Comment

With trouble ahead, the City must find its old genius

Almost across the board, the FTSE 100 is short on innovation.

LSE

Acceleration is one of the great themes of the pandemic. Trends that were already in motion are speeding up, usually on tracks laid by technology. Most obviously, high street is declining faster and online shopping is growing ahead of schedule.

The next thing to accelerate, sadly, is likely to be the rate of job losses. The end of the furlough scheme on Saturday will inevitably mean mass redundancies, regardless of the lesser and shifting support structures put in place by Rishi Sunak, the Chancellor.

There are yet rougher weeks and months ahead. Unemployment forecasts for next year are creeping up. The likelihood of surpassing the financial crisis peak of 8.5pc becomes greater the longer the second wave restrictions are in place. Citigroup is currently predicting 8.3pc by the middle of next year, compared with 4.5pc at the last official count.

There is little good news and a clear-eyed look at corporate Britain makes it hard to see where the recovery will emerge.

The end of the furlough scheme on Saturday will inevitably mean mass redundancies, regardless of the lesser and shifting support structures put in place by Rishi Sunak.

The country’s biggest companies are an increasingly challenged bunch that look short of ideas to address the forces shaping the world.

BP and Shell face among the most difficult tasks as they attempt to move away from fossil fuels. It is not impossible, as the likes of Denmark’s Orsted have shown, but BP and Shell must hope they have not left it too late and have the guts to be even more bold.

Almost across the board, the FTSE 100 is short on innovation. Too many blue chips are holding companies for far-flung holes in the ground. Big banks’ attempts to reinvent the wheel in finance ended in the complete disaster of 2008.

Utilities can’t be expected to be sources of new, real growth and jobs, and nor can real estate companies. FTSE 100 retailers are a small and dwindling group. Insurance is not exactly dynamic. The whole superstructure is overseen by directors and fund managers who before the pandemic all went to the same parties and share similarly lazy attitudes to risk and investment.

It is a dismal characteristic of Britain’s big companies that they do not make big bets unless forced to by regulators or other outsiders. Dividends are instead overpaid and investment delayed until more innovative competition arrives that will be the next board’s problem.

These are all harsh and grossly sweeping generalisations but with a purpose. Over the coming months business leaders will doubtless be appealing for help from taxpayers on many fronts. They should be listened to but with a sceptical ear. The record shows that the new jobs and businesses that will get Britain out of the crisis it faces are unlikely to be created by constituents of the FTSE 100.

The City instead has a chance to help by restoring its traditional purpose: connecting capital to new ideas. The London stock market’s failure as a host for technology companies shows that this is a role that has been forgotten.

Yet Britain has strength in genuine growth industries including biosciences, clean energy and especially the creative industries. Some people who find themselves out of work in the coming months will have big ideas that will create jobs and deserve real backing. Good luck to them.

5G or not 5G, that is the question

Remember Huawei? Telecoms equipment. Chinese. Tough to pronounce. Massive geopolitical dust-up over spying, trade and technological hegemony in the 21st century? That’s the one.

The suddenly urgent source of concern over Huawei was, of course, its leadership in equipment for the latest generation of mobile communications networks, known as 5G, which were about to be installed.

The Chinese government and its national champion fought hard to avoid being shut out of the UK market, including with allegations that Britain was at risk of being left behind in some great technological revolution sparked by 5G. Delays to the rollout would cost £18bn in lost GDP growth, according to consultants funded by Huawei. Another report, partly funded by the mobile industry’s trade organisation, put the figure at £41bn.

Regular readers of this column will know that even before the pandemic shut tens of millions away in their homes on Wi-Fi for months on end, there were always strong reasons to doubt this.

Above all else, 5G offers a boost to the capacity of mobile networks so smartphone users can keep watching more and more sport, or whatever they want, in increasingly high definition, on the move.

Ren Zhengfei, founder and chief executive officer of Huawei Technologies

The experience of using a 5G handset will not be especially different, but the need to avoid a capacity crunch gives operators an extra incentive to encourage upgrades.

Exotic ideas for new applications – mass uptake of virtual and augmented reality, driverless cars, remote surgery, smart cities, ubiquitous automation, and so on – are wildly exaggerated or do not require 5G, or both.

With Huawei’s battle fought and close to lost in Britain, it is pleasing to note that the company’s founder, Ren Zhengfei, seems to have come around to this way of thinking.

“Human societies do not have an urgent need for 5G,” he said, according to Voice of America, in a report on 5G disillusionment in China itself. “What people need now is broadband.”

True, it’s not quite a Gerald Ratner moment. However, if the man making the kit doesn’t believe there’s any rush to buy it, as the Huawei debate enters its final stages we should probably believe him rather than those paid to make claims about the supposed impact of a slower 5G rollout.