Host
Philippa Lamb
Guests
- John Boulton, Director, Policy, ICAEW
- John Godfrey, Managing Director, Public Affairs and Research, TheCityUK
- Peter Arnold, Chief Economist, EY UK
- Anne Allibone, fractional CFO, Allibone Consulting
Producer
Natalie Chisholm
Transcript
Philippa Lamb: Welcome to Behind the Numbers. I’m Philippa Lamb and today we’re talking about economic growth and what it’s going to take to make it happen for UK plc.
Peter Arnold: You cut costs, which means letting go of people, and that’s it really, or you take a lower profit. But given profits have already been eroded by inflation and wage pressure already, I think sadly that quite a few businesses will take the decision to, if not cut work, certainly stop hiring.
Anne Allibone: For businesses starting up, where they do have a choice of where to start up, you’re going to see a lot of those founders potentially looking to start up in other locations. There have been a lot of tax hits that can make a difference to people making those decisions.
PL: With an Industrial Strategy due to be published in the next few months, and various reviews of tax and regulation, leveraging growth is clearly the government’s top priority right now. But is it creating and pulling the right levers? Joining me to share their expertise on that I have four guests. John Godfrey is Managing Director of Public Affairs at the industry-led body TheCityUK, which represents financial and related professional services, and which fed into the new Industrial Strategy. Also with us: Peter Arnold, UK Chief Economist at EY, Anne Allibone, a fractional CFO who works with high-growth SMEs across the UK, and John Boulton, ICAEW’s Director of Policy.
Hello, everyone. Thanks for being with us. Now, the government is reviewing several specific areas, as I’ve said, in the hope of getting growth going. The Industrial Strategy is one of them. John Godfrey, what do we know about it so far? They’ve identified eight growth-driving sectors, haven’t they?
John Godfrey: Two of those are financial services and related professional services, and I think they have identified the right sectors. There is a big horizontal role for business services and professional services and finance in delivering all the rest of it, so I think they have done a good job identifying the sectors.
PL: Okay, so these are the sectors, just to be clear – it’s creative Industries, advanced manufacturing, defence, tech, life sciences and clean energy. I wonder, Peter, is there a danger they’re ignoring what we might call a more foundational economy, where most people actually work?
Peter Arnold: Yes, I think the sectors they’ve identified are, if you like, the ones that have been growing very rapidly, the ones that the UK has what we would call a comparative advantage in, we do very well in, we have world-leading companies in. But I think we have to remember that it only really employs maybe 15%, 20% of the population, or working-age population, in those areas and the vast majority of the working population sit in things like consumer-facing services, so retail, hospitality and leisure, or in public services. So while I think it’s important you have an Industrial Strategy, and you think about where does your country do well in and where do you have that advantage, we do need to remember that… and I’m sure we’ll come on to talk about productivity… that productivity is a challenge that really exists all the way down the economy, all way through the economy, not just about driving those very rapidly growing, highly value-add sectors in the economy.
PL: Yes. John Boulton, talking about productivity, the public sector needs to factor in, doesn’t it? Big employer – we’re not really hearing much about it?
John Boulton: The public sector makes up a significant part of the economy, so clearly needs to be part of this Industrial Strategy as well. If you think about some of the areas where it’s going to make the biggest impact – things like public procurement, clearly that’s a major area that needs to be factored in, and as a driver for innovation as well, and what can be done in that regard. The DARPA [Defense Advanced Research Projects Agency] agency in the US, we have a similar agency in the UK but it’s very much smaller. So how do we get the public sector being part of the innovation journey? I think we’re very keen to see technology being seen as an overall process, not just focusing on individual technologies, not just focusing on individual actors in the chain but the whole process that gets the technology from innovation through to market. And I think when you think about technology in that sense, then the public sector has a key role to play.
So I’d say public sector is suffused throughout the Industrial Strategy and is an important part of it, even if that’s not always explicit.
PL: And talking about tech, it seems to me there is a danger … I mean, it’s absolutely inevitable, isn’t it, there’s going to be competing demands across these eight growth sectors? And the one that springs to mind right now is about tech, and it’s this idea of harvesting AI, harvesting creative content regardless of copyright. Obviously the creative industry is very unhappy about that idea, tech AI say it’s essential for them to grow. It’s not going to be plain sailing, this, is it?
