The voice of business is crying out for a return to prudence
Richard Lambert, the director-general of the CBI, tells Sean O'Grady what business wants from the politicians
Friday 20 November 2009
"There are no silver bullets." The CBI's director-general, preparing for his organisation's conference next Monday, is clear about the scale of the challenges facing business and government.
"The Voice of Business", as the CBI styles itself, admits that there is no silver bullet – no single measure that will put an end to the nation's economic problems instantly. The CBI would like HM Revenue and Customs to keep up its clemency for late payers; and they would welcome an extension to the enterprise guarantee scheme. However, there is no doubt about what is at the top of the CBI and Lambert's agenda: public borrowing.
Mr Lambert wants the next government, whoever that may be, to "get a grip" on the public finances, revealed yesterday to be heading for a record £200bn-plus deficit this year.
"The next government is going to have to make difficult decisions about the public finances. We are living beyond our means. There should be no 'ring-fenced' areas, it's a mistake to fence off the heath service when it accounts for going on for a third of public spending."
He also wonders aloud whether the current panoply of benefits that sometimes end up in the pockets of the better off should be retained – perhaps prompted by the chillier weather when he asks: "Why should an old geezer like me get winter fuel allowance?"
Mr Lambert "admires" David Nicholson, the NHS chief executive, for saying that he could get £20bn of savings out of the NHS budget.
So we have a fairly clear idea of what might happen if Mr Lambert suddenly swapped his office at Centrepoint for one at the Treasury. And he is thinking longer term, too: "It is beyond doubt that the next chancellor needs to do something about public sector pensions. There are huge long-term issues here – the intergenerational liabilities that have been built up cannot be ducked – about £1trn, approaching 100 per cent of GDP."
I mention George Osborne, and the shadow Chancellor's recent remarks to The Wall Street Journal Europe that he would "not be bound" by any agreement between the Government and the unions about public sector pensions. (The so-called Warwick Agreement was struck between the Government and union representatives in 2004 to protect workers on issues such as pensions.)
"First we need proper accounting, an actuarial assessment of what the liability is. Then we need a debate. The public may well say that there are sectors where they want generous early retirement arrangements, for example in the armed forces. You can only have that discussion when you have the numbers. Then we need to work out what is the fairest way of making changes that are equitable and sustainable."
Yet, to borrow the phrase that David Cameron borrowed from the late Ian Dury, the CBI sees reasons to be cheerful too. He gives Gordon Brown credit for the "bold and brave" actions he took to recapitalise the banks, without which we would be in "a very dire state".
Business surveys, says Mr Lambert are pointing to "a more positive picture... The striking thing is what's happening in the labour market. We've had a 6 per cent fall in output but only a 2 per cent drop in employment, a remarkable result. I think there's much more of a feeling of stability now. And the full impact of quantitative easing has yet to be felt".
So what about that overriding concern of business – bank lending, and the lack of it?
Mr Lambert points out that lending is slightly higher than it was a year ago and that larger companies have tapped the capital markets handsomely – more than £25bn in net new equity issuance this year. But he acknowledges that for smaller and medium-sized enterprises unable to gain access to capital markets there is a problem.
"The shock to confidence has not disappeared. Firms are very cautious when it comes to investment and keeping up working capital. CBI members don't see a V-shaped recovery as the Bank of England does. They may be right or wrong, but that's what they see. I am worried about funding for SMEs. Bank lending to small companies is rising, but spreads are still 3.5 percentage points and some go to 6 per cent."
He thinks "the problem now is demand for lending, because many firms are concerned about what happens when rates start to rise, given those spreads".
As you might expect from a former editor of the Financial Times, "the voice of business" is economically literate, moderate, but insistent all the same. And unlike so many other voices at this politically highly charged time, this one doesn't pretend he has all the answers.
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