Flattening Britain’s tax base
The more one learns of the proposed £4.3bn bid by Ball of the US for its British competitor Rexam, the less one likes it. Until the Pfizer battle for life sciences group Astra-Zeneca erupted last year, it was generally the view of shareholders in British companies that as long as the price was right, nothing else mattered. In the case of Pfizer the company’s record of closing down research facilities in Britain, together with the stated tax reasons for doing the deal with the UK based company, eventually defeated the transaction.
So far no such arguments have been heard about Rexam.
The debate has been all about global scale, even though in many of the key territories, including North America, Brazil and europe, the market shares achieved by a joint operation would mean dismantling a new international behemoth before it is formed.
Other UK corporate dismemberments, undertaken for competition reasons, have been hugely detrimental. In the case of EMI, for instance, it left the UK without its own music production and distribution cham- pion even though British artists could lay claim to the top ten albums in 2014.
No one is suggesting that making cans is anything like music production. But there are skills involved, from design to product innovation, which will be lost. It is a lack of ambition by UK plc that makes British companies the prey rather than the predator.
In a week when the whole nation’s eyes are on tax questions, as a result of the disclosures of the activities of HSBC’s Swiss private banking offshoot, it seems extraordinary that no one has fully considered the tax implications of the American assault on Rexam.
Our own inquiries into Ball’s tax affairs show that, like many US outfits, it has chosen to locate itself in the low tax state of Delaware. What is more worrying, however, is that using Delaware as its base, it oper- ates a byzantine overseas tax structure that leads to many of the offshore tax havens currently being scrutinised by the OECD in Paris.
Should the UK be worried? Of course it should. Rexam is a good UK corporate citizen, paying its company taxes here amounting to £79m last year. It has become a beneficiary of George Osborne’s lower tax regime that has already lured certain firms, including Sir Martin Sorrell’s WPP, back from Ireland.
Clearly because of the domination a combined Ball-Rexam will have in some markets, it will have to pass muster with competition authorities. But that is not a sufficient test.
As in the case of Pfizer-AZ, the Business Select Committee of the house of Commons should be looking at the tax and industrial aspects of such a deal. No one wants to stifle free markets. however, over recent decades we have allowed too many great UK companies to succumb to foreign takeovers without safeguards. The tide has to be turned.
Growth spurt
The Tories decided some time ago that there would be one central message for the upcoming election: ‘It’s the economy, stupid’.
So they will be pleasantly surprised by the latest set of forecasts from the independent National Institute for economic & Social Research (NIESR) that is not generally known as wholly sympathetic to the government.
Far from finding that output could slip in 2015, it has raised its central growth forecast by a whopping 0.5pc to 2.9pc. The main factor in its revised thinking is the lower oil price that feeds through to the pockets of consumers via lower petrol and to industry via lower costs. The fact that the UK economy continues to grow robustly will take some of the sting out of concerns that we could be heading for a period of Japanese style deflation.
In Japan consumers and business put off spending, and asset prices fell when deflation took place. Britain’s economy, with its high levels of personal gearing and lack of fear of credit, operates in a different way, so in the short term at least there may be nothing to worry about.
The NIESR does raise another important issue. It argues that the Tory plans to re-tackle the deficit, with renewed vigour after the election, could scythe the rate of growth. Output would be higher under Labour and LIBDEM plans. The reality is that counter-cyclical economics teaches us that there is no better time to fix the budget than when an economy is growing.
Leave it to the downturn in the cycle and you end up with greater austerity and unemployment.
Viking watch
HAIL the conquering hero. The new boss of oil and gas explorer helge Lund, formerly of Statoil, comes with a big price on his head.
With energy prices plummeting he has quite a challenge on his hands.
If Lund manages to turn around BG’s fortunes he may be considered worth every penny of his potential £14m pay package.
But whatever happens now the board headed by Andrew Gould have ensured he will always be a lightning rod for criticism.
how foolish.