After raising Gladstone’s red box on March 23, George Osborne will claim that he has delivered a budget for jobs and growth. But unless he sets out a role for government in promoting growth, of the kind set out in the forthcoming book Going for Growth, the chancellor will fail in his self-proclaimed mission.

When asked about its policies for growth, the government replies that it is cutting public spending, cutting corporation tax, and cutting regulation. These are three shortcuts that won’t work.

The Tories believe the mythical (and oxymoronic) economic theory of ‘expansionary fiscal contraction’. In 2009, David Cameron said: ‘Dealing with this deficit isn’t an alternative to economic growth – the two go hand-in-hand.’ Most economists know this is tosh. In his farewell speech as president of the CBI, Richard Lambert said, ‘It’s not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse.’ Cutting the deficit is, of course, necessary but pretending that it will lead to growth gets us nowhere.

Cutting the corporation tax rate from 28 per cent to 24 per cent over four years may, at the margin, make Britain a more attractive place to do business but it is hardly the best use of £2.7 billion in such a constrained fiscal environment. A race to the bottom on corporation tax is exactly what Ireland tried, but it did not prevent many quarters in which there was a net outflow of foreign direct investment.

As for cutting regulation, in his exhaustive review of the relationship between labour market flexibility and performance, the economist Howard Reed concludes that the ‘evidence for the orthodox proposition that labour market regulation has a negative impact on economic performance is mixed, at best.’ Indeed, academic papers have shown that collective bargaining is associated with lower unemployment – a finding rarely shared by Tory thinktanks.

In contrast to the laissez-faire approach popular on the right, Going for Growth contains a set of ideas that the Treasury should consider adopting. Venture capitalist Gerald Holtham sets out how government could use the low cost of capital to invest in infrastructure projects – like renewable power and high-speed rail – which would be leased back to the private sector thus creating a revenue stream. Innovation expert Stian Westlake outlines how government needs to be more sophisticated in encouraging new ideas by widening its definition of research and development and, as in the US, being more strategic with its procurement. Tony Dolphin, senior economist at ippr, suggests that macroeconomic stability will only take place with a new set of monetary and fiscal rules, including loan-to-value ratios for mortgages to help prick new housing bubbles and an extension of the Bank of England’s mandate to encompass full employment as well as low inflation.

Growth doesn’t happen on its own, especially when consumer confidence is falling and public spending is being cut. An enabling role for government is critical for Britain’s future prosperity.

Photo: HM Treasury