Louise Cooper Finance economics markets retail business

Another To Do List for our Prime Minister

Monday, January 23rd, 2017

12 Point Brexit plan
10 Pillars Industrial Strategy
I’d love to see her To Do – I best its not on the back of a used envelope.

Prime Minster May is promising a “public consultation” on what is needed for the economy to flourish in this post Brexit world.  Given the level of animosity of both sides of the leave vs stay EU debate, a public debate without fisticuffs may be a challenge. 

I am frequently surprised at the unpleasantness from the two sides displayed on social media about the financial and economic consequences of leaving the EU.  It is even more bizarre given that neither side can have any confidence in their view of the future.  And yet both economists and laymen adamantly pronounce that their view of catastrophe or success is right.  Even in a normal economy, forecasting is a mug’s game.  But given the huge uncertainties and unknowns in this new world order, forecasting anything other than a few months forward is ripe for disaster.  There are best guesses as to what will happen to the economy – higher inflation, slower growth – but they are not necessarily going to happen.

That aside, back to Ms May’s 10 pillars for economic success.  The trouble, as we all know, is that governments have a very bad track record at picking winners and losers in the economy and are expert at weeing away taxpayers hard earned cash on projects (pork barrel or just plain grandiose).  If maybe the billions/millions spent on rescuing Rover had been used instead developing electric cars, Tesla would be British (hindsight makes us all clever). 

I am generally not a fan of big fiscal spending to stimulate the economy. But it may well be appropriate now, to support the economy at a time of great uncertainty and more importantly to send out a signal of confidence.  

The government has announced half a billion pounds investment in the Northern Powerhouse today.  I’ll leave it to others to determine if this is genuinely new investment or stuff that was announced already and just re-announced anew for political advantage.

However, by spending on the economy it may well entice business to invest alongside. The confidence that the government brings by spending may cause business to also commit financially too.  And for the next few years, that is a very good strategy to adopt while we go through the huge trade and political uncertainty of Brexit.

In economics there is a principle of “crowding out” where business investment is reduced by increases in government spending.  The government “crowds out” the private sector. 

But there is also a principle of “crowding in” where government spending actually increases investment by business sector.

As with Keynesian multipliers, I wonder if these effects vary according to the circumstances.  And in an environment of pretty strong growth, but huge uncertainty about the future, crowding in is more likely than out.  Therefore government cash would well spent currently investing in infrastructure and education. 

I interview a lot of CEOs and meet a lot of executives and the one thing they all pretty much agree on is the need for a skilled workforce. If we are going to restrict immigration we will no longer be able to import the skills we need.  We are going to have to educate our own.  

As far as the finer detail of the plan, I would be more confident about “upgrading infrastructure” if BT had been forced by the regulator to sell off Openreach.  My daughter’s music centre has been trying to get commercial broadband put into a school where they are based for over six months.  And still no luck.  How is that to run a modern digital economy? 

Encouraging trade and investment again is the sixth pillar.  But that may involve some moral and ethical compromises. Theresa May needs a trade deal with the world’s largest and most powerful economy – America.  That involves Trump, like him or loathe him.  If you want the UK economy to be successful and to be able to pay for hospitals and schools, then we need a trade deal, irrespective of the views of the President.

Ms May is know for her dress sense.  She was always unlikely to wear a Pussy Hat…  But even if she was, she cant afford to do so now..  she’s got some grovelling to do to the new incumbent of the White House as he could make Brexit a lot easier.

How bizarre though that a favourable trade deal is helped by Trump’s Mum being a fan of Queen… 


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