HAMISH MCRAE: Let’s hope that new Prime Minister listens to the business and financial community more closely than the current incumbent has done
Let’s hope that the new PM, whoever he or she turns out to be, listens to the business and financial community more closely than the current incumbent has done.
That is not a comment on Brexit, or on the tax debate that is dividing the candidates, and it is certainly not a call for the Government to do everything that the commercial lobbyists want.
It is plea for the new Government to think about the financial consequences of its decisions, rather than airily assuming that the private sector can cope.
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Stand back and think about economic policies. They fall into three main groups. There is fiscal policy, the whole tax and spend side of things, and an enormous amount of attention is paid to that.
There is monetary policy, subcontracted to the Bank of England but with the Government ultimately on the hook when things go wrong. It is the taxpayer that has to bail out the banks or pay the higher interest on the national debt if rates go up. And there are a vast range of things that governments do in regulation and legislating that affect the economy. These are lumped together as structural policies.
Most of the debate is about the first two, and not nearly enough about the third. But how?
Last weekend, this newspaper carried some thoughtful comments from business leaders.
Marks & Spencer chairman, Archie Norman, himself a former Tory MP, called for a post-Brexit reset – ‘a long-term plan for productivity and competitiveness’.
John Allan, chairman at both Tesco and Barratt Developments, said much the same. A reset ‘is long overdue and hopefully now a possibility’. He wanted the Government to set out ‘a comprehensive strategy that it is willing to commit to for the long term’. I can see the need for a reset of policy and the attraction of longer-term thinking. And I’d urge the new Government to work far more closely with business leaders. But I would also urge caution. Those long-term plans have to be right.
Germany made the long-term plan to rely on Russian gas, shutting down its nuclear power stations and building more pipelines to get the gas in. That does not look very bright now.
Or you could point to failures of business planning, including in companies such as M&S and Tesco. M&S shares are down 56 per cent in the past five years.
And Tesco’s failed effort between 2007 and 2013 to build its Fresh & Easy brand in America is a classic study of how careful, detailed planning can go catastrophically wrong. It cost shareholders $2billion (£1.7billion) to extract Tesco from the US.
That is not to blame the current chairs, both of whom are making a decent fist of trying to pull those companies round. It is rather to focus attention on a different aspect of what the Government should do. It needs a reset certainly, but not so much in strategy, rather in attitude.
The UK is in the middle of two economic transitions. One is the shift of trading relations away from Europe and towards the rest of the world, the other the shift to new technologies. Governments need to foster both.
They need enormous attention to detail. In the case of the first the task is not so much to sign deals with other trading blocs, though that is helpful. It is more a question of looking at why exporters are meeting headwinds, why domestic producers are finding it tough to increase market share, how we help importers diversify away from Europe to cheaper suppliers elsewhere – and so on.
Are we taking advantage of regulatory freedoms, or are we creating new regulations that place an additional administrative burden on business? Customers pay for that admin in higher prices.
As a twist to the point about regulation, that is the concern of small and medium-sized enterprises. Big business can hire professionals to cope. Small ones can’t. So regulation actually helps big business at the expense of small fry.
The second transition is ultimately even more important than the shift of trade. We have to build the businesses of the future, but no one knows what those businesses will be. The UK does not do badly by European standards in business start-ups, but we do not do as well as the US.
So we need a Government that will listen to everyone, to universities, to would-be entrepreneurs, to investors – the whole, complex, chaotic world of the market economy. And then, bit by bit, take what it is hearing, and think of the business implications of everything it does.