French tax

ALEX BRUMMER: Sunak must ease tax hikes to boost growth

Economic confidence is a fragile thing. The more our politicians fill the airwaves with grim warnings about the rising cost of living, the more likely they are to create the conditions for a severe downturn.

It turns out that the first quarter production data could have been much worse. Growth in the first quarter was 0.8%.

This rate is higher than the 0.7% rate required to bring UK production back to pre-Covid levels and compares favorably with the 0.4% loss of production in the US in the first quarter, a stable France and to a gain of 0.2% in Germany.

Tax periods: Chancellor Rishi Sunak (pictured) could compromise by postponing the rise in corporation tax in 2023 from 19% to 25%

As one of the most open economies in the world, the UK has no room for complacency.

Our trade balance is deteriorating due to the high cost of imported energy and the continued Brexit adjustment.

Much of the focus is on the estimated 0.1% output loss in March in a country fascinated by fears that energy bills could exceed the price ceiling.

And it’s impossible to ignore the harrowing tales of families having to choose between eating and boiling a kettle.

Still, if the Social Security bureaucracy did a better job of identifying the needy, the stress could be avoided as there are £15billion of unclaimed means-tested benefits there to hand out.

Before people get too anxious, it’s worth taking a look at the forward-looking data. Since the pandemic, the Office for National Statistics has been helpfully monitoring early indicators of what is happening in Britain.

In the week of May 12, several consumption measures were up. Credit and debit card purchases jumped 8%, dining at restaurants and cafes increased 8%, and visits to retail and leisure centers increased 4%.

Even if there are citizens in difficulty, the compression of real incomes has not yet had a dramatic impact.

Similarly, transport sector data – ranging from flights to and from the UK (we’ve all seen queues at airports) to cargo and tanker calls at UK ports – are more high. This aligns with recent US data suggesting post-Covid supply issues are stabilizing.

Many factors increase the cost of living with the war against Ukraine and its impact on wheat, energy and fertilizer prices. Free markets adapt.

In a turnaround, the International Energy Agency is now reporting that contrary to previous forecasts, the market is adjusting to the loss of Russian production and that only a third of the 3 million barrels per day of lost oil production will is produced.

Non-Russian producers are adapting to the new world. At the same time, gas prices in British wholesale markets are falling as liquefied natural gas from Qatar and the United States arrives in abundance.

If we could rely on major national and commercial providers to move away from the rocket and feather approach to pricing, so that price declines are passed through as quickly as price increases, then maybe when the cap is renewed in the fall, the shock could be less significant than expected.

The political clamor for windfall taxes on big oil and energy companies is growing, and Chancellor Rishi Sunak and Boris Johnson know the strength of the prevailing wind as the squeeze on real incomes, projected by the Bank of England, looms.

Her Majesty’s Treasury, which has already baked in the highest tax revenues since the 1940s, will find it difficult to withstand the pressure.

If the Chancellor was smart, he would compromise by delaying the 2023 rise in corporation tax from 19% to 25%, which could be a serious barrier to business and foreign investment.

Sunak is unlikely to increase the National Insurance hike, which directly affects most employees and employers. Instead, he should rethink corporate taxation.

It would be a huge bonus for business, entrepreneurship and growth.

soft target

One foreign investor who has been a huge disappointment for Britain is Masayoshi Son, the owner of Japanese conglomerate Softbank.

Far from being the reliable owner of Cambridge-based chipmaker Arm Holdings, as Theresa May’s government believed, he turned out to be a mercurial speculator.

In the latest disappointment, Softbank’s Vision Fund posted record losses of £21.3bn.

No wonder he’s looking to float Arm to New York as quickly as possible and recoup the losses. The Johnson government must prevent this from happening.

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