Where next for the UK economy?

Sunday 12th March 2017




Baroness Susan Kramer, Liberal Democrat Spokesperson for the Economy in the House of Lords and a Liberal Democrat Peer

“Where next for the UK economy” has to start with the impact of Brexit. The decision to leave the European Union, and how the Government manages it, will frame the UK economy for the next decade and beyond.

Significantly, there will be an extraordinary number of secondary decisions which flow from Brexit. UK businesses have, in the last 20 years, integrated across the European economy. To break the links with the EU not just on introducing tariffs but on the regulations and rules which affect every part of our economy, would require virtually every major company to change its strategy, its pattern of investment, and, often, the location of its operations and jobs.

Each choice that Government makes during the Brexit negotiations has the potential to spell life or death for a different industry. Every sector, services or manufacturing, large or small companies, especially those in a supply chain, and new entrepreneurial businesses based around the internet and new technologies, are waiting on these decisions with baited breath. Moving even part of a business is costly and disruptive, but many are now reassured that the move can be accomplished without significant loss of business momentum and have told their investors so. Those businesses will have to hear reassurance from the Government that their needs will be protected.

Some point to future trade deals as an alternative for our economy. Whilst that could present an opportunity, even in the best case scenario deals are many years off. What is more, whilst UK manufacturers could potentially benefit over time, 80 per cent of our economy is still made up of services, on which we are highly unlikely to be able to strike a trade deal with many economies, such as India.

Whilst business confidence remains positive for the short-term, we cannot take a blinkered attitude to the challenges we face. The most recent Chamber of Commerce report shows a huge spike in the number of businesses expecting inflation to push prices higher. Whether supermarkets can stock Marmite might seem of little consequence, but it shows that businesses are already having to choose reduced profit margins or increasing prices. At the moment, a 17 per cent devaluation in sterling and record levels of consumer borrowing are floating most businesses. But I am old enough to remember the consequences of debt and inflation. It feels so good and then comes the crunch.

In many ways, the timing of a disruptive Brexit could not be worse. Our economy, indeed the global economy, is undergoing fundamental change with all the new opportunities offered by the internet, artificial intelligence, machine learning and robotics. Those forces are pushing change further and faster in both services and manufacturing, going well beyond online sales and the “gig” economy of Uber and Airbnb. Many who regard themselves as in safe, skilled jobs will see those jobs disappear in the next five years. According to the Parliamentary Office of Science and Technology, “a 2014 survey of technology experts found that only half believed that technology would continue to create jobs at a faster or similar rate than it displaces them.” To manage that revolution, we will have to reskill people, build new businesses, find new ways of working and even, perhaps, identify new ways of structuring businesses. We cannot allow a whole class of people to become disengaged from the economy or tied to low paid, intermittent work.

Deeper problems underlie every scenario. Intergenerational fairness has been set aside for too long. Increasingly, the prospects of our young people are determined not by their talents or hard-work but whether or not they have a home to inherit from their parents. They suffered more in the recession than any other group. Our national infrastructure also remains wholly inadequate. The Government’s ambitions for broadband are a generation out of date, our renewable energy industries have been undermined by Government policy and plans for housing are so limited that they are frankly tragic. The Government shows no capacity to respond on any scale that can make a difference.

Our economy is operating in very difficult waters. The world will not wait for us to complete Brexit. Our Government must face up to underinvestment in infrastructure, intergenerational unfairness and the challenges of the 4iR. Above all, it has to get Brexit right, starting by keeping our businesses in the Single Market.

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