Nadhim Zahawi is the member of Parliament for Stratford on Avon, a member of the Business, Innovation and Skills Select Committee and co-author of the book Masters of Nothing: How the crash will happen again unless we understand human nature.
We all know the previous government left us a record deficit, and an economy heavily dependent on the financial services sector. The situation was so bad that by 2007, financial services and the City were responsible for 27.5% of all corporation tax receipts.
So when the Masters of the Universe became the Masters of Nothing, and the previous government discovered that Boom and Bust couldn’t be abolished, was it any surprise that tax revenues reduced so dramatically? Should they really be surprised that with an unbalanced economy, built on top of a growing structural deficit, they created the largest deficit in the G7?
Government definitely has a significant facilitating role in rebalancing our economy, but what’s clear is that we shouldn’t, as Governments and politicians, be picking winners. Unlike Ed Milliband, who thinks the solution to our economic issues is for Government to act as the arbiter of good or bad companies, the Conservative Party is instead engaging with business to put them in the driving seat.
Picking winners has been tried in the past, and it doesn’t work. What we need to do instead is identify the things we are good at as a country, and do all we can to encourage growth in those sectors. What we should not be trying to do is pick the companies that we think will succeed.
There’s no doubt that we are amongst the best in the world at innovation, design, and working out how to translate that innovation into physical products. In fact, to see our prowess in the world of innovation and high-tech engineering, you only have to look at the pinnacle of motor-sport, Formula 1. Some of the best engineers and teams are from right here in the UK and, whilst China may now host a race, they’re still a long way from having the right skills and the level of innovation that would lead to a team of their own.
At the same time we have the language and the time-zone, both of which makes us an attractive place to do business.
But to ensure that we can get that growth in innovation, we have to look at our education system from top to bottom. Michael Gove is entirely right to look at basic numeracy and literacy in our primary schools and David Willetts is correct to be ensuring that our universities are given the freedom to offer what students and businesses want.
As an example, consider this: just outside my constituency is Jaguar Land Rover’s design and engineering centre. It’s an amazing place. About 3,000 of the country’s top designers and engineers, all working to create the next generation of Land Rovers and Jaguars. When I visited, I was told of the issues they experience in finding people with the right skills and knowledge for developing the next generation of drive trains. They have to scour the world looking for the right people, as they can’t always find that high tech knowledge here in the UK. That has to change.
JLR are also a local business that have been able to take advantage of the Regional Growth Fund, the Government initiative specifically aimed at rebalancing the economy away from reliance on the South East. But they represent businesses at the biggest end of the scale. Growing them alone won’t help us to rebalance. We also need to help our SMEs and our start-ups.
To do that, I think we need to look over the Atlantic – to the spiritual home of start-ups and technology, Silicon Valley. YouGov’s US head office is based there, so it’s an area I visited frequently before I became an MP. What’s amazing there is how everyone you meet is either working for a start-up, about to start one or about to move to a new one. The energy and the innovation is palpable, you can almost feel it in the air.
The UK actually compares surprisingly well to this Mecca of start-ups. Every year in Silicon Valley there are about 320 businesses that receive their first round funding, the £1-2m round, and in the UK the figure is broadly similar. But where we fall off a cliff is the next round, the £10-20m round. In Silicon Valley, about 350 companies a year secure that funding, whilst here in the UK, it’s about 50.
So this is something we should be looking at. Government can look at the incentives for investors, tweak the EIS programme and through relatively small changes, keep or even attract that investment to the UK and help grow our innovative businesses.
The Chancellor’s announcement that he has set the Treasury to work on implementing credit easing is also very welcome. Injecting capital straight into businesses that are looking to raise money through corporate bonds is a positive thing. As ever, the devil will be in the detail, but the London Stock Exchange has an existing platform that allows private investors to trade bonds, so there is already an emerging secondary market. Last week they announced a deal with Barclays which should increase the number of businesses participating, but there’s no doubt more will need to be done to increase access for smaller businesses.
So government shouldn’t be picking winners, but we do need to do what we can to enable winning companies to flourish. We need to get a balanced economy that takes into account everything: digital, manufacturing, services, retail, construction and yes, even finance.