Stop the tech brain drain
Among the big undeclared losers from overseas takeovers are Britain’s taxpayers.
The nation’s research universities, supported by public funds, are the source of dozens of commercial spin-offs, the result of work done in labs and research institutes.
When the companies fall into overseas hands, the UK corporate tax base is eroded and the patents and R&D, an outgrowth of UK research universities, escape too.
There are many reasons why selling aerospace group Cobham to American private equity firm Advent is a bad idea. In purely financial terms, shareholders who voted in droves for the £4bn deal are starting to look foolish now that the FTSE discount for UK companies is fading and the pound is rising. The premium being paid by private equity adventurers is shrinking by the day.
As the Cobham family points out, technology created in Britain with the support of government, such as new flight refuelling systems, will in all likelihood end up in Pentagon hands.
It is terrific that UK-US defence and security is so strong. But it is quite another when the UK’s technological edge, so significant as we forge new trading relationships, is undermined. That is why the Business Secretary Andrea Leadsom should block the deal at its final hurdle.
Unlike the Cobham takeover, most deals go almost unnoticed. Apple, for example, has emerged as the buyer of Spectral Edge, a Cambridge-based photography start-up, for an undisclosed price. Spectral Edge was spun out of the research labs at the University of East Anglia in 2014. It is the developer of software which fuses together multiple versions of the same image to improve photo quality.
The value of this to Apple is immeasurable. The iPhone historically has lagged behind its Samsung rival on the quality of photograph images. Spectral Edge also has valuable security applications in that it can be used to enhance images from surveillance cameras.
The sale of the firm, which raised $5.3m from venture capital groups in 2018, has been beneath the radar. The Apple model dictates that it centralises control of everything it buys. If Britain is to have a decent post-Brexit future this is precisely the kind of transaction which should be scrutinised.
Boris Johnson’s government also should be asking how best it develops a venture capital industry confident enough to hang in for the longer-term rather than allow UK intellectual property to vanish down the gullet of Silicon Valley vultures.
Spending thrift
AFTER Labour’s gargantuan spending promises, the Tory electoral pledges were relatively modest. That is just as well. Updated fiscal numbers released by the office for Budget Responsibility show how difficult it will be to boost spending, balance the current budget and control debt as a proportion of national output.
The election-delayed oBR figures largely reflect accounting changes with student loans the main factor. As a result the budget deficit for this financial year is forecast to be £18.3bn higher at £47.6bn than projected in march. over five years, the oBR expects an extra £100bn of borrowing. The higher numbers will rub up against the current fiscal rules which limit current borrowing to 2pc of output. However, Chancellor Sajid Javid has indicated he is ready to loosen the belt buckle and raise the limit to 3pc of gDP. He also wants to take advantage of superlow interest rates for long-term infrastructure investment.
The underlying picture could actually be worse. growth slowed dramatically over the last few months as a result of Brexit and electoral uncertainty. The hope must be that the clouds will lift as optimism on the stock markets suggest. It may well be that 2020 could see expansion resumed, improved tax receipts and stronger public finances.
one way in which the government could ease pressure on the public finances is by giving national Savings & Investment more latitude to offer savers better returns. The banks won’t like it, but challenge from nS&I could change the dynamics of the market.
Film rouge
no onE can accuse UK-based Cineworld of lack of ambition. The purchase of Canada’s Cineplex chain for £1.6bn will push debt up to horror levels. That is fine while interest rates remain static and costs can be squeezed. But it is going to require a run of blockbuster movies if going to the pictures is to see netflix, Amazon and streaming off the field of play.