Yesterday the bi-annual conference of Corporate Finance International took place at the Celtic Manor Resort, Newport. Graham Henry reports on the keynote speeches of HSBC chief economist Dennis Turner and leading venture capitalist Jon Moulton
LEADING economist Dennis Turner has praised Alistair Darling for his handling of the economic crisis. Speaking at a corporate finance conference in Newport, HSBC's chief economist Dennis Turner said that Mr Darling had "pulled every lever available to him" after Gordon Brown left him with "no cash in the till and a load of IOUs".
Mr Turner outlined the state of the UK economy at the bi-annual conference of Corporate Finance International at the Celtic Manor Resort – hosted by Cardiff corporate finance firm Gambit. However, he criticised government policy, saying that there had been "errors in policy" from Mr Brown when he was chancellor that contributed to the credit crunch and that ' Mr Darling s policies now were a "legacy" of the Prime Minister's tenure at the Treasury. He said: "Alistair Darling's policy is Gordon Brown's legacy, that is what we are living with. But he is playing tough, smart and shrewd and to his credit has pulled every lever that is available to him and decisively. "The fiscal deficit will rise – this Governmentwill be spending pounds 170bn more than it is taking in taxes. That is 13% of our GDP. The reality is that that is the first time it has ever exceeded pounds 100bn. "But it is not the fault of Alistair Darling that we have this deficit. He has followed the simplest rule – where there is a hole where the private sectorwas, he filled it with the public sector.
"The only area that he might have done better was to have an exit strategy for dealing with the deficit." The HSBC economist said that Labour's record-breaking 63 consecutive quarters of economic growth were "broadly a good thing" and that living standards have grown markedly during that time. But he criticised Mr Brown for "spending money that he just didn't have" and an over-reliance on consumer spending to fuel that growth, saying that it contributed 80% of UK economic growth and had left "everybody in the country owing, on average, 19 months pay." Consumer spending had been slow to recover from the recession because of record levels of personal debt, a heavy tax burden, subdued earnings growth, rising food and energy prices and high unemployment contributing to a huge impact on consumers discretionary spending, he told the conference. He added: "During those good years we cheated as an economy.
We relied on consumers who spent and borrowed too much and a Government who spent and borrowed too much. "Gordon Brown did not budget the surplus that he acquired through the good years – the rule of thumb is that the surplus can be saved for a rainy day – that rainy day is here and there is no money left in the till and just a load of IOUs." Mr Turner called on whichever party wins the election to bolster the UK manufacturing sector as a way of preventing the country slipping into a recession in the future, saying that the sector had moved from building goods to conceiving them. He said: "People have a very old-fashioned view of how much the manufacturing sector contributes to theUKeconomy and where it is – it is a fact that the sector had its best year in 2006.
"It is no longer about volume, it is about educational value.We have top class designers and it is this intellectual knowledge that gives us an edge over cheaper producers in the manufacturing industry." Mr Turner said that ahead of the election, economists were broadly split on whether the Labour policy of investing in public services to stimulate the recovery would succeed or whether the Conservative approach of addressing government debtwould be more beneficial. But he gave cautious praise to the Bank of England's "nuclear option" quantitative easing policy, which pumped pounds 200bn of "new money" into the financial system to encourage banks to lend again, which had seen a modest recovery in business lending and record low interest rates of 0.5% that had given banks the stability to lend again.
He warned that Britain could not fall into the trap of trying to "bribe" foreign companies to come to the country with temporary favourable business conditions. "They will go as soon as the gold runs out," he said. "What we must try to do is create a climate in Britain where they want to be here. This is about the supply side of the industry. It is not about bribery." The CFI is a meeting of 12 international companies from America, that co-operate on mergers and acquisitions in the European and world markets. Gambit Corporate Finance is the sole UK representative. Yesterday was the first time that the conference was held in Wales.