Mark Littlewood: Secret of growth is building a culture of enterprise, not one of entitlement

You can still start to get the deficit under control in a zero-growth world. You can still encourage an upsurge in volunteerism in a Big Society. You can still attempt some structural reforms of our antiquated health and education systems. But these things become a whole lot easier – or at least considerably less difficult – if you’re witnessing three per cent growth in the economy, rather than dealing with flatlining GDP figures which may even have been tipped into the negative because of a bad bout of snow.

Frustratingly, the Government has turned to the “growth agenda” rather late. Fiscal retrenchment and the Big Society have been the consuming themes of the coalition’s first nine months.

They’ve talked a big game on deregulation and Nick Clegg’s Freedom Bill was supposed to be the most substantial recalibration of the relationship between the individual and the state since the 1832 Reform Act. Despite containing a raft of basically welcome proposals, it is doubtful it will even be considered the most substantial recalibration between the individual and the state to take place this year.

In some areas, they’ve stemmed the flow of anti-enterprise regulation, The “one in, one out” approach has helped, but has hardly led to a rolling back of the vast amount of red tape which hampers business. The budget, it seems, will focus on supply-side reform. But whether it amounts to a little helpful tinkering, as opposed to the start of a genuine revolution, remains to be seen.

A good start would be to embrace the wide-ranging set of policy proposals recommended by the Institute of Directors last week – a clever blueprint for encouraging economic growth without having to spend any government money.

On tax reductions, the obvious retort is that there is no room for manoeuvre, given the deficit reduction strategy. But that disregards the Laffer curve, which shows how tax rates change people’s economic behaviour. The 50p rate, for example, is very probably reducing the overall tax take. It may well be possible to have our cake and eat it – reduce taxes, stimulate growth and watch as tax receipts rise.

A major challenge for the UK over the coming years is to create a culture of entrepreneurship rather than entitlement. That won’t happen by accident.

Present rules and regulations have a strong tendency to thwart the work ethic.

Take the absurd case of Sam Green-Jeffries, a 15 year old boy – one of eight children – who won a national award last year for looking after a terminally-ill pensioner. Sam does a daily paper round in Bromsgrove. He starts at 6.45am and then heads home to get ready for school. This might come to an end soon if the bureaucrats at the Child Employment Office have their way. The law states that those under 16 can only work between the hours of 7am and 7pm. But this wouldn’t allow him enough time to get to school promptly. The convenience store which employs him risks court action if he continues to use that extra 15 minutes. What sort of madness is this? It’s fair to say that even if Sam loses his wages as a consequence of this bureaucratic interference, this will hardly tip the British economy back into recession. But it is symptomatic of the way diligence and hard work are penalised. And that creates a climate which is antipathetic to economic growth.

Contrast that with our benefits culture. We have allowed a situation to develop whereby over two million adults are claiming incapacity benefit. This is some sort of parallel, fantasy world in which nearly 10 per cent of people of working age are so sick or disabled that they are unable to enter the workforce at all. Of course, there are people who are genuinely incapable of gainful employment, but over two million of them? What sort of horrendous plague has afflicted the British population?

It is true that Iain Duncan Smith, the Work and Pensions Secretary, is seeking to grapple with these concerns, with new welfare reform proposals unveiled last week. But his reforms will only make a life of work marginally more lucrative than a life on benefits.

The message from the state is pretty clear. If you want to get out of bed early to make some money, we’ll stand in your way. If you can get a sick note from your doctor, we’ll give you some cash. It’s unsurprising that a culture of entitlement, rather than of entrepreneurship, is the result.

The sad truth, though, is that the Coalition’s ambitions in this area are really rather modest. Unless the Government discovers a more passionate voice around regulatory and tax reform – to at least match the apparent fervour surrounding the Big Society – then the best they can hope for in this regard is a very modest legacy.

Mark Littlewood is Director General of the Institute of Economic Affairs. This is an edited version of remarks he gave at the ConservativeHome Going for Growth conference.