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Archive for the category “Britain”

Brother, can you spare a dime?

attlee_churchill

Not quite Laurel and Hardy

He is best remembered through the prism of the witticisms of his arch-rival, Winston Churchill: ‘A modest man, who has much to be modest about’; ‘A sheep, in sheep’s clothing’; ‘Up drew an empty taxi, and out stepped…’, but Clement Attlee, the fiftieth anniversary of whose death is being marked this year, had many arrows to his bow. His sound defeat of Churchill in the 1945 election heralded in the Welfare State and wholesale Nationalization (including the Bank of England, coal and steel, and the railways), which changed Britain forever. Even Margaret Thatcher, who staked her claim to a place in history on unravelling much of what Attlee had done (with mixed results – someone recently suggested that Virgin Trains’ motto should be ‘The first time is always the worst’), referred to him as, ‘all substance, and no show’.

Fast-forward seventy years and it seems everyone, apart from the Americans, talks the talk about looking after the weaker elements in society and redistributing income, but doesn’t walk the walk of being willing to pay the price. There is more show than substance.

The latest evidence comes from that country up there in social Valhalla, Norway.

Six weeks ago the conservative government introduced a Voluntary Tax Payment Program. When I first read this, I assumed it was a Voluntary Disclosure Program for naughty Nordics – but no, it is what it says. If, after paying nearly 50% tax, you fancy paying some more, your contribution will be gratefully accepted by the government.

Well, according to the latest available statistics (at least, available to me), the total take has been around $1,500 – which includes tax lawyers and accountants making small contributions to see how it works (and, it has to be assumed, claiming their payments as a business expense). It also turns out that this is not Norway’s first voluntary payment scheme – they set one up in 2006 to which around 90 people have, to date, contributed a total of $85,000 – all, curiously,  anonymous ‘donations’. This might sooth a tax evader’s conscience while financing a government minister’s sleigh expenses, but it won’t do much for the relief of the poor.

When push comes to shove, the vast majority of people pay taxes because they have to, whatever their political hue, and high taxes are a toxic election loser. Only the Americans tell it as it is. The main reason for their dogged refusal to adopt VAT is considered to be the ease with which additional revenue could be raised resulting in ‘inflationary’ pressure on government spending, with the dreaded prospect of turning America into a European-style welfare state.

Modern attitudes are perhaps neatly reflected in a statement by a left-leaning political pundit on the reason for the large turnout of Labour-supporting young voters at the recent British General Election. Referring to the inability of the young to step onto the home-owning ladder due to the exorbitant cost of housing, she said: ‘They didn’t vote conservative, because they have nothing to conserve.’

Back in 1945, despite the Conservative Churchill’s massive personal popularity and acerbic witticisms, there were less egocentric reasons to elect Clement Attlee and his Labour colleagues.

Was the Battle of Europe lost on the playing fields of Eton?

holy-grail-knight

What was that about Freedom of Movement in the EU?

‘History doesn’t repeat itself, but it often rhymes.’ That aphorism, attributed to Mark Twain, has been much on my mind  lately.

Anybody wanting to get inside the minds of the wrong-headed majority that tragically voted the UK out of the EU (and probably lit a fuse to both those abbreviations) could do worse than read one of Dickens’s less known novels, ‘Barnaby Rudge’, about the Gordon riots against Catholic legislation.

Although the situation in 1780 became violent while last week’s referendum ensured peaceful mob rule,  the cynical manipulation and ignorance that led to the riots should have been a cautionary tale taught to every schoolboy and schoolgirl  in the last century and a half.

In the weeks, months and years ahead experts will assess the carnage to be irrevocably wrought on the UK and Europe, .

From a tax viewpoint, the immediate damage would appear to be to the UK Holding Company regime, as well as Finance Companies and IP ownership. This arises from the future removal of the parent/subsidiary directive, and interest and royalties directive. These two directives guarantee exemption from dividend withholding tax and withholding tax on interest and royalties, respectively,  when paid by the other 27 EU countries to the UK. Following the UK’s withdrawal from the EU, withholding tax will be applied according to treaty. This will mean that Holding Companies, exempt from tax on their dividends, and Finance Companies and Patent Box companies paying low tax, will be at a disadvantage compared with EU jurisdictions. As the UK does not withhold tax on dividends according to domestic law, the UK is currently very popular as a holding jurisdiction – a popularity that is likely to disappear very quickly (like, tomorrow morning).

Thanks to the OECD’s BEPS project, most other disadvantages of the Brexit will already have been swept up in wider international agreements, while there may be some small advantage in not being penalized by the EU for offering State Aid to companies.

