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Back to Business! Bring on the Small Battalions

Tragic as the deaths and family loss caused by Covid-19 are, and humbling as the talented and dedicated work of those tackling it, life must go on. Just as the foundations of the welfare state were fashioned by Beveridge in the depth of the Second World War, so we must turn a collective mind to the lessons of the pandemic, and the changes that it will bring. If we are not to waste this crisis but instead use the experience wisely, then we must confront assumptions about the world and the way that we think about it which are as deep rooted, insidious, and powerful as any virus. Principal among these is a misplaced and debilitating faith in the ability of big government and the state machine to find solutions in anything other than the very short term.

The danger now is that a pyrrhic victory in ‘defeating’ COVID-19 in the short term will lead to the permanent arrogation of power to the government. Despite the rather uneven performance by international standards of the UK during the pandemic, the temptation will be to forget important lessons about the limited ability of big government to produce the prosperity which ultimately underpins public health and a strong and effective health service. As Adam Smith taught us, the creation of wealth depends mainly on a government which ensures ‘peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.’ Above all, it relies upon the ingenuity of people themselves, the businesses which organise them and the universities and laboratories which educate and push the boundaries of their capabilities: not on big government but on the small battalions

If this country’s ability to earn its way and the foundations for prosperity are to be restored, certain pre-Covid problems must be tackled. First, with government debt at a historically high level at 80 per cent of GDP (it was 60 per cent ten years ago), the tax burden in the UK was scheduled under the Conservative election manifesto, to reach 34.7 per cent of GDP. Not only is this higher than at any time this century, but it is higher than that since Clement Attlee established the Welfare State just after the Second World War. Now, huge and inevitably uncosted spending to tackle COVID-19 and its economic effects will add to this and make all the more vital the kind of economic resurgence we need to encourage now. Second, despite well meant but ultimately rather feeble attempts over recent years at reducing the burden of regulations in the UK, including the Red Tape Challenge, the Good Law Initiative and ‘One in, Two out’ of the past decade, it is still estimated that these now cost UK PLC at least £150 billion per annum, money which could instead be better spent on modernising and stimulating the economy. Much has been written about Britain’s relatively poor record on economic productivity, both compared with France and Germany and to the years under John Major in the 1990’s when it improved most. That time coincided with a drive on deregulation and with a tax burden reduced to less than 30 per cent of GDP, a level not seen since the 1960’s. Recent regulatory trends are not promising. In my own industry of financial services, which accounts for 30 per cent of GDP, recent pronouncements by banking and consumer regulators have imposed repayment holidays the need for which is unproven, which may significantly damage the viability of businesses less well financed than ours, and which ironically may prove inimical to the longer term interests of the borrowers they purport to benefit.

Of course there are other, more immediate, lessons to be learnt from the Covid pandemic.

First, many people can work productively from home for much of the working week, and this could lead to a reduction in the frenetically ant like (and historically recent) phenomenon of ‘commuting’. In the densely populated UK this may also prompt a re-think of the desirability of extending our transport infrastructure, leading to a re-evaluation of HS2, airport expansion and a review of the efficiency of, and demand for, public transport.

Second, there should be greater scepticism about the value of transporting goods back and forth half way around the world, in order to take advantage of diminishing, and sometimes morally dubious, disparities in the cost of labour. Already a debate has opened on public procurement contracts favouring overseas producers over local UK firms. By contrast much of the services trade is both global and borderless and will be made the more so by the widespread use of Zoom meetings and the other virtual conferencing which have emerged during the lockdown.

Third, the lack of availability of cheap foreign labour in a rising population will now be seen as an insufficient excuse for the lamentable productivity growth and investment in education that has bedevilled Britain for over thirty years. As Britain returns to work and job protection schemes are scaled back and more flexible home based ways of working, are explored, we may see a rise in unemployment in the low skill labour market, but overall productivity improvements.

Fourth, our existing infrastructure must be used more intelligently. More flexible and informal patterns of work will require a corresponding flexibility in land use planning. Work, rest and play will increasingly take place in the same location; rigid planning use demarcation will generally become anachronistic. The complexity, rigidity and inflexibility of our planning system, which has at least doubled the time taken for residential projects to achieve permission over the past 25 years, must give way to an approach which allows the needs of people in the local buying or rental market to be met in both design and housing mix. This will mean that the government will need to recognize that the current house building and localism agendas are fundamentally at odds with each other and must be reconsidered.  

Fifthand above all, businesses must be set free to recover the characteristics and build on the trends – business dynamism, small company creation and entrepreneurship – stifled since March and hindered by regulation and taxation for much longer, with a new focus on growth. Today’s corporate structures are unwieldy, tax systems complex, and taxes too high. Government legislation will need to reflect a more individualist, atomised but more vibrant and more voluntarily mutually dependent society – of the kind revealed at its best in recent lockdown times. As in America, the consistently most dynamic capitalist economy of the past century, the responsible creation of wealth, and the legitimate profit which drives it, should not be seen as the potential subject of investigation, regulation or envy but as worthy of praise. As John F Kennedy said, ‘a rising tide lifts all ships’. A more unequal but prosperous society would not only create the means to tackle future health and economic shocks, but the ability to invest in the means of communication, in the transport and production systems which could make our increasingly densely populated and fragile world a cleaner and more sustainable one in which to live.


Anthony Coombs

Anthony Coombs has been Chairman of S&U plc since 2008. Between 1987 and 1997 he served as Conservative Member of Parliament for Wyre Forest.

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