Business and Trade Committee
Oral evidence: Industrial strategy, HC 727
Tuesday 29 April 2025
Ordered by the House of Commons to be published on 29 April 2025.
Members present: Liam Byrne (Chair); Antonia Bance; John Cooper; Sarah Edwards; Gregor Poynton; Matt Western.
Housing, Communities and Local Government Committee member also present: Florence Eshalomi (Chair).
Science, Innovation and Technology Committee member also present: George Freeman.
Treasury Committee member also present: Lola McEvoy.
Questions 616 - 650
Witnesses
II: Kitty Ussher, Head of Group Policy Development, Barclays; John Godfrey, Managing Director for Public Affairs, Policy and Research, TheCityUK; Louis Taylor CBE, Chief Executive Officer, British Business Bank; John Flint, Chief Executive Officer, National Wealth Fund.
Examination of witnesses
Witnesses: Kitty Ussher, John Godfrey, Louis Taylor and John Flint.
Q616 Chair: Welcome to this second panel of today’s hearing for the Business and Trade Select Committee, as we pursue our inquiry into industrial policy in the United Kingdom. I am absolutely delighted that we have a brilliant panel now convened to look at the role of our finance institutions and how they can help the Government fulfil the ambitions in their industrial strategy.
John Godfrey, perhaps I could start with you. Does the UK currently have the right finance institutions to help the Government fulfil their industrial policy ambitions?
John Godfrey: Thank you, Chair, and good afternoon, everybody. We certainly have a world-leading range of financial institutions. I am talking here mainly about the private sector institutions in the City and well beyond the City. We have world-leading organisations in the banking space, the insurance space, the asset management space as well as in adjacent sectors, all supported by very strong financial and professional services, so the accountants, the consultants, the lawyers. That is a very great strength that we have.
I should add that, of the 2.4 million people who work in the sector, two-thirds are working outside London. It is a resource that is spread, to some degree, across most parts of the country. Those are not, by the way, simply back office jobs. They are serious economic contributors in their own right. I believe we do and, in a sense, the important point to make around this is that we also have very significant pools of capital that can be deployed in support of the industrial strategy.
We want, as a sector, to support the industrial strategy. For example, there are £2.6 trillion of pensions, plus annuity funds and a substantial amount of dry powder in private equity, and so on. The firepower exists. What we need is to develop the right mechanisms to deploy that in support of the industrial strategy.
Q617 Chair: What are the mechanisms that are missing? You have written about this before.
John Godfrey: I have, indeed, written about this. You have seen some of that work. My experience, certainly, and the experience of most people I talk to in the sector, is that, for all the willingness to deploy funds, it is hard to find the right investible opportunities that are described and presented to investors in a way that investors will understand.
There are multiple ideas, and multiple cities and regions trying to promote themselves as investible, making their case for an economic investment to go there, but, if you sit down and say, “I’m an asset manager. I have £500 million I want to put to work in the north-west”—or the north-east or the midlands, wherever it may be—“Can you please tell me what are the five things I could invest in? This, by the way, is what my balance sheet needs”. The balance sheets are different, of course, between banks, insurers, asset managers, pension funds and so on. It is very hard to find really good, professional and compelling prospectuses. That is a gap. Many people have thought about trying to close this gap, but nobody has done it quite yet.
Q618 Chair: Kitty Ussher, what is your view? Perhaps we have the right pools of capital. We have the right people in place. Do you think we have the right institutions or, as John puts it, the right mechanisms to help match the capital that is available to deliver the Government’s industrial policy ambitions in the future?
Kitty Ussher: Thanks very much for having me along today. By way of background, I head up a team within Barclays bank that does public policy thought leadership research. We use the data and expertise available to us, as comes from our place in the market, in order to provide some insight on exactly the type of questions that you are raising today.
I would say two things in particular. First of all, in order to realise the ambition of the forthcoming industrial policy, most of the investment is going to come from the private sector. It is really important to appreciate that, fundamentally, this comes from the decisions of individual companies as to whether to press “go” on their own growth plans. That is a necessary and prior condition to the finance then being available. We know that private sector investment, unfortunately, appears to have plateaued in the best part of the last 10 years or so.
