Yesterday morning, the Chancellor told a gathering of private equity chiefs that “you’re only going to get growth if you get investment.” Later that day, one of the world’s biggest pharmaceutical companies announced it was pulling out of a £1bn investment in London.
Merck, the £300bn pharma giant, has pulled the plug on a £1bn project at London’s King’s Cross, saying the UK is just “not internationally competitive.” The building was already under construction, and now, with the project pulled, over 100 research scientists will be laid off as the company looks elsewhere for its future plans.
It follows a similar decision by AstraZeneca, the UK’s most valuable public company, to pull its £400m investment in a new vaccines site in Liverpool, citing a lack of government support.
You’re entitled to ask why these hugely profitable pharma companies are moaning about a lack of government – or taxpayer – support, and it’s a fair question – but the nature of their businesses is such that they are woven into government strategy and support schemes for supporting the research and development that ultimately ends up in the NHS.
In an ultra competitive market – and when Donald Trump is engineering creative ways to lure these firms to the US – the government can’t afford to play fast and loose.
Merck said yesterday that “Unless a change is made to the operating environment…more and more companies will be making these sorts of decisions.”
Indeed, they are. Sir Jim Ratcliffe’s Ineos announced it has stopped all investment in Britain, citing the government’s tax raid on North Sea oil and gas production.
The company is diverting all future investment in the sector to the US and has also warned – as they’ve long been warning – that other manufacturing operations in the UK, such as chemicals and plastics, are under threat because of high taxes and high energy costs.
What planet is Rachel Reeves on?
The firm’s chief executive was clear, saying “the UK has become one of the most unstable fiscal regimes in the world” when it comes to natural resources and energy.
“One of the most unstable fiscal regimes in the world.” Quite the accolade.
The company said “for us, the future lies in other countries.”
Rachel Reeves said yesterday “we want to make it easier to do business in Britain” and she boasted of the stability she’s brought to the UK’s investment landscape.
What planet is she on?
Sure, we’ll roll out the red carpet for Chinese firms buying up our debt-riddled infrastructure, but is this really something to celebrate?
Meanwhile spare a thought for the many businesses that can’t upsticks and try their luck in more welcoming jurisdictions. In other words, most businesses.
The boss of one supermarket chain told us recently that his sector is seen as fair game for tax hikes for exactly that reason – “we can’t just head overseas.” Nor can the hundreds of thousands of smaller businesses trying to keep their heads above water amid a rising sea of costs and taxes.
The business community is nervous about the upcoming budget, as should we all be, and if you want a sense of just how nervous just consider that the private sector’s leading spokesperson – the head of the CBI – yesterday urged the Chancellor to rip up Labour’s manifesto promises and hike income tax.
Why? Because without hikes to the biggest taxes – income tax, VAT for example – the burden will fall, again, on businesses.
The Chancellor has to find tens of billions of pounds in additional tax revenue and, having ruled out touching the big levers, the fear is she’ll be reaching for all the smaller levers like a manic organ player – dividend taxes, bank taxes, pension taxes, inheritance taxes, taxes on partnerships, changes to business reliefs and allowances, property taxes, sneaky little wealth taxes… no wonder the CBI would rather a broader income tax hike. And they have a point.
Perhaps VAT should be looked at again? Adding it to cake, for example, would raise about £1bn.
I came dangerously close to agreeing with the CBI in my column today – if taxes have to rise, or rather, if the government is determined to raise them, there are some targets that make more sense than others.
Radical reform is needed
But of course, the real argument, the argument the CBI should be making, is that we can’t afford any further tax increases and if that means – in the absence of growth – deep cuts to public spending, then so be it.
But just as tweaking taxes is damaging, seeking to salami-slice our way out of a debt mountain would also be pointless.
Radical reform is what’s needed – of the kind advocated by Steve Baker, in City AM today.
Steve writes:
“This country stands on the brink of a fiscal crisis unlike anything we have seen in our lifetimes. The numbers are stark: a projected £41.2bn shortfall by 2029-30; a debt-to-GDP ratio nearing 96 per cent; and interest payments on government debt that doubled in a single year, now topping £16.4bn a month.
Despite these warning signs, Westminster continues its ritual of denial, putting off hard decisions in favour of soothing rhetoric and fantasy budgeting. We are living in the Truman Show run by Whitehall. This isn’t some distant theoretical problem – it’s a looming catastrophe that will devastate millions of hardworking families within my lifetime. And where is the urgency from our political class?”
When Steve lost his seat as a Tory MP at the last election, Westminster lost one of its most coherent and original thinkers. On the night of his defeat, he said in an interview that he felt sorry for Rachel Reeves because she had spent years telling everyone that George Osborne’s austerity had been a choice, that it was never necessary, and that was now going to have to implement austerity and she was going to have to try and do it with a bunch of Labour MPs who have also signed up to the idea that austerity was a choice.
Reeves hasn’t quite woken up to this yet, but Steve was right and one way or another this government is going to have to face up to it.