Enterprise Oil up against Politicians’ Water

THE CITY GRUMP

Why do the leaders of our same old political parties remain clueless when it comes to understanding what enterprise is all about? Last week, the lawyer who now runs Her Majesty’s Opposition provided an epic display of this ineptitude when he laid out his vision for our post pandemic economy. What is even more dotty is the Tories, who used to have some empathy with business, seem determined to follow Starmer down the same road to nowhere.

Ahead of his supposed keynote speech, Starmer’s spin doctors were super keen to get the message over that he was, like Blair (another benighted lawyer), once again going to let enterprises up and down the land feel the love as compared to the Corbynistas’ contempt for anything so capitalist. And when the great speech day dawned what was the big idea? Why it was to let you and I invest in a British Recovery Bond so that the State could go off and finance infrastructure and research. Like the old joke about murder in the multi-storey car park, this is wrong on so many levels. Obviously, as many commentators have pointed out, this is just a gilt issue by another name and right now the government has no difficulty in issuing gilts to pay for whatever tickles its fancy and that already seem to include £800m for Dominic Cummings’ brainchild, a UK research agency.

The next most obvious flaw is why, at a time of historically miniscule interest rates, would you and I want to be locked into a low coupon bond especially when the biggest bond market in the world, being that of the US, is signalling inflation is just around the corner?

But the most significant flaw in Starmer’s big idea is again it demonstrates a total lack of understanding of what investment in recovering enterprise is all about.  A bond doesn’t share in the recovery. Equity shares in the recovery. It never ceases to amaze me how none of our mainstream political leaders, since the days of the blessed Margaret, can get it into their heads that if you want the populace (“tell Sid” as she used to say) to share in the future of enterprise you allow us to invest in its equity not some fixed interest piece of debt repayable in devalued money decades hence.

Even worse, all the signals coming from the current Tory crew suggest this government sympathises with the Labour leader’s approach. It is well known Bojo loves grandiose infrastructure projects, latest being a tunnel to Ireland (I expect he would like to build a spaceport on Mars as well), so why not sell a Starmer-type bond to the public? Stir in the pandemic potion of State encroachment into every aspect of our daily lives together with massive loans to the private sector and it is but one small step to this government believing it knows how enterprises should be developed and run. Indeed the latest example of the State knows what’s best for enterprise has the new Business Secretary, Kwasi Kwarteng, straining at the leash to make all directors, including non-execs, personally liable for accounting errors. The irrepressible Charlie Mullins, boss of Pimlico Plumbers splendidly observes:

“What’s the point of having auditors to sign off accounts if they’re going to make directors do porridge or pay huge fines when there’s a problem hidden in the books? Clearly if this comes within a mile of a statute book it’s a huge disincentive to start a business and try to add something to the economy at a time when a bit of risk-taking entrepreneurial activity is so desperately needed.”

Don’t tell Charlie they want to increase CGT and corporation tax as well.

The oil in the engine of enterprise keeps coming up against the water in the political system of our leaders so are there any grounds for optimism? Well possibly a smidgeon. This week the former head of Worldpay, Ron Kalifa, in a Report commissioned by the Chancellor is likely to call for government support to bring typically risk-averse pension funds and insurers into a £1bn growth fund aimed at helping a new generation of financial technology businesses to raise capital. Who is going to manage such a fund remains to be seen. Please God don’t let it be Whitehall but also please don’t let it be the usual government favourites such as Goldman Sachs or George Osborne’s erstwhile income provider, Black Rock. We continue to live under the curse of interesting times.

The City Grump has spent some 40 years in the City of London. He started as a stockbroker’s analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in startups. The City Grump’s publications are available here.