CONTENTS

Content page 02

Introduction 03

Analysis of the 2014 Budget 04 - 05

Maitland Dispatch Box: ‘Has the Government helped or hindered the economic recovery’ 06 - 09

The Budget for Business 10 - 11

Maitland Biography: Pete Bowyer, Founding Partner 12

02 INTRODUCTION

Welcome to the Maitland Political inaugural e-magazine, titled Maitland Political Insight. This is an opportunity for us to share our thoughts on the prevailing political stories of the day. We remain as ever neutral, if a little opinionated but ultimately rigorous in our analysis of how developments in Westminster impact our clients and their businesses.

The year has begun how the last ended, with the political climate as tempestuous as the British weather. The embarrassment of the Syria vote in September has undoubtedly impacted the Government’s ability to react to fast changing events in the Ukraine. Putin’s ambivalence to US, EU and British threats has proven that Western influence is not what it once was.

Combine this with domestic divisions over our membership to the EU; the British seat at the European table has arguably never been weaker. The rise of UKIP as a fourth party has pressured the Conservative party into promising a referendum as anti-European sentiment has grown across the continent. Our popularity with European neighbours was telling when Angel Merkel visited Britain to announce that an ambitious renegotiation was all but off the table.

It’s not all bad news though for the current residents in Downing Street. The economy is growing at its fastest pace since 2006/7, unemployment is down, house prices are up and the days of ‘omin- shambles budgets’ and ‘pasty-taxes’ seem well and truly behind us. Indeed the economic funda- mentals seem to favour the Conservative party, however politically they have been faring less well.

After boundary reform failed last year, the electoral maths are steeped against the Tories and the prospect of a Labour majority in May 2015 remains possible. Ed Miliband cannot be accused of remaining timid in opposition, announcing far reaching policy that will impact the banking, energy, insurance and construction industries. Indeed for us in public affairs, our time from now until the election will be spent working with clients to assess the impact of a Labour Government post-2015. The cost of living agenda has certainly struck a chord with the millions of bill payers up and down the country, but big business has been a little more reticent to throw its weight behind the Labour leader. The announcement last week that Labour will not hold a referendum on EU membership however was popular in the boardrooms across the UK.

Thank you to everyone who has contributed to this first edition of Maitland Political Insight. For our inaugural edition we will be looking at the Budget announcement, due later this week. We have gathered views from across Westminster, the City, and beyond. I hope you find it interesting, and as ever if you feel compelled to contact us please don’t hesitate to call us at any hour of the day.

Yours faithfully,

Pete Bowyer Founding Partner, Maitland Political

03 ANALYSIS OF THE 2014 BUDGET By George Trefgarne

The stock market is near a record high, exports are recovering, unemployment is dropping, the housing market buoyant, inflation is soft, interest rates still low and the economy has at last regained the level of output it achieved in 2008, before the recession.

Surely, we have never had it so good? Or at least not since 1957, when the then Prime Minister first coined the expression. He called an election a couple of years later and noted that the weather was so auspicious, a porpoise was even spotted in the North Sea. The Tories were returned with a 100 seat majority.

According to the classic Conservative playbook, must be hoping for something similar when he delivers his fourth Budget next week. The heavy lifting has been done. His backbenchers will wave their order papers as he closes his speech with a final flourish: tax cuts for the hard-pressed middle class.

Look a little closer, however, and this is a mere reverie. It is hard to measure, but there is a sense in some quarters in the country of desperate economic optimism and in others a conviction that the recovery is not for real and simply a pre-election boom, pumped up on cheap money not just by the Bank of England but by the central banks of America and Japan.

This lack of confidence is nowhere more evident than on the Conservative backbenchers, where for every positive economic number, there is an offsetting negative one. As far as they are concerned, the economic glass maybe half full, but with UKIP breathing down their necks, the political one is half empty. Can the Chancellor do anything to cheer them up?

Take the deficit. We should not forget that the Coalition was negotiated in the heat of the euro crisis, with the television screens full of riots in Athens. Nobody has quite got to the bottom of Governor of the Bank of England Mervyn King’s role in events, but the Labour Party remains understandably suspicious that he played a part in tipping the Lib Dems towards the Conservatives during the negotiations, on the basis their plan to control the deficit was more convincing.