It is well known that Boris Johnson and David Cameron studied at the same elite school. While the Duke of Wellington may have declared that the Battle of Waterloo was won on the playing fields of Eton, it would appear that  the Peace of Europe may have been lost on that same dot of England’s green and pleasant land.

It’s simply not cricket.

Pupils huddle during the Eton Wall Game at Eton college in Eton, near London

Meeting of a future Tory Cabinet

 

 

 

 

The Party’s Over?

Exhibit A

Exhibit A

The most poignant scene in the aftermath of the British General Election was defeated Labour leader Ed Milliband’s ‘victory’ speech at the declaration for his  Doncaster constituency. True to custom, he used the opportunity to recognize the enormity of Labour’s defeat, and effectively conceded the election. But it was not the words of this left-wing, intellectual misfit’s eulogy that got me; it was the fact that behind him stood fellow candidate Nick the Flying Brick of the Official Monster Raving Loony Party. As Milliband all but resigned the leadership of his party, it was as if fate had decreed that Labour supporters look carefully into the eyes of the nutter at his rear, ready to step up to the plate and probably give the Labour party as much chance of election in 2020 as Red Ed had now. Although the Party Manifesto was centre-left, just about everybody –  the ‘somebody-help-me’ areas of the North and  their brother inner-cities that returned Labour MPs, and everywhere else that did not – seemed to believe that Milliband’s gang would not manage to keep their high-taxing, statist paws behind their backs.

It was King Solomon in Ecclesiastes, later echoed by The Byrds, who told us that there is a time for everything. Well, there was a time for statism. Had I been voting 100 years ago, I may well have voted for the Labour Party. The Liberal Government of the time  had been the most radical government in history, bulldozing reforms for the benefit of the wider  population in the pre-war years. But, by the time the Great War  was over, its coalition with the Conservatives had (you’ve heard this one before) guaranteed its obliteration. The  Labour Party was still embryonic immediately after the First World War, but it came fully into its own after the Second. When I did vote 30 years ago, I chose Social Democrat (ie Liberal Democrat in today’s sad terms). It was time for a change in the mix of the mixed economy,  gradually working away from the statism of the post-war years. Had I been able to vote in the  election this week, I would have voted Conservative. The country has changed beyond recognition.

It is more understandable with the Greeks

It is more understandable with the Greeks

The challenge of the 21st century is not the exploitation of labour by the owners of capital; it is the fast-approaching lack of need of labour by the owners of capital. The world needs new solutions to old and new problems  (including the perennial wealth gap), all within the concept of a global economy. The tired old mantras cannot and, indeed, should not be allowed to persist. If anyone doubts this, they need only look at the Official Monster Raving Loony Syriza Government in Greece – a Greek Tragedy waiting to happen.

When the Greatest Generation came back from the Second World War, there was an urgent need for mass employment and the rebuilding of the country. The British Electorate, unswervingly grateful to Churchill for leading the nation to victory, brilliantly recognized the dichotomy between War and Peace, and promptly charged Clement Attlee’s Labour Party with the task. When, a generation later, Margaret Thatcher set about the necessary task of dismantling Attlee’s enterprise (albeit, IMHO, too fast), she was still able to refer to him admiringly as ‘all substance, and no show’.

Labour has elected much worse

Labour has elected much worse

Well, there were 13 years of Labour Social Democratic government under Blair and Brown. The election of Ed Milliband to lead the party in 2010 looked at the time to sane observers, not as an exorcising of the progress made in the previous two decades, but  as the swan song of the, yet unburied, left on its way to a waiting grave.  It almost guaranteed a decade-long Tory stewardship. I, for one, never feared that the British electorate would be stupid enough to send Milliband to Downing Street. It wasn’t. The leadership election in the coming months will probably decide whether it is only a decade. Let’s just hope that in 2020, the leader of Her Majesty’s Loyal Opposition is not an Official Monster Raving Loony Party doppelgänger.

His Kingdom For A Hearse

With England burying one of its monarchs today, 530 years late, I thought it appropriate to re-post this item from March 25,  2012.

Greatest Britain

What makes Britain great? There is, of course, no single answer (and the French would suggest there is no question), but the nation that gave the world its principal parliamentary system, its principal international language and (sorry, Yanks) its principal sport must have something in its national DNA that sets it apart from all the rest.

It seems to me that a major factor is Britain’s innate conservatism as described and promoted by the 18th century philosopher and politician, Edmund Burke. British society doesn’t change – it evolves. And evolution produces strength, step-by-step. There have, of course, been potholes in the road over the years – most notably the Civil War and Protectorate of Oliver Cromwell in the 17th century – but, let’s face it, after a few years of that miserable puritan they brought back Charles II whose head had fortunately not been cut off along with his father’s. When things went haywire again a quarter of a century later, the King (the last James we are likely to see) was booted across the water and none other than John Locke, the very man who challenged the divine right of kings in his “Two Treatises of Government”, was charged with schlepping the new king and queen from Holland.

