Chasing the money in Davos is one thing, but the Chancellor is leaving the real economy starved of cash, says TERRY MURDEN
Chancellor Rachel Reeves and the Business Secretary Jonathan Reynolds have been breathing in the fresh Swiss air at the World Economic Forum in Davos, with a message for international business leaders and investors that the UK is open for business. They would have been well-advised to smell the coffee and hear the doors of small firms being firmly closed back home.
As a former Bank of England employee, Ms Reeves is used to meeting the high flyers who gathered in the Alpine resort and whom she courted in the months before she got the top job at the Treasury.
They informed her view of the UK economy and what needed to be done. Hence the focus on galvanising the pension funds into investing some of their billions into infrastructure, and the creation of the National Wealth Fund and GB Energy. The big ticket items are being ticked off, backed with a quango or two, and an expectation that they will underpin her growth plans.
It’s just a pity that she didn’t spend more time in the other engine room of the economy, chatting with the shopkeepers and restaurateurs, and the myriad of small business owners on the industrial parks where less time is spent swilling Prosecco and more on trying to make ends meet.
They employ most of the labour force and put food on the tables of millions of families. They are also paying a heavy price for balancing the other side of Ms Reeves’ equation: propping up the public finances.
While the Chancellor and Mr Reynolds were building bridges with the money men, the economy back home is beginning to wobble on those famous foundations that Labour said it needed to re-build. The fierce storm that greeted their return to the UK was a cruel metaphor for the headwinds battering businesses across the country.
Companies that had hoped the budget would help stimulate growth were instead hit with £25 billion of added costs. That kicks in from April and companies are preparing by laying off workers, cutting hours and trimming their forecasts. A new survey from Begbies Traynor reveals a hike in the number of businesses in distress, mainly those in hospitality, retail and construction.
Vacancies are down for the 30th consecutive month. Unemployment may have fallen in Scotland, but across the UK it is rising, now at 4.4%, and this is the figure that should force the Chancellor to take notice. These are the direct result of the difficulties companies are already facing. The hike in costs from April means the second half will be even tougher.
There have been calls for emergency measures, even a spring budget, to force the Chancellor to row back on some of her tax rises and reset some of the net zero targets. Among other actions she could take would be to cancel the windfall tax on oil and gas profits, which has led to a flight of capital from the North Sea, and replace it with tax reliefs to those who invest in clean energy.
Crucially, thousands of SMEs need help. They have been promised a reform of business rates but it won’t come quick enough to save many of them.
Some firms will protect jobs and margins by raising prices. The supermarket chains and hospitality groups, such as the Scottish chain Signature, have already said that the the rise in NICs would be inflationary.
That, however, creates another challenge for the Bank of England. Amid talk of up to six interest cuts to help prop up the economy, they may instead be kept higher for longer if inflation spikes. Forecasters are expecting slow, if any, growth and there remains a risk of recession. There is talk of stagflation, a mix of higher prices and sluggish growth.
It’s not what Ms Reeves promised when she became Britain’s first female Chancellor, but it is partly a result of the slump in confidence that followed the Prime Minister’s warning that things would get worse before they get better. No one expected Labour to turn out to be The Traitors.
Terry Murden was Editor and Business Editor at The Sunday Times Scotland, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business.
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