The participants:

MS: Sir Martin Sorrell, founder and chief executive of WPP
LF: Lord Fink, chief executive of ISAM fund manager and Conservative Party treasurer
SG: Stephen Grabiner, former head of global media at Apax Partners;
LD: Lloyd Dorfman, founder and chief executive of Travelex
NL: Nick Leslau, chairman of Prestbury Group and director of Max Plc
DS: Daniel Seal, chief executive of UK Israel Business
KM: Karen Mattison, founder of Women like Us and Timewise
SW: Shai Weiss, founding partner of the Virgin Green Fund
BH: Brent Hoberman, co-founder of lastminute.com

Chaired by Alilister Heath,
Editor, City A.M.

AH: The purpose of this forum is to have a broad round-table discussion about some of the big economic issues that concern everyone here. Credit conditions remain an issue and there is a double dip starting to happen in the Eurozone with indicators showing contractions, and that is obviously going to affect people with operations over there.

What is happening to the UK economy?

AH: Sir Martin, what do you think the situation is in the UK at the moment? Do you think growth is starting to return?

MS: We (WPP) had a very good year last year. The company as a whole was up by five or six per cent like-for-like and the UK was up nine per cent. So it was almost like an emerging or, as people would call it, fast-growing market. But I would say it was a bit slower for us at the start of the year here but still relatively okay. But we have got some events coming up; the Olympics and the European Football Championships.

This is not an ad for the Coalition or the Conservative Party or the LibDems but I do think that on balance the government has actually done the right thing, which is to try and address the deficit, which the Americans have not done. The trouble is that it is now blowing back on them. I worry about the government not having a plan.

AH: Not having a growth plan?

MS: Yes. They have done the hard stuff on the costs - they have reduced the rate of increase of cost, certainly in nominal terms, but they haven't really come up with a growth plan. Post-Budget it has been pretty tough for them, either because of their own design or through making mistakes. I think it was a mistake to lower the rate of tax at this particular point in time. And the way they released the Budget - they told everybody else what they were going to say.

AH: They told us everything apart from the things that then blew up in their face.

AH: Nick, what is your take on the current state of the UK economy? Are we coming out of some of the problems or are credit conditions still very bad because of new regulations?

NL: I think that is the issue. The lack of bank debt is starving the economy because it is the oil that keeps the motor running. There is still this lack of ability for SMEs to borrow money to expand their businesses. You can't persuade or force the banks to lend money but what you can do is put the brakes on the regulators a little bit and say: "For goodness sake regulate, that is fine, but don't regulate during the worst time in an economic recovery. Delay it until we are on an upward stretch." So I do think that the lack of bank debt is the issue, and not just in relation to property because property is a function of occupational demand and occupational demand is a function of many things including not even the cost of debts but the availability of debt. Real estate falls into two categories: the prime, which means you don't need bank borrowing to buy it so it is sovereign wealth. It is institutional. It is high net worth and that market is steaming but it is a very narrow-defined market and principally London-based. And then there is the rest for which there is no transparency. There is no transactional evidence and the biggest owner of real estate in the country is the banks.

AH: Do you mean by default?

NL: Exactly. Property is a very loose industry. It isn't really an industry at all because it is just an asset class and it is going to take a very, very long time to recover.

AH: I suppose one of the fundamental questions, which is a bit hidden because no one wants to talk about it, is how massive is the property as controlled by banks implicitly or explicitly and what is the real state therefore of banking balance sheets? What is the genuine state of things market-to-market, rather than everyone pretending that things are better than they are?

NL: The problem with lack of transparency is that there is no market-to-market because you don't know what the market is and no one really wants to try it.

AH: Lord Fink, what is your take on things from a more financial perspective?

LF: I think dealing with the deficit wasn't an option. The scale of the deficit was mind blowing. The government was borrowing £1 in every £4 it was spending so our actual financial situation was worse than Greece's. So if action hadn't been taken, Britain's credit rating would have plummeted. It was only the credibility and the fact that the Coalition or the Tories were ahead in the polls that kept Britain's credit rating where it was. I actually also agree with a lot of the comments that were made by Nick about bank lending being very important, and probably one of the best things one could do is to stop the new onslaught of legislation on banks, because the truth is although they are telling the government that they are lending to SMEs, I think they are doing less than they are saying. Getting credit moving is very important. Credit easing should help but it affects the price of credit more than the availability. I think it is actually the availability of credit that is the issue.

