Emma Watkins: More measures needed to stimulate short-term growth in the economy
The CBI Wales director's column from the Western Mail
This column appeared in the Western Mail on Wednesday, December 5, 2012
Today, the chancellor will unveil his plans for the Autumn Statement. What George Osborne will say will greatly influence the course of our economic recovery.
While the Welsh Government controls a great swath of public funding, the key economic levers over tax and borrowing remain in the hands of the UK Government.
As you would expect, the CBI has been busy making the views of our members known to the Prime Minister and Chancellor in the run up to the announcement.
While it is not possible to cover all of the CBI’s points in our 4,086 word letter to the chancellor, we can highlight a few messages here.
The CBI continues to support the UK government in its delivery of the planned fiscal consolidation.
While weaker than expected growth has made consolidation more challenging, it has not changed the fact that it is essential to protect confidence in the UK’s public finances.
We believe that departing from the plan in the face of a challenging economic and fiscal context would risk undermining the UK’s hard-won credibility. It would also jeopardise the economy’s ability to rebalance away from dependence on government spending and debt.
Fiscal consolidation, however, cannot be delivered without growth and the CBI believes that the Autumn Statement offers a critical opportunity to set growth and jobs alongside fiscal consolidation at the heart of the UK government’s economic strategy.
More can be done fiscally to drive growth within the constraints of the planned consolidation, both through targeted spending and tax measures which should boost business investment.
First, the UK government is not using all of the resources available within its Plan A. In the year ending March 2012, the government underspent by £7.8bn, of which £6.2bn was current spending and £1.6bn was capital spending.
In addition, up to £4bn of revenue from the 4G spectrum auction is expected in 2013 and the government has over £700bn of illiquid assets on its balance sheet from which to potentially source additional sales.
Given this, the CBI believes more resource should be directed into measures which will have a short-term growth impact on the economy. There are three key areas where extra resource can be quickly deployed to achieve maximum short-term growth impact: spending on repair, maintenance and improvement, tax measures to unlock business investment and action to support mid-sized business growth.
The CBI is increasingly concerned at planned cuts to government capital spending in Wales and Westminster.
In March 2012, £23.1bn had been cut from UK capital spending, which amounted to 48% of the total consolidation by that date.
In Wales, UK government measures in 2011 cut the Welsh Government’s capital budget by over 40%.This is in spite of the fact that capital spending generates a bigger multiplier effect on growth than current spending and is vital to delivering the economic infrastructure the UK needs.
In addition, infrastructure is proven to be crucial to both short-term and long-term growth- our latest infrastructure survey shows that 80% of businesses see infrastructure quality as crucial to their investment decisions.
Avoiding further than planned cuts to public investment must now be a priority within the chancellor’s statement today. Prioritising spending on roads- such as the M4 Relief Road- and energy efficiency measures will pay dividends.
The chancellor must demonstrate boldness on these big ticket items, harnessing the Olympic spirit of determination and delivery to pull away from our competitors and produce world-beating infrastructure.
Unlocking energy investment is massively important. The tens of billions of pounds’ worth of investment required to decarbonise the electricity grid, ensure energy security, and maintain internationally competitive electricity prices also represent a short-term growth opportunity.
However, investors cannot commit capital without a clear policy framework and sense of direction for the sector.
The Energy Bill must be enacted swiftly and provide instruments to generate investment in a diverse energy mix including nuclear, renewables, gas, and Carbon Capture and Storage.
Stimulating housing activity is also vital. September’s package promised much in the way of policy for England- acknowledging that both supply and demand-side measures have to be taken to drive activity in the housing market.
A key issue is to ensure availability of affordable 95% loan-to-value mortgages to those that can demonstrate the ability to save for a deposit and repay their mortgage.
Funding for Lending has already begun to make a positive difference to the mortgage market. To build on this momentum, the success of First Buy needs to be replicated for New Buy. The Welsh Government should follow suit.
Planning reforms to speed up delivery of local and national infrastructure, go hand in hand with these proposals. This means a robust major infrastructure planning process for non-devolved projects.
In Wales we want to see a similar efficient and effective national infrastructure process for key devolved infrastructure in Wales’ draft Planning Bill in 2013.
Finally, the planned rise in business rates of 2.6% in 2013 will add to pressure on businesses across the UK, which have had to deal with increases of 4.6% and 5.6% in the last two years.
Limiting next year’s rise to 2% – the official inflation target – would help small and medium-sized businesses in particular, for which the business rates bill is typically the third largest expense after staff and rent.
While business rates are devolved, a commitment to a 2% cap by England will send a strong message today to the Welsh Government as it actively considers its own way forward.
Today’s Autumn Statement should act as a decisive vote of confidence in the economy’s ability to rebalance away from dependence on government spending and debt, and towards a model of growth based on business investment and exports.
Businesses in Wales and throughout the UK, in every sector are striving to contribute to this necessary rebalancing, against uniquely challenging economic and fiscal conditions.
As the CBI, we believe the proposals outlined above would help the government in making that essential contribution. Today we will see how much the chancellor agrees.