BUSINESSES are often very good at predicting the trends in their own, narrow markets – but they are not always able to see the big picture clearly. So here are five possible shocks that firms and investors should look out for over the next three or four years.
1) THE SCOTTISH REFERENDUM
A break-up of the UK would be hugely disruptive and decimate this country’s international reputation and clout. Yesterday’s manifesto from the pro-independence camp was deeply unconvincing (and see Alistair Darling’s demolition on p23). But if the Scots do vote to stay in the UK, this won’t be the end of the matter: the UK will still need a constitutional revolution if it is to survive for the long term. Devolution as it currently stands is unfair to England; Scottish MPs in Westminster vote on English matters, but English MPs don’t vote over Scottish matters. All component parts of the UK need to enjoy the same degree of devolution as Scotland; in other words, England needs its own assembly and the UK needs to become a federation, with foreign policy, financial regulation, defence and sterling controlled by the centre.
2) A PROPERTY CRISIS
Far too few homes are being built in the UK at a time when the population is growing. As Savills points out, the number of households is expected to rise by 221,000 per year – housebuilding in England is at half the level required. The greatest housing demand comes from households on less than £50,000 a year. The lack of supply – caused by daft regulations – will push up prices, reduce the home ownership rate and fuel social tensions. The backlash may well lead to a mansion tax, which could make London much less competitive, chase away overseas investment and shatter the UK’s reputation as a safe haven.
Because of the inconsistencies of the mansion taxes as proposed to date – someone with ten properties worth £1m would pay nothing, somebody with one worth £2m would be hammered – the levy would eventually mutate into a more general, French-style wealth tax, chasing away the middle class and wealthy high-skilled migrants that have helped fuel London’s economic recovery over the past few years.
3) A MONETARY POLICY TIMEBOMB
The Bank of England is in no hurry to hike rates, as it keeps making clear. But when it eventually does do so, the consequences for many households and firms will be grim. That is the single biggest threat to the recovery. Even though there is a 100 per cent chance of monetary tightening taking place at some point, many people are in denial. There is no better way to ruin a dinner party than to ask guests whether they have stress-tested their own finances with base rates back at five to six per cent. It won’t be pretty when it eventually does happen.
4) A FRESH EUROZONE BLOW-UP
The region’s problems are in remission, helped by a more supportive monetary policy. But they have not gone away, and France in particular has emerged as an especially weak economy. The Eurozone remains in a deeply unstable state: it must either break-up, move more closely together or embrace genuinely radical free-market reforms. The third option won’t happen, so it will be case of integration or disintegration.
5) A CHANGE IN GOVERNMENT
This is currently the most likely outcome of the 2015 election, but is not being priced in properly. The latest YouGov/ The Sun results put the Tories at 32 per cent, Labour at 39 per cent, the Liberal Democrats at 10 per cent and Ukip at 12 per cent. The Labour party keeps pledging to slap new taxes on banks and pricey homes, but wants to freeze small firms’ business rates.