AH: But the new rules are pretty crazy when it comes to things like how much capital you have got to put aside for SME lending. Incidentally it is quite clear that what I think is another recession in the Eurozone has been clearly caused by massive retrenchments of banking balance sheets.

MS: It is the big political issue. The big thing that is going to govern the airwaves is that the Americans haven't pursued an austerity approach - or the Northern European or Western European approach of austerity. The problem is that the Americans will not deal with the problem. They kick the can down the road. They haven't done Simpson-Bowles (deficit reduction commission). The President decommissioned Simpson-Bowles and then ignored it completely and didn't even enter into a dialogue about it. So the issue for the Americans, and what really worries me, is not what we are going through now. It is what happens in 2013 because the Americans will have to deal with their deficit. That is when I think their chickens will come home to roost.

AH: Karen, what is your take on the state of play in the UK more generally?

KM: I can speak as an owner of a small business and we do business-to business recruitment. On a grass roots level we are finding that we are recruiting for small businesses who have, over the past few years, been really nervous about taking on new people but are more recently they are feeling more confident to grow.

AH: Are most of the operations UK-centric rather than global?

KM: Yes. We are completely UK-centric.

AH: Do you feel there is some growth now in London?

KM: Our particular area is part-time recruitment and we are finding that more and more businesses are turning to part-time because they are understanding that they can get the skills and experience they need to grow the business but not necessarily on a full-time basis.

AH: So that is almost saying that actually things aren't that great out there and they have got to be more careful and they can't hire people full-time?

KM: No. What they are saying is they would rather get part-time senior people and people with experience to help them grow than make more cautious decisions and keep junior people.

Is now a good time to be an entrepreneur?

AH: Brent, from an entrepreneurial perspective, how are business conditions in the UK at the moment?

BH: Well, when you talk about entrepreneurs it is such a micro-world, particularly in the digital space, so I am not sure how reflective it is of the whole economy, but obviously it is a very buoyant time for entrepreneurs. Valuations are very hot. We are getting back to the point where taxi drivers are talking to you about business ideas, which is very 2000. Because of the unpopularity of banking and finance, more and more people are looking at entrepreneurship as a career choice.

AH: I suppose the taxi drivers aren't talking about property any more. That is probably quite a good thing.

Why is there no uk facebook?

AH: What do people in the room think is the real state of play when it comes to entrepreneurial Britain and Tech City? Daniel, why aren't there any UK Facebooks? There is clearly a lot going on in parts of London in the new areas but there seems to be some problem when it comes to growing businesses to a major global size.

DS: I think entreprenurial Britain has to evolve. If you look at Silicon Valley or Israel, the tech landscape has evolved over time. You can't think: "Okay, we are going to create digital roundabouts" and expect everything to happen immediately. Certainly I see that people among my generation don't see banking and management consulting as a way forward. I think the government needs to to encourage entrepreneurship and not just say: "We are going to create a digital Britain" but provide the right frameworks, such as going back to the education system and teaching coding in schools. It is also access to capital. You do need quite a bit of capital to start a business now.

AH: But clearly there is a lot of business creation in the UK but only seven per cent or so of these become gazelles and then how many becomes genuine major global brands?

BH: Scale is obviously a big issue.

AH:: In the sense that the UK market is too small?

BH: One obvious point is a single pan-European digital market, which is something that the EU are trying to work on. It should be very easy to create pan-European digital success stories but I don't think there is the conviction among the UK government to do it. There are some EU conferences on this but it is just talking at the moment. One example is MoneySupermarket. Why is it not pan-European? It is a great British success story but it is not a pan-European one. It should be.

AH: But why does it need to be pan-European rather than global?

BH: It is still early for Brazil and India. You want to win in Brazil in the internet in five years time. Today it is still not big enough. It is the same with India. It is exciting and buzzy but there are only a few billion-dollar companies in the internet space in those markets.

AH: What about the UK?

