Nudge nudge, chink chink

Time was when the Budget would have caused me to “hold the front page” on Top Consultant as I laboured deep into the night to work out what the latest tinkerings with our labyrinthine tax system might mean for the consultancy industry.

These days, Budgets are so relentlessly trailed and consulted that there are likely to be few surprises, and this time round even the most rottweilerish among us have failed to turn up another “granny tax”. So let’s not rush things.

That said, I have to say I was pleasantly surprised: George Osborne made much of the endlessly dire economic situation, more endless than a British winter, so much so that children born in 2007 will not only think it snows every year but that “direconomic” is a single word.

Yet despite the constraints on him, Osborne managed to find some wiggle room, but to parlay some of it up to elbow room – if you make allowances for the rather broad expanse of time the announcements in “Budget 2013” cover.

Certainly there seems to be little appetite in Government or even on the opposition benches for the sort of grand interventionist gestures that are being rumbled about on the fringes of both the left and right. But this was a Budget that did show some very mild interventionist tendencies. There was, for example, tax support for the apparently vital industries of aerospace, shale gas extraction, and, er, digital special effects. Generally these were targeted and pretty small beer, as were the more general measures to support small employers and house buying.

So what George used his elbow room for was a series of nudges and I wonder if I don’t discern the fingerprints of the Government’s actual “nudge department” (aka the Behavioural Insights Team). This shadowy unit is drawing on cutting-edge thinking to deploy little psychological prompts to create major shifts in behaviour, such as paying taxes and fines. One day they will leave a copy of Wuthering Heights with a £10 note inside it on a park bench in Acton and the economy will roar back into action.

I can’t help wondering if the Government is trying something similar with its little tweaks to the tax system. It’s really difficult to tell whether the UK economy at the moment is a dead duck or just a sleeping parrot. The Government’s view seems to be that it’s a bit like one of those coin-pusher machines you get in amusement arcades. The Treasury has loaded the sliding shelves with 2p bits in the form of quantitative easing and lending schemes, but the punters are unwilling to shovel in the few bits of their own loose change that will bring the money cascading down (either that or the banks have glued all the coins to the racks).

But if you believe we are on the verge of a literal tipping point, then the Government’s little nudges – a £2,000 “employment allowance” to take the smallest employers out of NICs and two mortgage support schemes that even the government appears not to understand, could be enough. And they could be enough, even if no-one really takes them up but just believes others are about to.

Will it be enough – should we be gearing up for an explosion of microbusinesses and house moves? It’s hard to say. The mortgage subsidies should stimulate some activity and also create a bit of labour market mobility currently stifled by squeezed credit and the pseudo-negative-equity created by collapsing loan-to-value rates. On the small business side it’s even harder to say: people, particularly young people, are a drug on the market today, so it should be possible to make money from them even if your hairdressing apprenticeship scheme has uncomfortably close links with the pie-shop downstairs. But if cash flow and working capital are your problems then the availability of cheap labour is not going to help.

I’m not a great fan of the “government business bank“ school of thought but there is something faintly depressing when even the Treasury is happier to put money into the housing market than UK enterprise.

There’s a bit of dissonance in the narrative we are being fed at the moment: on the one hand we supposedly have all these small businesses who are just raring to go but are being held back by the banks’ unwillingness to lend. On the other hand we are told that big businesses are sitting on piles of cash but are not prepared to invest it.

Something must be wrong with this picture: what are all these opportunities that the big boys can’t see? If the future for SMEs is so golden why is no-one putting their money where their mouth is? Why is no-one prepared to take on any risk – apart from first-time buyers and the promised new breed of employee shareholders?

The truth is that we have shifted from an “all in it together” economy to an “I’m alright Jack” one – and this isn’t some tedious rich-versus-poor argument. The economy is dominated by established firms employing, by and large, mature people. A lot the thinking is what you might call “late lifecycle”. How long do I have to keep going before I can cash out, how long to go on the mortgage, what’s the pension scheme doing? Not: how can I develop new products to sell to Brazil.

In a weird inversion of standard thinking, it’s the young who need to take the long-term view: how long before my earnings pay off (let alone justify the graduate debt), how long to save a deposit, how long before I am even allowed to retire?

Yes, there is stuff for these people – but only if they get a foot in the door. If I’d been setting the Budget, I would have made youth unemployment a priority. Unlike many, I don’t see this as a completely intractable problem, partly because of a massive bias built into our tax and benefits against the young. Because it’s far cheaper – and in many ways more convenient – for an employer to staff up with part-time parents, knowing that a large chunk of their living costs will be supported by the government than try and keep someone in their teens or early twenties from starving.

So that would have been my “nudge” – tweaking the tax system to get the energy and creativity of a million young people into our economy.

Would it have worked? I don’t know. I get the feeling that next year our Chancellor, whoever he may be, is going to need bigger elbows.


All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.

Contact Mick with your views or suggestions at: [email protected].