mulheron john1

Theresa May’s first act as PM, agreeing the Hinkley Power Station,  will set us back around £18 billion, the third runway at Heathrow is a similar amount, HS2 whilst a long-term investment sits at £55 billion and there are still the finishing touches to a £14.8 billion Crossrail project.

Therefore, last week’s Autumn Statement was never going to be a ‘hand-out bonanza’, more a careful balancing act.

Chancellor Hammond’s major announcements were designed to send a message that the UK is open for business and that we still need to improve a lacklustre productivity across the whole of the UK.

To help facilitate this, there were sizable commitments around housing, with £2.7 billion for new and affordable homes, along with further major investment to develop our infrastructure. With £1.1 billion for local transport networks, a £1 billion boost to our patchy digital networks and a further £1.8 billion of Local Growth funding devolved to various English regions.

To help a little more, there were also titbits for business with corporation tax dropping to 17% by 2020 and £6.7 billion set aside to reduce business rates which will benefit our SME’s.

The big winners

The big winners were businesses from the world of tomorrow – IT, biotech, robotics, research and development - with £23 billion being set aside over the next five years to fund our innovation, which should keep , which should keep the scientists and boffins busy for a while.

What was disappointing was a lack of focus and investment relating to education and work place skills. These are two key areas, potentially exacerbated by the free labour movement which hard Brexiteers see as a red line. Being properly ‘tooled up’ to take the UK into a more global market place is crucial and one of the biggest worries for small to medium sized businesses.

From a manufacturing and industry perspective, including plant and machinery in the calculation of business rates represents a tax on productive investment that is out of step with international practice.

The chancellor’s lack of action on this looks like another missed opportunity to support long-term capital investment and improve the attractiveness of the UK at a time when both are desperately needed.

However, the Chancellor had to also address our borrowing situation. In the short term, we need more money, about £122 billion of it, especially with the Office for Budget Responsibility (OBR) pointing to a £58 billion hole due to Brexit.

Keep the lid on borrowing

In this difficult juggling act, he is trying to keep a lid on borrowing and his forecast to take to £20.7 billion by 2020 is important as we’re paying £30 billion annually to service our current debt.

Yes, money is cheap but we are likely to see interest rates rising which will make that servicing more painful.

Mixed economic forecasts should also be taken with a pinch of salt. The OBR growth forecast has now been upgraded to 2.1% for this year when many were predicting a nose dive. But, downgraded to 1.4% in 2017, this takes into account the UK and EU locking horns next spring and a fresh round of uncertainty it will bring.

The real drivers

Next year’s UK growth forecast is on par with Germany and above France. EU growth is set to remain sluggish with the real drivers coming from India at 7.6% and China at 6.2% according to the IMF. With Russia and Brazil both predicted to lift themselves from recession, combined they will add 3% to world GDP.

Therefore, our view, is there has never been a more important time to look through a more global business lens.

So, how can this address UK productivity which has delivered a miserable 2% rise over the last eight years?

For the previous eight years, in the ‘good old days’ before the 2008 crash, it rolled along happily at around 19%.

To put that into context, Germany’s GDP per hour is 36% higher than ours. France is 31% higher and even Italy is 11% more productive. Looking closer at productivity by region, it’s a more worrying picture. Put simply, regions outside of the South East are not as productive as they should be and if the rest of the UK matched London’s output, we would be near the top of the world table.

The Northern Powerhouse

The Northern Powerhouse – defined as the North East, North West and Yorkshire and the Humber represents a fifth of UK economic output. If it were an independent country, it would be the 10th largest in Europe.

Pretty good? It’s still puts it 20% lower than London, which has a considerably smaller workforce.

The Chancellor recognised something must be done and his ‘ensuring we’re match fit’ reference can only work if the whole country can start firing on more cylinders. Today’s Autumn Statement has only gone some way to achieving that.

There are plenty of reason to believe these Powerhouse regions have enormous potential to deliver and the UK has welcomed over £5 billion of Chinese investment into about a dozen projects, an increase of 500% over six years. Clearly, they haven’t been put off by the Queen calling them “rude” during the last state visit!

Whilst external investment is clearly of benefit, whether construction projects or the likes of Google and Facebook increasing their stake in HQ head-count, we still need to move away from a fiscal policy that has previously treated each region the same - which they’re not.

A smarter approach would be a strategy defined by region and identify what’s holding it back and what does it need to start firing again. So, the £23 billion ‘innovation programme’ will go some way to support that and should be applauded.

The various pots of money can immediately make an impact, whereas HS2 or extending road networks are laborious and take time. So, it’s up to businesses to take up the challenge and look at ways to invest in order to reach a new global consumer.

According to the Centre for Economics and Business Research, Britain is missing out on billions each year because of a failure to help SME’s crack new markets. We are among the worst five counties in Europe for helping them to grow exports.

Last week’s Autumn Statement was measured and solid. You can’t please everyone and we need to keep a bit in the kitty as the government is trying to forecast the unknown – the UK is the first country to trigger Article 50 and Philip Hammond is writing the blueprint.

John Mulheron is managing director of CMF Capital www.cmfcapital.co.uk