EXAMINATION
OF WITNESSES
(QUESTIONS 408-419)
CBI
4 NOVEMBER 2008
Q408 CHAIRMAN:
John Cridland, welcome. You are on your own. We know who you are,
the Deputy Director General of the CBI, so I will not ask you
to introduce yourself, but I will ask you to explain yourself.
We had hoped that you might be prepared to share a platform with
the Federation of Small Businesses whom we invited subsequently,
having originally sent an invitation just to you. You expressed
a preference that you should not share a platform with them but
be on your own. Why is that?
MR
CRIDLAND: I
am sorry if it came across as unhelpful. That was not our intention.
We take these occasions extremely seriously. It is one of the
things I prepare for most carefully. Our experience has been that
it is not always conducive to effective evidence-giving, either
for ourselves or, if I might say so, for the committees, when
we have given evidence jointly with other organisations, but it
is not a comment by any means about the FSB.
CHAIRMAN: Our
experience is different, I have to say, and we had hoped to be
able to explore the issues and have an interactive session. It
also means we will have less time as a result than would have
been the case. I am disappointed. I think it would have been helpful.
Q409 MR
BINLEY: Can I just say that I
am horrified by your answer. I find it an arrogance which is totally
unacceptable and a lack of recognition that in British Airbus
for instance, which employs directly 13,000 people, there are
400 in the supply chain employing about 140,000 people. It is
that demarcation that does such damage to British industry, and
it is recognised in the small business sector and it makes them
angry, Mr Cridland.
MR
CRIDLAND: I
stress that this was not a comment on the FSB, but the request
that I should give evidence with the FSB[4]
came up very late in the day. What we would have done with more
notice is actually sit down with our colleagues from the FSB in
order to collaborate in our evidence giving. I have, with other
committees in this House, had difficulties in the past when asked
to appear with other organisations, not the FSB, when actually
we have been giving conflicting evidence, and I do not think that
is helpful to the committee.
MR BINLEY:
That is for us to decide.
CHAIRMAN: We
have made our point. It is true we subsequently realised that
of course with the emerging economic situation the evidence of
the FSB was more important than we had originally thought. We
are where we are. We will crack on with questions.
Q410 MR
WRIGHT: What are the challenges
facing UK businesses at the moment?
MR
CRIDLAND: The
deterioration in the economic situation I am afraid is of great
concern to the CBI. We had hoped as late as the late summer that
we might be moving into a short and shallow recession, but the
impact of the banking crisis in September and a significant downturn
in demand across all sectors, both domestically and internationally,
now leads us to believe that, sadly, the recession will be deeper
and longer. Businesses are suffering from a significant reduction
in demand, as I have mentioned; export markets are slowing up;
and businesses are suffering a reduction in the availability of
credit from the banks. A combination of those three trends I think
is causing most businesses in CBI membership to be in some considerable
difficulty.
Q411 MR
WRIGHT: Are there any particular
sectors or geographic areas of the UK which are affected more
than most or would you say it is across the board?
MR
CRIDLAND: In
terms of sectors, clearly the deepest problems are in the sectors
which were most early propelled into a downturn—construction,
property and the high street—but it has now made a significant
dent in confidence in the manufacturing sector. Geographically
I would say the pattern is reasonably even, but when I talk to
CBI member companies, you will still find companies that are not
yet impacted but they are now, I am afraid, in a minority.
Q412 MR
WRIGHT: You have mentioned the
question of the banks and interest rates. One of the criticisms
is that the Bank is not passing on all the interest savings across
to business and indeed to consumers as well. There is a call quite
clearly from industry and from others for up to 1% decrease in
interest rates this week. What is the CBI's view on those issues?
MR
CRIDLAND: We
too would like to see the Monetary Policy Committee reducing interest
rates by a full 1% this week. We believe the situation is sufficiently
urgent to require that. I think it is understandable that interest
reductions on the base rate will not immediately impact on what
Bank's attitudes are to their customers; there will be a time
lag. The problem in the banking market is clearly a lack of confidence
in lending between banks. There has been a modest improvement
in the three-month Libor rate; it has come off its peak, but it
is a modest improvement. I think it is bound to take time for
the Government's measures to stabilise the banking market to permeate
through to the rest of the economy, but when we talk to our membership,
both small and large, there is considerable concern about bank
finance. I do not think the banking credit availability ever completely
goes; I think it became progressively more difficult, more expensive
and companies have to go to a variety of banks, and they clearly
had to provide more collateral. It was particularly difficult
for small firms, as you would expect if that was the prognosis,
but it never completely gummed up. I do not think we are out of
the woods yet. Over the winter, there will be significant re-financing
by a range of businesses coming up in the normal cycle and we
really do need to see the banks being more open to business. I
come back to my opening comment. I think the problem in September
with the banking crisis was a complete lack of confidence in inter-bank
lending. The figure I would want to see continuing to improve
is the three-month Libor rate, which I think is the best indication
of whether the banks are now in business with each other.
