Tag Archives: investment

Job creation or devastation?

Governments can create jobs in the public sector.  However unless they are balanced by jobs growth in the private sector, the public sector will not sustain employment and wealth creation.  Private sector prosperity creates the wealth required to sustain great public services.  It is the responsibility of government to create the conditions in which private sector businesses can flourish.

This means lower taxation to encourage re – investment.  The more you can encourage businesses to re – invest, the more jobs they will create, the more they will grow, the more sustainable they will be, the more profitable they will become.  The more people employed, the greater the revenues, the greater the profits, the more goes back in to the public purse via taxation.  It’s a simple model.  The more you tax business, the more ways business will spend money trying to find (legitimate) ways to avoid paying those taxes.

Across much of the developed world at the moment the argument is that we cannot afford to reduce taxation.  I understand why, but we are trapped in a vicious downward spiral.  Businesses are hoarding cash.  The survival mode of the last few years has meant strengthening balance sheets has been order of the day.  Having done that, confidence and the conditions required to re – invest still do not exist.

If you have cash right now then arguably you will emerge from this period much stronger.  Valuations are low, assets are distressed.  If you are in a position to acquire then the opportunity to strengthen your business is too good to miss.  So why are we missing it?

Its going to take a brave leader to create the conditions to encourage business to start spending again.  However do it we must.  Public spending must be cut, that much is clear.  Unless governments create the right conditions to encourage private sector investment and spending,  the private sector will not be able to pick up the “slack” created by public sector cuts, particularly in employment.

We need governments to be brave, strong and decisive.  Then we need them to step aside.   Short term pain, long-term gain.  Fail and we risk generations of disaffected unemployed.  It is too high a price to pay.  Action is needed now.

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Making stuff might just be a good idea

I found myself at the weekend facing a rotten garden bench in a state of disrepair.  I wanted to rebuild it, to return it to its former glory, only to find myself reflecting on my own inadequacy when it comes to all things practical.  As the son of an extremely talented engineer who seems to be able to turn his hand to anything practical, I reflected on the need for the UK Economy to have less like me and more like him.  Making stuff is what it’s all about and what we have gotten too far away from.

I once made the mistake of saying to a prominent member of the then Shadow Cabinet that “of course the real problem with the UK economy is the fact that we don’t make anything any more” only to be put firmly in my place.  The UK is the worlds 6th largest manufacturing nation and is still home to some of the worlds leading names in cutting edge engineering (Rolls Royce for example).  Just a week after the Office for National Statistics revealed that the UK economy grew more than expected in the first quarter of 2010, the same body revealed that UK Manufacturing grew at its fastest rate for 15 years.

Regardless of where you live, manufacturing is the key to creating jobs and wealth.  The problems of the UK economy reflect an over reliance on the service sector, public or private.  Getting back to inventing and making stuff the rest of the world needs is what we now need to fuel economic recovery creating jobs and wealth in the process.

Take Brazil.  Often overlooked by the success of China and India, the economy is forecast to grow this year by 6.1%.  I am sure Brazil has its problems, what country doesn’t?  But Brazil is innovating, engineering, manufacturing, making stuff, making money and bringing huge swathes of its population out of poverty as a consequence.  A recent initiative has seen the Brazilian Government fund 25% of the purchase price of a house for low-income families, evidence of how a booming economy can really help the wider population without having to rely upon an over bloated public sector.

The World Economic Forum show Brazil as the top country in upward evolution of competitiveness in 2009.  60% of its exports are manufactured or semi – manufactured goods.  Innovation is immense and the country enjoys a sophisticated technology sector.  Research in to renewable energy and sustainability is growing.  Brazil is now leading the way in ethanol production techniques for example.  Unemployment is at 7%, still too high but down every year since 2004 when it peaked at 12.3%.  Corporation Tax is 15%, encouraging inward investment and creating employment.

For a country to prosper, it needs to foster a low tax environment that encourages investment by its private sector.  This in turn creates jobs that in turn creates wealth.  A significant chunk of that wealth must be re – invested in education and in particular in the sciences and mathematics, the disciplines that encourage great invention, innovation and engineering.  We need our scientists and mathematicians to focus on innovation that encourages sustainability, to make the stuff we really do need, to protect the planet from being eaten by ravenous humans hungry to consume.  Investment in science, engineering, technology, sustainability and energy is long overdue in the UK and in much of the Western World.  And all this from someone who struggles to hammer a nail in straight!  Back to that Garden Bench.

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Cut business taxes, encourage entrepreneurs and business investment, create jobs and wealth, increase the tax take and hey presto a recovery!

If only it were really that simple!  I am a glass half full kind of guy, one who believes that the good will eventually rise to the top.  However I am concerned that there is the very real risk of a “jobless” recovery, or at least another 12 months before we will see any semblance of growth in the jobs market. Despite marginally improving economic conditions, in my experience employers are incredibly cautious about making external hiring decisions, preferring to look at the internal resource first. I suspect that as conditions improve we will see the inevitable rise in temporary and interim opportunities are employers remain reluctant to commit to permanent hires.

I am also concerned that whilst corporates show some signs of a return to stability, SME’s, the lifeblood of the economy, are still finding credit conditions such that it is virtually impossible to secure funding for growth. We also have the looming spectre of HMRC calling in the billions of pounds outstanding in PAYE and VAT under time to pay arrangements. This has proved a lifeline for many, plugging the funding gap that banks traditionally would have funded. However for some businesses this scheme has delayed the inevitable and I am concerned we will have a swathe of insolvency in the first quarter of next year as HMRC turns up the heat to improve cash in the public purse.

We also have a government, regardless of political persuasion, that must make cuts in the overbloated public sector whilst minimising the impact on front line services.  This I am afraid will clearly impact on jobs.  In order that we have a robust recovery, we must invest in education and innovation and reduce business taxation and the regulatory burden on businesses.

Research proves that cutting business taxes to encourage entrepreneurship and investment creates wealth through creating jobs.  This of course increases the amount of tax going back in to the public purse and as a result investment in public services.  All of which are critical to ensure we drive down unemployment, get great people back in the workplace and give the economy a robust platform for future growth.  This needs to happen fast.  On reflection, it really does seem that simple!

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