Shadow Business Secretary John Denham says Labour were slow to begin working towards a balanced economy less reliant on financial services but that the coalition Government is now stripping away schemes that can deliver that goal.
Speaking at an Institute for Public Policy Research event in Newcastle this morning, Denham said there are deep seated problems in the economy like flat wages and a lack of skilled jobs which cannot all be blamed on the “Tory-led Government”.
But he said its policies were making things worse: “Labour came late to effective active Government policies to create a balanced economy, less dependent on financial services. But the Tory-led Government does not understand how active Government policies can foster the right conditions for successful private companies to grow, including in the new crucial sectors of the economy.”
Prime Minister David Cameron has repeatedly said he wants to rebalance the economy favouring a strengthened manufacturing sector but Denham says policy decisions by the Government are reducing its ability to influence the shape of the economy.
He says that dismantling business support schemes and Regional Development Agencies, incoherent policy making in the green economy and in key infrastructure projects like broadband amount to a “badly managed retreat” from active government strategy.
He said: “Government policies determine to a significant extent the size and shape of key domestic markets and the sectors which attract investment.”
He added: “In truth, markets are inevitably and unavoidably shaped by what governments do and by what they do not do. The trick is to understand the impact of what government does, and to make sure it fosters the right type of markets.”
Denham said the next Labour government must have a “relentless, single minded focus” on creating conditions for private sector growth and should not rely so heavily on taxation to redistribute wealth, instead pushing for “fair rewards at work”.
He said: “If poor corporate governance and weak investor action allows unjustified rewards at the top, state action alone cannot force the gap.”
He also attacked the coalition’s focus on deficit reduction as the single aim of economic policy saying it would get the country into a vicious circle of falling employment and rising benefit bills which will undermine the effort to reduce the deficit, which he accepted was necessary.