Life’s a beach – or is it?
July 28, 2021 by Alistair Enser
This weekend, Prime Minister Boris Johnson opened the G7 meeting in Cornwall. The meeting convened some of the most powerful countries in the world (bar China!) and this year also invited Australia, India, South Korea and South Africa as guest countries. The annual meeting of the “world’s most influential and open societies and advanced economies” is hosted this year by the UK, and aims to bring the permanent members the UK, USA, Canada, Japan, Germany, France and Italy, plus the EU, for “close-knit discussions”.
As the G7 agenda admits this year, it is meeting in unprecedented circumstances, with much of the globe still fighting Covid-19. For many of the core member countries, the pandemic is beginning to be brought under control and social restrictions are being lifted. For guest countries such as India, things are very different.
The meeting agenda includes measures to provide more vaccines to the rest of the world and to prevent another pandemic in the same vein as Covid-19. It considers how to address global inequality, widen democracy and do more to combat climate change. But the meeting’s first session addressed economic recovery, a topic I have written about previously.
President Biden persuaded his fellow leaders to continue to keep the money flowing, arguing that the world still needs financial stimulus, despite background fears of inflation and central bankers nervous about interest rates. For his part, Prime Minister Johnson said in Cornwall that the austerity years following the financial crash of 2008 were a mistake, and with the bill for Covid-19 now well north of £300 billion, it’s obvious that the taps are still open. Will they remain open for some time still?
The sun is coming out
On the face of it, the macroeconomic climate in the UK is looking better. Business activity in March, despite the limited relaxation of lockdown, grew 2.1% over the previous month. The UK’s unemployment rate fell slightly to 4.8% in January to March 2021, down from 5.1% in the last quarter of 2020. Business investment is expected to be 1% higher from 2022 onwards than it would have been if Covid-19 had not happened, according to NatWest’s Chief Economist.
UK plc is still in a far stronger position than anyone would have expected this time last year, and as I have written about before, this is purely as a result of the UK’s successful vaccination regime. Yet the rumoured delay to the total unwinding of social distancing measures on 21 June in England may take the edge off the recent increase in consumer and business optimism, as well as preventing larger venues from reopening and making foreign travel increasingly difficult. As I have said over the last year, the situation changes so frequently that we need to remain as agile as possible, responding to rapid changes in the situation as conditions allow.
A new world
It is however only a matter of time before the UK is fully reopened and I would expect to see the recent business growth to continue as a result. For many firms, it may also be a very different place to do business.
The Chancellor of the Exchequer, Rishi Sunak, announced a deal concluded at the G7 meeting that will see the largest multinational tech giants paying a greater share of tax in countries in which they operate, rather than booking profits to other countries. This reflects an increased focus on the need for businesses to balance purpose and profit, and comes on the back of protests that some of the largest tech firms in the world don’t pay their fair share of tax.
I believe fully in the power of the market and the need for governments to provide a competitive environment for them to operate in. It’s vital that excessive taxation should not end up discouraging innovation or investment.
But I do think that many of the largest global brands aren’t paying the right amount of tax, and I believe that firms do have a social responsibility to do the right thing and ditch mechanisms that allow them to shift tax liabilities. Paying their fair share of tax in countries where they do business allows those economies where those taxes are raised and paid to create a healthy economy for all, funding healthcare, education and other public services that we have come to rely on in the pandemic, for example.
As a reminder, however, that one should be careful what one wishes for, the UK’s attempt to ensure financial services firms are excluded from the new tax initiative could backfire if not accepted. Not doing so could mean the UK raises less tax going forward – proof if it was needed that the economy needs to be treated with kid gloves while the world reopens.
To accompany this article, I have posted a survey on LinkedIn – do you think increased “fair” tax revenue from innovation and tech leaders will help or hinder economic growth, and aid recovery?