With two years of growth forecast and measures announced in the Chancellor’s Budget to support capital investment, businesses can begin to shape longer-term strategies. This is vital to delivering the Government’s stated long-term objectives.
A clear macroeconomic strategy is needed to restore confidence and grow the UK economy out of post-Covid-19 recession and debt. This will require strategic foresight and built-in agility.
1. Focus on the Long-Term
As COVID-19 restrictions reshape our economies, it’s important to think ahead to how we will build back better. It would be a mistake to return to old policies that failed to deliver, such as fiscal austerity and government spending cuts.
Instead, we need to focus on how we can restructure our economy for the future by increasing productivity and building green jobs. This requires significant public and private investment.
It also means rethinking how we finance these investments, ensuring that public debt is sustainable in the long-term. This is not impossible. The UK already has a track record of using low-interest rates to foster growth and reduce debt in the past, including during the global financial crisis of 2008. This is an example that other countries can follow. The Chancellor’s Summer Economic Update has been an important first step, but it is vital to pursue a clear macroeconomic vision that will restore confidence and grow the UK out of post-pandemic recession and debt.
2. Rebuild the Infrastructure
We have seen councils across the UK develop plans and projects to protect jobs, support businesses and encourage growth during this unprecedented economic shock. We need to take this learning and apply it to how we shape our futures.
Investing in infrastructure drives long term productivity improvements and stimulates economic activity in the short term. The Chancellor has pledged PS100 billion to infrastructure investment in 2022 and there is a new UK Infrastructure Bank to help ‘crowd-in’ private investment.
But looking at GDP alone can obscure the impact of COVID-19 on people’s daily lives – and the unequal distribution of opportunity in this country. The focus on cities as growth engines, technological innovation and high-productivity trading sectors can neglect those in the outer regions, with their lower wages and higher rates of business failure (OECD, 2020). The recovery needs to be more inclusive, not just faster. That means investment in every part of the UK, to ‘level up’ local areas and strengthen the nation.
3. Focus on Innovation
The UK is ideally placed to be an innovation leader, given its R&D intensity and global leadership in some sectors. But it must move quickly from strategy to delivery in order to retain and stimulate innovation investment, particularly once lockdowns and social-distancing restrictions are lifted.
This will be a key challenge for the new government, which must ensure that growth and jobs are not compromised by higher taxes or increased spending – even as it meets its commitment to reduce public borrowing and to deliver its long-term objectives on climate change and income inequality. These objectives will be harder to achieve if the economy remains subdued.
The BCC is urging the government to offer small businesses a clear roadmap to recovery and to reassure them that long-term support will remain in place, as well as encouraging technology firms to look for opportunities overseas. The route to recovery will be different for every business and sector, but each will need strategic foresight and built-in agility.
4. Invest in the Future
A key part of the UK’s prosperity lies in its integration into global economic and financial systems. An open economy that permits the free movement of goods, services and information based on adherence to a common set of rules allows consumers, businesses and investors in the UK greater choice while generating higher productivity, reducing costs and boosting innovation.
In addition, an open economy enables the UK to attract international inward investment. The Office for Investment has helped to land high value investments which align with government priorities such as levelling up regions, boosting research and development and achieving net zero carbon emissions.
As the recovery from the COVID-19 shock continues, the UK can seize the opportunity to rebuild to last by putting in place a new framework for growth that delivers on the government’s overarching objectives of levelling up, reaching net zero and increasing innovation. A focus on these areas can help to address the challenges of an aging population, insecure work and a reshaping of global supply chains.