04 Certainly, in his book 22 Days in May, David Laws records that King was in the background. A Conservative draft version of the coalition agreement stated that: "Cuts of £6bn in 2010-11 would be regarded by the financial markets as a test….This view is shared by the Treasury and the Bank of England."

So how has the Coalition performed by this vital yardstick of its own creation? Well, the deficit peaked at some 11% of GDP in 2010/11, but is expected to come in at around 6% this year. The Government will borrow around £110 billion this financial year – about twice the original forecast made by the Chancellor when he first arrived in the Treasury - and the Budget is not now expected to be balanced until 2019.

Those Conservative backbenchers hoping for tax cuts to help top up their half empty political glass- es are therefore likely to be disappointed. In fact, there is an interesting political argument behind the scenes which could add to their frustrations. The Prime Minister and to some extent the Chancellor are in favour of committing to raise the personal allowance yet again to £12,500. If they do that, there is unlikely to be any leeway for substantially raising the level at which the 40% rate kicks in, which many would prefer.

Related to the argument about tax cuts is a more complicated one of who gains from the recovery. Homeowners morale must surely have been improved by the housing market and those in the City and business owners are enjoying a lively new issues market. But what about everybody else? The answer is that median real incomes are still 6% below pre-crisis levels, according to the Institute for Fiscal Studies, and for those on low incomes, who do not have mortgages and who have therefore not benefitted from low interest rates, the situation is even worse.

Ironically, the only place nearly as uneasy as the Conservative backbenches, is Labour. Ed Milliband has embraced an unerringly anti-business agenda, including restoring the 50p top rate of tax, a mansion tax and a tax on bankers bonuses which has been pledged to numerous spending projects. This is calculated to excite his party but the more thoughtful ones know in their hearts that this too is mere nostalgia for another era. In such a dreamy political environment, voters may be inclined to give more credence to a Chancellor who strikes a realistic tone - and that is what we should expect.

George Trefgarne is a Partner at the Maitland Consultancy Group, and a former Economics Editor at the Telegraph.

05 Has the Government Helped or Hindered the Economic Recovery?

YES, they have helped... By Mark Field MP Mark Field, Conservative MP

In January, the Government received the news it had so patiently awaited. The Office for National Statistics was able to confirm that in 2013, the UK economy had enjoyed its fastest rate of growth since 2007, expanding by 1.9%. This unmistakable signal of recovery was further boosted by IMF and OBR predictions forecasting growth of up to 2.4% for the ensuing year.

It all seemed a far cry from the troublesome Budget of March 2012 and the unremittingly gloomy forecasts in the subsequent Autumn Statement, when Chancellor George Osborne confessed that the Government was set by a distance to miss its debt reduction target. Taunts of economic flatlining and persistent calls for a shift to Plan B at that time were relentless. It would have been easy to yield to this pressure. Yet the Chancellor has always recognised one thing – confidence of the markets is key if Britain is to maintain the ultra low interest rates that are, for now, so vital in keeping the economic show on the road. Understanding what those markets wanted, the Government has been granted permission to take its time in fixing Britain’s problems, and to stumble on the way without more serious consequence.

In his Autumn Statement of 2010, the Chancellor had predicted that by this financial year, the Government would have reduced the inherited £148 billion budget deficit to £60 billion. By contrast, it stands today closer to £111 billion. By the terms of its very raison d’etre – namely to eliminate the structural deficit within a parliament - the coalition has not only failed but failed pretty miserably. However Britain in 2014 enjoys ultra-low interest rates; unemployment is hurtling towards a rate of 7%; migrants continue to flock here for the opportunities on offer; and business investment is up 8.5% on last year. Meanwhile, in spite of doggedly and consistently higher borrowing than anticipated, the UK has been able to maintain top credit ratings in marked contrast to many of our competitors.

In short, the Government has defied economic gravity and for this, it must be congratulated. While the raw numbers suggest we still have a long, long way to go before eliminating the structural deficit, the coalition has always grasped what the markets have sought from it: a clear deficit reduction plan, a commitment to sticking to it and long-term reforms to address the competitiveness problem in the British economy. In all these areas, the coalition has made strides while maintaining social cohesion.

