Sadiq Khan
Sadiq Khan © PA

The mayor of London and the CBI employers’ group are urging Philip Hammond to increase public spending as a way of reassuring businesses fearful of the consequences of leaving the EU.

Sadiq Khan will accuse the government of being “blasé” towards the impact of Brexit and will call on the chancellor to dispel some of the uncertainty over negotiations with Europe.

“The government will not only be judged on the Brexit deal that is finally negotiated but on how this delicate period leading up to Brexit is handled,” he will tell an audience at the City of London Corporation’s annual dinner on Thursday evening. “It is clear that the uncertainty created by the lack of clarity on the Brexit negotiations is making it more difficult for businesses to make important investment decisions.”

The CBI wants Mr Hammond to expand public investment by £6bn a year in next month’s Autumn Statement in an effort to create “a short-term boost to business confidence”, its director-general, Carolyn Fairbairn, said. Although the economy has proved “pretty resilient” in the immediate aftermath of the referendum, there was “still huge uncertainty”.

Carolyn Fairbairn, director-general of the CBI
Carolyn Fairbairn, director-general of the CBI © PA

The business lobby group wants the Treasury to increase net public sector investment spending to 2 per cent of gross domestic product — a move that would cost £6bn annually — as part of an £11bn package of measures. In particular, the additional funding should go to transport projects, including road and rail expansion.

Businesses of all sizes and sectors had been affected by the uncertainty caused by the Brexit vote, Ms Fairbairn said, but she identified retailers, financial services and manufacturing as the worst hit. She also cited anecdotal evidence from CBI members that they were putting investment decisions on hold until more information emerged on the nature of the negotiations.

In his speech, Mr Khan is set to warn Westminster that a “reckless, hard-headed, hard-nosed, hard Brexit approach” would be “unnecessary economic self-sabotage”.

But he will also warn other EU nations that “if we fail to get a good Brexit deal” London businesses are more likely to relocate to New York, Singapore and Hong Kong than to continental Europe — “something that would not just be bad for us but for our European neighbours too”.

There are indications the chancellor is considering a reassurance package for businesses. He told parliament on Tuesday that Britain needed “a combination of near-term measures to respond to the shock that the economy has received [from the Brexit vote] and longer-term measures to manage the structural adjustment as the UK transitions out of the EU and to address the long-term productivity challenge”.

£6bn

Annual cost to the Treasury of CBI’s suggested rise in net public sector investment spending to 2% of GDP

Mark Carney, Bank of England governor, also reiterated on Tuesday the importance of government action, alongside measures taken by the bank, to help the economy as the UK prepares to leave the EU. “Monetary policy has been in many respects overburdened in terms of providing support to the economy,” he said. “The government has signalled some resetting of that burden between monetary, fiscal and other policies, and that is welcome.”

Mr Hammond should “incentivise businesses to invest today, rather than postpone until tomorrow”, Ms Fairbairn said.

The CBI wants the government to increase the annual investment allowance from £200,000 to £1m for the next two years to encourage more smaller businesses to spend.

The employers’ group has identified five core principles for Britain’s negotiations with the EU. Businesses want tariff and barrier-free access to the single market; access to skills and people; regulatory equivalence; a strategy for agreeing trade deals with other parts of the world; and protection for benefits derived from EU-funded projects.

It is also calling for transitional arrangements for business to provide greater predictability.

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