Are we serious about growth?

In his first major speech of the year, CBI Director General, Tony Danker, called on government to set its sights on a more ambitious growth trajectory for the UK economy.

Speaking from the CBI's head office, he stated the case for spending on sustainable, long-term growth that stems from more investment, innovation and productivity. And he set out his plan to put a disappointing economic decade firmly in the past, and enable the UK to truly seize the moment.

Tony was joined on stage by Robert Robert Colvile of the Centre for Policy Studies think tank.

Transcript - checked against delivery

Thank you, Robert.

And welcome everybody – including those of you in the room at CBI HQ in the City today, and those of you at home. Some, I’m sure in their pyjamas.

What a pleasure it is to collaborate with the brilliant Centre for Policy Studies on today’s event. I’ve always liked the fact that your logo resembles a dart board – because your thinking always hits the bull’s eye. Although it also looks a bit like the Jam logo – with Robert the Paul Weller, of modern Conservative thought. A comparison I’m sure you’re not wild about.

Robert, I’m looking forward to our conversation shortly – your column in the Sunday Times, which I read every week, is a must-read for anyone who grapples with current events.

Why Growth?

Today, we do need to talk about growth.

Labour shortages, supply chain problems, energy prices soaring (more about that in a moment)inflation outstripping wages…we need to talk about growth.

It’s one year after we left the European Union.

Brexit was a two-part plan. The first bit was supposed to be the easy bit: where we leave. The second bit was about growth – better growth and greater competitiveness than ever before. Unleashing the hidden potential of Britain. And on that front, we haven’t had the chance to get started.

I am a big believer in the opportunity of post-Brexit Britain. I think it gives us the burning platform we need to push the UK’s huge economic potential. It gives us the freedoms to place our own bets. It gives us an opening to lead the world on modern and empowering regulation. It can awaken us from the flatlining productivity that took hold after the financial crisis.

But that is not where we are currently headed.

The government has a new talking point – you all will have heard it – we are the fastest growing economy in the G7. I get the spin, but I deeply hope that no one in government believes their own PR.

Because let’s be honest about V-shaped recoveries around black swan events. No one is to blame for the nosedive and no one can take credit for the climb back up.

We get a much-needed dose of reality from the independent OBR. Their forecast is their judgement on the UK’s economic trajectory: once the rebound is complete in the next 18 months, we will grow as an economy by 1.3 rising to1.7%.

For a country that is used to growth at 2 – 2.5%, it is simply not good enough.

What’s truly worrying for me is that the government has accepted the forecast as the only target. The trajectory as the potential. Everything the government is doing trying to get growth going when scored by the OBR.

We have lowballed the UK. It’s in our numbers, it’s in our plans. But at the CBI, we think we can do a lot better.

A little bit of politics

Of course, this becomes political very quickly. As we saw yesterday at PMQs, every party is the party of growth now. Well, we don’t do politics at the CBI– I think Robert will be better for that when we get talking. However, I know this government really does care about growth – but it’s weighing up the contrasting Conservative principles at play

This is a party that believes in low taxes, but also fiscal discipline. This is a party that believes in low regulation. And yet, it also believes that social goals can trump that. It regulates against unhealthy foods, or to keep gas prices artificially low. Even on Brexit, we have tolerated a huge short-term uplift in regulation – in the interests of sovereignty – while aiming to reverse this over time.

Ultimately, only elected politicians can decide the right blend of taxes, spending and borrowing. Only politicians can decide the right mix of regulations.

What I will say is that the current settlement isn’t working. There are rising spending pressures; too much tax; and too little growth. As a hero of mine once sang, we’re caught…in a trap.

We can't afford low growth

Let me be clear why this is such a problem. Today’s high spending, high taxes, low growth is a vicious cycle that’s very hard to get out of.

Cutting spending is far from straightforward, which is why no political party wants to do it.

