Home > Scenarios > Outline Scenario – Nov 2008 onwards

Outline Scenario – Nov 2008 onwards

The current financial incentives proposed by the government fail to work as hoped.

 

The VAT reduction is totally ineffective and the part-nationalisation funding arrangements fail to support the banks adequately as they require yet more financial support to stay solvent. Full nationalisation of yet more banks is likely. This is caused by massive write-offs due to commercial loan defaults, the unwinding of complex banking arrangements and fraud.

Supposed capital investment initiatives struggle to get off the ground and fail to generate long term sustainable jobs.

Tax revenues collapse and as a consequence public sector borrowing soars leading to continued pressure on the pound – parity with the euro likely although the dollar will hold at $1.25 due to its own decline.  (The IMF could be forced to intervene as per 1976!)

Great chance of a split euro zone between North and South leading to two types of euro.

Oil prices will stabilise @$75 per barrel but inflation will be 2 to 3 % due to the pounds collapse.

The recession is severe leading to nearly 4M unemployed at its peak before recovery starts in 2011.

A private sector backlash against Public Sector conditions of employment gains momentum but lack of appropriate reforms whilst Labour is in power due to their financial support by the Unions.

Public Sector effectiveness will decline due to “Death by 1000 cuts” mentality produced by Government so-called efficiency savings – ‘Slash & Burn’ massive re-engineering is needed to introduce private sector productivity. Industrial disputes similar to the 70’s & 80’s will begin but from middle classes this time.

Nation states will adopt more protectionist measures, particularly in the USA.

The BRIC economies will see social unrest and increased political/religious terrorism.

As a result globalisation will reverse as organisations look to implement shorter, local, more stable and environmentally friendly supply chains.

This will mean organisations “in-sourcing” more, requiring re-learning lost skills and re-investing or sub-contracting to local, possibly start-up organisations that can compete.

Organisations that succeed will be niche organisations that are special and offer good customer service with a perceived identity.  Only they will prosper – no more ‘me2 – copy other’ type organisations – customers will demand value and service, not just price in the future.

The middle classes will challenge restrictive legislation particularly over stealth taxes, political correctness, health and safety and employment conditions.  Employers will press too for relaxation in employment conditions and remove restrictive legislation – too much red tape! At its extreme a move to leave EU grows

A growing breed of “independent enterprise” worker emerges wanting flexible employment terms with few benefits but more importantly restrictions.  This will need inspired changes to current IR35 legislation.

Environmental issues will remain prominent as people become increasingly aware of “waste/excess”.  There will be a move away from re-cycling to prevention in the first place – less packaging and transportation for example. The old adage: reject, reuse, repair, reuse, recycle has real meaning.

Environmental, energy costs/uncertainty and the economic necessity of manufacturing will make ‘technology’ attractive once more and seen as a solution to problems rather than the cause.  However, critical skill shortages, finance and capability limit the
UK’s ability to react and benefit. New scientists, engineers and skills which need ability are required hence back to basics with harder exams etc.

‘Clean’ energy schemes could be the key driver to recovery through investment in new nuclear and clean-coal power stations.

A distinctive lack of creative ability and decision making skills in society and managers inhibits growth.  People have been told what to do for too long, particularly in the Public Sector by Central Government.

Increasing polarisation between savers and spenders forces a rethink of values and economic principles.

Victorian values of thrift, enterprise, self-support, technology and innovation begin to return – economic growth comes from ‘entrepreneurs’, in many cases forced upon individuals as traditional employment disappears.

Creativity / Enterprise / Dunkirk spirit become emergent themes for UK society.

Demand for moral values, moral leaders and role models rise and increased growth in church attendance/spirituality/cults is seen.

Social responsibility by the media is demanded – the BBC could lead on this and find a new purpose and role for the 21st century?  The founding principles might be re-interpreted as ‘inform, educate then entertain’.

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Categories: Scenarios
  1. davidpim
    January 11, 2009 at 4:18 pm

    It’s amazing how many of these predictions are proving accurate. The latest are today’s poll from YouGov about EU membership http://www.telegraph.co.uk/news/newstopics/politics/4214369/Loosen-Britains-ties-with-European-Union-say-two-thirds-of-voters..html
    and also their findings on ethical issues http://www.guardian.co.uk/environment/2009/jan/11/green-living-ethical-fashion-business
    The rapid decline of sterling to parity with the euro really surprised me though as I expected that to take a few months at least! No sign of the euro split yet but….

  2. kevfitz
    January 11, 2009 at 7:29 pm

    Will Gordon see this as an opportunity to make a move to the euro? As it (sterling) finds equalibrium to the euro he would not be required to compensate business would he?

  3. davidpim
    January 12, 2009 at 3:32 pm

    The FSB have proposed their ideas on creating employment
    http://www.fsb.org.uk/frontpage/assets/fsb%20five%20point%20plan%20for%20job%20retention%20and%20creation.pdf
    Are these likely to be more effective than Gordon Brown’s proposals today? The FSB does not go as far as the forum proposlas though in that there is no fundamental suggestion of IR35 type reform that I can see.

