Chancellor must boost market confidence to allow growth plan to succeed

The Government must respond to financial markets’ concerns after Friday’s mini-Budget in order to allow the pursuit of its welcome economic reforms. Concerns about medium-term debt levels and short-term inflationary risk are shared by many business owners, Tony Danker, CBI Director-General will say this evening (Wednesday).

But business owners and the CBI have strongly welcomed the Government’s target of 2.5% long-term growth noting that it “has unlocked far greater thinking about our long-term productivity and competitiveness than we have seen in over a decade.”

In a speech at HSBC’s global offices in Canary Wharf, ahead of Conservative Party conference, Tony will say that the Government’s success is predicated on passing two credibility tests:

“First, the Chancellor must use every opportunity to show that he and the Bank of England are coordinating on inflation and that he has a robust plan to pay down debt in the medium-term.

“Second, the Conservative party have to back the Government’s economic reforms even when that means other interests falling second.”

This includes abandoning scepticism on net zero which is the UK’s best chance of better growth; being far more pragmatic on immigration than the Johnson Government; and tackling planning reform once and for all. Danker says “the Government’s challenge is incredibly difficult, but I believe they are well aware of the balancing act required.

“They need to simultaneously fight inflation, fight recession, inject large financial support on energy costs and then take tough action to bring down debt. It will be impossible to do this without criticism but so long as they are working on all these fronts, they will find the best path through.”

Danker will also lay down a challenge to the business community to keep “responding to the cost-of-living crisis that confronts our customers, employees and suppliers”.

On the credibility tests, Tony will say:

“The markets’ reaction this week matters because the markets are lending us the money. Macro-economic stability is a precondition for micro-economic reform. Let’s be honest, when you’re looking to borrow hundreds of billions over the next two years, there is no risk-free path, so we must pursue stronger growth.

“The Government will need to bring forward a clear fiscal plan to sustainably bring down debt in the medium term. That earns all of us the right to go for growth now and in the long run.

“Every day, every week, every month, the Government will now be critiqued by markets and businesses on how serious they are about growth and about their fiscal responsibility to pay back debt.

“Business stands ready to help because we see a genuine chance to transform the supply side of the economy and tackle long-term productivity weakness. This is the first time in 12 years that the Government’s leadership has made this such an overriding priority. We must not waste this moment.

“Policies that unlock high growth that don’t stoke inflation are no longer optional, they’re essential. So, the question is what plan is best?

“Well, we don’t think the Government’s growth plan is perfect. There are things we wouldn’t have done and other things we would have. But there are some excellent and long-overdue decisions in there. It’s the start of a plan business can work with and one businesses are keen to make a success.

“Above all it means growth must come before other Conservative doctrine. On immigration, the economy is clearly suffering from labour shortages – let’s be open to more temporary visas for hard hit sectors and urgently renew the Shortage Occupations List. On net zero, this is one of the golden opportunities of our age for many reasons – let’s not go backwards, let’s unlock the green investments waiting in the wings. And on planning, so many important projects have to wade through treacle to happen – let’s make it easier for vital infrastructure to be built.

"The Government can now fill in the blanks on some of these areas, bringing forward legislation and publishing details on the promised policies. And next week the Conservatives need to embrace this prioritisation.”

On the importance of a growth plan, Tony will say:

“Back in February, well before we could see the stagflation and energy crises to come, I said that the UK was caught in a trap due to growing debt levels. The trap is larger now because of the energy package and the mini-Budget.

“What is the trap? Well, no-one wants austerity after the enormous social impacts of these crises – we need more investment in health, education and public transportation.

“So, the only way to pay for all this, to raise living standards and have a sustainable economy on the other side, is through long-term growth. Both the Conservatives and Labour now agree about that.

“Not growth at 1% – our performance these past 15 years. Since last year, we’ve been saying the country should target the 2.5% rate of growth the UK achieved before the financial crisis. Such a target I said, would force us as a country to think more ambitiously – to make bigger bets, adopt bolder policies, and unleash a post-Brexit, post-Covid success story.

“All that remains true. But after the market reaction to the mini-Budget growth is not just a nice to have, it’s a need to have. And it needs to be productivity-oriented reform to alter our long-term growth rate – that's what investors and business owners are really looking for.”

On whether the UK can grow, Tony will say:

“Many commentators this past week sound sceptical about the UK’s ability to grow again. We disagree.

“In May 2021, we published Seize the Moment – a 70-page growth manifesto. It identifies around £700bn of economic opportunities for UK plc across every sector and market in the world that, with government’s support, were well within reach. First from leading the world in clean energies, green tech, and decarbonising our economy – a growing domestic prize for every sector and new British export success story.

“Then from leading scientific innovation to mining new digital success from AI to fintech and supercharging our scale-up success stories. We focused on high-growth sectors like financial and professional services; healthcare and life sciences. We painted a picture of how the private sector can help forge world-beating UK clusters in everything from carbon capture to cybersecurity – powering growth and opportunity in every region and nation.

“On trade, we analysed global profit pools, where UK plc could leverage its world-leading expertise. From China, to India, to all of Asia and North America. Huge growth awaits us. Global demand for UK specialist sectors – including services – is expected to grow from £6 trillion in 2019 to £9.2 trillion by 2030.”

Finally on the role of business at this moment, Tony will say:

“Business must once again act in the service of the nation, as we did during the pandemic.

“We must respond to the cost-of-living crisis that confronts our customers, employees and suppliers.

“We can help support the physical and mental health and wellbeing of our people. We can pay the best wages we can afford, especially to the lowest paid staff in our businesses, and we can help our employees to train or retrain to progress.

“We should pay our supply chain firms desperate for cashflow on time, if not ahead of time. “And above all, we can persuade shareholders to invest more profits in growth in response to the right policy reforms now due to come on stream.

In conclusion, Tony will say:

“We need a new ‘terms of trade’ for the business-government relationship now. It’s time to roll up our sleeves together and make sure that economic reforms to unlock growth are successful. We need more consultation on the design of economic interventions – similar to the pandemic – and more collaboration on big bets for growth, as we saw working together on the vaccine.

“Growth is now vital; to ensure stronger public services, good jobs, better wages and improve living standards. To equip every UK region and nation to compete and thrive.”