Companies have become more short-sighted in their approach to investment
UK businesses' appetite for long-term investments has been curbed in relation to the economy's overall performance over the last few years, a report out today has discovered.
The year-long research project by Tomorrow’s Company found that investment in fixed assets has dropped from 11 per cent of GDP in 1997 to eight per cent in 2014, and investment in research and development equated to just 1.6 per cent of GDP in 2012.
Meanwhile, short-term sweeteners have become more popular, with profits distributed to shareholders at non-financial corporations equal to 18 per cent of gross value added in 2014, up from 14 per cent in 1990.
By comparison, in the US, long-term investment accounted for 12 per cent of GDP in 2014, while research and development spend in 2012 was equal to 2.8 per cent of GDP.
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"Our obsession with the short-term has created companies that over-save, under-invest and fail to get the best out of their people," said Mark Goyder, founder and chief executive of Tomorrow's Company. "This can change if companies start purposefully investing in the long term.
"But this will only work if they are held to account by shareholders and boards who are equally focused on long term growth, in a climate reinforced by government policy."
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The report argues that this shift to short-termism has resulted in disgruntled employees – less than half (49 per cent) are likely to recommend their company as an employer – and productivity in the UK lagging behind nearly all of the rest of the G7.
In light of its findings, Tomorrow's Company is calling on government to introduce coherent policies to encourage businesses to think long-term and on asset owners, such as pension fund owners, to demand longer-term thinking from fund managers.
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John Neill, chief executive of Unipart, whose company was praised in the report for its long-term approach to business, remarked: "The number one strategic challenge facing business and the UK is growth. We need to grow the economy and to do so; we need to have enterprises and businesses that create growth opportunities both domestically and globally."