Anne Allibone: I think it is going to be very difficult. There’s obviously the increase in AI and technology and how we use it. There’s obviously huge opportunities to improve efficiency across all sectors and to make sure that they’re using that AI to enable them to grow better and be more efficient. But that is going to cause some market disruptions. We’ve seen it before in other types of sectors. The creative industry is one that’s currently a concern. I think with any uncertainty, it’s more around how do we then use that technology to make sure that we go along with the change?
PL: That’s about investment and access to finance for SMEs. That’s something that comes up a lot. It’s something you talk to your clients a great deal about, I imagine?
AA: Absolutely. I think the access to finance is a really key one, in particular if you want SMEs to choose to invest in growth. Obviously there’s a difference between the funds that they use to support their ongoing business but then actually additional investment that they’re going to make to grow quicker or move into more markets or to look where the sectors are changing. Certainly the government can do a lot to support that. The SEIS and the EIS schemes they have are really helpful at that low end, then obviously the tax breaks for VCTs, but I think also the access to finance in terms of funding and debt funding is an area that they could look at. Certainly it’s quite expensive for small to medium companies to arrange those kind of debt agreements with arrangement fees, the high interest rates. And I definitely think there’s an opportunity there for the government to make that easier for businesses. With COVID, the amount that they managed to get out with the bounce back loans and the CBIL loans, they managed to actually make that a relatively simple process so that there was then £77bn available to businesses relatively quickly.
PL: John Boulton, from what we’ve heard and what we know so far of the Industrial Strategy, does the ICAEW have an overarching opinion of how it’s looking so far?
JB: The Industrial Strategy is a good step forward. That it was issued so early in the parliament is a great sign of what’s to come. The commitment to a 10-year period giving that stability… the number one thing our members say is what they want is certainty and stability. Unfortunately in the current environment sentiment has been declining – the reality coming into this year is that that certainly is going to frame the environment within which the Industrial Strategy is introduced. But the fact that it recognises that we need to achieve long-term stability, I think, is grounds for optimism.
I think there are two things in particular that still need to be addressed. One is, skills is an issue that comes up throughout conversations with business, and in a services-based economy, in an economy that’s becoming increasingly high tech and therefore high skills, it’s easy to overlook the human aspect. There is some real work to be done in terms of skills, getting the right skills into the workplace, involving the school system in that, but also low-hanging fruit – just things like the apprenticeship scheme, making sure that we get more people with high-level skills into the economy through the apprenticeship scheme, something that’s working well – could be improved in some regards – but I think there are some easy things that could be done which point to greater connectivity across government. So lots of potential, but the climate at the moment, unfortunately, isn’t the best to be launching the Industrial Strategy in.
PL: Moving on… of course, regulation is another focus. The Chancellor has just announced a better Regulation Action Plan, the intention obviously being to cut down the administrative burden on business. I’m interested to know what you all make of it. Peter, what’s your thinking?
PA: Well, again, I think it’s a good start. If I was to think of some of the characteristics of why growth has been so slow in the UK, then I think the ever-increasing burden of regulation, whether it’s environmental, health and safety or just common practice, has just built up over the last 10 to 15 years. Very rarely does government do proper impact assessments of that regulation, and so therefore they don’t really understand the cost to business of imposing that type of regulation.
I was at a dinner earlier this week, on Tuesday night up in Liverpool, and I was talking to a manufacturer who was saying about some packaging taxes that are coming in later this year. There’s a huge obligation for his business to meet those requirements, to pass some costs on down to the consumer, and I’m not always sure that government recognises the impact of the regulations. So if we can start having a better framework to look at where these do impose costs on businesses, and have a proper cost-benefit analysis, and then deregulate where possible, then I think there’s a real opportunity just to ease, if you like, ease the path of businesses and that will improve growth.
PL: Anne, we always hear about this from SMEs, quite understandably. It’s a huge burden and proportionately a bigger burden for them?
AA: Absolutely. I think generally everyone understands the need for regulation and why it’s there, but once it actually gets to that end point of the policy and regulation changes, it’s difficult to know how it’s going to impact you. And I think the difficulty for SMEs is actually they want to be compliant, they want to make sure they have the right things in place, but that can be very costly, and often there isn’t the advice there to give them the advice to simplify it for them. So it ends up quite protracted conversations, it ends up a lot of legal fees spent to actually get to that right outcome.
