Can the Chancellor unlock those mountains of corporate cash?

Tomorrow the Chancellor of the Exchequer faces a number of problems, the greatest of which is the poor growth figures the UK is experiencing… Such cuts as have been delivered have hit local government in England… and probably a great deal harder than the public figures suggest…

As Howard Davies points out in the FT, it’s not as though there’s no cash around:

UK companies are flush with cash. They have benefited from low interest rates and, indeed, from spending little on investment since the recession hit. Over the past year the financial surplus for non-financial companies has been around 5 per cent of gross domestic product. Even though sterling’s 2008 depreciation has held, and domestic wage rates look competitive, companies do not seem confident in adding capacity in the UK. The Confederation of British Industry’s industrial trends survey suggests that spare capacity is scarce.

The government’s principal rhetorical response has been to try to jawbone the banks into lending more, but the problem looks to be more on the demand than on the supply side. Of course one can find small companies that cannot easily borrow but the corporate sector has the money to grow if it wants.

The government itself can set an example. Finding spare money for infrastructure projects would help. Levering in private money should make a modest contribution go further. The prime minister, for the nth time in recent memory, has raised the spectre of road-pricing for new projects. But the slow and expensive record of private finance projects under governments of all colours tells us this is unlikely to do much in the short term, and the public accounts committee will do well to look hard at the small print.

A stimulus of sorts… Well, yes. Along with the incentives for large companies to begin investing again instead of sitting on their own private cash mountains… We’ll have to wait for tomorrow to see what comes with the Budget tide…