Turbulent times these may be, but businesses must press on and plan for a range of future scenarios. The IoD’s experts aim to light the way with an analysis of developments in areas from the economy to skills and infrastructure. Ed Morgan, the IoD’s interim director of policy, shares the team’s view on the year ahead…
What is the value of a prediction? One of the most closely watched set of economic forecasts is the International Monetary Fund’s World Economic Outlook, which has just been released in time for annual jamboree of political and business leaders in Davos.
The IMF was mostly upbeat, revising up growth in advanced economies for both 2018 and 2019. It was less positive about the UK, revising down 2019 growth by 0.1 to a less-than-stellar 1.5.
But what, really, are we meant to make of this? The next two years will pivot around one date: 29 March 2019.
The period before will be dominated by negotiations between the UK and the EU over our future relationship.
The period after will see Brexit becoming reality and the economy starting to adjust. Any forecast, good or bad, is made in a cloud of uncertainty.
In this context, it perhaps seems brave that the IoD has decided to produce not one, not two, but 14 predictions about business and politics over the coming year.
Our logic is to narrow the focus, and keep our forecasts as specific as possible, to reflect things as they affect our members.
They may not all come true, but they are trends that business leaders should keep an eye out for over the next 12 months.
Starting with some good news, the economy seems to have performed better in 2017 than many forecasters had predicted.
There have been some bright spots, with manufacturing, for example, growing for five consecutive months up to September.
Tej Parikh, the IoD’s Senior Economist predicts one change coming in 2018 is that London, which has long outperformed the UK average, will fall behind.
Brexit uncertainty is likely to be particularly felt in financial services in the capital, while manufacturing, which benefits from the lower pound, is largely found outside of the South East.
The London economy is also highly dependent on skills from outside the UK, which Seamus Nevin, our Head of Policy Research, thinks will be in shorter supply in 2018.
Net migration fell in the 12 months following the EU referendum, and Nevin predicts it will fall by at least another 50,000 in 2018, from the current level of 230,000.
This will get the government closer to reaching their net target of 100,000 a year, but cause problems for many IoD members, who needs workers with specific skills to make expansion possible.
Against this backdrop, companies are looking to our political leaders for reassurance on the Brexit process.
Allie Renison, the IoD’s Head of EU and Trade Policy predicts that the government will reach political agreement with the EU in the next three months on a deal for a transition period after Brexit day in March 2019.
For all of the talk recently of ‘no-deal’ Brexit, Renison says that over 2018 we will see the UK government putting mechanisms in place that make it possible to cooperate with the EU on rules and regulations, at least for immediately after we leave.
Leaving Brexit aside, 2018 is likely to be a year of significant developments when it comes to employment and tax, two big areas for business.
Nevin predicts that there will be more legal challenges brought by trade unions against gig economy companies, as we saw with Uber and Deliveroo in 2017.
Much of the problem relates to the legal grey area on what divides employees from the self-employed.
IoD members have said they want greater clarity from the government on where this boundary lies. Unfortunately, we are not predicting this clarity will be given in 2018, which will mean the uncertainty for employers and employees continues.
Aside from rights on holiday and sick pay, the other major distinction marking out self-employment is tax.
This has become a politically-charged area with the growth of flexible employment in recent years, but so far, the government has shied away from action.
Philip Hammond backed down in the face of a tabloid-led campaign against his plan to raise Class 4 National Insurance contributions last March, and tax was kept out of the remit of Matthew Taylor’s recent review of modern employment practices.
Stephen Herring, the IoD’s Head of Taxation, believes the issue hasn’t gone away, however, predicting the Chancellor will launch a consultation on employment taxes at the Budget in the Autumn, attempting to build support for a change in the law.
With all of this on the horizon, it will be a busy year for business, but there may also be moments of excitement.
The IoD’s Infrastructure Policy Advisor, Dan Lewis, thinks that 2018 will see the first people flying from a reusable space vehicle.
The likely candidate is a company called Blue Origin, with their New Shepard rocket, which was first tested in 2015.
The company, owned by Jeff Bezos, wants to put astronauts in its vertical take-off and landing vehicle this year, to be followed quickly by space tourists.
Space flight may be the plaything of billionaires at the moment, but the government has had plans for a spaceport in the UK for a few years, and 2018 could be the year for a big step forward for commercial space exploration.
To end on this high note (excuse the pun), it’s important to remember that despite the challenges businesses face this year, there are plenty of companies out there with exciting ideas and the determination to make them reality.