ALEX BRUMMER: Don’t derail Britain’s recovery with tax hikes

Almost all the deeply negative forecasts for the British economy made at the tail end of 2022 and early this year are proving wrong. 

Far from falling into a recession, the latest surveys show an economy picking up speed and signs that prices are coming down.

The public finances are in much better shape than previously thought.

Bouncing back: Far from falling into a recession, the latest surveys show Britain’s economy is picking up speed and signs that prices are coming down

Trade union leaders might think of settling disputes now, rather than prolonging the misery and putting lives at risk, as the cost of living crunch vaporises.

Now is not the moment for another lecture on how the tendency to dwell on the negative creates a doom loop.

But imagine how much stronger the economy might be had not the recession story been so warmly embraced.

The International Monetary Fund forecast that Britain would be the weakest economy among the G7 advanced nations in 2023 was seized upon by Opposition spokesmen and critics of the Government as a terrible indictment of policy.

Data from S&P Global and purchasing managers showed the main index of private sector activity soared from 48.5 in January to 53 in February – back above 50 (the signal for decline) for the first time since July.

For the claque which argues that Britain outside the EU is suffering a terrible fate, there is another message.

The UK’s S&P reading is stronger than that of the two largest eurozone economies, France and Germany.

The Bank of England’s November forecast of the longest recession in British history (since modified) looks to be among the worst projections of recent times.

City analysts are now arguing that the Bank may have to stiffen its resolve and raise interest rates further to suppress demand and prices.

Economic output and the public finances are two sides of the same coin. The faster the economy expands, and the greater the number of people in work, then the higher the tax take. 

This is particularly true at present when tax thresholds have been frozen by the Chancellor Jeremy Hunt, forcing millions of people into higher brackets.

What data for the public finances shows is that the Government actually ran a budget surplus in January of £5.4billion.

The overall deficit for the first ten months of the year came in at £116.9billion. Undershoot on the Office for Budget Responsibility’s November forecast stands at £22billion.

On a like-for-like basis (excluding accounting changes for student debt) borrowing was actually £30.6billion below expected. The bulge expected for household fuel subsidies has largely been absorbed.

The biggest plus for the Exchequer is healthy tax receipts with everything up including self-assessment, income tax, inheritance taxes and capital gains.

Given the strength of the revenue base, including rising corporation and windfall receipts, it would be barmy for the Chancellor to press ahead with the rise in company taxes from 19 per cent to 25 per cent due in April.

All that will do is make the UK less competitive than neighbours and see investment shift from to Ireland and the Continent. 

A critical flaw in recent analysis is the claim that the rise in the cost of servicing the national debt – just under a quarter is linked to retail prices – is here to stay. 

As inflation stalls, so will that interest rate bill, putting cash back into the Treasury’s pocket. It is high time that the naysayers corrected the narrative.

Mighty Quinn

Harassment of Britain’s most global bank HSBC by Chinese investor Ping An should be called off.

Under the leadership of Noel Quinn, the bank has exited slower growing operations in Continental Europe and North America and is delivering promised cost reductions.

A more favourable interest rate environment also allows it to increase payouts to investors and consider share buybacks.

This erases complaints in Hong Kong during Covid when HSBC was under instructions from UK regulators to hold back on distribution. 

Ping An has campaigned for HSBC to carve out its core Hong Kong and Asia operations, which contribute 86pc of its pre-tax profit.

In the UK, HSBC faces slings and arrows for branch closures and low returns for savers. Yet the bank sounds as committed to Britain as ever, arguing the economy is resilient. 

The best reason for keeping the UK on side is Bank of England regulation. Without that imprimatur, HSBC’s status and credibility would be greatly undermined.

This post first appeared on Dailymail.co.uk