Press conference alert...
Kwasi Kwarteng sacked as chancellor + More U-turns + Podcast bonus content
So this is happening..…
And this reportedly…
And this…
Another quiet day of news then…
This is a fast-moving situation so I will keep my analysis brief for now and focus on what will continue to matter in the days ahead…
Firstly, doing a U-turn on corporation tax would be a much bigger deal politically and financially than the U-turn on scrapping the 45p top rate of tax. It would explode one of Liz Truss’s main pledges during the leadership campaign, one that marked her out as different to Rishi Sunak. Sunak had announced the increase in corporation tax from 19 per cent to 25 per cent while chancellor and it was due to come in next year. During the Tory leadership campaign he said he would go ahead with it if prime minister. If the rise does now go ahead and is not scrapped, like Truss proposed, how does she distinguish herself from Sunak? Presumably on helping households with their energy bills and going ahead with the personal tax cuts in the mini-Budget, namely reducing income tax and scrapping the increase in national insurance. There are all sorts of questions about what this says about the uncertainty in the UK. Corporation tax is a tax on a company’s profits. How are these companies supposed to plan and invest when they don’t even know how much tax they will be paying next year…
Secondly, unlike the U-turn on the 45p tax rate, this accounts for a big portion of the tax cuts announced in the mini-Budget. Below is the government’s estimate of the cost of the tax cuts on the day of the mini-Budget. Corporation tax is number nine on the list, the 45p tax rate is number six. As you can see, the corporation tax change accounted for almost half of all the tax cuts, far more than the change to income tax…
The other thing to point out is that markets like the suggestion of a U-turn. Remember, today is also due to be the end of the Bank of England’s £65 billion scheme intervention in markets. It has been buying UK government bonds (gilts) as struggling pension funds want to offload them to raise cash.
Here are the latest graphs on the pound, 2-year gilt yields and the 30-year gilt yield, which we have been running in Off to Lunch since the day of the mini-Budget….
This is the pound against the dollar…
This is the 2-year yield…
….and this is 30-years…
The pound has risen on reports of the U-turn while yields have fallen, notably so on the 30-year gilt. This is positive news on the back of the market chaos of recent weeks.
One final note on this for today. The last three recent weeks have included plenty of rare events and surprises, and here are three more…
Firstly, the chaos has got Ed Balls and George Osborne agreeing with each other…
Secondly, Kwasi Kwarteng has become the first finance minister to leave the International Monetary Fund’s meeting in Washington early for domestic reasons since the Greek minister Evangelos Venizelos in 2011 during his country’s sovereign debt crisis. That is quite a comparison for the UK…
Finally, let’s end our analysis on this…
Podcast bonus content…
Episode three of our Business Studies podcast featured an interview with Humphrey Cobbold, chief executive of PureGym, Britain’s largest gym chain, on what a chief executive does when their business has no revenue and they face an existential crisis. It was a fascinating interview. I thought he was particularly interesting when talking about the importance of more chief executives speaking out publicly on issues that matter (supporting your own staff in public and what it means to them is one underrated aspect of this, he said) and how he explained to staff why PureGym is expanding in Saudi Arabia despite its questionable human rights record. If you haven’t already, you can listen here on Substack, here on Apple and here on Spotify.
I am delighted to say that episode four of Business Studies will go live on Monday morning and features an interview with Tim Steiner, chief executive of Ocado, on how he built one of the most successful British technology companies of the 21st century.
One of the topics I discussed with Humphrey Cobbold was turning promising start-ups into bigger businesses and I wanted to share his thoughts on that with Off to Lunch members today. He is someone who has twice succeeded founders as the boss of fast-growing businesses and then successfully taken those businesses to the next level - Wiggle, the online cycling retailer, and of course PureGym itself. This is a key issue for the UK. So many promising start-ups fail to go on to become successful medium-sized and then big businesses. They either sell-out, quit or blow up. This is crucial for the future of the UK economy, because it is these promising businesses that will employ people in the future and help to level up the country’s economy. Anyway, this is Humphrey Cobbold’s thoughts on the matter in our interview. The questions from me are in black. If you aren’t an Off to Lunch member already, you can sign-up below…