ALEX BRUMMER: High taxes and red tape are driving great British firms away from our shores. Yet in next week’s Budget, Jeremy Hunt is still set to hit the self-destruct button
All those Tory pledges to embrace the freedoms given to us by Brexit and transform Britain into the next Silicon Valley appear to be crashing to Earth with a deafening thud.
Even though the City is the second largest financial centre in the world, we are in grave danger of losing the battle to keep the best and the brightest companies listed on the London Stock Exchange.
Last week, the Exchange received a body blow when Japan’s huge investment fund SoftBank announced it was planning to float its £33 billion Cambridge-based microchip company Arm not in London, but New York.
No matter that Arm is the jewel of Britain’s high-tech sector, or that ministers including Rishi Sunak had spent a huge amount of time wooing SoftBank’s multi-billionaire boss Masayoshi Son in an effort to persuade him to give London a share of the action.
Chancellor Jeremy Hunt should surely be focusing above all on getting the City, the lifeblood of our economy, firing on all cylinders
Arm was proof that we are world beaters at developing high-tech. It was sold to SoftBank in 2016, and the Japanese firm now thinks it will command a higher valuation in New York. It cites regulatory obstacles in the London market as one reason it is heading overseas.
The decision is devastating to Britain’s high-tech ambitions and a snub to the Prime Minister. Worse, it raises concerns that a flood of quoted firms based here could follow suit.
Indeed, both tech companies and more traditional firms which earn large slices of their income in the United States are threatening to take their stock market quotations and much of their headquarters staff across the Atlantic.
Those of us who supported Brexit, hoping for freedom from the kind of sclerotic red tape we associate with Brussels and yearning for a low-tax Britain, are bitterly disappointed.
Far from the high-productivity, fast-growing economy we envisaged, the Square Mile seems bound up in pettifogging regulation, concerns about high taxes and a lack of economic ambition.
Perversely, output and entrepreneurship are actually being hindered by the Treasury and the Chancellor Jeremy Hunt who should surely be focusing above all on getting the City, the lifeblood of our economy, firing on all cylinders.
Instead of building on Britain’s excellence, the finger of the state is hovering over the self-destruct button.
For fear of upsetting the market for government bonds following last year’s failed experiment in Trussonomics, Hunt & Co are taking a deeply cautious approach, and fiscal orthodoxy — which means high taxes — rules the day.
So far, the Chancellor is refusing to rescind next month’s rise in corporation tax from a competitive 19 per cent to a whopping 26 per cent.
This is in spite of the fact that leading think-tanks, including the Institute for Fiscal Studies and the Left-leaning Resolution Foundation, estimate that the Chancellor has up to £30 billion of headroom for extra spending and tax changes in next Wednesday’s Budget.
It is economic vandalism, pure and simple. At the weekend, the head of tax policy at the consultancy KPMG blamed high taxes for the fact ‘at least a dozen . . . probably dozens’ of its U.S. clients have decided not to invest in the UK.
‘What we can’t get away from is that the UK is now no longer trying to be a low-tax location,’ he said. ‘It is now just somewhere in the middle of the pack.’
Billionaire entrepreneur James Dyson, who is among Britain’s greatest inventors and employers, is even more blunt, describing Tory tax policies as ‘stupid and short-sighted’.
The evidence of this destruction is all too apparent. AstraZeneca, the nation’s £168 billion life sciences champion, decided to locate its next major manufacturing plant in Ireland, taking advantage of a corporation tax rate of 12.5 per cent, rather than Macclesfield where it could have been a levelling-up triumph.
Shell, another of the biggest beasts on the London Stock Exchange, recently considered (but thankfully decided against) shifting its headquarters out of Britain because of high taxation rates.
The UK’s largest investor in offshore North Sea oil and gas exploration, Harbour Energy, cut jobs and expansion plans when the Chancellor hammered the energy sector with a windfall tax which raised the rate on its earnings to 75 per cent.
There is no escaping the fact all this could put the UK in the slow lane in spite of its glorious technological, science and aerospace innovation. The need for Britain to lift its vision and attract new investment has become all the more critical following recent initiatives in the U.S.
President Joe Biden has unsheathed a huge programme of investment designed to lure companies to America.
Applications are open for up to $39 billion (£32.5 billion) of funding to companies — such as Arm — which are prepared to invest in advanced semi-conductor research and production in the U.S.
Last week, a delegation of British microchip makers travelled to Washington where they met White House and congressional staff intent on persuading them to move to the U.S., to reduce America’s dependence on semi-conductor makers in Taiwan.
As Scott White, chief executive of Cambridge-based Pragmatic Semiconductor said: ‘If we can go anywhere else in the world and get support for the capital investment of installing manufacturing facilities, then it’s relatively speaking far less attractive to do it in the UK.’
To be fair, Sunak yesterday launched a £360 million plan to turn Britain into a science ‘superpower’ by the end of the decade, promising to use post-Brexit freedoms to develop a pro-innovation culture. But how does that square with the policies business leaders say are making Britain a less attractive place?
Equally alarming is the $370 billion (£308 billion) offered by the U.S. for firms wishing to invest in carbon reduction.
Shell has already indicated it may move some green projects to the US. Brussels is so rattled by the prospect of America acting as a vacuum cleaner for green projects that it is considering lifting strict rules on industrial subsidies in an effort to remain competitive.
Instead of London becoming a magnet for tech, green industries or for flotations of companies, it is in danger of losing out on an enormous scale. The Irish-based building materials group CRH, at the heart of which sits the heritage firm Tarmac, is also off to New York.
It follows UK plumbing giant Ferguson, which headed in the same direction last year.
Reversing the tide of great UK companies heading for the exit is a gargantuan task. It is made infinitely harder by City bureaucracy, a government seemingly impervious to the dangers of overseas takeovers and one determined to raise business taxes in the eye of a global slowdown.
Britain’s economy is far from moribund and has world-leading positions in finance, technology, the creative industries and much else. Instead of building on this excellence, the finger of the state is hovering over the self-destruct button.
The Chancellor has the chance to set a new course in the Budget by cutting taxes without undermining longer term plans to lower government borrowing and debt.
It is a golden opportunity for Sunak’s Tories to offer a radically different approach to Keir Starmer’s statism and reap the rich harvest of a low tax, deregulated economy.
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