Multinationals feel spurned by government

Multinationals like BP account for 38% of UK industrial jobs

Those who run our biggest multinational companies tell me they've been badly let down by government.

So the prime minister may be feeling a bit bruised a little later today - when he chairs a meeting of his Business Advisory Group - if they say to him directly the kind of things they've been saying to me about him and his colleagues (I assume they'll show deference for his office and tone it down).

If you ask them why they are so grumpy with the coalition (and I've spoken to about a dozen business leaders from all sectors over the past few days), you normally get a version of "where do we begin?"

That's followed by a diatribe about how difficult it is retain talent in the UK when the top rate of income tax is 50%, and a moan that the government's immigration policy makes it a nightmare getting UK visas for their foreign executives (some would give them only a B+ for logical consistency here - on the one hand no one wants to work here because of the tax, they say, on the other they can't get the talent into the country).

The bankers of course are still in agonies about how reform and taxation of the banks is probably tougher here than anywhere else.

But the lightning rod for pretty much all their unhappiness right now is their perception that ministers helped to whip up popular and media anger against the bonus awarded to Stephen Hester - and exposed the chief executive of Royal Bank of Scotland to a campaign of personal vilification.

Putting to one side the issue of whether top bankers in general are paid too much, they see Mr Hester as someone appointed to do a tough important job on a particular basis who fulfilled the terms of his contract - and who should have been able to count upon the government for tacit support, rather than the implicit criticism he received from ministers for his remuneration arrangements.

"It was disgusting how the government treated him [Stephen Hester]" is how one business leader put it to me - and he's not alone in seeing Mr Hester as something of a martyr, representing what could happen to all of them if what they see as hysterical popular antagonism to executive rewards isn't contained.

As for the removal of Fred Goodwin's knighthood, many bosses would agree that he didn't deserve it in the first place - but they view its peremptory removal as dangerous capitulation to the baying mob.

To put it in simple terms, those who run our biggest companies feel unloved - especially by the Tory majority element in the government whom they assumed would be on their side.

They see the row over Mr Hester's bonus as symbolising a lack of understanding of multinationals by ministers, which they believe borders on hostility. And government policy to revive and rebalance the British economy is perceived to be unambiguously in favour of small businesses and indifferent at best to the needs of the biggest most international businesses.

"So what?" you may say, arguing that a bit of belt-tightening by top executives wouldn't be such a terrible or inappropriate thing at a time when most British people are enduring the severest squeeze on living standard for at least 60 years.

Well there is something of a British dilemma here, to rework the phrase used by George Osborne when describing the need to make banks safer, without undermining their ability to create sustainable wealth for the UK.

The UK economy is peculiarly dependent on multinationals: they may represent less than 2% of British companies by number, but they are responsible for 38% of industrial employment, 23% of service sector employment and four fifths of all expenditure on research and development (see "From Austerity to Prosperity" by the consultants McKinsey).

What's more the UK is home to half of all multinationals headquartered in Europe - not by accident but by the explicit design of previous governments.

Many would argue that the UK needs to become more like Germany, with an economy powered by indigenous medium size manufacturers and service companies.

But, as I've mentioned here a boring number of times, transforming our economy from one driven by consumer spending and financial services, with multinationals playing a particularly important role, to one powered by investment and trading by exporters, will be the hard grind of many years.

So, in the meantime, the UK probably can't afford to alienate too many multinationals.

In a world of subdued growth prospects and scarcer investment capital, it would not be great for the UK if whatever investment is going in new plant or research facilities were to be located in other countries. If the UK doesn't act fast to end the apparent hostility to big multinational companies and to the payment of big rewards to senior executives, more of that investment could go elsewhere - or at least that is what those who run those companies say to me.

They accept that executive remuneration needs reforming, simplifying, made more understandable. But they fear there's been an elision between big pay and bad pay - which they feel the government has nothing to discourage.

The prime minister is on the spot: as he himself has recently reminded us, he has a history of pointing out when multinationals are misbehaving; and he may feel boxed in by the decision of the Labour leader, Ed Miliband, to make the reform of bankers' bonuses his number one campaigning priority.

But given how important it is for the bosses of multinationals that they make big money without being highly taxed and publicly vilified, can Mr Cameron and will Mr Cameron assure them they have an enduring welcome in Britain?

Update 1650GMT:

I have spoken to three of the business leaders who attended this afternoon's meeting of the prime minister's Business Advisory Group, which took place in the Cabinet Room.

They were a bit cagey about the detail of the discussion, but said David Cameron was reassuring that the row over Stephen Hester's bonus should not be seen as evidence that he and his colleagues had become anti-business.

"He said all the right things," said one. "He made it clear that wealth creation was to be encouraged and properly rewarded".

Another said: "He gets it."

I asked whether they were confident he would deliver for them.

"That's not clear," said the boss of a huge multinational. "We have to accept that public opinion is not exactly positive about huge executive rewards, so there may be a limit to how far the prime minister can wave the flag for us."

He added that in the US President Obama was using "bash-the-rich" rhetoric and predicted he would be re-elected on that ticket: "Cameron can't ignore political reality, and the political reality is that we're not flavour of the month."