HAMISH MCRAE: Determining the right months will determine Johnson’s future, and a solid rebound in business is key
- Whatever happens in the Brexit talks in the days ahead, our companies are facing some confused and disrupted months
- They need order and competence, but they also need a change in the government’s attitude, regardless of relations with Europe
They have a policy reset on Downing Street. The rest of us have to reset policies for business.
Whatever happens in the Brexit talks in the coming days, our companies are facing some confused and disrupted months. They need order and competence, but they also need a change in the government’s attitude, regardless of relations with Europe.
The reason is simply that only companies big and small can supply the goods – and generate the employment and revenue to maintain adequate levels of public services.
You need a friend: It is always important that governments, including Boris Johnson’s, keep business on their side
The big drug companies hold on for all sorts of reasons, but if you want billions of vaccine doses, only big drug companies can. Wasn’t it fascinating that it was the combination of US giant Pfizer and German start-up BioNTech that launched the first vaccine?
We keep our fingers crossed that AstraZeneca / Oxford University gets there too, as it’s cheaper and easier to manage. This means listening to business, which this government was not good at, but also looking through the lens of any policy, whether it helps or harms the UK’s commercial interests.
It is always important for governments to keep business on the side, although in normal times their interests must be weighed against wider social considerations. However, these are not normal times.
The right months will determine the future of this government, and a solid corporate rebound is key. It’s that simple. There are several tests to be performed. Tax policy is very important.
At some point there has to be a long, cool look at taxation. We have to ask ourselves whether Britain is willing to pay a higher percentage of GDP in taxes than at any point in the past 30 years. If yes, which? If not what then?
What we shouldn’t be doing is damaging the business with hits that, at best, may not make a lot of money and, at worst, may actually lose revenue. For example, the plan to end airport VAT discounts for foreigners who bought goods here doesn’t sound particularly good if they stay in Paris instead of London and buy the stuff there tax-free instead.
The much-needed reforms of personal taxation must be carried out with tremendous care. The finance minister of Louis XIV, Jean-Baptiste Colbert, said, memorable: “The art of taxation consists in plucking the goose so that as many feathers as possible are obtained with the least possible hiss.” Don’t worry about the hissing. When you have a smaller pile of feathers, you are indeed in trouble.
The city is finally here. The interests of our largest export industry, financial services, have not been defended in the Brexit negotiations, or more generally in recent years. That is extraordinary – just imagine if the federal government does not care about the interests of its largest exporter, the automotive industry.
But we are where we are. Fortunately, we have a competent governor at the Bank of England and a chancellor who is knowledgeable about finance. Both think a lot about the future of the industry and deserve a following wind.
Things will change in the spring. Until now, fiscal policy has been to better distribute money. Soon it should be about how to collect money better and regulate it better. But we have to come to spring.
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We learned two things last week from this surge in stock prices around the world following the successful news of the vaccine study. For one thing, the prospect of a successful vaccine was not “on the market” in technical jargon by the end of the year. Otherwise the stocks would not have reacted as they did.
The other was that investors were desperately looking for good news. It was as if a spiral spring was suddenly unleashed. There was some consolidation at the end of the week, but that would be expected.
The question now is whether the prospect of economic recovery will trigger a more general and lasting shift in investor sentiment. This would likely involve a rotation from growth stocks (mainly America’s high-tech giants) to value stocks (companies that make reasonable profits in more mundane areas) and from bonds to stocks.
To do this, of course, there must be an economic recovery. But the markets are sniffing the air, sensing that there might be quite a shock.