It’s crucial Britain steps up investment to seize the post-brexit dividend
Our inability to close our 30pcplus productivity gap with France, Germany and the US, coupled with our failure to develop scaled-up technology businesses, will have a greater impact on our long term economic growth than Brexit. The UK is a high employment low wage economy with median real wages stalling for many years. This has to change. Our problems are solvable. There has been structural underinvestment in the UK economy since the Seventies in many sectors. We also know that modern urbanisation drives economic growth and that our society is ageing. UK policies and investment need to reflect these trends.
Devolution is one of the solutions. Recently the Prime Minister signed further city deals in Newcastle and Edinburgh, following successful deals in Birmingham, Cambridge and Greater Manchester. I have met many of the political, business and university leaders in these cities. They are determined in their shared goal of delivering better economic and societal outcomes for their citizens.
Our outstanding universities have recognised that within their world leading research are brilliant commercial ideas. To drive economic growth they need to capitalise on them like their US equivalents. Our universities are brimming with millennials with commercial ideas. Oxford Sciences Innovation and Cambridge Innovation Capital, are ahead of the game. Others are following, they need to speed up. Our great universities are a world-class export industry, with around half a million overseas students paying large sums (fees up to £38,000). Our best forward-looking universities are using this bonanza to create UK start-ups.
Our venture capital industry, although best in class in Europe, lags the US. We are world leaders in start-ups, including genomics, stem cell, dementia and fintech. However, the dearth of series B and C finance, namely the £5m – £20m required to grow, means too few are becoming scaled-up. The consequence is too many failures and those that do succeed get sold early. The signs are that additional capital is coming, but the trickle needs to become a wave.
The removal of the OJEU procurement rules (which require contracts to be entered in the Official Journal of the European Union so all EU entities can bid) should also benefit the UK economy. This timeconsuming bureaucracy was designed to encourage competition, but confuses cheapest price with best value. Best value often includes local economic benefits where a local supplier is chosen. A fear of the EU27 is that outside the EU we can interpret state aid so it works better for our more deprived cities and regions. This isn’t an argument for handouts or backing lame ducks, but a recognition that we can lend money in a bettertargeted way.
The energy world is being turned upside down. In hindsight the excellent forward-thinking work of Nick Stern and Lord Adair Turner wasn’t sufficiently optimistic. Progress in energy exceeds their expectations. Therefore, there is a real chance for “clean green and cheap” energy to replace carbon. Our great research in solar, wind and nuclear fusion needs commercialising through investment.
Economists are also beginning to recognise that unless people work longer, aggregate demand, investment and taxes will all fall reducing growth and wealth. Investment and wages have to increase but also at a rate that increases their share of GDP.
We have created an almost perfect economic background for patient and inclusive capital investment; low interest rates, competitive exchange rate, low wage costs, low inflation, an abundance of start-up companies, £300bn infrastructure deficit, brilliant science and energetic entrepreneurs. It will be a tragedy if we don’t seize these opportunities by stepping up investment across the UK.