Taken from the Murnaghan Budget Debate with me; Luke Johnson, businessman; John Longworth, British Chambers of Commerce 15.03.15 courtesy of MURNAGHAN, SKY NEWS
DERMOT MURNAGHAN: More on next week’s budget now and what it could mean for business in the United Kingdom. I am joined by the Director General of the British Chambers of Commerce, John Longworth; by the economist and author Ann Pettifor and the businessman Luke Johnson who is Chairman of Risk Capital Partners which owns a number of high street restaurant and café chains. A very good morning to you all and as I was discussing there with the former Chancellor, Ken Clarke, Luke Johnson it is a pre-election budget, can the Chancellor dare make this a budget for business and will there be any votes in it if he does?
LUKE JOHNSON: Well I think what he needs to demonstrate and remind people is that this government has generally speaking done a damned good job over the last five years. They inherited an economy in a shambles and we are now a rapidly growing economy with falling unemployment, good investment, rising confidence and I think actually from the point of view of business, which is how we create jobs in the private sector, it’s been a good performance.
DM: Would you pick out a measure or couple of measures, specific measures you would like to see?
LUKE JOHNSON: Well I think the biggest single measure is that he has maintained low interest rates and a stable currency which has meant that mortgages haven’t become unaffordable and business that can borrow has been able to borrow at competitive rates and I think that set a general tone which means that we have been able to deliver growth and create these jobs.
DM: So steady as she goes really. Ann Pettifor, what Luke Johnson is saying there is that the general economic climate is a pretty fair wind for business at the moment.
ANN PETTIFOR: Well I just have to say that Luke is wrong on several things. First of all the Chancellor choked off a recovery that was already in place in 2010 and austerity really has not helped, it hasn’t helped productivity, it hasn’t helped incomes, people’s incomes have been falling in real terms over seven years and this in turn doesn’t help the rest of the economy and as for investment, Luke, it’s been pretty, pretty bad and the reason for that is partly because government investment has collapsed but also because the banks are not lending. There is a real problem and I think one of the big things he has to do in this budget is to do more than give the banks the funding. The Funding for Lending scheme has become the Funding for Not Lending scheme and he has got to do more in terms of making the banks shift lending from property where there is a bubble, into real investment for real businesses for real firms.
DM: Well let’s talk to a man who represents a lot of businesses. So we’ve got a clear dichotomy here, is it generally steady as she goes or is it a lot of work to do?
JOHN LONGWORTH: Well we have got good growth predictions. Our forecast that we published last week showed good growth over the next three years, 2.7, 2.6% growth. It’s based on consumption, that’s not good, we need more business investment, we need to shift the economy more towards exports, it needs to be a long-term sustainable growth but it’s growth nonetheless. If I were the Chancellor I would probably be looking to give something away immediately that would help voters and I would be looking to promise quite a lot of stuff for after the next election, given he’s got …
DM: That’s the facts but we are asking what for business?
JOHN LONGWORTH: But on business we’ve been very specific in this particular budget proposal, we said that we want the investment allowances to continue at the very high level they are at the moment rather than being cut back because this allows business to plan for investment in the medium to long term and that would be something that is very affordable, something that businesses can focus on. In the Autumn Statement of course we also asked for the Chancellor to increase the amount of compensation people receive for infrastructure disruption which will enable infrastructure projects to go ahead because people will be less inclined to say no if they are getting 150% of the value of their property for example.
DM: Okay, Ann?
ANN PETTIFOR: The real problem for businesses I think is deflation, prices are falling. Prices of products they are pushing out the door are falling and that means that profits will fall. I don’t think that the Chancellor, or indeed most economic commentators, have put enough focus on the threat of deflation because Britain is a highly indebted country. Our personal and corporate debt is very high and is, the OBR predict it to be even higher in a few years’ time. The Chancellor I think and the Bank of England have been astonishingly complacent about something that would really affect small businesses, the way in which their prices are falling. Now input prices are falling, oil prices are falling but that is not the real reason why prices are falling across the board, the real reason prices are falling across the board is because of a lack of demand, because of austerity essentially.
DM: Which has affected consumers?
ANN PETTIFOR: There is both a lack of consumer demand and investment demand and the Chancellor has to address demand.
DM: I have got to bring Luke Johnson back in this because there are several points that Ann Pettifor has refuted and you can re-refute them, if that is a word, on investment. So deflation, okay, it in particular it is evidenced in the eurozone but is there much a government can do about that?
LUKE JOHNSON: I don’t think so. If you look at job creation, if you look at new business creation which is at record levels, if you look at the fact that 85% of the population work in the private sector and are not that affected by government investment, I think it is frankly political the idea that we have really suffered austerity. You can’t have it both ways, if we are very highly indebted then to run prudent budgets is surely correct isn’t it?
ANN PETTIFOR: Well it isn’t Luke because what’s happened is we had a big financial crisis and the private sector contracted massively as a result of that through no fault of their own, investment collapsed and this is because of the banking crisis and in that circumstance the government has to intervene. We have seen the fall in GDP and growth is a function of the fall in government spending and government investment. Normally the government shouldn’t do this but …
LUKE JOHNSON: I don’t agree, I don’t agree.
