The Economics of &; the Ten Tests of a ‘Back to Better’ Budget

So as I watch Rishi Sunak on Marr this morning I’ve been doing some thinking… 

Getting it right as Chancellor is a tough gig at the best of times, but at the present moment it’s off the scale. The so-called triple threat of Brexit, the Climate Emergency and Covid simplify a much more complex picture, including the imminent increases in unemployment, the inevitability of the worst public spending debt since the Second World War and the vulnerability from inflation as the economy re-opens driving rising interest rates. Politically promised initiatives such as levelling up (geographically, but also the gap in wealth across society) floundering in the wake of this cruel disease and the government will have an eye on the local elections let alone the next general election. And that’s before we mention the city centres and the crisis in retail and hospitality. But we need to shift from seeing this as an unparalleled threat to creating unprecedented opportunity. This needs a different approach.

It’s so easy isn’t it? To stand on the side-lines shouting instructions at the team, to sit in the backseat telling the driver what to do, to yell at the contestant whose mind has gone blank on a TV quiz or, in general, in life to say ‘if I were you I wouldn’t do that’ rather than looking for solutions. 

So rather than falling into that trap I decided to get onto the hypothetical pitch and share what would I consider to ensure we deliver fiscal policy which gets us back to better rather than papering over cracks for short term political gain.  

And of course the small print is … I don’t have all the facts, data, answers, the Treasury experts around me to contribute to this article or indeed the qualifications or time to focus on this the way the Government have …. So, this isn’t a budget but perhaps some considerations we need to take into account if we are committed to driving positive change and going back to better and the new abnormal. 

Here goes … The ten tests of a ‘back to better’ budget;

1.    Does it focus & multitask?

2.    Is it both universal & specific?

3.    Does it avoid cliff edges & create bubbles of certainty?

4.    Is it simple & transparent to create accessibility?

5.    Does it drive collaboration & break boundaries?

6.    Does it deliver in the short & long term?

7.    Does it have carrot & stick?

8.    Does it fuel ambition & an abundance mindset?

9.    Does it provide immediate relief & enable further value creation?

10.     Does it break the norms & mend the norms?

And in more detail; 

1)     Does it focus & multitask? i.e. - kill more than one bird with each stone? Imagine a giant Venn diagram. Each circle represents areas which need to be a focus; whether green agenda, business investment, infrastructure, levelling up, the high street, youth and inclusion.  Does the budget incentivise decision makers to focus on the sweet spot in the middle? Does it encourage us to find the ideas which give the biggest impact in the shortest time for the least cost? Ideas which spring to mind … 

-    The Broadmarsh shopping centre in Nottingham. Partially demolished pre-covid to create a new shopping centre, it is now an even bigger eye-sore as the gateway to the city and in limbo as retail investment freezes. Plans have been put forwards to create a green park and leisure area totally re-purposing the city centre. The current kickstarter programme could incentivise creating youth roles to support and create it. But without further targeted and, crucially, ongoing support it will be hard for this scheme to get the go-ahead as the local council will have an eye on the loss of business rates from the same footprint. 

-    Encourage further business starts-ups especially those that support gender and ethnic diversity, youth, green and post Brexit growth in exports. For example, the current SEIS could be extended to cover more than the first 2 years of trading to take into account the hiatus of the last year and be made more generous if the new start-ups have a green, production and/or inclusive angle. Similar considerations could be brought into EIS. 

-    Focus tax breaks and investment grants on exports, green energy and transport, carbon neutral manufacturing, and digital infrastructure. And apply this incentivisation to consumers as well as business. 

-    Eat out to help out (aside from the impact it had on the R number which we won’t mention…) was a great example of a ‘sweet spot’ initiative.

2)     Is it both universal & specific? Does it adapt & flex as needed? Remember the old adverts for the 2in1 shampoo that only ‘conditions where it’s needed’? Hospitality and retail really need some ‘conditioner’ at the moment! Does the budget take this into account so the most support goes to the crucial sectors? Does it also deliver for fairness and a level playing field for small & large businesses alike? Both are crucial to our recovery.