PL: Are there any outlier regulations you’d like to see the back of?
AA: Well, again, it’s difficult for me to say because for one client it’ll be different to another one. So it’s very individual, client specific, but obviously any reduction in regulatory burden, red tape, is always going to be welcomed.
PA: I wanted to build on the point you made there, because I think what government doesn’t always understand is, while some of the larger corporates have big compliance departments, big tax departments that can readily take on the burden of additional regulation without employing more people, for smaller businesses, they are sometimes imposed requirements that are just not appropriate for the scale of that business, and they don’t have the people to train. It does raise the cost disproportionately. So I think the SME sector in particular is really overburdened by regulation.
PL: John Godfrey, is there an issue around duplication of responsibilities across regulators, or a lack of clarity about who does what? Is there something that could be done there?
JG: It’s worth just getting a bit of context about this. There’s 17 regulators that collectively employ about 36,000 people, and they have a gross annual expenditure of over £5bn – various estimates, but consensus is about 3%-4% of GDP. So there is definitely overlap. But as well as making structural adjustments to regulators, which is to move from regulating for risk to regulating for growth, and that has to be driven right down through the regulatory system. That probably is the most important thing: to get them to act quicker, to be clearer and to be more responsive to the companies they regulate.
PL: Moving to tax: since the Autumn Statement, obviously there’s been a lot of speculation about the impact of the national insurance tax changes for employers. They are kicking in shortly, aren’t they? So are you starting to see them playing into corporate decision making around staff, Peter?
PA: The easy answer is yes, we are, and they already have. I think if we cast our mind back to the election last summer, and the Labour Party won that massive majority – had an opportunity, I think, to really reset some of the narrative. But I think the foreshadowing of the Budget was quite harmful to that. And then we actually came to the Budget itself. I think they clearly felt they needed to raise significant tax revenues to do what they wanted to do in public services. They’d hamstrung themselves a little bit around the announcements in the manifesto about which levers they had to pull, so that really the only lever left was national insurance on employers. And that’s, of course, what they did, and it’s worth about £25bn.
Now off the back of that a lot of businesses… because it really does, I think we have to understand, it really hits certain employers really hard, so if you employ a lot of people at or near the minimum wage, then you are disproportionately hit by the increase in taxes compared to a business that has perhaps more of a mix in its labour force. So parts of the economy that are already struggling, consumer-facing services, so retail, hospitality and leisure, arts and recreation, they’re going to be hit again by these tax raises. So you have, basically, as a business, you have a choice. You either raise prices, you cut costs, which means letting go of people, and that’s it really, or you take a lower profit. But given profits have already been eroded by inflation and wage pressure already, I think, sadly, that quite a few businesses will make will take the decision to, if not cut work, certainly stop hiring.
PL: Yes, hiring intentions. Anne, we’re seeing employers putting numbers on this cost lately, I’ve noticed, when they’re announcing results – managing expectations around what they’re going to do. It’s going to have a long tail, isn’t it? No two ways about it.
AA: I think the impact is going to last for a while. I think it’s not just the cost that can be clearly calculated in terms of what’s actually your cost base going to go up by, and certainly for those businesses with a high proportion of people costs, it’s going to impact them disproportionately. But it’s also the fact that they’re therefore making decisions to hold off on employment, they’re also making decisions to perhaps not make investments they might otherwise have made because they’re having to make up these margin gaps that have been created by the increased NI, and therefore those decisions that they’re making now will impact far beyond that.
PL: John, what other reliefs do you feel could help get growth moving here? What wriggle room does the Chancellor really have?
JB: We’re hearing the same story from members across the economy, that following the Budget, they are deeply concerned about the prospects for growth, that the cost base that’s been increased by the addition in employers’ NIC – of course, it depends which sector you’re in, but in certain sectors the sentiment is really quite bleak, and when we’re coming into a situation where we need to achieve growth, that’s concerning.
In terms of measures that government could put in place to compensate, I think this is quite a tricky area, because ultimately, clearly the aim is to raise taxes, and it’s a fiscal measure. So what do you do? For example, one of the things that we hear very often from our members in businesses that are innovating is around R&D tax credits and the uncertainty around whether money will ultimately be recoverable, and the difficulty around the process. So you could say that that’s an area where process. Improvements, guarantees in terms of the certainty and improvements in guidance, could help with sentiment, but you’re not talking about the same kind of businesses necessarily who are impacted by the NIC, so it’s a pretty difficult situation where hard choices need to be made.
