Enjoy the bounce – while it lasts: Sir Martin Sorrell’s firm S4 Capital is going gangbusters, but he’s not counting on a ‘roaring twenties’
Sir Martin Sorrell has poured cold water on the idea of a ‘roaring twenties’ and warned that tax rises could dampen economic growth over the coming decade.
The advertising tycoon believes a rapid rebound is set to take place over the next 18 months but that by 2023 businesses could be hamstrung by hikes in corporation and income tax as governments tackle the huge debt accumulated to fight the coronavirus pandemic.
Sorrell said: ‘The chickens may well come home to roost in 2023, given the debt burden that most countries will have and the tax increases that will have to be implemented.
Sir Martin Sorrell believes a rapid rebound is set to take place over the next 18 months but that by 2023 businesses could be hamstrung by hikes in corporation and income tax
‘We have to pay the price for the coronavirus measures, taxes will impact the wider economy. The money was wisely spent but at some point the budgets have to be balanced.’
Global debt climbed to an all-time high of £202trillion last year and is expected to rise further in 2021. In the UK, government debt currently stands at £2.14trillion and in the US the figure is £20trillion.
To combat this Rishi Sunak announced in the March Budget that corporation tax in the UK would increase from 19 per cent to 25 per cent by 2023, making him the first chancellor to raise the levy since Labour’s Denis Healey in 1974.
Likewise, President Joe Biden has promised to raise US taxes on capital gains and top earners as part of plans to find £1.1trillion over the next ten years.
As a result Sorrell predicts the UK economy will grow by 6 per cent this year, 5 per cent in 2022 and then cool to around 2 per cent after that.
Sorrell’s stark comments come as sales at his new venture S4 Capital grew by 35 per cent to £122million between January and March this year. Profits were up by a third to £104million over the period.
Jessica Pok, analyst at Peel Hunt, said: ‘New business activity has been frenetic and the pipeline is significantly above the level at this time last year.’
Sorrell’s new venture S4 Capital grew by 35 per cent to £122m between January and March this year. Profits were up by a third to £104m over the period
S4’s current market cap is £3billion and Sorrell believes the digital ad firm could double in size by 2023.
To make that happen Sorrell, a prolific deal maker, is eyeing companies to buy and issued a bond that gives it £500million of ‘merger transaction firepower’.
He said: ‘We have targets in mind, were are fighting private equity rather than industry players for them.’
The company was founded in May 2018 just weeks after Sorrell left WPP under a cloud, having run the company for 33 years.
Sorrell’s departure came amid allegations about his sex life which he strongly denied.
WPP has struggled ever since, with critics claiming it lacks direction under chief executive Mark Read.
Since Sorrell launched his dramatic comeback, shares in his new company have risen more than 400 per cent while WPP has lost over a fifth of its value.
There remains bad blood between Sorrell and WPP, who is still one of WPP’s top shareholders, with a 2 per cent stake.
In yesterday’s S4 update, the company pointed out he built WPP ‘into the world’s largest advertising and marketing services company with a market capitalisation of over £16billion on the day he left’. The statement added: ‘Today its market capitalisation is £12billion.’
Last week WPP sought to deny the tycoon £600,000 worth of bonus payments, which Sorrell described as ‘petty’ and another case of ‘peanut envy’.
He has called in lawyers to contest the decision but for now remains focused on S4’s future.
‘All the roles I’ve held have had their attractions but S4 Capital is the most interesting because the tech disruption is so violent.’