ANN PETTIFOR: … the point is that the government’s investment stimulates the private sector, think about …
LUKE JOHNSON: So what happened in France? Unemployment is almost twice ours, they’ve had no growth in recent years and that is because they have continued to spend more than they can afford, they have an unsustainable public sector and what this government is actually done is say we need a bigger and more healthy private sector, we need to attract investment and we need to …
DM: All right, hold on, let me bring in John Longworth because there is a philosophical divide here about how much, what the government can do about providing not just a stable business environment but by encouraging growth and Ann Pettifor was very clear that the government could spend and invest a lot more and that would stimulate the economy.
JOHN LONGWORTH: Well the speed at which the government invests or spends money of course is a matter of debate, the fact of the matter is that we do need to get the deficit down because we have to have a cushion against potential world shocks that come forward, you never know what’s going to happen next and at the moment we are in a very fragile situation with the deficit being as high as it is. There is no question in my mind that in the last four or five years the Chancellor has actually played a blinder. What he’s done is persuade the world markets that he has applied austerity which has given confidence in the UK …
DM: And then not actually applied it.
JOHN LONGWORTH: Exactly, which is a good thing in these circumstances.
DM: So in effect pulling the wool over the eyes of the …
JOHN LONGWORTH: Then of course is what happens next which is the really important thing because in the next parliament whoever comes into government is going to have to cut the deficit much more strongly.
DM: Okay, I want to ask you, don’t sit on the fence for me now, we are looking beyond the budget, beyond the election, you fear a Miliband led government don’t you, especially if they are in coalition with the SNP.
JOHN LONGWORTH: We never comment on parties or people, we only comment on policies and actions so we’ll be looking at all the party’s policies over the next few weeks and commenting on whether we think they are good for business. There is no question that whoever comes into office is going to have to cut the deficit, it is all a question of at what speed and how they do it, whether it’s by tax or cuts.
DM: So do you accept that, whoever gets into power does have to continue dealing with both the deficit and the overall debt?
ANN PETTIFOR: You know, I think this obsession with the deficit is bizarre actually because it’s really not the issue but the other really interesting thing is that the deficit is at about 5% which is higher than it is allowed to be across the eurozone which is why we’re doing better slightly. The Chancellor cut very substantially until 2012 when he realised the error of his ways and he started to increase spending and then the recovery began. He did that and then he boosted – the Bank of England has lent £55 billion to the banks in order to stimulate basically investment and lending for small businesses, that’s all gone into property and we’ve got a massive property boom. Call that a blinder? I would call that a blinder when people see property …
DM: That analysis is persuasive isn’t it, Luke Johnson, in terms of what we’re doing again, are we beginning to repeat the mistakes of past, consumer led, money going into housing, inflated prices certainly in the metropolitan area?
LUKE JOHNSON: I don’t think we need to be too London centric, I think it’s an exaggeration to say it’s all gone into property. There is no doubt that there is…
ANN PETTIFOR: Excuse me, banks have stopped lending to businesses, they are only lending to property.
LUKE JOHNSON: If you let me speak then at least I can respond to your remarks. I do believe that there is investment going into business, these things don’t happen quickly. As we’ve heard I think actually to maintain low interest rates and to produce the growth we’ve had or to help produce the growth we’ve had or to help produce the growth, which other countries have achieved that? To cut unemployment and thereby save money, that’s a great achievement and I think that to think that what we need to do is far more government spending is naïve at best.
DM: When you talk, you’ve said it twice now about low interest rates, hasn’t the Chancellor just got lucky with the overall prevailing global environment and now we’re seeing falling commodity prices, in particular oil and the inflationary outlook, as Ann Pettifor was saying, it’s not inflationary it’s deflationary so interest rates can stay low.
LUKE JOHNSON: Yes, well sure he’s been lucky and I think it’s useful to have people in charge who are lucky.
ANN PETTIFOR: But talk to the people whose incomes have been falling in real terms over this period, they don’t feel this has been a blinder of a Chancellor basically, they are feeling really hard done by and as I think John said, think of the young people, oh no it was Ken Clarke who was saying that, think of all the young people who have really lost out and are going to be pretty bitter about it. Pensioners have done rather well.
DM: Just one last word from you John Longworth, we’re nearly out of time, your feelings on what Ann’s just said?
JOHN LONGWORTH: Well there are big challenges, we have still got over half a million young people out of work under 24 and it is very important that we actually give them skills to make them employable so the education system needs to be reformed for example. There is an issue about businesses getting access to finance, we still have a substantial number of businesses in our network saying they can’t grow to be the mid-sized businesses of the future, the home grown businesses of the future, because they can’t get access to finance so we have still got a big issue to solve there but we’re making progress.
DM: Okay, well listen, thank you all for your thoughts, all will be revealed of course on Wednesday and I’m sure a lot more of you will be tramping in and out of the studios during the course of Wednesday. Luke Johnson, thank you very much indeed, John Longworth and Ann Pettifor, very good to see you.