Raising taxes on banks dangers driving capital abroad: ALEX BRUMMER

What we have learned from a sterile election debate so far is that Britain appears to be a fiscal basket case.

In spite of this, three categories of revenue – income tax, national insurance and VAT (except on private schools) – are untouchable.

The reality is that the UK’s budgetary settlement, although challenged, is better than most of our G7 competitors with the exception of Germany.

Under the current fiscal plans, the debt-to-output ratio is scheduled to fall by 2028-29. 

The intention is to reassure markets that the UK has in place a credible medium term fiscal plan. However, successive Chancellors have moved the goalposts. So we should not assume that they are set in stone.

Bank of England: The UK’s budgetary settlement, although challenged, is better than most of our G7 competitors with the exception of Germany

There are reasons to think there could be more headroom than generally assumed.

A capable government could bring NHS spending under control by using, and even monetising, artificial intelligence. Jeremy Hunt started down this path in his March budget. 

The other big money saver would be an aggressive drive to lower welfare spending by ending the surging cost of working age people drawing expensive medical benefit. 

That is not all. As interest rates are brought down, from the unnecessarily high 5.25 per cent, the cost of servicing the national debt should drop.

Goldman Sachs points out that losses on the asset purchase facility, the legacy of quantitative easing, should ameliorate.

If there is a legacy from the Liz Truss tantrum, it is that all the parties are fearful of disturbing calm in the bond markets.

The tight fiscal envelop is dangerous in that it is pushing the LibDems and Labour in a direction which penalises enterprise.

No one could disagree on LibDem leader Ed Davey’s pledges on fixing social care. Or his desire to extend child benefit beyond two children. 

The path for getting there is worrying. He believes that some £27billion of extra income can be raised by 2028-29 without taxing ordinary people.

Raising taxes on the banks and oil companies might look like an easy win. But if bank taxes are too high, they will make the financial system less safe and could stymie lending and raise customer costs. 

If big oil decided the UK is a poor place to do business (Shell has raised the idea of shifting to the US) then investment in green technologies could be punished. 

Penalising share buybacks would be spiteful blow to a struggling London stock market and encourage debt fuelled finance.

As for Labour (we will know more of its plans later in the week), pre-announced intentions to close loopholes on the wealth and North Sea drillers would drive capital overseas and plans for a Green New Deal would be fantasy. If Britain is to invest in next generation technologies, it needs R&D and tax incentives.

Looney legacy

If questionable behaviour at the very highest level at BP provides any guidance, the oil major’s human resources department is going to be very busy. 

After the dismissal of former chief executive Bernard Looney, over his failure to fully report past relationships with colleagues, the group is tightening disclosure rules. The oversight cost Looney £31million in lost income.

Everyone working at BP will be required to report all intimate relationships not just those which represent a conflict of interest. 

Chief executive Murray Auchincloss acknowledged a relationship with a fellow BP executive when he became finance director in 2020. 

Her name emerged in print as a result of share purchases filed on London Stock Exchange’s regulatory news services. BP’s new policy may appear sensible given past mistakes.

But it will raise questions about privacy and potential misuse of the information.

Pensions punished

M&S boss Archie Norman is right to blame pension funds for the malaise in London listed companies.

Tax changes (loss of the dividend credit), overzealous regulation, a switch from equities to gilt investing and risk aversion has destroyed equity culture in the UK.

We learned during the market conniption in the autumn of 2022 that liability-driven investments (LDIs) – derivatives built on British government bonds – risked bringing the whole pensions system crashing down. Scary.