I am going to make a point about institutions but, first of all, just to get the context of this for the Committee, we did some work last year that looked at the drivers of investment for the businesses seeking the finance. We found that there are three main drivers. I will not go into the detail, but the important point is that one of the drivers is what we call a foundational driver, which is their perception of the role of public policy and the macroeconomic environment being appropriate to do something a little more risky now, as opposed to pausing and doing it “"later, later, mañana”.
In terms of an industrial policy, when the Government come to publish, it is really important that they track this. The good news is that it is free to create a climate where people feel that they are certain that now is a good time to invest. We asked a cross-section of all British businesses a very simple question: “Do you feel that public policy gives you a certain environment into which to invest now?” The good news is that roughly half the business population, certainly towards the end of last year, thought that, net-net, it did, but there was still 20% or so—and it varied slightly, depending on what was going on—who thought public policy detracted from their ability to make a decision to invest now. If the Government were able to calibrate that by sector, by region and so on, we would get a real sense of what the priorities should be.
If you permit me, I will make one small point on the institutional architecture. Both the British Business Bank and the National Wealth Fund are really important partners to us. What they are able to do is very exciting. If you look at it from the point of a growth business that, perhaps understandably, is an entrepreneur, rather than an expert in governmental and public architecture, it can feel that fragmentation is sometimes a deterrent.
We did another piece of work on what it felt like to be an ambitious climate technology company, which is crucial to meeting our net zero ambitions, and we found a lot of support for what is currently in place, but maybe not as large an amount of awareness of it. If you are looking at it from their point of view, you have the British Business Bank, the National Wealth Fund and Innovate UK. You have UKEF and a multitude and plethora of others.
Chair: We have tried to draw a picture of it today and it defeated us.
Kitty Ussher: You are the experts. If you were an entrepreneur working in the private sector, it would perhaps be even more confusing. Particularly the BBB is trying to bring this together, but that is a very important point around fragmentation. It is not just because it is confusing to get your head round, which is relevant, but also because you may find that expertise falls through the cracks. For the climate technology sector, for example, they are quite investible propositions, in that they are exciting and technology-driven, but, unlike a fintech, there is very large capex expenditure quite early on in the growth cycle.
When there is a missing middle between a ticket size up to £10 million, which the British Business Bank typically does—I am conscious who is on the panel with me—and the £25 million that is the normal starting point for the National Wealth Fund, you can find that some of these growth companies get dropped in between. They are maybe looking to both institutions for the expertise and not finding it.
Q619 Chair: I think what you are saying, then, is that we have some things that are missing. It may be simplicity; it may be confidence, but it feels like we have some things missing if we are to match the capital that we have available to the ambitions that we have for the future.
Kitty Ussher: Yes. While recognising how important the current institutions are, yes, I would say that.
Q620 Chair: Louis Taylor, what is your view? Do we have the right institutions and mechanisms to fulfil the industrial policy ambitions, or do some things need to change?
Louis Taylor: I agree with a lot of what the previous witnesses have just said. In terms of consistency of public policy, the British Business Bank is now 10 years old and we have a range of programmes that have been consistently pursued. We have built them up to a scale and are now at a point where we want to simplify and streamline it all, but we are very clear about what we can do. We are able to catalyse private money into lending to and investing in small businesses.
We should always be doing that in a catalytic way, which comes back to John’s point about the private sector institutions that are so strong. I would argue that the agenda we are pursuing is pretty cross-political. Everybody wants more start-ups and scale-ups, and to back more information. They want more addressing of the regional disparity of equity provision. That has been pretty consistent.
In terms of going forward, Kitty has highlighted one area where there is potentially a gap. Whether that is all a gap that Government should fill or whether it is a private sector gap as much as a government gap, I would argue the latter. During the course of the spending review, we are proposing to the Government an opportunity to address that gap. It is up to them to choose it.
Q621 Chair: What does that look like? What is that proposition?
Louis Taylor: That is a proposition to say that the British Business Bank invests in companies often in several stages: seed, series A, B and then C. As Kitty says, the largest cheque we would write tends to be around £15 million. We would like to write the next cheque, because we know this company; we have done our due diligence on it. We have done the difficult work and writing a bigger cheque, rather than a smaller cheque, is the less difficult thing to do than to set up a new capability to look at whether to write that cheque at all.
Q622 Chair: What is the biggest cheque you would like to be able to write?
