THE CITY GRUMP
The mainstream media seem to have fallen hook line and sinker for our photogenic Chancellor’s July 8th handouts. Headlines like “Come dine with me” and “Rishi Dishy” are everywhere, while the FT’s normally sensible Deputy Editor, Robert Shrimsley, declares “Mr Sunak presented a substantial and imaginative statement”. No he didn’t, it is all flash and no substance.
Where to start? Okay let’s go with that long standing British obsession, house prices. The one-off cut in stamp duty (cost £3.8bn) for the first £500k of bricks and mortar will yet again light a fire under the domestic property market. Just what we need. Another take off in prices making it even harder for the young to own their own property.
Then there is the weird idea of bunging £1,000 for each furloughed person a company does take back into employment (cost up to £9.4bn). Does he really think, in the grand scheme of things. that is the tipping point where a company decides whether or not to keep a certain number of staff on? Of course he does, or rather the Treasury does, as they, as usual, are chronically short of staff that have any business experience whatsoever.
Meanwhile the hospitality industry is having VAT cut to 5% until next January (cost £4.1bn). Has it not occurred to Sunak & Co that thanks to the abiding fear and restrictions of travelling abroad, due to Covid 19, there is already a mad scramble to book up holiday accommodation in the UK, so why throw billions of taxpayers’ money at a problem that doesn’t now exist?
And finally we have the headline grabbing meal deal (cost £0.5bn) whereby, for a few days in August, anyone who feels like wandering in to the welcoming atmosphere of a socially distanced, mask wearing, food emporium will get £10 off their meal. Gosh how exciting. What wonderful long term benefit that is to one and all.
Instead of all this flashy, expensive nonsense the Chancellor and his Treasury team could and should be using the massive disruption of Covid 19 as an opportunity to reset our economy. For example here should be a golden opportunity to encourage new capital formation through equity investment. I have long campaigned that capital gains tax should be abolished in this area as anyone who has worked in equity markets knows CGT is a major impediment to liquidity and without liquidity you do not attract new capital. The ever reliable Matthew Lynn in today’s Telegraph goes even further and suggests all CGT should be abolished thus “sending out a powerful message that Britain was the best place in the world to start and build a business. In the tax year to April 2018 HMRC collected £9.4bn in CGT revenue. About the same then as Sunak’s pointless expenditure on yesterday’s furlough bung.
During this Covid crisis there has been a well-grounded campaign to help start-ups and early stage businesses by increasing Enterprise Investment Scheme (EIS) income tax relief from 30% to 50% as investors need more incentive to provide risk capital in these very uncertain times. The Treasury has shied away from such an eminently sensible long term proposal as it likes to suggest it may fall foul of EU State Aid rules. Has anyone told them we are leaving the EU and a hot topic at No.10 is we have told Brussels that we will no longer abide with their State Aid Rules?
I suggest the Treasury and Sunak’s refusal to put in place long term changes that help the economic prosperity of our country for all time and instead their delight in concentrating on headline grabbing, flashy, expensive, gimmicks demonstrates that the establishment has learnt nothing from the Covid 19 lockdown and the continuing problems with the virus. No sign yet then that there is any substance behind the Chancellor’s nicely cut suits.
The City Grump has spent some 40 years in the City of London. He started as a stockbroker’s analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in startups. The City Grump’s publications are available here.