The chairman of turnaround investment firm Better Capital says the government must learn from corporate world
We’ve asked more than 30 of London’s business leaders how they think Britain can create economic growth, opportunity and innovation. Read the full publication online: Securing Britain’s Future
Operating in the corporate world, I mostly try and often succeed in turning loss-makers into proper and valuable businesses. I think the ailing government can learn a few things from these turnarounds.
If I had to turnaround the UK, I’d first try to not miss forecasts. It’s appalling that the UK has not reached a government growth target for a decade. Memorable forecasts include the Labour government’s 2008 Budget forecast, that by 2010 there would be a surplus of government income over expenditure – by only about more than £150bn! The coalition government forecast that growth of almost 3% p.a. would enable them to eliminate the deficit by the growth in income, to overtake roughly static expenditure. There has been no growth.
We need the resource to grow
However, the bigger problem is that the government has increased overheads in real terms for 14 years straight. Companies with bloated administrations and overpaid inefficient overheads do not have the resources available to grow and develop. Similarly while some public sector spending, on initiatives like education, do generate growth, most do not. In fact, they take away resources from the private sector that could boost the economy.
The government has had a negative cash flow for 23 years, and with the £600bn of increased debt that will arise during this parliament, confidence has been lost.
People stop believing that companies with spectacular levels of debt will ever repay them. The companies lose their credit ratings – and funnily enough, so has our country. For companies, this loss of confidence would also result in people demanding higher interest rates. However, our government came up with a new wheeze to avoid this happening quickly – Quantitative Easing (QE) – where printing £400bn to buy its own debt held interest rates well below those a market would have demanded.
So to turnaround the economy, the government can learn a thing or two from the corporate world.
Firstly, the government should install an effective management that doesn’t shy away from making decisions. Prompt and courageous decisions over closing a product line, dropping a division or dramatically increasing product prices need to be taken. While these are risky decisions, they are likely to pay off.
Secondly, we can’t afford unproductive costs at austere times like this. Unnecessary overheads should be eliminated, like the government’s large PR department, thousands of special advisors with negligible productivity, and the cost of administering unnecessary complexities like a social security system.
Thirdly, we need to revisit spending. A very controversial issue is: should taxpayer-funded fertility treatments be allowed? It’s a tough subject, but is it fair that taxpayers take responsibility for this?
Lastly, we need to apply the simple rule of income not exceeding expenditure. This enforces discipline in the system and reduces waste. We are in a world where we keep printing money to deal with any issues. Debt is a good idea in the short term, but as the years go by, it’s increasingly addictive and dangerous. Incurring debt is living better.
- The government needs to install a management that doesn’t shy away from tough decisions
- Unnecessary overheads like the government’s PR department and many administration costs could be eliminated
- Income not exceeding expenditure is the simple rule this country
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How London’s business leaders would safeguard our economic future
Boris Johnson, Martha Lane Fox, Doug Richard, Xavier Rolet and more than 25 other CEOs and entrepreneurs share their insights.