THE OFT-HEARD refrain from the fans of Arsenal Football Club is the suggestion that manager Arsène Wenger should spend some money. Following the lead of the Arsenal faithful, William Hague has urged big business to do something similar, although in less fruity terms.
In an interview with the Sunday Telegraph, the foreign secretary told company bosses to stop moaning about the economy and start putting in some hard graft.
Hague’s rebuke was aimed at critics of the government’s policies to kickstart growth. Indeed, the Queen’s Speech, which sets out the government’s plans for the coming year, included a number of proposals aimed at cutting red tape and boosting enterprise.
Among the measures announced was the Enterprise Bill, which aims to overhaul employment tribunals, remove unnecessary business legislation and limit company inspections. For some business leaders, this was not enough, as Sainsbury’s chief executive Justin King argued that it lacked a coherent set of measures to support economic growth.
However, the message from government is that the state cannot produce growth without big business pulling its weight.
“There’s only one growth strategy: work hard,” said Hague. “They should be getting on with the task of creating more of those jobs and more of those exports, rather than complaining about it.”
Eric Pickles, the communities secretary, came out in support of Hague, saying that the government could not “wave a magic wand” to boost the economy. He told BBC One’s Sunday Politics: “Government can’t create growth – it can create the conditions for growth. But we’re only going to be able to do this if we all work harder.”
Predictably, the government’s combative stance received a frosty reception as both opposition politicians and business lobbyists took to the airwaves to claim that the government is out of touch.
Adam Marshall, director of policy at the British Chambers of Commerce, told the BBC: “Businesses up and down the country are busting a gut to find new growth opportunities, both at home and around the world. To borrow a phrase from a politician, businesses are already ‘straining every sinew’ to deliver growth. And many companies, both large and small, think that government could do more.”
Race for growth
Hague cannot have been left in any doubt about the views of business after attending the CBI’s annual dinner as a special guest. In a speech at the event, CBI president Sir Roger Carr made it clear that business doesn’t need ministers to “crack the whip” to get growth going.
“In the race for growth, the going may be heavy at times, but the horses are willing, the course is understood, and there is a shared will to win”, he said.
“There are no whingeing businessmen here, but engaged people advocating a constructive approach to solving the nation’s greatest challenge: growth.”
On the government’s track record on growth, he said: “There is no doubting the intent of the coalition in providing business-friendly policies. What we need is business-like execution and delivery on promises – ruthlessly and urgently.”
However, the government’s argument that business needs to do more to support growth is credible. It is not a question of working harder; it is a case of UK plc – like the executives of Arsenal FC – starting to spend cash and stop hoarding it.
According to a study carried out by Big Four accounting firm Deloitte, UK plcs are sitting on £64bn of excess working capital – the amount of money a company requires to fund day-to-day operations. The report, Working Capital: The £64 billion question, found that the cash, if released, could be used to help fund business growth or overcome temporary market downturns.
Deloitte said excess capital is up from £61bn in 2010 and £59bn in 2009. The £64bn cash pile is more than enough to pay the UK government’s debt interest payments for the next 18 months.
Results from Deloitte’s Q1 2012 CFO survey highlighted that increasing cashflow and reducing costs are key priorities for CFOs. The majority of CFOs surveyed said that they aim to run higher cash balances than before the financial crisis. Because of this, the amount of excess working capital is still rising.
“As the UK economy has technically entered a recession, cash and its effective use will continue to remain high on the corporate agenda. The paradox is that, with the appropriate focus, working capital can be one of the cheapest and most accessible forms of funding available to a business,” said Andrew Harris, partner in Deloitte’s advisory development group.
“While external factors are often cited as the prime drivers of working capital performance in these sectors, an all-encompassing focus on revenue and profit margin is often the key driver. It is our experience that a significant amount of working capital can be released without adversely impacting the underlying business,” added Harris.
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