Key to achieving its goals has been sweeping change to the political mood music. At the 2010 General Election, politicians of all stripes were content to focus debate very narrowly on how and when £6 billion of cuts should kick in. Once formed, the coalition moved very swiftly to revise Britain’s narrative, making clear in its Emergency Budget that the nation needed to change course urgently. For much of the past three years or so the British electorate has implicitly recognised that the coalition’s avowed economic plan has been the right path in response to the grisly economic circumstances. The Labour Party has conceded this too by shifting debate onto the cost of living rather than deficit reduction.

The coalition has also directed a marked change in the national mood over welfare spending, education and the remit of the state. Rather than ducking tricky issues that previous administrations had shied from, the Government has tackled head-on benefits entitlements, underperforming schools and pensions reform. Meanwhile, the Prime Minister’s consistent theme that we are in a global race has invigorated pan-government efforts to attract foreign investment into key British infrastructure projects and boost British exports.

06 The Chancellor’s broad-brush, combative confidence and chutzpah may grate on occasion, but he understands that markets require of him the self-assured skills of an illusionist rather than a mastery of detail. It is easy to find the flaws in the coalition’s record, to point out where progress has been patchy, where policy implementation has been hashed. But the Government’s long term economic plan and sense of direction have always been consistent. It is that dogged determination to reduce the deficit, coupled with a pragmatic approach to borrowing, that has provided Government with the space to implement spending cuts and longer-term reforms without greater social upheaval. It is confidence in that plan that has allowed Government to resist Opposition pressure to hike taxes, and given businesses faith that we are on the path to stability.

Ultimately it is only the hard work, enterprise and innovation of the private sector that can save Britain’s economy. But growth can only take place if a Government provides an environment in which commerce can flourish. The real achievement of this Government is to shift resolutely public attitudes away from unsustainable excess. This has unquestionably helped Britain’s nascent economic recovery.

Mark Field MP is the Conservative MP for the Cities of London and Westminster. He sits on the Intelligence and Security Committee, and takes a special interest in economic matters, serving as the Chairman of the All-Party Parliamentary Groups on Venture Capital and Private Equity.

07 Has the Government Helped or Hindered the Economic Recovery?

NO, they have hindered... By Andrew Harrop Andrew Harrop, General Secretary of the Fabian Society.

George Osborne will come to the dispatch box on Budget Day keen to trumpet the best economic figures since the start of the financial crisis. He will announce that the economy is growing, inflation is down and unemployment is falling.

All true, but Osborne’s tone cannot be triumphant. The size of the economy remains smaller than in 2007 and family incomes are no higher than 2001. Worse still, behind the good headlines on recovery, warning lights are flashing for the future.

A Fabian Society report published this week sets out 20 tests for economic success and finds that on half of them Britain is faring very poorly, despite the recovery. We conclude that focusing just on GDP, inflation and unemployment is simply not enough.

First the grim news for British business: productivity has not increased since 2007, business investment is far below levels seen in the early 2000s and the gap between imports and exports is the widest since comparable records began. All of this suggests that the recovery is a more of a ‘dead man’s bounce’ than a return to long-term sustainable growth.

Another measure of sustainability provides equal cause for concern: our emissions of greenhouse gases are not falling fast enough to meet carbon budgets for the rest of the decade.

The signs aren’t any better for family finances. It looks like most of the rewards from economic recovery are going to the wealthy, since the gap between the top one per cent and middle incomes is rising. Earnings remain flat, the number of families who don’t have enough to pay for the basics are up, and so too is the number in debt. On top of all this, housing is now no more affordable than at the peak of the last boom.

So the Chancellor should really be using this Budget to confront Britain’s huge structural failings head on. We need a radical plan for national economic recovery focused on business long-termism and a fairer distribution of rewards which will ensure that consumer demand remains buoyant for decades to come.

The Fabians propose that at the heart of this approach the Chancellor should abandon GDP growth as his main criteria for economic success and instead ask to be judged on growth in typical family incomes.

When it comes to fiscal matters we can expect a much quieter Budget, since George Osborne’s strategy is now pretty much locked down. Last Autumn he announced his approach to deficit reduction for the rest of the decade and it is a strategy which goes far further than the restoration of sound public finances requires: his plan to achieve an overall budget surplus will lead to a long term reduction in the size of the state, not a temporary fiscal retrenchment.

