30 December 2015 | By Carolyn Fairbairn Insight

Looking ahead to 2016

Insight: Carolyn Fairbairn, director-general, CBI

The government should not let short-term politics triumph over opportunity. It's time for a long-term prosperity agenda, says CBI director-general Carolyn Fairbairn.

2016 starts out with an enviable inheritance and plenty of promise. The UK economy has delivered a 2.4 per cent growth rate, almost no inflation and, best of all, the highest rate of employment since records began in 1971.

In the last year alone, British-based businesses created more than 400,000 jobs, despite heavy global headwinds and a rising pound. The government has held fast to challenging and much needed deficit reduction plans. These are extraordinary achievements and a great springboard from which to start the new year. 

The opportunity now is to use the breathing space to look longer term. Quite a few companies are doing exactly that. The chief executive of an energy company I met recently opened by saying: "I’ll come to 2016 in a minute, but I’d like to start with 2030".

2030 is a very good place to start. It makes you ask the right questions. What kind of economy should the UK aim to be by 2030? What kind of world do we want today’s one-year-olds to find when they start to join the workforce 15 years from now? What are Britain’s strengths that could form the foundations of an economy that brings prosperity for everyone?

When I’ve asked these questions in my first six weeks at the CBI, I’ve heard many common themes. We want to be a tolerant, open and global economy. We want great and successful UK businesses, in sectors from manufacturing to high tech, from creative industries to professional and financial services. We want rising living standards for all, outstanding public services, and fulfilling careers for all our children, not just some, built on the qualities that Britain is known for: fairness, creativity, a sense of humour, curiosity, and respect of difference.

So if these are the goals for 2030, what do we need to do now, here in 2016?

I’d like to suggest four areas of focus. They are rooted in what I’ve heard from businesses across the UK over the last few months, and will shape my priorities at the CBI over the coming year.

  • A long term prosperity agenda that wins out over short term politics
  • The burning imperative to raise productivity
  • Competitiveness and growth at the heart of devolution
  • An informed and balanced debate on the UK’s EU membership

I believe that, if we can take the right steps in these areas in 2016, the UK will be well on its way to a new era of prosperity for all.

A long-term prosperity agenda that wins out over short-term politics 

The UK’s strong recovery has created the space to think clearly about what matters most for long-term prosperity – the right skills and talent, world-class infrastructure, globally competitive tax and regulation, open access to international markets, with business able to make a strong and positive contribution to society.  

These are the pillars of a prosperous future, but they are too easily undermined by the short-termism of modern politics. We need to avoid this pattern in 2016, and keep a sharp eye on the long-term.  

A top priority must be to keep the spotlight on skills. Urgent skills shortages exist across many industries. The government understands this challenge well and is seeking to address it through a new 0.5 per cent apprenticeship levy on all businesses with over £3m payroll. Though the ambition is welcome, the scheme doesn’t yet have a clear delivery system and risks failure due to chasing blunt targets. Business and government will need to collaborate closely to make it work for our young people and for firms – the CBI stands ready to do so. This will be particularly important for smaller scale-up firms, which have been such an important driver of UK growth and have a pressing need for skilled people.

While there are public concerns around immigration, with pressures on some public services, 2016 must be the year we reform the UK’s wrong-headed visa policies that are keeping global talent from our growing firms and global students from our world-class universities. The risk is that the situation gets worse, not better. We stand ready to help the government shape a modern, fit-for-purpose immigration system.

At the same time, we must take the big decisions on infrastructure, especially in aviation and energy, and get building roads, rail and more homes. Good business needs good infrastructure – yet the UK currently ranks 24th in the world, according to the World Economic Forum. We have fallen badly behind over many decades – we must catch up and then pull away. The government’s recently postponed decision on aviation capacity in the South East was an abject failure of leadership. In 2016 the government needs to demonstrate for real that ‘we are the builders’ – its creation of a National Infrastructure Commission is a good step forward, as is the encouraging progress on Crossrail.

And we must beware the cumulative burden on business. The government has placed a number of extra strains on UK businesses that are adding up – the national living wage, the apprenticeship levy, pension auto-enrolment. Businesses want to reward their staff fairly, but as the burdens and costs accumulate, particularly in the retail sector, growth risks being cut off and jobs lost.

