UK government report criticizes growth strategy

LONDON Tue Oct 30, 2012 11:44pm EDT

Demonstrators carry placards during a protest march organised by the Trades Union Congress (TUC) in central London October 20, 2012. REUTERS/Neil Hall

Demonstrators carry placards during a protest march organised by the Trades Union Congress (TUC) in central London October 20, 2012.

Credit: Reuters/Neil Hall

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LONDON (Reuters) - Britain's growth strategy of tax cuts and deregulation will not provide a fast track to economic prosperity and needs to be reassessed, according to a government-commissioned review published on Wednesday.

Lord Heseltine, the former Conservative Party deputy prime minister, warned in his six-month study on the government's economic policy that "continuing as we are is not an acceptable option."

Heseltine, who was asked to write a sweeping economic review by the government, called for a "war psychology" to overcome the economic crisis and urged for an end to ministerial uncertainty on crucial issues such as energy and aviation because "the world will not stand still — and nor must we".

However, despite cutting remarks into every aspect of Britain's low growth, the report was welcomed by the government.

"I wanted Lord Heseltine to do what he does best: challenge received wisdom and give us ideas on how to bring government and industry together. He has done exactly that. This is a report bursting with ideas and we will study it very carefully," finance minister George Osborne said.

In the 228-page report, entitled No Stone Unturned, Heseltine makes 89 recommendations, including the need to strengthen controls on foreign takeovers to block deals deemed unfavorable to Britain.

Ministers only intervene in foreign takeovers in cases that may affect national security or when media companies are involved.

Mergers are formally assessed if the company being taken over has an annual turnover of 70 million pounds ($112.58 million) or more, or if the new entity would control 25 percent or more of its market.

If not an issue of national security, the assessment is largely seen through the interests of the consumer as opposed to the wider strategic needs of British industry.

"I reject the notion that regulation in itself hinders growth. Good, well designed, regulation can stop the abuse of market power and improve the way markets work to the benefit of business employees and consumers," Heseltine wrote in the report.

He avoided criticizing ministers directly, but said that "it takes too long for decisions to be made" by the government and the message amongst Britons is "that the UK does not have a strategy for growth and wealth creation".

The report challenges government policy on a vast range of specific issues such as immigration, ways to boost infrastructure spending and the lack of a decision on where to build a four runway airport around London.

"The review raises a number of important issues that impact on the government's ability to interact effectively with business throughout the country," business minister Vince Cable said.

"Lord Heseltine's findings show where government can improve its performance in delivering better interventions. We will now need time to consider its numerous recommendations and will respond in the coming months."

($1 = 0.6218 British pounds)

(Reporting by Stephen Mangan; Editing by Stacey Joyce)

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Comments (1)
DeanMJackson wrote:
The article reads, ‘”I wanted Lord Heseltine to do what he does best: challenge received wisdom and give us ideas on how to bring government and industry together. He has done exactly that.”

Bringing government and industry together is precisely not how economies grow! Economies grow when there is expected profits to be earned. If the Bank of England, however, sets interest rates so low so as to negate such profits’ potential, then, of course, there will be no growth.

Of course, the politicians and Bank of England know this SIMPLE fact of economic science, so why are they (like the United States) maintaining the economy on “stall mode”?

Economic Science 101:

Interest rates are pure profit in the Evenly Rotating Economy (a fictitious concept used in Economics to simplify how the economy works). As such if interest rates are artificially low due to central bank meddling, naturally NEW investment will be sparse.

Profits inform entrepreneurs where capital, labor and natural resources are most urgently needed, or “best allocated” to; the greater the need for the end product (which is the final consumption product, such as a computer, car, or new consumption item that increases productivity as did the computer and car) of such “best allocations”, the greater the profit will be. This is how Capitalism ENSURES capital, labor and natural resources will always find their greatest productive potential.

Without profits (and prices), there is no way to know if the millions of possible allocations one can divert capital, labor and natural resources to were the correct allocations. The economy would be working in the dark, so to speak.

Oct 30, 2012 12:13am EDT  --  Report as abuse
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