There was a marvelous example of British evolution a few months back that, typically, went almost unnoticed. One Friday morning an announcement was made in Perth (the Aussie one) – which is just about as far as you can get from Buckingham Palace without jumping on a spaceship – that henceforth the first born of the monarch (etc) will be the heir to the throne irrespective of gender. In a stroke, countless centuries of common law and statute were set aside and Britain and its Commonwealth moved on (I am aware that political correctness dictates that I should be talking about the United Kingdom – but, frankly, I am a bit ambivalent towards Northern Ireland). And what about Decimalization 40 years ago? After watching sterling evolve over centuries into the quaint system of pounds, shillings (20 in a pound) and pence (12 pence in a shilling) – instead of changing the currency they just dropped the shillings and recast the pence. To maintain an element of originality in the change, instead of using a normal date (like January 1 used for introduction of the Euro) they went for the totally obscure February 15 1971 – which could, at least, have been identified as the middle of the month – in any month other than February.

Which brings me to the central point. I have a hunch (but not an ounce of evidence) that we may be heading for another of those evolutionary changes in the next few years.

Last week, in the month of March as from time immemorial, Chancellor of the Exchequer George Osborne presented the Government’s budget for the coming fiscal year. The Government’s fiscal year starts April 1 but, for the purpose of income tax the year starts on April 6. Why April 6? The story is simply wonderful.

New Years Day used to be recognised in Britain as March 25. That date represents Lady Day when, according to Christian tradition, the Archangel Gabriel informed the Virgin Mary she was going to conceive (count nine months and you get to Christmas Day). The Treasury understandably collected its taxes based on the year commencing March 25. When, in 1582, Pope Gregory XIII instituted his calendar replacing the old Julian version European countries gradually adopted it. The Protestant English, however, gave him the two finger salute and hung on until 1752 when, in addition to adopting the Gregorian calendar New Year’s Day was moved to January 1. The tax year was left untouched but for one small point. Adoption of the Gregorian calendar required an eleven day leap forward in the date (there were riots reported at the time of people claiming they had been robbed of part of their lives). Not prepared to give up on tax revenue, the Treasury moved the collection period forward by the said eleven days – meaning that the new tax year would start on April 5. As part of the calendar change leap years are generally skipped at the turn of the century – in 1800 another day was added bringing the start to April 6; in 1900, the Treasury was magnanimous and left the date alone; 2000 was a leap year, so we will never know what Gordon Brown might have done.

It is hard to see how this system can go on forever. I recently had to do some foreign tax credit calculations for a client invested in real estate in the UK – I felt like getting out an abacus (and hitting someone over the head with it). I would assume that one of these years when the economy is doing well and a government is in the middle of its term there will be a quiet announcement from somewhere like the Isle of Skye (if it is still part of Britain) that the next tax year will start on April 1 – but then everyone will probably assume it’s an April Fools joke. Happy New Year.

A Sheikh’s home is his English castle

There was one invastion...

There was one invastion…

‘Cry — God for Harry! England and Saint George!’ This year marks the 600th anniversary of King Henry V’s victory over the French at the Battle of Agincourt. While Britain has had quite a successful run over the years overrunning other countries, it is almost exactly 950 years since Albion was last invaded. (We prefer to connect the French with Waterloo than the Battle of Hastings.)

I have long had a hunch that Britain’s secure island status is the reason successive British Governments have been slow to adopt the universal policy of charging non-resident investors in real estate to capital gains tax. Until 2012, as long as odious foreigners planned their affairs correctly, the sale of commercial or residential property did not attract the taxman’s greedy gaze. Then it was decided that, while commercial property was harmless, there was too much speculation and long-term investment in high-end properties by less-than-desirable strangers.

That year, properties valued at more than £2 million that were held in corporate ‘envelopes’ (Cameron-Osborne-Clegspeak for companies) were inflicted with the combined horrors of 15% Stamp Duty Land Tax on purchase, a yearly holding charge – Annual Tax on Enveloped Dwellings – that increased exponentially with the value of the property, and capital gains tax at 28% on sale. A clear case of ‘Up yours, Mr Greaseball!’

'Let me get my wheels on the foreigners!'

‘Let me get my wheels on the foreigners!’

