The Business World: Growing big in Britain brings its problems

"THE CHAMPAGNE glass economy" was the phrase used at last week's CBI dinner by its president, Sir Clive Thompson, to describe the state of corporate UK. "Not unfortunately," he continued, " a champagne economy but an economy the shape of a champagne glass."

I'm not sure in which sort of glass Sir Clive likes his champagne - the tall thin sort or the wide flat ones - but his thesis was clear. He divided company life into five ages. First came the infant phase when they were starting up; then the youth phase where they may remain small and successful but also have the potential to develop into large national or global organisations; third was middle age where there was fierce competition; fourth was the mid-life crisis when companies merged and reorganised to take each other over; and fifth, which might be reached if the outcome of the fourth was unsatisfactory, was decline and death.

He argued that Britain had plenty of companies in stage one and a good number in stages three and four. Most of those in five had been swept away in the 1980s. But the problem was the dearth of companies in stage two. We did not build our small businesses into world class players. Though we were better placed than Europe in this regard we were unlike America, which was tremendously successful at this. Most people would agree with Sir Clive. A few British companies have leapt to world-class status in the last few years, but not many. With the exception of Vodaphone, most companies - even those with great technology - have remained quite small. Why?

Sir Clive noted the problems of regulation but his explanation was basically cultural. In America, when he talked with small businessmen, they talked about their business and how to improve it. Here they talked about how to get out with the minimum tax charge and spend money on other things. Here building a business was not an end in itself as it was in the States; it was the means by which the individual could do what he really wanted to.

That is certainly a good starting point. But, like an onion, behind this "why?" there is another: "Why are we culturally different? Why are people satisfied with relatively modest success when they could achieve more?"

I suppose a short answer would be that our business people tend to want well-balanced, rounded lives, and are not consumed by one over-riding interest. I suppose, too, that we live in a climate where commercial achievement sometimes attracts jealousy. We have business heroes, usually of a slightly unlikely fashion - Richard Branson, Sir John Harvey Jones - but we also pillory businesses that are thought to be too profitable. Look at the way BT's profits were criticised in the press last week. Even ahead of publication of its results, Railtrack's profits were already being attacked by the deputy prime minister's newly-appointed regulator. Both those companies were formerly part of the public sector and have a monopoly or near-monopoly on their business. But the climate where government encourages stories of "the scandal of millions of pounds a day profits" is a climate where many wise entrepreneurs will chose to remain small enough to stay out of the public eye. Look at public criticism of high executive salaries, encouraged again by some members of the Government. Being big brings problems.

Saying that there is a cultural problem, however, is not much of a guide to practical action. In any case, cultures change, and the UK has certainly changed dramatically in the last 20 years in its attitudes to wealth creation. So the most hopeful line of attack is to tackle the practical impediments that stop smaller companies becoming giants rather than worry about cultural factors over which there is little control.

Any action plan should probably start with taxation: we have the highest level of capital gains tax in the EU, and we also have high inheritance tax which can only be avoided by passing on assets well before death. These place great pressure on people who have built up businesses to sell in the most tax-efficient way, then move offshore for a few years to protect the wealth for their children. Next, regulation: there are numerous loopholes for smaller businesses, designed to encourage people to start up on their own. That is fine. But exceptions designed to help small companies are exemptions designed to keep them from becoming big. Lots of business people deliberately hold down the size of their business because there is no personal gain from becoming bigger - they have all the money they need - and growth will mean more regulation as well as higher tax charges. On paper the regulatory burden may not appear enormous, but for many people running businesses it is peculiarly irritating. Avoiding irritation may not be a good reason for failing to grow faster, but it is a good excuse.

Third, access to capital: what entrepreneurs need is flexibility to raise capital and/or to broaden their own holdings of assets. In particular they need the ability to sell relatively small chunks of their business at the time that suits them, rather than having to make a single once- and-for-all sale either by floating or selling to a larger company. AIM, the stock exchange's small company market, hasn't really been as successful as many had hoped. Contrast this not just with US practice but also with German, for Germany has also been much more forward-looking in developing a smaller companies' securities market than the UK.

There is perhaps something else that can be done by the policy-makers. While there is no magic wand that will suddenly enlarge the number of firms in Sir Clive's youth phase, this government's genius for presentation might be harnessed in support of smallish companies pondering the opportunities of growth.

It is for government ministers to consider every action they take with relevance to business - in taxation and regulation, of course, but perhaps especially in public utterances - and ask whether it might discourage just one entrepreneur from trying to grow his or her business. And if the answer is yes, then think of something else to do, or say, instead.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
Ross Barkley
footballPaul Scholes says it's time for the Everton playmaker to step up and seize the England No 10 shirt
'We will fix it': mice in the 1970s children’s programme Bagpuss
Life and Style
2 Karl Lagerfeld and Choupette
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?