January 2006

News

Brown adjusts growth forecast and tightens up on tax avoidance
In his Pre-Budget Report, which he delivered to Parliament on 5 December 2005, Chancellor Gordon Brown cut his forecast of the UK’s economic growth for 2005 to 1.75 per cent, compared with the 3-3.5 per cent predicted in his March budget. His growth forecast for 2006 was 2-2.5 per cent and for 2007 2.75-3.25 per cent. Inflation, he said, was on track to remain at 2 per cent annually until 2007.

The Chancellor announced a number of measures designed to clamp down on tax avoidance. To end perceived abuse of the ‘zero per cent’ starting rate of corporation tax for small businesses, the starting rate will be raised to 19 per cent. The supplementary charge for corporation tax on revenues from North Sea oil will double from 10 per cent to 20 per cent. There will also be a clampdown on tax avoidance schemes by accountants and the use of non-commercial losses to reduce liabilities for capital gains tax.

To encourage investment by small businesses, Mr Brown will increase the rate of first-year capital allowances from 40 per cent to 50 per cent from April. To assist small traders with cashflow, the VAT threshold for turnover will be doubled to $2.3 million. There will also be simplification of the rules regarding certain VAT, land and property matters, and the National Employer Training scheme will be extended.

The Chancellor scrapped stringent new reporting rules for 1,300 of the largest companies, in an effort to reduce red tape in favour of a ‘risk-based’ regulatory approach. The mandatory operating and financial review (OFR) had been introduced in April, with the aim of making large companies more transparent and accountable, but it had met with criticism from business leaders. The Department of Trade and Industry (DTI) is currently developing a plan to simplify business regulation, and is asking companies of all sizes to assist by submitting their own proposals for cutting red tape (see www.dti.gov/simplify). One of the first government departments to be targeted is Revenue & Customs, with a reduction in reporting requirements that is expected to save companies $272 million a year. A ten-point plan will also be drawn up to simplify reporting in the financial services industry.

New legislation will clear the way for the introduction of real estate investment trusts (Reits). These are essentially tax-favoured investment vehicles that allow investment in the property market without the complications of holding property directly. There will be consultation on a new local planning levy, following proposals for a tax on land set aside for redevelopment, to be reinvested in the community.

In the scientific arena, there will be an overhaul of the tax credits scheme for research and development, with an extension of the qualifying expenditure and a simplification of the procedure for claiming credits. A network of innovation centres will be created, along with a new national institute for health research, which will make it easier for drugs companies to carry out clinical trials within the National Health Service. In particular, the funding of stem cell research will be boosted by $85 million over two years and by $595 million over 10 years.


Tax credit aims to encourage British film industry
In another move, Mr Brown announced that the government would guarantee a new tax credit for the British film industry, worth up to 16 per cent for big-budget productions and 20 per cent for smaller films. The announcement was welcomed by the UK Film Council as “the best news the British film industry has received for five years”. There will also be a new points system to determine which productions qualify as ‘British’ films, based on the origins of cast, crew and producers, where the film is shot and whether it is set in the UK.

According to the Film Council, the production value of films made in the UK fell by 30 per cent in 2005 compared with 2004, to about $816 million, as production moved to cheaper locations such as Canada, New Zealand and the Czech Republic, especially of big-budget Hollywood films. Despite the larger-than-expected tax credit, it will take some time for UK production to pick up again, due to the long lead times involved in making films. The only big-budget film scheduled to be made in the UK in 2006 is the fifth in the highly successful Harry Potter series, Harry Potter and the Order of the Phoenix.

In 2004, exports of all services by the UK film and television industries were worth $3.7 billion, an increase of 25 per cent on 2003. Imports were worth $3.6 billion, an increase of 11 per cent. Overall, the two industries recorded a net surplus of $85 million in 2004, compared with a deficit of $282.2 million in 2003. The British film industry showed a net surplus of $151.3 million, while the TV industry recorded a deficit of $741.2 million. Both totals represented a 6 per decrease from 2003 figures.

