This article was originally published in Retail Week on 14th March 2023.
It’s coming up to seven years and five prime ministers since the UK voted for Brexit. Since then, there has been lots of talk about ‘levelling up’ and the opportunities ahead.
The UK remains a large economy but has underperformed against other countries in post-Covid recovery and looks decreasingly competitive for a variety of political, fiscal and cultural reasons.
This matters for all of us in retail because the impact of underperformance is being felt in consumers’ pockets and confidence levels.
The era of (mostly) international co-operation and an economic tide raising (most) boats looks to have come to an end
Protectionism and deglobalisation are powerful forces in the global economy and look set to persist or even deepen. The era of (mostly) international cooperation and an economic tide raising (most) boats looks to have come to an end. Again, this has ramifications for retail, which has benefited from the multi-decade phase of globalisation through the creation of complex, efficient international supply chains.
This leaves the UK dangerously exposed and isolated. It is not a coincidence that London is losing its lustre as a financial centre, as demonstrated by the decision by British chip giant Arm, among others, to seek a listing in New York.
The US Inflation Reduction Act is another example. By creating vast subsidies to support domestic companies in critical emergent areas, the Biden administration has made a powerful statement of intent that the “future economy” will be powered by American innovators. Set against the sheer scale of this intervention ($400bn is set aside for energy security and climate change initiatives alone), let alone the long-term thinking behind it, the UK’s chances of mounting an adequate response, given fiscal challenges and excluded from a coordinated EU response, look slim.
So what assets are at the disposal of the UK and what can we learn from others’ investment in skills and resources?
One idea would be to create a UK sovereign wealth vehicle to fund the best and brightest technology, environmental and commerce companies to scale
This country has a world-class higher-education system – four of the top 10 universities in the world are here – and this is acting as an incubator to develop talent in important areas such as life sciences and technology. In retail, the UK has been a digital vanguard with intense competition acting as a catalyst for innovation. In the long term, strategic thinking is required. One idea would be to create a UK sovereign wealth vehicle to fund the best and brightest technology, environmental and commerce companies to scale, with mandates to deliver positive social and environmental goals.
The benefits to retail should be clear – on-shore access to talent and the most innovative future-economy businesses in the world to power digital and environmental transformation.
What might this look like? Imagine that every child born in the UK is granted a £2,000 ‘birth dividend’, effectively a long-term investment as an owner in the future of the UK. The capital could be locked in until retirement age with dividends accessible from age 18, potentially linked to personal investment in education or property ownership. The fund would invest in specified focus areas such as technology, life sciences, impact (climate and social) and commerce.
In addition to liquidity support for companies in sectors where the UK has the capability to win, this would also progressively help to address the challenge of long-term savings in the population at large. Casting forward and harnessing the great arithmetic power of long-term compounding, if the fund was able to deliver a long-term real return of, say, 7% to 8% this would result in savings at 65 of £160,000 to £300,000 per person.
To make a statement to the world, the UK could start by creating a fund for 21% of the population, being everyone below 18 today, resulting in an opening fund of £28bn
Inheritance tax could, theoretically, be relaxed on this pool of capital to allow and incentivise generational transfer (and further compounding gains). There are roughly 700,000 children born in the UK each year so the annual commitment would be roughly £1.4bn per annum, which equates to less than 0.2% of government spending or 1% of annual VAT receipts.
To make a statement to the world, the UK could start by creating the fund for 21% of the population, being everyone below 18 today, resulting in an opening fund of £28bn.
This is just one suggestion, by no means a panacea for the challenges the UK – and its retail industry – is facing into, but an example of long-term, creative thinking aimed at driving social and economic progress. Why wouldn’t it happen? Well, long-term and creative thinking is not, sadly, a policy specialism of the UK, but that’s one for another time…
