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Incoherence at the heart of government is making a calamitous slump worse | Economics

Incoherence at the heart of government is making a calamitous slump worse | Economics

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When much of Britain’s business life is forcibly brought to a standstill, it is no surprise that the official measure of economic activity falls off a cliff. The Office for National Statistics said last week that the UK’s GDP had fallen by 20.4% in April, the first complete month of lockdown, and by more than a quarter since the lockdown began on 23 March.

Some City analysts thought that, given the way many industries simply downed tools, the drop might have been as much as 30% in April and heading towards 40% over the whole grim period. In truth, it is difficult to put a figure on the loss of national income during a pandemic, especially when so many businesses are either working harder, such as supermarkets, or not at all, such as hotels and pubs.

It’s the same with the public sector. Some council departments and government agencies were stretched to breaking point in April, with all employees active. Other public services were deemed unnecessary and staff were furloughed.

The ONS sampled just a small fraction of businesses and state activities – its resources don’t stretch very far. The statisticians extrapolated the extent of the downturn from the responses. They may be right or wrong. All usual methods of measuring activity are sent haywire when standard ways of working are distorted and any sense of normal has evaporated.

At best, it means the GDP figure is a simplistic guide and we are to some extent flying with blinkers on when trying to view the damage.

That’s not to dismiss the figures or say they are unimportant. They will play an important part in policymaking now that the lockdown is lifting. For one thing, a picture of British business on its knees will put extra pressure on the government to ease restrictions at a faster pace.

Here we can see a dispute opening up between Boris Johnson’s advisers in No 10 and the chancellor, Rishi Sunak. Johnson’s supporters want the Treasury to draw up a summer budget full of corporate tax breaks and employment subsidies.

They want a tailored reworking of the German financial “bazooka” revealed last week by Angela Merkel that offered more than 50 measures, from a VAT cut to large grants for buying electric cars.

Sunak appears to believe there is little point in such largesse if businesses caught on the front line cannot properly serve their customers. He worries that subsidising an economy that is forced to maintain the two-metre rule preferred by Johnson and his health advisers will push the national debt into the stratosphere, for little gain.

Representatives from the hospitality, tourism and leisure sectors are adamant they cannot operate profitably if their customers must stay two metres apart at all times. They would prefer a one-metre rule.

If further evidence was needed of splintered policymaking at the heart of government, the so-called consultations business secretary Alok Sharma is holding are an example. Participants report that Sharma and his ministers are ill-prepared, lack focus and don’t take notes or develop action plans. In short, these forums are talking shops that only reveal how clueless the government is about the next steps.

How could such a situation be any other than calamitous for the future of the economy? It is one thing to have the worst downturn in national income for probably 300 years. It is quite another to be charting a course without an agreed idea about the direction of travel.

The government could look at our near neighbours to find a more coherent vision. The French are prepared to subsidise for longer and keep strict regulations in place. The Germans are ready to open up, based on a looser set of health rules.

Either choice gives businesses and consumers a chance to plan. The UK needs greater coherence at the heart of government or it fails the most basic of tests.

It’s time for greater diversity in boardrooms

There is little positive to say about the prospects for senior businesspeople from black, Asian and minority ethnic (BAME) backgrounds: mainstream corporate Britain operates largely without them in executive positions. It is a shameful fact of corporate life that needs to change, and quickly.

A report last year found there had been no improvement in representation in the chief executive or chair role in the UK’s top 100 companies since 2014. It remained stuck at 3%.

At the wider board level, progress has been limited to a two-percentage-point increase since 2014, and this came after a decline over the previous 12 months. Both non-executive directorships and roles such as finance director, chief operating officer and human resources director were almost uniformly held by white people. Worse still, 47 of the UK’s top 100 companies still had no BAME people at board level or the level below – the stratum of directors that feeds the board with talent.

Trevor Phillips, former boss of the Equality and Human Rights Commission, has called on companies to appoint a chief diversity officer or face “commercial risk, regulatory attention and losing key talent to global competitors”.

Trevor Phillips, the former head of the Equality and Human Rights Commission, has called for action at top companies.
Trevor Phillips, the former head of the Equality and Human Rights Commission, has called for action at top companies. Photograph: David Hartley/Rex

Phillips is a patient man. But the Black Lives Matter movement and the prevailing boardroom stasis mean that “regulatory attention” needs to begin this year, not next.

A report by Ruby McGregor-Smith, a Conservative peer and former chief executive of the facilities management company Mitie, found that £24bn could be added to the UK economy each year if people from minorities were able to progress through their careers at the same rate as their white counterparts.

To answer this call, the government must nominate a cabinet minister to develop incentives, and punishments, that will spur companies into action. Corporate Britain should play its part in lifting up those who for too long have faced barriers few could hurdle.

It’s a good job the new CBI chief can handle a crisis

Tony Danker knows what it is like to be at the sharp end. Back in the late noughties, when the financial crisis was raging, the newly appointed head of employers’ group the CBI was a special adviser to the Labour minister Liam Byrne.

Byrne, then chief secretary to the Treasury, never lived down leaving a joke message apologising for running out of money before Labour’s 2010 election defeat, but Danker moved on – including spending some time at Guardian News & Media, the publisher of the Observer – and has now landed one of the UK’s plum jobs.

It is as well that he doesn’t take over from Carolyn Fairbairn as director general until November, because by then two of the biggest issues that concern the employers’ organisation will be clearer.

The first is the state of the economy. By the fourth quarter, growth should be picking up at a reasonably rapid lick. The second is Brexit, where the next three months will determine the shape of the new trading arrangement between the UK and the EU. Differences over Europe have made relations between the CBI and the government spiky and Danker is probably grateful that Fairbairn will be the one issuing the warnings about the dangers – glaringly obvious in the current circumstances – of trading on WTO terms come January.

In an ideal world, Danker would be free to use his five-year term to crack Britain’s chronic productivity problem – the focus of his work in his current job as chief executive of Be The Business. The chances of his enjoying this luxury are close to zero. There will be no quick economic recovery. Europe is not going away as an issue. The big test for Danker will be whether ministers – perhaps suspicious of his political past – listen when he tells them they are getting things wrong.

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