ALEX BRUMMER: Taxing times for UK growth

The best may be still to come for British business.

The Chancellor already has thrown a curve ball at enterprise with the rise this year in national insurance contributions for employers, a tax on jobs, and next year’s sharp jump in corporation tax.

To his credit, however, Rishi Sunak steered clear of the clamour on opposition benches for a windfall tax on North Sea oil. 

That could have killed new enthusiasm by Shell to drill the Cambo oilfield off Shetland stone dead.

He is promising clarity on permanent tax breaks for capital investment, innovation and R&D in the autumn Budget.

Sunak identifies the problem. Capital investment by UK business is just 10pc of national output against 14 per cent across the other advanced nations.

He regards the super-deduction, the enhanced capital allowances in place until 2023, as a path to the future. 

Among options he explored are raising the annual investment allowance and full expensing to allow enterprises to write-off costs in one go.

Such approaches might even be attractive for inward investors. But whether it would deliver the same bang for the buck of cutting headline rates of company tax is a debating point. More generous permanent allowances could make the difference.

But one suspects the problem for Britain’s listed sector is different.

There is a mindset among FTSE 100 boards and so-called long investors that values dividends, share buybacks and other such payouts above investment, ambition and growth. 

With the exception of the few global firms – Compass, Diageo and Unilever come to mind – the idea of being an investor or buyer of promising growth assets scares directors to death.

Indeed, the moment dividends are frozen or an ambitious deal is proposed, such as Unilever’s offer for GlaxoSmithKline’s healthcare offshoot Haleon, all hell breaks loose. 

More generous tax allowances will need to be accompanied by sweeping cultural change.

Ultra sound

The active approach of the Government to recent overseas and private equity bids for firms with national and economic security interests is a significant change.

Less pleasing is a process in which officials appear determined to open the door to deals by winning what are described as legally binding undertakings such as keeping some form of headquarters in the UK and to increase R&D spending.

As laudable as such pledges might be, Whitehall lacks the bandwidth and skills to police pledges. 

Financial circumstances change, no corporate deal is static, and promises – even made with the best intentions – are sometimes broken.

Ultra Electronics is a case in point. Its results statement offers tough rhetoric on how the war against Ukraine has made Ultra’s technology even more vital against the deployment by Russia and China of advanced submarines.

There is ever greater need for anti-submarine systems of the kind made by Ultra.

The board says it can work with private equity firm Advent, Cobham and the Government on clearing the acquisition. But Advent’s ownership of Cobham tells a troubling story. The speed with which valuable UK technology, notably flight refuelling systems, was sold to foreign competitors shows why Advent/Cobham might not be the safest owners of Ultra.

If ever there was a time when the UK should be making sure Britain’s capabilities as a defence innovator and manufacturer remain safe, it is now.

Ultra’s sale to Advent makes no security or longer-term commercial sense.

The Government is engaged in similar conversations over the future of satellite group Inmarsat and the Parker-Hannifin bid for Meggitt. 

All three deals should be halted. The experience with DP World-owned P&O Ferries shows what happens when Britain loses command and control over strategic companies.

Levelling down

Lloyds Banking Group should know better. Not only is it naïve to announce branch closures on a day when the Chancellor is on his feet, it is a blow to the regional agenda.

Accessible lenders in places such as Bolton, Bradford and Swansea could potentially be a community asset.

Instead, cost-cutting and short-term thinking triumph again.