Businesses are ready to spend – but government can make it easier
AGAINST a range of improving economic indicators, one metric has remained stubbornly sluggish: business investment. A well-balanced recovery requires a significant rise in corporate investment and a shift away from consumer-led growth. Deloitte’s most recent CFO Survey found that risk appetite is at a six-year high, while just 20 members of the FTSE 100 hold cash reserves worth $144bn. The desire and ability to invest appears to be there, but action has yet to follow.
Deloitte research published yesterday indicates the tap is finally about to be turned on. Now 70 per cent of Britain’s biggest businesses, those generating £1bn or more, say they will invest at least £250m this year. This equates to as much as £200bn of investment over the next two years. UK firms continue to see their domestic market as offering growth potential, but it is international markets that truly excite. China, the broader Asia Pacific, India and Brazil are seen as strong growth generators, as, it must be noted, is the EU.
UK business has international aspirations and focused investment plans. These are needed, as we underachieve in certain key areas. The doubling of export finance support in the Budget will provide a welcome boost. But businesses need the support of government departments like BIS and UKTI to have the confidence to take the first steps into new markets or to make bold investments to transform their presence in others. An emphasis on sector-specific support will be crucial, and we would like to see policymakers working directly with business to increase their industry knowledge.
Better use should be made, for instance, of the experience and expertise of retired senior executives who have lived and breathed their sector, and worked internationally. Big business and government should work together to engage these individuals as advisers to firms embarking on new growth initiatives in overseas markets.
One of the other challenges to business and policymakers is how to ensure the benefits of this investment and export potential are felt throughout the economy. Bigger businesses have the scale and resources to target international growth in a way their medium-sized counterparts cannot.
We would like to see policymakers consider further ways to facilitate the greater integration of small and medium-sized companies into the supply chains of big firms. Big businesses must also look at the societal impact they can make by supporting smaller companies as a way of rebuilding trust in business, which is currently lacking.
Our research shows this has already begun: 64 per cent of companies offer more attractive payment terms to smaller businesses and 61 per cent provide preferential access to contracts. Such relationships help small and medium-sized companies grow domestically, but also increase their exposure internationally, helping to improve the export performance of the whole economy. They should be encouraged and made more attractive.
Perils remain on the global economic and political horizon that could dent confidence. But the UK economy is improving and the OBR is forecasting the best GDP performance for seven years. So while later than some would have hoped for, the signs are all pointing toward businesses starting to splash the cash.
David Sproul is chief executive of Deloitte UK.