10 Sep 2021

Focal Point - a busy, possible defining autumn ahead

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Even before the holiday suitcases were stored away this summer, the national mood had turned serious. The debate about the end of NATO’s Afghanistan engagement pushed COVID from the front pages, before that in turn was brushed aside by the return of traditional domestic politics: funding pressures in health and education, concerns about the end of welfare support and the plight of migrants crossing the Channel.

Parliament returned this week to grapple with each of these issues only to find them displaced by the political cuckoo of social care - one of the big, unresolved policy issues of this generation (and indeed many previous generations). How to provide and pay for social care in an equitable and affordable way was identified by Mr Johnson as key to his premiership right at the start. And having appeared to join others in ducking the hard choices, the Prime Minister this week took the wind out of observers’ sails with one of the bolder political manoeuvres we have seen in recent times.

Addressing the funding challenges of the NHS and laying down the foundations of a new social care system should land well with most voters (at least while the detail remains sketchy). But to pay for the largesse through tax rises on employees, employers and dividend recipients is genuinely bold, not least given the Conservative pledges made at the last election: “I accept that this breaks a manifesto commitment” is not a line you will hear from many politicians - ever. It is especially unusual to lead with it as the policy is launched, as the Prime Minister did this week.

So there must be real confidence that raising National Insurance is not problematic because it is not well understood. And we must assume there is some very robust polling in Mr Johnson’s back pocket (saying something different to Friday’s poll in The Times) - sufficiently strong to offset decades of received political wisdom about voters punishing ‘broken promises’ (much of it based on brutal electoral experience). A snap assessment is that in these first few days the Prime Minister has appeared to score a success – for now he has kept his cabinet in tow (talk of a re-shuffle doing wonders for discipline), his back-benches quiet and wrong-footed the Opposition.

And so? This is the scene setter for an autumn period which will see a 3 year Comprehensive Spending Review and Budget on 27th October. This week has seen another big political moment, for sure, but not the last by any means. Following the (hopefully) worst of COVID, the public finances look horrible. To address this, the government has already announced increased taxes (by 2025/26) of £17bn in corporation tax, £8bn in income tax and now £14bn in national insurance. Could there be more? Capital Gains Tax is one of the few left untouched (aside from freezing the modest annual exempt amount) and it might be that with a tax take in a full year of £9bn it does not offer significant revenue raising opportunities, and therefore create much political interest, in its own right.

But, as has been clear for some time, the symbolism of tax changes can serve political purposes as importantly as their role in filling the public coffers. So we have to assume that while the tax rises have been eye-catching already this year, this is not to say that they are at an end. Or that the debate won’t shift in response to high profile developments.

The industry is in the spotlight as a result of ongoing media scrutiny, wider questions about high profile M&A and, separately, climate questions in the build up to COP-26 in Glasgow. We are grateful for members’ engagement on these issues which equips us for our enhanced engagement with key government and political stakeholders. (We will, of course, be on the ground in numbers at the Labour and Conservative conferences to understand how their thinking is developing). As part of our wider efforts, our work on the ‘New Frontiers’ project continues apace. We have been very actively engaging across the media and politics while developing the research to inform a refreshed strategic narrative for the industry. Additional work on historic industry case studies and, separately, the jobs supported by the industry are also in progress.

This coming week we will be showcasing the industry when we launch the latest in our reports on investment activity - there is a strong story to tell, focusing on the way private capital has supported portfolio companies during the pandemic, across all parts of the UK, and backs businesses employing over a million people. Armed with great case studies we look forward to telling a story of growth and success which will position us well for the autumn political debates ahead.


Michael Moore

10 September 2021


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