Leader: Country’s confidence needs boost of better things to come

PRIME Minister David Cameron has succinctly set out the task he faces at the Conservative Party conference this week: “We have got to explain to people,” he declared yesterday, “that there is something better at the end of this.”

The central problem is confidence. It is draining away. Our prospects have deteriorated and the decline in the past two months has accelerated. Growth is now set to fall well short of that needed to generate the tax revenue necessary to meet the coalition’s deficit reduction aims. Hopes of a Scottish exceptionalism are fading, with the latest Lloyds TSB Scotland Business Monitor showing two-thirds of firms reporting static or reduced turnover, and a decline in expectations for the next six months.

Meanwhile there is growing apprehension over developments in the eurozone and the risk of a banking and financial debacle every bit as severe as that which followed the fall of Lehman. As the euro region accounts for some 46 per cent of our exports, and our banks are exposed to Spanish and Italian sovereign debt as well as Greece, we are directly affected. Already business investment is being held back, banks are reluctant to lend, households are fearful of spending and confidence continues to weaken. Continual downgrades of growth forecasts suggest virtually no improvement in 2012 and little better the year after that.

What the public needs to hear is how indeed there will be “something better at the end of this”. We need radical and credible proposals to help staunch a decline that could carry us back into recession and destroy the very deficit reduction strategy that we are told stands alone between us and the fate of the eurozone’s debt-laden economies.

The problem of course is how to arrive at a list of measures that would help recovery but would not scare the markets or imply that the deficit reduction programme is being abandoned. That could leave us with the worst of all worlds.

There is much the government can do to help give encouragement to the small and medium sized business sector and to encourage small firms to take on staff. Timely advice has come from the British Chambers of Commerce. Its survey of more than 2,000 small firms shows that almost two thirds want to take on more employees but are frustrated by employment regulation, while one in five businesses have been threatened with an employment tribunal. Small firms, fearing heavy legal costs and distraction of time, give in and settle. Lifting the regulatory burden for these firms would encourage employment while not presenting a great cost to the Treasury.

The Institute of Directors recommends similar measures together with a declaration of intent to cut Corporation Tax to 15 per cent by 2020. It may not be as far as the SNP administration would wish, but it could be a spur to the kind of longer term investment we need.