How to keep Britain on road to recovery

By This Is Money
Updated: 04:19 EDT, 1 January 2010

The boss of the British Chambers of Commerce explains how he believes economic recovery should be supported...

BCC boss David Frost

News of pay freezes, redundancies and business failures dominated 2009. It was a tough year for many private firms which made difficult decisions in order to stay afloat and carve out whatever small profit they could.

Hopeful optimism marks the start of 2010, with many expecting confidence to grow, trading conditions to improve, and the economy to begin along the road to recovery. However, questions still remain over how fast or robust this recovery will be.

The majority of forecasters, including the British Chambers of Commerce, have suggested a year of sluggish growth.

In the last few weeks, we made a downward revision to our GDP expectations for 2010, but we were more optimistic about the number of job losses the country will experience - reducing our prediction for peak unemployment to 2.7m.

However, the economy still faces major challenges over the next 12 months, and with a General Election looming, this must be the year that business is given the freedom and support it needs to drive a sustainable recovery.

If it isn't, the risk is that we slip back into another round of painful recession.

So what needs to be done to create the conditions for a business-led recovery? From where I sit, there are several clear obstacles to overcome. First and foremost, problems with accessing finance are still affecting many of our most ambitious small and medium-sized growth businesses.

The Bank of England's official figures show that credit remains hard to come by. This data is supported by the BCC's own enquiries, which reveal that a third of firms believe credit has become more difficult to access over the last three months.

If we don't get the required borrowing through to companies to invest and compete, we are going to prolong the time it takes for the UK economy to recover.

Next, we need to hear a credible plan that will reduce public spending and bring the nation's finances under control. Failure to outline a thorough strategy threatens our international credit rating, with dangerous consequences.

Major reform of the public sector must be the cornerstone of any serious plan to curb spending. Freezing the total public sector wage bill should be at the heart of that, and action in this area could start now.

While there is a need to address public spending, areas that underpin our recovery - such as investment in Britain's vital business infrastructure - must be maintained.

At present, infrastructure spending is dwarfed by huge and inefficient spending in areas like health and education. Business will not be able to drive growth and create jobs if investment in our transport, energy and digital infrastructure grinds to a halt. As tough a choice as it may be, infrastructure cannot become the politically convenient place to start making big cuts.

Securing growth will also require a reduction in the regulatory and tax burdens facing business - starting with the cancellation of the 2011 employer National Insurance Contributions rise of 1pc, and an immediate moratorium on new employment laws.

There can be no doubt that red tape continues to smother UK firms. Since 1998, the cumulative cost of regulation to British business was a staggering £77bn.

FINALLY, we must rebalance our economy by creating a new generation of entrepreneurs and provide a stronger focus on international trade - in manufacturing and services. Just 31pc of companies we surveyed exported last year. That simply is not enough.

2010 will be a crucial year for our economy but when you break it down, the solutions to the current problems are quite obvious: allow the private sector to generate investment, growth and jobs by reducing the tax and red tape burden; provide support and incentives where needed; and rebalance the economy away from debt and the public sector.