George Osborne will need to be “Churchillian” in acting swiftly to bolster corporate confidence and unlock private investment in energy, transport, broadband and housing, according to the head of Britain’s biggest business lobby group.
John Cridland, director-general of the CBI, said business was still standing by the chancellor’s deficit reduction strategy, but wanted a “Plan A-plus” in his autumn statement and growth review on November 29 in the face of a weakening economy.
“I think we need to be a bit Churchillian here. You know, what did Churchill say in the war? Action this day,” Mr Cridland said in an interview.
He pledged that business would respond if Mr Osborne acted to improve the UK’s productive capacity by getting the market framework and planning regime right for infrastructure projects, while accepting the chancellor had few tools to stimulate growth immediately.
“We fool ourselves if we look for things that could have an impact on the growth rate in the first quarter of 2012,” Mr Cridland said. “But that doesn’t mean that it’s all pointless, because if the problem today is confidence, then you can turn confidence without having a detailed practical impact on day one.”
Business would “respond, quickly, to clear signals that government is acting to strengthen the economic capital of the nation in the medium- to long-term”.
Eight months into his job as CBI chief, Mr Cridland insisted companies were proving resilient as clouds darkened over the global economy.
“They are hunkering down, expecting it to be stormy, but lots of them are doing steady business,” he said. “They’re sometimes having to lose margin to protect volume, to keep the wages paid. That can’t go on forever, but there’s a certain sense that we have got to find our way through this.”
The mood, he said, was not defeatist. “It reminds me of someone who’s swum out a bit further than they ought to have done at sea. If the winds get up it’s quite choppy getting back to the shore, but what alternative have you? You swim harder.”
It was no good politicians urging businesses to invest or recruit extra staff. “They will only do it when they see the demand there, and that’s back to restoring confidence.” The CBI’s annual conference on November 21 will be entitled Beyond India and China – emphasising the urgency of stepping up exports across emerging markets.
Mr Cridland has felt “refreshed and depressed” by the party conference season – refreshed because all the parties recognised it was a “sober moment” for the economy, but depressed because he heard a lot of “ill-founded” criticism of the business community at the Labour and Liberal Democrat conferences.
He was pleased Mr Osborne refused to backtrack on deficit reduction, but wanted now to hear about steps to encourage investment in infrastructure, housing and boost the growth potential of midsized companies.
“It amazes me that even now, with all the difficulties we’re having, I haven’t got anybody in the CBI membership who wants less reduction in public spending, because they know that that AAA sovereign rating is the most important thing, and their ability to borrow money at reasonable rates.”
Mr Osborne’s credit-easing proposals were “well worth some examination”, he said. The CBI supported the Bank of England’s £75bn extension of quantitative easing while warning its impact on near-term growth prospects would be modest
Mr Cridland will listen nervously, however, for what the Office for Budget Responsibility says about whether the output gap is smaller than previously estimated and, therefore, whether the economy’s long-term growth rate is more muted.
In spite of his support for deficit reduction, Mr Cridland suggested the Treasury look at the “profile” of planned spending to see if some capital projects could be brought forward. But he insisted most of his proposals could be achieved without extra state spending.
“People in the Treasury say some of my infrastructure ideas are not spade-ready. But even the ones that aren’t spade-ready – if corporate balance sheets are strong, business will invest if it sees a forward map that says the UK is a good bet.”
The key to energy investment was getting the market framework right and, especially, obtaining planning permissions. Energy from waste plants were particularly bogged down by local opposition, as were wind turbines.
For transport, new funding mechanisms were needed, such as toll roads. On broadband, he said the UK needed to “get moving” with an auction for the spectrum that could carry next-generation mobile services, the so-called 4G network.
Mr Cridland believes housing should be boosted through a revitalised mortgage indemnity guarantee scheme, possibly through a deal between mortgage providers and housebuilders and with some “very focused” government support..
Businesses wanted to see a “more worked-up rebalancing of the economy” in Mr Osborne’s autumn statement, he said. “They want the government to indicate where it felt we had a chance, as the UK, of being a world winner, and what government could do to put its shoulder to the wheel to help achieve that.”