By the end of 2021, a record 6 million people in England were waiting for routine hospital appointments. And the IFS warns the backlog could hit 10 million as appointments that were deferred during the pandemic resurface.

And there are backlogs in the courts. There are school pupils behind on learning and there are transport models really being squeezed.

In addition, meeting the needs of an ageing population in the years ahead will put even more pressure on the public purse. By our calculations, by 2030 we may need to find an additional £40bn-£50bn a year to cover the costs of an ageing society.

So, how do we pay for that? Well, the Treasury are naturally turning to taxation. But can we really raise taxes further?

The UK tax burden is set to be the highest sustained level in peacetime.

On corporation tax, analysis by Robert’s colleagues and the Tax Foundation shows we’re currently 11^th most competitive in the OECD – mostly thanks to the Super Deduction. But when this ends next year and the Corporation Tax rate increases, we’ll fall to 31^st place.

And before the government says the UK is still competitive on business tax – by looking only at the Corporation Tax rate – it should accept in honesty that that’s comparing apples and pears. It doesn’t include for example the UK’s eye-watering property taxes – which are the fourth highest in the OECD.

We know the evidence that raising taxes reduces growth and cutting them drives it. After all, we cut VAT to stimulate consumption. We remove road tax to stimulate the buying of electric vehicles. And of course, Robert, you and your Conservative colleagues are deep believers in lowering taxes to stimulate economic growth.

Now let’s be honest: the government are in a tough spot in all of this of course. They say we can’t afford to spend more on growth. But I say we can’t afford not to. Because simply put, we will not pay down today’s debt, extend public services and reduce taxes on 1.6% growth. It’s not going to happen.

To be clear, we’re not talking growth by any means. We’re talking about the right kind of growth: sustainable, long-term growth that stems from more investment, innovation and productivity.

Now it has been the Treasury’s job as an institution since the stone age to be sceptics of this kind of talk. But economic policy and fiscal policy are not the same thing. No CEO in this room puts the Finance Department in charge of sales. Or lets them alone determine strategy. Companies can’t afford not to invest in growth. And nor can countries.

It’s also not just about money – it’s about ambition. Imagination. And above all, it’s about the political confidence to replace incremental policy with bolder and better.

Reasons to believe

Can we do it? Can we pull off what I’ve described?

Well, I’ll give you three reasons to believe we can. First, we’ve done it before. Between 1993 and 2008, the UK market sector grew by 3% a year – twice the rate of the last decade.

And it wasn’t, as some say, about unsustainable bubbles in sectors like oil, property or financial services.

Three-quarters of this growth in our work was driven by capital investment, new technologies and innovation – double what they contributed in the last decade.

The second reason to believe: look at other countries who’ve done it.

I will name one, with a hint of menace. Singapore. Reduced operating costs. Cut corporation tax by 10%. Made big bets to spark investment; spent on infrastructure, new venture capital services, low-interest loans, tax incentives.

The result? An average of nearly 6% growth per year. Imagine that on the Thames.

And these are the kinds of policies now being deployed today by EU countries as part of the Covid Recovery Fund.

The third reason to believe we can do it is this – and for me, this is the most important one. In the UK, we’ve never had a moment quite like this. When the triple forces of the pandemic, Brexit and the race to net zero coalesce to create a burning platform and opportunity for growth.

During the pandemic, we emerged as a global leader in life sciences.

We also saw three-quarters of firms adopt new technologies. And in 2020 alone, over 700,000 new businesses were created.

In the wake of Brexit, we have new regulatory and tax freedoms, and we can make trade deals on our terms.

But the greatest prize of all flows from our world-leading position on decarbonisation. As Mark Carney announced at COP26, there is a wall of investment to fund decarbonisation – backed by firms with over $130trn in assets. A big chunk of that is in London.

This isn’t about woke, it’s about wealth. British businesses are begging Conservative politicians to see the enormous economic prizes available for those companies and countries that move fast.

