Tech sector complaints about the difficulties of doing business in the UK have been repeated more recently by the manufacturing sector. A decade of “flip-flopping” by the government has left the UK without an industrial strategy, according to Make UK, which represents industrial and manufacturing employers.
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The UK’s economic future certainly looks a lot brighter than last year, when it was dealing with the aftermath of the short but financially calamitous tenure of ex-prime minister Liz Truss. But there’s still concern that the economy will continue to decline.
In early April, the International Monetary Fund’s outlook for 20 major economies predicted the UK would be one of only two G7 economies to contract this year, alongside Germany.
There are worrying parallels with the mid-1970s, when Britain was seen as the “sick man of Europe” just after joining the European Economic Community. A Financial Times editorial from February suggested the UK is now “the sick man of the developed world”.
Reasons for the UK’s decline
There are a number of possible business-related drivers behind this decline. Some economists believe the quality of management in British companies is the worst in the G7, while thinktank the Institute for Public Policy Research says investment by British business has also been among the lowest in the G7 in recent years. This undermines innovation and development that is essential for competitiveness.
Training and education to ensure workers have up-to-date skills is no longer regarded as essential by many companies. And finally, the University of Oxford’s Migration Observatory contends the growing reliance on cheap migrant labour from abroad has also hobbled UK businesses.
Business confidence and investment are suffering as a result, with implications for jobs and innovation recovery following COVID-19 lockdowns. Leaving the EU has also created problems for businesses. Data from the British Chamber of Commerce demonstrates a growing view that the UK has effectively imposed sanctions on itself.
Further, while the Conservative party once prided itself on listening to business, in recent years it has failed to create much-needed certainty. Major companies have warned that continued commotion within government could damage prospects for raising additional finance for future growth.
As a former chancellor, the prime minister Rishi Sunak recognises the monumental difficulties of repairing the damage wrought on public finances by COVID, and made worse by the energy crisis caused by Russia’s invasion of Ukraine. But as chancellor, he set in motion plans to raise corporation tax from 19% to 25%.
Sunak justifies this tax rise as essential to restoring integrity to the management of public finances – but it jettisons a pledge to lower taxes that is central to Conservative ideology.
Boosting British business again
The remainder of this year and early 2024 will see all political parties explaining how they intend to deal with these impediments to economic growth. This is likely to include cutting regulations and increasing support for green investment. But what else needs to be addressed?
One major task will be to encourage infrastructure investment, to improve the woefully inefficient movement of goods and people within the UK. This is especially important since massive delays and overspending mean HS2 is unlikely to be the silver bullet needed to encourage business investment outside of London and Birmingham.
In addition, the UK’s tax regime is archaic and confusing, and its stock market listing rules are seen as cumbersome and expensive. UK regulator the Financial Conduct Authority has proposed changes, but businesses including chip manufaturer Arm have already decided to list elsewhere. Smaller companies operating without any additional capacity to cope with change or new rules could also quickly become frustrated with the bureaucracy.
And although there are many investors and businesses that are exemplary in their approach to investment and treatment of their workers, some avail of lax regulation to engage in exploitation. As the Salvation Army reported last year, “modern slavery” is on the rise in this country.
Concerns also continue about so-called “zombie companies”, which merely survive through reliance on time-consuming effort and public finance. On the other hand, rising returns by companies that have benefited from the current economic environment – energy majors, for example – have raised questions about what is fair and how much tax should be paid by many companies.
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The solutions are well understood and often broadly accepted, starting with a simpler and more logical tax system. Random dumping of EU legislation, particularly food and environmental standards, is also increasingly recognised as damaging for the country. As Sunak seems to recognise, having agreed the Windsor Framework, it’s better to improve relations with the EU and work with it to streamline rules on trade.
Equally, as the pandemic showed, there are radically different ways to live. This includes having homes that are more energy efficient and suitable for both living and working. Addressing the urgent need for affordable homes, particularly for younger workers who are priced off the housing ladder and excluded from the rental sector, will support the future workforce.
The UK needs its policymakers to be far more adventurous and understanding of, not just contemporary requirements of business, but change that has not yet occurred. Former senior civil servant and now chief-executive of Make UK, Stephen Phipson, contends that successive governments have been hooked on “short-term quick fixes”. He says greater stability is essential for businesses to prosper, and for the collective good.
As the most successful businesses, particularly technology firms, demonstrate, constant enquiry and innovation is non-negotiable. But this applies to countries too. It is unlikely to happen, though, under the current government’s “what will work today?” approach.
by : Steven McCabe, Associate Professor and political economist, Birmingham City University