The Current Situation and K2’s Recommendations for the Autumn Budget Statement

Calls for measures in next week’s Autumn Budget Statement to stimulate the economy are growing louder by the day.

Sadly, the news has been unrelentingly gloomy since October, when Public Sector jobs cuts showed a reduction of 110,000 between March and June, the rate of cuts five times higher than the OBR’s prediction, while job creation in the private sector was only 41,000.

On 14 November, the CBI’s latest employment trends survey found that 47% of employers were relatively optimistic, predicting their workforces would be larger in a year while 19% predicted they would be smaller, a positive balance of +28%.

But then, on 16 November against the background of the Eurozone debt crisis, the Bank of England revised down its growth estimate to stagnation until mid-2012 and only 1% growth for the year as a whole.

The ONS unemployment and employment figures on 19 November showed unemployment at its highest ever total of 2.63 million. From July to September a record 305,000 employees had gone from the economy and in the same period 100,000 people became self employed making a record high total of 4.09 million.

Are these people with a burning ambition to start their own business or have they simply given up on the increasingly fruitless search for employment and set themselves up as freelance sub-contractors or consultants?

As lending conditions continued to tighten, particularly for the country’s SMEs, Project Merlin again undershot its target and companies continued to pay down debt rather than investing.

By 20 November, the CBI, too, had had a rethink, reporting that firms were now reviewing investment plans after a “sharp fall” in confidence with 70% of senior business leaders now less optimistic about the future and two out of five freezing recruitment or laying off staff.

This does not suggest that the private sector is either in the position or the mood to create the additional employment that the government hoped would mop up the public sector job losses.

While not wishing to contribute further to the doom and gloom, it is difficult to find anything positive to say about the current picture and therefore this post adds to the growing calls for a “plan A-plus”  to stimulate some growth. What business desperately needs is some stability to restore confidence.

Our wish list includes measures to encourage small businesses to build capacity for growth by making it easier for them to employ and train people. Initiatives such as a NIC holiday for new employees, or young employees, training grants and relaxing termination obligations will make it easier for employers to justify taking on staff.

We also need measures to encourage export, particularly to areas outside the Eurozone, such as export trade credit, marketing support, trade delegations and export tax credits.

Finally small businesses need to be able to fund their investment in growth via a level of credit easing. The Government initiative of demanding that banks make loans to SMES under Merlin, while at the same time requiring them to reduce risk, is a farce. There are a number of possible initiatives but the Enterprise Finance Guarantee scheme hasn’t worked and the Small Firms Loan Guarantee Scheme (SFLGS) that it replaced did work. We advocate a reintroduction of the SFLGS.

Leave a Comment

  • (will not be published)

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>