Contentment rules in Britain’s boardrooms. That was clear from the surveys last month showing business confidence on the up.
The Bank of England recognised the cheery mood in its latest review of the economy when it said the turnaround, though modest, was enough for the majority of its nine-strong interest rate-setting committee to abandon any thoughts of a cut in borrowing costs.
A Conservative party victory, with its steady-as-she-goes, practical and tactical policymaking objective, is like a warm embrace and complimentary gin and tonic down at the local Rotary club to most managing directors, finance directors and chief executives. For one thing, Labour’s plans for taxing the better-off lie firmly in the bin. Business taxes will stay low and the journey to a net zero carbon economy will remain stuck in first gear.
Boris Johnson’s 80-seat majority also provides the government with a platform from which to plan and implement a business-friendly infrastructure boom.
Sure, there is some anxiety about the introduction of a points-based immigration system and how it will limit access to foreign workers. It is a fear, though, that has dissipated in recent weeks following hints from No 10 that immigration barriers will be relatively porous (even if they are touted as impregnable) whatever deal the UK strikes with the EU.
Business owners are not supposed to put comfort above all other considerations. They are supposed to adhere to entrepreneurial tenets, spotting opportunities and delighting in innovations. In the main, though, like most people, they don’t like change. For the most part, the Johnson administration, Dominic Cummings’s revolutionary streak notwithstanding, will honour that sentiment with a mission to protect and conserve.
The tax and welfare system is likely to remain much as it has been for the last few years, despite promises of reform, while business regulations and employment rights will stay much the same– or, if anything, be weakened, allowing the majority of businesses to continue eking out a living using dilapidated equipment, 10-year-old software and relatively cheap labour.
These businesses employ the majority of workers and form the long tail of small and medium-sized firms highlighted by the Bank of England chief economist, Andy Haldane, whenever he puts on his other hat as chair of the government’s industrial strategy council.
Such companies have one thing in common: they don’t invest if they can help it. They don’t make fabulous profits and they don’t have much cash in the bank. If they borrow money, it’s not to buy new equipment, seek fresh export markets or adopt innovative techniques that ultimately cut costs.
The overuse of workers to do mundane jobs is why the UK now has almost a third of graduates in roles for which they are overqualified. Data last year from the Office for National Statistics (ONS) showed that 31% of graduates had more education than was required for the work they were doing in 2017. That included 22% of those who graduated before 1992.
Business investment growth has averaged 1% since 2008, and productivity, which is a measure of output per hour worked, has crept ahead at an average of 0.5% a year compared with more than 2% in the pre-financial-crisis era.
One of the UK’s major thinktanks, the National Institute of Economic and Social Research (NIESR), also found that many big companies in particular sectors failed the productivity test. It singled out the pharmaceutical industry along with financial services and computer services. So while the aerospace industry might be testing quieter planes and the food industry developing vegan-ready meals, most firms are sitting on their laurels.
NIESR director Jagjit Chadha has a warning for Boris Johnson. He says there is a danger the government may interpret its large victory as reason to sideline the kind of strategic thinking championed by Haldane and support a market-led agenda.
He asks the administration to consider the policy challenges facing a country at the top of the global income league but experiencing a sharp relative decline in economic, political and soft power. Meeting those challenges involves detailed analysis and planning in each area of government, as well as reform of our tax system to create incentives for innovation. It’s dull, plodding work, and yet the only way to reach a sensible answer.
In his upcoming book Windows of Opportunity: How Nations Create Wealth (Profile Books), the former science minister Lord Sainsbury urges businesses to recognise they need government to help them innovate, whether through collaborations with Catalyst centres, universities, local enterprise partnerships or local colleges where they will find their future workers.
To stay rich (and green), countries such as the UK need to foster this kind of collaboration: but it is not in this government’s DNA, and it lives only in small pockets of industry and commerce.
