Page 5 - ISO April 2023
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        Concomitant with upgraded forecasts for the UK’s economy, the   fers the lowest rate of investment across G-7 economies and
        OBR delivered more good news in relation to the outlook for the   thirdly, labour productivity has plunged to multi-decade lows.
        public finances which percolating down, produced a windfall of
        £27.9bn enabling the Chancellor both to meet his fiscal rules   It goes without saying that all proposals put forward to improve
        (just) and to dispense rather more largess than had been   the UK economy’s prospects must address each of these issues
        expected. The Budget mathematics reveals yet more positivity   and not individually, but collectively.
        in the form of medium term fiscal projections which include   To say that this is a complex undertaking represents a serious
        notably lower public borrowing than outside independent   understatement. Reforms are likely required both as they per-
        observers could have hoped for.                     tain to the labour market (including to pensions, housing and
                                                            the provision of childcare). Reform is also required to promote
        It goes without saying that, when staring into the future the risk
        to the country’s reviving public finances is that the economy   and boost investment and more specifically that targeted
        fails to deliver against reinvigorated expectations. The most   investment likely to achieve a lasting improvement in produc-
        obvious threat lies in either an acceleration in the issues   tivity. Easier said than done. Promoting investment, for example,
        affecting the global banking sector (although apparent Bank of   requires  the  funding  from  an  equivalent  increase  in  savings,
        England insouciance reflects the extent to which the UK’s cen-  which might involve an overhaul of the tax system in addition to
        tral bank believes that domestic banking entities are sufficiently   the pension industry. Whilst the knock-on benefits from such
        resilient and ringfenced  to withstand any escalation of the   reforms might also boost the labour supply in addition to
        crisis) and/or the impact of a continuation in the now fairly pro-  achieving the desired improvement in productivity, it is pretty
        longed downward trend in commercial bank lending and the   clear that profound adjustments involving complex interlink-
        provision of credit. It is noteworthy, in passing, that the OBR’s   ages will not be taking place overnight and seem more likely to
        forecasts do not include any provision for any possible addi-  be measured in decades, not months or years. Reforming the UK
        tional deterioration in the prevailing situation.   is a huge, but necessary challenge. Establishing a cohesive long-
                                                            term approach can only be achieved over a number of
        In his speech to parliament when announcing the Budget pro-  parliaments and requires, in the first instance, a preparedness
        posals, the Chancellor reiterated his desired industrial strategy   on the part of all political parties to work together. Garnering
        based upon four pillars: Education, Employment, Enterprise   such cross-party support in an age of confrontation feels like the
        and Everywhere. With regard to the first two, Mr Hunt intro-  vain struggle of aspiration over experience. But despite this a
        duced measures aimed at addressing the UK’s apparent shortfall   goal does exist and it can be reached not in terms of nar-
        in labour supply, a broad suite of initiatives reflective of the   row-minded political party point-scoring but in a spirit of mutual
        wide-ranging nature of the problem. These may, or may not   cooperation and a willingness to work together for common
        prove effective over the short-term, but it is the UK economy’s   prosperity in the future.
        health over the medium-to-longer term that matters just as
        much and here we find ourselves revisiting some very familiar
        territory. That the UK economy faces serious structural chal-  KEY TAKEAWAYS:
        lenges is beyond doubt. Equally, the intractable nature of these   •  The Spring Budget delivered a package of measures
        challenges is reflected in the fact that there is no “silver bullet”   likely to boost the UK’s near-term economic
        and no easy answers. Had there been they would surely have   performance.
        been deployed by now.                                    •  The Chancellor has articulated the foundation stones

        In an attempt to simplify that which fundamentally ails the UK   necessary to underpin the UK economy’s longer-term
        the issues boil down, loosely, to the size of the labour force, the   revival.
        capital provided to that labour force and the efficiency with   •  But achieving an increase in the size of the labour
        which the labour force puts that capital to work, productivity in   force and the targeted investment necessary to
        short.                                                     deliver productivity improvements are both complex
                                                                   and interlinked.
        Where does the country stand? Firstly, the UK’s labour force is
        smaller now than it was at the start of the pandemic and smaller   •  Achieving  the  necessary  root  and  branch  reform
        still than it was prior to the Brexit referendum. This places the   requires  aspiration  and  will  take  time.  Prolonged
        UK in a fairly unique position matched only across developed   cross-party cooperation, a big ask in the current
        economies by Italy and Japan (where demographics and an    atmosphere of elevated political antagonism would
        ageing population have played a key role). Secondly, the UK suf-  be an important first step.

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