Q413 MR
WRIGHT: What are the expectations
of the CBI in the short to medium term? Do you consider, in terms
of coming out of recession, that it is more long term or would
you put a timescale on it?
MR
CRIDLAND: We
have certainly had to review our short and shallow prognosis,
which was our view up to the late summer. I think it is very difficult
at the moment. We have resisted the temptation to publish new
economic forecasts because with the situation as unstable as it
is, it is quite difficult to know what inputs you would put into
a forecast. Clearly, we are going to see several quarters of negative
growth. My expectation would be that the whole of 2009 will be
in negative economic growth. I have seen the National Institute
come out with -1% for 2009. I think that is entirely supportable.
How much progress we make into 2010 is a more open question. There
are several factors which should help the economy. We have reached
the peak or must be very close to the peak on inflation. That
has given the Monetary Policy Committee much more leeway. It will
help as pressures on household bills begin to alleviate: I am
thinking of energy and food. More disposable income will help
consumer confidence. We are comfortable with the level of the
pound. One of the benefits of the pound is that it does help,
as in export markets. There has to be a question mark over the
strength of those export markets, particularly in China; but I
think that there is still some hope that, with significant reductions
in interest rates, with the beginning of an improvement in disposable
income, with export growth in the latter part of 2009, 2010 will
look a little better. However, at the moment, clearly there are
not very many signs of optimism.
Q414 MR
WRIGHT: There has been a mood
of thought in terms of Keynesian policy of spending your way out
of problems by bringing forward public sector schemes, building
projects, et cetera. What is your view on that?
MR
CRIDLAND: The
CBI view would be that we have to be very careful with public
borrowing. Public borrowing is not at a good starting point. What
we are very clear on is that capital spending in important parts
of infrastructure needs to be maintained, both for its own good
reasons and because it is an important way of keeping significant
parts of the economy— the construction and manufacturing
sector—going. There is an opportunity for government to
re-phase some of its public spending plans and to bring existing
public spending totals forward. The business community's view
would be that there is a continuing effort—it is a perennial
need—to improve the effectiveness of public spending. There
is still a lot of grit in the system at the procurement officer
level, which prevents public procurement being truly effective.
If you look at programmes like Building Schools for the Future—
Q415 CHAIRMAN:
We want to look at procurement in a little more detail, so maybe
it is something for later.
MR
CRIDLAND: We
would like to see as much sensible, conscious and targeted public
spending. We would not like to see a knee-jerk response to public
spending for its own sake.
Q416 MR
OATEN: You said it is understandable
that there will be a delay factor in the banks passing on. Is
one of the factors behind that the Government's demands on their
payback for the part-ownership schemes that they now have?
MR
CRIDLAND: No,
I do not think that is a predominant factor. I think that there
is a legitimate debate to be had between the banks and the Government
about those rate-of-return figures; but, equally, the CBI has
banking members and also represents the broader economy and we
would expect the taxpayer to get a reasonable return on their
investment.
Q417 MR
OATEN: But could the Government
do something in terms of either reducing the rate or relaxing
the timescale, which would impact on seeing that the interest
rate came through faster?
MR
CRIDLAND: We
have not proposed that. We have not been pressed by our members
to propose that. We believe that the primary factor is an understandable
lack of confidence in inter-bank lending. That is more important,
in our judgment, in the current mix.
Q418 MISS
KIRKBRIDE: The EU has forecast
that Britain will have a deeper recession than any other mature
economy. Why do you think that is?
MR
CRIDLAND: Anecdotally,
talking to my opposite numbers in the CBIs of Europe, they would
anticipate 2009 perhaps being zero growth, whereas I would anticipate
the UK having something closer to -1%. I would therefore agree
with the supposition that it will be deeper here. Clearly we went
into this at a different point in the cycle and the damage done
to the UK's economic growth from the housing market reduction
having an impact on the property and the construction market was
deeper than most continental European countries. Clearly I would
exclude Ireland from that, which is more similar to ourselves
and, for its own particular circumstances, I would exclude Spain
from that. However, if we were looking at the part of Europe we
are most dependent on, the German economy, the Germany economy
was continuing to be quite successful until the second quarter
of this year. It is slowing later, therefore, and I think that
it is likely to slow less strongly because of its lesser dependence
on the housing market.
Q419 MISS
KIRKBRIDE: So it is entirely to
do with the cycle and not to do with any other reasons about the
UK economy?
MR
CRIDLAND: I
would not suggest that it is entirely to do with that; I think
that is the predominant factor.
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