HAMISH MCRAE: Getting the next few months right will determine the future of PM Boris Johnson and his Government, and a solid business recovery is the key
- Whatever happens in the Brexit talks in the coming days, our businesses face a confused and disrupted few months ahead
- They need order and competence, but they also need a shift in the Government’s attitude whatever the relationship with Europe
They are having a reset of the politics in Downing Street. The rest of us need a reset of policies towards business.
Whatever happens in the Brexit talks in the coming days, our businesses face a confused and disrupted few months ahead. They need order and competence, but they also need a shift in the Government’s attitude whatever the relationship with Europe.
The reason is simply that only businesses, large and small, can deliver the goods – and generate the employment and the revenues to sustain a decent level of public services.
You need a friend: It is always important for governments, even those run by Boris Johnson, to keep business on side
The great pharmaceutical companies take stick for all sorts of reasons but if you want billions of doses of vaccine, only big pharma can do it. Was it not fascinating that it was the combination of the US giant Pfizer and BioNTech, a German start-up, that got the first vaccine to the starting line?
Fingers crossed that the AstraZeneca/Oxford University one gets there too, as it is cheaper and easier to administer. This means listening to business, something this Government has not been good at, but also looking at every policy through the lens of whether this helps or damages UK commercial interests.
It is always important for governments to keep business on side, though in normal times their interests have to be balanced against wider social considerations. But these are not normal times.
Getting the next few months right will determine the future of this Government, and a solid business recovery is the key. Simple as that. There are several tests to come. Tax policy matters a lot.
There will at some stage have to be a long cool look at taxation. We have to ask whether the UK is prepared to pay a higher proportion of GDP in tax than at any stage in the past 30 years. If so, which ones? If not, what then?
What we should not do is damage business with hits that at best won’t raise much money, and at worst may actually lose revenue. For example, the plan to end VAT rebates at airports for foreigners who have bought goods here does not sound very bright if they stay in Paris rather than London and buy the stuff tax-free there instead.
The much-needed reforms of personal taxation need to be done with enormous care. Louis XIV’s finance minister, Jean-Baptiste Colbert, memorably said: ‘The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.’ Never mind the hissing. If you end up with a smaller pile of feathers, you are in trouble indeed.
Finally, there is the City. The interests of our largest export industry, financial services, have not been defended in the Brexit negotiations, or indeed more generally in recent years. That is extraordinary – imagine the German government not looking after the interests of its largest exporter, the motor industry.
But we are where we are. Fortunately, we have a competent Governor at the Bank of England and a Chancellor who understands finance. Both are thinking a lot about the future of the industry and they deserve a following wind.
Things will change in the spring. Up to now Treasury policy has been how to hand out money better. Soon it should shift to how to raise money better, and regulate better. But we have to get to the spring.
We learnt two things last week from that surge in share prices worldwide after the successful news of the vaccine trial. One was that the prospect of there being a successful vaccine by the end of the year was not, in the jargon, ‘in the market’. Otherwise shares would not have reacted as they did.
The other was that investors were desperate for good news. It was as though a coiled spring was suddenly unleashed. There was a bit of consolidation at the end of the week but you would expect that.
The question now is whether the prospect of economic recovery triggers a more general and sustained shift in investor sentiment. This would probably involve a rotation from growth stocks (principally the American high-tech giants) to value stocks (firms that earn decent profits in more mundane areas), and from bonds to equities.
Of course there has to be economic recovery for that to happen. But the markets are sniffing the air and sensing there might be quite a bumper one.