Fresh tax hikes on business are senseless
IF you want a taste of things to come, look no further than the devastating tax hikes that are about to hit London’s struggling private sector firms. Business rates are about to jump, in many cases by 30-40 per cent or more. The reason: the tax, which is set by the Treasury but collected by local authorities, is based on the so-called rateable value of the office space used by companies. But rates are revalued every five years, and those that are due to come in from April 2010 are based on rents from April 2008, right at the peak of the market, before the bubble burst.
So not only are taxes about to surge, but to add insult to injury the pseudo-scientific formula imposed by the Treasury makes no sense. The government claims many businesses will be better off and that it has prepared a package of measures to help those that will suffer; but the truth is that thousands of companies, from Mayfair hedge funds to City banks to West End restaurants are going to take another thrashing. Many smaller firms may well be tipped over the edge as a result. If Gordon Brown really wished to help business, he would have reformed the tax.
Britain’s competitiveness is in accelerating decline. We are losing market share in hedge funds to the US and Switzerland; our tax system increasingly penalises hard work, thrift and prudent investment; and global firms are moving their headquarters out of the UK. Yet what is the government’s response? Yet another tax attack, with struggling small firms set to be hit the hardest. Madness.
JUST GET ON WITH IT
IT was being suggested last night that Bank of America’s directors are considering recruiting a temporary CEO to look after the firm when Ken Lewis steps down in December. The idea is that the new boss would run the show for two years, before passing on the baton to an internal candidate; as we report on page 9, there are six of those to choose from.
But such a scenario would be hugely damaging. Bank of America, now one of the larger employers in the City since its controversial takeover of Merrill Lynch, is America’s biggest bank; it needs immediate, firm and consistent leadership if it is ever to regain its footing. Giant private companies are not like slow-moving government bureaucracies, juggernauts on auto-pilot; rather, they are inherently unstable organisations that can very quickly get sucked into a spiral of near-irreversible decline.
It is vital that a proper successor is found as soon as possible. If the firm’s directors do not know where to turn, here is a suggestion for them: they could do worse than hire Bill Winters, who until he was ousted on Tuesday was in charge of European investment banking at JP Morgan. He would certainly shake things up a little.
DANGER SIGNS
What a strange week this has been. Manufacturing surveys in the UK and the US suggest the recovery in that sector may be stalling, though China’s figures were as buoyant as ever. But mergers and acquisitions are back: Comcast is in talks with GE over NBC Universal, the LSE wants to buy Turquoise and Cisco is set to grab Tanberg. Investors should tread cautiously: market exuberance combined with economic ambivalence makes for a potentially devastating cocktail.