Financing Investment: Reforming finance markets for the long-term
The IPPR Commission on Economic Justice is a landmark initiative to rethink economic policy for post-Brexit Britain. Launched in November 2016, it brings together leading figures from across society – from business and trade unions, civil society organisations and academia – to examine the challenges facing the UK economy and make practical recommendations for reform.
The Commission publishes discussion papers to contribute to debate on issues of major importance. This one is focused on the relationship between the finance sector and business investment. It covers the role of finance in providing both capital and stewardship for businesses seeking to generate long-term economic value. Reforming financial markets is key to upgrading the UK to a high-investment, high-productivity and high-paying economy. Working alongside industrial policy, corporate governance reform and macroeconomic strategy, financial intermediation can shape both the supply of and the demand for investment.
The Commission’s deliberations have been assisted by submissions received in response to our call for evidence, and consultation with experts and stakeholders in the field. Research has led us to three key propositions, which we put forward for debate:
- The profitability of the UK’s finance sector rests in part on a failure to pass on the benefits of its rising productivity to the rest of the domestic economy.
- Raising SME investment requires shifting the focus of bank lending to small, high-growth firms, and the development of new specialist banks.
- Promoting longer-term corporate investment requires a stronger alignment of the incentives of companies with the savers who ultimately own their shares.