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Addressing the UK’s ‘tax gap’

Plus, newspapers reveal who they're backing in the general election, pension fund to "unlock access" to PE gains and exec pay gap between the UK and US widens

Tax gap illustration

Hard lines were drawn in the sand by a number of the UK’s most prominent media outlets this weekend ahead of Thursday’s general election.

The Murdoch-owned newspaper The Sunday Times has backed Sir Keir Starmer’s Labour for the first time since 2005. It says the country needs “a radical reset” after incidents including Partygate, the Liz Truss mini-budget, the handling of Brexit and the more recent series of betting scandals. And it offers some advice for the potentially soon-to-be opposition:

The Conservatives have in effect forfeited the right to govern. In opposition they must regroup, rejuvenate, reject internecine fighting and stop blaming everyone else for their woes. Choosing the simplistic vision of a party led, for example, by Suella Braverman and Nigel Farage would guarantee extended time in opposition.

The Economist has also thrown its weight behind Labour for one key reason, saying: “No party fully subscribes to the ideas that The Economist holds dear. If we had a vote on 4 July, we, too, would pick Labour, because it has the greatest chance of tackling the biggest problem that Britain faces: a chronic and debilitating lack of economic growth.

A notoriously agnostic Financial Times has also backed Starmer’s party in Thursday’s election and says that the Conservatives need a spell in opposition to resolve its internal differences.

We believe in liberal democracy, free trade and private enterprise, and an open, outward-looking Britain. Often this has aligned us more with Britain’s Conservatives. But this generation of Tories has squandered its reputation as the party of business. The Labour party of Sir Keir Starmer is better placed today to provide the leadership the country needs.

The GuardianThe IndependentNew Statesman and The Mirror are also backing Labour. 

However, The Telegraph is keeping its backing of the Tories, warning of the threat a Labour government could pose: “A Labour government might well bring change, but it will not be of the good kind.”

The Daily Express and Daily Mail are also maintaining their backing of the Conservatives, with the latter warning: “Disillusioned Tories may wish to punish their party for its manifest failings of recent years. In doing, so, however, they must be careful not to punish themselves by ushering in something far worse.”

Which newspapers have backed the winning party will become clear on Friday morning, when attention will turn to what comes next for the UK. Both parties are adamant there will be no tax increases, so the new government will need to focus on other areas to boost the public pocket.

A focus on the tax gap – the difference between the taxes owed and the taxes paid – could be the key. HMRC estimates that the tax gap between the 2022 and 2023 tax year was £39.8bn. For context, the Office for Budget Responsibility predicts that the government’s defence spending in 2024-25 will be £32.8bn.

Tax gap by customer group

HMRC attributes 11 per cent of this tax gap to mid-sized businesses, the same proportion as large businesses. Small businesses account for 60 per cent of the gap. A further 6.7 per cent of the overall gap is attributed to a corporation tax shortfall in medium-sized businesses, with small businesses accounting for 32.2 per cent, or an estimated £10.9bn.

Another election promise that Labour is standing by is reform of planning laws. Should it be achieved, this is a positive step in the right direction, according to the boss of the world’s most valuable pharmaceutical company.

Dave Ricks, chief executive of the obesity drug manufacturer Eli Lilly, told the BBC that the UK’s planning system puts companies off investing in the country. He says: “In the UK, it’s not the largest market so you have to overcome that with other attractiveness, whether that be workforce, asset delivery or economic incentives. You have to be candid and say, ‘Are we as competitive as we can be?’ And to date, it’s been a little bit less, but I think it’s not unachievable.”

I think we can all agree that the next government needs to come through for us like Jude Bellingham did in the football last night…

Business Question

Guess the company

  • This group can trace its origins back to 1765
  • It employs over 63,000 people
  • It has over 26 million customers
  • It was one of the first companies in its sector to launch an app
  • It has over 500 high street and mobile branches throughout the UK

The answer can be found at the bottom of the page.

Business in Brief

Everything you need to know

1. CBI chief Rain Newton-Smith says that the next government cannot be pro-growth without being green. Research from the lobby group suggests the next government could add as much as £57bn to the economy from green growth by 2030. You can read more here.

2. UK house prices increased for a second consecutive month in June in signs the market is stabilising after last year’s dip, according to Nationwide. The lender said its measure of prices rose 0.2 per cent in June after a 0.4 per cent gain the month before. Economists had expected no change. Read more here.

3. Millions of employees saving in workplace pension schemes are set to have their money put into illiquid, unlisted assets for the first time as Legal & General launches a fund capable of handling billions of pounds. L&G says its new fund will feed savers’ cash into private equity, private debt and infrastructure – asset classes largely denied to pension savers. You can read more here.

4. FTSE 100 chief executives’ pay stagnated at a median of £4.1m last year, widening the gulf with US company bosses whose income is rising at the fastest rate in 14 years. This amplifies doubts about the country’s ability to attract top talent, according to analysis for the Financial Times by Willis Towers Watson. You can read more here.

5. Up to 30 per cent of the UK’s non-doms could leave the UK if Labour wins this week’s general election, a top private wealth lawyer has warned. Labour plans to tighten up on “loopholes” in the Conservatives’ policy announced in the Spring Budget to abolish the non-domicile regime, a more than 200-year-old scheme that allows wealthy people to live in the UK and not pay tax on overseas income. You can read more here.

Business Quotes

Inspiration from leaders

“A leader takes people where they want to go. A great leader takes people where they don’t necessarily want to go, but ought to be.”
– Rosalynn Carter

Business Thinker

Ideas on the future of business and leadership

1. 😬 CEOs in the age of anxiety 😬 

2. 👶 The baby bust: how Britain’s falling birthrate is creating alarm in the economy 👶 

3. ♀️ Does AI hire more women? ♀️ 

And finally…

Did you know that Sir David Attenborough is the reason tennis balls are yellow? 

The broadcasting legend was the controller of BBC2 in 1967 and had the job of introducing colour. He sent the first colour TV cameras to Wimbledon, saying: “You’ve got drama… You’ve got everything. And it’s a national event.” Tennis balls were originally white, but audience feedback said people were struggling to keep up with where the ball was.

Attenborough suggested that the balls be changed to a fluorescent yellow to make them easier to see on screen. Five years later, the balls were becoming the norm, with the new colour debuting at the US Open in 1973.

Ironically, Wimbledon stuck with the traditional white ball until 1986.

The answer to today’s Business Question is Lloyds Banking Group.

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