Nadhim Zahawi’s corporate tax review raises more questions than answers | Nils Pratley

NOTAdhim Zahawi’s thoughts on business taxes may become irrelevant at any time, but this week’s Chancellor of the Exchequer has arrived with an idea to throw around: delay, reform or simply reverse the business tax hike. companies from 19% to 25%, which was to take effect from next April.

That, at least, seemed to be the meaning of Zahawi’s many references to the tax in his day one interviews. “I know that boards around the world, when making investment decisions, are long-term, and the only tax they can compare globally is corporate tax” , he told Sky News.

Well yes, it’s true that comparisons are easy when you only look at one number. The appeal of Rishi Sunak’s approach, however, was that it was based on an analysis that the corporate tax game is more complicated if the goal is to stimulate business investment, where the performance of the UK have been disastrous since 2016.

“It is not clear that the reduction in the overall corporate tax rate has led to a radical change in business investment; we need our future fiscal policy to be focused and strategic,” Sunak said in a speech in March – virtually the only speech from his Covid-battered chancellery that attempted to sketch out a long-term economic plan for the UK. .

Thus, until now, one of the main thrusts of the Treasury’s corporate tax thinking has been to design a successor to the “super deductions” – in effect large tax breaks on capital expenditures – that Sunak introduced as a two-year emergency measure in his Spring 2021 budget. The CBI, for its part, wants the deductions made permanent, seeing them as the surest way to lift the UK out of the bottom. of the G7 ranking for business investment.

The data on the effectiveness of the deductions is mixed, it must be said: there have been few signs so far of a significant recovery in business investment. But, if there’s anything close to consensus in the FTSE 100 boardrooms, it’s that Sunak had at least identified the right problem: the UK’s yawning productivity gap with its peers. European countries, particularly France and Germany.

A key question for Zahawi is therefore whether the “super deduction” scheme would survive a reversal of the corporate tax hike. Given the state of public finances, it would be difficult to have both. Raising the rate to 25% is expected to raise an additional £17bn a year, of which perhaps £11bn would be repaid through investment incentives. If you say goodbye to the £17 billion, your scope for specific investment freebies is very limited.

Zahawi pointed out that he was simply in “review” mode, but the corporate tax hint was heavy. Business leaders are hard-wired to push for a cut – or a freeze in this case – but, if the new chancellor goes that route, their second question might be how a low headline rate is supposed to boost business investment. Sunak looked for the proof and couldn’t find it.

AO World is cleaning up essential

Welcome to the 90% club, AO World. Or, at least, an honorary member of the group of companies whose stock prices have collapsed by nine tenths since their peak. The AO high, seen as recently as January 2021, was 429p. Now the online fridge and freezer retailer is printing shares at 43p, which is as close to 90% lower as it makes no difference.

John Roberts, Founder and Managing Director, called the £40m fundraising “an element of reasonable financial management given the near-term macroeconomic uncertainty”, a simple way to describe a fundraising that is necessary because the balance sheet is stretched and that of last year optimism has been piqued.

Investors who boarded at the top — when Roberts proclaimed the pandemic had permanently improved AO’s outlook and pan-European expansion was ready to take off — may not be amused.

AO gave up its seven-year experience in Germany last month and vowed to focus solely on the UK again. This makes sense given that the UK operation is well established and has a solid reputation for customer service. But Roberts could help himself by mastering his instinctual optimism.

As recently as Monday, the company, in response to a Sunday Times report about a credit insurer cutting supplier cover, said its liquidity position was unchanged since April.

Two days later, he appealed to investors in a fundraiser that increases the number of shares outstanding by 20%. It’s more than a modest housekeeping.