Friday 20th January 2012 | 07:00

Nadhim Zahawi: Stimulus vs. Growth, let’s have some honesty

Writing exclusively for PoliticsHome, Conservative MP Nadhim Zahawi discusses the vital difference between short-term stimulus which creates often "one-off jobs" and growth strategy, which is about creating "long-term, sustainable jobs".

With GDP figures due next week, you’ll be hard pressed to find a commentator or politician who expects them to be fantastic. We’re unwinding the biggest debt crisis in history and watching the Eurozone limp towards a solution, hardly the most fertile of ground for growth.

Of course Labour MPs are quick to blame the Government. We are “cutting too far, too fast” they parrot from the Whips handout, conveniently forgetting their own Chief Secretary to the Treasury’s parting advice,“There’s no money left”.

Nor are they keen to remember that under their original Darling plan they would have been cutting four of every five pounds cut by the Coalition. And even after Ed Balls’ claim that Labour won’t reverse the cuts you’ll still hear them cry that our approach is wrong, “we should be borrowing more to stimulate growth, that’s what you do in a recession.” you’ll hear them cry.

Except this isn’t a normal recession, we aren’t in a temporary demand slump. This is a debt crisis and as everyone knows, except for a few dogmatic economists and their friends in the Labour Party, you don’t borrow more when your problem is that you’ve borrowed too much.

As a result of this crisis we see our two biggest export markets in a state of flux, affecting confidence and demand across the world, and importantly here at home.

Combined the US and Eurozone represent 80% of our exports, we export more to Ireland than to the Brazil, India and China combined, and whose fault is that? What did the previous government do to change that in 13 years in power? What did they do to reduce our reliance on the Eurozone? Nothing. Instead they spent £5 million preparing us to enter the Eurozone, and refused to close the Euro Preparations Unit.

The fundamental differences in approach, the choice between borrowing more or balancing the books, exposes the credibility gap in British Politics. A gap that Labour’s confusing new position of both accepting and opposing cuts at the same time isn’t helping to bridge.

No credible political party in Europe believes the way out of this is to abandon plan A and borrow more, yet even after last weekend that still seems to be Labour’s position.

Now we all know that deficit reduction alone is not the sole solution to the economic mess left to us, but contrary to Labour claims we are taking action. Action to encourage business, to build confidence and to create long term and sustainable growth.

In the past 20 months we’ve seen the jobs tax axed, a regional growth fund launched, the red-tape challenge started, enterprise zones created, EIS improved, corporation tax lowered, planning simplified and LEPs set-up. And most importantly all of this has been done within a credible deficit reduction strategy, keeping borrowing costs down and allowing the Chancellor to pass these on to business through credit easing and the National Loan Guarantee scheme.

Yet for some reason Ed Balls is still pulling faces at the despatch box and asking where the growth strategy is, forgetting his own 5 point plan is anything but one. This is where we need some honesty in our debate. We need to be honest with ourselves and with the public about the difference between a growth and a stimulus strategy. Labour’s so called 5 point plan for growth is in-fact a five point stimulus plan, borrowing more now and dumping that money into the economy for shot term stimulus.

I am well aware of the fiscal multiplier effect of such strategies, but there is growing evidence that in a debt crisis it is less effective or simply doesn’t work. Just look at the US, where a trillion dollar stimulus failed to deliver growth rates higher than those seen in stimulus free economies. Or Sweden, a country that has also stuck to a credible austerity plan and posted growth figures that outstripped all expectations.

A real growth strategy is about the future, it’s about how we rebalance and rebuild our economy. It is not about making future generations pay for the stimulus of today.

A growth strategy starts in schools, freeing teachers and giving coasting schools no where to hide, it takes in apprenticeships, reform of higher education, the science budget, support for regional growth, making work pay, and long term investment in transport infrastructure; roads, rail and yes airports.

I am a long time supporter of the UK becoming a global business hub through a new airport. After all we have inbuilt advantages, we own the language of trade, we have an advantageous timezone and we have the geographical position to attract inward investment.

But we’re no longer trying to attract the same profile of investor. It isn’t the German businessman we need to attract, it’s the business men and women from Brazil, India and China. When Paris and Frankfurt have a thousand more flights a year to China’s three largest cities than Heathrow, we’re simply not in the game. This is why we need a new airport.

Then there is support. How do we support the industries that will be vital to our economy in the future, sectors like life sciences, high tech manufacturing and low carbon automotive. It isn’t about picking winners, and it isn’t about giving away money, it’s about planning and preparing for the future, laying the groundwork for sustainable long term growth.

So if someone proposes we do more on stimulus for short term gain, then let’s call it that, and let’s remember there’s a difference between that and a growth strategy.

One creates short term growth and often one off jobs, funded by future generations, whilst the other is about how we create long term sustainable jobs and the economy that supports them.