Wednesday, January 20, 2010

Choosing Cadbury
has cost Kraft 30%
less, thanks to Gordon

I got very steamed up last night watching Peter Mandelson shedding crocodile tears over the takeover of Cadburys by the American food giant Kraft.

For while he was bleating about the impact this takeover might have on jobs the simple fact is that it was a 30% drop in the value of the pound, for which his Government is solely responsible, that made this take over affordable for Kraft.

A weak economy leads to a weak currency, and a weak currency makes our businesses cheap pickings for firms based in places where the currency is stronger than ours.

I expect to see many other famous and not so famous British names to join British Energy, Scottish & Newcastle breweries, ICI, Scottish Power, British Airports, Thames Water, Pilkington Glass, P&O, and the Abbey National bank in being sold to overseas owners.

All this is a far cry from the 1980's and 1990's when it was British companies causing controversy by buying out iconic foreign firms like Smith & Wesson pistols, Greyhound Bus' and culminating in the huge takeover by Vodafone of German mobile telephone giant Mannesmann. Back then our companies were strong and profitable, our taxes were low and as a result our currency was worth more, making British firms powerful and opening huge opportunities for the companies and, more importantly, the staff who work for them.

Why do we need strong British companies? Because they are the backbone of the economy.

A good example of the beneficial impact of a successful company is the above mentioned company Vodafone. It was created from scratch by the electronics company Racal in 1985 following the Thatcher Governments decision to licence mobile telephony to private enterprises. Now the company employs 79,000 people and produces £9bn in profits for its mostly UK shareholders, rents shops, call centres and infrastructure across the country, spends billions with UK partners and suppliers on supplies and services like advertising, and of course contributes billions in taxes to the Treasury.

Generally companies are prone to focus their spending in the countries of their origin, British companies operating abroad often take their British suppliers, and service providers like bankers, accountants and advertisers with them creating more work for those firms back in Blighty.

But of course American and Continental European forms tend to do the same, so when British companies fall to foreign hands very often business is lost to their UK suppliers. Kraft will almost certainly prefer to work with their existing American packaging partners, their American ingredients providers, American banks and American advertising agencies, in the process depleting the value of Cadburys to the UK economy; and the UK treasury will have to learn to live without much of Cadburys corporation tax revenue into the bargain.

The only way out of this downward spiral is to make our economy strong again. For ten years Conservatives have been warning that the growing tax and bloated regulatory burden was killing UK competitiveness and endangering the economy. This has now come to pass and the only remedy is a substantial dose of de-regulation and eventually, substantial tax cuts.

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