Andrew O’Brien is Director of External Affairs at Social Enterprise UK
There is a growing consensus that we cannot “cut” our way out of COVID-19 and that we need to look at how we can sustainably grow our economy. But how do we grow out of this crisis so that we can keep unemployment low, rebuild our communities and support a green transition?
Our new report looks at how we tried to grow our economy after the financial crisis, particularly at the ten years of business tax cuts to stimulate the economy. It concludes that these tax cuts were expensive and lacked impact. We need to look at alternatives.
A cultural and structural problem at the heart of business
Concerns about the culture and behaviour of UK businesses are not new. Complaints about short-termism and a lack of investment in technology, people and place go back over a century. Governments, however, have often ignored these structural and cultural issues, looking at simplistic measures such as tax cuts. Since 2010, we have seen huge reductions in business taxes particularly corporate taxes.
In total these have cost the UK close to £100bn – with only a marginal increase in revenues to offset some of the cost. These tax cuts certainly haven’t “paid for themselves” as advocates like to believe. Economic performance since 2010 has also been poor. Growth has been significantly below pre-2010 trend levels. We’ve also had low levels of business investment and productivity growth has slowed. All this has kept wages lower and impacted on living standards.
What we have learnt from the past ten years is what not to do after COVID-19. We cannot just assume that business as usual will succeed and that chucking more money at business alone will have any impact. If we want Britain to bounce back quickly from COVID-19, we need to confront these long overdue structural barriers.
Social enterprise – a model for the future
If we know what not to do, we can start to think about what we should do. What we should do is address the structural problems that are preventing British businesses from looking to the future and investing in themselves, their staff and the communities they work in. Without doing this, massive infrastructure investment and further tax cuts will not have any impact.
There is a huge amount of literature that shows that purpose driven businesses are more successful than those that focus exclusively on profit. In Britain we are fortunate that have 100,000 social enterprises that we can draw on as examples. They have showed that thinking about people and planet, before profit, not only creates positive impact for society but also makes them better businesses.
Social enterprises innovate more and invest more in their staff. Before COVID-19, they were growing fast. Different ways of doing business also brings greater diversity, with social enterprises showing greater leadership from women and ethnic minority groups. This in turn encourages new ideas and better performance.
The government needs to consider how we can grow social enterprises, create new ones and encourage other businesses to adopt the “social enterprise model”. If we do that, we can unlock the tens do billions that we will need to get back on our feet. One crude estimate, looking at recent UK corporate profits, estimates that if UK plc took a social enterprise approach, we’d be investing at least £100bn back into our businesses, workers and our communities – equivalent to 5% of GDP – instead of putting this money into the pockets of shareholders. This is the scale of ambition that we need if we are going to bounce back quickly from COVID-19.
How can Britain “Bounce Back”?
Business reform cannot be done overnight, we need short term measures that bring businesses on a journey and longer term legislative and regulatory changes which can make best practice, standard practice.
The report has a number of ideas from “soft” influencing through a new “Contract with Britain” to get businesses to voluntarily commit to investment and changing procurement rules to influence markets to “hard” changes such as rewriting the Companies Act and targeting tax cuts at businesses which commit to do social good.
The key point is that we need to look at a range of measures rather than assume that there is one “silver bullet”.
These reforms will not only be good for social enterprises, but good for all businesses and most importantly for people and the environment.
Whatever happens, social enterprises must not let others define our economic response to COVID-19 without challenge. We need to stand up and make the case for real, systemic change. Only that will help Britain Bounce Back quickly and fairly.
Read Bounce Back Britain our report with the Social Market Foundation here.