PL: Peter?
PA: One of the arguments I’ve seen in favour of the increase – or not in favour but trying to explain the increase rather – is that we have to recognise that we… back to the productivity challenge, it’s relatively low productivity. And actually, if you can encourage businesses to invest in technology, to automate some of those activities, then that does help on the productivity challenge, particularly as we are still in quite a tight, constrained labour market.
Some of the obvious things, like we’ve seen automated checkouts in supermarkets, those kind of automated Hoovers you see around in airports, that kind of thing. At the margins, you can use that to increase productivity in a challenging labour market. You can see why that might go down those routes. I think that might be one thing, one positive we might get out of the increase in NICs is we do start seeing companies really think about where they can use technology to augment their labour force and to address that wider challenge in the labour market.
PL: Setting aside tax on regulation, perhaps we might get into how much of our growth problems stem from trade. John Godfrey, what needs to happen to boost trade?
JG: I think we need to change the mindset of how we approach trade negotiations, and it involves recognising that there is not a binary decision between free trade agreement and not having any agreement. There are a whole series of tools which can be used, for example, digital bridges, interesting bilateral agreements on specifics between countries. We just need to be more flexible in our approach to trade discussions with other countries, no doubt about it.
PL: So this is about the UK inserting itself into trade corridors, as it were, where we’re currently not represented?
JG: That is part of it, yes, absolutely. There are trade corridors, for example, between Asia and the Middle East, and we can have a role there. And there’s also a question about how do we do this best in the services space? Because most FTA-type negotiations are about goods rather than services. We are primarily a service economy these days, and that’s why these very specific arrangements around particular services can play a bigger role than they ever have in the past.
PL: Peter, all this plays out against the backdrop of exceptional global uncertainty, doesn’t it?
PA: It’s incredibly difficult if you’re a business at this point in time to navigate the global trade environment. We don’t we don’t know what tariffs will be applied to where, and therefore if you’re looking at your footprint and you’re thinking about where do I ship product to, or where do I import product from, at this point in time you just don’t know what the impact is. The best you can do is plan around a few scenarios, run a few sensitivities, but really until stuff becomes solid, then I think it’s incredibly, incredibly difficult.
What is interesting, and I’m just building on John’s point around services – and the UK is a service-exporting powerhouse – there’s a few things on the table: financial equivalence with the EU, perhaps that should be thought about again, and really trying to tap into some emerging markets. So I think there are still opportunities, even with that uncertainty. And I think perhaps, if anything, the greater uncertainty creates more opportunity. I would really encourage businesses to be a bit more aggressive, a bit more ambitious, and really try and go for it.
PL: But for many, Anne, it plays into caution, doesn’t it? Because regulation abroad, it can have a huge impact, and if you’re just not clear about what that’s going to be, there’s a lot of risk there, isn’t there?
AA: Absolutely. I think the uncertainty makes it really hard for SMEs to plan appropriately, like Peter said. When you don’t know what’s coming it’s difficult to know where to put your efforts. And for the same reason, that’s going to mean that you’re maybe not investing as much in growth, because you don’t know where to put that investment as well.
I think for individual businesses, unless they’re very well diversified, which is often not the case for individual businesses, it’s very hard to pivot quickly when there are regulation and tariff changes. So I think it is very difficult for them to react.
PL: Off the back of the tax changes there was a lot of talk about high net worth individuals moving abroad, wasn’t there? Have you seen that?
AA: Definitely. I think there’s been… and we can see from the statistics that a large proportion of high net worths have left the country to move to Portugal or Spain or other locations. I think the money that they put in to the country and the economy, we will see that as the years play out, because it will make a significant difference.
PL: How significant is that, Peter?
PA: I think it’s difficult to say. So far we’ve had a few surveys, we’ve had some stories in the press. It’d be interesting to see if the government itself has any numbers it publishes around tax contribution by individual, and whether we see that there. Certainly there is a definite downbeat narrative, I think, which we…
PL: Psychologically, that is?
PA: Psychologically, yes, and I think that narrative in the press doesn’t help.
