We need a national plan of action to rebuild trust in British business
IT IS hard to pick up a newspaper or listen to the news without hearing another in-depth analysis of the reasons behind this downturn, and dire predictions about UK growth prospects.
With the benefit of hindsight, I think we all underestimated its depth and length and were too optimistic about the global economy bouncing back.
But we now know this is a different type of downturn. While sovereign debt and fiscal stability are huge problems, other facets of this recession don’t conform to expectations. Fewer businesses have failed than expected. Unemployment hasn’t increased to the levels we’ve previously experienced, and interest rates and wage inflation have remained relatively low. Added to this, many companies are sitting on large amounts of cash but lack the confidence to make significant investments.
And just as the downturn part of the cycle has been atypical, I am certain that the recovery, when it comes, won’t follow the normal pattern. Andrew Sentance, formerly a member of the Monetary Policy Committee and now senior economic adviser at PwC calls this the “New Normal”. He predicts that the recovery is likely to be far slower, bumpier and more variable than we have seen in the past.
The business leaders I talk to agree on many of the pro-business measures needed to kick-start the economy. Flexible labour markets; more suitably qualified people; a simpler tax system; and investment in our transport and infrastructure are common themes. We are seeing some progress in all these areas but I would add one more to the list – restoring trust in business.
A recent Ipsos Mori poll showed that, while there are many things that collectively make us proud of being British, only 4 per cent of people felt proud of British business. This fuels an environment of suspicion towards business which is at odds with the values of the vast majority of business people. It also risks undermining trust in the UK as a place to do business.
Over the past few months, PwC has hosted four round table discussions on this topic with senior executives and non-executives. The strong consensus emerging from these discussions is that we need to address this “trust deficit”. None of those attending has sought to downplay the legitimate anger that exists around the causes of the downturn. But there has been agreement that we must recognise the value of commerce. Without a vibrant private sector, we won’t create the wealth to pay the taxes that support our public services and to pay down our national debt. It is so obvious that I almost hesitate to say it – but this simple fact seems too often to be missed in the national debate that rages around business.
I don’t think that message is getting across and I believe that we need a concerted, national plan of action. It would have three major elements.
First we need government to continue to stand up for business – to hold us to account when we fall short, but to speak up for the fundamental importance of business in creating the jobs and wealth that underpin civil society. The UK has a world class legislative and regulatory environment for doing business. It’s not perfect – but it is at least the equal of any other capital market. We need government to do everything it can to preserve this competitive edge; to resist the temptation to chase populist short-term measures and to develop and stick to a long-term plan to support business.
Second, we business leaders have to be prepared to stand up – for ourselves and each other. I believe we all have a personal responsibility to speak up on behalf of business, even when times are tough and the audience is hostile.
And third, those of us in the professions that support business need to be prepared to embrace change. In my own sector, we need to engage much more constructively with the investor community to understand their concerns about the scope of auditing and the style of reporting we produce. Put simply, we cannot afford to ignore the basic reality that our long-term future depends on investors seeing real value in the role we perform.
I know from the round tables we’ve hosted that there is a groundswell of opinion that we will do whatever is necessary to rebuild trust and confidence in British business. Failure to do so would make the road to recovery that much rockier, threatening to delay the return to prosperity our economy desperately needs. We can’t afford to let that happen.
Ian Powell is chairman and senior partner of PricewaterhouseCoopers.