Louis Taylor: Fifty million pounds feels right, into a round size of a couple of hundred million pounds.
Q623 Chair: Mr Flint, what is your view on whether we have the right mechanisms or institutions to fulfil the industrial policy ambitions the Government have set out?
John Flint: The private sector, as has already been indicated, will do most of the heavy lifting. We do have the privilege of hosting the world’s financial capital. All of the smart money is here and we reap the benefits of the ingenuity and creativity of private sector finance. The fact that an industrial strategy is going to be articulated is hugely helpful. That clarity is exactly what the private sector financial system craves.
With respect to the tools in the public sector toolkit, it is pretty comprehensive. We can look at the gap between 15 and 25 and worry about it. As Louis said, the private sector will end up filling most of it. While that gap is real in an intellectual sense, I am not sure how substantive it is. We have a range of public finance institutions: the British Business Bank, the National Wealth Fund, UK Export Finance, BII and Homes England. Great British Energy is going to be setting itself up.
In addition to that, we provide enormous amounts of support for businesses through Departments, so business model design, revenue support mechanisms, CFDs, RABs and so on. The toolkit is very comprehensive. I have been on this side of the table, the public sector side, for four years. There is not much missing. In the main, it is all there and, with a clear industrial strategy, we do not have any excuses.
Q624 Chair: You are not worried that the lack of finance will be the inhibitor on Government achieving their industrial strategy ambitions.
John Flint: There is one particular issue that does exercise my mind. The pools of capital are available. The difficult debate is who is taking the risk and who is getting the reward. It is not about pools of capital or notional amounts now. It is the risk-sharing piece. There is lots of jargon and labels for this—“blended finance”, and so on—but we need to be clear. If we need to get a project over the line, if we need to develop a new industry or a new technology, who is taking the risk at what stage? Where are the rewards going?
That is the eternal question for this challenge and it is, intellectually, very stimulating. If we struggle, it will be because we are not able together, between the public sector and the private sector, to have a really good, honest, robust conversation about how we do that. Most of my career has been on the private sector side. I am very mindful of the fiscal realities that this Government face. We need to get the private sector to take a little more risk with us.
Q625 Lola McEvoy: I am guesting from the Treasury Committee, where we talk non-stop about this risk versus stability point. That was my top question to you, actually, Mr Flint. What is your boundary? As the National Wealth Fund is growing and you are getting an expanded mandate to align with the industrial strategy, what is the risk versus return for taxpayer appetite in your organisation?
John Flint: This is a really important question. We have one shareholder, which is HM Treasury. By design, it has told us what our risk appetite is. We have a notional capacity of £27.8 billion. Within that, we can take pretty much whatever risks we want as long as we stay within an economic capital risk budget of £7 billion. This is a standard, tried and tested methodology that the banking system has used and the regulator of the banking system has developed and perfected over time. That ratio of 7:28, for rounding purposes, is key.
Q626 Chair: Who made that ratio up? Where has it come from?
John Flint: It came from Treasury. In our incarnation as the UK Infrastructure Bank, it was a slightly lower ratio.
Q627 Chair: Is it the right ratio?
John Flint: Yes.
Chair: You do not seem sure, Mr Flint.
John Flint: The shareholder decides how much risk it wants us to take. The way to contextualise the decision it has taken is that, pound for pound, we will take about four times as much risk as the UK commercial banks and roughly twice as much risk as the EIB, which is an organisation that others like to compare us to. That is not us claiming to be brave or anything like that. That was a policy design decision. “We want you to use £27.8 billion of notional, but we would like you to consume this amount of risk capital alongside it”.
Q628 Chair: Is it good enough as a ratio, do you think? These things are hard to pin down to perfection, but is that a good enough ratio?
John Flint: Yes, it is. We are not regulated, but we are subject to the principles of good regulation. Our shareholder has access to the PRA if it wants to sanity check any of this. Yes, it is a reasonably simple but pragmatic and accurate enough way to signal to the market that our risk appetite is different from the market’s. That is the key point. There would be no point setting up a new ALB to have the same risk appetite. We have a different risk appetite by design and we are making use of it.
Q629 Lola McEvoy: The only reason I am smiling is that they were the questions that I had pre-empted. I wanted to ask you about your regulatory framework and whether you had mirrored it, because you are not regulated, but we will leave that. You have talked about that.
