After 14 years in the political wilderness, the new UK Labour government could be excused for being somewhat rusty when it comes to running the country – and especially its finances. The recent Budget was therefore the most important guide to how this new regime is going to operate. The first aim was for them to prove to the markets that despite their lack of financial experience, they have a credible plan which investors both domestically and internationally would support. And the previous government’s recent example was not especially encouraging as they struggled to put behind them the financial fiasco of the short-lived premiership of Liz Truss (that will be a perfect subject for aspiring politicians to understand how not to do it!)
For the new Chancellor, Rachel Reeves, this was always going to be a difficult task. The key element for her was to establish confidence across the board – to ensure that no matter how bitter the economic medicines that she had to prescribe, it was done so in a manner that reassured the public that Labour’s plans would lay out the path to boost the economy, grow corporate profits and increase the returns for investors.
However, I am afraid the result did not seem to be very encouraging. It was course quite understandable that there was going to be some bad news and harsh warnings, but the brightest of politicians do not just talk about faults, failings and fears, but do so in a manner that will convince all the various audiences, both at home and abroad, that she and her team have a credible plan. To borrow a motto from one of the British tank regiments: “although we will have to suffer mud and blood but that there are green fields beyond.”
This speech, however, did not do this. What we heard is frankly what we already knew, and merely repeating this and blaming the previous regime did little to inspire us with that vital confidence. It seemed as though someone missed a couple of pages in the speech. What we really needed to hear was a credible plan that left us at least slightly enthused.
So, what were the missing pages? The Green Fields. The Budget speech must always include inspirational plans, ideas and innovations. Doom and gloom are cheap rhetoric, especially when you can blame somebody else. What we needed to hear were the plans to build upon the areas where the UK has been successful and will have the greatest opportunities for tangible and valuable growth across the nations.
This budget merely highlighted how over-taxed the UK is and that there are no easy wins by giving away money you don’t have just for some short-term applause. As we all know there is no “magic money tree” and another bout of QE money printing would not be seen as a credible move.
The answer is actually quite straightforward: create a positive story focusing on the potential economic opportunities and boost incentives for investors, entrepreneurs and innovators. There are three measures we could take straight away, with little cost to the government, which would start creating vital long-term confidence and credulity:
- Develop investment incentives to encourage money to go to the right areas and the right businesses;
- Develop and enhance the financial investment plumbing in the UK;
- Boost technology investment funds.
First, we already have Enterprise Investment Schemes (EIS) and these have shown themselves to be popular and effective. But the great beauty of such schemes is that they don’t cost the government anything to start with and in fact only become a liability if the businesses fail in the future. Of course some will, but others will prosper and earn money for the state rather than just drain more assets away.
You could then create a regional focus (a Regional EIS) for the schemes so that local money can directly support local business, and going further will attract further external funds which otherwise would have gone elsewhere or just invested in the usual London centric financial markets.
Despite the depressing headlines, there is in fact no shortage of potential investment money in the UK. Although not as strong as a few years back, the UK has large pension funds, many of which are not directed to provide the best returns for the economy. Local Authorities have very significant sums, but barely any gets invested in their region, with most going into the usual “managed balanced portfolios” based in London.
Here then is a moment to reform some of the financial plumbing to attract investment where it is best needed. The Chancellor has already been talking about creating “mega pension funds” by merging some of these local pension funds into the “super” pension funds we see so often buying into our infrastructure areas such as airports and utilities. Australia and Canada lead the way here and are frequently cited as being large investors in the UK’s long-term structures. Again, the cost of this innovation for the UK is tiny – the funds are already there, the projects and businesses often already exist, so the model should be straightforward.
We should further focus on the great success we have seen around the UK in the form of technology “hotspots,” often acquiring nicknames such as Silicon Roundabout, Silicon Fen or Glen or Gorge or Beach and many others. These tech hotspots have often sprung out of the universities and once started tend to breed other innovations and should attract new money. Sadly, all too often we see great ideas and innovations start up and look to grow but then all too often are snapped up by the likes of the U.S. Silicon Valley companies, which are always on the hunt for the next best thing. Again, the Government can create more specific incentives for such innovation, and again the cost for the government would only come back if the ideas didn’t succeed.
So, the Budget speech a wasted opportunity. Here was the moment to show that we could place our investment monies with some confidence by backing our innovators, not measures using government cash which it doesn’t have. It needs to provide incentives to support real confidence – not just another politician’s financial confidence trick.