Despite the Draconian measures, it was still not entirely clear that sealing the property in an envelope was the wrong thing to do – given the exposure of personal holding in property  to 40% Inheritance Tax if the purchaser was unfortunate enough to be run over by a double-decker bus while crossing Knightsbridge’s Brompton Road to buy Harrods. Also, if a deal could be done selling a company – the non-resident still paid no tax (other than half a percent stamp tax in the case of a British company).

Well, if our non-native friends thought it was bad up to now – it is about to get one hell of a lot worse.

Assuming the Government manages to pass this year’s Budget before Parliament is dissolved  for the General Election, residential properties held by foreigners are going to be liable to capital gains tax virtually full stop (there are some exceptions for such things as Principal Private Residence). What is more, SDLT is going to be yanked up to a whopping 12% for non-enveloped purchases over £1.5 million. In the meantime, 15% SDLT has been in force for enveloped purchases of over half a million quid since 2014, and the £2 million threshold for ATED is to be reduced to half a million pounds over two years.

The Empire will strike back.

The Empire will strike back.

The trade-off between the holding of residential properties directly or through an envelope has just got that much more complicated. Given the British assumption that foreigners (especially the non-English speaking variety) are fundamentally stupid, a lot of confusion is now expected. Having said that, all the UK has really done is brought itself closer to the rest of the world. It is a sign of the crumbling of Empire. Mr Churchill, and King Harry, would have definitely had what to say.

 

For Whom The Bell Tolls

Mr Turner wasn't always a Romantic

Mr Turner wasn’t always a Romantic

The scene – a church graveyard in Middle England. A respectable crowd, trussed-up in winter clothes, surrounds an open grave. As the coffin is lowered into the gaping hole, the priest declares: ‘The Mother of Parliaments gave, and the Mother of Parliaments hath taken away.’ A sharply dressed gentleman throws the first clod of earth onto the coffin-lid, almost obscuring the gold plaque: ‘Double Taxation Treaties 1872 – 2014. Taken In Their Prime. RIP’.

George, for that is the chief mourner’s name, turns towards the gate, followed by Dave, Nick and Ed. An intimidating, middle-aged woman tarries at the graveside, a sardonic smile engulfing her harsh face. ‘Margaret!’ calls Ed. ‘Move your arse. If we don’t hurry, the Tories will destroy the capitalist system before we  get the chance.’

Not fair. The lady is not gigantic

Not fair. The lady is not gigantic

Sounds gothic? Welcome to  Chancellor of the Exchequer George Osborne’s pre-election Autumn Statement (Budget Preview). After Labour MP Margaret Hodge successfully mauled executives of Starbucks, Google and Amazon back in 2012 over the immorality of shifting UK profits to low-tax jurisdictions, it was only a matter of time (election time, to be precise) before the Conservative Government sought to retake the moral high ground.

Many thought it enough that David Cameron had taken the lead in pushing the OECD BEPS initiative at the G8 Summit in Northern Ireland in 2013. Wrong. Last week his Finance Minister spewed out possibly the most radical piece of international taxation legislation since JFK nuked the world with the Controlled Foreign Corporation (CFC) on October 16, 1962 – the first day of the Cuban Missile Crisis (CMC).

google taxThe  Diverted Profits Tax – already affectionately  dubbed the Google Tax – will tax profits rightly belonging to the UK but currently denied it due to the inconvenient permanent establishment provisions of Britain’s double taxation treaties. It will also tax payments to low-tax jurisdictions unless there is a jolly good reason for them, irrespective of OECD transfer pricing provisions. In order to ignore the existence of a century-and-a-half’s worth of international agreements, the new tax is to be precisely that – a new tax, not a subdivision of the Corporation Tax. It will be levied at a higher (25%) rate and, Mr Osborne hopes, will be beyond the clutches of the EU, OECD and substantially every country participating in the United Nations General Assembly.

Happily, the legality of this aggressive move is to be examined by the Tory party’s nemesis – the European Commission. There are also strong arguments that the new tax does not succeed in side-stepping treaties, being ‘substantially similar’ to existing taxes.

What is hateful about the proposal – which has enormous support in the UK – is that it potentially undoes 140 years of international tax cooperation. Ironically, that cooperation was started by the British – the first ever double taxation treaty being concluded with the Swiss Canton of Vaud in 1872. Moreover, such international cooperation has never been more marked than in the last two years. The BEPS Action Plan, while unlikely to be implemented in all its detail, has, together with FATCA-inspired Automatic Exchange of Information, already started to shake-up the international scene in a big way.

