Coalition doing too little to deliver growth, warns Lord Heseltine

Tory grandee castigates Government over energy policy, Heathrow and 'dysfunctional' Whitehall

The former Deputy Prime Minister Lord Heseltine (Susannah Ireland)

The Government is today accused by the former Deputy Prime Minister Lord Heseltine of failing to deliver a clear and coherent strategy to help Britain out of recession and restore Britain to sustained growth.

In a some parts highly critical report, which was commissioned by ministers, Lord Heseltine castigates the Government for delaying a decision for a third runway at Heathrow and failing set out a “long term” energy policy to encourage investment in green technologies.

He also calls for mass devolution of spending decisions from “dysfunctional” Whitehall departments to local communities and advocates a new system of local Government fit for the “demands of the 21 Century”.

While ministers publicly welcomed his 235 page report and 89 separate recommendations in private they are concerned it will just provide succour to the Government’s critics by contradicting and implicitly criticising some of the efforts made so far by the Coalition to promote growth.

They suggested they while there were some “good ideas” in the report which will be taken forward the more fundamental and controversial recommendations will not followed up.

Lord Heseltine was commissioned by the Chancellor George Osborne and the Business Secretary Vince Cable earlier this year to carry out the review with a remit to investigate how the Government could more effectively create growth and wealth in the UK economy.

But rather than focus on narrow economic policy recommendations Lord Heseltine’s report entitled ‘no stone unturned’ is effectively a blueprint for entirely new relationship between central and local government.

In it he recommends:

* Devolving up to £50 billion worth of central Government spending to councils and Local Economic Partnerships while at the same time restructuring local Government to abolish district and country councils and replace them with unitary authorities. He also recommends holding whole council elections once every four years to encourage long term decision making.

* Abolishing the Coalition’s arbitrary civil service pay ceilings to attract talent from the private sector while strengthening and formalising relationships between business sectors and that department’s that regulate them.

* Creating a new National Growth Council chaired by the Prime Minister, supported by a dedicated secretariat and with a minister appointed to ensure that the Council’s decisions are implemented on the Prime Minister’s behalf.

But it is Lord Heseltine’s criticism of current Government growth policy which is likely to cause most disquiet within the Cabinet.

He criticises the decision to delay a report into airport capacity in the South East until after the next election which he says sends a message to business that there will be “at least three years more inertia” before “any indication of direction is provided”.

He also attacks delays to formulating a “clear and consistent” energy policy.

“Without real certainty private investors simply will not risk the enormous sums of capital required to build our energy infrastructure,” he says.

“These problems will not go away. Just as with major infrastructure projects, clear decisions are needed now.”

He also appears to contradict current Government policy on immigration by calling for firms to be able to recruit workers from overseas to fill key skills gaps immediately. Currently business has to work within a total cap on immigration set by ministers.

“Britain is desperately short of skills,” he says. “Its manufacturing base is being held back and export orders are being turned away because our companies haven’t got enough engineers. There is no short-term way to train engineers, so the only thing to do is to import them.”

By calling for an “overarching and long term national growth strategy” with a new National Growth Council Lord Heseltine will also be seen to be implicitly criticising the Government’s growth strategy so far.

He says Mr Osborne’s attempts to encourage investment from British pension funds in British infrastructure are being thwarted by complex regulations.

“Although the need is clear and urgent, progress since last December has not matched the Chancellor’s ambition,” he writes.

“Traditional attitudes may be holding back progress and existing negotiations might benefit from an injection of urgency and external support.”

In his response to the report Mr Osborne was careful not to bind himself to any of the finding saying only he would “study it very carefully.”

“I wanted Lord Heseltine to do what he does best: challenge received wisdom and give us ideas on how to bring Government and industry together. He has done exactly that.”

But Rachel Reeves MP, Labour’s Shadow Chief Secretary to the Treasury, said it provided proof that despite its rhetoric the Government had yet to formulate a growth plan.

“It's a damning indictment of this government that, half way through this parliament, a former Conservative cabinet minister is still calling for a plan for growth,” she said.

“Instead of more complacency from Ministers we need a proper growth plan to catch up the lost ground of the last two years, make families better off and strengthen and sustain economic recovery.”