As our economy is squeezed from all sides, profit must not be a dirty word
Over the last few weeks of the leadership election, we’re in danger of making profit a dirty word, as a myriad of problems threaten to engulf us. Recent figures have suggested the UK is headed for a chilling contraction; it is clear just how dangerous it would be if we failed to get growth back in vogue. We would fall into the trap of lost opportunities, rising costs, and spiralling wage claims, together leading to the dreaded spectre of stagflation.
If you want a nation to grow, then you need successful companies making profits. Both of the Conservative Party leadership candidates understand this all too well. But this message needs to be honed to communicate the society-wide opportunities, and the dividends from success, that a growing economy can, and must, provide.
The fault line issue is tax. Hold the line or cut hard. Both views are shaped by attitudes to what happens next. For Rishi Sunak, recession is a sure thing. A question of when, not if, and the priority should be tackling inflation and keeping borrowing under tight control. For Liz Truss, this smacks of defeatism. Recession is the enemy that is yet to invade, and with British ingenuity and resolve, we can defend our island from economic menace with the tactical weaponry of tax cuts.
The mantra from the Truss camp is “You can’t tax your way to growth”. The question is whether she’s right: do tax breaks help to stimulate ambition?
Instinctively, I think she is, but with caveats. We need a pro-enterprise, pro-wealth-creation economy, driven by entrepreneurs and backed by investors across the UK. Cutting taxes stimulates the nation’s wealth creators to take risks. It gives our entrepreneurs the agility to grow their businesses and double down on their efforts to scale their businesses with a long-term mindset.
The last time tax cuts were a decisive national economic strategy was the 1980s. The global zeitgeist was captured by President Ronald Reagan’s dictum that “a rising tide lifts all boats”. But while Reagan owed Hollywood much, he probably didn’t thank it for the movie Wall Street, which damaged the capitalist dream with Gordon Gekko’s “Greed is Good” warning.
And this is why 2022’s tax cuts must be focused on delivering more purposeful growth: growth that is likely to come not from multinational corporations, but from our own homegrown entrepreneurs.
Our thriving scale-ups and burgeoning UK “unicorns” are the businesses that have not only the potential, but also the drive and determination to grow and grow fast, delivering much-needed benefits to steady the ship in increasingly choppy waters.
According to the ScaleUp Institute, these businesses add £1tn to the UK economy annually, and account for the majority of net employment growth and output growth. They create jobs, increase productivity, and are at the forefront of innovation, bringing crucial investment into underserved communities.
I know this first-hand, as a founder, a chief executive, and now executive chair of Business Growth Fund, where we have invested in unicorns — including Gousto, back when it was in scale-up mode. Now it is a thriving business. Companies like Gousto should be at the pinnacle of a healthy economy, but what should sit beneath the unicorns is an even healthier ecosystem, teeming with businesses of all shapes and sizes. To really understand how we stimulate ambition, we must look at the whole picture: at talent, at productivity, at regulation.
Our businesses need to operate in an environment that encourages them to scale, and this means smart regulation and competitive taxation. But they also need an environment thriving with imaginative ideas to develop the next generation of talent, to stimulate long-term investment both domestically and internationally. This is how we will bring about true, long-term growth.
Faced with the prospect of inevitability or innovation, therefore, I turn once more to the crucial importance of our scale up community. These companies need conviction and imagination. They need a leader who can set out how the UK will foster and drive a regulatory and investment climate that accommodates scaling businesses.
This is why we need to land the message clearly that profit is not a dirty word, but that greed is. Most importantly, good growth must be the driving heartbeat of a successful and inclusive economy — with the right tax framework to encourage investment and risk taking, to grow our economy in the long term, and deliver the wider societal benefits we all want to see.