Legislating for all businesses to be purpose-led will boost UK economy, argues think tank

Legal reform to require all businesses to become purpose-led would significantly boost the UK’s productivity and capital investment in the country, according to UK cross-party think tank Demos. 

The Purpose Dividend report, published this week, estimates that if all businesses in the UK were purpose-led it would create a £149bn boost to the UK GDP per year, an £86bn increase in capital investment, higher wages for the lowest-paid employees and greater levels of expenditure on research and development. 

Productivity growth in the UK was 40% lower than the rest of the G7 in the decade before the pandemic and has remained behind the US, Japan and the Eurozone average since. The report says, historically, countries that have been innovators in business structure have generated significantly higher levels of growth but UK policymakers have instead focused exclusively on tax cuts, deregulation or overall levels of public spending. 

With productivity a consistent concern of all major parties and the recent Autumn Statement focused on attempting to secure long-term growth, the report says: “We cannot just keep repeating the same approach we have over the past 30 years and expect different results.”

Society will benefit from “purpose dividend”

Demos’ research found purpose-led firms will invest more in their businesses than their peers, raising the quality of their products and services and increasing their productivity. Customers are likely to pay more for purpose-led businesses’ services as a consequence of their higher quality and will be more loyal given their greater confidence in their purpose.

Requiring all businesses to be purpose-led would create a “purpose dividend”, says Demos, from which society would benefit through higher levels of investment in the country’s productive capacity and more resources to spend on public services. Shareholders and businesses would benefit from faster levels of growth and the environment would benefit from a more rapid transition towards Net Zero and more sustainable business practices.

Andrew O’Brien, director of policy and impact at Demos, former director of external affairs at Social Enterprise UK, and the report author, said: “We tend to think about growth as a matter of cutting taxes or raising public spending. Our research shows that any politician that wants to have a serious plan for reviving the UK economy must have reforming corporate governance at the centre of that plan. 

“Business has constantly evolved, it is never static. Britain has often led the way pioneering reforms from limited liability to joint-stock companies, it is not unrealistic that we could do so again with purpose-led business. All we need is the political will to take the ideas forward.”

The think tank says the most effective way to realise this “purpose dividend” is through reforms to the UK Companies Act to insert purpose into the heart of directors’ duties, as proposed by the Better Business Act campaign.

It’s time for the policymakers to listen and put corporate governance reform at the top of the agenda

The Better Business Act campaign is a coalition of over 2,000 businesses campaigning for reform to the UK Companies Act to ensure company directors are legally responsible for benefitting workers, customers, communities and the environment alongside delivering profit. The campaign has cross party support and is backed by business groups such as the Institute of Directors. 

Chris Turner, campaign director of the Better Business Act and director of B Lab UK, said: “A simple change to the Companies Act could unlock investment, growth and productivity, while creating the right conditions to tackle our 21st century challenges.”

Research published by the Better Business Act in April 2023 found three quarters of the British public agree businesses should have a legal responsibility to people and planet and the campaign aims to have its proposed reforms included in all major parties’ manifestos for the 2024 UK general election. 

Turner added: “All parties in Westminster recognise the importance of updating corporate governance, acknowledging the fundamental role it plays in ensuring that businesses help to create a greener future and more equal society. We are continuing to engage with all of the main political parties to ensure that the Better Business Act’s proposals are considered as part of manifestos ahead of next year’s general election.”

Olio, an anti-waste business enabling people and businesses to share surplus, including food, clothes, tech, books, kitchenware and furniture, is a member of the Better Business Act campaign. 

Tessa Clarke, co-founder and CEO of Olio, said: “We now have 7m users spread across 60 countries, we’ve raised over £35m in funding, and our team has grown from two to over 70 employees in just seven years. However, Olio is just one business. This research demonstrates the collective impact that businesses could have on the UK economy if they all adopted stakeholder governance. It’s time for the policymakers to listen and put corporate governance reform at the top of the agenda.

Header photo: The Olio app being used to share houseplants. Photo provided by Olio.

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