WEEKLY COMMENT 17-03-2016
By Barry Edwards
Budget 2016 and Beyond
Overall, this is definitely a budget for small businesses with most of the requests from all those organisations that represent these companies being granted by the Chancellor. The more cynical commentators put this down to the fact that the polls show there is big support for the ‘Brexit’ campaign amongst this sector. That may be so but the changes are very welcome for SME’s and they should be appreciated.
By now you will have heard a lot of comment and seen extensive analysis about the budget so we will not repeat that in this weekly comment. The Chancellor was boxed into a corner on the forecasts for the UK economy as growth has declined a little and it does not look like exceeding the current rate around 2.1% for a few years. Most developed economies are experiencing something similar which confirms the predictions of economists that we are in a low growth, low interest and low inflation period. They also believe this may well continue for a decade or more.
In the last two weeks we discussed the change in world trade and the steadiness of developed economies indicating that fundamental change is occurring supported by reasonable statistics. However, there is no consensus about how the world economy will evolve especially since the forthcoming UK referendum and the American presidential election contest have thrown up a fog which seems to limit vision beyond the end of 2016. The Office of Budget Responsibility (OBR) has done its best to forecast how the UK economy will play out over the rest of this parliament but it assumes the UK will stay in the EU.
Despite the limitations of current events, most governments around the world are reluctant to take advantage of the low interest environment and invest for the future to stimulate growth. Most economists believe this is a big mistake and see this approach as the only way to make a change to the predicament the world finds itself experiencing. The Chancellor has made mileage out of agreeing to proceed with Crossrail 2 and the Northern Powerhouse plan in the UK but they are unlikely to have the vital impact the economists are seeking on their own.
We discussed in this weekly comment Restructuring Finance on the 18th of February which is a method of providing funding for projects of all kinds which does not involve increasing government borrowing and interfere with the precarious management of government budgets. Unless something like this is adopted there is nothing to prevent developed economies being at the mercy of world events and unable to counteract the restrictions that they impose upon them.
Whatever the outcome of the referendum and the American presidential election, it is unlikely that something will turn up to alter the low growth situation. Acting proactively is the only way to make the economy respond to the budget restrictions this global problem imposes on governments. The Labour party have assembled a think tank of economists who are formulating ideas around this concept and they completely understand that unless the Government reacts to solve this investment problem the country is committed to a stagnant economy with few prospects.
The apparent unpopularity and the media onslaught on the Labour party could well change as time passes and if they do produce a promising plan to demonstrate a way forward out of this conundrum, people could well start to listen and accept they have a solution which will be beneficial to everyone. The Conservatives will struggle to convince people to support them if they continue along the path this budget outlines and many will look elsewhere for a better future.
A proper economic growth plan with progressive ideas is the only way to influence people who are now very knowledgeable about government finances. No developed country has set out a constructive plan to show how government and businesses can make a real impact on the economy for all to believe there is a way to improve the future for everyone. It is about time this started happening since in my experience no one in this county has any faith in their abilities to do anything.
A budget is the perfect scenario to set out a plan of this kind and in my view people would react to it if they could see it has a good chance of succeeding. The surveys conducted concerning families report that many do not expect their children to be better off than their parents for the first time since the war. This tends to cause resentment from hard working people whose main ambition is to see their children flourish in a successful growing economy. That disenchantment is the core of the disbelief in all things political and that applies not only in this country but throughout Europe and the USA.
Politicians have to accept that they are not representing the ambitions of the people and must change their whole approach to managing the economy and the lifestyle that it brings forth. At the moment there is no sign that this awakening is about to happen and they must be prepared for even stronger reactions from the electorate if they do not respond to the ambitions of their nations. The signs of this discontent are visible amongst those in society who normally do not react impulsively. The warning signs are there to see for those forward looking politicians who wish to take notice.
That’s all for this week, more observations next week.