Keir Starmer and Liz Truss agree on one thing: it is imperative the country discovers the elixir of growth – that it creates jobs, vitality, opportunity and crucial tax revenues. But wherever you look for a source of potential growth, you draw a blank. The Bank of England worries that the underlying growth trend has sunk to the lowest levels for more than a century – 0.7% a year.
What to do? Nobody beyond the wilder shores of Tory libertarianism believes in the sugar rush of unfunded tax cuts and Starmer’s embrace last week of a “mission-driven” government that will partner with the private sector to drive growth came with fine words but little substantial content. Help, however, may be coming from an unexpected quarter – a City of London increasingly anxious to engage and support British business, partly in its own interests and also because a number of its prominent leaders share the same concern that Britain is trapped in an economic cul-de-sac and that the economic and social consequences are unacceptable.
It’s a historic moment. Working on the Advancing Purpose report published last week for the Purposeful Company thinktank (full declaration: I am co-chair), I was gobsmacked by the concern expressed by leading City figures, not only about low growth and investment, but the spillover effects on poverty, wages and life chances.
There is an urgent need to reverse what is happening and the City must play its part. As the report discloses, our top insurance companies want to create a £50bn private sector national wealth fund to invest in British business – in hi-tech startups, green technologies, fast-growing companies and to help anchor our established best. It would be stronger still if done in partnership with a government willing to create its own £50bn wealth fund in parallel. Starmer and the shadow chancellor, Rachel Reeves, have already proposed such a fund. Now they have their partner: unexpectedly their policy has real traction.
It’s a possibility never offered to Clement Attlee, Harold Wilson or Tony Blair or indeed any postwar government. The City has always kept its distance, ploughing its own furrow as it maintains its long-standing disengaged relationship with British business.
Finance is too proud and industry too humble, Winston Churchill once famously declared. In 1931, the Macmillan committee argued that British business was too neglected by British finance, while in 1977 the Wilson committee was set up to examine the functioning of the financial system in response to the widely held view that British companies were starved of appropriate finance.
But the City saw off the criticisms, so the caravan rolled on. The enthusiasm for investing abroad, for speculating in financial assets, offering risk-free mortgages galore continued, while all too rarely systematically investing in British enterprise to any committed degree. It has been, and remains, the achilles heel of the British economy.
Thus today we confront the scandal that only 7% of pension fund investment is directed to infrastructure and young startup companies compared with an international average of 19%. In 2000, around 42% of the shares on the London Stock Exchange were owned by insurance companies and pension funds; today, it is about 6%. British funds backing risk and enterprise on any scale have all but disappeared. A steady drip of companies is exiting Britain: startups that list in the US rather than the UK or that are being bought out by foreign companies.
The report does not need to make these points. They are made by people such as Nicholas Lyons, lord mayor of the City of London and currently on sabbatical as chair of the Phoenix Insurance company, and the CEO of Legal and General, Sir Nigel Wilson.
Both men are apostles of the need for business to be mobilised by a powerful “north star” of social purpose to make the world in some way better – as were the other interviewees in the report. Committing to a big purpose to animate a business will help build resilient, great companies that will in turn invest and innovate, something Britain badly needs. Moreover, leaders such as Lyons and Wilson, who head companies with 30- and 40-year liabilities, can genuinely invest for the long term.
Hence the willingness of such figures – along with others in the insurance industry including Aviva that together speak for more than £2tn of assets – to cornerstone a £50bn private sector national wealth fund. Equally, Alison Rose, chief executive of NatWest, is determined the bank should play its role as part of its social purpose – “to champion potential and help people, families and business to thrive”. Rose places the drive to net zero as one of her core business objectives. As the largest lender to small- and medium-size business in the country, these are important commitments.
What is emerging is a growing view among the best of our businesses that strategy and values should be driven by commitment to a social purpose. In the financial services world, there is the realisation that the purpose of reviving British enterprise is self-evidently vital and must be engaged with – motivated by a healthy measure of self-interest.
As one leading executive told me last week, the City feels abandoned by the Tory party and government so it must save itself. For example, under the Brexit deal, the financial sector lost its “passporting” rights, making it in effect illegal in the City to lift the phone to win business in the EU. There may only be just over 7,000 job losses in the financial sector as a result of Brexit, but that does not take into account the tens of thousands of jobs being created in Europe by City companies to get into the single market.
There is a growing risk that the fateful cocktail of Brexit, the paucity of risk investment cash and a stock market full of legacy companies with legacy business models is turning the City into a regional financial backwater. A national wealth fund, creating a supply of new companies to populate the stock market and revive the economy would be part of the solution – a win/win all round.
The wealth fund would target investment in businesses with a declared social purpose – creating a new asset class of purposeful companies.
This is not all that is needed to revive British growth – that will require higher R&D, making levelling up a reality, refashioning some regulations and regaining full access to EU markets. But for all that, we are witnessing an extraordinary moment: a City of London that wants to back and invest in businesses with a social purpose on an unprecedented scale, a Labour party that wants to do the same and a potential vehicle to make it happen. A cause for optimism in hard times.
• Will Hutton is an Observer columnist
• Advancing Purpose – how purposeful companies and investors can better make common cause is available at www.thepurposefulcompany.org