If this really is the Conservative’s long-term strategy it begs big questions about how the right intends to pay for healthcare and pensions for our ageing population and invest in skills and infrastructure for the future. This should be fertile ground for Labour to remake the case for Government, but as things stand the Opposition is feeling its way with great caution, burnt by unfair claims that public spending was out of control before the crisis.

08 All this means that a net tax giveaway in the Budget would be a surprise. It would only be consistent with Osborne’s long term plans if accompanied by yet more cuts, or if it could be justified by a significant change in the OBR’s forecast for the economy’s potential for growth.

What’s much more likely is a big headline tax cut, paid for by less obvious tax rises elsewhere. In particular, George Osborne and the Liberal Democrats have been trailing yet another increase in the income tax threshold. The coalition sees this as a popular policy and it is a good response to Labour’s ‘cost of living’ campaign. There are certainly many in Labour ranks who worry that a series of highly visible tax cuts will trump their more targeted efforts to address the living standards crisis through regulation.

For policy purists, an increase in the income tax threshold isn’t terribly sensible: far better to reduce national insurance for low paid workers. But it has acquired totemic significance for the coalition. Similarly the argument over a 50p top rate of tax has acquired political weight far beyond the reve- nue raising or economic impacts of the policy, either way. Labour knows it is on the right side of public opinion, but it is hardly the best way of designing taxation to ensure the rich pay more. Privately all the parties know that the tax system badly needs a major overhaul. This needs to encompass the balance of tax between old and new economy; rich and poor; young and old; and between earnings, income, property and wealth. On top of all that we may well need more green taxes, despite the protests we can expect from the public and manufacturers.

Incremental annual Budgets are the wrong way to think through such major reforms however. So perhaps we should stop worrying about the minutiae of next week’s Budget announcement. Better to campaign for a long-term and independent review of tax, tasked with designing a radical reform package for after 2015.

Andrew Harrop is the General Secretary of the Fabian Society. He leads the society’s Next State and Next Economy programmes and was secretary to the Fabian Commission on Future Spending Choices.

09 THE BUDGET FOR BUSINESS

George Osborne has positioned himself as the Iron Chancellor who stands up for British Business. In 2011 he said “We want the words: ‘Made in Britain, Created in Britain, Designed in Britain, Invented in Britain’ to drive our nation forward”. Osborne has also prided himself on having a close relationship with business and listening to their desires and requests. Over the past several weeks we have conducted a review of business opinion to establish what people want to see in Budget 2014. Ten key policies emerge:

1- Corporation tax reduction - A totemic gesture would be the overhaul of corporation tax. This would include scrapping the small profits rate of tax of 20% for firms with profits below £300k, and putting in place a flat rate of 15% for all firms with profits above that threshold. The cost of this measure differs depending on who you talk to but as the Centre for Policy Studies have pointed out, a cut would “boost growth and international competitiveness, boost business confidence, and encourage new investment by businesses”.

2- Employers National Insurance - Policy Exchange, a think-tank close to the Government, has led demands for the threshold at which companies pay national insurance to be raised from £7,956 to £10,000 a year. The plan would mean employers no longer pay NI for up to 900,000 employees. Stephen Herring, Head of Taxation at the Institute of Directors backed the move, saying: "Our members certainly regard employers' national insurance contributions as a payroll tax or, indeed, a jobs tax and would welcome proposed reforms such as this which are broad based and would simplify the taxation system.”

3- Stamp Duty and Capital Gains threshold - Institutional and retail investors recorded a major win in 2013 with the abolition of stamp duty on small and mid-caps AIM listed shares. Investors in AIM shares now avoid capital gains tax, income tax, inheritance tax and stamp duty altogether. Whether it’s politically popular or not, the Government have to realise that we are both a financial centre and nation of equity investors. A further cut in stamp duty on all publically traded stocks and shares, as well as an increase in the ISA allowance to £20,000 will deliver a huge shot of adrenaline for the stock market (which has been flagging all year) as well as increase the attraction of corporates looking to IPO in London.

