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CBI's Lambert to Gov't: "Do no harm"
In an open letter to the government and to business, Richard Lambert, director-general of the CBI, an M Institute partner organisation, has challenged the government to "do no harm." Lambert is concerned that at a time of recessionary movement in the UK economy, an under-pressure government may feel tempted to move the goalposts of monetary policy, or fund its fiscal policies through an ill-advised tax raid.
Businesses too are urged to balance short-term budget pressures with longer-term investment in growth. M Institute agrees with Richard Lambert's analysis. In our view, the outlook may not be as bad as what is portrayed in the media but now is as good a time as any for medium enterprises to prioritise those areas of the business that will create long-term growth opportunities.Wise businesses use tough times to make the good times even better.
Lambert admits that, along with almost all other economic forecasters, the CBI was over-optimistic in its outlook over the past year. He says there were two reasons for this. One, the surge in price inflation was quite unexpected. In July 2007, the consumer price index was running at 1.9% and the Bank of England expected it to maintain that level through to 2010. Instead, we can now expect inflation to peak at around 5% later this year. Secondly, the credit crunch has proved to be broader, much broader, than expected. When the credit crisis started around a year ago, it seemed reasonable to expect that it would be finished by now. However, the mortgage finance shortage is now expected to continue till 2010, at least. Also, Britain's strong performance in financial services makes it more vulnerable to a downturn in that sector.
Unfortunately, according to Lambert, years of "unsustainable increases in government spending have left the public finances in a poor shape to cushion the economy against these adverse shocks. In an ideal world, the government would now be in a position to cut taxes or increase spending to help offset the economic slowdown. This is not a sensible option today."
So what can government be expected to do? Lambert starts his recommendations by asking the government to do no harm, either in monetary or fiscal policy. He also sees this as an excellent opportunity to prioritise "the areas vital to the long-term wellbeing of the country, whether investment in skills, energy security and a low carbon economy, or economic infrastructure more generally."
