Britain must regain its self-belief and take some risks

The need for sustained, long-term economic growth has come to define virtually every discussion on Britain’s future and its path to greater prosperity.

Too often, pessimism and gallows humour haunts these conversations.

In fact, as the American economist Tyler Cowen has suggested, this self-deprecation might be one of the factors that is holding us back. Britain, he argues, has all the ingredients to be one of the most innovative and advanced economies of the century ahead.

We have some of the best scientific minds, universities and research institutions in the world. We have smart regulators and are good at supporting start-ups. In London, we have one of the world’s leading financial centres. And yet, we could be doing much more to capitalise on these strengths.

The FTSE 100 underrepresents the industries of the future, including artificial intelligence and biotech. While the UK attracts significant amounts of foreign direct investment, we could do more to invest in ourselves. Arguments about harnessing the potential of Britain’s huge pension market to increase economic growth are well versed, but increasing direct retail investment is also important.

Research by UK Finance indicates that the proportion of British households who invest their savings in equities is substantially lower than in other major economies, such as the United States and France.

How did we get here? One under-examined factor is culture. Studies in economic psychology show that pessimism correlates with reduced investment and stunted economic growth. The economic historian Joel Mokyr tracked the influence of cultural ideas on the industrial revolution, finding that a spirit of optimism was a distinguishing factor between 18th-century Britain and its closest neighbours. This sense of confidence appears to have markedly declined, with research suggesting that culture may be shifting from one of progress towards one of excessive caution.

We need to rediscover our self-belief, and then we need to take some calculated risks. There are lessons to learn here from what we’re already good at. Every transformative idea to have come out of British labs, from the invention of the computer to the Covid vaccine, is the product of a discovery process where success was not an assured outcome.

Investors in our start-ups already understand this. Over the last decade the UK has built the biggest start-up ecosystem in Europe and in venture capital, the “Power Law” dictates that a small number of investments generate most of the returns, with many investments failing along the way.

We now need to focus our attention to turning great ideas and ambitious start-ups into globally significant technology companies. As we approach the budget, policy and regulatory changes should build on the government’s so-called Mansion House reforms to unlock institutional investment by providing more opportunities for individuals to invest in fast-growing British companies.

Listed high-growth companies should be able to give more of their employees a stake in their business but under existing rules they face restrictions on how much share capital they can dilute each year. With the Investment Association reported to be reviewing its principles of remuneration, now is the time to enable this kind of stakeholder capitalism. This will help to attract ambitious young people to the businesses that have the best prospects of harnessing their skills. In turn, the wider economy will benefit through increased tax receipts and pension returns as these companies prosper.

Looking at a list of the UK’s most successful companies, it is striking how many of them grew by commercialising the discoveries of the last industrial revolution. But while it was a Brit who invented the world wide web, the world-leading companies of the internet age were built in Silicon Valley. We are now entering a new period of technological transformation, with AI, biotech and clean energy set to transform the global economy. Britain can be a leader in this revolution if we are willing to believe, and better invest, in ourselves.

Poppy Gustafsson OBE, is chief executive of Darktrace