Furthermore, UK policymakers need to deliver regulatory stability and predictability. Businesses struggle to invest when the rules repeatedly change – as we have seen in the energy sector where policy shifts have chilled investment. While the reduction in Corporation Tax has been welcome, according to PWC, the total business tax cost as a percentage of profit has risen from 41.4 per cent in 2014 to 42.9 per cent in 2015 – compared with 38.2 per cent in 2008. At the same time we must make sure to get the balance of regulation right for the UK’s financial services sector – it is an industry the UK should once again be proud of.

The burning imperative to raise productivity

2016 also needs to be the year when we get to grips with the UK’s chronically weak productivity performance – 30 per cent lower than in the US and 28 per cent lower than in Germany – which is holding us back against growing international competition. It is holding back real wage growth and will blight our future competitiveness.

We can do something about it. Many of the levers for productivity growth lie in the hands of businesses themselves. Best practice exists in many parts of the UK economy – in automotive, in creative industries, in advanced manufacturing, in technology and other sectors. One medium-sized manufacturer I met a few weeks ago had quadrupled its productivity over the past three years through relentless benchmarking against a Chinese factory, involving every employee. But too many of our firms have low productivity and are not aware of global benchmarks. We can be slower to digitise and innovate than global peers.

The urgent need to raise productivity is why diversity matters so much. The UK needs the best possible talent from every walk of life to lead its businesses, to invent the next world-beating products, to reach new markets – and yet today too many of the UK’s business leaders are drawn from the same pool.

We may have achieved Lord Davies’ boardroom representation target of 25 per cent women in FTSE 100 companies, but almost no progress has been made at executive level, where less than 10 per cent of executive board directors are women. The solutions are not simple but I believe we can do much better.

The government also has a role to play in closing the productivity gap. The chancellor and business secretary have together launched a Productivity Plan that focuses on the right issues. We’ve also seen spending on innovation, R&D and science protected in the recent spending review. These are welcome steps.

In 2016, businesses can do more to spread the best ideas and raise the game across all sectors. The CBI will use our networks and convening power to bring evidence, experts and ideas to the table. Other countries like Singapore and New Zealand have created Productivity Commissions that have led the charge across government and business. 2016 may be the year to consider something similar for the UK.

Competitiveness and growth at the heart of devolution

Devolution has released extraordinary energy and optimism across the UK. We are seeing its benefits in places like Greater Manchester, where the tramline to Trafford Park is in its final stages of planning just months after the devolution deal was agreed.

2016 must now be about using the new devolution settlements to unlock growth across the UK. Big budgets and big powers are being handed down. Local authorities need business voices at the table to help hammer out these proposals. Firms need to be active partners, providing clarity on issues from planning and procurement to transport and skills.

It will be equally vital to avoid added complexity and chaos for business. Business doesn’t want – and can ill afford – fragmentation of tax and regulation. National frameworks are often there because they work, providing continuity and predictability for businesses across the UK’s single market.

The UK is changing and the CBI will change with it. In 2016, we will be supporting businesses across the country to work with local authorities, the devolved administrations and regional partners to use new powers to unlock growth in all parts of the UK.

An informed and balanced debate over the UK’s EU membership

Equally careful consideration is needed on the UK’s relationship with Europe. It is looking increasingly likely that 2016 will bring a referendum on this vital question. Should we stay or should we go? 

Though the 45 million people eligible to vote in this country will be considering a wide range of factors in their decision, the impact of the UK's relationship with the EU on jobs and growth is one of the most important. Only business can provide this perspective, and it must do so with evidence, clarity and a good dose of humility.

The British public deserves to hear informed arguments from both sides. Under my leadership, the CBI will do all it can to ensure this happens. We will provide clear evidence, share case studies from businesses of all sizes and sectors, host debate and discussion, evaluate reforms as they are achieved, and faithfully report the views of our members.

Most, though not all, our members have told us they want to stay in a reformed European Union. Some of you want to leave and we fully respect and will reflect your views. Others have told us you want to see the final deal before deciding. So when the prime minister finalises his negotiations in Brussels, we will ask you again.

2016 will be an important year for the UK economy, our businesses and the millions of people who work in them. There are many vital choices to take – not just about Europe, but about what kind of country we want to be. I look forward to working with all of you in this year of great opportunity.

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