On the risk appetite, then, can you give us some examples of what you have already started to invest in, in order to derisk? What are some sectors you are taking risk in that have not been attractive to private sector investors?
John Flint: Let us take long-duration energy storage. As we get to a renewables grid, we need lots of short duration energy storage. Traditional lithium batteries will do most of that heavy lifting, but we need longer duration energy storage. There are some new technologies there that we need to develop at scale to be able to support an renewables grid.
There is a company that has developed a liquid air energy storage technology, which, in physics terms, is quite simple. You use surplus wind to compress air into a cold and liquid state, store it, and then, when you want the energy back, you pull the pin and let the decompression drive a turbine to generate electrons. This has been proven at a demonstration scale, but not yet in a commercial sense. We financed, along with Centrica, an industrial partner, the first commercial application of this for a plant that will be developed near Manchester.
When those in the private sector look at this, they love the technology, they love the idea and they would be quite excited at the prospect of scaling this, but the private sector’s risk appetite does not extend as far as that first plant, where we will be demonstrating that we can commercialise this and that it can generate the revenues planned. We have done most of that financing.
Q630 Lola McEvoy: That is a very interesting example. I do not know whether you were all in the room, but we heard from the mayors on the previous panel about the layering of the industrial strategy key sectors. There are eight key sectors and because they are what I term “mega-mayors” they are in line for the full devolution packages. They would like to have a sectoral strategy for each one of the industrial strategy sectors.
How does that align with the work of the British Business Bank and the National Wealth Fund in terms of geography? They claimed that they did not want to be in competition with each other, but I cannot fathom a scenario where they are not competing for some of these investments. How does it play out in real terms?
John Flint: I will answer on behalf of the National Wealth Fund and then pass to Louis. To date, most of our work, candidly, has been sector-based. That is partly through our life as the Infrastructure Bank, before becoming the National Wealth Fund, and partly because we did have a net zero strategy that we could anchor all our work around. Helpfully, the net zero strategy provides a lot of regeneration and job opportunities in exactly the areas that the country needs.
The place-based lens that we have will need to mature and develop from here. We have a local authority advisory and lending business, which is the principal lens, and the Chancellor has asked us to develop strategic partnerships with Manchester, the west midlands, West Yorkshire and Glasgow. I suspect, in her mind—I am guessing a bit—that is a pilot for what might follow.
We will have to develop and dial up our place-based approach to this but, to date, the early years of the sectoral approach have kept us more than busy.
Q631 Matt Western: On the previous point you were making, Mr Flint, you were saying that the private sector had been less interested, giving that example of liquid air. It sounds fantastic. I am aware of that kind of thing, but the private sector is not interested in the longer term, in terms of the return that it was going to be making. I think that was what you were saying, wasn’t it?
John Flint: No, it was about risk appetite. They were not prepared to take the risk at this stage in the development of that technology. It was too risky.
Q632 Matt Western: It was simply the risk. I thought it was also the duration of payback.
John Flint: That can sometimes come into it. There are lots of different dimensions to a risk decision but, ultimately, the view of the market was, “If this works, great, we would love to finance it, but you have to prove to us it works first”.
Q633 George Freeman: I am here guesting as deputy chair of the Science, Innovation and Technology Committee. I guess I should declare an interest. I advise various companies and funds, although there is no specific conflict here. I just wanted to ask about the central question of access to finance. It seems to me after a 30-year career, 15 years in the private sector and 15 in government, that there are many things we have not got quite right.
The big one that shines out is that, for a country with such phenomenal science, research, technology and innovation excellence, with the City of London, a global financial hub, we have seen the allocation of our own pension money over the last 25 years go from 50% into the UK to 5%. We see some of our best start-ups being bought out by foreign companies, because of a lack of scale-up capital.
There are lots of arguments as to why we might not have been ready until now, but my question is about how we are going to move the dial. There seems to be a lot of interest in Mansion House. As I have spent time in the City, everyone I have spoken to there has said, “You need to mandate it. You need to say it to us because, otherwise, there are plenty of global opportunities where we will get bigger returns”. Could I ask you each for your observations on how we do it?
John Godfrey: The first point is that how you make this happen differs a little bit in terms of which sector you are talking about. Access to finance for life science, for example, has different drivers from access to finance in the defence space, which is another one of the eight growth sectors. There are slight variations.
