15 May 2019

Backing enterprise is the way to show that Britain means business

By Liz Truss

This is a seismic year in British politics. But I also think it’s a seismic year for British economics.

It’s ten years now since the financial crash; we’re now in a position of paying down the debt as a proportion of GDP. And it’s 40 years since the supply side reform we saw in the 1980s which transformed Britain from being one of the lowest performing countries in the EU to being a successful, competitive nation.

This year we have a huge choice. We could on one hand embrace Brexit. We can be bold and liberate people to live their best lives.

Or we could try to defend the status quo that we have in Britain at the moment – and I think that would lead to a socialist government causing untold damage for our economy.

And what is the number one challenge we have in this country? I believe the number one challenge is economic growth.

We have got very good rates of unemployment. It’s the lowest since 1974. We’re doing well in terms of company formation. But it’s still the case that economic growth is not what it has been and not what it could be.

And economic growth is vitally important to help people live their best lives, to be able to enjoy themselves – whether it’s going on holiday or buying a new car – and believe that the prospects for their children will be better than the prospects today.

And the way you get economic growth up is by people coming up with new ideas, taking risks, doing new things, putting themselves on the line in order to drive forward the economy. And it’s by those people scaling up their companies, doing new things, that help us succeed.

And I believe in this country we have all the ingredients for that.

We have never had a more capable population. We’ve got a hugely attractive investment market. If you look at technology, we are attracting more investment than any other country in Europe.

And also we have got a dynamic new generation who are more pro-business than ever before. The rate of 18-24 year olds setting up businesses has increased by 85 per cent just over the last four years. I think it’s the case that many people working in normal jobs also have side hustles – businesses they’re running on the side. Whether that’s renting out your apartment on Airbnb, whether it’s having a YouTube channel – we have a massively entrepreneurial generation coming through who fundamentally want to control their own lives.

How do we get more of those people? More people willing to take the plunge. And more businesses who want to scale up in Britain rather than selling out.

The answer is that we’ve got to give people rewards. And there are two kinds of reward.

Of course there’s the financial reward. But there’s also the moral reward, a feeling that you’re valued by society and feeling that your work is respected and when you go down the pub people are going to respect what you do.

Financial reward has always been important. If you look at what Nigel Lawson did in the 1988 Budget – when he cut corporation tax, and cut income tax from 60 per cent to 40 per cent at the top rate. He was sending a message to people that the more effort you put in, the more you take a risk, the more you put yourself on the line, the more you’re going to be able to keep.

And what did we see? We saw a growing economy. And it wasn’t just the people at the top who benefitted. It was everybody in a growing, confident Britain.

So financial rewards are really important. But it’s also important that you feel respected.

I recently went to Manchester to meet two entrepreneurs. Carol Kane and Mahmud Kamani, her business partner. They run a company called Boohoo.com, which they set up in 2007. It’s now a unicorn – a billion dollar tech company. And they have got a history in the clothing business. They have done really really well. They employ people in Manchester in four or five different offices. And 50 per cent of all their clothes come from the UK.

People like that, people that decide to do things differently, should be celebrated. But too often businesses can be treated as pariahs. Dragged in front of the business select committee. Told off for somehow not treating their workers well. And we have to be very careful about what we say about people who run businesses. In this country the insidious notion is being allowed to infect Britain that somehow wealth is never deserved. That however much money you put in, whatever risk you have taken, whatever hard work you, your family, your colleagues have done – that’s not quite good enough.

This is particularly being championed by the Labour party. Although I would say there is a lot of acquiescence to this idea from elsewhere – including in the business community.

John McDonnell, who you’re going to be hearing from later today, described business as the enemy. He’s actively said that business needs to be put under more controls: who sits on the board, what money is invested in the company – he said there should be a Strategic Investment Board that makes those decisions.

And fundamentally what he’s trying to do is delegitimise business and delegitimise the idea of private enterprise. And I think that’s hugely damaging for a country that has been built on private enterprise.

Eighty-four per cent of people in this country work in private companies. It is the lifeblood of our economy. It helps feed our public services the money they need to run. And it’s a good thing in itself because when people set up a business, they’re helping build their own lives, but they’re helping build the lives of those around them.

There couldn’t be a worse time for this spectre to hanging over Britain: when we are leaving the EU, we need to be an even more competitive economy. That is surely the time when we need to be open to new investment around the world, and celebrate the fantastic work that business does.

Conservatives need to show that we appreciate that. That we love success and we want to see more of it. Not that we denigrate success and we want to see less of it, or it blamed or diminished.

But we need to see people speaking out from the business community. The risk takers and profit makers in the room who are going out and doing things – you have to stand up for what you do. Because the whole idea of taking a risk and investing, being successful, is under threat.

Now of course, we need to make sure that this success is expanded.

And one of the challenges we face in this country is our productivity. We need to get levels of productivity up. It’s 35 points below Germany’s level of productivity.

