UK business now needs better than Liz Truss

A playbook for bad business management might run something like this: a new chief executive comes in, unveils a strategy so manifestly disastrous it sparks an immediate investor exodus — and then sacks the finance director.

Until Thursday, that described the UK government under prime minister Liz Truss.

Sometimes bosses hang on long enough that the macroeconomics rescue them and their company’s performance. Truss’s resignation means she has no chance of such rehabilitation. The question is just how lasting the damage to business and the UK economy will be from her eight weeks in charge.

There are already signs that international investor confidence has improved from the depths plumbed in the wake of the “mini” Budget on September 23. Gilt yields had started to fall and the pound to rise since the installation of Conservative moderate Jeremy Hunt as chancellor last week. The Bank of England has managed to reestablish some of its credibility thanks to the perception that monetary responsibility faced down fiscal recklessness and won.

Yet Truss’s government was meant to be one that was unashamedly pro-business — at least at first. While detail was lacking from former chancellor Kwasi Kwarteng’s fiscal event, the tone was clear: this was a government going for growth with the City as its engine. If the removal of the bankers’ bonus cap was symbolic, the fact that the Treasury under Hunt has refused to rule out a higher tax rate for British banks come April could be taken as a sign of how far the sands have shifted.

Domestic business confidence, already shaky, seems likely to have deteriorated further in recent weeks.

Figures from the Federation of Small Businesses this week showed confidence at its lowest level outside of lockdowns. A report from consultants Begbies Traynor pointed to a jump in what they term “critical corporate distress”. Political instability even more than inflation is now the thing driving confidence further down, members tell the Institute of Directors, which tends to represent small and medium-sized enterprises. Kitty Ussher, chief economist at the IoD, underlines the correlation between directors’ economic confidence and their investment intentions.

Despite that, it is clearly possible to overstate how much of an impact political noise has on businesses’ investment plans. As Paul Drechsler, chair of the International Chamber of Commerce in the UK, puts it, “businesses duck and dive, they invest where they see opportunities”.

There is debate about how much some of the flagship growth policies of Truss’s government — investment zones, or the corporation tax cut — would have boosted the economy and business investment in any case.

The pound is still weak, which will provide some support for inward investment. So will the fundamental attractions of the British economy: a big consumer market, a growing renewable energy sector and a globally competitive life sciences industry, for example — along with financial and professional services.

Some of the boring stuff that actually ends up making a structural difference is still going ahead, too: notably for the City, the Final Services and Markets Bill, wending its way through parliament after extensive consultation with the industry.

Disquiet — increasingly, and uncommonly vocal among the top ranks of the UK business community — is only partly about what any political party’s actual plan for growth looks like. That should be clear from the fact many industry groups at first welcomed the “mini” Budget’s embrace of business. Once predictability is restored, there is the scope for both confidence and investment to rebound quickly — much as it did after Boris Johnson finally secured a Brexit deal in 2019, however flawed that proved to be.

Johnson’s departure showed changing a leader does not always change fortunes. Credit Suisse serves as a similar example in the corporate sphere: a carousel of changes among its top team in recent years has yet to stop it lurching between crises.

Big Four firm EY has something it calls the “three-warning rule” for businesses. Its analysis previously showed one in five public companies that issued three profit warnings in the space of a year had delisted 12 months later, mostly down to insolvency. It is hard to calculate the political equivalent. But for the UK’s sake, the government now needs to depart from the blueprint for a failing firm.

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