Farage proves he can multi-task

Farage proves he can multi-task

So why has the British Government decided to risk bringing the whole international tax edifice crashing down, encouraging  other countries to retaliate with beggar-thy-neighbour treaty avoiding provisions? David Cameron has been a safe pair of hands as Prime Minister and is deserving of praise, but this latest gambit can only be explained in terms of cheap electioneering. It follows a developing trend that started with immigration bashing, and continued with threats to leave the EU. The paranoia of Britain’s ‘Knees up Mother Brown’, beer-swilling, fag-smoking UKIP party dodos has become contagious. Cameron did not see things done this way on the playing fields of Eton. The Prime Minister would do well to go back and read John Donne’s ‘No man is an island’.

Fish without an aye?

saltire1The only thing I am prepared to learn from this Scottish Referendum lark is that, if you give people an overdose of democracy, their brains come flying out of their ears.

By the time some of you read this, the whole farce may well be over – decided one way or the other: the only statistical certainty in the entire, tiresome process. Friday’s  papers will either be starting the countdown to secession, or painfully analyzing why the polls were so wrong (I predict a 60:40 No vote, and assuming I am right, am prepared to explain why the polls were so wrong, using a valuable analytical tool called ‘common sense’. If I am wrong, I will be analyzing why the polls got it so illogically right).

The big problem, it appears, is that, while the No campaigners have explained convincingly why, economically, independence is the stuff of fairy tales, the Yes campaign has hijacked half the ‘nation’ on a psychedelic ‘Lucy in the Sky with Diamonds’ trip.

Worth going to war for

Worth going to war for

If, as has now been promised by Gordon Brown, former Prime Minister and fellow Jock, the Jocks are given devolved powers of taxation and  control over certain spending in the event of a No vote, any remaining hard-hatted economic arguments of that  Fish without an Aye (pronounced ‘I’) Alex Salmond, will evaporate as fast as an open bottle of whisky in a salmon smoker.

Of course, given half a chance, the average  Scotsman in the Glen is bound to take the opportunity to be seen on TV by his mum, declaiming on the future of his nation free of King Edward Longshanks. Scotsman’s mum, meanwhile, sits huddled next to a wood fire in her cottage in the Outer Hebrides which, thanks to successive Conservative and Labour governments, is attached to the National Electric Grid despite the doubtful value to anybody other than her. The lady is only watching the news because she is eagerly waiting for the fresh episode of  Downton Abbey – a series about a bunch of English toffs.

What I really fail to understand is, why the Scots (whoever they are, and however they are described for the purposes of this vote) get to decide alone on the future of the United Kingdom. It is not just about them. Scotland is not a British Colony or Mandate suing for self-determination. It is an integral part of the Three (Two-and-a-half?) Kingdoms and has to take responsibility for the effect on the others. While Ireland really was buggered by the democracy that was two wolves (England and Scotland) and a sheep (Ireland) discussing what to eat for lunch, Scotland has produced a disproportionate number of Prime Ministers, some of whom – notably James Ramsay Macdonald – have made a perfectly  good job of buggering up  the United Kingdom without resorting to independence.

This vote should have included the entire UK electorate. David Cameron must have been having a bad day when he agreed to the current format – one presumes he assumed the No vote would be a formality.

The American who could lead the Scots to vote 'Yes'

The American who could lead the Scots to vote ‘Yes’

And, even if it was right to restrict the vote to the Scots (which it was patently not), what about the Scottish diaspora? On a decision of this magnitude that will affect all future generations of Scots, why was the vote not offered to Scots and their descendants? As the son of a Scot, I should have a say in the long-term future of the country I have visited once in my lifetime. In fact, I feel passionately about Scotland. If  I were interviewed by the BBC, why would I go for the boring ‘No, I like it like it is’ (that I actually believe in), when I could give an emotional speech about the glory-days of Braveheart that might get me onto the evening News? It wouldn’t have to affect how I actually voted in the secret ballot. But let’s wait and see if the polls were right.

The Good Old Days?

These two would have sorted out Islamic State

These two would have sorted out Islamic State

By the time you get to my age (I, just about, remember what I was doing when I heard JFK had been shot), there are not many childhood ambitions you have either not fulfilled or not given up on. I made it to the Volvo, but not President of the United States (an early disappointment reading a DC Comic – if being born on Krypton ruined it for Superman, Stoke Newington wasn’t going to do much for my chances).

Well, last Saturday night I finally fulfilled an ambition that first entered my head one Spring day in 1970. I remember walking into the school library, the most junior of juniors, and asking the duty prefect to order a copy of John Galsworthy’s “The Forsyte Saga”.  I had been gobsmacked  by the 26 hour BBC adaptation that had been showing in 1968/69 and I thought I would have a go at the original. Either because the prefect knew that the book was about something resembling incest (inbreeding), or because he was an illiterate moron,  instead of encouraging my literary pretensions, he threatened me with detention. Illiterate moron. Definitely.