The UK’s creative industries, meanwhile, have grown on average at twice the rate of the UK economy in the period 1997-2003, according to a new report, Creativity, Design and Business Performance, published by the DTI. Although it stresses that the findings of the report are preliminary, the DTI estimates a rate of return to companies of up to 17 per cent on their design expenditure, particularly for small and medium enterprises (SMEs) and companies engaged in manufacturing. It suggests that design is a key way for companies to maintain and drive innovation, and that successful companies not only look to R&D and design as specific creative inputs, but also seek to promote creativity in all parts of the organisation.


New funding provides significant boost for stem cell research
The cash injection for stem cell research will cement the UK’s leading position in this sometimes controversial scientific field. The UK has one of the world’s best regulatory environments for research into stem cells, which have the potential to provide new treatments for illnesses ranging from diabetes to spinal cord injuries and Alzheimer’s disease. Stem cells are master cells in the body that can develop into any cell type, with the most promising in the treatment of disease being those derived from very early human embryos left over from fertility treatments.

Government research councils and private-sector bodies such as the UK Stem Cell Foundation have been working together to draw up a 10-year strategy for the sector. The government will make $170 million available for research over the next two years, with the additional $85 million announced in the Pre-Budget Report doubling the amount that had already been pledged. A number of research initiatives have been outlined, including the establishment of a public-private consortium for drug development and the creation of a platform for public dialogue on stem cell research over the coming decade.

The University of Cambridge, in Eastern England, is setting up a new Institute for Stem Cell Biology. The new institute will bring together a number of leading stem cell researchers under the leadership of Professor Austin Smith, who is currently based at the University of Edinburgh and who is also co-ordinator for a major trans-European project, EuroStemCell. In North East England, a new regional stem cell research institute is to be set up with $17 million of backing from Regional Development Agency (RDA) One Northeast. The Institute of Stem Cell Biology and Regenerative Medicine (ISCBRM) will be supported by the universities of Newcastle and Durham and will be based at the International Centre for Life in Newcastle.

Support for commercial R&D initiatives
In other scientific initiatives, the DTI has announced the first of an expected 160 projects to benefit from $153 million of funding under its Technology Programme, which is designed to encourage R&D that will bring long-term commercial advantage to the UK economy. The funding is divided among eight priority technology areas, including nanotechnology, pervasive computing, waste management, opto-electronics, smart materials, energy, imaging and bio-based industrial resources.

In Newcastle, North East England, plans to create a scientific centre of excellence have taken a step forward with the acquisition of a 14.4-acre site formerly owned by the Scottish & Newcastle Brewery. The site will form the hub of a planned Science City, which will serve as a key location for knowledge-based businesses. It is hoped that researchers and companies will come together to exploit commercial opportunities in applied sciences such as stem cell research, health, ageing, energy and molecular engineering. The development is expected to create up to 15,000 jobs over the next 10 years. In Yorkshire and Humber, a new laboratory has opened at Leeds Metropolitan University to provide technical support to the region’s food and drink industries.

The number of foreign IT professionals arriving in the UK on work permits has increased more than ten-fold over the past decade, as large-scale projects, especially in the public sector, have created a huge demand for workers. According to the Home Office, 22,000 foreign IT workers entered the country in 2005, compared with 1,827 in 1995. The increase has been particularly rapid in the past three years, with the numbers almost doubling since 2002. Almost 85 per cent of the workers came from India, with the US in a distant second place on 5 per cent. IT is now the second most popular profession for work permit allocations, after nursing.


New centres to explore alternative energy sources
A new lab dedicated to tackling the scientific challenges posed by the world’s demand for energy has been opened at Imperial College London. The Energy Futures Lab will provide a focal point for energy research and aims to play a leading role in setting the energy agenda over the next 20-50 years. It will develop new multi-disciplinary, cross-faculty research programmes, focusing on different technologies in order to meet energy needs for heating, lighting, power and transportation, with an emphasis on sustainability. It will also capitalise on Imperial’s existing strengths in emerging technologies such as carbon capture, fossil fuel engineering, renewable energy and fuel cells, and its proven track record in innovation and entrepreneurship.

