New Labour?


New Labour?

Guest blog by Simon Denham, founder and former CEO of London Capital Group, one of the UK’s leading financial services companies specialising in online trading services for retail, professional and institutional customers, globally.

And so ‘Wallace’ Miliband has finally ditched the disguise and come out decisively in shifting the landscape to the left.

Labour has basically decided that the British electorate is as ill-educated as the Daily Mail claims. Price controls have proved disastrous in virtually every instance where they have been tried, but Labour realise that the average voter does not realise this. In a world where the UK is fighting along with everyone else for inward capital investment (especially in the energy sector), his announcement of freezing energy bills for 20 months from 2015 could prove to be a real bomb to the growth prospects of the UK as a whole – from this exact point in time.

Making the statement now (four years before the event horizon itself) effectively leaves the energy companies (and Britain) in something of a conundrum. Why invest in new infrastructure when there is a good chance of a new government coming in and negating the value of that investment? Maybe this is the underlying reason for his statement? Continued slow growth to bring the UK back from the brink, would make the Tory’s election prospects in 2015 pretty high. But if energy companies (and other concerned sectors) stop investing in Britain and push immediate/scarce capital to other more attractive shores, this will bring the tentative revival to a dramatic halt. And the Tories would take the blame.

Not only this but why should he stop there? Maybe petrol prices could be frozen as well? Or clothing? Or food? It sounds great to the ill-educated, until you realise the effect on investment capital shifting it away to the BRICS, the US and even Europe.

Imagine if energy prices rise significantly in the world markets in 2015/16 (not exactly a risky prediction to contemplate). Why on earth would anyone send gas, oil or electricity to the UK if they were then going to make a loss selling it to consumers? Why should any company take a chance on the possibility of this occurring (especially when many of the power companies are foreign)? The chances of power cuts, and all this would mean for the UK economy, would be significantly increased.

It is time that politicians realised that the returns made by the energy sector are not vast especially when you consider the capital required. Their profits are almost exactly in line with what the supermarkets make and nobody seems to think they are fat cats ripping off the poor hard-pressed consumer.

In reality the consumer is hard pressed for one single reason. The overall tax take that governments, of whatever hue, extract from the working man. Income tax, NI, VAT, council tax, fuel duty, tobacco duty, alcohol duty, stamp duty, CGT…the list goes on and on…all of these sap growth, sap entrepreneurship and harm the UK.

The second and third ‘policy’ proposals made over the last few days were just as populist…little thought about the ultimate effect, only that it was likely to gain votes. Get ‘those evil banks’ to pay more tax to fund nursery places (they must have loved that one, how can any politician possibly say no to it?) No thought yet again. Weakening the banks means lower lending and lower growth.

And, finally, the announcement to get ‘big’ business to pay more corporation tax so that small businesses could pay less. The problem is that when they say ‘big’ business they really mean UK medium/big businesses, not multinationals (who will dodge their UK liabilities with nifty accounting practices?) So, in reality, Labour will be harming the UK’s ability to compete in the global market by raising costs solely to get a vote or two.

I am all in favour of changes to the international tax laws so that the transfer of tax liabilities between various jurisdictions is made harder to do or to justify. But merely increasing the level of domestic corporation tax will be entirely counterproductive and guaranteed to have unintended consequences.

An easy correlation would be the effect of lower dividend payments to pension and investment fund returns, the value of investments and therefore the ability of the companies to raise capital against them and finally reduced cash available for R&D. These would all be reduced, harming the long-term growth of the UK. Not of course something to concern Labour who only seem to be concerned with their beloved, bloated, public sector.

Thirteen years of Labour’s disastrous economic policies should be enough for at least a decade of repentance, but in today’s media connected world people seem to want instant solutions while at the same time forgiving-forgetting the errors of the past.

Mr Miliband, merely by saying what he has just said, could already have proved to be harmful to us all. With the prospects of higher taxes and possible price controls what Finance Director would suggest the United Kingdom is the place for new investment? He is right in one respect though…“Britain can do better”…first off we could do with better politicians.

Labour is back to what it always does best – spending other people’s money.


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