A category flaw haunts the way many Britons think of their nation. They compare it to the US for linguistic and cultural reasons, despite enormous economic and demographic differences. This bug was shown in the spring budget this week and in an accompanying report on UK listings.
Taxes rise globally as governments start paying for the pandemic. But it was President Joe Biden’s plan to raise US corporation tax from 21 percent to 28 percent, which British commentators often cited as endorsement of a sharp rise in UK corporate tax.
British Chancellor Rishi Sunak plans to increase the tax from 19 to 25 percent in 2023. This reverses years of cuts under previous Conservative governments and marks a lessening of the influence of the economy in the pandemic.
Lex pointed out that the low headlines fetishized by the CBI and other corporate lobby groups had allowed Sunak’s predecessor, George Osborne, to covertly expand the tax base. It won’t shrink even if the corporate tax rate goes up again.
Some experts reached for further US settlements when Sunak revealed a two-year “super deduction” of 130 percent on taxable profits. Donald Trump doubled the standard deduction. However, this was true of income tax, where tax rates were lowered rather than increased
The UK super-deduction is also not a giveaway like Trump’s, although Sunak has tried to portray it as such. The tax break is necessary to deter companies from deferring investments until 2023, when the 25 percent corporate tax rate would add to their value.
The super deduction will help large, profitable companies with high capital expenditures like BT. Lex expected the UK telecommunications company to be worth more than £ 400 million on a £ 2 billion investment.
The tax hike will be bad for the City of London unless there are comparable increases in total corporate taxation in competing financial centers. The investment would suffer. The city – as a location rather than a sector or state of mind – is already in trouble because Office use will decrease as work from home continues.
Proposals in Lord Jonathan Hills’ report on the London listing regime aim to strengthen the UK financial sector. They can hardly compensate for the blow to London’s reputation because the government has not signed an agreement on trade in financial services with the EU. But Lex agreed to his proposal that London should implement Shares with two classes for premium offers, limited by a five-year sunset clause.
We believe that the technical revolution has shifted the balance of power between business and capital. Corporate governance fundamentalists who hate two-tier stocks seem happy to oversee a dwindling legacy of mature listed companies in the UK. However, this is not living, experimental capitalism.
The quirks of Jack Dorsey, CEO of Square and Twitter, are tolerated in the US because he has created a lot of value. He’s just got his overboarding and bushy beard aside hit a deal so Square can acquire a controlling stake in Tidal, the streaming service set up by his friend Jay-Z. This seems like an odd acquisition for a payments group. Nobody seems to care.
Lex can see better logic in oktas admittedly expensive Purchase of $ 6.5 billion of competing US identity specialist Auth0. With high enterprise workloads moving to the cloud, scaling should be beneficial when verifying that online users are not hackers.
Lex saw too Potential for Rocket Labwho have favourited rockets to launch smaller satellites into orbit. It mastered tricky technology – rocket science, nothing less. This is more than you can say for many electric vehicle startups that were launched the same way: specialty vehicles.
The UK is jealous of the US Spac boom, although such floats tend to occur on the dangerous tops of bull markets. The Hill report advocated easing Spac deals in London by removing the requirement for a blank check company to suspend its shares during a takeover.
That would be a sensible move. It would be unreasonable to expect UK Spacs to flourish on a par with its US counterparts. The UK has lower ratings, fewer charismatic financiers, and the place is just a lot smaller.
A British-American venture capitalist we know always joked that Great Britain should really measure its start-up numbers against those of selected US states: for example a mash-up from New York, Florida, Washington and Massachusetts. Comparisons would then be meaningfully anchored to the size of economies and population groups.
As small as it is, the UK has its perks, even if it bears the £ 400bn bill for Covid-19. The spring daffodils have started to bloom and a third of the population has been vaccinated.
We wish you a safe and enjoyable weekend wherever you are.
Head of Lex