Britain had it in its power to be a genuine hi-tech superpower. Instead, the opportunity slipped through our fingers, as we have been “tech-stripped” on a monumental scale. On one estimate, up to half the FTSE 100 could now be populated by vigorous British tech companies but those are all now foreign owned with one exception, Sage. The implications for our industrial, business, services and even defence base are dire – one of the most important condemnations of the last 14 years.
The chancellor, Jeremy Hunt, complacently declared last week that this was just how capitalism operated – even as we learned that another 21 companies worth £24.6bn had joined the exodus from the UK’s public markets this year alone. It was a variant of Philip Hammond’s comment in 2016 on Japanese SoftBank taking over yet another of our tech jewels, the chip designer ARM. What was obviously an exercise in technological vandalism was instead proof positive that Britain was “open for business”, a view echoed at the time by that other high priest of wealth generation, Nigel Farage. This reflex mantra of Tory ministers and Brexiters alike is a necessity: to say anything else would reveal the paucity of their world view.
The exposure to foreign takeover of British capitalism and its structural inability to turn the many promising British startups and scale-ups into a critical mass of self-standing companies is striking. It is a failure all the more galling because, as the tech world in both the US and UK know, Britain has the potential building blocks to challenge US pre-eminence in a way few other countries can match.
We have the globally ranked universities, scientific talent in abundance, enterprising zeal and the highest number of $1bn tech unicorns outside the US and China. What we don’t have is the scale of savings, pension and investment capital that curates and supports our valuable companies. Nor do we have a tax system that encourages a UK focus on investment, adequate savings, a sufficiently buoyant stock market that values British companies as highly as other countries value theirs and the uninhibited access to a continental single market that US startups have.
Speaking to tech leaders last week to discuss ways of redressing a crisis – which can’t be recognised as such six months before an election – Hunt told the FT he dreamed of building a British $1tn tech company like Microsoft or Alphabet. Apart from the absurdity – such a company would be worth just under half the current value of the entire FTSE 100 – it is also a vainglorious impossibility as matters stand. That company could have been ARM, DeepMind, Inmarsat, Racal, Darktrace, Cobham Group, Meggitt or myriad others, not all of which are hi-tech, but all taken over in the name of being “open for business” during these Tory years. Others, like Shell, are considering abandoning the London stock market and listing on Wall Street. Ali Mortazavi, CEO of e-therapeutics, told the BBC he thought the situation had gone beyond a crisis – it was now an “existential risk” to the UK economy.
What to do? There is no magic bullet. Rather, there are multiple areas in which to act. First, the precondition for lifting investment capital is to increase how much we save. At the moment, for example, employers contribute a mere 3% of their employees’ earnings when they are auto-enrolled into a typical defined contribution (DC) pension fund.
The rate needs to more than double. But any increased resource for investment needs to be reinforced by merging the existing small DC pensions funds into larger mega funds and then – as argued in another important paper, “Turning the Page” from City financier Michael Tory, who has trailblazed this debate for some years – telling pension funds they will only enjoy their current tax privileges if a quarter of their investments are in UK companies. The magic of this proposal (currently the de facto accounting and regulatory mandate is for pension funds to invest largely in government bonds) is that at a stroke it will unleash not just new money from young DC pension funds, but old money from the £2tn of “defined benefit” pension funds that have closed their doors to new members and are running themselves down. Together, suggests Tory, this would unleash between £275 and £330bn of capital to invest in UK corporate assets. The valuations of companies on the UK stock market, where, disgracefully, UK pension funds only hold 2% of their investments, would start to climb.
The paper gets more radical still. Britain should not squander the proceeds of any sale of the government’s holding of NatWest shares on pre-election tax cuts: together with North Sea windfall taxes, they should be the cornerstone of a new UK wealth fund. Further, important tax incentives for business investment are proposed and, echoing Joe Biden’s Inflation Reduction Act, a £1m per person lifetime deduction of income tax should be established for those investing in UK startups or private trading companies. Even more radically, I have heard City leaders arguing that, instead of abolishing the national insurance system, as Sunak and Hunt madly propose, it should be used as the basis for moving to a fully funded national pension system.
Such is the impact of compounding 7% annual returns that by 2075, Britain would have a £3tn national pension fund that would invest in everything from net zero, core infrastructure to the national wealth fund. Do all this, and Britain could create not one Microsoft – but more. Living standards would rise from the bottom of the European league table to the top.
after newsletter promotion
Naysayers will argue it is all impossible: the vested interests are too powerful, the steps too bold and the protests from the rightwing press would climb to new levels of hysteria. But if not moves in this general direction, then what? More tech-stripping, endless decline and a rise in poverty with the Conservatives? The UK has had the lowest top personal tax rate and lowest overall tax receipts as a proportion of GDP among leading European countries since 2000 – and a fat lot of good it has done us.
The choice is clear – doubling down on failure or making a wholesale commitment to investment and becoming the tech powerhouse of Europe, creating a booming stock market and decisively lifting living standards. Put in those terms – less talk of stability, more of unleashing a suppressed dynamism – the British electorate will only vote one way.