Companies should sign a new “contract with Britain” that commits them to invest a fixed share of their profits in new technology, staff training and smaller firms after the pandemic, a new report says today.
The report by Social Enterprise UK (SEUK), which represents 100,000 businesses with social or environmental missions, has been published in partnership with the Social Market Foundation (SMF), a cross-party Westminster think-tank.
The paper argues that for Britain to “bounce back” from the coronavirus crisis, business must spend more money on investing in innovation, training and start-ups.
In exchange for the unprecedented levels of financial support the state has given business during the crisis, the report says, companies should make public promises to devote future profits to investment.
The paper also finds that corporate tax cuts do little or nothing to promote investment, concluding that tax cuts are more likely to passed on to shareholders or held in cash stockpiles.
Analysing business tax cuts since 2010, the report finds “there is no clear link between cutting taxes and increasing business investment”.
In seven of the eight years from 2011 to 2018, the cost of corporate tax cuts to the Treasury exceeded the net annual increase in business investment, the paper shows.
Pre-crisis estimates suggested that British companies were sitting on cash stockpiles of around £700 billion, and the SEUK/SMF paper notes that investing a tenth of that cash would deliver a major boost to post-Covid economy.
“To stimulate a fast recovery from COVID-19, the government needs to embark on an ambitious programme of structural reform to business to improve its culture and encourage long term investment. These reforms would spread best practice from high performing parts of our economy, such as the social enterprise sector, across the whole economy,” the paper says.
This programme of reform should include a new symbolic “Contract with Britain”, with businesses and the state to prioritise investment over the next three years to help the economy to bounce back quickly.
Signatories would make a public promise to allocate 10% of future profits to investment in their own business, to increase the training and welfare of their staff (through increases in pay or one-off bonuses), or by providing equity or quasi-equity into other businesses so that they can grow.
The report calls for other changes including:
- A new “British Business Renewal Act” to reform company law and spread best practice across all UK businesses to raise standards and performance;
- A new British Business Tax Roadmap so that businesses are encouraged to invest and generate positive social and environmental impact;
- Showcasing British Business through a new National Awards Evening to give businesses, particularly SMEs, a positive platform and creating a better culture;
- Using social value in procurement to drive higher performance from British businesses and shape markets.
Andrew O’Brien of Social Enterprise UK said:
“We must learn from the mistakes of the past decade where the UK ignored the need to reform UK plc. A huge increase in infrastructure investment, more spending in Research and Development or further tax cuts are unlikely to generate results unless the UK improves the performance of British businesses.
“As the country has come together to tackle COVID-19, now is the perfect moment to use this sense of unity between government, business and society to embark on a programme of reform.”
James Kirkup of the Social Market Foundation said:
“British business has received unprecedented support from taxpayers during the crisis. Companies should return that favour by doing more of the things that make businesses a successful part of a healthy market economy, investing in innovation and people.
“More and more business leaders and investors are keen to show that a reformed capitalism can do more to meet the long-term needs of the UK economy. Policymakers should join that debate. ”
Notes:
The report, Bounce Back Britain, was written by Andrew O’Brien of Social Enterprise UK, and published by the Social Market Foundation at https://www.smf.co.uk/publications/bounce-back-britain
Contact: James Kirkup – director@smf.co.uk and 07815 706 601
SEUK is a non-profit company that represents hundreds of “purpose-led” businesses. SMF is a registered charity.