I believe the UKs Turnaround Strategy is under further threat. This time as a result of our living and working in one of the leading democracies in the world!
Now we have a fixed 5 year term for our sitting governments, and with serious election mode kicking in some 9 months before the vote (as we are now seeing), The Chief Turnaround Officer, in this case George Osborne, only has just over 4 years to get it right!
In my opinion this makes thing very, very, difficult as he has to be cognisant of all the stakeholders, as with all turnaround strategies, and always be seen to be saying the right thing. It’s not a coincidence that before the last election Messrs Clegg and Cable were seen as quasi messiahs as they were saying what the majority of people wanted to hear. With little or no hope of coming to power it seems this is what you do. This time round it is Nigel Farage doing the ‘common sense’ talking that is attracting the headlines. Easy when you don’t have to put these policies into practice….
Deficit reduction is pretty crucial in most turnaround plans. Mr Osborne has done a pretty good job against a backdrop of massive over borrowing by the previous government following the expansion of the public sector and the subsequent financial crisis. However, as a result of the five year term he has been forced to moderate his cost cutting to placate all those voters that had been relatively spoilt in the previous government.
It’s no coincidence that the leader of the opposition gave a speech at their recent party conference laying out a two term, ten year strategy to put their Turnaround Strategy into place! He also completely ‘forgot’ to talk about deficit reduction after having said they would spend more on the health service and increase the minimum wage. Noble aims, but where does the money come from?
As a result of this situation the Office for National Statistics has just reported that the Public Sector net borrowing was £11.6bn in August, with the total for the year at 45.5bn, which is an increase of 6.2% on the same time last year!
The recovery has been slow, and in my opinion as per previous articles, only really taken significant strides forward when the Chancellor and the Bank of England came up with the master strokes of Funding for Lending and Help to Buy thereby reigniting the housing market. Like magic the economy suddenly returns to growth 18 months before the election! Recent figures from the ONS show that the economy is now 2.7% bigger than the pre-recession peak. With interest rates rise facing an increase in the short term and mortgage borrowing criteria being tightened, this renewed growth may be short lived.
The Chancellor has been further hamstrung by a lower than expected income tax take as despite employment improving, wages have remained stubbornly low, as there is obviously still slack in the economy. In August income tax and social security receipts were just 1.6% higher than a year before. In the year to August, compared to the same period in 2013, the amount recovered is 0.6% lower!
The reasons it seems are the drop in youth unemployment (i.e. not much tax payable on starter wages) and the explosion in self-employment which won’t reap dividends until after the self-assessment returns in January!
It is a conundrum, do we go for longer terms in government and run the risk of being saddled with an incumbent who takes us down the wrong path for say 8-10 years or do we stay as we are and enjoy living in our wonderful democracy where everyone has a voice, and has to be listened to by our politicians.
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John Thompson is Managing Director and founder of Trans Capital Associates
Image by: Simon Cunningham