Reviving the animal spirits

THE cost of Covid-19 is horrifying: Government fund raising in the 2019-20 fiscal year of more than £500bn, a sum equal to one-quarter of Britain’s total output.

The spending goes on with the Prime Minister providing a further £3bn to the NHS to build in autumn and winter resilience, on top of £6bn in the March budget and a commitment to spend £34bn extra a year by 2023-24 announced in the 2019 spending round.

A bigger public sector and investment in infrastructure is made possible at present by super-low interest rates.

But eventual tax changes are seen as inevitable. There was much excitement when the Office for Tax Simplification was charged by the Treasury with reviewing capital gain tax (CGT).

The idea that CGT could somehow plug the hole in the public finances is fantasy. Even if the current rate at which it is levelled were to be doubled, there is no way the tax take would leap seamlessly from £8bn to £16bn. Citizens with the most assets can afford the best advice on avoidance.

The most effective way of bringing down the deficit and debt is to grow the economy. That is made more difficult when extreme privilege allows big professional firms to keep employees working from home.

The reticence of such employers to return to more normal working is a blow to every retail and food outlet in city centres. Professional privilege means insolvencies, lost jobs and a shrinking economy.

Reshaping the tax system can help. George Osborne’s ‘patent box’ stimulated investment in new discoveries in Britain’s life sciences helping to engender a ‘can do’ attitude which has come through strongly in the face of the coronavirus.

Incentives in R&D and greatly increased matching funding for green technologies, satellites and telecoms could do much the same in these critical areas. If R&D funding were to be greatly stepped up for the Rolls-Royce small modular reactors, more engineers would be kept in work and the UK would have other choices for power generation other than Chinese financed and designed super-reactors. The UK would be much less dependent on buying in technologies from overseas.

The Treasury could also fire up share markets in Britain and deter ruinous private equity and debt-fuelled takeovers by removing the incentives for firms to expand by borrowing. Debt is a burden in hard times and it makes no sense for interest to be chargeable against tax. There has been no shortage of equity funding in the pandemic. Companies with good prospects, ranging from Whitbread and Compass in hospitality to Martin Sorrell’s S4 Capital in digital advertising, have raised new capital.

Chancellor Rishi Sunak chose to keep his powder dry on future tax changes in his summer budget. He should use his autumn budget to rekindle entrepreneurship and innovation.

Pay TV

WE all have friends who, before the pandemic struck, regarded subscriber-TV as a ridiculous extravagance.

Coronavirus changed that and it is hard to have a conversation with friends or family without recommendation for a Netflix, Amazon Prime or Sky series. Bingeing on boxsets is no longer the preserve of Stranger Things enthusiasts. Netflix-subscriber numbers up 26m this year to 193m globally are testimony to the viewing revolution and have driven the shares up 60pc this year.

There was disappointment when chief executive Reed Hastings warned that it expected new recruits in the third quarter to be just 2.5m. ITV might point out that is less than one-third of the peak audience for free-to-air Coronation Street in May.

As with online shopping and some working from home, Netflix has offered a glimpse of the future. Terrestrial broadcasters will have to adapt.

5G players

THE narrative from UK telecoms providers has been one of Huawei forever, as if there were no other choices.

Results from Swedish telecoms group Ericsson gives lie to that. Sales of 5G networks and software climbed sharply in the third quarter. With Vodafone, O2 and BTowned EE likely to be knocking on the door, Europe’s telecom equipment makers Ericsson and Nokia have been dealt a strong hand. Could there still be a role for Telent the subscale rump of Marconi Communications?

It is an opportunity the late Lord Weinstock would have relished.