As we embark on a new year, much of the news about Covid 19 and the economy is bleak - infections are rising and economic growth has stalled. However, our situation could have been so much worse without two things: the gift of the vaccine; and the agreement of the trade deal. They give us all the chance for cautious optimism that the recovery will start properly in the year ahead. But whether that turns into real future prosperity depends on the decisions taken by Government and businesses in the next few months. So what should we now expect from the Government in 2021?
The first priority has to be to get us out of the current crisis as quickly as possible. The longer it lasts the greater the irreparable damage will be to many, many businesses. Fast roll out of the vaccine is essential. The maintenance of public support for businesses and individuals is also essential and we welcome the latest announcements. So far the economic damage caused by COVID has not caused the levels of business failure and unemployment seen in many earlier recessions because of the furlough scheme and loans to business. Government must keep these in place as long as the threats of bankruptcy to previously healthy businesses and mass unemployment remain. Without them, rebuilding businesses and restoring employment from scratch will come at enormous cost.
Whilst managing the crisis it is also vital that Government charts the way forward for the longer term. To its credit, it has given attention to some key issues in recent months including climate change and levelling up prosperity across the economy. Now we need a coherent plan that provides real clarity on its priorities, timescales for addressing them, and the detail of policy changes so that business recovers the confidence to invest.
What should a coherent plan look like? It must rest on a long term and realistic vision for the kind of economy we want to see. It must tackle sectoral issues; helping business to seize opportunities and removing barriers. It must also address longstanding systemic problems.
The vision has been articulated already and is now widely shared across politics, which in itself is an advantage. The UK economy is a global player and that should continue. It has competitive and dynamic internal markets. Free market competition must be fostered. Our strong science base underpins innovation and must be nurtured. By building on these strengths we can grasp opportunities and achieve a low carbon economy in which prosperity is more equally distributed.
As always with visions, the devil is in the detail. In particular, what sectors should be the focus of Government attention.
In the short term, those which have long term strengths and have most to contribute to net zero and levelling up but have been most severely damaged by COVID19 must be high on the list. The Government’s current support schemes, such as CBILS should be re-engineered to focus on business of this kind.
Looking further ahead, we must work out how to help those sectors with potential but which face significant transitional challenges, the motor industry being a top priority as it electrifies. We need investment in a charging infrastructure; measures to help consumers accept the impact on used car values of rapid technological change; and complete clarity and stability of policy are all needed.
At the same time as tackling threats to growth in some sectors, we must not forget to reinforce the success of others and create opportunities for them to help the economy as a whole. In this respect, two industries stand out: digital technology and financial services. Both are British success stories and both have the power to transform other sectors. The financial services sector has changed out of recognition since the financial crisis. It is financially sound; has embraced fairness for its customers; and in many areas has shown a capacity to innovate, often led by independent ‘non-bank’ institutions and fintechs. After the financial crisis regulators prioritised safety first. Now, the priority needs to be financial support for economic growth. Without, for a second, allowing a return to excessive risk taking and a bonus driven culture, the obstacles to lending to business need to be tackled. Consumer protection style controls should not be applied to business lending and the antiquated Consumer Credit Act that inhibits innovation and adds unnecessarily to the cost of a loan to consumers and businesses should be reformed.
We must address the systemic problems that cause poor productivity and in consequence give us lower incomes than in a number of other countries. These problems also underpin our regional income disparities that have not changed for decades. Two stand out: a lack of investment in infrastructure and relatively low investment in intermediate level skills. Both are on the Government’s to do list. But that has also been true for decades. Neither has had the kind of consistent commitment made to Higher Education or science. Both have been beset by a stop-start approach to policy, with schemes coming and going. Such inconsistency does not provide a strong environment in which the private sector can play its part. Asset finance companies contribute much to infrastructure projects for example but could do much more if the businesses hoping to build such projects and those looking to benefit from them could do so with confidence.
So, a final word to Government and, indeed, to all our political representatives: your agenda is a good one, how you implement it is key and above all, stick to your plans if you want business to help. Financial services can and will drive growth across the economy if regulation allows it and policy is clear and consistent.
Published 05 Jan 2021