T he new government has an interesting set of challenges regarding the economy in general, and business in particular. Economic growth has been weak since 2008, overwhelmingly because of weak productivity. But, whereas governments between 2008 and 2021 could focus purely on raising our growth rate, the new government must also tackle unexpectedly high inflation. In 2020, the Bank of England thought inflation in 2022 would be 2%. Even as late as Autumn 2021, it grossly underestimated the potential for prices to rise. A new government cannot leave inflation up to the Bank of England. Its recent record shows that it cannot bear the responsibility.
So, what policies should the government adopt in relation to business? Probably the best advice is not to ask business or its representatives. Businesses ask for tax cuts, claiming that the results will stimulate growth, when so often the only effect is a short-term profits and dividends boost. According to the think-tank Common Wealth, UK companies have increased their shareholder payouts by 132% over the past decade, while only paying their own employees 25% extra — just a little above the rate of inf lation. The think-tank identifies two companies that, between them, paid out a startling £147 billion to shareholders in the past 10 years. Those two companies were BP and Shell — and that was in the period before their Russia/Ukraine windfall from sharply higher oil prices. It is also a period when UK firms remained at the bottom of G7 for investment as a percentage of gross domestic product (GDP). Our companies need to spend on their (and our) futures, not simply shovel cash in the direction of already-wealthy shareholders.
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