  4. mrhappy
    January 13, 2009 at 12:57 pm

    Very interesting. Much of the analysis and comment is in line with what commentators, pundits and financial/social journalists seem to be saying in general, but some of the specific data and outcomes are not. For example the publicly expected figure for unemployment is 3m not 4m (assuming both exclude hidden unemployed like those on long term sick who, if included add another 1-2m into the mix). Also, I read this morning that the price of oil is now $34 a barrel – less than half what is mentioned, although the price may go up is supply is cut back drastically. On the Euro I can envisage a move to a two tier system but not on North/South lines – more likely it would be along West/East lines.

    One UK specific issue I did not notice is the importance to the domestic economy of the housing market. The impact of higher unemployment will lead to increases in repayment defaults – squeezing lenders cash flows – and, ultimately, repossessions, further depressing market values.
    Mobility in the job market will also suffer with people unable to move to find work because they cannot sell their homes. This cycle of misery is not unusual in downturns and recessions, but will be exacerbated this time because so many people have maxed out personal borrowing on the equity in their properties in order to finance conspicuous consumption such as buying new cars (another issue of significance), nice holidays, etc, etc. This means the personal economic crunch time for many will be reached that much sooner that it may previously.

    The public sector stuff is not surprising. When times are bad, it is an easy win for the media (especially in the Tory press which is most of it) and political focus to alight on “wasteful, lazy, parasitical civil servants with their jobs for life and non contributory, inflation proofed final salary pensions” – Cameron has already started making noises to this effect. One thing I am not so sure of is that industrial action will result – I think our population is rather a cowed beast nowadays and by the time it re-radicalises itself the usual concerns about protecting jobs and conditions may be secondary to more fundamental concerns.

    This leads me wider issues. I agree that a downturn will concentrate minds on the bottom line so there will be pressure to relax employment and social regulations and a retreat from more socially liberal and green policies. However, some of the more medium and long term consequences outlined are too optimistic – I feel we may not get the chance to see these coming about.

    Personally, while not inevitable, I do think it is quite possible the period we are about to enter could be far, far worse than anyone has so far outlined if not imagined. Worldwide, the contracting US market, the risk of the collapse of Chinese capitalism, instability in Russia and it’s ex Soviet satellites, the danger of escalating crises in the continuing conflicts in Gaza, Israel/Palestine, Iraq, Iran, Pakistan and Afghanistan, plus Africa generally, coupled with a deteriorating global ecosystem leading to food and water shortages are all existing and/or potential disasters in the making – and that is without mentioning terrorism, worldwide pandemics and increasing frequency of large scale natural disasters. The ability of the international community to deal effectively with any one of these is doubtful and several all happening together could be catastrophic.

    Domestically, (and what happens in the UK might be taken as a microcosm of what could also happen in many developed countries), we would not be immune from the impact of these problems and to an extent are already embroiled in some. Add to this a serious crisis in the economy where we have say manufacturing grinding to a halt, several million unemployed, a collapse in the housing market, a run on the banks all of which are not unimaginable and we face big problems. In such circumstances I think social order could rapidly disintegrate, leading to demonstrations in the street, the imposition of more repressive “emergency” police powers, the creation of a government of national unity which effectively suspends the democratic process, censorship of the media, imploding of tax revenues leading to slashing of benefits and social services, plus increased crimes of violence and robbery and persecution of all minorities. From that fragile situation the country could rapidly plunge into social meltdown resulting in military law, the rise of fascism (much more likely than communism), food rationing and a total collapse of all the institutions and facilities we rely on and take for granted, ranging from doctors surgeries, hospitals, local authority services to the provision of food and other goods – look how quickly the supermarket shelves emptied during the petrol price protests a few years ago and that only lasted a couple of days.

    I sincerely hope this doom ridden forecast does not come about, but it could and if it did it would happen very quickly – over months not years. All it needs is one major disaster to tip us over the edge – say the real collapse of one of the big banks – and from then on events would develop a momentum which would probably be unstoppable. As a population we just do not possess the skills needed to exist in a subsistence society living from hand to mouth – it would not be nice and most of us would not be able to cope.

    On the other hand, it may all just be a storm in a teacup and this time next year we will be looking back at 2009 and wondering what all the fuss was about!

  5. davidpim
    January 13, 2009 at 1:18 pm

    mrhappy is right with his 3M or 4M observation. We came to the view of 4M unemployed on the basis of how fast orders were collapsing in member organisations and our expected severity of the recession based on current views and likely behaviours. 40% of the panel were unable to attend on the day due to having to manage closures, shutdowns or lay-offs! Housing repossessions and negative equity we took for granted (as the fall by 25% – if not 40% – in value) but should be in the summary. Also the summary doesn’t reflect fully the potential for alternative forms of lending like credit unions – especially for small businesses.

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