It’s all go at Number 11, or rather no-go. No third runway, no ID cards, no new school buildings.
It’s all go at Number 11, or rather no-go. No third runway, no ID cards, no new school buildings.
Welfare is to be slashed, 25 per cent cut off every department’s spend, 20 per cent VAT imposed on everything you buy, putting the VAT in ConserVATive for years to come. Cuts that are harsh but will likely succeed in bringing down the deficit until the next crisis.
No doubt such decisiveness is a good thing after years of dithering, but many private sector companies are finding that contracts with the government may not be worth the paper they are written on, jeopardising the private sector jobs linked to them. There is the awkward reality of no money left, even after the fudge of a few hundred billion in ‘quantitative easing’.
Creating government ‘non-jobs’ and manpower-intensive quangos to maintain the illusion of a UK growth economy has kept out the worst of recession pain, but its rapid withdrawal risks critically damaging fragile sectors, with inevitable job losses in building infrastructure, IT systems, consultancies.
The unions and gold-plated civil service employment contracts will no doubt slow the reboot, but the challenge remains on where new growth and jobs will come from, if the government no longer acts as a sugar daddy for the UK economy (unless of course you are a bank).
Private companies will reap some benefit through margin-squeezed deals to run outsourced government services; however, real growth depends now more than ever on export and innovation, which a weak pound will support.
One challenge however, is that many export markets are increasingly nationalistic, fuelled by their own recession. Each European country faces its own deficit issues and at the extreme, there’s Washington’s response to Toyota and BP. Despite both putting money on the table to deal with the crises, they are suffering more than they would if they came from Texas or Detroit, with US politicians queuing up to kick them when they are down.
In Hollywood films the Brit is often the bad guy, so it was perhaps inevitable that BP’s CEO was seen as a cross between Jeremy Irons in Die Hard and Baldrick, when in fact there is a significant chance that the relief well will plug the well this month. Given the dependency of the US on oil, it’s also likely that deep water drilling will be allowed with new licences requiring secondary relief wells and a higher tax charge per barrel extracted, and higher still for any barrel leaked.
Growth business also shifts to cleantech. The governments proposed consolidation of green quangos and investment focus into a green bank may help the UK commercialise its cleantech innovations, particularly those that can work quickly at low capital and save money. An area our Moixa Technology company is focused on is looking at mass-market solutions for maximising the impact of smart meter installations and local microgeneration.
Inherent growth also lies in fundamental demographic shifts. We appear to be in an ongoing new baby boom – perhaps recession led, or reflecting the cosmopolitan shift of the UK population – with over 700,000 children born each year into modern Britain. This is set to continue to create demand for modern media, internet and electronic technologies, as well as a renewed crop of taxable workers to help pay for the future aging population.
Significantly, we are also entering a growth phase in the retired population from the original post-war baby boom, which has a higher proportion of home ownership and general affluence. This may act as an overall buffer for the economy. Today’s retiring class is also more technically savvy and wise having seen and used the evolution of computers from mainframes, to client server, desktops, internet to ipads. They are therefore more likely to ‘stay wired not retired’ to the economy – consuming and providing chargeable knowledge and expertise on an ad-hoc basis to supplement their pension.
Many growth businesses will emerge serving this well skilled and wealthy retiring population – examples include the rise in food home deliveries, as exemplified by the upcoming float of Ocado, and the continued success of well designed premium consumer electronics from Dyson to Apple. Moving from waged to aged may mean more time reading the FT Weekend and ‘How to Spend It’ section than chasing the daily deals or poring over the coverage of the Emergency Budget.
