"Brexit is stealing the energy needed to make our economy more competitive"

The CBI's director-general Carolyn Fairbairn, on the dangers of a no-deal Brexit, making the industrial strategy work and why UK plc has many reasons for optimism.

by Adam Gale
Last Updated: 29 Mar 2019

You need only look at the recent chaos in Parliament to see that the relationship between business and the political establishment has never been as cosy as populists throughout the ages would lead you to believe. On Brexit at least, politics seems deaf to the voices of business, no matter how harmoniously they call for certainty over the country’s departure from Europe.

The future of British trade remains remarkably opaque. Brexit has been delayed to allow Theresa May another crack at her deal, and could be delayed further with the possibility of a second referendum or customs union membership – we also can't take a no-deal Brexit off the cards.

That’s an outcome Carolyn Fairbairn has fervently lobbied against, describing it as a "sledgehammer" to the UK economy. "This is no way to run a country," the director-general of the CBI said recently. "What we are hearing is the biggest change in terms of trade this country has faced since the mid-19th century being imposed with no consultation with business, no time to prepare."
Fairbairn is hardly prone to hyperbole. A former Economist journalist, McKinsey consultant and Downing Street advisor, she rose to prominence in the world of broadcast media, becoming director of strategy at the BBC, then arch-rival ITV.

Having taken over from John Cridland at the CBI in 2015, Fairbairn is tasked with presenting the voice of business in wider society and especially in Westminster. This involves conversations with its 190,000 members, something that gives her a unique perspective on what British business thinks.

What do businesses want – from government, from our trading arrangements, from Brexit?

Businesses have been clear from the start on their priorities for a "good" Brexit for jobs and growth. They want a deal that delivers frictionless trade, market access for the UK’s world-beating services firms and a smooth transition into a new trading relationship. This is as true for a small manufacturer in the north of Scotland as for a multinational insurance firm in London.

However, it is also true that smaller businesses are less likely to be prepared for a no-deal Brexit, because they simply don’t have the head office resources. It is unlikely they ever will be.

There are also regional variations to consider. For example, immigration is hugely important for the economies of Northern Ireland and Scotland, given their demographic challenges. This is why it’s so important to secure a post-Brexit immigration system that works for all regions and nations of the UK.

What has been the price of all this distraction?

Uncertainty is difficult for business – it makes it much harder for firms to plan, take risks and invest – and it is taking its toll. CBI surveys show that 80 per cent of firms have delayed or cancelled investment plans, while, according to official statistics, business investment has fallen for four quarters in a row.

Government distraction is also a serious issue. Brexit is stealing the energy that both government and business should be devoting to making our economy more competitive. The UK has a golden opportunity to be a global winner in the fourth industrial revolution, but needs to address serious challenges to achieve this. Too many vital initiatives have been put on hold and now need to be relaunched. We need to refocus on the UK’s competitiveness with its international peers.

How can we do that?

R&D spending needs to increase. Our skills and education system must better prepare young people for the jobs of the future. Our creaking infrastructure must be renewed. We must address the inequalities running deep in British society. The list goes on. Doubling down on the domestic agenda cannot wait any longer.

We owe it to the next generation not to lose sight of other vital public policy challenges, such as climate change and preparing for an ageing population. Solutions can only be found if business and government work in partnership. Firms are an invaluable source of information, ideas and "coalface" experience. If proposals are not developed in consultation with business, they run the risk of doing more harm than good.

Let’s take just one example. For decades the UK has been a magnet for the world’s talent. But businesses know immigration rules will change post-Brexit. Unless we design a system that matches openness with control, we’ll dent the UK’s competitiveness at home and its appeal abroad.

Implementing the Migration Advisory Committee’s recommendation that anyone coming to the UK must be earning £30,000 or more could seriously harm many firms, especially those in the agriculture, hospitality and manufacturing sectors. At such a critical moment in our history, it’s never been more important for the UK to show it’s open for business.

Is the Industrial Strategy robust enough to achieve these aims, or does it risk "picking winners" among sectors, if not among companies – stifling some to support others?

The government’s Industrial Strategy aims to build on the UK’s strengths in innovation across the economy to encourage investment and increase productivity. This is the right approach. It is a strategic race, not a tactical sprint. But it’s an area of domestic policy that has yet to reach its potential. We need to redouble our efforts on implementation and secure cross-party support. Businesses need to know what it means. What are the deliverables? And on what deadlines? It must get specific.

Failure to address our stubbornly persistent productivity challenge within and between regions is not an option. Closing the gap between the most and least productive places within regions themselves would deliver an additional £200bn to our nominal Gross Value Added [a measure of output]. This is why the emphasis on "place" within the Industrial Strategy is so critically important. It must unlock economic growth across the entirety of the UK. Devolving decision-making is one way to achieve this, but we must be wary of creating new cliff edges by neglecting areas that don’t have metro mayors or city deals. Getting this right will matter for decades to come.

How substantial is the opportunity for British businesses to expand into new markets post-Brexit?

Huge. But firms need not wait until after Brexit. Germany’s exports to China are around five times that of the UK – and that’s from within the EU customs union.

As the UK leaves the EU it’s important to maintain close links with our biggest trading partner. Divergence from rules and regulations will cost us market access. And we already enjoy preferential trading terms with other countries through our relationship with the EU. Replicating this in a way that will benefit British businesses and our economy will be tough.

Given the uncertainty ahead of us, can you be optimistic about the long-term prospects of the UK economy?

The UK economy has displayed remarkable resilience in the years since the referendum, with record-breaking employment and healthy public finances. But things can change. We’ve just seen the Office for Budget Responsibility downgrade growth forecasts this year from 1.6 per cent to 1.2 per cent. And our productivity problem hasn’t gone, so we cannot be complacent.

That said, I am hugely optimistic about the UK as a place to do business. We are blessed with internationally respected institutions like the Bank of England, alongside a strong and well-respected legal system. Our universities are world-beating, as are sectors like financial services, tech and media. Businesses benefit from a well-functioning, flexible labour market.

In the short term we must ensure a smooth exit from the EU that protects our economy. Longer-term we must do everything we can to ensure the UK remains competitive globally by making real progress on our domestic agenda.


Image credit: CBI

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