Last Saturday night, having logged out from normal life  for four complete Saturdays in a row, I finally finished the trilogy that is the Forsyte Saga. It did not disappoint.

It possesses  one of those story lines that would not disgrace ‘The Bold and the Beautiful’ (which I saw for the first time on Friday – somebody told me a number of the characters were thinking of taking up acting; I hope not). I will try a short synopsis (if you are under 18, despite the word ‘incest’, this is a family  site, so I suggest you clear off). Names are a bit of a bind: there is Jolyon and Jo and Jolly and Jon – not to mention, June. So I shall use letters.

Spot the one with two heads

Spot the one with two heads

Back in the 1880s, Mr A and Mr B are first cousins who don’t like each other very much. Mr A marries first but later runs off and marries his daughter’s governess, abandoning his daughter (A minor)  to her mother and his father (Mr Old A – the wives’ names are not important). Mr B marries Mrs  B (her name is very, very important) but she cannot stick him. Mrs B steals A minor’s fiance, who proceeds to top himself . Mrs B walks out on Mr B. Mrs B falls in love with widower Mr A, and Mr B names them both in a divorce suit. Mr A marries Mrs B, while Mr B marries a French woman who is not important. Mr A and Mrs B have a son (AB minor), while Mr B has a daughter (B minor). AB minor and B minor fall in love and want to get married. This cheeses off just about everybody. Just to add to the fun, Mr A has two children from the governess, one of whom dies in the Boer War, while the other marries Mr B’s nephew (this is a daughter – which would have been stating the  obvious in the 19th century), her second cousin. She is the only really sensible one in the whole book, deciding not to have children because – thanks to the family connection – they might be born with two heads.

There is, however, something that was, to the best of my juvenile memory, completely missing from the BBC series. The trilogy is about unabashed capitalism – Soames Forsyte (Mr B), the books’ main protagonist, along with almost all the Forsytes, is obsessed with property and the individual’s right to own as much of it, in all its forms,  as possible. That fits well with late Victorian England, but there is a great leap to the last book from 1901 to 1920, which Nobel Laureate Galsworthy was writing in real-time (published 1921).

This was immediately after the Great War, when the aristocracy and middle classes were living in real fear of what might happen to the country. Income Tax had already been hiked before and during the War. But, while Soames and various Forsytes bewail the inroads the income tax and super-tax are making into their fortunes, they live with a far greater fear which, given the timing of the book, is almost palpable. Three years earlier, King George’s doppelgänger cousin, together with his family,  had been murdered by the Bolsheviks. In Britain, with universal suffrage (that is ‘the vote’ for any under-18s who did not heed my advice above), the Labour Party was rising rapidly and there was a real concern of either outright revolution or wanton nationalization.  As it turned out Labour foamed and fizzled, it requiring another World War to deliver them a sustainable parliamentary majority. Meanwhile, ignorant of what the future held, Soames (and Galsworthy) hid their Top Hats and flashy cars in the hope of not being noticed.

Spot the one with a brain

Spot the one with a brain

A hundred years on, and it is interesting to note that the Social Protests as well as the writings of the likes of that Frenchman Thomas Piketty have not led the nouveau-riche to hide their  wealth. Quite the opposite – they appear to flaunt it.  It will be interesting to see how this one pans out. Whatever happens, I will not be around for the BBC series in 2068 (although, I imagine ‘The Bold and The Beautiful’ will still be going strong).

 

 

The Balls In Her Court?

1966 all over again?

1966 all over again?

What with the World Cup and Wimbledon, the last few weeks have been jam-packed with balls – an appropriate time, perhaps,  for the British Labour Party to present its ideas for the future of tax policy should it win the next General Election. But more of that later.

I grew up thinking the Queen was so prim and proper that if any man were to use fruity language in her imperial presence (even her colourful husband), he would be hoisted on a gibbet outside the Tower of London.

Then, in 1992, the BBC  aired a documentary, the title of which they had filched from an old series about someone else entirely: “Elizabeth R”. In contrast to the earlier, professional production which starred Shakespearean superstar Glenda Jackson, this latest offering was Reality TV in its infancy, a camera crew following the matriarch of a rather dysfunctional family for an entire year as she happened to run into just about everybody who had the power to destroy the world (Celebrity Big Mother).

