Instead of picking winners, Peter Kyle should get out of their way
If Britain is to ever produce a trillion-dollar company, it will not be a result of the schemes announced by Peter Kyle and Rachel Reeves this week. It will be a result of creating an economic environment in which ambitious businesses can start, scale, invest and recruit without needing special handouts or assistance from the state, says Matthew Bowles
Peter Kyle, the business secretary, wants Britain to produce its first trillion-dollar company. Few would object to that ambition. A country that has struggled for over a decade with stagnant growth, sluggish business investment and a persistent inability to scale promising firms should be aspiring to generate the change needed to create the next global tech giant.
To aid this ambition, the government has unveiled a new concierge service for government-selected high-growth businesses. This is designed to help them navigate Whitehall and the tangled web of regulation that might restrict expansion. Alongside this service sits a visa reimbursement scheme intended to help attract overseas talent to some of Britain’s fastest-growing firms.
The above measures reveal a particular view of how this government believes economic growth happens. Instead of creating a better environment for all businesses, ministers appear convinced that growth can be engineered through targeted support to a select few firms deemed worthy of special treatment. This should concern all who know economic success is best driven by competition rather than political selection.
One of the most striking features of the concierge scheme is the unrealised admission which it contains. If, to quote Mr Kyle, British business faces challenges of “regulation, access to finance, procurement [or] another barrier to growth or access to global talent” then the business secretary is acknowledging that such areas have become a barrier to growth.
Yet instead of fixing these obstacles for all, the government has chosen to create a VIP lane for a small number of firms.
The scale of the problem is hardly in dispute. According to the Department for Business and Trade’s own analysis, the UK has had the lowest share of investment in GDP among G7 countries in 24 of the last 30 years. This has been a product of a poor business environment that has failed to encourage expansion and risk-taking.
However, faced with structural problems, recent governments have tended to favour targeted support, presumably to avoid tough decisions. If procurement is an issue, fix the procurement system. If regulation is an inherent issue, deregulate. A concierge service may help a handful of the chosen few businesses navigate the system more effectively, but it leaves the underlying problems untouched, and is a perfect recipe for creating complacent incumbents and rent-seeking.
Lessons from British Leyland
Britain’s experience with British Leyland and Concorde serves a reminder that governments have rarely demonstrated particular talent for identifying future commercial winners. Markets are remarkably effective at discovering successful businesses. Governments, by contrast, have a poor record when it comes to identifying tomorrow’s winners in advance and have no special ability to predict which firms will dominate emerging industries five or ten years from now.
This same mindset is at work in Rachel Reeves’s touted plans for a visa reimbursement scheme.
The government argues that Britain must compete aggressively for the world’s best engineers and software developers. On this, they are completely correct. What is far less clear is why taxpayers should be subsidising the recruitment costs of private companies in order to achieve that goal.
Under the scheme, firms will reportedly receive reimbursements worth between about £819 and £1,865 per overseas hire. This in itself is a small amount but – when taking into account that Silicon Valley often pays six figure salaries as standard – one wonders whether the fees are really a meaningful barrier to recruitment for most, or whether those who can’t afford it are really that impressive.
If a company genuinely believes an overseas hire will generate substantial value for the business, a visa bill worth a few thousand pounds is unlikely to deter. Successful firms routinely spend significant amounts on recruitment agencies and signing bonuses for example.
The logic behind the scheme, therefore, is quite difficult to follow. It is simultaneously being argued that these workers are exceptionally valuable, whilst implying businesses require taxpayer assistance to cover modest recruitment costs.
Once again, we see Labour’s irresistible attraction to the idea of picking “winners”, be that individual companies or industries, rather than focusing on creating a level playing field.
If Britain is to ever produce a trillion-dollar company, it will not be a result of the schemes announced by Peter Kyle and Rachel Reeves this week. It will be a result of creating an economic environment in which ambitious businesses can start, scale, invest and recruit without needing special handouts or assistance from the state. It will not emerge from a VIP lane via Whitehall.
Matthew Bowles is senior policy researcher at the Prosperity Institute