Poor management and under-investment - what's wrong with UK businesses

Foreign-owned businesses in the UK are at least 50% more productive than British owned ones. The issues home-grown businesses struggle with are low productivity, poor management and under-investment.

If we leave the EU then our own businesses are going to have to up their game, both to fill the gaps left as the foreign-owned businesses shut up shop here, and in order to compete on the world market.

What do they need to do?

Skills

Two-thirds of employers say they are suffering a skills shortage, but even so only 40% intend to recruit more skilled staff - the lowest since the first survey in 2013. 43% of young workers (18 to 34-year olds) believe that career opportunities in high-skill areas will be better overseas post-Brexit. - almost half of those are considering moving abroad to chase such jobs.

Productivity and investment

The UK's low productivity means it takes us a week to produce what our neighbours make in four days. Automation and training are the solution to the productivity gap, but investment would be needed - and isn't happening. The imminent prospect of Brexit under a weak leader, undermined by a split party, is discouraging companies from making any firm plans. It is far safer to simply employ more unskilled staff who can be shed when Brexit happens and times become harder.

The lack of investment is most obvious in manufacturing where total capital assets have fallen by £30 billion since 2012 - a 10% reduction. When compared with staffing levels this is a fall of 4% per employee. Other sectors have increased their total assets, but as they have also increased staffing they too show a reduction in investment per employee. This is not due to reduced profitability, which has remained at around 12% since 2010 and increased to 15.3% this year, instead the firms are sitting on cash piles waiting to see what happens in a few months' time.

Businesses aren't even investing their cash in other assets or stocks. Asset and share prices are so high now that they don't offer good returns, and there is also the concern that there will be a serious slump after Brexit, with asset values tumbling.

Keeping cash instead of putting it into productive investments means that the firms are not making money from it, in fact with interest rates so low the cash is losing value every year.

Overseas investors

So why are asset prices so high? Simply because interest rates all around the world are low, so overseas investors are looking for places to put their money. The large drop in sterling's value since the referendum has made UK investments look very cheap when bought in dollars or yen. This has also allowed foreign buyers to snap up assets such as property - almost all (94%) of London property sold in the last quarter was bought by overseas investors.

However, business investment in the UK by overseas companies has dropped by 9% - and far more in some industries. For example, the car industry is very exposed to Brexit risks (mainly tariffs). Investment there has dropped from £2.5 billion to around £0.7 million.

This is the wrong way round - we shouldn't be selling up our assets in some sort of national fire sale. Instead, we should be pulling in overseas investment, increasing the value of UK businesses and their profits, which will in turn increase the value of our own shares in them, the tax paid by them, the wages paid to their employees and the knock-on economic boost to their local area.

How do we convince investors that they should invest?

We need to have a coordinated business policy. This requires us to sort out Brexit right now. It would be best to stay in the single market (as Leave promised) but even a clear decision to jump off the cliff edge together with intelligent policies to deal with the fallout would be better than the current fog.

We cannot afford to lose the confidence of investors just when we are putting barriers up between ourselves and the largest market in the world.