The spirit of Thatcher returns to Victoria Street

Scrapping the Department for Business, Innovation and Skills is one of those ideas that has been kicked around Whitehall for so long that it enjoys the status of a parlour game. Even the last business secretary mused publicly about dismantling it in 2003 - admittedly some years before taking office. Vince Cable favoured abolition because he thought the ministry "didn't perform a function".

Mr Cable changed his mind by the time he received the keys to the department after the 2010 election. By modern standards he proved an activist business secretary. Mr Cable sought to give his ministry a mission, reforming higher education, founding a state investment bank, and even rehabilitating the long-despised notion of industrial policy. But the existential question never quite went away.

Budgetary pressures on non-protected ministries - of which the business department is one - can only mount as David Cameron's government wrestles with the task of achieving budgetary balance by 2018-19. Billions in savings will be required beyond the welfare budget. The appointment of the Thatcherite former investment banker, Sajid Javid, to run the department has prompted speculation that it can expect further stinging cuts.

Mr Javid comes to the post with a pared down agenda. His first pronouncement concerned the Thatcherite goal of reforming employment laws to make it harder for workers in essential public services to strike. But there are reasons to believe that whatever urge he has to shrink his inheritance may be tempered by reality.

First, the scope for slashing the department's budget further is limited. More than 80 per cent of its £13bn pot goes towards scientific research and higher and further education. These costs are largely set by outside agencies. They could rise sharply in future depending on the level of write-offs from the first rounds of student loans. The government must also find money for its ambitious plan to create 3m apprenticeships - a much-trumpeted Tory election commitment.

Second, one of the biggest challenges facing the new government - improving productivity - is one in which the business department has an important role to play. The significance of this goal cannot be overstated. Without increases to Britain's output, the budgetary challenges Mr Cameron faces are probably insuperable. Mr Javid favours further deregulation, but it is hard to see how simply loosening the labour laws would make a huge difference. The UK's economy has over the past five years created more than 2m jobs.

Mr Javid should be more radical. If there is a case for deregulation it is in the ownership and usage of land. Artificial scarcity acts as a tax on enterprise, driving up costs and slowing the delivery of improved infrastructure.

True, the capital expended in such a policy would be political more than financial. But the other big lever Mr Javid could pull would involve real cash: boosting government support for science. The coalition kept research spending flat in cash terms over the life of the last parliament, equivalent to a 10 per cent real decline. At just 1.75 per cent of output, this is well below the levels spent in other advanced economies. Mr Javid should be aspiring to invest more, not less.

Mr Javid's predecessor thought this was a department in want of a mission. The centrality of the productivity challenge means this is no longer the case. The new business secretary has the reputation of a political bruiser. In a still-straitened climate he will need every ounce of his muscle to give it the tools to meet the task at hand.

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