Firms reporting reasonable strength but growth is still 'too slow'

by Paul Sparkes 5. April 2012 11:53

Government should look to UK firms for business solutions to drive growth

The British Chambers of Commerce (BCC) says the UK has avoided going back into recession. Its quarterly economic survey of businesses predicts growth of 0.3% in the first three months this year.

BCC director general John Longworth told the BBC Radio 4’s Today programme this week that they were predicting slow growth, "bumping along the bottom" for the first six months of 2012, picking up in the second half of the year and then stronger growth in the following year.

But whilst we may be skirting a recession as business bounces back from the lull, what can Government do to take action to stimulate the economy?

Although the reduction of corporation tax by 1% was welcome in the recent Budget, by comparison raising the business rates by 5.6% and doing nothing for capital allowances meant that the Budget wasn’t a Budget for business, it was a Budget for politics.

The BCC is therefore asking the Government for a focus on infrastructure.  There are two things they say that the government needs to do in the medium to long term in order to accelerate recovery now and keep business confidence;

 1. Big infrastructure. While the government has promised positive changes that will help businesses, improved transport infrastructure and deregulation for example, they are yet to become a reality. These medium- and long-term measures must be brought forward to help businesses grow and create jobs. 
2. Digital infrastructure and the infrastructure of education - skills which are important and that will insulate us against possible external factors like the Eurozone crisis, American debt and oil crisis.
There is no doubt that business supports the need for the government to persevere with its deficit-cutting plan, but there must be a significant reallocation of spending priorities. There must be a greater focus on policies to support growth that will enable businesses to create jobs, invest, and export. 

What we have to understand is that living in a global economy what may or may not happen in Europe in the next 6 months often is the determinate of what happens to us.

We could however avoid that fate in the longer term. Of course external threats still exist but by committing to infrastructure projects now, in the medium to long term will encourage businesses that do have cash to start to invest that money for growth and for jobs.

The BCC’s survey indicates that export and manufacturing balances are going very positively and its encouraging to see that businesses are feeling more confident at the start of 2012 than they were at the end of 2011.  The thing that hindered recovery in the last half of last year was cash flow, so the government really needs to look at giving businesses access to capital if they haven’t got cash.

Access to finance is still a real problem for many firms, and more must be done to mean that this doesn’t threaten recovery. More radical measures, such as a state backed SME lender, should be implemented to address the gap in business funding. (Over the medium-term, Vince Cable suggests that part of RBS be used) which could eventually be returned to the private sector.

It remains to be seen if this measure could be introduced in the UK. Other European countries and the US, the BCC say have business banks that run very successfully.

In fact, state the BCC it is companies like Microsoft that started with loans from a business bank in the US.

The UK economy is still facing huge challenges and the recovery is much too slow but if we want to see the Microsofts of the future here in the UK, then the government has to set businesses free to grow and drive recovery.

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