Among the documentary’s many fascinating scenes was one dealing with the preparations for a State Dinner at Windsor Castle in honour of the, then, President of Poland:

The Queen is observed  in an anteroom with her family waiting to escort the President and his wife to dinner. Passing the time of day with her daughter, Princess Anne, she informs her that she has been showing Lech Walesa (the former Gdansk shipyard labourer) around the Castle. She cheekily mentions that,   amazed by the size of everything,  every time he had entered a room he had uttered the only two words he knew in English, “Quite interesting words”. Anne stops her in mid-flight: “Was it ‘Good Heavens’?”. “Bolder than that,” comes the reply. The Queen produces a wry smile, implying that her sense of humour may be slightly more ribald than one might have imagined.

Michael Foot always had a sense of occasion

Michael Foot always had a sense of occasion

Well, if Labour wins the election next year, one hopes that – as she approaches 90 – Her Majesty is still game for a laugh. For the party that once tried unsuccessfully to put a “Foot”  in No. 10 Downing Street is now likely to put “Balls” in No. 11.

Shadow Chancellor, Ed Balls, gave an interesting talk at the London Business School last week.  Surprisingly for a Labour Economics man, he  informed his audience that a Labour Government would provide tax breaks for businesses, especially small ones.

Before announcing the positive news, however,  being Labour Balls had to dampen the good cheer of the satanic captains of industry crowding the auditorium – so he announced that a Milliband Government would reverse the current Government’s  corporate tax rate reductions. The rate would, however, be kept at the lowest in the G7, that is less than Canada’s 26.5% (Karl Marx, bless Mother Russia for annexing the Crimea and getting kicked out of the G8). Against this there would be substantial Business Rate  (local property tax) reductions, which would serve as a significant incentive to small and growing businesses. There would also be provisions to encourage the long-term holding of shares.

The most controversial announcement, however, was that Labour is considering an “Allowance for Corporate Equity”.  The concept is not new and has been tried in Croatia (failed), Italy (failed),  Brazil (as always, different), Belgium (EU Commission trying to make it fail) and Australia (gave up trying).

The basic concept of ACE is that debt financing and equity financing are equated. In an ideal world this would lead to less volatile companies – a case in hand being Manchester United, a once great football team, that was saddled with tax-deductible debt by its unlamented late owner, Malcolm Glazer. By providing a notional deduction against a company’s capital (and assuming interest and dividends to shareholders are treated similarly), there is effectively no tax on a risk-free investment – tax only applying to “super-profits”.

The potential advantages of such a system, in addition to canceling the debt/equity advantage, are that:  there is tax neutrality regarding investment; it cancels out the effect of differing depreciation rates (the higher the depreciation rate, the lower the capital on which the allowance is calculated); and inflation can be compensated for through changes in the notional rate of deduction.

The downsides are that: in a global economy, the headline corporate tax rate is highly relevant in attracting foreign investment; and there can be issues with foreign tax credits. Then there is the small question of how to calculate the risk free rate  that achieves neutrality.

Seen in this light, it appears far more sensible to follow the approach taken by several countries in recent years to restrict interest deductions to a fixed percentage of EBITDA (earnings before interest, taxes, depreciation and amortization), thus widening the tax base and permitting  reductions in headline rates. But at least the Labour Party, under its soft-left leader, is not threatening the raining down of fire and brimstone  on British Industry.

Power couple?

Power couple?

Of course, should Labour fail in its bid to form the next Government in 2015, the likeable young  Milliband will almost certainly be sent packing. While Mr Balls was a credible candidate in the last leadership contest in 2010, it is thought that, this time, he will support the candidacy of his wife, who is shadow Home Secretary (Interior Minister). Should Mrs Balls make it to No 10 in 2020, the Queen will doubtless be thankful that Yvette Cooper had the good sense to keep her maiden name when she married. If, on other hand, Ms Cooper makes her husband Chancellor of the Exchequer, they will be neighbours. What would that do to the, by then,  ancient Queen’s constitution?

 

 

A Tale of Two Cities

I should have stayed in bed

I should have stayed in bed

Arriving at a hotel in the heart of Dickens country late last Monday night, I was asked by the receptionist if my day had been a pleasant one. I replied that, having woken in one country, worked a full day in another and being now about to go to sleep in yet another, I did not feel qualified to answer the question (or, for that matter, any question).

We live in a mad, frenetic world.

Not many hours later, beating the dawn to its daily task of rousing the city from its slumber, I decided to fulfill a life-long ambition (or more precisely an ambition since the first year of grammar school) to greet the sunrise from the centre of Westminster Bridge – mimicking  what William Wordsworth experienced when he stood in the same spot “Upon Westminster Bridge” on September 3, 1802. Well, all I can say is that either Mr Wordsworth was high on some interesting substance when he wrote “Dear God! the very houses seem asleep; And all that mighty heart is lying still!” or London has changed a bit in the last two hundred-odd years. At 6am The city was alive with motorists, cyclists, joggers, river boats and pedestrians. Even the Underground was working.

