26 May 2020

Big government is back – and business must be ready to defend its turf

By Sam Lyon

Whenever and however we come out of lockdown and are freed from Covid-19 controls, there is a simple reality. The influence and impact of government on the post-lockdown world will remain broader and deeper than most of us have ever witnessed.

Government is bigger and bolder than ever before, with huge spending and unprecedented intervention. A recent Centre for Policy Studies report highlighted that UK government borrowing could hit £300bn this year. And recent analysis of official UK figures showed that 27million people are now being funded by the Government, meaning over half of all adults are now paid by the state.

And the public support these measures. In major economies across the world, people are listening to government again and trust is up. They are looking to government to lead. And while there has been a decline in the public’s perception of how the UK government is handling the pandemic, 57% of people in the UK still believe the government is responding to the pandemic well, according to our latest Covid-19 Leadership Insights tracker polling. In these circumstances they are letting government step in and participate across the economy more broadly and deeply than before.

And policymakers currently have the political cover to introduce measures which will impact business. Our polling consistently shows that the public perceive big business to be lagging behind governments, with 51% of respondents in the UK saying the Government is doing enough to support society at this time, compared to just 33% who say the same for big business. And that perception of business is not only falling week on week, it is consistent across all markets where we are polling, including the US, Hong Kong and Australia.

Record government spending and regulatory interventions, together with a fractured economy and uncertain business environment, mean that business must accept a new reality in dealing with governments. We are seeing a few potential consequences that will have major effects on business and key sectors.

Firstly, public expectations have changed, now and for the future. The idea that something is not an area for government intervention will dramatically reduce. A threshold once crossed can be crossed again.

Secondly, funding the massive spending and the resulting debt will lead to a push for economic growth but also for new revenue sources, with businesses vulnerable to siren calls for increased taxes and regulations. At present, 41% of the UK public support more government intervention on business in the form of higher taxes and more regulation, while 36% support less intervention on business, lower taxes, less regulation. The debate is finely balanced and there to be won. Business will have to show how it can boost economic growth so that over time debt as a proportion declines, and markets have confidence in the financial stability and prospects of nations, with a revenue-driven economic recovery.

Thirdly, as we grapple with questions about the state of the economy, global recession or depression and the future of globalisation, one emerging theme we are seeing from Covid-19 is economic sovereignty – and that is an opportunity for business.

This pandemic has posed a challenge to globalisation by disrupting critical supply chains. It has impacted globalisation’s offer of just-in-time logistics, predicated on the assumption that products can come from anywhere in the world just-in-time so we can be hyper-efficient and avoid expensive stockpiling.

Economic sovereignty leads government to ask how much do we rely on one or two countries as sources of supplies? And, how much do we rely on any one country or geography to be the market for our products and resources?

So what strategically should we control, produce and supply here? And does this come under the banner of national security? Today we face a pandemic, but what about cyber-terrorism hitting every financial centre or other future threats? 

Areas where pursuit of economic sovereignty could have an impact include, medical supplies, the defence industry and component supply, food, pharmaceuticals and energy – all could be targets with opportunities for business.

So it is noteworthy that the public believe the Government’s post-pandemic priorities should be squarely focused on economic growth, strengthening the economy, job protection and creation. These are second only to investing in the health system, which in itself can only be funded through a strong economic recovery.

There is already intense competition among business and industry sectors to get the attention of governments to make their case. Businesses will have to show they can contribute to job creation and protection, faster economic recovery, greater export earnings, new market expansion and enhanced economic sovereignty. They will need to demonstrate they can contribute to national economic resilience and are not over-reliant on one or two countries for sourcing products or trapped in a just-in-time production approach that is exposed to risks of disruption.

All the figures above point to the role of government and new government policies being pervasive and impactful for business. To avoid paying an even longer-term and higher price than it has during this pandemic, business needs to be ready to prosecute its case and defend its turf.

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Sam Lyon is Managing Director of C/T Partners.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.