To the broader point about motivating, directing and inspiring pension money to find its way across and into UK companies, the first thing is the defined contribution space. Pension reforms and the move towards some consolidation, which is part of the Government’s agenda, should help. There is a further deregulation or proportionate regulation approach, which should, again, help. This is to regulate for growth, as opposed to regulating for risk. If we can allow the pension funds to take a little more risk in that sense, particularly in DC and where it relates to younger savers, who should be more in equities, that is all going to be helpful.
Specifically on mandation, quite a lot of caution is required, because of the fiduciary duty of the investment manager. The investment manager will always turn around and say, “At the end of the day, this is not my money. This is other people’s money that I am managing and, if you oblige me to go down this particular route, I am not in control of my own fiduciary duty”. There is a need for some caution.
There are ways you can push a softer mandation. Greater transparency should help. There are potential “comply or explain” types of routes but, ultimately, the hard stop route of making this mandatory is not something the pension industry would welcome very much. I do not know whether it would help.
Q634 Sarah Edwards: To pick up on that point, we have about £70 billion given in the UK in tax relief for pensions. Building on my colleague’s point and your earlier point about prospectuses, if we have 70% of DC funds investing overseas and only 2% of DB schemes investing in the UK, how can we better direct that investment and not impact that fiduciary duty and responsibility that trustees have? What are your thoughts perhaps around that?
John Godfrey: My point earlier about prospectuses was only in part about identifying equity investments, business start-ups, scale-ups and so forth. It was in part also about how we get into the regeneration of towns, cities and places. It does not all have to be equity. There is a role here for fixed income. There is a role here for, for example, investment in real assets and property. Those things can work very well also for pension schemes.
One thing that has driven the reduction of investment into UK equity by pension funds is that a lot of them are tracking global indices. Something like an MSCI index will allocate 3.5% to 4% of a global basket to the UK. They will track that index. If we take a slightly more holistic view beyond equity, looking at what we can do to help rebuild Birmingham, Manchester, Leeds or wherever from a pension fund perspective, we can get quite a lot more done in terms of productive investment into the economy.
Q635 Lola McEvoy: I was going to ask a follow-up question to that point about pipeline investments and the security that these organisations with a lot of capital to invest are looking for, as well as the role of the National Wealth Fund in derisking some of those opportunities. I wanted to know, Mr Godfrey, your view on the tension between the £7 billion versus the £28 billion risk appetite for the National Wealth Fund. Do you think they should have more risk available, so that your investors can crowd in behind them?
John Godfrey: I am not sure I am best qualified to give you a number that may or may not be different from the 7 and 28. As a matter of principle, the important role for the NWF—and I am sure John Flint would agree with me on this—is to leverage the maximum of private investment in and alongside what you do. This is not about competing where there is not a market failure or about crowding out by undercutting, because you have a cheaper cost of funds and can do that without having to carry the same capital base.
This is about asking, “Is there a viability gap in a particular project or a particular place?” I say “a gap”, not “a chasm”. No one is suggesting that your job is to fix the impossible. Where there is that gap, there is a clear role to come in and, for example, fund part of the development phase of something. Then, when the derisking kicks in and you have occupancy, tenancy and all the rest of it, you can pass that over to a different form of investor.
There are other things that have been looked at and now are back more into the equity space. Around the LIFTS programme there was some serious consideration given to having co-investments that are not necessarily pari passu as between the public sector and the private sector. Everybody gets a return, but the upside is more skewed to the private capital. There are so many ways to go about doing this.
To go back to my very early point, Chair, all this leads me towards the idea that there is not enough shared skill and shared capacity across the investees and the investors to make this happen. That is the gap that we need to somehow fill, with something that fulfils almost a brokerage function, joining the money to the projects, whether it is debt, equity or property.
Kitty Ussher: There are a few other perspectives from the work that we have done on the scale-up question that perhaps would be useful to the Committee. First, this debate is, very understandably, quite often about private capital. Public markets should also ideally play a role in scale-up capital. I am thinking in particular about the transition from the junior markets—AIM, for example, in the UK—to the main market.