BH: I think it is a bigger issue than the government wants to accept. Does it matter that every company I can think of that is doing well in the internet is becoming American? Yes it does.

I would like to see the government help UK success stories become pan-European very quickly, before they are copied.

SM: But what is it about America that does it? What is it that we need to do? We have got Silicon Fen around Cambridge University but what else is it that we have to do?

BH: The businesses that are getting huge valuations are platform businesses and the platform businesses start where there is scale. The other point is that the skills we have got here are packaging skills: creativity and user interface, and user interface in the web business is now the new gold dust so why is it that we are not able to leverage those user-interface skills into more global businesses? I think there are barriers.

AH: But what strikes me as quite interesting about all of this is that you have got existing companies that seem to have become very good technology companies, but the difficulty is creating new ones.

BH: We have some. Betfair, which succeeded because of regulatory arbitrage. A big point is that people sell out too early. SecondMarket lets you create a private market for shares so it stops you having to go public to de-risk things, and I don't why Barry Silbert, who runs SecondMarket, hasn't come over here. VCs are also changing their attitude. In America the venture capitalists are happier for the entrepreneurs to take money off the table as they scale.

AH: What about VCs in the UK?

BH: There is a more relaxed attitude - that the entrepreneur will still remain motivated even if he has taken 10 per cent of his stake off the table. From the entrepreneur's point of view that is pretty essential because if you put your whole life in one basket you need to hedge your risks.

What should government be doing?

AH: Lord Fink, what do you think is the solution in terms of policy changes?

LF: I don't think there is a single silver bullet. There are certain things that government can do well. First of all, focusing on education. It is important that we turn out kids from primary school who are literate and numerate. Then we have got to get the kids used to technology in school - and technology used smartly. Also improving digital broadband speeds throughout Britain. Government has announced major investment in improving broadband speeds, which will mean that most people do have access to better broadband which gets them used to the power of the internet. But then there is the question of whether to encourage companies to grow without trying to pick winners, which is a mistake made by the previous governments. Do you actually just try and reduce some of the barriers to businesses expanding? This is something I think you should do selectively. I think we need to help companies to move from Britain to Europe.

AH: But why is Europe the answer in this instance?

LF: I think if you are having to travel and move people physically, Europe is just much closer geographically so people can get on a plane, go to Europe and back in the same day. Now with the demise of Concord, if you are going to the States, it does involve a two or three day trip for a face-to-face meeting. And face-to-face meetings are still required. Video conferencing has replaced a lot of meetings but if you are meeting a stranger for the first time it is normal to have a physical meeting.

MS: And hasn't the UK become rather imbalanced? The economy is heavily dependent on financial services. I am not saying it is a bad thing. I am not saying it should be discouraged. It should be stimulated if anything. But it is imbalanced geographically. We are sitting here in the middle of London but go a few miles outside of London and it is a totally different picture. You mentioned education. It is about technology and infrastructure. It is about broadband. It is not just the hardware. It is not just about airports and runways. It is about immigration policy. It is about taxation policy. I find the argument about whether it should be 50 or 45 per cent of complete irrelevance. If you want to stimulate the entrepreneurial industry you are not going to do it by income tax. You do it by Capital Gains Tax.

AH: But why can't there be a really radical change?

MS: You are in the newspaper industry. If you have got a legacy newspaper business and you are trying to compete with new young internet companies which are judged on totally different criteria, it is very difficult - you have these structures. Mario Monti tries to introduce reform of the labour laws in Italy and gets blocked. In Spain it is a struggle to do what they are doing. In Holland they try and make some changes and get turfed out. So it is very difficult to change these structures. It is the same thing for companies and it is the same thing for countries.

SG: In terms of entrepreneurship there might be something happening. If you talk to the young people, particularly the well-educated ones, you begin to get a sense that they are going to take things into their own hands, and actually they are looking around saying: "What you guys benefited from over the past 10 years is not going to happen any more. We recognise that. We recognise that there aren't necessarily jobs for life. Actually we don't even particularly want to be lawyers because in 10 years time we will work out that it is no fun being a lawyer." There are the beginnings of the re-engineering of an entrepreneurial culture. Young people are beginning to say: "I want to go and do this myself because that is the only option I have".

