Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

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Written by Charles Clegg, senior associate
Edited by David Gaffney, partner

4 October 2021

Good morning,

A sense of entropy now dogs the UK’s intergovernmental negotiations. In this spirit, months of talks fell apart last month when the Scottish and UK governments were unable to reach a compromise over the former’s ‘green port’ proposals and the latter’s plans for freeports. The UK government, however, last week announced it would continue its scheme in Scotlandregardless.
 
Freeports allow tax and customs breaks within a designated area and are designed to encourage trade via that location. Green ports would offer tax incentives to ports which made commitments to net-zero and the real living wage.
 
The Scottish government has accused the UK government of “undermining devolution”. It had, however, opposed the plans altogether until announcing the alternative green port scheme back in January. Its conditions were not merely commitments to net zero and the living wage but a total rebrand of the UK scheme in Scotland.
 
Reservations about freeports are legitimate. The UK’s previous freeport scheme, started in 1984, was wound up in 2012 over concerns about money laundering. Many economists also argue that, in free economies, the ports displace rather than encourage economic activity.
 
Scotland’s own port authorities, however, have confidence in the scheme. Forth Ports estimate a freeport in the Firth of Forth could create 50,000 direct and indirect jobs. In addition to Forth Ports, authorities in Aberdeen, Dundee, and Cromarty Firth are all seeking freeport status, which, the UK government claims, will deliver a £12bn economic boost and 170,000 jobs across the UK.
 
UK government officials estimate only a fifth of the economic levers necessary to deliver a freeport equivalent are devolved to the Scottish government. The Scottish government itself has appeared unclear on how it will be able to deliver the tax breaks it is promising.
 
Does the UK government have a duty to ensure Scottish businesses have equal access to a potentially beneficial scheme as their counterparts in England?
 
This question will be relevant to the nascent Advanced Research and Invention Agency. The bill to create the agency, which would support high-risk innovation in the UK, is presently working its way through parliament. The Scottish government has already recommended Holyrood refuse consent to relevant portions of the bill and business might naturally be concerned if it appears that it is being denied access to support being offered elsewhere.
The devolution settlement’s promises of good faith and co-operation should be one of its assets, but, too often, these political tensions expose flaws.

News

Prime minister Boris Johnson is expected to commit that all the UK’s energy will be generated from renewable sources by 2035. Renewables currently make up 43% of UK domestic energy production with 40% coming from coal and 17% from nuclear. The move would require a quadrupling of the UK’s offshore wind capacity in the next 14 years. (£)
 
All parts of the UK will today move away from the traffic lights system for international travel to a single red list. Anyone who is resident in a country not on the red list can travel to the UK without first taking a Covid test. International arrivals will still need to take a PCR test on their second day in the UK while arrivals from red list countries will need to quarantine for 10 days.
 
Conservative party donor Mohamed Amersi has been found to have been involved in controversial deals for Swedish telecoms company Telia. During Amersi’s involvement, the company made a £220m payment to a company controlled by Gulnara Karimova: the daughter of the then president of Uzbekistan. US authorities described this as a bribe.

Business and economy

Chancellor of the exchequer, Rishi Sunak, is today expected to announce funding of £500m to extend job support schemes through the winter. He will also extend the JETS scheme for long-term unemployed people on universal credit to September 2022 and the Kickstart scheme to support jobs for young people on Universal Credit until March 2022. The announcement comes amid concerns that rising prices and an end to the Universal Credit uplift could squeeze living standards for many this winter.
 
Trading on Chinese property giant Evergrande was suspended by the Hong Kong exchange yesterday after the debt-laden company missed its second debt obligation in a week. The firm has liabilities equal to two per cent of China’s GDP, leading to concerns its collapse could have an impact on the global economy.
 
The Financial Reporting Council is considering investigations into accounting giants EY and Deloitte over their audits of the Southeastern train line. Last week it was revealed that the operator’s majority stakeholders, Go-Ahead, had failed to declare and was subsequently forced to repay £25m to HMRC. EY had audited Southeastern up to 2016, when Deloitte took over.

Columns of note

With German elections out of the way, Europe’s next major electoral contest will be France’s presidential election next year. Emmanuel Macron won the 2017 vote decisively but will internal party divisions undermine his aims to return? If so, who will be his main challenger? In The Guardian, Simon Tisdall looks at the politics of a divided nation.
 
As global markets wait intently to learn whether the US Federal Reserve will increase interest rates, many on the American left want them to stay low. This, they believe, will promote employment, especially at the lower end of the socio-economic scale. In the Financial Times, Rana Foroohar dissents. She surveys research which shows that lower interest rates encourage speculation, making the asset rich even richer. (£)

Cartoon source: The Times

Markets

What happened yesterday?

The Nobel prize winners in physics, chemistry, and medicine will be announced this week. On Tuesday, Microsoft will launch Windows 11. In the UK, the Conservative party conference is ongoing in Manchester with party leader and prime minister Boris Johnson scheduled to address the gathering on Wednesday.
 
Supermarket giant Tesco, which has experienced a strong first quarter, will announce its interim results on Wednesday. The same day, the British Chambers of Commerce will publish its economic predictions, which are expected to show a coming “economic storm”.

What’s happening today?

Finals 
Coral Products
James Halstead
Quadrise Fuels

Int. Economic Announcements
(09:00) PMI Composite (EU)
(09:00) PMI Services (EU)
(15:00) Factory Orders (US)

did you know

The border between Botswana and Zambia is only 150m long, making it the world’s shortest international border.

Parliamentary highlights

House of Commons

The House of Commons is in recess until 18 October 2021.

House of Lords 

The House of Lords is in recess until 11 October 2021.

Scottish parliament 

No business scheduled. 

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