4- Carbon Price Floor - Manufacturers organisation EEF and the CBI are among a number of groups that want to see the Carbon Price Floor frozen next year. The EEF warned that rising energy costs are damaging vital energy intensive industries, like steel and chemicals, and risk stopping overseas companies "restoring" production to the UK. Renewables companies have hit back though, arguing that a freeze could harm investment.

5- Tax reductions on alcohol - Osborne famously took a penny off the pint in 2013, with his freeze of the beer duty escalator. Despite this, the wine and spirits industry remains unloved in Westminster and would like to see a similar step taken in their industry. There is a second dynamic to this argu- ment, with the Scottish Independence Referendum approaching, the coalition Government may want to offer a long term tax incentive to the Scottish Whiskey industry if they were to remain part of the Union.

10 6- Business Rates - Pressure is being exerted by both business and politicians for an overhaul of the business rates regime. The Business, Innovation and Skills Committee have concluded that the current system is "not fit for purpose" and are pressing the Chancellor to address its "fundamental flaws". Heavy manufacturers including Tata and Vauxhall have written to the Government to urge an independent review of the system, whilst the Entrepreneur’s Network think-tank has also noted the crippling impact on small businesses, particularly high street retailers, and argue for the scaling back of exemptions and reliefs.

7- Increased Airport Capacity – Frontier Economics claim that trade with emerging markets is increased by 20 times when there is a direct flight to the UK. Increasing airport capacity is economi- cally essential at a local and national level. So far the decision has been deferred for political reasons; hopefully both Cameron and Osborne can grasp this nettle and admit there is only one credible option… expansion at Heathrow.

8- Exporters Relief – Britain has realised that if we are to generate sustainable growth and support the UK’s debt and cost base, we must look abroad to generate revenue and wealth. Since the 80’s our share of the overall trade market has declined as some believe that British businesses and entrepreneurs shy away from doing business abroad. Alexander Jackman, Head of Policy at the Forum for Private Business recently called for export relief in the form of a dual tax and spend package. Relief for export activity would aim to reduce an eligible entrepreneur’s tax bill or provide tax credit by way of a cash sum paid to HMRC. Tax relief of 10% would generate significant incen- tives to sell abroad. Secondly the Government would offer subsidies on investment abroad which would generate foreign sales. This could include investing in capital expenditure, overseas infra- structure, trade shows or exhibitions.

9- VAT – With the Labour party striking a chord with many on the ‘Cost of Living’, the Chancellor would do well to introduce an immediate reduction in the standard rate of VAT from 20% to 15%. The retail industry would benefit most, but consumers would see a small saving in their expenditure on leisure goods, utilities and eating out.

10- Infrastructure relief - Boosting investment in infrastructure has been a major part of George Osborne’s long-term economic plan. However, some infrastructure costs are not eligible for any form of tax relief. The CBI have proposed as a priority the extension of capital allowances ‘to cover structures and buildings, in order to support private investment in areas such as energy and the road network’. They also warned that ‘Government capital spending must be stepped up to improve the capacity and efficiency of publicly owned infrastructure’.

11 MAITLAND POLITICAL BIOGRAPHY

Pete Bowyer, Founding Partner Pete Bowyer is one of the UK's leading political consultants with over 20 years of experience of issues management, public policy and media relations. He has worked at the heart of public affairs campaigns for some of the world's largest brands including Nestlé, McDonalds, DHL International, Kingfisher plc, Unilever, Viacom, Lilly, Abbott, bmi british midland, Zurich Financial Services and Johnson & Johnson. Pete is also an expert in climate change communications working with international statesmen like HE Kofi Annan, former General Secretary of the United Nations and President Nasheed of the Maldives as well as large corporations such as Axa Insurance on climate risk. He is currently Global Policy and Communications Director for the United Nations Founda- tion-Havas team supporting the work of the UN's Intergovernmental Panel on Climate Change.

Pete has been active in the Labour Party for over thirty years including being a researcher for a Shadow Minister in the House of Commons, a press officer for the Party and a clerk on a leading All Party Parliamentary Group. He is currently serving his third term as a senior councilor in the London Borough of Lambeth having chaired the Council's Housing Scrutiny Committee for four years, 2007-2011.

12 Maitland Political is part of the wider Maitland Consultancy Group, Europe’s leading financial and corporate communications consultancy.

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