Growth is the key to financing better public services, but I fear higher taxation may be waiting in the wings! Writes David Buik
28 May 2024, 08:07 | Updated: 8 July 2024, 10:52
- David Buik is LBC's Markets Commentator
Political battle has commenced here in the UK!
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With just over five weeks until the General Election on 4th July, all the political parties, especially the Tories and Labour, have now selected another gear, attempting to get their message across, whether it be ‘change’ for Labour or ‘fear tactics’ from the Tories, scrapping for dear life from Scotland’s SNP or just negative input from the peripheral parties, who just loath the Conservatives.
Most observers think Labour are a ‘shoo-in’ after 14 years of Tory rule, with the last half dozen years having been hopelessly disruptive, much of it down to the damage the pandemic inflicted on society.
Consequently, there has been no growth to speak of in the UK. Ironically the outlook looks a bit brighter in the next few months, surprisingly eclipsing many EU countries’ forecasts.
This missive is not meant to be political, though it’s hard not to make some political observations in the current era of uncertainty.
The one issue that sends warning bells to me is that whichever political party prevails on 4th July, neither Labour nor the Tories seem to have any money for their plans, unless they throw caution to the wind and forget fiscal discipline by borrowing more, or of course, increasing taxation.
Tory ministers would throw their hands up in horror at such a suggestion and insist cutting taxation, especially national insurance contributions are ‘high priority’, though noticeably no time frame.
In the same breath Sir Keir Starmer and Shadow Chancellor Rachel Reeves say they have no intention of increasing taxation on working people. What does that mean? I am a working person! Where does a working person begin and end?
The fact remains the Government of today and of tomorrow have no immediate extra funds available to improve public services, as Liam Byrne, the retiring Labour Secretary to the Treasury once reminded us in 2010! I suspect the situation is even more acute today than it was then.
Despite huge increases in funding in recent years for the NHS, it is still in disarray. Morale is rock-bottom and the drains need to come up over the NHS’s poor quality of management.
Defence spending will be increased (2.5%), but the armed forces are still inadequately equipped and funded. The same applies to schools, mental health, social care, housing, and the environment.
It also has not helped that parts of the Civil Service have conveyed the impression of being very unhelpful when it came to executing the business and policies of the incumbent government, due to their dislike of some of the policies.
The Civil Service’s role is to proffer advice, which could be rejected and then to deliver government policy. This is not happening. If Labour forms the next administration, maybe Sue Gray will be able to change the uncooperative culture of some departments.
For a start working from home should be discouraged.
The Government and the opposition both know that only way out of this metaphorical ‘Half-Nelson’ is growth. The current government took BREXIT ‘over the line’ but did not deliver it.
It also never found a way to compromise on any issue with the EU. Notwithstanding that, stimulating business, using the services of the City of London, seemed a very comfortable path to achieving their goals. It did not happen.
Lower tax rates for business development, especially for fintech, AI operations, SMES and to overseas companies which were looking to come to London for a public quotation, cutting stamp duty and loosening regulation are key components for stimulating investment activity.
So many opportunities have been lost, which has resulted in overseas inward investment has found more fertile havens for their funds, apart from private equity, which has salivated at the prospect of picking up cheap UK assets, some 30% cheaper than are available in other countries.
Given the correct environment for investors the likes of Aquis Exchange and the LSEG’S AIM are geared up to deliver aspiring companies of the future for public quotation.
Recent examples of private equity deals include CVC registered bid of £5 billion for Hargreaves Lansdown, EQT £2 million bid for Keywood Studios and Blackstone’s $1.6 billion interest in Hipgnosis.
They are classic examples of many companies who are under scrutiny from the very best of financial predators and there are likely to be many more in the pipeline – of that there is little doubt.
At the top end of the scale, investors will be eagerly awaiting the outcome of BHP’s £38 billon bid for Anglo-American – again a perceived cheap and complimentary asset.
Chancellor Jeremy Hunt has insisted that the economy is waking up out of its slumber with GDP of 0.6% being posted for April.
The Conservatives will want to cut taxes, but when? Rachel Reeves is insistent that Labour will stick to fiscal disciplines. Labour has ambitious plans for growth.
However, cutting ‘non-doms’ tax benefits and forcing public schools to charge VAT will not go anywhere near helping finance our ailing public sector. It is hard to see those two areas raining more than about £5-6 billion per annum.
M/S Reeves hopes to set up the National Wealth Fund, which will be a crucial tool in Labour’s armoury towards bringing about growth, much of it for a ‘Green Energy’ initiative.
Her hope is that the Government can stump up £7.3bn and that the fund will then be able to raise another £22bn from the private sector.
With selling the taxpayer’s stake in NatWest now on hold for the time being, these plans seem ambitious. She needs to put a bit more meat on the bone.
These are early days in the General Election campaign. However, it strikes me that both main parties are being slightly disingenuous in thinking that their respective plans for improving public services can be dome through ambitious policies for growth.
I smell a whiff of higher taxation in my nostrils in the months to come. Pray that I am quite wrong! Growth undoubtedly is the way forward. Let us be in no doubt, history told us that in September 2022 ambitious plans need proper costing.
Labour will of course be greatly encouraged by the endorsement they received yesterday from a letter in the Times from 120 business leaders that a ‘new outlook’, breaking free from a decade of economic stagnation, is both essential and desirable.
Why wouldn’t they? It makes sense for business leaders to keep their powder dry, by agreeing to work with the Government of the day.
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