MAGGIE PAGANO: It’s time to change tack on tax

Ladies, it’s time to kick off the flats and dig out the heels hidden at the back of the cupboard during the Covid era when we vowed never to wear them again.

Like it or not, heels are back in fashion – that is, if your feet can cope.

According to Primark, which enjoyed a bumper three months of trading before Christmas and over the festive period, young shoppers are out in force buying heels and dressing up again.

We are also back to the after-work Friday night pint. The City Pub Group reports that even those who still work from home are returning to the capital to meet up with friends for a drink.

That’s the good news. Now for the more gloomy. The latest S&P Global Purchasing Managers’ Index (PMI) dropped to 47.8 this month from 49.0 in December, the lowest since January two years ago.

It is too early to say whether the weaker-than-expected PMI numbers bear out fears the UK is heading into recession.

January is often the bleakest month and considering the combination of industrial disputes, staff shortages, higher prices and higher interest rates, it is hardly surprising that business activity was down. 

What the latest figures will do, however, is make it easier for the Bank of England not to have to hike interest rates when the MPC meets next week. More worrying is that government borrowing hit a high of £27.4billion in December. 

It is the biggest December figure since records began in 1993, pushed up because of the cost of supporting household energy bills and higher interest charges.

Around £7billion was due to the energy package, while interest on government debt more than doubled to £17.3billion over the year.

Interest is up because higher interest rates on UK gilts mean the Government will have to pay out more on the index-linked bonds in line with inflation.

About £14billion is due to indexed debt – money that does not need to be paid out now but which inflates the borrowing figure. 

Centre for Economics and Business Research economist Doug McWilliams suggests the numbers are not as ghastly as they seem. 

This is because a big chunk of the additional borrowing – £8.6billion – is due to differing assumptions being made on the values of student loans in England.

The Office for National Statistics has yet to decide to upwardly revalue outstanding student loans, thus leaving an £8.6billion disparity between its own calculations and with those forecast by the Office for Budget Responsibility. 

Over the next few months, McWilliams predicts borrowing will be much lower than planned.

What the higher-than-expected borrowing figures have done is give Chancellor Jeremy Hunt more cover to keep a tight grip on public spending and not to relent over tax cuts when he announces the March 15 Budget. This is misguided.

Even those branded idiots by Rishi Sunak for calling for lower taxes can see there is a way Hunt has more room for manoeuvre to make life easier for businesses. He doesn’t even need to say these measures are tax cuts, merely a rejigging as the facts change.

For starters, the windfall tax on oil and gas companies is not working. The tax will cost more than it will raise as the oil giants pull back from new investment. 

He can also say that business activity is so fragile that whacking up corporation tax to 25 per cent in April is no longer appropriate.

That’s not a tax cut, merely keeping things the way they are now. No one would say he is an idiot for changing his mind.

Twist his Arm

Rishi Sunak has been spot-on in his lobbying to have the Cambridge-based chip giant Arm listed in London as well as in the US.

It is not known whether SoftBank founder Masayoshi Son will go for a dual listing as the prospectus paperwork is hopelessly complex – so much for global capital markets. If Son chooses the US, there is another way for Brits to buy shares in an IPO.

Technology platform PrimaryBid has told ministers it could set up a retail offer, as it did for the US listing of Soho House, the luxury members club. 

It is estimated there could be around £3billion of retail demand, Arm always had a strong following among UK small investors. This is an excellent idea.

Hopefully it won’t stop Sunak from twisting Son’s arm to go for a dual listing, and putting through some reforms if necessary.

Having a near-£50billion Arm float in London would be a real coup, and say more about the liquidity of the UK’s capital markets than any fancy speeches.