ALEX BRUMMER: Britain needs a tax tonic

The latest output data for the UK economy is almost certainly wrong if recent history is any guide.

Confidence in figures is at a low ebb due to the Office for National Statistics under-reporting output by 2 per cent (around £50 billion) in the wake of the pandemic, and no reliable employment and wage statistics collected . by the Bank of England.

You don’t have to be a Pollyanna to recognize that official forecasters at the Bank, the Office for Budget Responsibility (OBR) and the International Monetary Fund have consistently been too pessimistic about Britain.

After a rapid tightening of monetary policy, which saw interest rates raised to 5.25 percent, it would be surprising if the economy did not slow down. Rising borrowing costs have increased insolvencies and slowed the housing market.

But as the latest manufacturing data shows, Britain’s lighter economy, with a dynamic services sector, is far better positioned to deal with current global uncertainty than manufacturing and export-based countries like Germany.

British consumers continue to spend money, as evidenced by the retail sector’s optimistic sales and profit forecasts, with M&S, Next, Primark and Sainsbury’s all doing very well.

The housing market is not buckling under the weight of mortgage costs, with both Nationwide and Halifax reporting a rise in prices. The trade impact of Brexit is negligible and nowhere near the 4 percent loss predicted by the OBR.

Business investment is running smoothly, aided by very favorable tax credits for expenditure on IT, installations and equipment.

The country must not allow itself to buy into the Labor and LibDem narrative that the Tories crashed the economy.

All that does is create a negative feedback loop that undermines consumer and business confidence.

The reality is that the economy leveled off in the third quarter, but did better than most forecasters expected. Britain resumed growth in September, up 0.2 percent, fueled by a resilient services sector that accounts for almost 80 percent of British output. This despite rampant inflation (which will now come crashing down) and more realistic interest rates. The Chancellor should get behind this momentum, bringing forward targeted tax cuts for Britain’s strivers and entrepreneurs.

Safety net

With the government looking over its shoulder, NatWest’s board had little choice but to claw back shares and pay out rewards for former chief executive Dame Alison Rose.

Her revelations about Nigel Farage’s banking schemes may not have breached data rules, as the Information Commissioner acknowledged this week, but were ill-advised.

The government, which is a 38 percent shareholder, has rightly called for her resignation because of the reputational damage done not just to NatWest and Coutts, but to all British banks. Rose’s misstep had consequences for the share price and undermined the already poor confidence in relationships with banks and customers. It’s a costly mistake for Rose, costing her potential payouts £7.6m.

She won’t leave NatWest penniless as she will raise around £2.4 million for her work in 2023, plus another £800,000. No doubt she can look forward to a nice retirement if predecessor Fred ‘the Shred’ Goodwin’s £500,000 a year is any guide.

Latin disappears

Diageo CEO Debra Crew is not having the best start in her job. Elevated early to the top following the death of predecessor Ivan Menezes, the Johnnie Walker-whiskey-to-Don-Julio-tequila group has suffered a commercial setback.

Traditionally, the spirits are a great defense against uncertainty. And Diageo, with its stellar collection of luxury brands, has thrived through recessions and a pandemic, delivering strong dividends and buybacks as well as investing in new products.

The announcement of the problems in Latin America, where 11 percent of the group’s turnover is achieved, came as a bolt from the blue and caused the share price to fall by as much as 16 percent: the biggest drop in one day since 1987 .

No one could ever be surprised by random downturns in Latin America, where democracy and living within means are tricky. Something operational must have gone seriously wrong.

Fortunately for Crew, her native North America is performing strongly and Europe is holding up well amid economic problems and geopolitical conflict.

Investors may fear that a rare crack could lead to shattered bottles.