The Labour government had an unenviable inheritance when it took office some six months ago – and the clear message communicated by Downing Street was that tough decisions had to be made in order to fix the ‘broken’ public finances.
Indeed, the Prime Minister said in a speech on 27th August that “we would be judged by our actions, not by our words.” Unfortunately words and action cannot be so neatly separated.
The use of language and communication are both pertinent weapons in the arsenal of any government in shaping market confidence in its proposed policies. And if the lessons of more recent years can be spelt out in bold – governments and markets need to work in cohesion, otherwise it can lead to disastrous consequences!
We have seen since the start of the year that the cost of public borrowing has increased at an alarming rate. The reaction to the Autumn Budget on future borrowing expectations has driven 10-year gilt yields beyond where they were even in the darkest days of 2008. Indeed, the 30-year gilt yield hit 5.4% last week, surpassing the previous high point of 1998 when Gordon Brown was Chancellor.
But this is not the only reason for increasing costs to government borrowing. Growth in the UK economy has flatlined, with some commentators firmly blaming the language of the Treasury (and the Chancellor of the Exchequer Rachel Reeves) in dampening economic vitality; alongside some policy decisions that have had the opposite effect for the desired government target of growth. Namely a tax on employers’ NI contribution, making it more expensive to hire and expand business and inflationary pressures around public sector pay disputes and the hike in minimum wage.
Indeed, the trailing of potential policy decisions over the summer months hindered economic optimism (something that traditionally follows with a change of government) with a constant reminding of a ‘black hole’ in the public finances, the ‘necessity’ to raise taxes, and the general doom and gloom which came out of the treasury for months before the actual budget at the end of October.
This negativity directly overshadowed some of the more positive policy proposals such as reforms to the planning system or increasing foreign infrastructure investment into the UK – showing just how important it is to have a joint-up communication strategy from across the government.
Looking at the headlines in the middle of January nearly three months after the budget, we consistently see a constant barrage of companies warning about cuts in hiring, slashing investment, or collapse in business confidence: the list goes on.
While a government has to make hard decisions, and the Prime Minister has been very clear on embracing unpopularity in order to make tough decisions; all governments need to communicate a positive plan for the future. Without one, the private sector will look to batten down the hatches and work isolation, rather than with the government.
The saying goes that words are cheap, as action requires far more effort; however, what we have seen over the past six months is that an ineffective communications strategy can indeed be costly.
