The answer to a question no-one asked
Battle to be PM + Europe and gas + Uber + Fantasy Gameweek
In one of the many memorable episodes of The Simpsons, Springfield gets hit by a hurricane. Ned Flanders’ house is destroyed and after the residents of Springfield make a ham-fisted attempt to rebuild it, his patience snaps. Flanders insults various members of the town before turning to Lisa Simpson and saying: “Do I hear the sound of butting in? It’s got to be little Lisa Simpson – Springfield’s answer to a question no-one asked.”
The answer to a question no-one asked…That scene came to mind this morning when I was looking over the economic policies being proposed by the Tory leadership candidates. In short, tax cuts and little else. The global economy has been hit by a hurricane in 2022, where are the policies to actually help the UK bounce-back from it? How does the country reduce its reliance on imported oil and gas? How does it stop the chaos at airports (Heathrow is warning today that more flights could be cancelled)? How does it improve productivity outside London and level-up the economy?
Jeremy Hunt and Liz Truss have at least pledged to overhaul business rates, with Hunt proposing a five-year holiday for struggling communities. Great, but given all the other tax cuts that are being proposed, where will the money come from to cut business rates? This tax on commercial property is forecast to bring in £29.5 billion in this financial year, making it the seventh biggest source of income for the Treasury.
Cutting corporation tax is an odd focus for the candidates in many ways. Yes, many business leaders would like the scheduled increase from 19 per cent to 25 per cent next year to be reversed. But of course they do, who wants to pay more tax? Yet the calls for this have hardly been a chorus compared to other issues. There are bigger priorities for businesses, like improving infrastructure and skills. According to the Office for Budget Responsibility, the amount brought in by corporation tax will increase from £64.9 billion in 2022-23 to £82.6 billion in 2023-24, after the rate rises to 25 per cent. Most of the candidates have now pledged to reverse this increase and some (Hunt and Sajid Javid, for instance) will reduce it to 15 per cent. As you can see from the OBR’s forecasts, that will cost billions, billions that can’t be used on helping households or boosting infrastructure…
Cutting corporation tax is undoubtedly a headline-grabbing move and there is something to be said for it as a way to promote the UK as a place to do business. But a reminder that Rishi Sunak said earlier this year that there is little evidence that cutting corporation tax actually stimulates investment. It is far more effective, he said, to reduce business taxes on investment, like the superdeduction tax. Sunak may be wrong on this, but I would like to see the evidence. It would be far more refreshing to see radical proposals to rethink business taxes rather than just cutting corporation tax. A tax, remember, which is only paid by profitable businesses…
Of course, this is early days and the debate between the candidates will evolve and expand. But the nature of this campaign, including the large number of candidates, means eye-catching proposals are needed to win the attention of Conservative MPs and the party members. These proposals will have to be delivered if the candidate wins.
The candidates are also having to speak as if they know the answer to questions which, frankly, no-one can answer. By the time the new prime minister is in place in the autumn, the world could look different again. What happens if Russia does not turn Nord Stream 1 back on after its 10 days of maintenance (more on that below)?
Listening to Malcolm Gladwell’s excellent Revisionist History podcast recently (which is on experiments) I have been struck by how little we really know about the world and human nature, let alone the economic and political outlook. The leadership debate right now could do with a dose of this humility - they can’t possibly know all the answers to the issues facing Britain. Blowing the national budget on tax cuts before they have even had time to consider these issues properly – or sticking rigidly to his previous tax policies, as Sunak is – isn’t sensible.
I get it, this is a forlorn hope, the world doesn’t work like that. But looking back at some of the other divisive issues in Britain recently - Brexit, for example - the debate probably would have been a lot healthier if experts on both sides had accepted there were questions they just didn’t know the answer to. One can hope…
A tweet that helps you understand the world…
The team behind the Doomberg finance newsletter on Substack, which as the name suggests is focused on finding things we should be concerned about, has written an interesting thread on the natural gas situation in Europe. It’s worth reading the full thread but as you can see from the conclusion above, it is not optimistic. On the same topic, the Devil’s Advocate newsletter is also worth reading as it includes great stats, graphics and maps on the natural gas network in Europe. You can read that here.
You should also read this…
For those who haven’t read it yet, The Guardian has published a series of pieces on Uber following a leak of more than 124,000 internal documents. The pieces offer extraordinary insight into the taxi company’s lobbying around the world between 2013 and 2017 as Uber grew in prominence under former boss Travis Kalanick. The main piece was published last night here. This morning The Guardian has published a collection of pieces specific to the UK. They include claims that at least six Conservative ministers did not declare meetings at which they were lobbied by Uber. You can read that here. There is also a piece which covers how Uber tried to get David Cameron and George Osborne to lean on Boris Johnson while he was mayor of London. Interestingly this portrays Johnson, who was hostile to Uber, in a more sympathetic light than recent events. That is here. (The Guardian)
Following Elon Musk’s move to scrap his takeover of Twitter, the Investor Amnesia newsletter, which looks at business and markets history, has done a special on tycoons and corporate battles. It includes a link to this piece on the extraordinary battle between Henry Ford and the Dodge brothers, which saw a legal battle that culminated in a ruling that set the precedent that businesses must prioritise their shareholders (Jalopnik)
The strong US jobs market suggests concerns about a recession are overblown, according to this bull case on the economy (TKer)
Shell is looking for someone to manage its TikTok profile as oil giants use social media to promote their green credentials (FT, paywall)
Finally, for those who missed it, here is Off to Lunch’s Sunday press review…
And finally…
For those who enjoy playing fantasy football, and I know there are plenty of you among Off to Lunch’s subscribers, there will be a new place to find help and analysis this season. Along with my good friend and pensions expert Tom Selby, we are launching Fantasy Gameweek. We think there is a lack of help for fantasy football players, so we are going to offer it ourselves. This will help you win your mini-league, or even just be more competitive if that is all you want. There will be weekly newsletters, a podcast and a website. It will launch on Wednesday and you can sign up here:
Thanks for reading. Off to Lunch will be back on Wednesday. If you want to contribute to the work of Off to Lunch, read all our newsletters and attend our forthcoming events then please sign up for a paid subscription below.
Graham