We did some work on this and found that there are some barriers to that transition. If you an entrepreneur, you might think, “There is no point going to the junior market as a route to the main market. We will just wait and stay private”. Then, of course, they may go outside the UK. For example, if you had a firm functioning very well in the junior market, we suggest it might be sensible to ease the transition to the main market by not having to do a new prospectus, if you have already traded publicly in a way that investors are very comfortable with.
There are also some tax advantages in the junior markets that are not in place for the main market, with EIS, SEIS and VCTs being the obvious examples. We are suggesting some kind of taper, so that there is a real advantage to staying in the UK.
There are a couple of other quick points, if I may. We have not talked about gender. There is a systemic gender issue in the UK in terms of being able to attract funding. Female-only founders received 1.8% of all VC equity investment in the first half of last year. I do not know whether that is related to the fact that 11% of VC committee members are female, but it may be more than just a correlation. Barclays chairs the Invest in Women Taskforce, which is doing some really interesting work here. I do not have the solution, but this is something that we are going to shine a bit more of a light on. It is firmly within the scope of this inquiry.
As a final, small thing, we did some work with firms all over the UK that were at the cusp of considering where to go for equity investment. They may not be hugely knowledgeable about how to do so. We asked them what the role was for local authorities and other devolved organisations in helping them along their way. There was massive demand for signposting, information and support. They saw that as part of their role. Alongside banks and other financial services institutions, they really saw a very strong role for devolved and local public administrations as well.
One thing that the BBB might find interesting is that we found that branding makes a really important difference here. If there was a front end that felt place-based, it would feel much more accessible to them. I know that there are some examples of that around the country.
Chair: We will get into this broader question of crowding in private investment, but let us just start with Mr Cooper on this.
Q636 John Cooper: You have talked about pools of finance, which is wonderful to hear. One of the main aims of the industrial strategy is to attract international, mobile investment. You seem quite confident that we will achieve that domestically. I just wonder how confident you are that we can pull in money from outwith the UK.
More substantially, what involvement have you had, as financial institutions, in the design of this industrial strategy? Have you been partners in this or is this something that is being handed down to you?
John Flint: On the first part of the question, I am increasingly confident that we can attract international capital. That is largely because of what is happening in the US, rather than what is happening here. The US is making itself un-investible. That secular trend of us mechanically investing into the S&P has probably come to a bit of a close. It is all to compete for now. The US has done itself significant damage that we can benefit from. Forgive me; what was the second part of the question?
Q637 John Cooper: The second part is what involvement, if any, you have had in developing this strategy.
John Flint: We have been involved. The organisation is four years old. We have a great policy and strategy team that has largely come from Government Departments. Each of the sectors that sits behind the industrial strategy has engaged with us to seek our input. Departments have been in the driving seat. It is not for us to drive the creation of the strategy but, where we have sector expertise, it has been called upon and we have contributed.
Louis Taylor: It is very important to have overseas capital coming into the UK, but it is disproportionately important at the moment, given the paucity of domestic institutional capital, to make sure there is a suitable domestic counterbalance, in order to retain companies in the UK. They tend to gravitate to where their capital came from and, without any UK capital at a late stage on the cap table, they will gravitate elsewhere just at the point they become economically interesting.
In the context of the industrial strategy, we have been very close to the Department for Business and Trade and the Treasury, as well as other departments, particularly DSIT, DESNZ and the Department for Transport. We already invest quite heavily in all eight of the sectors broadly, so we have some expertise there.
We have given the Government an opportunity to give us more resource pretty much at the efficiency frontier of where we will be crowding money in still, rather than crowding money out. How much of that they want to do is a matter for Ministers, but we have given them options around that and around a very clear set of skills, around which we would build the interventions we are able to do.
Q638 Chair: Do you have views on this point of, for example, either mandating or driving up domestic investment through consolidation of pension funds? Do you have views on what kind of reforms might be needed to ensure that there is a domestic capital match to that overseas capital coming in?
Louis Taylor: There was discussion just a moment ago of the tax benefit that individuals get as they put money into a pension scheme. A failure to invest a proportion in the UK could cause a clawing back of that, which means that people do not have to invest. It is not mandated, but there is a consequence to it. Those sorts of interventions, while retaining the threat, perhaps, of mandation, may be the right place.
It is also about the fundamental question of risk appetite. To John’s earlier point about his liquid air example and there not being the risk appetite on something novel, I can tell you that it would be funded in the US. We really need to have more risk appetite across all our investment institutions.
