ALEX BRUMMER: Tory leadership contenders let the Budget take strain

At first blush, the tax cut-and-spend proposals of the Tory leadership contenders look extravagant and preposterous.

The budgetary headroom – actually closer to £15 billion than the £26 billion often quoted (after the cost of reclassifying student loans) – looks to have been spent many times over.

Is this such a bad thing? The singular failure of Theresa May and the House of Commons to deliver Brexit on March 31 has given the economy a nasty setback.

The long-held assumption has been that once Brexit happened, uncertainty would be relieved and business investment and the economy would bounce back.

The extended uncertainty is having an adverse impact. Surveys from the purchasing managers covering manufacturing, construction and services – the bedrock of British prosperity – point in the wrong direction. Slippage in June was the second steepest since the Great Recession in 2009 and the worst since the 2016 referendum.

The economy puzzled everyone by bouncing back from that and employment has been rising since. Indeed, the glimmer of hope is that jobs still look robust.

Plainly, Brexit uncertainty is a big factor in the slide in business confidence. But special factors such as the wave of green technology transformation across the car industry and Trump’s trade wars are also having an impact. As the governor of the Bank of England Mark Carney has pointed out, trade tensions have led to a ‘sea change’ in investor outlook for global growth.

In the recent past, the Government has relied on monetary policy to keep the show on the road. But with the bank rate at just 0.75 per cent, reductions in borrowing costs have a more limited impact.

The public finances are now in much better shape and the national debt is starting to fall, albeit slowly, so it is right that fiscal policy takes up the slack.

Not all the ideas being tossed around by the Tory leadership rivals Boris Johnson and Jeremy Hunt can be afforded or are entirely sensible, but they are on the right track. Johnson’s vow to raise the thresholds at which citizens pay higher rate tax is easily portrayed as a giveaway to the rich.

But it seeks to end an injustice caused by frozen thresholds and it could encourage entrepreneurship.

Hunt’s attempt to turn Britain into Singapore in Europe, with a 12.5 per cent corporation tax, looks like an extravagant promise. But there is evidence from the Osborne corporation tax cuts that they eventually pay for themselves. Something more targeted on R&D tax breaks and ending the tax relief on corporate debt might be better.

Great infrastructure spend – including the new runway at Heathrow, speeding up HS2 and building and repairing the nation’s crumbling roads – could lift productivity.

Tory leadership contenders have a growth agenda that is more likely to see the country through a difficult patch than ideologically-driven public ownership.

Chinese burn

HSBC has weathered many storms since it raised its ensign in Hong Kong in 1865, as an outgrowth of shipping line P&O.

Nevertheless, chairman Mark Tucker must be watching anxiously the invasion of the legislative council and demands to end a controversial extradition plan to Beijing.

HSBC is by far the financial group most exposed to Hong Kong, with 60 per cent of its pre-tax profits earned there in 2018.

Until recently, the biggest threat to its dominance appeared to be the digital challengers such as Ant Financial. HSBC has been fighting back using its Pay Me mobile wallet, with 1.5m users.

The group has huge exposure to the territory, with the biggest market share across all banking activities, including mortgages. Rivals such as Bank of America may feel they have other choices such as moving to Singapore if violence, protest and greater Beijing influence wreak havoc.

HSBC, which owns 60 per cent of ‘Chinese’ Hang Seng Bank, has no such luxury. The last thing it needs is a political showdown that results in Beijing tightening its grip over Asia’s most important financial hub.

Overfilled basket

Sainsbury’s chief executive Mike Coupe is still in the money in spite of getting egg on his face over the aborted Asda deal and a lacklustre sales performance.

Investors have a right to feel aggrieved at his £3.9m pay deal, having squandered £46m of our money on a vanity project doomed from the moment it was unveiled.