The UK’s two main political party leaders have agreed that the country needs to ‘re-balance’ its economy in order to see the British economy through the difficult times ahead. But they are not as united on exactly how to accomplish this.
Speaking at the Confederation of British Industry’s (CBI) Annual Conference in London yesterday, Prime Minister Gordon Brown hinted that Chancellor Alistair Darling would set out a new approach to macroeconomic management in the Pre-budget Report that will be necessary “if we are to get through this unprecedented global financial recession with minimum damage to our long-term economic prospects”.
The approach will combine the use of monetary policy with proactive fiscal policy to support economic activity. Brown said that the best way for taxes to be low in the long term is to ensure that the downturn is as limited in length and scope as possible.
At a time when both the European Commission and International Monetary Fund have forecasted that Britain will be the hardest hit by the global crisis, Brown said: “…we have to prepare and equip ourselves for what the world is becoming, investing in our talents and skills, in our technological infrastructure and in our capacity for innovation in the high value-added products and services, which are Britain’s best guarantee of a successful global future.”
Leader of the Conservative Party, David Cameron, was more pragmatic as he outlined what he saw as the three lessons learnt from the crisis:
- Never to enter a downturn with such a massive budget deficit.
- Never again to allow private and public debt to spiral out of control.
- Never allow the economy to become so dependent on such a small number of industries and markets, such as finance and housing.
The third lesson was picked up by Sir John Rose, chief executive of Rolls Royce, in his keynote speech, who saw this as recognition of the importance of reinstating manufacturing as the heart of the British economy. He called on the government to prioritise investment in manufacturing and creatie a clear strategy with a consistent approach.
Cameron said that monetary activism – lower interest rates and getting credit flowing – was the priority of the day. The Conservatives pledge to allow small businesses to delay their VAT payments by six months, cut the small companies’ tax rate to 20 pence, cut employers’ national insurance by 1% for the smallest firms, and implement a £3bn tax break for job schemes to reward companies who take on new staff.
Following on from the Conservatives focus on smaller enterprises, a question from the floor highlighted the fact that small and medium enterprises (SMEs), which make up 65% of the UK economy’s growth, were absent from the conference’s top tables. Martin Broughton, president of the CBI, accepted the criticism but argued that the aim of the CBI was to drive the engine of manufacturing, which is based on SMEs. He listed a number of proposals that the CBI has made to the government, including a 10-point plan to boost the economy and save SMEs from collapse during the downturn, a proposal to follow the US on commercial paper injection and a proposal on credit insurance for SMEs.
The theme underpinning the CBI conference was how UK corporates can weather the storm and come out of the recession not just still standing but in a better position than before. Across the industry spectrum, from the auto industry and aviation to retail and construction, all the panellists agreed with a three-prong strategy for success: maintain business agility, continue investing and increase communication with stakeholders, both customers and employees.
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