“We love the UK,” insisted Santander’s CEO Ana Botín at Davos last week, only a few hours after reports surfaced that the bank was considering an exit from the UK market. It is not hard to see why she was so quick to squash the rumours. The Spanish financial giant has been a major force in the UK banking industry since it acquired Abbey National back in 2004, and if it was thinking about leaving the market the last thing it would want to do would be to frighten off depositors by threatening to close down. That would risk triggering a run on the bank. Even so, it is hard to believe that the story would have emerged if it was not at least under consideration.
Santander won’t be the last major company to think about leaving. WH Smith has announced that it is looking at selling its high-street shops, which is in effect its British operation, since the far more profitable travel business is a global one. It is leaving the UK in all but name. Ineos has closed its Grangemouth ethanol plant, with its founder Jim Ratcliffe warning that British industry faces extinction. The advertising giant WPP is reported to have looked at moving its listing from London to New York as it focuses its energies on the booming US market. The list goes on and on. Companies are getting out of Britain.
It is not hard to understand why. The UK has become a very unattractive market for global businesses. Growth has ground to a halt and is now, when measured on a per capita basis, falling. Inflation remains above the Bank of England’s target rate and may well start to rise again over the next few months. The planning system strangles any form of new development, and makes it virtually impossible for companies to expand. Even if the government does finally back a few infrastructure projects, such as the third runway at Heathrow, those are decisions that should have been made 20 years ago. The net-zero targets are the most demanding in the world, and industrial electricity is now the most expensive anywhere, imposing huge costs on businesses. The flexible labour market that used to be one of the UK’s strengths compared with the rest of Europe has long since been replaced with some of the strictest employment laws in the world, making it virtually impossible to fire staff who are not performing. And, on top of all that, the UK has left the EU’s single market while doing virtually nothing to compensate by deregulating its own markets.
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Even worse, although it keeps talking about growth, the Labour government is hostile to business. In her first Budget, chancellor Rachel Reeves imposed a huge £25 billion tax rise on companies in the form of an increase in National Insurance; clamped down on non-doms, many of whom were investing in companies in the UK; imposed inheritance tax at 40% on people leaving a family business to their heirs, meaning in practice that it would almost certainly have to be sold; and introduced extra windfall taxes on the few companies that by some miracle do manage to make money. If the Budget had been specifically designed to drive out entrepreneurs and investors it could hardly have done a better job. More tax rises are likely in the year ahead, given disappointing growth, and the insatiable spending demand of the UK’s health and welfare systems, and the burden of the rises will almost certainly fall on businesses.
Global businesses need Labour to change direction
Increasingly, the British market is going to pose this question for global companies. Why bother? For a major bank such as Santander, with big operations in its home market in Spain, and with 76 million customers in the fast-growing South American market, a British high-street bank ties up a lot of capital, is weighed down with burdensome regulations, is constantly threatened with windfall taxes, and generates very low returns. If it could get out at a decent price it almost certainly would, and shareholders would be relieved. Over the next few years, the same is likely to be true of many other major global businesses. This should be a wake up call that prompts some soul-searching, and a change of direction. There is as yet very little sign of it.
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