Telecoms companies agree to overseas takeover bids
Spanish telecoms company Telefónica has bought UK-based mobile phone operator O2 for $31.5bn. O2 is the sixth-largest operator in Europe, and one its few independents. It has a strong position in the UK market and in 2004 reported pre-tax profits of $525.3 million. It has attracted takeover speculation since its demerger from British Telecom in 2001, with recent suitors including Germany’s Deutsche Telekom, Holland’s KPN and Hutchison Whampoa of Hong Kong.

The move gives Telefónica access to two of the largest markets in Europe, the UK and Germany, as it moves to strengthen its presence across the continent. O2 also has interests in Ireland. Its business fits neatly with that of Telefónica, which covers Spain and much of Latin America, with 145 million customers worldwide. Under the deal, O2 will retain its existing brand and will continue to be based in the UK.

Meanwhile Swedish telecoms group Ericsson has acquired the majority of the telecommunications equipment and international services businesses of Marconi, based in Coventry in the West Midlands, for around $2.1 billion. As part of the deal, Ericsson will acquire the Marconi trademark, other trade names and intellectual property rights, together with Marconi’s optical networks and most of its access networks businesses. Marconi will be renamed telent plc but will continue as an independent entity. It will retain its UK telecommunications services, its UK and German value-added services and its System X and payphone businesses.

Of Marconi’s 9,000 staff worldwide, 6,670 will move to Ericsson, while around 2,000 will remain with telent, which will be Ericsson’s preferred services partner in the UK. The move will allow Ericsson to strengthen its fixed-line business, as mobile and fixed-line services continue to converge.

Ericsson’s chief executive, Carl-Henric Svanberg, said: “Ericsson and Marconi know each other and have had a successful partnership over ten years. We bring together two pioneering telecom companies with a combined heritage of more than two centuries in the industry.” John Devaney, chairman of Marconi, commented: “We have found a partner that has the scale and global reach to take our equipment business forward in a way that we would not have been able to do alone.”

Investment in the UK by foreign companies reached $52.2 billion in 2004, an increase of $34.7 billion from 2003, according to the Office for National Statistics. Investment from other European countries increased from $11.9 billion to $47.4 billion, while investment from Asia rose by $7.5 billion and from Australia and Oceania by $1.9 billion. Investment flows from the Americas, however, declined from $5.8 billion in 2003 to a disinvestment of $4.4 billion in 2004. The total stock of FDI in the UK rose from $577.3 billion at the end of 2003 to $623 billion at the end of 2004. Earnings by foreign companies from their UK investments increased by $9.9 billion to $44.4 billion.


P&O ports group acquired by Middle East operator
London-based ports and ferries group P&O has agreed to an all-cash takeover bid of $5.7 billion from Dubai Ports World, in a deal that will create the third-largest ports operator in the world. Dubai Ports World was created by the merger of two state-owned companies last September and is backed by the government of Dubai. It said that P&O’s headquarters would remain in London and that it planned to retain the company’s management and staff. Together with its UK-France ferries business. P&O (full name Peninsular & Oriental Steam Navigation Company) earns about 80 per cent of its profits from ports in Asia, the Americas and Europe. It is expecting approval from the UK government early this year for a $2.6 billion container port and business centre located near London.

A new six-days-a-week freight ferry service is to be launched between the Humber Sea Terminal, in Yorkshire and Humber, and Vlaardingen in the Netherlands. The service will be operated by shipping giant Norfolk Line, using two vessels, and will initially create 20 new jobs.

Total water transport in the UK, including traffic on inland waterways, coastwise, offshore oil and gas and sea dredging, accounted for 6 per cent of all goods lifted and 24 per cent of all goods moved in 2004, according to the Department for Transport. The great majority of this – 47 billion tonne-kilometres, or 79 per cent of the total – involved crude petroleum and petroleum products. Some 45 million tonnes of cargo were carried on inland waterways, 6 per cent less than in 2003. The River Thames was the busiest inland waterway in 2004, with 16 million tonnes lifted and 0.6 billion tonne-kilometres moved. It was followed by the Forth, which lifted 8.5 million tonnes and moved 0.2 billion tonne-kilometres of goods. Overall, however, traffic on inland waterways has declined over the past decade, both in terms of goods lifted (by 28 per cent) and goods moved (by 29 per cent).


