Lord Heseltine says state must be central to economic growth

Tory peer claims no government ever has proper growth plan and says industry and Whitehall must work together

The former deputy prime minister, Lord Heseltine, says he has never known a government to have a clear growth strategy during his long career, as he claimed support for his recent report calling for a coherent state-led industrial policy.

Speaking at a TUC seminar on industrial strategy on Thursday, Heseltine said he had detected a change in mood, caused by the struggle to emerge from Britain’s longest and deepest postwar recession, and that a broad consensus was emerging in support of the ideas sketched out in his recent report for the government, No Stone Unturned.

“That is partially the result of the prolonged and difficult economic conditions. There is a consensus that there is a role for a coherent long-term strategic look at the way we run this country and generate success,” he said.

Heseltine said there was a distinction between the government’s economic strategy, built around reducing borrowing – which he said was unavoidable – and industrial strategy. The Tory peer said governments today were facing a harder task than they had in the 1950s: “The nation state in pursuit of growth is subject to disciplines that are unavoidable – footloose capital, the world market, world opportunities. Unless we make it worthwhile for footloose capital to come here, it won’t.”

He added: “Is there a clear government strategy? There isn’t. I have never known a government that has had one.” But there was agreement, he said, that government had a central role to play. “Because of the weight of government expenditure, central government has an impact.”

Heseltine said that every government department from defence to health needed to be part of a growth strategy, and insisted it was possible for the state to do so with a smaller budget. “Anybody who talks about more government expenditure is off the planet. There is no more money.” He predicted that new local enterprise partnerships would have a galvanising effect when they come into operation in April.

The Labour peer Lord Adonis said government procurement had a vital role to play in any growth strategy. He contrasted the decision of the last Labour government to make the granting to Hitachi of a contract to build replacements for the InterCity 125 trains conditional on building them in the UK, with the current government’s decision to give Siemens the contract to build new trains for the Thameslink line with no strings attached.

Adonis said the success of Boris Johnson in securing money to improve London’s infrastructure showed the value of devolving powers to elected mayors.

Both peers strongly opposed Britain leaving the European Union. Adonis said it was “the outer fringes of lunacy” to contemplate exit, while Heseltine said Britain had “never escaped Europe for the past 1,000 years”.

Asked whether the government was failing, Heseltine said: “The government is doing what has to be done. We are grossly overborrowed. Unless we get our debts down, we won’t get the restoration of confidence.”

Frances O’Grady, the TUC’s general secretary, said unions strongly supported Heseltine’s growth plan but said the government’s approach was failing. “We have zero growth and the threat of a triple-dip recession.”

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