The CEO of Lloyds Banking Group – Britain’s largest lender – has warned whoever wins the general election that he or she will not be able to boost growth by increasing government borrowing.
Charlie Nunn said he is a British national debt had been higher over the past fifteen years due to ‘massive shocks’ such as the global financial crisis, the pandemic, the war in Ukraine and also some issues specific to the UK economy.
Limits to investments
And speaking exclusively to Sky News, he said this would limit the next government’s ability to invest.
He said: “We have increased the government debt ratio for Britain. And… we just have to accept that the government cannot pay its way out of this next phase.
‘The US has risen to a 7.5% government in recent years [deficit] ratio to GDP. The US can do that because it’s growing at over 3%, but it is [the US dollar] the world’s reserve currency.
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“We don’t have those options in Britain – but what we do need is a very clear plan and set of priorities for Britain. And then… we have to find the right way to bring in the very material amount of private money, international and domestic, that is excited about investing in Britain to invest alongside the government.
The biggest challenge
“I think we can create that positive momentum for investment in jobs and business growth. And that will then have an impact on the economy. That should be the solution to these three or four very systemic shocks that the British economy has experienced in recent years. 16 years.”
Mr Nunn, who has been a member of both Prime Minister Rishi Sunak’s Business Council and the British Infrastructure Council launched by the shadow chancellor Rachel Reevessaid this would be the biggest challenge for the next government.
He added: “If you look at the next few years for the next government, the real question is how we are going to get investment into the economy – and that investment is not going to come from the government. by attracting international foreign direct investment, using the banking system to really support customers, investing in their businesses and creating jobs and growth employment, and then supporting other financial institutions and capital pools such as pension funds for those investments.
‘So the real focus must be: how do we get some growth going and how do we, together with the government, raise private money to make that difference? And that is what will yield the best outcome for the country, but also for the government’s own finances. “
‘Very high’ business sentiment
Mr Nunn, who said sentiment among business is “actually very high” at the moment, said a clear government plan and set of priorities could unlock three things.
He continued: ‘The first is that we need to get more private, both domestic and international, investment into Britain to support growth, and that needs to be accompanied by some supply-side reforms.
The second is housing. Housing is a really important issue for Britain, from social housing to affordable housing and the wider housing market. We think you need a ten-year plan to unlock the housing investment needed to really make a difference.
“And the third thing we think could make a difference is focusing on long-term savings and investment, both building financial resilience for businesses and consumers in Britain, but also how we use those savings, those piggy banks, to invest back into the British economy.
“We think there is opportunity to do more.”
Investors looking for ‘stability and a plan’
Lloyds owns Halifax, the UK’s largest mortgage lender, as well as the UK’s largest current account provider, one of the biggest players in business banking and credit cards, and owner of life and pensions giant Scottish Widows.
Mr Nunn said that as CEO he met many companies and was clear about what they wanted from the next government.
He continued: “I spend a lot of time with entrepreneurs in the UK, but also with large international financial institutions, whether they are pension funds or institutions looking to invest in the UK. The first thing that is consistent is that they are looking are looking for stability and a plan.
“And I think that’s the first thing for a new administration, which is to provide stability and to provide thinking in some of these areas around infrastructure and housing, which is ten-year thinking and not shorter-term thinking. So that’s the first thing we need to do. they’re searching.
“The second big theme, which is very consistent, is that there are a number of supply side issues… that are preventing companies from getting a return on their investment. And obviously there’s been a good discussion around planning around connectivity to the [electricity] grid, around skills. Those are the three topics that companies always identify.
‘Two to four times longer to achieve returns on UK investments’
“And what does it mean for investors, whether corporate or international? They normally tell you that it takes two to four times longer to get a return on your investment in Britain than in other countries in the world. ” And that’s really what we need to focus on.”
Interest rates
Mr Nunn, who will celebrate his third anniversary as CEO of Black Horse Bank in August, said the interest cuts from the bank of england expected to be “favorable” later this year, but homeowners should not expect interest rates to return to as low as they have been in the past 16 years.
He added: “Of course, the short-term impact of interest rates will primarily impact the government on the cost of public debt. That will be important. And secondly, it will make the cost of borrowing for companies more attractive in the short term… that will be important.
“In terms of the impact on the wider consumer in Britain, it will take longer to work through. In mortgages specifically, we have just come out of a decade where mortgages were in the 1.5-2.5% range.
“The market’s expectation is that interest rates will probably not fall below 3.5%. And that means that mortgages, or the new normal for mortgages, will be between 3.5 and 4.5%, and not between 1.5 and 2.5%.
“So there will be higher borrowing costs in the economy, probably based on what we can see happening right now.
“But cutting rates will be good for the government’s own investment capacity, will support the economy and should be good for business.”
Bank of England proposals
Mr Nunn also questioned proposals to stop the Bank of England from paying interest to banks on the reserves they deposited with the Bank of England – a move that Reform Britain has claimed this could raise £40 billion can be used to reduce taxes.
The Lloyds CEO said: “It is clear that this will be a political decision and not one that we will be directly involved in. The statement of the Governor of the Bank of England was an important one in this context… he would not support it because it was going to undermine monetary policy and specifically how… interest rates feed through into the economy, through the commercial banks, through organizations like Lloyds Banking Group.
“I think that’s a very important consideration. In terms of the amount of impact, there are different estimates available, but I think the amount of impact that’s being talked about is significantly greater than I think would be realistic. And it will be. a political choice.
But you really have to look at the integrity of what the Bank of England is doing and whether monetary policy is working effectively in the economy.”
Growth through financial regulation
Mr Nunn also said there is an opportunity for a new government to stimulate the economy through financial regulation, building on the new targets recently set by the current government for financial regulators, which include the Financial Conduct Authority and the Prudential Regulation Authority mandated competitiveness and growth for both the banking sector and the UK economy as a whole.
He emphasized that he was not calling for a return to the more relaxed regulations of before the financial crisis, adding: “There are choices about how we help customers take the right level of risk… how do companies and entrepreneurs take the right level of risk and what can be done do financial service providers do safely to support that?
“When I look at what the UK is doing compared to other countries, I see that we don’t really have that as a clear target. I think we can do more in the coming years to seize opportunities for businesses and families in the UK Kingdom.”
He said the US and Canada could be a good example for Britain in that regard.