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The good growth blog: Not a summer of discontent but one of positive direction

There is a lot of talk amongst the runners and riders for the leadership of the Conservative Party, and by dint of that our future Prime Minister, about new ideas to supercharge the economy at a time of great need. Little wonder then that tax and the relationship with business is shaping up as a defining battleground.

Elsewhere, the frenetic heat of the battle of the candidates and the rallying cry for a ‘fresh start’, ‘clean start’ or even a ‘new start’. More rhetorical noise rather than insightful signal which to my mind crowds out the need to stand back and take stock.

To do this requires reflection on the reality of where we are: an economy struggling to make its way facing ever greater challenges in front of it.

The question then is, how do we get back on the front foot? And, how does the debate about the future reach beyond Westminster?

The answer has to be in growth, as all the candidates espouse, which generates the revenues to fund public services along with the long-term wealth creation and innovation more generally that we need as a society. The business world is impatient to help, recognising that all this growth has to come from somewhere, and all has to be paid for somehow.

From the perspective of the UK’s largest investor in growth companies I would like to see four smart things focused on with clarity and delivered with determination because I think that they could make a difference.

  • Smart regulation
  • Smart taxation
  • Smart growth
  • Smart partnerships

Smart regulation

No more endless reviews on Solvency II or the reform to the defined contribution (DC) schemes. There is already enough consensus to do the following. Give insurance companies more flexibility by loosening the matching principle. Give DC pension trustees more flexibility by loosening the fee cap rules. This is not just technical tinkering but could unlock billions. Be bold and do it. To this end there has been much debate about creating Long Term Asset Funds, but where are they? Let’s focus on getting some launched now and think about the key sectors that can drive the future in doing that. The harsh reality is the UK pension and saving sector is a laggard when it comes to this sort of investment, as the major progress over the last two decades that the Canadian and Australian pension funds have made testifies. They are showing the way: much greater scale and diversification, driven by consolidation of smaller schemes. This will deliver superior outcomes for savers by adopting a better asset allocation strategy, and as crucially provide the firepower to accelerate the UK economy. We cannot simply rely on ‘the kindness of others’ but must take our destiny into our own hands.

Smart taxation

No one seems to think enough about the long term consequences of windfall taxes given the short term ‘hit’ which is the attraction of a windfall. But it is a one-off hit with limited long term benefit. Let’s take a portion of that immediate windfall which is clearly having a big impact on the cost of living today and set up a large new investment fund to invest in the energy transition of tomorrow. If you think that is fanciful, it is very similar to how the banks funded the creation of the Business Growth Fund, now BGF, after the global financial crisis. And let’s also make tax work more for all, not just to drive revenues but to promote more investment. Extending the super deduction for capital goods makes a lot of sense, as does better utilisation of R&D credits and innovation with ‘sand boxes’ and the Patent Box. Why not also extend the Enterprise Investment Scheme (EIS), specifically the Seed EIS to turbocharge innovation in the sectors where we need most urgent change. All these schemes are already in place so we don’t need to reinvent the wheel but focus on better execution.

Smart growth

For levelling up to mean something tangible, we need to drive more investment right across the country, and we need to develop the associated skills from a far broader and more diverse candidate pool to achieve that, such as more female entrepreneurs or those from a wider ethic background. Give companies more flexibility to use the apprenticeship levy to fund broader training, be that graduates or later starters. The current approach is too prescriptive. And much more ambitiously create more local pools of investment. Northern Gritstone is a good start but we need more. We also need more active investment in infrastructure being delivered on the ground right now having established the UK Infrastructure Bank. We need to really get behind that mission and galvanise support for its role as a key part of our future growth. A lot of work has already been done on the Scale Up agenda providing us with the data and analysis to show how we can build our fledgling startups and minnows into global champions. The UK is great at creating and innovating, but poor at scaling. That has to be a priority. Appointing a Government minister to do just this would be a great way forward.

Smart partnerships

There is an increasing sense that whether Brexit is ‘done’ or not is the wrong question. The focus is on making it work which is where a smart approach to regulation, tax and growth all have a role to play. But beyond these shores we need two key things – more free trade agreements with more countries, so let’s not slow down our focus on that, and critically more inward investment. The Office for Investment is an excellent idea, if not long overdue, and has made a good start. Don’t let that dwindle but double down our resources and commitment. The UK is competing globally, we need to compete to win.

Is there a simple way to knit this all together which will make more people feel it is relevant to them and will make a lasting difference? I would argue absolutely. We saw how we could unify towards a common goal with the approach to a vaccine rollout. The common goal across the UK now is delivering growth, and with that, prosperity. We can and should be capturing people’s imagination as we work our way through a period of unprecedented uncertainty.

If we do we might look back on this summer of heated debate as one that shone a light on smart government, clear in objectives and judgable by results. That’s something we all could vote for.

BGF Insights 07.26.2022
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Stephen Welton, executive chairman, BGF
Stephen Welton Executive Chair

Before taking on the role of Executive Chair, Stephen was the founder CEO of BGF between 2011 and 2020.