London reinforces its status as a global financial centre
A new report from the Corporation of London indicates that the UK capital has extended its lead as Europe’s top financial centre since 2003. The survey solicited the opinions of financial services professionals in more than 20 countries on the relative merits of London, New York, Frankfurt and Paris. It concluded that London and New York remain the only genuine global financial centres, with London marginally in the lead overall, and that Frankfurt and Paris, together with centres in Asia, will continue as national or regional centres and will not challenge the top two in the future.

The five most important competitive factors for financial sectors were deemed to be the availability of skilled personnel, the regulatory environment, access to international financial markets, availability of business infrastructure and access to customers. London scored well on all of these, particularly on the availability of skilled staff, a flexible labour market and comparatively light regulation. Another attraction was the city’s cosmopolitan nature. As one interviewee, the MD of a global bank, put it: “You are not a global player if you’re not in London and New York.”

London has recently seen a number of European banks consolidate their wholesale operations in the city. By early December, there had also been a 9 per cent rise year-on-year in the number of merger and acquisitions deals being concluded and a 39 per cent increase in their value. The volume of debt issues was up by 5 per cent and their value by 14 per cent. All this has led to a healthy jobs market for financial services professionals. A study by recruitment agency Manpower reveals that a third of financial services companies expect to increase their staffing levels in the first quarter of 2006, compared with only 1 per cent that expect to cut staff.

According to the Office for National Statistics, average annual salaries in the Canary Wharf area, which is home to some of the largest financial institutions, soared by 21.5 per cent in the 12 months to April 2005, to exceed $170,000. Average annual salaries in the City, according to financial recruitment specialists Morgan McKinley, rose by 16.1 per cent in the 12 months to the end of October to stand at $86,600, while the pay of senior managers rose by 17.6 per cent to $131,000.


UK capital is the world’s favourite city
Winning the right to stage the 2012 Olympics has helped London to overtake New York as the world’s leading city, according to another report from the Corporation of London. This report, conducted by Oxford Economic Forecasting, concludes that since 2000 the capital has consolidated its position as the largest regional economy within the UK, with better productivity and a more highly skilled workforce than most other locations. In 2004, the capital exported goods and services worth $78.2 billion to the rest of the world. It remains a magnet for inward investment, attracting 37 per cent of all inward investment projects in 2004/05, while nearly one-third of all foreign currency transactions were undertaken in the UK. A third of Fortune Global 500 companies have their European headquarters in London, and the city is the UK’s premier tourist destination.

Underlining this last point, London has won the World’s Leading Destination Award at the 12th annual World Travel Awards. The votes of thousands of professionals in the travel industry saw the UK capital beat off competition from the likes of Sydney, Cape Town, Dubai, Las Vegas, Paris, Rome, New York and Barcelona. The Mayor of London, Ken Livingstone, said: “London is the most diverse, globally inclusive tourist destination in the world.”

In other London news, search engine giant Google has established a new base in Victoria SW1 to go with its existing office in the Soho area. The new ‘GooglePlex’, which will house 200 engineers, will be an engineering centre with a focus on wireless technologies. A new extension has opened to the Docklands Light Railway, linking London City Airport with Canary Wharf, the City and central London. The extension, running from Canning Town to North Woolwich, has four stations, including one for the airport, and is set to play an important part in the capital’s plans for hosting the Olympic Games in 2012.

As if all this were not enough, London has emerged as the world’ favourite city in a survey that treats cities as if they were consumer brands. The Anholt-GMI City Brands Index quizzed 17,502 people around the world on their perceptions of 30 different cities. London won largely due to its familiarity – by a wide margin, respondents felt they knew London better than any other city. The capital’s business climate scored particularly highly, and it ranked first for doing business, finding a job, obtaining educational qualifications and finding a community into which one could fit. It scored less well on people’s impressions of affordable accommodation, the friendliness of its people and the weather, but even these negative perceptions added to the strength of the ‘brand’. Paris came second in the survey, followed by Sydney, Rome, Barcelona, Amsterdam, New York, Los Angeles, Madrid, Berlin and San Francisco.
 