NL: But you need a framework for that to happen and I think whether it is the TMT sector (telecommunications, media and technology) or any other sector, as a country we are very very short-termist. Whether it is VC, equity or institutional equity, it is unbelievably short-term and we do nothing politically to encourage long-term investment. The politicians can't do very much but they can change the framework. I wish George Osborne had stayed in bed on Budget day because he has done so much damage to the Conservative Party that he should have done nothing. But "rich" is now a horrendously sinister word. There is "uber-rich" and "rich" and it is all about "rich" and how much money people have got and "aren't they morally repugnant?" The fact is, rich should be celebrated. Wealth creation should be celebrated and we are in a society now where it is the opposite.

MS: I don't think that is entirely fair. The criticism is heavily on payment for failure, which I think we would all be sympathetic with. In terms of criticism of payment for success, I would agree with you. I am not going to apologise that WPP had a record year last year and neither should I. The issue was the bad bankers and the banker-bashing and that has since migrated. The real problem lies with this movement towards capping absolute levels.

NL: It was the Labour government that introduced taper relief. It actually was one of the clever things they did. If you invest for 10 years you pay 10 per cent tax and actually, we need far more of that. We need far more encouragement. Instead the vernacular surrounding the rich and wealth creation has made it something that is not good to aspire to, whereas we should be investing in employment, trade and TMT.

MS: But you have got to have some sympathy with that argument. The tax payer bails out the banks and becomes the owners and we are pumping more money in and profits are being inflated and any mug can do it. They are not doing the SME investments that we want them to do. They are not providing the liquid engineering for internet companies or SMEs. I have some sympathy with the argument.

NL: What is the argument?

MS: The argument is that you have to do something about rewards and returns for failure.

NL: I am talking about wealth creation outside of the public arena, outside of the state-owned banks. All of us around this table who have some money to invest, we either want to invest it or give it away. Certainly giving away is now being challenged. So we want to invest, so encourage us to invest.

MS: But I am talking about your thinking that rich is bad. There is a variation of that argument. In terms of the argument that we got ourselves into the problem with the banks, something should be done about that. Payment for failure is wrong. I am talking about the payment for success where I agree with you.

SG: Nick, it is really interesting because you set out a set of really Jewish values. You set out values that say the market is okay but actually you want to encourage it to work and this is the best way to generate wealth creation. But actually the State and the people around the table have a responsibility to ensure that some of that success goes back in to support other people in doing it and it requires us not to be continually looking over our shoulder saying: "This is what happened with Lehman." It actually requires us to demand some sort of sensible long-term planning. I am sure the success that is coming from WPP now come out of things that you (WPP) were doing four and five years ago and our government doesn't seem to be able to take that in.

AH: Lloyd, what is your take on entrepreneurial Britain?

LD: I think Stephen is right. I think this climate is actually conducive to entrepreneurial desire and growth because the safe options are no longer there. I don't think there are comfortable jobs any more. I think young people have a problem: whether they go to university or don't go to university, how are they going to earn a living? You get a sense that young people think about these things more and more. People have been saying that Europe is important. I have to tell you, I found Europe really difficult to build businesses in. It was easier to build business in the US, Australia and the Middle East than it was in Europe. I don't know if anybody has ever employed people in Europe. You have got to put your bullet-proof underwear on and just hope and pray that you get through it. It really is tough. Philosophically I think we lean more to the United States. Wasn't it a Brit who invented the world wide web? What happened to that? Wasn't it a Brit who designed the iPod? What happened to that? We have been a seafaring trading nation. We have always punched above our weight. We have built enormous global businesses in the past. Why are we sitting here like little worried Englanders. To Nick's point, I think he is absolutely right. Would any half-talented, reasonably clever person want to take on a job heading up a bank today? What would you want that for? We need to stimulate entrepreneurship, celebrate success and encourage people to invest. Austerity in the short-term is important but like any business you can only go so far cutting costs. At some point you have to grow the top line and as a country we have got to find a way to do that. The banks have made a complete mess of the situation. And now they are so busy shrinking their balance sheets and screwing their remaining solvent customers to get themselves out of it that we are not seeing the SME lending that we need to achieve for growth.