AA: Just to add to that as well, I think for certainly businesses starting up, where they do have a choice of where to start up, you’re going to see a lot of those founders potentially looking to start up in other locations. There have been a lot of tax hits that can make a difference to people making those decisions. And also the hiring, I think again with NI and other things, it’s a lot easier since COVID to hire people abroad, and actually wherever you’re located, to hire people in different locations. So again, the increase in costs in the UK could mean that people actually… it causes more difficulty for unemployment here.
PL: Peter?
PA: I’d go back to one of the points that Anne made earlier, which is that the lack of finance or the access to capital is quite important. So if you think of those startup businesses when they’re getting to thinking about scale-up, and then scale-up when you’re getting to think about proper ramp-up to be a larger business, that tends to be where the sirens of overseas start playing quite strongly, particularly in the States. So the US tech companies come in and swoop in and buy up our very, very good companies. Or the founders decide, you know what, I’d do much better if I was in the US than I would here, and because they are so mobile… So I think that does really link back to the point that was made earlier.
PL: John Bolton: ICAEW – you fed into the trade strategy? Are you happy with the way it’s shaping?
JB: We look forward to seeing what the government publishes in due course, but the first indications are that we do still take quite a traditional approach to trade that thinks about shipping physical goods across borders. The reality is the economy, in terms of interaction with other countries and exports, is quite different. And one of those ways is that we’re a service-based economy, so services need to have greater prominence in the strategy.
Another way is that, are we playing to our strengths? We have world-class universities in the UK. The people coming through those universities are a great source of potential future business relationships for the UK, as well as in the short term, a source of export earnings in their own right. So do we really take due precedence for those parts of the economy which are operating very well and have a good part to play in our trade strategy.
I think we need to take a more holistic view to trade, and speaking to some of our members who are working with international entrepreneurs, often it will be somebody who is coming in to set up… If you want to trade in the UK, let’s say you’re a Chinese business, you want to set up an operation in the UK, you’re going to have to set up some kind of a physical establishment, because you need to service customers, you need to hire some staff to get the business done. And so it’s more of a business establishment question. How easy is it for me to get business off the ground, even if I’m quite big in China, my footprint in the UK might start off as pretty small, and I might need to jump through a number of hurdles in order to get started. So I don’t think trade is necessarily what we think it is, and we need to think more holistically in order to unlock those opportunities.
PL: That brings us very neatly to regional regeneration, doesn’t it? John Godfrey, it’s another growth lever the government wants to pull. I know you have experience in this area, don’t you? What would you like to see? What should they be doing?
JG: I think the biggest single thing that they need to address is equipping regional leaders to formulate better investment propositions and to express those in ways that investors can understand. There’s a big, big communications gap in this space, which I’ve seen time and time again, which means people are talking to the wrong investors, people aren’t explaining their projects properly. And I think there’s a gap in the market – and the government should help with this – to bring the investing sector and the public sector together to promote the schemes they want invested in much, much better. It doesn’t take a huge amount of effort to turn a vague proposition for a city somewhere in the UK into something an investor can spot and say, ah, that works for my balance sheet. And I think that would really move the dial quickly.
PL: The procurement process can be very complex, can’t it?
JG: Yes, very time-consuming. And I think if the government were to work along the kind of marriage broker, if you like, role that I’ve talked about, then I think part of the incentive for bringing investors and projects together is an accelerated access through that procurement process. I’ve worked myself on a number of schemes where procurement is just too difficult and you walk away and you invest somewhere else. So we can use partnerships much more effectively than we use standard OJEU-style procurement processes.
PL: Anne, does that chime with what your clients want?
AA: I think procurements are one that a lot of people are focusing on, in particular with sustainability now becoming more of a part of that. I think certainly for the medium enterprises, they know that whether you’re a B Corp or not there’s other things that they’re having to do to really look at that procurement space. But in terms of the regional piece, I think definitely the government’s going to need to do more to push that even further, because even with… now there’s a lot more return back to the workplace, actually location. And I’ve seen a lot with my clients – people coming back to London and actually finding that to recruit people, it’s much easier to do in that location. So I do think they’re going to have to push more on that investment.
PL: Another element here, of course, is labour participation, isn’t it? Growing problem, particularly since the pandemic. We’re expecting to hear details soon of the government plans to reform the benefits system to incentivise workers back into jobs, make it easier for people to stay in work. But the UK is something of an outlier here, isn’t it, Peter, versus other countries?