Around the regions
Real estate management transaction company Stewart Title, a wholly owned subsidiary of Stewart Title Guaranty Co of Houston, Texas, has opened an office in London. The office will oversee the company’s UK operations as well as its international business, which includes activities in Spain, Australia, Turkey and countries in Eastern Europe. Stewart Title provides title insurance and related information services through more than 8,000 policy-issuing offices and agencies in the US and internationally.

Language Line Holdings LLC of Monterey, California, is to acquire the similarly-named but unaffiliated Language Line Ltd, based in London. Both companies provide a range of translation services, including over-the-telephone and face-to-face interpretation and document translation. An arm’s-length services agreement will allow the UK company to take advantage of its US parent’s global network of interpreters, technology and infrastructure.

Lombardi Software, based in Austin, Texas, has established a European subsidiary, Lombardi Software Ltd, in London. The company specialises in business process management software and, as in North America, it will focus its efforts on Global 2000 organisations. Meanwhile California-based Objectivity, a provider of real-time data management solutions for complex inter-related data, has opened a European sales office in Alton, Hampshire in South East England. The company will focus on growing UK requirements in the areas of security and intelligence, as well as its traditional markets in Europe.

High Tech Computer Corp (HTC) of Taiwan, a provider of handheld devices, is planning to set up a multi-million-dollar sales and marketing office in Slough, South East England in order to strengthen its presence in Europe. The company offers a range of smart devices based on the Microsoft Windows Mobile 5.0 operating system.

Biotechnology company Genentech Inc of San Francisco has entered into an R&D collaboration with UK counterpart PIramed, based in Slough, South East England. The two companies will work together on a new class of cancer drugs that target a key enzyme involved in a broad range of cancers. Under the deal, Genentech will make an upfront payment to PIramed and possible additional payments based on results, up to a potential total of $230 million.

Toyota, East Midlands

Toyota, based at Burnaston in the East Midlands, is to invest $17.2 million to set up its first motor training facility in the UK. The Toyota Academy will be located in the city of Nottingham, which is enjoying a flurry of investment. The University of Nottingham has recently opened a $34 million campus in the Chinese city of Ningbo, becoming the first independent foreign university in China. Nottingham and Ningbo (which is near Shanghai) have also signed a special pledge aimed at encouraging mutual trade and nurturing education and culture. Developments within Nottingham itself include the $1.5 billion Island Scheme, which aims to create a new business quarter and a waterside development with business, leisure and residential facilities. The East Midlands recently came top in a Deloitte survey as the most competitive place in the UK in which to do business. Business leaders in the region rated its transport, business networks, public support and local markets particularly highly.

A new Urban Regeneration Company (URC) has been approved for the North Northamptonshire region of the East Midlands. It will merge two existing bodies, Catalyst Corby and North Northants Together, to amalgamate regeneration efforts and to speak with a single voice for the area. The new URC will be funded by English Partnerships, the East Midlands Development Agency, the Office of the Deputy Prime Minister and five local authorities.

The first unit has been completed at Bilsthorpe Colliery in Nottinghamshire, a former mining site that is being redeveloped for commercial use, in a $6.8 million project that will eventually create up to 500,000 sq ft of space. The first phase of development at the 41-acre site involves the remediation of 7.5 acres of land, the creation of primary infrastructure and services and the construction of 75,000 sq ft of industrial space. Bilsthorpe has its own rail connection and the development is envisaged primarily as a freight hub that will add to the region’s capacity as a distribution centre.

In the West Midlands, the $76.5 million redevelopment of the former Sideway Colliery in Stoke-on-Trent, North Staffordshire incorporates plans for warehouse distribution space and development space for SMEs. Up to 900 jobs could be created on the 64-acre site by 2010. Developer ProLogis will take over the site from RDA Advantage West Midlands in the spring once a massive land reclamation project, financed by national regeneration agency English Partnerships as part of the National Coalfields Programme, has been completed.