All this means this is our moment.

In my last job looking at Be the Business, I started to get down, become a doubter. I wondered if low growth, low productivity, low investment might now be endemic in the UK. I thought the economy needed a shock – some jump leads to start it going again. Well now we have three – this is a once-in-a-lifetime opportunity to change our economic trajectory. Every CEO I know says it. It’s also why I took this job.

Proposals

So, what do we do about it?

Well, the government has a plan today. But it’s a plan for only 1.6%. It’s a plan that increases business taxes massively without reliefs for investment following suit. It’s a plan that funds green investment more than the past but less than our international competitors. It’s a plan that funds an inflexible apprenticeship levy programme while skills shortages continue to hinder growth. It’s a plan that stops immigration for the skills we need but offers no alternative to get them here.

Now there are plenty of exceptions to this rule – moments where this government has made bold interventions in pursuit of better growth.

The Super Deduction was a super-exception to normal incremental thinking. It was the boldness we need. Now, the 2023 end date is just too soon for most investment cycles. So not only does it need extending; it needs to represent a totally new way of thinking about business investment.

The offshore wind market – with its contracts for difference – was the moment UK government realised they could use their balance sheet to unlock high growth private sector markets.

The adoption in the Budget of skills boot camps was the government realising how the world of skills really operates today.

All these measures have one thing in common – they overcame orthodoxy in public policy. They represented bolder thinking. And that is what we need across government now. We need every cabinet minister and especially the Prime Minister leading a campaign for bolder growth.

So, we have some ideas to get them started.

First, we need to use this moment to transform private sector investment. So how about we leverage the six-point Corporation Tax increase shock of next April to stimulate unprecedented business investment and innovation.

Any salesperson knows that a price rise is a great time to do a discount. So, when the Super Deduction ends in March 2023, let’s replace it with a permanent Investment Deduction – a 100% tax deduction for capital spending. That way companies can straight away see the value of their investments – in a lower tax bill. I want to see Rishi outside a car dealership speaking to camera saying: you can pay loads more tax if you want to – but why not invest more, pay less, grow your business and serve your country!

Two, let’s talk about skills. We have a new idea for new times.

We totally get why the apprenticeship levy was introduced. Apprenticeships were the only option for technical skills. But today’s reality is that we’ve got T-levels, Higher Technical Qualifications and boot camps. On top of apprenticeships.

The government then was worried that UK businesses were spending too little on talent. Or that the training was poor quality. Or that we choose instead to import whatever we needed. Well, I agree with that but it’s ancient history now.

Today, at every level, in every sector, and in every part of the country, firms are facing acute skills shortages. And the government is saying we can’t import them, we have to grow them. Overnight!

Skills policy just isn’t set up to deliver what we need. What employers need are rapid-fire and high-quality skills. Right now! So do employees.

So, let’s stop solving a 2010 problem. Let’s start solving a 2030 one. We need more money from firms, yes; funding more British worker skills, yes; with a higher quality and more flexible offer.

It’s time to turn the Apprenticeship Levy into a Skills Challenge Fund.

We would allow businesses to buy training modules with their levy funds, not just full apprenticeship qualifications.

We would allow greater flexibility on the types of training.

And we’d incentivise and reward firms that go the extra mile to train their people, with an upside kicker for those businesses that spend more than just their levy.

With that in train, I will join any government minister marching around the country urging any business to invest more in their people.

Third, we must go for green growth. We must accelerate the plans especially in the green markets where the UK today leads the world, but may not for long.

For this, there are three things government must do now.

1) Close the public investment gap and spend competitively on the most important green growth areas. Energy efficiency, for example – where we need an extra £3bn a year to properly retrofit our homes and businesses and bring down everybody’s energy bills. Not just for today, for six weeks’ time, but for good.

2) By the Budget, government must publish the hydrogen business model – the contract for difference. We’ve been waiting for too long. We need to show the world this is the place to put your money to work in hydrogen.