Q639 Chair: Do you think then, Mr Taylor, that you have the latitude to take the kinds of risks that perhaps are going to be needed to deliver the industrial strategy?
Louis Taylor: I do. We are inherently taking a lot of risk and, as John has talked about with his economic capital model, that is a righteous amount of risk to be taking. Government organisations should be doing what only Government can. Taking those kinds of risks is part and parcel of that. It is not that we are wantonly taking risk. It is calculated. It is based on whether we think that, first, a technology works, but then whether it has commercial value and whether it is realistic to be able to realise that commercial value.
We are trying to catalyse private money alongside us and give a halo effect by putting some money in, largely on a pari passu basis, but, as John said, we have interventions that have some element of skew in order to correct market failure.
Q640 John Cooper: Mr Godfrey, I will ask the same question to you. What are your thoughts on international finance and what involvement have you had in shaping this strategy?
John Godfrey: The simple answer is that we need both domestic capital and international capital. It is a global fact that capital is mobile. If we can set our stall out in the right way, with the right incentives and the right attractions here, the international capital will flow. One of those attractions, as John Flint has already said, is that we now look like a predictable and stable place in which to make an investment.
That is a comparative analysis, but that has to be helpful. It is important that the Government retain that. Predictability and stability are really important to investors, whether they are in this country or anywhere else.
On international capital, the work that Richard Harrington did in his report is extremely powerful. Henry Kissinger had that famous question: “Who do I call if I want to speak to Europe?” You have a little bit of the same problem if you want to invest in this country.
Chair: I am not sure we have solved that problem yet.
John Godfrey: Who do you speak to? The one-stop shop, which was part of the Harrington suite of recommendations, and is, as you know, part of what I have been talking about with domestic capital, is really important in this space.
Q641 Chair: Who do you ring now, then?
John Godfrey: Who would you call in the UK? The problem is that you would ring DBT and then you may have to ring DFH; you may have to ring OFI, and so on.
Chair: We may not have wholly solved that problem.
John Godfrey: We have not wholly solved that problem, but we have a version of what the answer to that problem may be. We have to implement it. That is what we need to do.
On input to the industrial strategy, TheCityUK is a member body for the industry. We have contributed, like any other public body, in terms of responses and we have been at roundtables, but that is about it.
Q642 Chair: Kitty, do you have anything else to feed in on that?
Kitty Ussher: I am broadly of the same mind as other panellists. The Harrington review is an extremely good piece of work. International perceptions of how investible a country is are currently working in Britain’s favour, but they have not in the relatively recent past. That goes to show how important it is to have predictability, certainty and a long-term view coming from the Government. In times of geopolitical uncertainty, public policy needs to work even harder to provide that bubble within which businesses can invest.
In terms of the industrial strategy, we have offered our sectoral expertise and our expertise as an FS player.
Q643 Gregor Poynton: We have touched on some of this already. You have talked in some of your answers about how the Government maximises the crowding in of private capital. You talked about the Harrington review. One thing that said was that international peers are more strategic and better organised in attracting globally mobile investment.
First of all, do you agree with that? Secondly, beyond what you have already answered, what do you think the Government should do in order to be that more attractive place to crowd in investment?
Kitty Ussher: While I do not profess to be an expert, the Harrington review did lay out some really important recommendations about the one-stop shop, so that there is a place specifically designed to bring in FDI investment, which is resourced appropriately to be able to do that, fixing whatever questions and problems came up on a case-by-case basis. That is very important.
It is tempting to make a facetious point about how we are an international investment bank, so we can also provide advisory services, but there are private sector players there as well.
Q644 Gregor Poynton: John, you have mentioned one or two things, but is there anything further you think the Government should be doing?
John Godfrey: At the risk of being a bit of a cracked record, it is about where the investible propositions are. That applies to domestic investors, as well as international investors. Then there is a question of being properly joined up, not just between Government Departments and institutions, but across different policy areas.
If I were an international investor looking to invest, let us say, in the town plan in Wednesbury in the west midlands, I would want to know how that is developing in terms of the ability to finance and what the planning position is. If I have a winning proposition to invest in there, am I going to be caught up in some monster procurement process? How does all this come together, so that I can effect a quick transaction on a set of known variables?
