The UK Needs a Bold Plan to Break the High Tax, Low Growth Doom Loop

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"The alternative to a bold and wide changing economic plan, which is not purely based on industrially low interest rates and quantitative easing, is continued stagnation and underperformance" Charles White Thomson, CEO at Saxo UK.

It always takes a few weeks for the content of the budget to sink in. They are complex affairs with feints and plays aimed at hopefully achieving a balance between naysayers and supporters.

Well intended but uninspiring and more about the status quo as opposed to broad and bold changes balancing risk and reward.

I am an advocate for bold plans which will unlock the United Kingdom’s potential and to break the high tax and low growth loop. The status quo is increasingly painful and uninspiring, and this should not be about celebrating recent monthly GDP growth of an anaemic 0.3% and the avoidance of a technical recession.

The UK continues to underperform its key counterparties but are good clients of the bond markets with their focus on more of the same, regular coupons and Maturity; but importantly they have underserved the majority and their aspirations. Change is required.

As opposed to talking of the Chancellor and Government, I prefer to continue referring to the UK as a Publicly Traded Company.

Instead of Prime Minister we have a Chief Executive Officer and for the Chancellor, a Chief Financial Officer.

This, I hope, removes the politics, point scoring and infighting, which clogs the country’s progression. If recent comments on ‘managed decline’ are anything to go by, this is wishful thinking, but we push on.

My resounding conclusion from the UK PLCs recent financial statement (budget) is that the management team are in an unenviable position in that there is little wiggle room for large change.

Above: Real GDP growth forecasts from the OBR.

The UK PLC is effectively in a financial straitjacket with constraints including: £2.4 trillion public debt and all the servicing costs this entails, tax to GDP levels approaching record highs or 37.5% according to the Office of Budget Responsibility, and corporation tax moving to 25% from 19% for financial year 2023/24.

Financial outlook statements (budgets), for generations of UK PLC management, have concentrated on the status quo as opposed to a more dramatic plan to seriously kick start growth, confidence, and the all-important upside this brings.

The financial outlook or budget for a PLC is the final flourish of the business plan.

It is the icing on the cake and shows that the plan is roughly financially viable, delivered by the prudent and considered numbers people (CFO team), honing and supporting the ambitions of the CEO and management team.

Good plans include a considered balance of risk and reward.

Above: Employment forecasts from the OBR.

So, what to do and how to throw off the financial straitjacket in a sensible way?

UK PLC needs to boost the revenue and reduce costs – economics 101. Measures would include making Brexit work and enhancing the UK’s competitiveness versus the globe – becoming profitable and a popular place to do business.

This would include incentives and a tax system that attracts and supports global clients, partners and our home-grown projects.

Ireland PLC has managed to do this to good effect and should provide inspiration. On the subject of taxes, successful PLCs are highly profitable, and shareholders benefit from this.

The same logic should be applied with the UK PLC with a reduction in the personal tax burden. To this we add an open and honest debate around the sacred cows or major areas of expenditure including the NHS; and the general lack of UK productivity. There can be no off-limit areas or subjects.

Productivity is also an area that requires a major boost in the knowledge that since 2008 there has been a perfect storm to squash productivity – the global financial crisis of 2008 and perhaps we now add 2023, a global pandemic, multiple epidemics, climate change and all the dislocation this brings, a war and an industrially loose monetary policy.

>> Why productivity is so important to the economy

UK rates bottomed at close to 0% and this super cheap money meant that many projects were built on cheap financing as opposed to enhancing productivity or watertight business cases.

For productivity, the focus is rightly around the levelling up agenda, addressing the skill shortages, boosting the work force and most importantly, growing confidence which gives the final push to make the marginal investment.

As I review this truncated shopping list, it is important to recognise the symbiotic nature of the plan of delivering growth and ambition.

In isolation the plan dies on the vine in the knowledge that the fabled money tree is tired.

This will involve taking risks and that is why the marketing and delivering of the plan is absolutely key in preparing people, meeting the status quo supporters at the pass and addressing major concerns.

To finish with a flourish. We have an advantage in that UK PLC is the sixth largest global company or economy in the world with all the scale and reach that this brings.

This is about a bold and large plan to ensure that we deliver on its full potential and unleash the prosperity that a large part of the UK shareholders want.

The alternative to a bold and wide changing economic plan, which is not purely based on industrially low interest rates and quantitative easing, is continued stagnation and underperformance.

This will not be easy, but the alternative is to sell out the next generation which should never be a consideration.