Rules of Recovery: Investment Needs Clear Guidance

Over the course of my time in business I have, from time to time, helped turn a failing business around. It is both an interesting and challenging process that demands commitment and dedication to devise and implement a recovery plan.
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Over the course of my time in business I have, from time to time, helped turn a failing business around. It is both an interesting and challenging process that demands commitment and dedication to devise and implement a recovery plan.

So when the Office for National Statistics released its latest GDP figures showing that Britain's economy continues to languish in negative growth, I blame a lack of hands-on engagement from the government.

The issues for a broken economy are not dissimilar to those of a failing business. The structural problem that besets the organisation has to be identified and addressed. Importantly, a process of tight management and close control has to be implemented and maintained throughout the turnaround period: close attention is given to cost control and the new shape of the business. The objective is to build a structure that can carry the organisation through to success.

In governmental terms such a turnaround calls for Big Government with a clear message, a plan and the willingness to implement it. And herein lies the problem.

Investing in social housing

A couple of weeks ago my fellow director, Juliette Tarrant and I met with officials from the Department for Communities and Local Government (DCLG). The topic was social housing and our mission was to persuade the government to take the lead which traditionally meant issuing guidance to local authorities or presenting models of best practice.

Since the government, and indeed several economists, support the idea that major infrastructure projects are part of the answer to promoting growth, we expected nothing less than an extremely positive response to our plans of spending in excess of £500 million on new social and extra care housing. Effectively we are offering a stimulus package that costs the government nothing; just a bit of leadership.

Imaging our disappointment when we were told by a senior official that this government believes in small government and as such, little guidance will be issued to local authorities. Instead, the regions are expected to develop local solutions without any direction from central office. Of course the senior official was happy to wish us the best of luck and asked to be kept up to date with our progress in launching the UK's first social housing REIT.

The government's grand plan

Sure, David Cameron and his colleagues have a clear message: austerity and the promotion of growth through stimulus packages that should restore the banking sector's ability to lend. By pumping £billions into the banking sector it was hoping that businesses would see at least some of it. Unfortunately, that hasn't been the case. Despite owning a controlling 84% stake of the Royal Bank of Scotland Group (RBS) and 43% of the Lloyds Banking Group, the state is unwilling to excert its well-earned influence and twist the arms of bankers to turn on the tap.

So, despite having correctly identified the problem - a lack of liquidity - and having devised a plan to restore it through quantative easing, there has been little or no involvement in implementing the strategy. Instead, the banks have used most of our money to repair their balance sheets rather than lending to the small businesses that so desperately need the cash.

Bricks and mortar but no walls

Despite several infrastructure announcements, pots of money for new housing starts and major transport developments, the second quarter of 2012 saw construction dip by 10%. I understand that it takes time to launch large projects but it doesn't explain why residential house building is down when we have so many shovel ready sites.

Again, the government has identified a vehicle for stimulating growth - house building - but as typified by the officials at DCLG, the government does not wish to control the implementation of its own plan. In an effort to reduce the role of government, the coalition is reducing itself to the role of a well-meaning spectator rather than the strong leader we need.

We need hands-on management from the government. The stimulus has to be used as effectively as possible; both in terms of getting the cash out of the door and obtaining maximum leverage. This calls for a Big Government approach and a national strategy to carry out an effective housing stimulus.

The SAF Housing approach

Later this year, SAF Housing will be launching the UK's first social housing REIT with an AIM floatation expected to raise £500 million for new social and extra care housing. In laying the groundwork, we have had to convince the City that we can deploy the cash we raise quickly so that investors can receive their return.

In preparation for the launch we are establishing the level of need in each region and will soon be asking local authorities to submit their bids for available funds. By the time we float, suitable projects will have been identified and time-lined. With bids worth £140 million already on our books, we know that demand for funds will be extremely high.

The infrastructure required to implement the spending of the cash - a specialist team supported by established corporate and legal advisors - is already in place. And since we commission housing on the local authorities strategic plan, the localism agenda is sustained. Within a year, the £500 million will have been invested. Of course we are only scratching the surface with a housing need worth an estimated £10.6 billion.

My point is that Big Government does not necessarily equate to an army of civil servants or a string of working parties. It should, however, mean taking responsibility for solving some of the country's most pressing problems and making sure solutions are implemented.