Tough love and green investment are key to recovery
In his statement tomorrow the Chancellor must avoid killing the economy with kindness. Before the pandemic it was relatively healthy, with a record high rate of employment, real wages rising, and growing against a backdrop of slowing global growth. So when Covid-19 hit, it was like a healthy person suffering a terrible accident: we went from being OK to being in intensive care overnight. By responding with the furlough scheme, bounceback loans and grants for small businesses, Rishi Sunak provided the treatment needed to prevent an economic collapse.
But now comes the life-changing moment. Our patient is recovering and vital signs are improving. We need her to get off the bed, start breathing and walking again — if not, we risk long-term damage from dependency on state support.
For many businesses, lockdown meant staying home and shutting up shop. But some saw coronavirus as a challenge — a gin distillery making hand sanitiser, the Silverstone technology companies producing PPE and local pubs delivering food. Our brilliant entrepreneurial spirit has been admirable. Now, though, there’s a growing risk to businesses from hanging on to furlough; opening cautiously with low turnover and non-existent profit is the road to failure. So the chancellor needs to show tough love to incentivise the bounceback.
Interventions like lower VAT, extending enterprise zones, stamp duty holidays and new capital reliefs are worth considering but he must also press companies to get their staff off furlough and think creatively about the future. Because it’s not government that creates jobs, it’s our five million businesses that must create future success.
The Chancellor will not have much wiggle room. With public sector borrowing set to increase by over £250 billion, he has to look after our long-term fiscal health. We need international investor confidence in the UK to be sustained while we trade our way out of recession.
My advice to Mr Sunak would be to look to our strength in the fast-growing green economy, where the 450,000 green-collar jobs could rise to two million by 2030. I urge him to invest in thousands of green apprenticeships for young people, to introduce retraining for older workers, to set decarbonisation targets by sector to create investment opportunities, to inject public funds into green infrastructure and, vitally, to build international collaborations in areas like offshore wind, battery technology and afforestation.
Business and government have worked hand-in-hand during lockdown. Now business must lead our way out of it.
This article originally appeared in The Times on July 7th 2020.
