The figures are simply almost unprecedented. In October 2020 HMG borrowed £22.3bn, added to £215bn borrowed since April 2020, whilst simultaneously tax revenues slumped by £70 billion. The national debt is currently at 100.8% of GDP. Interestingly, and importantly, however, The United Kingdom’s debt interest payments (excluding The Bank of England’s holdings) is 1% of GDP and at its lowest post-war level.
It is also important to recognise that the real cost of The United Kingdom’s debt is negative, with lenders effectively paying The United Kingdom to borrow. Bank of England figures show that HMG can borrow at minus two percent for forty years. So, theoretically, as long as the prospective growth rate is higher than real interest rates, such borrowing and debt should be manageable.
Currently, then, such levels of borrowing and debt are ‘manageable’, but there is no guarantee that in wider geostrategic and geopolitical, European regional and UK specific environments, such stability can be taken for granted.
Whilst HMG’s COVID-19 response, equally unprecedented, has been the preeminent driver of such borrowing and debt, even with vaccines on the horizon, the impact of COVID-10 on The United Kingdom and British business will be long-term. So, what factors do we need to give some very serious and judicious thought about for when and if the current situation changes for the worse.
MACROECONOMIC POLICY
Interest rates need to remain low, but may not do so, so potential insurance is required, perhaps by locking in low-interest rates and making the maturity of public debt a long-term as possible.
Importantly, HMG needs to strategically plan how to close the structural fiscal deficit when the economy returns to normal. Whilst not immediately critical, buy in the medium to long-term various impact factors, such as demographics, may result in the requirement for increased taxation.
Perhaps most importantly, HMG needs to maintain international confidence in The United Kingdom’s economic and business environments; and that The United Kingdom is run by politically, economically and financially competent people, who can deliver a stable, high-impact economic and business environment in The United Kingdom.
Growth
Promoting UK national economic and business growth is more important, at the moment, than debt repayment. At its most basic, corporate tax, personal Income tax, national insurance contributions (and VAT receipts, the primary revenue for HMG, will accrue from a national economic recovery.
So, how to achieve this?
Firstly, HMG must ensure that The United Kingdom has in place an immediate, short, medium and long-term national, infrastructure, ecosystem and environment in place that proactively promotes, supports, encourages and rewards business and entrepreneurship. This means not just mega infrastructures such as HS2, or indeed policies such as he leveling up agenda, but high-impact, real pro-business policies. Business rates, tax simplification, VAT reviews and numerous other areas are rife for radical reform.
Secondly, especially if The United Kingdom reverts to WTO rules from 1st January 2021, we need creative solutions to attracting UK inward business and investment, as well as proactively promoting international free trade. Free trade ports are not nearly enough, we need free trade zones, free trade cities and economic offset frameworks around which dynamic UK wide enterprise can be built.
Thirdly, we must manufacture and produce, and encourage UK manufacturing across low, medium and high-end environments, with a special emphasis upon STEM-based technologies and sectors, as well as in areas such as British defence-based technologies and industries, aviation, and shipping.
Fourthly, HMG must ensure that The United Kingdom has a proactive business and entrepreneurial environment, where sole traders, micro and SME business and enterprises can flourish in a light touch bureaucracy, low tax, enterprise supported environment. We should be proud to be the worship of the world and a nation of shop keepers.
Fifthly, The United Kingdom must develop regional power. Whilst initiatives such as ‘The Northern Powerhouse’ are symbolically important, they must not become vanity projects, nor must they be driven my party-political considerations, but by a genuine desire to ensure that the whole of The United Kingdom is economically empowered.
Productivity
The fact is that The United Kingdom has a productivity problem, which means that The United Kingdom is unable to maximise economic effectiveness and efficiency, resulting in slower economic growth. Some estimates place British productivity as 30% less than our German counterparts.
There is nothing new in this. UK productivity growth has been problematic since the 1970’s, suffering almost zero labour productivity since 2008, with The United Kingdom’s productivity puzzle’ seeing us continue to lag behind G7 and other global competitors.
In a global economy, especially from January 1st 2021 onwards, if Britain is to successfully compete with such effective and efficient economies as the Asian ‘Tiger’ economy, then The United Kingdom must rapidly and sustainably up its productivity.
There are several pillars to potentially achieving this, but first and foremost must be strategic human capital initiatives, starting with education and professional training, learning and development. We would suggest that there must be an emphasis upon STEM and technical and vocational training, and developing a highly-skilled workforce for the new technologies and new sectors around which future jobs will centre. It is critical here that we focus on not only developing a highly-skilled workforce that can not only enhance performance and productivity but are of higher capital, can add earned macro-economic and business value, provide transferable, agile and adaptable strategic human capital.
Secondly, we have to ensure that working environments, at all organisational levels, become working experiences, where employees feel not just valued, but that they are genuinely business partners and stakeholders, who have a real vested interest in, are motivated and incentivised to and able to reap the rewards of enhanced performance, productivity and profitability.
Thirdly, HMG and businesses must promote, encourage, and support innovation and creativity, not just technology-led but within a wider creative spectrum.
Fourthly, HMG must encourage and support research and development, not just within ‘academic’ environments but across business and organisational environments of all shapes and sizes. Key here must be the encouragement and support of information, collaboration and communication technologies, as well as the creation and deployment of AI, machine learning, data, information, and intelligence solutions and technologies, as well as robotics. In all these areas The United Kingdom is badly behind countries like The USA, Japan, Korea, Taiwan and China.
Fifthly, whilst skills gaps need to be identified and addressed, the reverse is also true, and organisations and businesses must utilise the knowledge, skills, expertise, and experience of those who are deemed to be ’overqualified’ especially amongst older workers. Linking back to education and training, organisations and businesses must continually invest in and develop their talent, at all organisational levels, across all ages, roles and responsibilities, to create added value, agile, adaptable, responsive and skilled workforces.
Lastly, we in The United Kingdom must promote collaboration, not just in areas such as R&D, but strategically, tactically and operationally. Together, we bring strength, knowledge, expertise and experience; can achieve more, and have more economic and business success to share. Free trade and competition are vital growth and productivity drivers, but we need to be smarter, more intelligent and more creative. There is huge potential for example for innovative and exciting two-way UK and Commonwealth initiatives which could prove immensely powerful to both The United Kingdom and participating countries’ economies and businesses.
In Conclusion
There is no doubt that with COVID-19, Brexit and serious geostrategic and national issues at play, The United Kingdom faces some serious challenges ahead and a volatile economic future. HMG must above all demonstrate the political will to lead and drive a sustainable and resilient economic recovery and combine political will with ingenuity, creativity and innovation.
We are famous for being innovative and creative, so let’s grab the future and once again become a global economic and business powerhouse and engineer an industrial revolution for the 21st century.
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