But if you look at where that problem is, London as a city has roughly equivalent productivity to Germany. So if we could get productivity of other cities in the UK, of rural areas and towns in the UK up to the level of London, we would be truly world beating, and we would have much higher levels of economic growth.

If we could get more companies like Boohoo based in Manchester to come up with new ideas and generate income, we can get better and be more successful.

So what do we need to do to make that happen?

Well first of all, we need to allow the very productive places in Britain to expand. That’s why we do need more houses in London. That’s why we do need to let Oxford expand, to let Cambridge expand. And challenge those people who are sitting quite comfortably who don’t want new people to move into their cities.

The second thing is to help those places which aren’t as productive, to become more productive. And I think the key to doing that is to make sure that all of those places have universal basic infrastructure: local transport and high-quality fibre connections drive up productivity.

There’s a recent study that shows that bus fares in the north of England are four times what they are in London. And in Norfolk you’re lucky if you even see a bus at all. Leeds is the largest city in Europe without its own mass transit network. Birmingham is 33 per cent less productive than a city of its size would be in France, according to a recent study, because of the poor quality of cross city transport. These are real things we can do.

And one of the things we’re looking at in the Spending Review is where we can put our infrastructure money. Because we’re spending at a 40-year high on infrastructure. I want to make sure we are spending it in places that get the most economic growth. And all of the economic evidence suggests that it’s connections within cities and counties that are more important than intercity connections.

It’s making sure that if you’re in Leeds you can get to Bradford; if you’re in Manchester you can get to Burnley easily. That travel to work doesn’t just have to be by car in those areas – although by the way there are more upgrades to roads than are needed.

And the final area I want to highlight about infrastructure is fibre. At the moment, we’ve got roughly 6 per cent of the UK fibred up. In Spain, it’s over 70%. Now our current ambition for full fibre coverage is 2033. I don’t think that’s good enough. I think the modern economy needs fibre connectivity. It’s already difficult when your Netflix gets buffered all the time, and imagine what it’s going to be like in 5 years time with all the new applications coming down the road.

I think as Britain, we should seek to lead Europe and lead the world in connectivity. After all, if we do want to continue being the leading tech hub, then we need to have the best connectivity right across the country. And by the way, it will also help more people with flexible working and working remotely. It provides big opportunities.

I briefly mentioned allowing the most productive places in Britain to expand. And sometimes when I put this point forward I face people saying “No Liz, it’s not because we don’t have enough houses, that house prices are so expensive, or that rent is so expensive”.

But let’s just look at what has happened since the 1947 Planning Act was put in. In 1947 people were paying an eighth of their spending in housing. They’re now paying over a quarter of their spending in housing across the country. And in London, people who rent are paying half of their income in rent.

In a country like Germany, or a city like Tokyo, that has a zoning planning system, and more liberal planning laws, prices are much more affordable. Home ownership rates in Germany are increasing. In Tokyo, rents have gone down since they carried out planning liberalisation.

It won’t surprise a room of people who understand economics, but the more supply you have, the lower the costs are. And for me it’s imperative. It’s imperative for our economy, because it’s holding back economic growth. It’s imperative for social justice, because why is it right for somebody who has already got a place in London to benefit while new entrants can’t get into the city? And it’s also imperative for helping people with their costs of living.

And the final point I want to make today is that we have to back every person in this country to lead their best life. So as well as boosting enterprise, and backing great towns and cities across the country, we also need to help every single person be successful.

One of the issues we have in the Spending Review is school funding. It’s still the case that there’s a massive disparity in funding. Some schools get £4,300 per student, some get up to £6,800 per student. And what we know in terms of human capital, looking at how people benefit from their education, is that primary school education is hugely important. If a child gets to age 11 without basic English and Maths, it’s a real struggle to catch up.

Nick Gibb has done a brilliant job on phonics, which now means our nine-year-olds are near the top of European reading tables. When I was education minister I introduced new tests in Maths at age 11, removing a calculator from them. We have upgraded our standards.

But it’s still the case that 35 per cent of our children are leaving primary school not at the expected level in writing, reading and Maths. And I think this is something we can look at in the Spending Review, to look at what we can do to get those standards up.

Finally in education, the transition into work from age 16 to 18, apprenticeships and further education colleges is still absolutely vital. We have reduced youth unemployment by half since 2010. I think that’s a huge achievement. But where we need to get to is every single person having that vital transition from school and into work, being able to carry on moving up the career ladder.

So to conclude, 2019 I think is an exciting year and a scary year. We’ve got lots of opportunities. We’ve got to embrace Brexit – that has to be an absolute prerequisite of moving forward. But we also have to be prepared to be bold in terms of domestic policy.

We have to back enterprise – that has to be the key to our success. We’ve got to back towns and cities across the country and make sure that everywhere in Britain has the universal basic infrastructure it needs to run a successful enterprise economy. And finally we’ve got to back every single person and every child in this country to lead their best life.

This article is based on a speech delivered at the FT Brexit and Beyond Summit 2019 in London on May 15.

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Liz Truss is the Chief Secretary to the Treasury and the Conservative MP for South West Norfolk.