2020 was a bad year for a great number of companies in Scotland and beyond. There are exceptions, of course. Company boomed when you could make personal protective equipment (PPE) or hand sanitizers. But it was an extraordinarily difficult time for the vast majority – especially in the hospitality, tourism and retail sectors – to the point where their ability to invest or even thrive is in doubt.
Scottish and, to a much greater degree, UK government policies that have restricted the increase in unemployment and the downturn in economic activity have protected the economy as a whole. The cost of these attempts has been immense – this year the government will borrow more than £ 5,000 for every person in the UK.
Oddly enough, customers have done well overall, since practically no inflation has occurred, their wages have been safeguarded, consumption has been decreased, and asset prices have risen – following a shock when Covid-19 first struck.
We are very vulnerable, though. In the UK and many other Western economies, not only is government debt worryingly high, but central banks, through quantitative easing, are playing dangerously with the value of currency. If they lose power – and they may – inflation and serious economic damage would result. At least interest rates will increase – even at, say, 5%, a very low level would be hard hit by historical standards, clients, investors and businesses. In the case of another crisis, states now have far less potential to come to the rescue.
Trust and stability are the main. When individuals and companies feel that they are working in a secure climate, they spend money, invest, create jobs, pay taxes, and provide affordable public services.
In reality, with the delivery of Covid-19 vaccines, there is a great opportunity to build on the relief and positive sentiment of people to establish conditions for growth.
This chance is delicate and may well be short-lived. Failure on the part of our leaders to concentrate, pause or pride would create a serious risk of a downward spiral that would further damage our society and economy.
In order to give us the greatest chance of prosperity in 2021, this is what our leaders can do.
Be straightforward and consistent first. The jumble of ever-changing and nuanced Covid-19 rules and their variations around the United Kingdom are deeply unhelpful. The various sections of the United Kingdom need to work closer together and just have separate rules where they are really necessary. It also needs to be consistent in the direction of travel – it makes no sense to switch areas to less burdensome conditions and then lift them again, as this causes confusion and uncertainty. Even if that implies holding areas longer at higher levels, we need to give people trust that this is a continuous conditional relaxation, not a yo-yo game.
Second, with the restoration of public finances, we need to move on. Ignore those who suggest we can drag it out and keep building up debt — when we have another crisis, that’s a formula for catastrophe, and a disservice to future generations who will have to pay the bill. There’s a need for taxes to go up, and really quickly. All of this and more should be on the table – new taxes on the digital economy and income, extending social security to pay for healthcare – we need to be smarter than we have been. Instead of only pulling the same old counterproductive levers, we need to innovate.
Third, our leaders ought to stop fussing over amendments to the constitution. In retrospect, Brexit may or may not be seen as a positive thing 50 years from now, but it’s hurting our economy right now. The separation of Scotland from the UK will be devastating for the economic future of Scotland and its ability to pay for public services. Politicians of both parties must work together to reinforce rather than undermine the current constitutional settlement.
Guy Stenhouse is a veteran of the financial sector of Scotland, writing formerly as Pinstripe