Q645 Chair: Is this a mechanism that you could build out of the Office for Investment? If we are trying to fix the Godfrey gap that you have described on the panel this afternoon, is the Office for Investment the place in which you build that? Is it the British Business Bank? Is it the National Wealth Fund? Where is the locus for this?
John Godfrey: From an investor perspective, the position is probably largely agnostic about where it actually sits, providing it works. There is clearly an advantage in having a level of government sponsorship sitting behind it, whether that means it should be directly in a Government Department or in a quasigovernmental body of some sort at one remove. Either has pros and cons.
The toughest nut to crack with this is how you staff it with the appropriate people and the appropriate skills. This goes back to the fact that just trying to second people from investors has not historically worked terribly well. Staffing it with civil servants does not necessarily work, because they do not have the same skillsets. How do you tap into this quite rich and regionally diverse group of financially literate people that you have largely sitting in the big four accounting firms?
Q646 Chair: Mr Taylor, what are your views on how we do more to crowd in private investment?
Louis Taylor: There is an advantage to having a single telephone number to call. Other countries do that better, but that is to ignore some of the other advantages we have that we really do not play on enough. As an innovation ecosystem, the UK is second only to the US, Sweden and Switzerland. Relative to our economy, we are really the place for innovation.
If you are a US investor who is focused on innovation, but does not like political instability, right here is where you come to get that. We do not talk about that enough and open it up enough to investors. It is overseas investors, but domestic investors as well, that we need. The British Business Bank is a mechanism. We were already the largest investor in venture and growth equity in the UK. We are about 18% of the market.
There is a limit, in a free market economy, as to how much of this stuff the Government really should be doing. That comes back to my earlier point about risk appetite. There is a lot of slack for the private sector to be able to take up. I say “slack”, because it is phenomenal opportunity in the growth companies our universities are spawning. We are an entrepreneurial country. We have no problem setting up businesses. There were 850,000 companies registered at Companies House last year.
We are starting a lot of businesses. We are incubating them well, but we are not backing them at that scale-up stage, which is when they are getting to need institutional capital. It is not there.
Q647 Chair: Perhaps that is the moment where more crowding in needs to be happening. Is that view?
Louis Taylor: Yes, the scale-up capital.
Q648 Chair: Mr Flint, what is your view?
John Flint: OFI is the right place to be the focal point for this, because of its proximity to and relationship with DBT, which is the architect of the industrial strategy. This is so important because, when we talk about wanting foreign investment into the UK, we need to get much clearer about what we want investment into, who from and in what form. Not all investment is the same.
We are trying to get out of a situation now where we are hostage, from an energy perspective, to petrodollar states. How would we feel if, 20 years from now, they end up owning all of our offshore wind sector? We just need to get really clear about this foreign investment issue. Where do we want people to invest?
Q649 Chair: The implication of that answer is that we are not 100% clear today.
John Flint: We are not clear today, but the industrial strategy provides a foundation. The next set of questions then is, if we translate that industrial strategy into an investment strategy, where we think the gaps are and where the Government support will come from. It is not just us. It is revenue support mechanisms, CFDs, RABs, and so on. Then you can really start to get traction. The relationship management skills, navigating with sovereign wealth funds and the large foreign investors, sit outside our organisations at the moment.
Antonia Bance: Thank you, Mr Godfrey. I appreciated the reference to Wednesbury. If anyone would like to invest in Wednesbury, I would love to talk to them. We will make time immediately after this meeting.
Chair: You do not get offers like that every day, do you?
Q650 Antonia Bance: The previous panel would have said that the answer to the question of who someone should talk to about Wednesbury would be Business Growth West Midlands, the mayor’s executive agency for growing the Black Country and the wider mayoral region. Would that be your sense? Is there a role for the devolved institutions there?
John Godfrey: First of all, I have actually been around the site, so it is not a totally random example. There is certainly a big role for the devolved institutions, because they have the right level of knowledge at the ground. In my experience, having worked at the combined authority there for some time, where they struggle is to translate that into saying, “We need £70 million of equity and £100 million of debt. The cash flow is this. The risk profile is that”, at that level of detail. There is a collaboration or handing off process that has to happen at some point.
Chair: Folks, that has been incredibly helpful in helping us work out what we need to recommend for our industrial strategy report. I am incredibly grateful to you for such full and candid evidence today. That concludes this panel.