PA: Yes, it is. I think what we saw across the globe during the pandemic is a number of people in the labour force shrunk as the economy shut down and industry shut down, and they went on furlough in the UK and elsewhere. But what happened post that was actually employment bounced back quite rapidly, with the exception of the UK. In the UK, the participation rate – the number of adults of working age actually in the labour market – is still really behind where it was prior to the pandemic, compared to other countries where more people are in work.
PL: Yes, we’ve got… what, 9.3 million inactive working-age adults?
PA: Yes, and of that about 900,000 extra in receipt of incapacity benefits, on sick benefit. And that is, if you like, one of the biggest challenges the economy has faced in the last three years. One of the drivers, I think, as to why growth has been so slow, because that’s a big stock of workers out of the labour market. It’s why companies have faced so many challenges in getting people and why wages have been so high, because there’s just a shortage of labour. So I think if you really wanted to drive short-term growth, in my mind, the quickest way you could do that would be to shrink the number of people who are inactive and get them back into the labour force.
PL: Of course, the question is how to do that? We don’t exactly know what the government’s got in mind at this precise moment. But, John Godfrey: the welfare changes, it’s likely to be stick and carrot, isn’t it?
JG: You need something in the middle, which you might describe as a sharpened carrot, to incentivise people to get back. We don’t know exactly what the government is going to do, and it’s very difficult to reform welfare, because you get judicial reviews and all the rest of it. But I think they need to look at two particular areas. One is the older components of the workforce, where people are drifting out, largely due to physical complaints in their late 50s, early 60s, and the younger end of the workforce, where the problem is much more about mental health conditions.
One of the problems we have, I think, is that it is much more beneficial to an individual to be signed off for health reasons than to be straightforwardly unemployed and looking for a job, because that carries much greater requirements. And I think some move towards equalising those would be helpful, while absolutely recognising that there are many people who do have genuine medical and health issues, including in the mental health space.
PL: And there is a role for employers here as well, isn’t there, to look at their recruitment practices? Because they say they can’t get good people; graduates are struggling to get proper jobs rather than gig work; later life career returners, they say they can’t get hired. It’s not working well, is it?
AA: No, there’s definitely some changes that need to happen there. I think for those businesses, that’s exactly what we’ve been seeing, that it’s very hard to find good talent. And yet, we know there’s some really good talent there that are finding it very hard to find jobs. So how we connect those and how the recruitment sector can support to do that, I think is important, because otherwise we will go backwards in terms of those recruitment strategies and how we look to employ people.
I think the government can also do quite a lot with upskilling people and giving those opportunities and making sure people are aware of the opportunities that are already there and already in place, and also really giving incentives for companies to give people placements. I think when people have been out of work for a long time, confidence is a real barrier to getting back into the workplace, and if they can have some shorter term… which is a shorter commitment for businesses, and businesses can be incentivised to do that, that could really boost their confidence, which might help them then get back into work longer term.
PL: Thinking about solutions to that and all the other issues we’ve talked about… I know, Peter, you’ve got international experience, haven’t you? Are there things that you’ve seen abroad that we should be learning?
PA: I think, back to technology… I’ve seen a lot of other countries that are far more advanced than the UK in terms of e-government. So much more use of technology in the interactions that you as a taxpayer has with the government.
PL: Where are they doing that better?
PA: I was just out in the Middle East a few weeks ago, and you go out there, and actually virtually every interaction you have is via your mobile phone and via application. So whether you’re getting your residency permit, whether you’re getting a driving licence, a lot of that is heavily automated, far more so than we see here, where we see some of our government departments are still run by formal letters and pen and paper, and it’s quite a long way behind.
One of the things that was most remarkable is the e-gates – something like 100 nationalities could go through the e-gate there.
PL: Really?
PA: But you compare that to London, or the UK rather, where it’s really only maybe a dozen, a very few countries we have that agreement with. So I think there are areas around certainly adoption of technology that we could think about.
PL: Anne, that plays into agility, doesn’t it? It just makes it easier for organisations to think, yes, we’ll go there, we’ll look at that territory.
AA: I think it just takes a bit of planning. I think people have to be prepared to put that investment in place. I think the government can also support businesses in doing that. It’s how you bring on that level of AI and technology, where… there is potential for increasing risk there as well, and so how we’re going to manage that.
PL: There’s a lot we could talk about here, but I’m going to close by putting you all on the spot and asking you for your expectations about growth in the short to medium term. Peter, I don’t know, do you have a UI forecast you can share with us?
