[ad_1]
Dear readers,
A category error dogs the way many Britons think about their nation. They benchmark it against the US for linguistic and cultural reasons, despite huge economic and demographic differences. That mistake was on display this week in the spring Budget and an accompanying report on UK listings.
Taxes are rising around the world as governments begin paying for the pandemic. But it was President Joe Biden’s plan to raise headline US corporate tax from 21 per cent to 28 per cent that was widely cited by UK commentators as validation for a big increase in UK corporation tax.
UK chancellor Rishi Sunak plans to raise the levy from 19 per cent to 25 per cent in 2023. That reverses years of reductions under previous Conservative governments and marks a pandemic-era diminution in the influence of business.
Lex pointed out that the low headline rates fetishised by the CBI and other business lobby groups had allowed Sunak’s predecessor George Osborne to stealthily widen the tax base. It will not shrink, even as the corporation tax rate goes back up again.
Some pundits reached for further US comparisons when Sunak unveiled a two-year 130 per cent “super-deduction†from taxable profits. Donald Trump doubled the standard deduction. But this was for personal income tax, where rates were mostly reduced, rather than increased
Nor is the UK’s super-deduction a giveaway as Trump’s was, though Sunak attempted to portray it as such. The tax break is necessary to stop companies deferring investment until 2023, when the 25 per cent headline corporation tax rate would increase their value.
The super-deduction will help big, profitable businesses with high capital expenditure such as BT. Lex reckoned it should be worth more than £400m to the UK telecoms company on £2bn of investment.
The tax increase will be bad for the City of London unless there are comparable increases in total corporate taxation in rival financial centres. Investment would suffer. The City — as a location rather than a sector or state of mind — is already in trouble because office occupancy will decline to the extent that working from home persists.
Proposals in Lord Jonathan Hill’s report on the London listings regime are intended to bolster the UK financial sector. They can hardly compensate for the blow dealt to London’s standing by the government’s failure to agree a financial services trade deal with the EU. But Lex approved of his suggestion that London should introduce dual-class shares for premium listings, limited by a five-year sunset clause.
We believe the tech revolution has shifted the balance of power between enterprise and capital. Corporate governance fundamentalists — who hate dual-class shares — appear happy to police a dwindling estate of mature listed businesses in the UK. But this does not amount to vibrant, experimental capitalism.
The quirks of Jack Dorsey, chief executive of Square and Twitter, are tolerated in the US because he has created lots of value. His “overboarding†and bushy beard aside, he has just struck a deal for Square to buy a majority stake in Tidal, the streaming service set up by his friend Jay-Z. This looks an odd acquisition for a payments group. No one seems to care.
Lex can see better logic in Okta’s admittedly pricey $6.5bn purchase of rival US identity specialist Auth0. As hefty corporate workloads transfer to the cloud, scale should bring advantages in checking that online users are not hackers.
Lex also saw potential for Rocket Lab, which builds rockets to put smaller satellites into orbit. It has mastered a tricky technology — rocket science, no less. This is more than you can say for many electric vehicle start-ups launched on to the US market by the same means: special purpose acquisition vehicles.
The UK is jealous of the US Spac boom, even though such floats tend to occur at the perilous tops of bull markets. The Hill report advocated making Spac deals easier in London, by abolishing a requirement for a blank cheque company to suspend its shares during a takeover.
That would be a reasonable move. It would be unreasonable to expect UK Spacs to flourish on the scale of US counterparts. In the UK, valuations are lower, charismatic financiers are fewer and the place is just a whole lot smaller.
A British-American venture capitalist of our acquaintance always used to joke that the UK should really measure its start-up numbers against those of selected US states: a mash-up, say, of New York, Florida, Washington and Massachusetts. Comparisons would then be meaningfully anchored to the size of economies and populations.
Small though it may be, the UK has its advantages, even as it shoulders the £400bn-plus bill for Covid-19. The spring daffodils have started blooming and one-third of the population has been vaccinated.
Have a safe and pleasant weekend wherever you are,
Jonathan Guthrie
Head of Lex
Best of Lex articles
UK Budget/corporate tax: Sunak’s £17bn City raid
Offices after Covid: shrink rap
[ad_2]
Source link
