Long-term Capital for Business

Jim Shannon Excerpts

Tuesday 15th January 2019 Westminster Hall

[Stephen Kerr]

I am grateful to my hon. Friend for that timely intervention. That is the very point I will come on to. Let us examine the critical reason for our lack of national productivity, again comparing investment in our economy with that of the world’s leading economies. A good indicator is the level of gross fixed capital formation as percentage of GDP, which is the value of the acquisitions of new or existing fixed assets in the economy less the disposal of fixed assets. It is just a single measure.

In 2017—the most up-to-date World Bank figures are for 2017—we invested 16.8p for every £1 of GDP. The Chinese invested 41.8p for every £1 of their wealth. We also lag significantly behind developed western economies. For every £1 of GDP, Italy invests 17.5p, Poland 18p, Germany 20.3p, Denmark 20.4p, Spain 20.5p, France 22.5p, Finland 22.6p, Canada 23p, and Belgium 23.3p. That is but one measurement of investment, but it says something about future business activity and also about our confidence in the future. It is my firm belief that much of our productivity gap in this country is due to that indicative investment gap. We are simply not investing enough, and I contend that that is because there is an insufficiency of quality patient capital in our economy.

It is a much-worn anecdote that, while we come up with great ideas, breakthrough technologies and transformative product concepts, all of that good stuff ends up being commercialised somewhere else by someone else. As a young Scot, my pride in being a Scot was spurred by the great stories of our inventors, scientists and engineers. I believe it is a valid contention—one I am prepared to stand by—that the modern world was largely designed by the Scots. The litany of great Scottish contributors include James Watt, Alexander Graham Bell, John Logie Baird, James Chalmers and John Dunlop. I am delighted to give way at this point to the hon. Member for Strangford (Jim Shannon).

[Jim Shannon (Strangford) (DUP)]

The world may have been designed by the Scots, but it was built by the Irish, especially the Ulstermen.

[Stephen Kerr]

A timely intervention, as ever, from the hon. Gentleman. These British Isles are a crucible for invention. The genius of the people of these islands, their creative free thinking and their imagining of the unimaginable has created whole new branches of sciences and technology and whole new categories of product. That native, creative, entrepreneurial spirit is alive and kicking.

Entrepreneurs are among us in abundance. The number of start-ups in this country is at an all-time high. Entrepreneurs are launching themselves and their ideas on to the high seas of enterprise in greater numbers than at any time in our past. Our universities and other research institutes are brimming with exceptional people having very bright ideas. Some of those ideas, if carefully nurtured through the commercialisation process, will not only continue to change the modern world for the better but will be the source of the wealth of this nation for generations to come. However, they must be nurtured, and that nurturing relies, in substantial part, on the availability of long-term patient capital.

All too often at present these small to medium-sized businesses fall prey to predators, who invest in them for the short term and then sell on without having made the necessary long-term commitment to bring the businesses to their full potential. I am not arguing against the importance of short-term investment or venture capitalism, but I argue that it is wrong to surrender our whole economy to that model of capital. Some 650,000 new companies were formed in Britain last year, but the number that scale up is relatively small. Some of those are lifestyle businesses that suit the people running them, but many business owners are driven by a sense of purpose—to build a growing, successful business—and they very often come up against the obstacle of the limited availability of patient capital.

--- Later in debate ---

[Jim Shannon (Strangford) (DUP)]

Thank you, Mr Walker, for calling me. I congratulate the hon. Member for Stirling (Stephen Kerr) on securing the debate. In the short time in which he has been a Member of Parliament, he has made a name for himself on the issues that he brings to this Chamber. Well done to him. It is also good to see him back to health after the illness he had just before Christmas.

This issue is very important to me. The banking and financial conduct industry is increasingly interesting to me. Many of the debates today reflect that. What began with constituents highlighting cases that concern the individual have, after many hours, left me increasingly concerned about the entire sector. I believe it is entirely right and proper that we bring this to the Minister’s attention, so that he can act. I look forward to the Minister’s response at the end of the debate.

I read the “Patient Capital Review: Industry Response”. I completely agree that there is an urgent need for a mechanism to realise three aims: first, unlocking institutional and retail investors’ capital; secondly, increasing the number of venture capital funds that can deploy patient capital at scale; and, thirdly, increasing returns to scale up investments.

I wholeheartedly agree that the United Kingdom is, in many respects, a great place to start and grow a business. In recent years, successful Government policy interventions such as the enterprise investment scheme and the venture capital trusts have helped to develop a thriving start-up community. Northern Ireland has become the world capital for cyber-security, due to investment in skill provision and adjustments for businesses to invest in the Province. We welcome that, and we are pleased and proud to say that.

Only in December, US cyber-security firm Imperva announced that it would create 220 jobs within its new Belfast base—job improvements and opportunities are coming all the time—which is expected to bring the total number of cyber-security jobs to over 1,500 for the first time. That is a 15-fold increase in the past 10 years, so it is really good news, which I am pleased to report to the House.

That investment is due to the concerted effort to find space in the market and to provide all that is needed. We have businesses that seek to make the most of that, but are prevented from doing so by the lack of affordable capital investment. I believe Government must invest in the long game and make provision. We all know the phrase, “speculate to accumulate”—how real and true that is.

Mr Walker, I am no man’s fool, as you and other hon. Members know. I well understand that funding capital should ideally come through the private sector, but to build in a post-Brexit age, it is imperative that we put our money where our mouths are and invest in ourselves, in order to establish and encourage international confidence in the United Kingdom outside Europe.

I support the panel’s suggestions for addressing those issues, such as the creation of the patient capital investment vehicle, to enable the aggregation and deployment of both retail and institutional capital for investment in UK scale-up businesses and capital-intensive research and development-based businesses. We have to invest, so that those sectors do better. The vehicle would invest £1 billion annually, primarily in UK venture capital funds and other investors in high-growth businesses, and catalyse an additional £2 billion of private investment by providing up to only 30% of the equity capital. Perhaps that is a bit technical. None the less, it explains how the system works.

The vehicle would be a new entity, independent of the UK Government, but with a Government-defined mandate, including some Government investment to signal strategic intent to build this. I ask the Minister, what are the Government’s intentions on that? If they can help—I think if they can, they will—it will be a step in the right direction. We will all benefit across the United Kingdom of Great Britain and Northern Ireland. In order to attract institutional capital, investments in the PCIV might receive favourable capital treatment, similar to the Prudential Regulation Authority’s treatment of bank investments in the Business Growth Fund—the BGF. The phrase “go big or go home” seems to be in operation here, but the gains are as necessary as oxygen. The message is clear: this nation believes in its worth and ability, and this nation backs itself as a global leader.

I use the phrase again: we must speculate to accumulate. Businesses are ready and waiting. We have proved in Belfast and Northern Ireland that if we plan ahead and fill the skills pool, investment, jobs and a boost to the economy will most certainly follow. I believe in this wonderful United Kingdom of Great Britain and Northern Ireland. We are better together. That is a fact. I ask the Minister, do the Government believe that, too? If they do, show it and sow it, so we can all reap the harvest.

[Several hon. Members rose—]