Andy Silvester is Deputy Director of Policy at the Institute of Directors.
On Saturday morning, hazy-eyed punters looked on as the British and Irish Lions touring rugby side nicked a historic win at the death against New Zealand in rain-drenched Wellington. The week before, in Auckland, you saw a side low on confidence who struggled to believe they could beat the All Blacks – thinking they were almost superhuman. But on Saturday, as things started to work in the backs and some superiority was won up front, the Lions believed they could win; confidence, that funny, amorphous thing, had returned. The fundamentals of the squad were strong – they just needed a little belief on top.
This might sound like an odd metaphor for the business community at the moment, but in truth it isn’t far off. The economic fundamentals in the UK remain relatively strong, even a year after the vote that everybody from the Treasury to the OEDC was going to result in economic catastrophe. But confidence is in shorter supply.
In the aftermath of a snap election that business leaders had initially supported as a way to achieve more breathing space in complicated European negotiations, British business confidence fell through the floor. Some 57 per cent of IoD members are pessimistic about the next year for the British economy, and more than nine in ten felt that political uncertainty was a concern for the economy. This represented an even lower rating than in the aftermath of the Brexit vote, after which confidence – as a whole – recovered to something like guarded optimism.
But here’s the point: confidence readings are a warning, not a prediction.
Like the Lions, the fundamentals of the British economy are strong. We have world-leading universities, a highly competitive tax system, and thriving sectors everywhere from life sciences to financial services.
But uncertainty and the lack of confidence in the economy does have a freezing effect on investment. When we say a lack of trust in the economy represents a warning, it is here that the alarm bells should be ringing.
Much like consumers who are unlikely to splash out on a meal or a shopping trip if they’re worried about their next pay cheque, businesses are unlikely to press the button on major investment if they’re not sure what political climate they are entering. That’s particularly true, of course, of our future relationships with the European Union and with the rest of the world, where a natural optimism and resilience is being tested by what appears to be a lack of political progress. But concerns about how long we may be stuck in a political limbo here in the UK are as relevant too.
If this paints a pretty threatening picture, it’s no more threatening than the unbeaten-since-2009-at-home All Blacks’ haka on Saturday morning. But it’d didn’t take much for the Lions to get into the game – a couple of neat moves in the backs, and Sean O’Brien and Maro Itoje causing chaos at the breakdown. British businesses are waiting for the Government to give them something to believe in.
There was much criticism in the press for how stripped down the Queen’s Speech was. But ask IoD members and the business community more broadly, and the truth is they won’t mind a tighter focus on the crucial elements of what they want a government to deliver. Regardless of the merits or lack thereof of expanding grammar schools, businesses won’t want government to expend scarce political capital when they could be refocussing on more fundamental and important reforms of the skills system: expanding lifelong learning and reformulating the curriculum to suit a twenty-first century economy in which creativity will be vitally important.
Similarly, there should be cross-party support for immediate improvements in the quality of regional infrastructure. We know that Northern Ireland will do well; indeed, there’ll be nary a pothole unfilled in Ulster in the years to come. But it’s important that other areas get the same support in the immediate short-term, not least those northern and Midlands cities and communities which astonishingly are still connected only by clunky, slow and unreliable Pacer trains. The Government’s much-needed Road Investment Strategy, published today, is a welcome step in the right direction.
In short, whilst it will not be a quiet two years for political journalists, British politicians can make life easier for business leaders by doing what the Prime Minister promised to do: “getting on with the job” here at home, delivering on the worthy aims of the Industrial Strategy, and demonstrating some early progress with the European Union. The impact of sterling devaluation has probably been over-stated to this point, and the statistics don’t necessarily indicate it has had much of an effect – indeed, there are fears that they’ve noticed more of an impact on their bottom lines as a result of the rise in import prices, with many unable to find suppliers at home. Further, signs that the deal with the DUP is sustainable enough to last the temptations of Parliamentary shenanigans would help, too.
The lesson from the Lions isn’t to hire a New Zealand coach (though their success in striking trade deals might be something to learn from). It’s that building on strong fundamentals works, and the confidence to invest – or to spin it out wide, in this metaphor – will come.
British business is wary. It’s not a surprise, considering the political uncertainty we’re all learning to live with has come on the back of a recent hike in up-front business costs from business rates to the Apprenticeship Levy. Doomsday predictions remain overblown, but the real, specific concerns of business are worth listening to nonetheless.