The bumpy road to a new UK business model


Few political leaders can match Boris Johnson’s gift for delighting party loyalists. This week’s Conservative conference clearly showed the Prime Minister’s dominance over his party. It has been a few years, however, since the flippant optimism of a British leader’s speech seemed so at odds with the realities of everyday life for many Britons. Labor shortages cause everything from queues for gasoline to forced slaughter of livestock. Fuel costs are skyrocketing. The lack of effective opposition lessens the pressure on the government. As they approach their midpoint, however, Team Johnson will soon have to move from visions of the sunny highlands to their realization.

For now, the Prime Minister’s ratings remain strong. The strategy of blaming others, especially the media and business, for today’s disruptions and insisting that they are the necessary birth pains of a new high-wage economic model seems hold out.

But there are real risks ahead. Persistent commodity shortages and supply chain disruptions could still lead to shelf gaps before Christmas. These could combine with the pressure on companies to raise wages in order to attract scarce labor and create a wage-price spiral. Falling real wages, even if nominal wages rise, would have serious political costs – especially in addition to removing the universal credit hike and increasing national insurance contributions to fund social care.

A “winter of discontent” may not materialize. Even if it does, while Labor is still in the doldrums, it might not cost the Tories the next election. Either way, the government will come under increasing pressure to move beyond the politics of assertiveness – the cheerful assurances that answers will emerge and that post-Brexit Britain will prevail – towards the politics of delivery. . In addition to his pledge to level neglected regions, the Prime Minister has now made an explicit commitment to reorient the UK towards an economy “with high wages, high skills and high productivity”.

This is a legitimate and laudable goal, but one that will require a coordinated strategy to achieve it, especially since companies are already having to overcome a negative productivity shock in terms of the increased trade frictions created by Brexit. This will mean more than insisting that companies raise wages rather than “looking for the same old lever” of cheap migrant labor. Higher pay levels can force companies to increase their productivity by inducing them to become more efficient but, in the absence of other measures, can also lead them to lay off marginal workers, which in turn increases unemployment.

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The government must do more to make investment attractive to businesses than the 130% two-year super-deduction for business investment in factories and machinery announced in March by Chancellor Rishi Sunak. Especially with the increase in corporate tax in 2023, longer term deductions will be needed and extended to the kind of investments useful to service businesses that make up the bulk of the UK economy.

It is also vital to invest more in skills and training, and to encourage companies to do the same. Appropriate funding needs to be secured for the initiative to offer free college education to adults without A-levels or equivalent qualifications, and expansion of student funding to include more vocational courses.

All of these goals would be best served by adopting a collaborative approach. This could meet the Johnson government’s short-term political needs to portray business as the cause of today’s problems. It would suit her longer-term hopes better to embrace her as a partner.

Letter in response to this editorial:

Britain can increase productivity if it stands up for vocational training / From Sir John Rose, London SW13, UK

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