PA: Yes. So for this year, we’re forecasting growth of only about 1%, I’m sad to say – slightly faster than last year, which was probably about 0.8%, 0.9%, but still nothing spectacular. We do expect the economy to speed up over the course of this year. Why is that? Well, wages are still growing faster than inflation, so real incomes are being rebuilt after that cost-of-living squeeze. And we do expect the Bank of England to carry on cutting interest rates, and that should take a little bit of pressure off. But overall, muted in the short term, probably slightly better for 2026.
PL: John Godfrey, what’s your take on this?
JG: I would agree that there’ll be a downward revision on growth, and it’ll be a bit muted for the short to medium term. I think all eyes short term will be on the fiscal position, and what is the state of the government’s headroom. What are the OBR going to say? My suspicion is that the Chancellor will manage through a combination of the welfare cuts, various other moves in government finance. But I think we do need to watch out for higher inflation and how that feeds through to the position in the autumn.
PL: Anne, your clients – they tend to be small, they tend to be high growth. Are they quite optimistic about their own prospects?
AA: Yes, I work with high-growth customers. There’s plenty of businesses out there that still have ambitious growth plans, so we do have reasons to be optimistic. I think overall we’ve had a long period of economic uncertainty and that doesn’t seem to be changing quickly. Overall views on the market still have uncertainty under them, but there’s definitely still opportunity.
PL: John Boulton, having heard from everyone else, how does all that chime with the ICAEW?
JB: Well, our Business Confidence Monitor at the beginning of the year is unfortunately showing quite a significant decline in sentiment going into 2025, and what we’ve heard since then has only really exacerbated what was a pretty gloomy mood at the beginning of the year, and it is related to the employers’ NIC increases, which concentrate in certain sectors, but are pretty broadly spread across the economy. So unfortunately, I think, our outlook at the moment is not positive, and that’s not a good place to be coming into a situation where we’re looking forward to Industrial Strategy and the Trade Strategy, and very much recognising that growth is the number one priority for the government. But the reality is, sentiment is pretty low at the moment, and that clearly is going to flow through into growth, at least in the medium term.
PL: So if we were to throw forward a couple of years to give us slightly more wriggle room on all this, how confident are all of you that we will see a realistic upturn in growth once the government starts using the sort of levers we’ve been discussing? On a scale of one to five – Peter?
PA: A scale of one to five, right? Well, I’m going to sit on the fence and say two and a half, I’m afraid.
PL: Classic economist…
PA: Yes, not particularly confident. I think there’s a lot of hard challenges globally and domestically for the government to deal with. I think if they can achieve it, then they’ll have guaranteed themselves a second term.
PL: John Godfrey?
JG: I think where you would land with a number on this depends almost entirely on how good the government is at implementing what it’s announced. It’s all in the delivery – and governments historically, of all shades, are not necessarily very good at delivery. So I would go for a shade under the two and a half.
PL: Anne?
AA: I think similar to the other guys. I think there’s definitely, with businesses, ones that will be more optimistic and ones that will be more pessimistic. It really depends on the actions that they take and how quickly they’re able to make a difference. So I’m afraid I’m also in the middle at two and a half.
PL: John Boulton, we’ve got a consensus amongst the other three experts. What’s your feeling on this?
JB: I’m going to be slightly more optimistic and say three, on the basis that, it is a real priority that we need to get growth. We do have the Industrial Strategy to look forward to. And I think at the end of the day, some of this does come down to individual decisions, and I’m hoping we can catalyse some kind of feeling of momentum perhaps. Now, I suppose, the future is quite uncertain, but in the background we have the fiscal picture, which isn’t going to get any better. So I think three is where I stand.
PL: That’s as good as we’re going to get, isn’t it? Thank you very much, everyone. Really interesting conversation.
On the next Accountancy Insights we’ll be looking at IFRS changes, 10 years of Making Tax Digital and reflecting on the Spring Statement, of course. Be sure to like and subscribe so you never miss an episode, not least because listening to these podcasts counts towards your CPD. And if crypto plays into your work, check out the next episode of our sister podcast, The Tax Track, because the team will be discussing the often misunderstood tax treatment of cryptocurrencies. Thanks for listening.
This is how they stylise their name
6:56 Can’t work out the word before reality here
