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Collaboration Forum Series 4: Optimism in tough times (Week-7)

Our Road to Recovery – Deciphering the Spring Budget 2021, Quarterly Economic Update 

Join us at 8am on Thursday 4 March, the morning after the Budget, to explore the prospects for the British economy, businesses and communities. Are we set to ‘bounce back like a coiled spring’, as our Chief Economist Andy Haldane predicts? Where do the opportunities lie? How will our recovery be affected by the rising levels of government borrowing, inflationary fears, increasing youth unemployment and continued Brexit uncertainty? Join us to hear the Saturday Economist, John Ashcroft, present his statistic fuelled analysis and to debate what this all means for our recovery and for you.

Meet Our Inspiring Speaker

John Ashcroft, The Saturday Economist

Economics, Strategy, Financial Markets, The Saturday Economist, Dimensions of Strategy, NED, Consultant, Advisor, Chair, and the list goes on. John makes sense of economics and financial markets in strange, turbulent times. He also works with companies as Chair, NED, consultant and advisor, developing strategies for success in the age of rapid change. John produces "The Saturday Economist" and also "The Saturday Economist Live", monthly round up live on Zoom.

What next for the UK in a post-pandemic world?

At a national level, the economic recovery looks set to take hold, but it will leave a very different country behind. Economist John Ashcroft shared his take on the pandemic’s impact, the March Budget, and where the UK should focus its future efforts.

The UK is on track for a “very good” recovery, but it will emerge into a different world following the pandemic, according to economist John Ashcroft. In a wide-ranging presentation, which explored China’s role in the world alongside the US, he painted the picture of a country gearing up for growth. But he also said the UK would have think carefully about where to invest in a fast-changing world.

Forecasts indicate the UK economy will grow by 11 per cent over the next two years, bouncing back in 2021, followed by a modest upturn in 2022. The country will benefit from pent-up household spending and a strong construction sector. People will begin travelling once again, perhaps closer to home this time, but the local tourism sector will reap the rewards. Digital acceleration will also speed up, supporting online retail, healthcare, and other technology-powered businesses.

But alongside this positive picture, the country will experience structural changes to its economy, and some sectors will lose out. High street retail will never be the same again and large-scale job losses will continue as online giants move in. Uncertainty remains over commercial property, as companies explore their future working models. And the health of the airline industry, especially long haul, will take years to return. The UK will also begin to understand the wider economic impact of Brexit on its key industries.

During the Budget on 3 March, Chancellor Rishi Sunak appeared to face a dilemma. But in reality, he didn’t really have a choice, according to John. At the end of January 2021, there were still 4.7 million people on furlough. More than a million were in the accommodation and food sector, with 900,000 in retail, and more than 300,000 in arts, entertainment and recreation. If the scheme had been brought to an immediate end, then many of these jobs would have tumbled onto the unemployment register. That’s politically and financially unacceptable.

Broad support for the economy therefore continues. Alongside the furlough scheme, the business rates holiday has been extended for three months and the VAT reduction will remain until September. Universal credit has been boosted and the government has stepped up efforts to help first-time buyers. Further funding has also been announced for the arts and entertainment sector, alongside new loan schemes to kick start the economy. But there also signs Rishi Sunak wanted to start balancing the books. Corporation tax will be increased from 19 per cent to 25 per cent in 2023, and there is now a freeze on personal income tax allowances.

“Given the setback we’ve had and the extraordinary 20 per cent loss of output, the way the Treasury has stepped in, means this is a budget for recovery,” said John. “The total effect of government decisions will boost the economy this year by £53.5bn. You have to look forward into 2023 and 2024 before it will become a net generator. When they talk about balancing the books, that’s still two years away, and lots can change in two years. So, I think that we’re going to see a very good recovery, because we’ve never had this constraint on output before. When people can get out and spend, then you’re going to see a big resurgence.”

As the UK and other leading nations emerge from this recession, they will have a keen eye on what’s happening in the Far East, which is home to 35 per cent of global trade, said John. The Chinese economy grew by 2.3 per cent last year and is expected to achieve 8.1 per cent in 2021. The country has one billion internet users, reportedly 80 per cent of the world’s 5G subscriptions and is expected to become the world leader in cloud technology and machine learning. It will overtake the US, as the world’s largest economy, in 2028 and will double in size by 2035. But even when it does, China will still fall well below the GDP-per capita of other countries, leaving it even more headroom to grow.

Where does this growing dominance of the Asia-Pacific region leave the UK, as it emerges from the pandemic with a spring in its economic step, free to choose its own destiny? “Well, the strong trading groups are in South East Asia, dominated by China; North America, dominated by the US; and in Europe, dominated by the EU,” said John. “So where do we sit? We’re sitting outside of the major trading zones, in terms of Europe, the US and in China.”

Headlines have been circulating about the UK becoming a Singapore-style economy in the North Atlantic. With a low-tax regime for businesses, and a series of freeports to fuel global trade routes, it certainly seems possible. But John believes the Chancellor’s move to raise corporation tax will dampen that vision. He said the notion of a ‘fantasy island’ had gone. Instead, he suggested the UK should build on what it has started. Digital acceleration has proved that with the right infrastructure, people can be more mobile, and in some cases more productive.

“There’s no catch-up potential in terms of GDP per capita in the UK, because you’ve got a much smaller population to deal with it,” he said. “So, I think what you should look at is a big investment in road and rail, and especially in telecoms. Telecoms can be a relatively cheap investment with a big payback. You’ve got to have infrastructure investment if you want to support new technologies, which demand broadband and 5G. Working from home and the acceleration of new start-ups demand the same. I would have hoped to see big support for new technology, but it’s overall infrastructure investment that’s needed.”

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