30/09/2013 05:31 BST | Updated 29/11/2013 05:12 GMT

A New Deal for New Business

In his book Boomerang, a merciless exposé of the financial crisis, Michael Lewis cites the example of Paige Meyer, the fire department chief for the bankrupt US city Vallejo in California. Leading a fire department shrunken from 121 to 67, Mr Meyer was faced with a dilemma: how to respond to 13,000 calls a year with half the usual staff? He started by going back to basics: devising new fitness regimes to prevent injury and looking at different methods of fighting big fires. 'He began, in short,' says Lewis, 'to rethink firefighting.'

Following the financial crisis, sooner or later every politician ends up in the position of Paige Meyer. How to provide public services with fewer workers and less money? Not just tinkering round the edges, or feigning deficit amnesia like Labour, but forced to rethink the very business of Government.

Caught in the finicky detail of the crisis, we can too often miss the bigger picture. I believe the financial crisis was structural, not causing but merely exposing the existing fault-lines in our economy. The red lights surround us: an ageing society and high drug costs, a ticking time-bomb under the NHS; a sclerotic eurozone as our biggest export market; and a welfare state no longer a safety net to catch us when we fall, but stopping many from ever rising in the first place.

According to the Institute for Fiscal Studies, social security spending alone is set to increase from 28% as a proportion of public spending in 2010-11 to 32% in 2017-18, even with the cuts underway. In pensions, our current level of spending for 2012-13 is a 59% per cent increase from 1997.

Moreover, the IFS forecasts that, in nominal terms, by 2017-18 debt interest spending will be up by £20bn, benefit spending up £20bn, health spending up £15bn and net public service pension spending up £5bn. Even with the current spending reductions, we will only return spending to the same proportion of GDP as in the early 2000s.

Put simply: the consolidation of the last few years is plugging the leak and keeping us afloat. But the deep structural problems remain, bringing into focus the two possible futures we face. A debt-ridden economy brought to its knees by a lack of productivity in public services, overwhelmed by social security spending and eventually losing the faith of financial markets. Or a retooled economy fit for the new century, sustained by breakthrough technology and a renaissance of entrepreneurs.

Every good business knows that you can never let a crisis go to waste. To turn this crisis into our opportunity we must, like Mr Meyer and his fire station, start from the basics. The first flagship and most daring policy of an entrepreneurial public sector would be making Britain the best place on earth to start a new business.

That's why in my speech today at the global launch of Entrepreneur Country - an initiative that brings together entrepreneurs from all over the planet - I've been advocating a 'New Deal' for start-ups in Britain. No tax, no forms, no regulation until your business has been going for two years or your turnover reaches £250,000. Simple, clear and potentially revolutionary in its effect. Far from the anti-business socialism of Comrade Miliband, true recovery can only begin by letting businesses hatch ideas and then give them wings.

A New Deal is the first shot in the battle for economic survival. Others must follow. First, that means engaging more deeply and strategically with emerging markets. By aligning our Aid and Trade missions to support the fastest emerging markets we can unlock a new cycle of growth over the coming decades. In the next fifty years, the BRICs and N11 economies will go through what the developed world has gone through in the 300 years since the Agricultural Revolution. Despite their recent difficulties, these markets remain our greatest hope if we are ever to fulfill the hopes of an export-led recovery.

Second, using innovative new technologies to transform our public services. In the NHS our crisis is most acute. The last Labour Government doubled health spending and achieved a 10% output increase. That's a staggering 90% productivity gap. By 2048, a century after the NHS was founded, the cradle-to-grave service enjoyed by the baby boomers could be little more than ancient history for those picking up the bill.

But why? We have three world-beating technological assets waiting to be fully used: the human genome map, the world beating superfast computing and informatics which have driven companies such as ARM from Cambridge start-ups to global corporations and, crucially, the NHS with its unique fifty year data records on drugs and disease. If it ever happens, the failure of the NHS will be of our own making.

Third, by smashing open market monopolies. In banking, we need far greater competition and transparency with a much easier regime to promote new entrants. In energy too, we need to allow innovative start-ups to challenge the big six. In infrastructure, insurgent ideas are similarly required. That's why I've floated the idea in my own area of an East Anglian Rail Company, letting rail users and taxpayers of East Anglia have a stake.

We will never transform our economy with duct tape and string. We need to fashion it on new foundations. To thrive in the twenty-first century, we need the next James Dyson or Richard Branson to be as at home in the corridors of Whitehall as in the conference rooms of Canary Wharf. Only by being fearless in our actions - a real New Deal - can we translate it into reality.

Michael Lewis concludes Boomerang with the line: 'As idiotic as optimism can sometimes seem, it has a weird habit of paying off.' I believe there are many reasons to be optimistic about our future. But we face a stark choice about which path we take. A New Deal, or the old? The decision is up to us.