And 3) Launch a UK scorecard for green competitiveness to ensure government and business are joined at the hip in winning the economic prizes of decarbonisation. To hold ourselves accountable for how we’re doing in the green markets of the future.

Fourth, we need to take up the Brexit opportunity we now have on regulation. Contrary to popular opinion, we don’t want a bonfire of regulations for business, or divergence for the sake of it. This is about becoming something altogether smarter – and better – for our competitiveness: the most future-focused regulatory environment in the world. It’s a vision where Britain is first to win in new and growing markets – AI, fintech and so on – and first to adapt in existing ones. Transforming the UK into a global regulation rule-setter.

So, today, we propose that the Prime Minister sets up a new Office for Future Regulation. That may not sound so radical. But its mission would be.

The focus of this new body should be the big bets for our economy. Regulation would be future-focused – on new technology and new consumer realities. More agile – changing when out of date, allowed to do so now that we don’t need to negotiate it between 28 countries. It would be more proportionate, rooted in a better balance between investment and consumer protection. And finally, it would be more dynamic, allowing them to act quickly and decisively. Just as we saw with the vaccine when the MHRA enabled the UK to lead the world.

Fifth and finally, let’s get serious about having the workforce for the future.

Last autumn, you may remember, business and government had a pointless quarrel over HGV drivers and butchers. The government ignored the obvious evidence that the UK couldn’t train enough new ones in time at home. They said tough luck – unless we close the borders, business will never change. Great rhetoric, poor results.

Shall we get serious now about how we can generate more of the skills we need at home – so we can rely less on immigration?

Nadhim Zahawi, the Education Secretary, is onto something with his new Unit for Future Skills, designed to look at the data of the skills gaps in different industries.

But let’s go one step further.

Let’s supercharge that and build an independent Council for Future Skills.

It would take a holistic look at our workforce needs for today and tomorrow – number one, then work out how government policies can meet them, number two. It would optimise training towards future economic demand. Number three,  it would give independent recommendations on where we’ll need visas to overcome shortages in home-grown talent. And number four, it would therefore set the Shortage Occupation List, whilst thinking about home-grown skills at the same time.

It sounds impossible: how could the Home Office and the DfE ever collaborate? But it’s now so obvious. And business can’t take the government’s immigration position seriously until it shows a real plan for home-grown skills.

Conclusion

So, to finish, five ideas on how to get serious about growth. That’s just in one speech. Imagine if the CPS and all the other think tanks, our leading academics, our finest entrepreneurs were all invited by the Prime Minister to join a new campaign – bolder ideas for a faster-growing Britain.

Don’t get me wrong. It’s not all on government. This is a speech deliberately addressed to a political audience. But the CBI in the year ahead will be using every week, every month to promote serious growth to businesses across the country.

We will ask them to increase investment. In net zero. In innovation. In digital transformation. In exports. In skills. In the health and wellbeing of their workforce. And we will gather them in clusters around the country to deliver levelling up the only way it can be done: with the private sector creating better skills, jobs and wages.

But to government, I say – now is not a time to lowball our ambitions. To settle for a new normal of low growth.

Better growth is the only real answer to the cost-of-living crisis, rising energy prices, high inflation.

Better growth ensures that we as a country are not imprisoned in a cycle where we can’t afford what we need; and can’t raise taxes further to pay for it.

Better growth ensures that every region, every nation and every corner of our country can flourish. That a decade of low wages is not repeated. And that inequalities across the UK are reduced not increased.

So, let’s refuse to settle for policy conventions. The best prime ministers and the best governments haven’t – they have been radical reformers.

I believe that UK business leaders have never been more serious about growth.

After six years of reasons to wait, they are a coiled spring ready to pounce.

We just need politicians to join us in making it so.

After a disappointing economic decade past, this is our second chance.

So, let history show we seized the moment.