Tony Drury: “Sid, please come back – we’ve something to tell you.”

As Party strategist, George Osborne MP is pinning all his hopes on an uplift in the British economy round about the end of 2014 in time for the May 2015 General Election. The words of US President Bill Clinton, “it’s the economy stupid”, may well be tattooed somewhere on his person. He knows that he has time on his side.

In his day job as Chancellor of the Exchequer he is nearing the half way stage in the life of the Coalition and the poor economy data continues to pile up on his desk. Whilst inflation is falling, and subject to the oil price remaining stable, should continue to do so, retails sales are moribund, banks are refusing to lend to small businesses, unemployment (leaving aside the Olympic blip) is awful, growth according to the latest IMF forecast is likely to be 1.4% in 2013, the Eurozone is a worry and even the Chinese economy is needing some quantitative easing. The latest ‘funding for lending’ scheme whereby the banks can borrow up to 5% of their loan book at very low rates providing the money goes to businesses is almost certain to end up as ineffective as most other similar initiatives.

Perhaps the Chancellor should read the ‘Ridley Report’. Written in the 1970s for the Conservative shadow cabinet it suggested breaking up the public sector and dismembering the unions. After Mrs. Thatcher became Prime Minister several public offerings took place including British Aerospace and Cable & Wireless. The then Chancellor Geoffrey Howe preached the mantra of ‘the marketplace’. There followed the selling off of Jaguar, British Telecom and Britoil.

“If you see Sid tell him”

The event that caught the public imagination took place in 1986 encouraged by television adverts featuring the public being urged to tell Sid to buy British Gas shares. Four million investors applied for shares priced at 135p with a minimum purchased of 100 shares. Many of the 1.5 million people allocated stock sold and made a quick profit. 100 shares purchased in 1986 for £135 would now be worth around £1,700. If the dividends had been reinvested the value would be nearer to £2,000. British Gas (now Centrica) still has over 500,000 ‘small’ shareholders.

Mrs. Thatcher remained focused on her wish to “roll back the frontiers of the state” and to create a share-owning democracy. After her third election victory in 1987 there were public offering in British Steel, British Petroleum, Rolls Royce and British Airways.

The two events which captured the public imagination were the1989 privatisation of the ten regional water authorities and in 1990 the regional electricity companies. At its peak privatisation is though the have created a nation of around twelve million private shareholders.

It’s all Gordon Brown’s fault

Twenty years later the Coalition Government is facing an economic challenge as dire as that faced by the Conservatives in 1979. The Prime Minister has decided that it’s not all Gordon Brown’s fault (his mantra 2010 – 2012) but it is, in fact, those reckless spendthrifts in Europe and the Eurozone crisis that is to blame. The most worrying aspect of the mid-term blues is that the Coalition is bereft of ideas.

Perhaps it is time to think about the blindingly obvious. During the Blair years from his second election victory in 2001 to the collapse of Lehman Bros. in 2008, there was a global credit spree (how did Icelandic Banks fund the purchase of much of Oxford Street?) which the world has never seen before. In simple terms there was too much loose money. The inevitable collapse occurred and now the years of austerity are about money finding its true worth as an exchange of value.

Money has disappeared. The Government is broke and is trying to cut back more, the FTSE 100 companies are holding on to billions and the private investor is scared. If you speak to any IFA they will tell you that their biggest headache is in trying to advise their cash rich clients what to do with their money in the light of virtually nil (allowing for inflation) deposit rates.
The simple solution is to increase the money supply. That was, of course, the objective of QE1, QE2 and now QE3. The problem has been that the banks have held on to all to the printed money. So let’s ask Sid.

“That’s a brave decision Prime Minister”

It is likely that these words would be spoken by Sir Humphrey to a Prime Minister preparing to unleash to power of the private investor to back Britain’s smaller businesses.

In July 2011 the Deputy PM began to think the unthinkable. Nick Clegg suggested handing out some shares in Lloyds and RBS banking groups (which we own anyway) to the public.

Sid has billions under his bed, in the bank and building society accounts and in corporate bonds. Let’s back Britain’s SME’s and give them access to equity funds. What is needed:

a) Courage. The Coalition need to get on their bikes and get the British economy growing again.

b) A massive advertising campaign. Let Bell Pottinger loose and tell Sid.

c) Release the private client stockbroking community from the headlock being maintained by the regulators (actually the FSA in its Twin Peaks guise)

d) Re-introduce taper relief so reducing capital gains tax from 28% to 10% over four years

e) Re-create the small cap equity market sector (I can help here: I built the most successful PLUS Markets advisory company 1998 – 2006)

f) Shout from the roof tops about the Enterprise Investment Scheme (“EIS”) where the Treasury has done some good work in improving its terms (SEED/EIS also has potential).

Most of all, tell Sid to back Britain. Our SME’s can pull us out of this economic malaise. They need funding by Britain’s private investors.

Please tell Sid.

Tony Drury
Twitter: @tonydrury39