Signs are that November will see the first rise in interest rates, for the Bank of England's monetary committee voted only by the narrowest of margins not to raise rates this month. And in early December we expect to get the Chancellor's pre-budget report, which will show a sharp rise in borrowing and may set out how Mr Brown proposes to deal with that. Sooner or later, of course, he has either to cut spending plans or raise taxes. The only issues are when and by how much.
None of this sounds like brilliant news for the business community. Either businesses or their customers will end up paying more tax, if not now then pretty soon. But most clouds have a silver lining and I think there will be opportunities as well as - as Americans would say - challenges.
For a start the monetary squeeze will not be particularly tight. The Bank will only increase rates as necessary to pre-empt a rise in inflation. Its aim is simply that: inflation is threatening as a result of the borrowing boom, which the Bank would like to cap. However it most certainly does not want to be seen to be the body that brings growth to a halt. So do not expect a re-run of the early 1990s, when in any case our monetary policy was distorted by our membership of the European Exchange Rate Mechanism. Expect growth in final demand to continue at as least as fast a rate as this year - just expect more of that growth to come from exports and less from domestic consumers.
The opportunities will be on the fiscal side. The Chancellor really does believe his own rhetoric about the need for enterprise in society, so any anti-business measures will be tempered with business-friendly ones.
There will, I think, be two main areas of opportunity. The first will result from public spending; the second from efforts to counter the pressures of taxation.
The great concern of the Chancellor will be to show that public spending is delivering value for money. During the past year one of the few areas of growth for private sector companies has been contracts from the Government and local authorities. The money may or may not be being well spent and most people clearly feel there has been huge waste. The surge in the number of civil servants does not seem to have been matched by better service. But in a sense that is irrelevant to the companies that have received the contracts. Their job is to do what they have been asked to do as well as they can.
From now on, they will be needed more and more. The money tap will be tightened but the pressure on public sector managers will be as great as ever. So they will need the private sector to help them deliver. The money will not be as easy as it has been over the past couple of years but the business will be more durable. Where the private sector is thought to have failed to deliver - as in railway maintenance - it will lose out. But that is an exception.
The second area of opportunity will be to exploit the loopholes that the Chancellor has created in his efforts to boost enterprise. For example at a personal level many of the boom's high-earners are now clawing back the tax they paid during the good years by investing in the various enterprise schemes the Chancellor created to get more money into business. Other people are giving up jobs and incorporating - creating private companies - to handle their working activities. Small firms have a number of incentive schemes open to them to reduce their tax bill. And while the whole business community now complains about compliance costs, suitable IT systems make it much easier to handle this burden.
The bottom line, surely, is that the UK remains a better place to do business than anywhere else in Europe because it has the combination of continuing growth in the economy and a relatively benign tax and regulatory environment. No other major EU country has that.
But there will still be a squeeze. So the strategy to counter that should be: first, look for areas of continuing demand including the public sector; second, use the loopholes created by the Chancellor in his efforts to remain business friendly; and third, use IT and outsourcing to cut costs and cope with bureaucracy. Could be worse, couldn't it?Reuse content