Long Read  

What's stopping the UK economy from growing?

What's stopping the UK economy from growing?

Economic growth drives wellbeing. It puts more money in the consumer’s pocket and drives increased tax revenues for the government – which can then fund more housing, education, healthcare and infrastructure.

But growth in the UK has stagnated, despite a 40 per cent depreciation in the British pound against major currencies. The UK is the only G7 economy to remain at pre-pandemic levels. 

I have spent the past 25 years running the Aquamarine Fund – an investment partnership with a global mandate. My work has given me some insight into what it takes to deliver wealth and prosperity. 

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When I started that journey, like Liz Truss I was a big fan of Margaret Thatcher and thinkers like Milton Friedman, Adam Smith and Robert Nozick. I also thought tax cuts, small government and free markets would take care of most economic problems. That somehow Adam Smith’s invisible hand would take over, and all would be well. 

The approach worked in the Thatcher era. But it won’t today. 

Investing in the future

These days, it is not the low-tax, small-government countries that are the best places to find long-term growth, wealth and prosperity. Rather, they are to be found in places where there is a mindset that invests in the future – creating the infrastructure for growth

When it comes to corporations that create long-term wealth, I focus on companies like Amazon and Costco in the United States; Nestlé, Schindler or Roche in Switzerland; or Novo-Nordisk in Denmark and Ikea in Sweden. These companies reinvest a large proportion of their current income – not just in new technologies but in their supply chains, their distribution networks, their local communities and even in their consumers. 

Their countries of origin – the USA, Switzerland, Denmark or Sweden – are not predominantly low-tax. They are all stable social democracies, where the government has a healthy share of the economy and there is a high degree of trust between the government and the population. Their citizens are willing to carry a high tax burden, because it comes back in healthcare, education, infrastructure, social security and quality of life. 

Jeff Bezos, for example, has said that “if you are long-term oriented, customer interests and shareholder interests are aligned”. Why would it not be the same for a government and its citizens? Elsewhere he stated that he supported Joe Biden’s plan for an increase in the tax rate, stating: “We support the Biden administration’s focus on making bold investments in American infrastructure.”  

Switzerland – which is where I live and where my business is based – is not a particularly low-tax place. Income taxes here amount to around 50 per cent for most people. But it is a great place to invest because the taxes are efficiently recycled into government services that enable the economy to function well.

I have an American friend who has to pay taxes in both the US and Switzerland. He told me how he always sought to reduce the amount he paid to the US and increase the amount going to Switzerland, because in Switzerland he knew and trusted where the money was spent and that it was coming back to him.