Articles by Leo Ringer on the GC Blog and GC analysis
In October 2016, UK Chancellor Phillip Hammond was reportedly considering slashing the UK’s Corporation Tax rate to 10%, as part of creating a low-tax post-Brexit UK economy. Tonight, he will warn us that “everyone will need to pay more” to fund Britain’s future. In particular, figures from across the political spectrum are eyeing corporation tax increases as a way to fund signature political commitments. British business risks going from economic arrow tip to political piggy bank in twenty short months.
Recent years have seen important global shifts in both the policy frameworks for screening inward foreign investment and the way in which they are applied. These shifts come against a backdrop of protectionist political rhetoric and anxieties about the impact of foreign direct investment (FDI) in traditionally open economies. The new landscape is exemplified by the position in the US, from the increase in the volume and intensity of CFIUS reviews (leading to the collapse of deals such as Ant/MoneyGram and Canyon Bridge/Lattice Semiconductor), to the current proposals for expansion of the CFIUS mandate. It also extends to Europe, with increased intervention in France and Germany, the European Commission planning EU legislation on inward investment screening for the first time, and the UK government proposing extensive changes to its powers of national security review. Against the backdrop of these larger changes are many smaller shifts in the political mood around FDI across the OECD.
The nationalisation of several utilities and rail franchises is a key plank of the UK Labour Party’s policy platform. To the dismay of implicated business leaders, it is also relatively popular, according both to the 2017 general election result and to separate polling. But how much would it cost - is Shadow Chancellor John McDonnell right to claim, as he did in a speech this weekend, that it would be “cost free”? Answering this means teasing out a number of related but distinct issues.
The UK debate about tuition fees for university students can be seen as a triangulation of three sets of costs – private (to the graduate), public (to the taxpayer) and political (to the policymaker). The allocation of cost between the three actors has always been uneasy, and when the tension becomes unsustainable, change follows. The balance is once again shifting – the political cost of the status quo balance between public and private is growing quickly. If it becomes unbearable for policymakers, the rebalancing of cost back towards the state from the individual is the most likely outcome.
Tax rises are now back in the centre ground of the UK economic discourse, in a way they have not been for at least a decade. This shift should put businesses and investors on notice - the era in which they could safely assume an ever-friendlier approach to taxation may be at an end.
The NASDAQ reached an all-time high yesterday as Donald Trump announced he wants to more than halve the US corporation tax rate, from 35% to 15%. But he knows that doing so comes with a big price tag – one that, in the context of a fraught debate about the US national debt and deficit, is an almost impossible sell to Congress. The solution? Dynamic modelling: counting the economic growth gains that the cut might create when calculating its cost, to show that in fact there is a net benefit to the Treasury’s coffers.
Mark Carney knows that the Financial Stability Board, the global financial regulator he chairs, needs the US on board. And he knows that the Trump administration is facing pressure to abandon ship. These facts explain the thrust of his letter to the G20 finance ministers and central bank governors ahead of this weekend’s summit in Baden, Germany. It is an almost explicit appeal for US participation in the FSB and an almost official admission that the organisation is worried.
Today SoftBank, new owners of UK tech jewel ARM Holdings, sold a 25% stake in the business just nine months after acquiring the chipmaker. Though the UK government is committed to ending short-termism in company governance and stewardship, and addressing the power of ‘foreign’ takeovers of British companies, the move apparently sounded no more alarm bells than did the initial swoop for ARM.
Yesterday in Wiesbaden, Bank of England Governor and Financial Stability Board (FSB) Chair Mark Carney gave the clearest articulation yet of how financial regulators are weighing the future of fintech. While at pains to predict a “shining future” for financial disruption, he put both innovators and incumbents on notice. The speech gave us three clues about what he and the FSB might conclude when they report to the G20 on fintech in July.
A contest for control of the Brexit process is playing out between the government and parliament in the UK. The complex, opaque rules of parliamentary procedure have suddenly become central to the ability of either side to dictate the tempo and content of the UK’s withdrawal from the EU. Understanding these rules is key to understanding whether and how parliament can constrain government and shape its position, or whether ministers can proceed largely unchecked.
According to one major newspaper, the UK Government is developing a “nuclear” Brexit negotiating threat in the form of a corporation tax cut to 10%. The logic goes that the prospect of an aggressively low-tax “offshore” UK on the doorstep would scare the EU into accommodating British preferences for the future UK-EU relationship. But as with all nuclear deterrents, the question boils down to one of credibility: could and would the UK actually deliver a CT rate of 10%?
Immigration is the simmering political issue at the heart of Brexit. Much of the debate has focused on how far the UK can reclaim control of EU migration into the UK, while retaining some form of participation in, or preferential access to, the single market. But what if we assume that full migration policy is back in the hands of the UK government. How does it meet the palpable public expectation it has created?
In a week when a UK university, Oxford, was crowned the best in the world, it’s worth reminding ourselves that Brexit gives the British higher education sector a lot to chew on. The potential loss of research funding and restricted access to top EU talent are headline concerns, but here’s a different question: what happens once EU students become classified as ‘international’? Does the changing fee dynamic mean feast or famine for UK universities?
On school exam results day, in mid-August, while politicians relax on holiday and the Olympic Games dominates headlines, the UK Government has published its long-awaited strategy for tackling childhood obesity. The eyebrow-raising timing is explained by the fact that the majority of the more muscular interventions under discussion, and long hoped for by the health community, have been dropped. While the debate about obesity will rage on, the plan and its communication give us an early insight into the calculus of Theresa May and her new administration.
Take one “jewel in the crown” of British industry – something export-heavy, research-intensive, tech-driven. Combine with a hard-talking new Prime Minister and a fresh commitment to review and defend foreign acquisitions in the “national interest”. Add in a surprise swoop from one such foreign acquirer, a dash of financial and political opportunism, and you have a recipe for fireworks. We can debate the precise justification of ARM’s status as a national icon, but it nevertheless stands in political terms as one of the UK’s biggest home-grown success stories in tech. So the apparent ease with which SoftBank’s acquisition is beginning its formal life is something of a puzzle.
My colleague Ying Staton writes today in Singapore’s The Straits Times that values in the UK’s housing market will remain robust, after a few short-term jitters. Yet a cursory glance at the UK real estate market suggests that all is far from well, as investors rush to withdraw funds and fund managers slam the gates on them. So what explains her optimism?
We now have two all-but-certain US Presidential candidates. For all their manifest differences, they have one thing in common: neither has warmly endorsed the Dodd-Frank post-crisis framework for banks. So we might ask where either candidate might go for ideas on what to do to it. Three possible answers this week.
Following a slow but ultimately successful passage through Parliament, the centrepiece of the UK government’s housing reform agenda has received Royal Assent. Through its explicit prioritisation of ownership over rental, the Housing and Planning Act legislates for the government’s ambition to drive up home ownership rates and to build one million new homes by 2020. Its complex, centralising and tenure-biased approach will change the calculus for residential investors and developers alike, across tenures and across the UK – with many details yet to be decided.
The IMF’s ‘Article IV’ assessment of the UK economy is dominating headlines for its roundly negative assessment of a vote to leave the EU - but beyond its Brexit judgments, the report is a telling insight into the IMF’s current outlook on some key policy questions.
Global regulator the Financial Stability Board is at pains to cast banking reform in 2016 as an implementation exercise, not a policy-making one. But the ghost of Paul Volcker lives on in the US as the question of ending ‘too big to fail’ returns to the fore.