Shun SMEs and raise fuel taxes: How to drive UK growth

The Government is concentrating too much on niche markets and not enough on driving multinational growth, says a new report.

by Emma Haslett
Last Updated: 06 Nov 2012
How can the Government turn broken Britain back into the sceptred isle? Management consultancy McKinsey has just released a report into the matter, and it’s made some pretty radical recommendations. For a start, it says, the Government should stop putting so much emphasis on obscure niches like green energy, which are too small to have much of an overall impact, and stop overlooking the sectors that are creating jobs, like the retail trade. And, while small businesses are all well and good, multinationals are where the real growth is at. When you put it like that, a lot of the points seem sensible – but what price innovation?

The report outlines seven key points that could drive serious growth over the next few years. Apparently, while multinationals account for less than 2% of UK businesses, they grew eight times faster than small firms between 2000 and 2008 – and the Government should be making the most of it. McKinsey recommends a 10-year plan to make the UK the ‘most attractive’ place in Europe to run a business. It praises plans to cut corporation tax from 28% to 24%, but says ministers could do more by taking a pledge to be among the fifth of economies with the lowest corporation tax. Perhaps we should follow Ireland’s 12.5% lead, seems to have worked for them…

Another area of weakness, the report said, is infrastructure. This is apparently going to cost the economy £350bn over the next 20 years or so to maintain, with another investment of £120bn to £170bn to keep the energy infrastructure going. And things at the moment aren’t looking good: the road system alone, it says, has a £100bn funding deficit. The report recommends a rise in fuel duty to plug that gap – but, bearing in mind that it’s already due to climb to just under 59p a litre at the beginning of January, drivers won’t be too impressed.

Other recommendations include investing more in health and education and giving more autonomy to cities so they can support growth themselves.

Some of the points make sense, but it seems to ignore the significance of innovation: although semiconductors and green energy might not be high-impact sectors, the UK prides itself on its innovation and while courting big business may be the obvious way to drive growth, it would deal a blow to the smaller companies. They may not exactly be bringing in the bacon now, but let’s not forget that they’re the multinationals of the future. What’s needed is balance, and a long-term strategy to develop businesses both large and small. But getting the powers that be to look further than the next election is never easy…

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