BH: There are actually quite a lot of things the government are doing, which smart people who follow this stuff don't know about. What puzzles me is that for a country that is skilled at packaging stuff, why is the government lacking a coherent narrative?

AH: Also, I would say the austerity narrative is actually harder than people understand because the government is constantly saying they are paying down the debt and they are not paying down the debt. Theirs is increasing at a very fast rate. They are only slightly reducing the deficit and the massive cuts aren't that massive, meaning that we might still be in another fiscal crisis one or two years down the line.

MS: Nominal spending has increased.

AH: And if growth doesn't materialise in two or three more quarters then all of the deficit numbers would be up again and the whole thing will have to change again. So I think that is much more precarious than people realise, but this growth narrative is a major problem.

LF: I want to talk about the argument that is used about communicating the narrative. To be honest I expected a slump in the government's poll rating to happen a year ago but actually at that point Cameron and the cabinet were playing a pretty good game and didn't make many mistakes and Labour were scoring a few own goals. So the slump in my view was always going to come at the end of the honeymoon period. The honeymoon lasted a bit longer than I expected. One of the reasons we have for not getting our policy across is that traditionally, the government was one of the biggest advertisers in the UK and one of the biggest areas of cuts that has been made is advertising.

MS: But is was their own choice.

LF: It was but it was a large sum of money. It was an easy save.

MS: But it is not a communications point. It is a planning point, a strategy.

LF: Spending money on communications and advertising is one way you can guarantee to get your message across but this budget was cut. We also face a press that is being hit by a Leveson Inquiry and will be pretty grumpy for the next year or so because the inquiry is going to drag on. So I think that whatever the message is, it is actually quite difficult to get it across unless you pay for it. So I do think the government has a general communications issue because it can't pay for it. It isn't paying for the advertising and it can't rely on the goodwill of the press in the short-term while the press is reeling from Leveson.

MS: So it is all the media's fault...

LF: I didn't say that.

MS: You sound like one of our clients when they get into trouble: "It is all the media's fault."

LF: I didn't say it was the media's fault. I was just trying to explain the practicalities of life. I don't think the press and media barons are enjoying being hauled in front of the courts. That is not a nice experience for them. I am being pragmatic.

SW: I have been in the UK for over 15 years and I find it odd that the discussion on growth is really being pushed back to the government. In the US, Facebook doesn't sit around discussing government policy. I am very cynical about government policy to really move the growth narrative. People are changing their outlook on failure, willing to take on risks and bear the consequences. There are some very good UK businesses which the UK can do more of. The signals are clear but it is not the government that is really going to make it happen. It is the people who are going to make it happen.

MS: But didn't people criticise Obama? Less so as we get towards the election but didn't they criticise Obama very heavily in the first two or three years for his lack of policy? Having been pro-Obama broadly, even the East-Coast Jewish democrats who voted for him changed their mind.

With all due respect Stanley, I don't think you can blame Leveson. I mean, it may not help but the fundamental thing is a strategic issue. When you speak to the Chancellor for example, he says events have prevented them from dealing with the basic strategic issues, one of which you highlighted which is education. And it is infrastructure and it is technology and it is apple pie and motherhood.

NL: Going back to my point about short-termism, we treat a trader who makes £100 million on a trade the same way as we treat an investor who invests for 10 years, creating jobs and wealth, and to me there is something inherently wrong with that.

Making that sort of wealth is not a crime but you should pay 80 per cent tax on a short-term trade and pay no tax on a 10-year wealth employment-creating investment. So I don't think governments can change markets but they can change frameworks within which markets can become more productive. I think our emphasis is wrong. I am a Conservative but I do think there is a kind of blind spot about things like that.

LF: The problem is that we live in a global market so if you applied 80 per cent to short-term trade profit globally, then it may or may not have the desired effect but if we apply it unilaterally in Britain, as we have tried to apply other rules, it simply means that our hedge-fund community will disappear to Geneva. I do think that the 45 per cent help sets a tone about going below the 50 per cent barrier that does appeal to people. I know people who have divorced wives and if they get away with paying the wife 40 per cent they feel they have done okay but if they have to pay 50 per cent they feel they have been screwed. It is just a psychological thing.

