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UK business 'too focused on short-term' UK business too focused on short term, says Labour report
(34 minutes later)
Short-termism has become an "entrenched feature" of British business and is damaging economic growth, a business leader has said. Short-termism has become an "entrenched feature" of British business and is damaging economic growth, a report for the Labour Party has said.
In a report commissioned by the Labour Party, Sir George Cox said overcoming a focus on short-term gains was the only way to ensure the UK economy grows. In the document former Institute of Directors boss Sir George Cox said overcoming a focus on short-term gains was the only way to ensure success.
He recommended making changes to executive pay so some rewards were based on longer-term results.He recommended making changes to executive pay so some rewards were based on longer-term results.
Labour welcomed the review and said short-termism had "failed our economy". But the CBI says pay should be a matter for firms, rather than the government.
Sir George, a former director general of the Institute of Directors, said the pressure to deliver quick results to the potential detriment of the longer-term development of a company had "become an entrenched feature of the UK business environment". In his report, following a year-long review, Sir George, a former chief executive of IT company Unisys, said the pressure to deliver quick results to the potential detriment of the longer-term development of a company had "become an entrenched feature of the UK business environment".
He said almost three-fifths of the senior business leaders he had consulted believed short-term thinking was a major or a significant impediment to economic growth.
'Economic prosperity''Economic prosperity'
He said: "Short-termism curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills." Sir George said: "Short-termism curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills."
This meant British businesses were not developing the "internationally competitive businesses and industries that are essential to the UK's future economic prosperity". This meant businesses were not developing the "internationally competitive businesses and industries that are essential to the UK's future economic prosperity".
The UK's Corporate Governance Code should be extended to ensure sufficient long-term incentives are incorporated into the pay of executives and non-executive directors, he suggested.The UK's Corporate Governance Code should be extended to ensure sufficient long-term incentives are incorporated into the pay of executives and non-executive directors, he suggested.
The code could call for at least 30% of executive directors' pay to be deferred and based on long-term results, said Sir George.The code could call for at least 30% of executive directors' pay to be deferred and based on long-term results, said Sir George.
Changes also needed to be made to the rules for takeovers, he went on - so that investors and businesses could build for the long-term, adding that a new mechanism was needed to ensure major infrastructure decisions were made for the long-term and not subject to political cycles. Changes also had to be made to the rules for takeovers, he went on - so that investors and businesses could build for the long-term, adding that a new mechanism was needed to ensure major infrastructure decisions were made for the long term and not subject to political cycles.
Sir George recommended a sliding scale for capital gains tax on shares. This would mean a 50% levy if they were sold within a year, reducing to 10% after a decade.
Sir George said the economy would only grow if short-termism were overcome, adding: "Economic growth needs to become an objective, with strategies to achieve it, not a forecast on which all other decisions are dependent."Sir George said the economy would only grow if short-termism were overcome, adding: "Economic growth needs to become an objective, with strategies to achieve it, not a forecast on which all other decisions are dependent."
Shadow chancellor Ed Balls said: "Sir George's report sets out a clear plan for creating that more long-termist economy including radical reforms to executive pay, tougher rules on takeovers and encouraging longer-term shareholding and we will now study his detailed proposals as part of our policy review.Shadow chancellor Ed Balls said: "Sir George's report sets out a clear plan for creating that more long-termist economy including radical reforms to executive pay, tougher rules on takeovers and encouraging longer-term shareholding and we will now study his detailed proposals as part of our policy review.
"It's vital that we take action to kick-start our flatlining economy, but now is also exactly the right time to make the long-term changes we need to make our economy stronger, more balanced and better able to attract new investment and create skilled jobs for the future." "It's vital that we take action to kick-start our flat-lining economy, but now is also exactly the right time to make the long-term changes we need to make our economy stronger, more balanced and better able to attract new investment and create skilled jobs for the future."
The CBI supports some of the report's recommendations but is warning that changing takeover rules would be a "big step" which should not be rushed and that remuneration of company directors should be a matter for shareholders, not government.