Later in the day, sitting  in the jump-seat of a Black Cab (which was not black), bombing up the Mall from Buckingham Palace to Admiralty Arch, I was alerted to the sight of a horse-drawn carriage crawling in the opposite direction and creating an almighty traffic jam in its wake. It was  being driven by two men in full 18th century livery carrying,  whom I assumed to be,  the rotund Ambassador of an African nation on his way to present his credentials (and from the way he was dressed – possibly  his bed sheets) to HMQ.

Hopefully the first and last Crimean War

Hopefully the first and last Crimean War

Later still, my colleagues and I pulled up in another Black Cab at the Cavalry and Guards Club in Piccadilly, where we were warmly welcomed by our host, a club member, who had kindly invited us to lunch. The whole marvellous experience was quintessentially British and utterly timeless. We had been advised in the invitation that “Gentlemen are required to wear a tailored jacket and tie” (my wife had queried whether, while my suit might be acceptable for an officiating undertaker it would not meet the enhanced standards of a gentlemen’s club). Taking my cue from the other diners in the room, the jacket did not come off throughout lunch despite the unseasonably hot weather and the elbows did not, even once, as much as graze the table.

My entire day was a tug-o-war between London Present and London Past. What kept coming to mind was something I had mentioned that morning in a short breakfast lecture – “Management and Control”. Over a century after the phrase was coined by a British Judge, while  it remains one of the mainstays of the international taxation system, it is also one of the most confusing.

Time for a bit of mischievous conjecture.

Tuesday July 31,  1906 – Lord Loreburn  is sitting in his usual armchair at the National Liberal Club  with a copy of the Times in his lap. He is approached by a young, balding MP, cigar in hand, who – after the usual niceties – he politely invites to take the seat  next to him.

MP: Lord Chancellor, congratulations on your judgement in the De Beers diamonds case yesterday. I understand it created quite a stir among the legal fraternity.

LL: Y’know, old boy, it was time the South Africans remembered who’s in charge. Those bounders were claiming that, just because the company was registered down in Boer Country – I know how much you love that part of the world – it was not British. Balderdash, I said in no uncertain terms. Told ’em that you had to try and imagine that a company was like an individual that cannot eat or sleep but can keep house. I thought that was quite clever. Anyway, I rounded it off with : ‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides’. I  actually don’t have the faintest idea what I meant but, to cut to the chase, because all the chaps running the company are in London, it can jolly well pay its tax here as a British resident. Otherwise, the revenue will go to helping those damned Boers who don’t deserve a bean. And as for…

MP: If I could interrupt, Lord Chancellor. Don’t you think  this idea about tax residence being where the “Central Management and Control” resides could lead to all sorts of uncertainty in the future? Allow me to challenge you with something fanciful I saw in The Times the other day. You will have heard of those two American bicycle builders  – the Wrights,  I think they are called – and their early success. Well they  patented an improvement to Flying Machines a few weeks ago which they claim enables them to control flight so that they will be able to fly to specific destinations rather than their current circus act of reaching somewhere in the next field. What if one day, a company director were able to climb aboard one of those flimsy contraptions with his top hat tied firmly to his head and, holding tight to his seat, fly to another country in a day or two and make decisions there. Where would the Central Management and Control be then?

Safe travel

Safe travel

LL: Oh, you are a card! Could you really imagine a British gentleman submitting himself to one of those flying machines? Quite preposterous! Next you are going to tell me that he would be served fine whisky and a fresh copy of The Times! Ha Ha. Listen, old chap,  I was talking to Ismay of the White Star Line the other day. He is thinking of commissioning three (!) new ocean-going liners to compete with Cunard. By 1912 he expects to have the biggest passenger ship in the world sailing between Southampton and New York – with swimming pools and billiard tables – and totally unsinkable. That is the future for gentlemen. Safe, luxurious travel. Not some flimsy piece of wood with a bit of canvas stretched over it, all held together by string.

MP: You are probably right. They will be much more use for throwing bombs from when there is another war. Well, I must be on my way, Lord Chancellor. It has, as ever, been a pleasure talking to you.

MP walking across the room (to himself): Good Lord! That fellow is stuck in the 19th Century.

LL (to himself): Precocious young whippersnapper.  Lacks his father’s self-discipline. Must be the mother’s American influence. I don’t know what Campbell-Bannerman saw in him to make him Under-Secretary of State for the Colonies. Gentlemen in flying machines, indeed. And what was that idea of bowling bombs from them at the enemy?  Heaven help the country if he ever achieves a position of real power. Somehow, with ideas like that, I  don’t think we will be hearing too much more of  Mr Winston Churchill.

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