A former brewery in Castle Eden in County Durham, North East England is to be transformed into a 15,000 sq ft business centre, providing space for more than 20 businesses. The Grade II-listed Castle Eden Brewery, originally built in 1826 and a local landmark, will be converted at a cost of $2.6 million, which will include new office accommodation within the site. Work is expected to take 12 months, and units will range in size from 170 sq ft to 700 sq ft.

The Bank of New York plans to double the size of its operation in Manchester, North West England, increasing the size of its workforce there from 350 people by the end of this year to 750 within the next few years. The Wall Street-based institution has been diversifying its operations and expanding outside the US since the 9/11 attacks on New York in 2001. It has opened seven new growth centres in the past five years, including bases in Orlando, Florida and in Singapore, but it has been particularly impressed by the way business is done in Manchester. At a reception in New York, the bank’s senior executive vice president, Donald Monks, drew parallels with the way in which both New York and Manchester have bounced back after suffering acts of terrorism, and urged other US institutions to follow its lead in investing there.

Progressive International Gaming Corporation (PGIC), a Las Vegas-based supplier of integrated casino management systems software and games, has acquired EndX Group, a gaming management systems software company based in Oldham, Lancashire in North West England. EndX has been a strategic partner with PGIC for more than three years, and its Intelligence Product Suite is installed in over 175 gaming centres in 20 countries worldwide.

A 250,000 sq ft cross-dock warehouse is currently under construction on a 13-acre site at Wingates Industrial Park in Bolton, North West England. Named Big Sam, the facility is due for completion in April and is available for lease. It is strategically located close to the M61 motorway and the population centres of Bolton and Wigan, and marks the final phase of new development at the Wingates site, which is already home to more than 30 companies involved in a wide variety of manufacturing and distribution activities. In the same area, four smaller units, ranging in size from 8,500 sq ft to 16,000 sq ft, have been completed at Rivington View Business Park in the Blackrod area.

Also in the North West, at Stockport, a further 45,700 sq ft of speculative floorspace is under construction at Cheadle Royal Business Park. The new scheme includes five units (one of which has already been pre-sold), which are due for completion in autumn 2006. The town has launched a DVD, aimed at agents and developers, that highlights the range of development opportunities available in Stockport town centre. An $850 million regeneration initiative, ‘Future Stockport’ was launched a year ago and has sparked considerable interest in the area.

Seagate Technologies, Northern Ireland

US-based Seagate Technologies is to invest $141.1 million in its two plants in Northern Ireland, creating 300 new jobs. Almost a third of the investment – $42.2 million – will come from inward investment agency Invest Northern Ireland. The development will make Seagate’s Springtown plant its main global manufacturing facility, as well as a key development site for read/write heads for computer hard drives and the most advanced nanotechnology manufacturing facility in the UK.

The plant at Limavady will produce a wider range of aluminium substrates for use in the company’s hard disk drive products. Seagate first set up operations in Springtown in 1993 and in Limavady in 1996, and now contributes more than $95 million annually to the local economy in the form of salaries and the procurement of supplies

Intelliden, a provider of open, automated networking solutions based in Colorado Springs, is to invest $4.3 million in a European R&D centre in Belfast, Northern Ireland. Invest NI has provided $1.2 million to support product development and the training of local staff. The facility will employ 35 people over the next three years, most of them software engineers, and will give Intelliden a strong foothold in the European market.

Canyon Europe Ltd, a subsidiary of Canyon Corporation of Japan, has embarked on a $16.7 million development project at its plant at Mallusk, Northern Ireland that will add an extra 40 jobs to the existing workforce of 63. Canyon Europe was set up in Mallusk in 1987 to provide a base for the company’s UK and mainland European manufacturing and sales operations. It produces plastic trigger sprayers and dispensing pumps for a variety of users, and has secured a major new contract with a European multinational to produce more than 60 million units annually, starting in January 2006. A grant of $3 million from Invest Northern Ireland was one of the factors that led Canyon to choose the Mallusk plant for expansion over other facilities worldwide, including a sister factory in Vietnam. The company will also establish an R&D centre of excellence at the premises and will strengthen its links with local academic institutions, including Queen’s University, Belfast.

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