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UK business too focused on short term, says Labour report UK business too focused on short term, says Labour report
(about 7 hours later)
Short-termism has become an "entrenched feature" of British business and is damaging economic growth, a report for the Labour Party has said. Short-termism has become an "entrenched feature" of British business and is damaging economic growth, a href="http://www.yourbritain.org.uk/uploads/editor/files/Overcoming_Short-termism.pdf" >report for the Labour Party has said.
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.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.
But the CBI says pay should be a matter for firms, rather than the government.But the CBI says pay should be a matter for firms, rather than the government.
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".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.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'
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."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 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 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.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 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. Conservative backbencher Jesse Norman, who belongs the Free Enterprise Group - which has called on the chancellor to cut corporation tax in the forthcoming Budget- told the BBC's Daily Politics the report was "helpful and interesting" in addressing short-term structural issues of government and business.
"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." 'Un-Labourite'
He said the government needed a long-term investment strategy for those areas of the economy where the UK was traditionally strong, such as the creative industries and pharmaceuticals,
"Nothing would fill me with more worry than an industrial strategy in the old school, but what this does in a splendidly un-Labourite way is share out a series of good ideas which could be adopted by both parties," he said.
In a speech to the manufacturers organisations EEF, shadow chancellor Ed Balls committed Labour to studying "with great care" Sir George's proposals and he urged the government to adopt the plans "before we get the chance".
"Sir George is right to argue that we need to set a clear direction to encourage the long-termism we badly need in British business," he said.
"This is central to our vision of a One Nation economic policy - an economy which invests and works for the long-term and uses the talents of all and not just a few.
"Even with action now to kick-start the recovery alongside a balanced plan for deficit reduction, we cannot secure Britain's long-term future unless we fundamentally reform the way our economy works," he added.
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.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.