The real tragedy of Brexit is that it has monopolised attention and distracted from the health of the UK economy. Whilst Westminster spirals out of control, the legacy of Brexit won’t be the legal nuances of the final agreement, whenever that eventually comes, but a country sleepwalking into economic decline and recession. Unless we take action now.
The warning signs are plain to see. In 2018, the UK economy grew by a mere 1.4 per cent, down from 1.8 in 2017, making it the weakest year for Britain since 2009. Worse yet, the economy contracted to just 0.2 per cent in the final quarter of 2018. Over the same period investment shrank and we witnessed the fourth quarter in a row in which companies cut spending.
High Streets are struggling, consumer spending is down and the automotive industry – the great barometer for economic confidence – is facing serious headwinds. Unsurprisingly, corporate insolvencies have hiked as the company death toll rose to its highest level in five years.
Yet it’s notably absent on the Brexit agenda. Instead, we continue to interpret record high levels of employment, positive as that is, as a sign of stability and confidence, when in truth it points to stalled spending to address stagnant productivity levels through well targeted capital investment. We won’t create the jobs of the future unless we invest in the future. Rome is burning and Britain is fiddling.
There is the very real prospect that in the next 12 to 24 months, the UK could fall back into recession.
However, amidst this turbulence, there is real cause for hope and optimism that stems from a forgotten dogma – we are a country powered by brilliant businesses, entrepreneurs and innovators. Research from BGF this week reveals that there are over 13,000 high potential firms in Britain and Northern Ireland, with revenues between £3m and £150m.These companies have to date defied the Brexit chaos and generated £44bn in revenue growth over the last three years.
These businesses exist in every region of the country and are found in every sector of the economy – on average employing an additional 1,000 workers a week. It is clear that despite tanking City optimism, the UK’s entrepreneurs have not downed tools on their growth ambitions. And neither can we.
Last week we heard Britain had entered a national state of emergency – a statement that reflects the anxieties induced by Brexit, and a statement that is precisely the wrong response for the future of British business. In these delicate times, declaring we have arrived at the apocalypse creates the real danger of making the apocalypse a reality.
Despair makes consumers and investors overly cautious and capital quickly becomes scarce. I would argue that now is the time we should do the opposite. Now is the time we should forge ahead and invest more into the backbone of the UK economy – small-to-medium sized businesses that have traditionally been seen as the riskier bet.
Over the past 12 months, I have met entrepreneurs finding new ways to tackle Britain’s housing crisis, use data to curb overspending in the NHS and develop new technologies for driverless cars. These are firms with the potential to realise multi-billion-pound valuations and drive globally transformative innovations. Rather than expending all public discourse on Brexit, we should be celebrating the world-class products and services being created across the UK. If we invest in the sectors and industries that will define the future, there is no reason economic decline cannot be reversed. The challenge to increase our spending as a nation in terms of R&D as a percentage of GDP from 1.7% to 2.4% needs to become a reality. That will add billions to Britain’s bottom line.
No-one is denying that small to medium sized firms face immensely challenging times, and some businesses will sadly fail. Yet, how you face change is a choice. The ambition of entrepreneurs remains undimmed, and it is incumbent on funders and policymakers to ensure the investment is available and match fit to weather the storm. The banks must ensure that vital working capital is not reduced at the very time that companies will need it most with some bumps in the road ahead. Investors for their part need to be prepared to take suitable risks.
BGF cannot do this alone. Private equity and venture capital cannot provide enough of the cash to fuel the growth of 13,000 companies across the country. We need institutional money and we could start with the stagnant reservoirs that are pension funds, the country’s biggest capital reserves.
Imagine if every pension holder in the UK became an active investor in the future of British business – pensions need no longer just exist as an insurance, but come to be an investment in national entrepreneurship, truly giving people a tangible stake in the economy. With the right education of risk, we can stimulate the appetite of an entirely new generation of investor to fuel Britain’s engine room and commit with the critical capital to accelerate growth businesses.
Now is not the time to hunker down in the bunker, but to get off the side lines. Now is the time to back the job creators, the innovators and the stimulus of future growth. Now is the time to inspire companies with the belief and resources to grow. Now is the time to accelerate our ambition culture across the country. For when faced with economic disruption, entrepreneurs, problem solvers and creative visionaries become even more valuable.