Where are the growth markets?

AH: Martin, as someone who is making worldwide asset allocation decisions, where are you putting your resources?

MS: WPP's asset allocation is in new markets - the BRICs (Brazil, Russia, India and China) and the Next 11 (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea and Vietnam). It is new media and digital. I was in Russia over the weekend and despite all the corruption issues, I am very bullish about Russia. I was in Brazil and Argentina a few weeks ago. It is very strong. Argentina is going to run into trouble but it is still very strong. So all those markets, that is where we are investing. That is where we are growing. America is in the twilight zone a bit because we have to wait and see what happens next year. American numbers have been better in the past few months. People running international companies have to take a more longer-term view than politicians.

SG: Lloyd, do you have the same view?

LD: I endorse what Martin is saying. I think the UK has been a little bit harder this year than it was last year. The US has been good for us so we are seeing growth there. We made a poor acquisition in Brazil. We are investing in China. We are looking at India. The Middle East, actually for all the unsettled things there, has been good for us. We watch the euro with great interest. I suppose you have got to be careful what you wish for but there will be lots more currencies again.

AH: You may well see at least one or two over the next couple of years.

LD: You may see one or two. I think we have got to understand that there is a problem with the "one size fits all" notion of the euro.

AH: Are you exposed to the Eurozone yourself?

LD: We have got important businesses in Europe. Continental Europe is not as big a part of our business as the UK is. But for us we are investing further afield. Asia, Brazil, the Middle East are important territories for us.

MS: I can't think of a chief executive that we deal with who is bullish and wants to invest in capacity in Western Europe. It is simply the reverse. I can't think of a chief executive who hasn't said what Lloyd just said and isn't willing to put money into the BRICs, Next 11 and the new G8, or however you describe it.

LD: Why would you?

NL: Absolutely, and I can't think of a private equity limited partner or a fund of private equity that isn't saying: "We are not interested in Europe any more. We don't want to put money in Europe. We want to put it elsewhere."

MS: But there is a contrary view which is that Western Europe is big - you have got five economies which are $2 or £3 trillion dollars each. Add them all up. When I was in Brazil I met with Jorge Lemann (co-founder of 3G Capital) and he always takes a contrary view. He bought Brahma in Brazil when Brazil was in the pits and when Brahma was in the pits. He bought Burger King, again, contrarian, and they are involved in the financing of Coty for Avon, again, a company that is out of favour. So he always goes on contrarian views, so there is something there.

AH: But the other contrarian view of course is that there may be some problems with China, for example a re-credit bubble or re mis-allocation of resources. You don't agree?

MS: Soft landing.

AH: I am just saying that is a contrarian view which is linked in a way, being the pole opposite of the Eurozone discussion. Shai, what is your take on all of this? Obviously you are in a growth area?

SW: Yes. We are in a growth area - in renewable energy and resource efficiency. I must say that in Western Europe and the US, it is receding dramatically and the capital doesn't want to go there any more. There is a sense that in a recessionary environment or just difficulties, governments will change their opinion, even retrospectively, which they have done and this causes alarm for investors who want stable frameworks. In terms of the emerging markets, you cannot stop finding money for emerging markets. We have just found a big pool of capital in Russia. Russia wants to change its economy. It is the worst economy in terms of efficiency of energy and resources. They will put a lot of money into this area because they have it and they want Western expertise. For us that is kind of the conundrum - Western-focused teams that need to migrate very quickly East, the broader East being the BRICs and the Next 11 and so forth, so it is a very interesting period which is not easy for our type of business.

What do you want for growth?

Brent Hoberman: The EU helping businesses to expand.

Nick Leslau: A major government initiative supporting long-term investment for job creation.

Stephen Grabiner: A venture fund that gives young people very small amounts of money to go out and try and fail if they needed to.

Karen Mattison: Sponsorship, rather than mentoring, from the kind of people around this table, to help create a sense entrepreneurship

Shai Weiss: A tax regime that benefits long-term investments.

Lord Dorfman: SME lending.

Sir Martin Sorrell: A plan.

Lord Fink: SME lending.

Daniel Seal: Getting government initiatives actually to people, and not just as tokens