PATIENT, LONG-TERM CAPITAL WILL BUILD GROWTH
Sir Vince Cable, Secretary of State for Business, Innovation & Skills in the Coalition Government, talks about the consequences of Brexit - and the recipe for future economic growth.
Do you think the vote to leave the EU has taken our business leaders by surprise?
Yes. I attended a number of business events in the run up to the vote and whatever their personal feelings, most business leaders thought we would remain. But they are also pragmatic, and since the vote I’ve been surprised by how quickly their mind-set has changed. They are already starting to look for new opportunities.
Brexit has implications for trade, free movement of workers - and for business confidence. What should owner-managers be expecting in the coming months?
The big shock to the economy that we expected has in fact been rather more modest. The Bank of England had a plan, and it acted quickly to inject a large amount of liquidity into the system. Also, some of the uncertainty had already been priced into the markets. Few small businesses are involved in international trade, which is why their attitude towards Brexit was more ambiguous than that of larger companies. We can expect a slowdown in consumer spending and a shrinking economy.
What is your economic forecast for the longer-term?
The next two or three years will be a period of radical negative uncertainty. We don’t know how our relationship with the EU will evolve. The housing market has taken a hit and by next spring we could well be in a Brexit recession. Any freezing of investment is bound to affect productivity and growth. Perhaps in eight to ten years everything will have adjusted but there are tough times ahead.
Much has been made of how Brexit will ease the burden of business regulation. Should OMBs expect to see a reduction in red tape?
Personally, I don’t believe they should. Planning is the most serious burden and that is entirely home-made. During my time in government I was responsible for a lot of social regulation including more flexible working and shared parental leave. Given the events surrounding [Sports Direct founder] Mike Ashley and Sir Philip Green, the mood is to tighten business regulation, rather than to relax it.
In the aftermath of the financial crisis you took steps to make the big High Street banks increase their small business lending. Do you think they offer enough support today?
No, although I think access to credit has slipped down the worry list for some smaller businesses. A couple of the big banks have made a push to increase their lending, but the remainder are still quite reluctant. The emergence of challenger banks and peer-toper lenders is bringing some much-needed competition.
You set up the British Business Bank to give OMBs access to alternative finance after the banking crisis. How do you see its role after the leave vote?
Now it has an even bigger job to do, especially if the High Street banks disengage with higher-risk businesses. Too many people have overlooked the Business Growth Fund, a £3 billion fund which has done a brilliant job so far, offering a mix of loan and equity funding to medium-sized firms. It offers the patient, long-term capital that we need to build growth.
Productivity in Britain remains 30% below the US, France and Germany, according to government figures. Why is this the case?
I’m cautious about international comparisons because it depends on what exactly is being measured. In Britain, we have been very successful at getting people into work, but they are often part-time or low-paid jobs. Our industrial strategy must have more of an emphasis on improving innovation, and skills.
What can OMBs do to improve productivity?
Think longer-term – which can be hard, because there is a lot of pressure to focus on short-term issues.
You championed apprenticeships – what would you say to an owner-manager who was considering hiring one for the first time?
I understand why they don’t want to get involved: training an apprentice can be a distraction and there is the worry they will be poached. But things are beginning to change and not all promising school-leavers are being funnelled to university. It’s an investment in productivity. The Apprenticeship Levy [which comes into force in April 2017] is an incentive to get involved.
What is the overall message of your latest book, After the Storm?
We are still suffering from the consequences of the banking crisis in 2008 and we should not imagine structural issues such as the housing market, industrial strategy and the need for banking reform have gone away. Brexit adds another layer of difficulty. We are still dependent on the adrenalin of cheap money – and that can’t last forever.
What are your thoughts? Let us know in the comments.