Private capital backed British businesses to the tune of £20bn last year, but with the right tax and regulatory environment there’s even more we could do, says Michael Moore
The fastest growth in the G7. If that sounds ambitious, that is because it is.
This level of economic growth, promised by the new Labour government, isn’t just ambitious, it is necessary for increasing prosperity and raising living standards in every nation and region of the UK. And if you want a better future, you need to invest in it. The private capital industry stands ready to help the UK deliver that growth, with a 40-year track record of investing in businesses in every corner of our four nations.
The BVCA’s latest Report on Investment Activity found that in the last year alone, private capital backed UK businesses to the tune of £20.1bn, with the majority of investment going to companies outside the capital – businesses like Cura Terrae based in Sheffield, a leading environmental services group that enables clients to maintain environmental compliance; Focus Group in Shoreham-by-Sea, one of the UK’s leading providers of digital workplace solutions to SMEs; and Orbex, based in Forres, Scotland, a low-cost orbital launch services company which has developed one of the most advanced, low carbon, high performance micro-launch vehicles in the world.
Our industry wants to invest in more businesses like these, creating good jobs at the heart of local communities. But to do so it needs confidence that the government is truly walking the walk and not just talking the talk on growth. To meet this, the new government will need to meet four key tests.
First, will the UK maintain its competitiveness in attracting global investment talent? Central to the business model of private capital is bringing in expertise to boost business productivity, streamline operations, broaden networks and implement best practices. The talent our industry has access to makes the UK’s private capital ecosystem second to none outside the USA. With 140,000 highly skilled professionals already working in the sector, it is vital that the industry retains a competitive tax system that attracts the best people to work in the UK.
Second, will world class regulatory standards be maintained and applied proportionately? The UK already has some areas in which our regulations are very good. Self-driving car regulations for example, allowed innovative private capital backed businesses, like Wayve, to grow and secure the capital they need to expand, perpetuating investor confidence in the regulatory frameworks that govern them. If we want to be leaders in biotech and decarbonisation, we need smart and agile regulations across the board which keep pace with rapid industry and technological developments.
Third, will it deliver a stable economy, with macro-economic conditions that persuades global players to allocate capital to the UK? When the private capital industry invests, it does so for the long term, through good times and bad. With holding periods of 5.5 years on average, stability and predictability are key factors in determining whether to allocate capital.
Finally, will the government offer policy and tax predictability to investors and the portfolio companies in which they invest? Investors want the new government to confirm how committed it is to policies like net zero and AI, as any possibility of a change in direction could deter them from choosing the UK over other potential destinations for investment. UK private capital invested £7.9bn in UK tech focused businesses last year and, with the right conditions, the industry can support more tech unicorns just like we already have with Bristol based Graphcore.
We already see some signs to be optimistic, with the Chancellor making the launch of a new review of the UK’s pensions system an early priority. Pension funds are major investors in private capital, providing 28 per cent of the funds raised by private equity and venture capital over the past year. These funds are used to grow companies, however the impressive returns don’t boost UK pensions savers retirement incomes, with only three per cent of those investments coming from UK pension funds. Instead, they overwhelmingly benefit US, Canadian or Australian pensioners. Finding ways to support the pensions and private capital industries to unlock additional investment from UK pension funds will give ambitious private businesses access to the capital they need to grow and boost retirement incomes at the same time.
Some of the challenges facing the government are difficult, but if it sets the right course, takes bold action and stands behind private capital, then the UK can be steered to a sustained period of growth. The private capital industry knows what makes a good investment, and stands ready to work as a partner in delivering that growth.
Michael Moore is chief executive of the British Private Equity and Venture Capital Association