According to the CBI, three of the big changes that are impacting the world of business are; Brexit, technology and the relationship between business and society.
Paul continued by saying that on Brexit; “Firms are 100% committed to make the best of Brexit. To do this, Government and business have to do more than just work together, they must be 2 partners in a common cause and 2 signatories to the same contract to secure the best possible result for the British people. Business has a responsibility to be part of the solution. Business needs to remain calm, competent and constructive and as a business, has a duty to support Government in whatever way we can. In return, Government has its own responsibility to keep uncertainty to a minimum.
They've given guarantees on EU funding, which is already allocated and they've off-set some of the uncertainty arising from Brexit with some certainty on Hinkley Point and Heathrow but uncertainty still remains in other areas. Business still needs to know that we won't close our European borders to talent or lose our privileged access to Europe's markets and what happens the day after Brexit, when 2 years are up and the clock strikes midnight?”
“If faced with new trading rules, airports and ports and trading firms etc. could need more complex paperwork…. so we don't want any cliff edge problems. So it's not a hard or soft Brexit but a smooth Brexit, which avoids the cliff edge problems. The Government should build on its positive moves to draw plans for a smooth transition, giving firms time to adapt to new regulations and the confidence to invest beyond 2019.”
With this in mind, our Chair posed two questions to our guests;
- What do you think, in light of Brexit, is the current thinking around investment into the UK and are you in a sector or industry that has already made business decisions to reduce their UK investment?
- What do you think the business and industry leaders from your sector or beyond, should be doing either individually or collectively, to make the UK an attractive “investment destination” once we truly exist outside of the EU?
One of our guests from a European owned rail franchise asked 'has inward investment stopped or not?' Saying, that in mainland Europe they are all educated to behold the EU as a success but there is also resentment about Europe there as well, as shown by the recent French vote. However, a caution in the back of peoples' minds is that it's not made a difference yet. They [the French] are waiting to see the Brexit impact and probably in other foreign jurisdictions as well. Summing up he said 'don't let the loonies take over the asylum, if we go about this the wrong way people could take umbrage towards the UK.' On an important note, the weakness of sterling has increased inbound tourism which is benefiting UK hotels and property sectors.
Develop a more intelligent immigration policy that ensures quality and access to talent and is not purely based upon numbers.
A construction group CFO suggested that a lot of people describe the problem as 'what've we got to do to make the UK attractive?' Once we're outside the EU we will need to replace the competitive advantage that the EU once gave us. In order to have the best 21st century infrastructure we need to invest in infrastructure. There is no more important a time for us competing on a global stage, with Heathrow, Crossrail etc. and the way we'll do it is through investing in skills and capabilities. Infrastructure will be about technology, for example, it's not about building more motorways but adding technology to create more smart motorways.
The rail CFO interjected with; if we give people the opportunity to come and make money, they will come.
The CFO of a well-known general insurance company pointed out that, as a UK-focused group, they tried not to get drawn into political debate. It was a very different story in a global business. It [Brexit] was the decision the people made but there are also foreign exchange issues, although controllable in the UK, not so globally. The question is, how do we keep growth and momentum going, manage big sums of money and invest in Government projects? We need skills to compete in the world market but need projects to invest in and create a return for the future.
Business needs to articulate the vision of what the UK could and will be, and we do not yet have that vision.
A building products manufacturer, recently admitted to the FTSE, sees Brexit as a big opportunity; firstly, the devaluation of sterling and secondly, there is more spending on infrastructure and house building, leading to more opportunities in construction etc. He said that whilst people remain positive, there is some uncertainty around the two year wait for Brexit to happen and that doesn't help business. Business needs to continue to have dialogue with investors and send out the message that 'the UK is open for business.'
To continue the discussion, our Chair asked about differences in perception on the subject between media versus the business community. The construction group CFO responded that media does not normally pick up positive aspects and subsequently it is very difficult for them to switch their opinion afterwards. A UK housing association CFO observed that the investment piece will depend on the transition and fearfulness of that cliff edge coming towards us. He suggested that there would possibly be a five to seven year transition period, not just the two years billed. Since the media want things to happen yesterday, the media might not be helpful to business during this phase.
The CFO of a global advertising and PR organisation said that he sees global clients cutting their spend in the UK directly due to a weaker currency and higher import costs. This is due to the fact that the first item of spend to be cut is normally advertising spend. He predicts we will see a downturn in the UK economy in the short-term. The media shows no balance in its reporting on Brexit. We need to communicate the UK as an open country to do business in and to look at what we do best and focus on those sectors becoming world-class.
The CFO of one of the largest pension funds in the UK said that perhaps we had 'oversimplified' the reasons for us to be in or out. There was no single reason, no defining central glue and the negative vote to the EU referendum wasn't just about one thing. In business you need to have a vision and consistently repeat it to get people aligned. Business needs to articulate the vision of what the UK could and will be, and we do not yet have that vision. We need a coherent story about what we would like to be known as, for example, the “Intellectual capital of the world” or for our 'historic heritage', and not paint a negative picture of our future.
Once we're outside the EU we will need to replace the competitive advantage that the EU once gave us.
A CFO of a global real estate firm observed that thankfully outside the UK business people don't read our press (except perhaps the FT). Business people are logical and will think about talent, infrastructure and about tax and the roll of law. That's what will make them invest in the UK. Investment will be as a result of a logical process and assessment and we need to ensure that the talent is available to support this investment as well as a favourable environment.
Our chair then asked; “Is there anything Government should be doing?”
A CFO of a large manufacturing organisation said that one of the problems was existing uncertainty about talent. The key thing should be to develop a more intelligent immigration policy that ensures quality and access to talent and is not purely based upon numbers. One hundred thousand of the 'wrong' people won't help us and the uncertainty of EU and non-EU right to work is not helpful.
A technology CFO commented that there is a substantial international workforce in Bristol where he comes from and a general insurance CFO commented that they were in a similar situation. The general insurance CFO reiterated that decisions on corporation tax are important and questioned 'what would compensate for the loss of income?' A utilities CFO interjected, that it's already coming from business rates. If you reduce corporation tax you must attract business into the UK but you don't necessarily need to reduce corporation tax as it's more important to have a stable tax rate. However, it's good if you can attract inward investment, for example, his company are now investing a lot in apprentices in the UK, having survived on a steady-stream supply of cheap EU labour thereby not investing enough in young people and training. And then we wonder why our productivity is low! The UK needs to work with what we've got and invest substantially to be more competitive.
Business needs to remain calm, competent and constructive and as a business, has a duty to support Government in whatever way we can.
The pension fund CFO concluded that we need help to break down the stigma of some of the jobs. We always need people with high quality manual skills and we've created a social stigma around a lot of them now, especially with the younger generation attracted by technology jobs.
Finally, since our lunch the CBI has published an article calling on the next Government to prioritise stability and a long-term vision for the economy, which very aptly sums up our discussion. “The top immediate priority for the next Government must be to provide as much certainty as possible to support firms in making the investment decisions necessary for the UK's future prosperity. This means being as clear as possible on tax and regulatory stability, and firms' ability to access skills.”
Our lunch took place two weeks prior to the general election and since then Paul Drechsler has called for the new Government to acknowledge that negotiating the UK's exit from the EU within the two-year time frame, laid down by Article 50, would be unlikely. He said; “The chances of it getting sorted out in time are slim so an early win from the new Government would be quickly reaching an agreement on transitional arrangements so we can have a sense of continuity rather than just falling off a cliff edge!” Let's hope they listen to him.