Banking

ALEX BRUMMER: Chancellor Jeremy Hunt’s flawed rallying cry

Jeremy Hunt’s vision for country can only be achieved if investment, enterprise and entrepreneurship are given support, says ALEX BRUMMER

Talking tough: Chancellor Jeremy Hunt

Jeremy Hunt’s formidable Bloomberg speech seeks to burst the cloud of pessimism which hangs over the UK economy.

He is up against daunting forces on the opposition benches and a national narrative which is instinctively gloomy.

When Richard Branson’s Launcher One mission failed as a result of a malfunctioning rocket, it was immediately assumed it was all over for the UK’s £16billion plus space industry with its innovative satellite technology.

Yet rocket tech is notoriously unreliable and the history of Elon Musk’s £103billion Space X is also riddled with debacles.

Hunt’s goal is to refocus attention on all the stuff that Britain is good at, such as AI, pharma, biotech, creative industries and fintech. Britain’s brilliant research universities have helped drive us to the top of the class in many categories.

The UK’s ability to hang onto those technologies, and turn them into world beating companies, lags. Our satellite champion Inmarsat is on its way to US command and control unless the Competition & Markets Authority stops it. Industrial software pioneer Aveva was recently swallowed by France’s Schneider and barely anyone blinked an eye.

In his speech, Hunt mentioned support for Sizewell C, the UK’s next nuclear reactor. But why is the project still on the starting blocks? And what about getting fully behind Rolls-Royce’s Small Modular Reactors before GE and Hitachi get there first? No one will miss the paradox of Hunt speaking in favour of HS2 on the day that it was reported that the final miles of track to Euston might be axed. Following the decision to abandon the Leeds leg, there is danger of destruction by a handful of cuts.

The Chancellor needs a whole new approach to company taxation in the Budget if the UK is to reverse its disappointing business investment and productivity performance.

The windfall surcharge on the North Sea is a barrier to energy security as the UK seeks a greener future. Ideally, the jump in corporation tax from 19 per cent to 25 per cent would be rescinded again. At the very least, the super-deduction, which provides a double tax write-off for new investment, should be made permanent, allowing planning for the future. Britain’s spend on R&D was up-rated by the Office for National Statistics late last year and is now assessed to be 2.4 per cent of output. If the country really has ambition to be the next Silicon Valley, it needs to at least match the US level of 3.4 per cent and be underpinned by tax incentives.

Hunt has looked at the horizon and likes what he sees. The country is only going to arrive there if investment, enterprise and entrepreneurship are given the tangible support they crave.

Direct hit

The near halving from last year’s peak in standalone insurer Direct Line shares to 173.8p in latest trading tells it all.

Chief executive Penny James may have rebuilt the insurer’s technology for the digital age, but shareholders are unforgiving about value destroyed and a dividend axed.

A new management team, temporarily headed by chief commercial officer Jon Greenwood, needs to inspire confidence in the firm’s underwriting and strengthen depleted capital. The possibility of a swoop on an insurer with 8.5m customers, with a market value of just £2.28billion, will be tempting. Chairman Danuta Gray will need to show nerves of steel.

Aviva, which has strengthened its finances with a series of disposals, must be keeping an eye on things. Until now, boss Amanda Blanc has been all about selling assets, but bolstering market share would be a tempting proposition.

Nor should anyone count out Bain Capital which already owns insurance brand Esure. Some of Direct Line’s underwriting losses have been re-insured, which is some relief for investors. Consumers who stay loyal in a promiscuous market place will end up absorbing some of the pain with higher premiums.

Best of luck

Sainsbury’s share register already is lumpy with Qatar and the Czech sphinx Daniel Kretinsky holding big stakes.

Now they have been joined by Bestway, the privately held owner of Costcutter convenience stores. A deal with Bestway potentially could be just what Sainsbury’s needs, having tried and failed to halt Aldi and Lidl with no-frills brand Netto. The last thing it needs, however, is a highly leveraged deal with Bestway. The fates of Morrisons and Asda provide a salutary warning.

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