Chancellor Philip Hammond’s number one focus should be investing in a sustainable economy, argues Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex.
In a recent article, Sikka (below right) observes that in the face of Brexit uncertainties, many businesses are withholding investment. But to meet the challenge, the government will need to abandon almost of its headline polices.
He points out that historically, the private sector has shown little appetite for long-term risks and the state invested heavily in biotechnology, telecommunications, postal, information technology, utilities, shipping, railways, airlines and many other long-term industries.
For the last 40 years, the government has privatised most of these industries and relied on a variety of tax incentives to persuade the private sector to invest.
Sikka’s verdict: the results have not been encouraging – investment slumped
The lowest ratio of investment to GDP in EU countries was recorded by Greece (12.6%), followed by Portugal (16.2%) and the United Kingdom (16.9%). And since the 1990s, the UK R&D expenditure has fluctuated between 1.53% and 1.67% of GDP, well below the EU average.
Successive governments made a deliberate decision to prioritise the service sector though it is the manufacturing sector which generally generates more skilled, semi-skilled and higher paid jobs. Its multiplier effect – the ability to generate additional jobs – is also greater as the items need to delivered, maintained and repaired. Yet the manufacturing sector has continued to shrink and now accounts for around 9% of the UK GDP compared to 30% in China, 20% in Germany, 12% in the US and 19% in Japan.
Without adequate purchasing power, people cannot afford to buy goods and services and that itself discourages investment.
Investment, innovation and R&D need to be accompanied by sustainable demand. Since 2010, the government has been wedded to building a low-wage economy. Workers’ share of the GDP for the second quarter of 2018 stands at 49.3% of GDP, compared to 65.1% in 1976.
At the same time, the increases in gas, water, electricity, rents and travel costs have further eroded people’s purchasing power. The inevitable consequence of squeeze on household budgets has been the closure of shops such as Carpetright, Jamie’s Italian, Maplin, Marks & Spencer, Mothercare, Poundworld, Prezzo and Toys R Us, just to mention a few.
The Chancellor needs to find ways of boosting people’s purchasing power
This could be done by curbs on profiteering by utilities and train companies, raising the minimum wage and state pension, ending gender discrimination and pay rise for women and public sector workers, abolition of university fees, and ensuring that the tax-free personal allowances for income tax purposes match the minimum wage.
Sikka emphasises the urgent need for state investment in providing social infrastructure, transport, house-building, green industries, artificial intelligence, space and other industries and Hines proposes a Green New Deal infrastructure programme, offering jobs in every constituency.
In the Guardian, Colin Hines, convener of the Green New Deal Group, recently wrote about a GND infrastructure programme which would contribute substantially towards reducing Britain’s domestic carbon emissions and also address the serious threat of rapid and ubiquitous automation raised by Yvette Cooper.
Two major labour-intensive sources of local jobs were advocated: face-to-face caring in the public and private sector and infrastructural provision and improvements. Both are difficult to automate and can’t be relocated abroad.
Infrastructural provision and improvements are crucial to tackling climate change, prioritising energy efficiency and the increased use of renewables in constructing and refurbishing every UK building. In transport the emphasis would be on increased provision of interconnected road and rail services in every community, encouraging electric vehicles for private use. Hines added that the advantages of this programme include:
- improving social conditions,
- protecting the environment,
- offering opportunities in every constituency,
- requiring a wide range of skills for work that will last decades
- and helping to improve conditions and job opportunities for “left behind” communities in the UK.
Sikka ends: “Neoliberals will no doubt respond with the usual comment ‘we can’t afford it.’ But can we afford stagnation, economic decline, social conflict and instability? The answer is a clear no. A government which can bailout banks with billions of quantitative easing, appease corporations and wealthy elites with tax cuts and guarantees profits through the Private Finance Initiative (PFI) and subsidies to film companies, can also find resources for economic welfare. If it chooses not to, it should make way for someone who can”.