Britain needs bold policies to boost the morale of business | Graeme Leach

An IoD poll shows most directors believe the recession isn’t about to pass. To stop this being self-fulfilling the coalition must act

The latest poll of members of the Institute of Directors shows that business leaders think there is a low or zero chance of the economy escaping recession before the end of 2012.

The panel, which is composed of several thousand business leaders across the country, is asked on a quarterly basis for their view of the prospects for the economy. This quarter, more than 1,000 directors took part, and the expectations of the majority (65%) are negative.

That is worrying, not just because it may be true but because such a perspective can swiftly become self-fulfilling. A lack of economic confidence is fuelling and prolonging the current recession.

Indeed, the poll showed 44% of respondents reported that their company had postponed investment or employment decisions so far in 2012. That means money is being saved rather than spent, and potential new jobs are not being created, because the wider economic climate is so negative. Nor is this is one-quarter blip. Well over half of those decisions are being delayed not until later in the year, but until 2013 or beyond.

The problem is clear: a sizeable proportion of businesses do not feel able to expand in premises, technology or staff because the risks of the downturn are too great.

Some of this will be down to international economic issues. The eurozone crisis has spooked many people – and for good reason. But that’s not to say we should shrug, blame the euro entirely and do nothing. There are measures that the government can and should take to boost the morale – and the bottom-line competitiveness – of British business.

Deficit reduction, which IoD members have strongly and consistently backed for many years, is one example. The struggle to reduce the deficit is continuing, and George Osborne is right to push ahead with it.

But there are supply-side measures that can and should be addressed as well.

To explore this topic, we tested IoD members’ views on the effectiveness of government policies so far. Across a whole range of policy areas – from energy and transport infrastructure to tax complexity and employment regulation – the answer came back that the coalition’s policies have been, on balance, ineffective.

But measures such as simplifying the tax system or making it easier to build much-needed houses can be acted on much quicker. Despite high-profile government initiatives, according to our members the coalition is yet to make a sizeable difference.

The fundamental lesson for George Osborne and his colleagues is that half-measures don’t work, particularly when you are fighting a lack of confidence. Being bold and being radical are essential to cut through the ever-present fug of scepticism about governments in general, and to jolt people out of their current malaise about the future.

As well as being bold, the government must resist the temptation to pretend there is one single silver bullet solution. They must attack the supply-side problem from all angles.

So what should the agenda in front of the cabinet look like? Here are some IoD policy recommendations:

• The government must give permission for urgently needed new airport capacity, in the south-east in particular, but possibly elsewhere as well.

• There must be a systematic reduction of business regulation – not snipping red tapes one by one, but cutting through bundles.

• For the Treasury to fight tax evasion at the same time as making the UK more competitive requires a drastic simplification of the tax system.

• A proper debate – and then an actual decision – about employment law is essential, rather than the confused process of commissioning and then rubbishing the Beecroft report.

• Progress on relaxing planning rules to allow the building of new houses, factories and infrastructure must be continued and extended.

Radicalism is risky, but at least it brings the possibility of success – talking about radicalism but then failing to follow it up with actions is guaranteed to disappoint your supporters and frighten the nervous, without bringing any of the benefits.


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