Bill Jamieson: Where is the boost to growth?
Opposition parties have united in opposition to an October election and will vote against a Commons motion scheduled for tomorrow to permit the government to call a general election until the Prime Minister has asked Brussels to extend the UK’s exit deadline by at least another three months.
Amid continued dire warnings of supply disruption, chaos at ports and shortages of food and medicines, almost all business lobbies were opposed to a no-deal Brexit on Halloween. Relief should surely be in order.
But there is little by way of celebration, still less an end of investment-curbing uncertainty. Given the repeated declarations by Boris Johnson that he would never agree to seeking an extension, we cannot be sure which Prime Minister will go to Brussels to make the request, how long such an extension might last, whether it will automatically be granted or what conditions might be attached.
Businesses large and small, already driven to distraction by three years of parliamentary chaos and division, procedural shenanigans, the fall of one prime minister and the boxing in of another, are none the wiser as to what form of EU withdrawal the politicians can finally agree upon.
The bland assumption is that further uncertainty is broadly costless, that another three months can be accommodated. But it is a major cost to business investment and expansion, while a falling pound works to drive up the cost of imported raw materials, semi-manufactures and finished goods – and all this while global trade tensions slow world trade and risks of a domestic recession rise.
New Chancellor Sajid Javid hoped that his statement last week with its spending boosts would mark an end to austerity and lift morale. But it could scarcely register above the deafening cacophony and chaos at Westminster.
And as the spending measures were chiefly targeted at government departments, education, health and social care, it failed to address the overriding concern of businesses across the land: where were the measures to improve productivity and boost growth? Indeed, there was little to suggest, in the face of mounting evidence of slowdown, that the administration was prioritising “going for growth” at all.
All this, it was hinted, would be addressed by a budget later this year. But if the likelihood of Javid being in situ to deliver such a budget was in doubt when he delivered his Spending Review in the raucous Commons last week, it looks decidedly more questionable now.
Meanwhile, evidence mounts of a slowing economy – and with the prospect of three more months of Brexit delay looming ever larger. Latest pointers on service sector activity show effective stagnation with a decline in the headline Purchasing Managers’ Index (PMI) and the pace of activity well below historical norms.
Chief economic adviser to the EY ITEM Club Howard Archer said: “The detail of the survey was equally concerning, with firms reporting weaker growth in new business and citing the political climate as the key constraint. Respondents reported that uncertainty was increasingly weighing on corporate spending, encouraging clients to wait for developments before committing to new projects.”
The data, he added, rounded off a poor set of CIPS surveys, with both the manufacturing and construction PMIs stuck deep in contractionary territory. Historically, the current level of the services sector would be consistent with another decline in GDP in the third quarter, thus meeting the definition of a technical recession. But for now he believes that the economy will narrowly avoid one, with GDP growth of 0.1-0.2 per cent in the July-September quarter.
Here in Scotland, business continues to chafe at the level of business rates. The Non-Domestic Rates Bill, says Scottish Chambers of Commerce chief Liz Cameron, “does not go far enough to reduce the rates burden being faced by Scottish businesses. For example, the current poundage rate is at a 20-year high with £65 million worth of costs being put on to businesses due to the Large Business Supplement being out of parity with the level currently in England.”
And the SCC remains wary of the Transient Visitor Levy Bill as many of Scotland’s communities depend on tourism and hospitality spending. “What is absolutely clear,” Cameron insists, “is the need for business communities across Scotland to be fully engaged before the introduction or implementation of any additional tax burden is placed on the private sector.”
But the immediate problem faced by business is greater than the sum of its parts: a parliament in gridlock, Brexit set for further delay, a deeply polarised general election whenever it comes, and an economy within a hair’s breadth of recession.
Another hung parliament with a minority administration under Jeremy Corbyn supported by tax-raising minority parties would surely be the ultimate business nightmare – as if it has not already had enough to endure.
Farewell PPI – or is it?
Just when we thought a line had been drawn under the Payment Protection Insurance debacle, yet more claims have still to be settled. According to latest calculations, this two-headed monster of a scandal – the original miss-selling, compounded by try-it-on bonus claims incited by fee-chasing legal firms – could cost banks a total of £53 billion.
The latest estimate by Dominic Lindley of New City Agenda comes as CYBG, the owner of Clydesdale, Yorkshire and Virgin Money, warned of a potential £450m bill for new claims. Shares in CYBG plunged 21 per cent on the news.
Royal Bank of Scotland, owner of NatWest, said it could face a £900m charge, while Co-operative Bank said it was assessing its costs.
Lindley believes the bank with the biggest bill, Lloyds Banking Group, could announce an extra provision of £2bn, while Barclays might set aside as much as £1bn more.
But always look on the bright side of life. Never have sales of flat screen televisions owed so much to so many. The one galling crumb of comfort in this whole miserable saga is that a struggling economy has been helped by a spending boost greater than anything a Chancellor of the Exchequer could proclaim.