we can be sure, will shortly be reduced to the status of an aspiration.

After the Budget, mid-sized firms may hope to find local planners more willing to give their consent to allow new buildings to be built. But the Budget is all about ‘introducing a powerful new presumption in favour of sustainable development’ – so that, we are told, ‘the default answer to development is “yes”’.

In saner words: physical growth in premises will be allowed, ‘except where this would compromise the key sustainable development principles set out in national planning policy’ – a policy which will be published (in draft, of course) in May. And what might those key sustainable development principles amount to? They amount to opening up more land for development (p11), without, that is, impinging on the government’s ‘commitment to maintain the greenbelt [sic], Sites of Special Scientific Interest, Areas of Outstanding Natural Beauty and other environmental designations’ (p45).

Well, according to maps drawn up by Ian Abley for audacity.org – of which, I admit, I’m a director – the area covered by the Green Belt ‘and other environmental designations’ is, at least in England, enough to squeeze human beings into a tiny part of its land mass. So with the Budget’s policy of sustainable development, innovation is fenced in – almost literally.

In fact, everything must be sustainable. Even the derisory £10million to bring forward the International Space Innovation Centre (ISIC) at the Harwell Science and Innovation Campus, Oxfordshire, will be spent on items ‘such as the Earth Observation Hub, which supports research, collaboration and industry growth promoting self sustainability’ (p120).

It’s hard to know what those last words mean. Broadly, they imply that avoiding risks must be a major focus for innovation. Thus, while the Government says it wants to hold a competition to form a Cell Therapy Technology and Innovation Centre, we don’t read of the potential for such therapy to save lives; we read of the control of drug quality, safety and efficacy (p95).

Small change for innovation

The main item in the Budget’s formal agenda for innovation is a £200million programme of Technology and Innovation Centres. The first of these will be in high-value manufacturing. However, it will merely ‘integrate’ existing high performance centres in Rotherham, Coventry, Strathclyde, Sedgefield, Redcar and Bristol. For the rest:

  • The Engineering and Physical Sciences Research Council will invest an extra £45million in nine new centres in fields such as biological pharmaceuticals, novel composite technologies, and intelligent automation (pp86-87).
  • Over 2012-14, an extra £50million will be found for the Manufacturing Advisory Service (p87).
  • Over 2011-12, an additional £100million will be put into facilities for the commercialisation of research, accommodation for innovative SMEs, and new research capabilities (p24).

Such measures are welcome, but also – in the scheme of UK plc – tiny. If, as the Plan says, they ‘underline the Government’s recognition of the contribution of science to economic growth’, one can only wonder just what that recognition of science really represents. In 131 pages, there is no mention of the role of basic or fundamental scientific research in the long-term creation of growth. Still less is science recognised as something worth pursuing for its own sake.

The big items of expenditure that are sort of related to innovation surround infrastructure and a Green Investment Bank. There is £2.3billion more for infrastructure, which is useful, but not a major fillip. There is £530million to deliver the best superfast broadband in Europe by 2015, although what ‘best superfast’ might be is not spelt out. Transport? The £30billion promised for Crossrail and High Speed Rail had already been announced before the Plan – and the latter project already looks highly uncertain.

So, too, does investment in energy infrastructure. There is £1billion for one of the world’s first carbon capture and storage demonstration plants – but there is also a hold-the-front-page warning that the Government ‘considers it prudent to consider’ national policy statements on energy, which were once due in the spring, in the light of ‘recent events in Japan’ (p47).

Energy occupies a more prominent position in this year’s Budget than in previous ones. But the omens and the dithering are not good. The Budget no sooner announced a tax on windfall profits made by North Sea oil companies than the government felt itself obliged to compensate them.

For government, giant energy firms form, along with banks and tax evaders, a convenient target. Yet in practice it is households, more than energy giants, which will be forced to meet the cost of new state strictures. Aiming, in 2020, to charge electricity generators and heavy industrial users of energy £30 for every tonne of carbon they emit, the Plan appears bent on making life difficult for gas- and coal-fired power stations, steelmakers and cement plants.

After much wrangling in Whitehall, the biggest quantity of small change that the Budget musters around innovation is for the Coalition’s Green Investment Bank, which is designed to help Britain move not toward a high-innovation economy, but toward a low-carbon one. When it begins operations in 2012-13, the GIB will have £1billion from the Government and a further £2billion scraped together from the sale of state assets such as the not-so-fast high-speed rail link between London and the Channel. And what will the GIB’s largesse go on? The usual suspects: energy efficiency, smart metering of energy in homes, the microgeneration of energy in homes, £5,000 incentives to recruit buyers of ultra-low emission vehicles and so on (p82).

Endgame

There is far too little innovative thinking in The Plan for Growth. In services, should the £16.7billion that, last year, Britain earned from overseas tourists alone be assisted by, say, innovative mobile applications that improve the tourist experience? Apparently not: instead, the government and private sector will co-fund a £100million campaign to get more tourists (p123) – through marketing, not through innovative infrastructure.

Just last week, accountants took over chief executive roles at GKN and Invensys, two of Britain’s top engineering firms. At the same time, the Highways Agency revealed plans to extend its ‘carbon saving scheme’ by switching off lights, permanently, over nearly 16 miles of motorway in northwest England.

These are the grisly realities of ‘growth’ that the Budget both reflects and reinforces.

James Woudhuysen is author, with Joe Kaplinsky, of Energise! A Future for Energy Innovation, published by Beautiful Books. (Buy this book from Amazon(UK).) He is also a contributor to BIG POTATOES: The London Manifesto for Innovation.

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