3)     Does it avoid cliff edges & create bubbles of certainty with smooth transitions? The last year has felt like a roller coaster full of sharp dips, U-turns and surprises. We need a glider. Dial the controls on the dashboard up and down gradually rather than flipping switches on and off overnight. Tapering the end of support schemes such as VAT reductions, furlough, stamp duty holidays, business rates and entrepreneurs relief will stop the creation of the boom and bust behaviours we have seen as deadlines draw closer. 

4)     Is it simple & transparent to create accessibility? The government must work harder to raise awareness of what is available to maximise take up. For example is the KIC investment support really widely known and understood? If you don't know what this is it probably proves my point! In terms of taxes keep them straightforward; don’t play games. Stealth taxes just build mistrust and resurrect further barriers to collaboration. Have the confidence to take your decisions head on.

5)     Does it drive collaboration & break boundaries? Does it create the environment for us to be ‘in it together’; beyond politics and media games. A bi-partisan, collective approach with other political parties, businesses, 3rd sector, universities plus the media is needed and will create more value for the effort expended. This should be focused on improving diversity and inclusion, research and innovation, the environment, future skills and the talent pipeline. A great example of this is the Shared Rural Network; a government and mobile network provider initiative to deliver better coverage across the UK blind spots which, in turn, support the levelling up aspiration. 

6)     Does it deliver in the short & long term? This is too early to start balancing the books. We need to create apolitical policy which transcends changes in government and keeps us on track to get back to a healthier UK balance sheet in the mid to long term. Creating some certainty for as long as possible will support business confidence and UK inward investment; fueling the upward economic cycle. 

7)     Does it have carrot & stick? The budget must be linked to behaviours. We can both tax and reward simultaneously. Increase taxes for businesses which are successful above the norm BUT if they contribute to the ‘back to better’ agenda ensure they are rewarded in others ways for their ‘good’ behaviuor. Ie offset some of the tax in some way. And don’t forget the little guys who collectively prop up the whole system. Small business remain the backbone of the economy; they need holistic support to help them grow and create jobs. Removing red tape and constant changes to rules will benefit them the most especially for those who are delivering on the sweet spots in 1) above. 

8)     Does it fuel ambition & an abundance mindset? We need to incentivise business to want to achieve more individually whilst convincing them they can do so even more successfully by sharing. Of course classic economics tells us that business growth and investment will underpin the whole system through higher employment to maintain the tax collection pool. But business collaboration is at the heart of a faster overall recovery. I love the recent example of the e-car manufacturers’ collaboration over shared patents and knowhow to create greater product choice and faster adoption. The results of which will increase the charging network and benefit all the manufacturers. Bigger cake. Bigger slice each. Bingo!

9)     Does it provide immediate relief & enable further value creation? How does the saying go “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime”? The budget response should be integrated rather than handing out money in the form of short-term restart grants. How can the recipients not only ride the wave but sustain its impact? For example can the grants be more generous if they drive innovation to sustain the recovery? Can we link it to business to business mentoring or matched bank support to help the grant be used in a way which creates more value over time rather than just propping up short term working capital?

10)  Does it break the norms & mend the norms? Are we willing to fail and learn to drive innovation? Are we willing to admit when the plan is wrong and pivot? For example, high political capital has been invested in HS2 but is a better current response to create a digital highway and capitalise on the partial ‘work from home’ revolution we are about to witness and reductions in business travel. This would also break geographically anchored recruitment and support national levelling up, let alone the green benefits. Another idea. Why does business to business support need a middle man – can the budget facilitate a direct form of business to business ‘crowdfunding’ both in terms of cash but also know-how investment? How more can business orgs like the CBI be used to generate ideas like these (and indeed better!) and be empowered by government to deliver on them?

Many of the above tests are paradoxical. Deliberately so. Maybe that’s what is needed on a new playing field? 

I wonder if we have the possibly of fostering a new age of economics, The economics of &; where every intervention and action targets at least two outcomes; where we stop thinking of the markets as either/or choices; where key players in the economy collaborate to deliver results; where ‘&’ makes the sum greater than the whole of the parts so we all gain by growing UK PLC through coopetition rather than fighting for our own share. 

Worth thinking about. And better still worth doing something about. Let’s hope the forthcoming budget shows the bravery and originality to do some ‘&’s’ rather than ‘or’s’.

And if not, why not?