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The CBI's reaction to Stephen Carter's Digital Britain report was predictable but disappointing. It focused on the parlous state of Government finances, and concluded as a consequence that "no new money should be thrown at the Digital Britain project".
It's easy to see where the author of the statement, deputy director-general John Cridland, is coming from, but it has to be wrong. One of the reasons we have such Third-World crumbling infrastructure in this country is that every time Government runs out of money, it cuts infrastructure spending - with no regard to the future. It is disappointing that the CBI should encourage it.
We have to save more and invest more to rebalance the economy, and that requires making sacrifices so we can afford the things which matter. We have to recognise that while we are fond of looking down on the French, the truth is that their productivity growth is significantly better than ours and has been for years, and one of the reasons is that they have better infrastructure. Digital Britain offers a plan that would modernise the economy and could encourage the creative industries which are one of our strengths. But we have to get on with it. If we don't put the right platforms in place, the Americans will clean up, and that would be more than just a pity.
One can argue with details in Lord Carter's report, and many no doubt will. But the concern we should all have is that nothing will come of it. So often in our past, intelligent far-sighted blueprints for change have been produced, but then nothing happens. There's hot air from the Government and from the private sector but nobody actually does anything and the opportunity passes.
So again the CBI's comment is unhelpful when it says Government "should put in place the right conditions" but should then get out of the way and leave the private sector to get on with it. It would be helpful to know what it thinks those "right conditions" are, because the reality is that in industry after industry where initially the UK had a head start, the private sector has failed to pick up the ball despite the Government keeping out of the way.
Our stock-market structure does not often support this kind of longer-term investment where the returns are uncertain and may take a years to come through. Neither do our pay structures, which give executives incentive plans where long term is defined as three years. And if that were not challenge enough on those few occasions when a British company does secure world leadership in an advanced technology, the City cannot wait to sell it out to the Americans.
What we need is to develop an intelligent relationship between Government and industry to the benefit of the country at large.
Digital Britain was a step in this direction. It is depressing that this appears to have been misunderstood.
Mid-caps get ready to charge
The comment here yesterday that the nature of rights issues was changing — with the emphasis beginning to move from rescue rights issues designed to keep a company afloat to opportunistic rights issues designed to give them the opportunity to expand — is highlighted again today, but with an added twist. Whereas so much of the earlier rescue funding was directed towards the undeserving large — the banks and other financial institutions — the expansionary capital is flowing into the small and mid-cap sectors.
The message from previous recessions is that small and mid-cap companies generally do better — provided they can maintain access to funds. Large companies basically grow in line with the economy, which is one reason it is so absurd to give their chief executives such vast incentive packages, given there is virtually nothing they can do to buck the trends. Small and mid-cap companies in contrast have the flexibility and fleetness of foot to chase the opportunities which always exist and the fact some of them are now getting the firepower to do so is an encouraging and convincing sign of returning confidence.
This morning KBC Peel Hunt successfully got away its third such funding in three weeks with £33 million of new equity capital for Holidaybreak, where the proceeds will go to expanding its educational division. That follows £11 million for Goals soccer centres to finance the rollout of five-a-side football pitches, and £100 million late last month for Speedy Hire, which though used to cut debt was not a rescue.
The interesting footnote to all this is that it was KBC Peel Hunt that raised the money — interesting because its Belgian banking parent KBC has got caught up in the banking crisis thanks to overtly convincing American investment bankers stuffing it full of toxic assets. KBC's troubles have cast a shadow over Peel Hunt so it is good to see the firm still open for business.
