If you go to the airport in Riyadh (you're probably just going to have to trust me on this one), you'll find that there are three passenger terminals: a domestic terminal, an international terminal and....a Royal terminal. That's right: the thousands of princes in the house of Saud, together with their families, have devised what may be the ultimate way of avoiding mixing with their subjects.
This may look pretty extreme, but the fact is that the rich and powerful in every part of the world seem to have a marked aversion to travelling with the masses. Just think of Tony Blair's endless flights on chartered aircraft, Prince Andrew hopping from golf game to hunt weekend on the Queen's Flight, Roman Abramovich with his private 767. Sales of more reasonably-sized private aircraft are at an all-time high, as the super-rich look to by-pass the queues for passport control at Terminal 4.
Well, OK, if that's how they want to spend their money. It doesn't really have any impact on how I travel. But the London Olympic committee is planning to take this segregation a whole lot further. Reports this week suggest that people travelling to the Games in 2012 will be prevented from using their cars. Each ticket will be accompanied by a suggested itinerary using only public transport.
I'm no petrolhead, and in general anything that gets people out of their cars is fine with me. However, while the people who are going to be paying for the Games will be forced to take their chances on public transport, the Olympic organisers and the international bigwigs will be ferried around in a fleet of 3500 specially-purchased vehicles. Moreover, lanes will be closed on major roads all around London so that these worthies don't get delayed as they rush from the caber tossing to the bog snorkelling. These are already being referred to as Zil lanes, after the limousines that were used to ferry Politburo members around Moscow in the last days of the USSR. The lanes will stretch all the way back to Hyde Park -- which is not exactly close to the Olympic venues, and provides a pretty clear hint that not many of the great and good will be staying at a Travelodge in east London for the duration of the Games.
I was amazed when London was awarded the Games and nothing that has happened since has altered my view that this will be one of the biggest boondoggles in British history. Huge amounts of money are going to be spent to stage sports that nobody will want to watch in arenas that may never be used again. Lottery funds are being diverted from good causes in other parts of the UK to defray the costs. Even larger amounts are being spent on providing the necessary transport infrastructure. While this may be a "legacy" of the Games, I can't imagine that anyone taking a dispassionate look at the UK's transport needs would have concluded that we will need ten separate railway lines to Stratford once the circus has moved on.
And now we find that the Olympic organisers are going to disrupt travel around London for several weeks on each side of the Games, but will not themselves be going anywhere near the expensively-provided public transport. Oi, Seb -- take the train, and bring your mates with you!
Wednesday 24 October 2007
Monday 22 October 2007
Thank goodness that's over
Apparently 16 million people in the UK tuned in for the rugby "world cup" final on Saturday evening. It's unlikely that many of them will have become longer-term aficionados of the sport. I don't like rugby, but I watched for about ten minutes -- long enough to remind myself that it's one of the most tedious of all sports to watch. Even the rugby correspondents in the up-market press have been forced to admit that it really wasn't much of a game.
The question I always put to rugby fans is this: if the game is so good, how come they keep changing the rules? The game is now very different from the one that I was forced to play at grammar school in the 1960s. Mind you, all of the illogical bits have been retained -- you can still get points from a penalty kick awarded for wome minor infraction on the halfway line, conversions have to be taken in line with where the preceding try was scored, and (worst of all), you can't pass the ball forward.
In fact, some other dumb stuff has been added -- lifting in the line-outs and all that palaver about "phases" of play. What's more, the authorities have already announced that, despite the great success of the "world cup", they're going to tinker with the rules yet again. Apparently they think there is still too much emphasis on defence at the expense of attack, though when there are a dozen behemoths rolling around in the dirt with the ball nowhere to be seen, I suspect most of the sixteen million souls who tuned in on Saturday night would have a hard time telling the difference.
Still, never mind: Dolphins versus Giants at Wembley this weekend, with 80,000 tickets sold. That's not far short of the total weekly attendance at the Guinness Premiership.
The question I always put to rugby fans is this: if the game is so good, how come they keep changing the rules? The game is now very different from the one that I was forced to play at grammar school in the 1960s. Mind you, all of the illogical bits have been retained -- you can still get points from a penalty kick awarded for wome minor infraction on the halfway line, conversions have to be taken in line with where the preceding try was scored, and (worst of all), you can't pass the ball forward.
In fact, some other dumb stuff has been added -- lifting in the line-outs and all that palaver about "phases" of play. What's more, the authorities have already announced that, despite the great success of the "world cup", they're going to tinker with the rules yet again. Apparently they think there is still too much emphasis on defence at the expense of attack, though when there are a dozen behemoths rolling around in the dirt with the ball nowhere to be seen, I suspect most of the sixteen million souls who tuned in on Saturday night would have a hard time telling the difference.
Still, never mind: Dolphins versus Giants at Wembley this weekend, with 80,000 tickets sold. That's not far short of the total weekly attendance at the Guinness Premiership.
Friday 19 October 2007
It was twenty years ago today
This week has brought a lot of media coverage of the "biggest ever storm" that hit southern England on the night of 15/16 October 1987. The anniversary has provided an excuse for innumerable reruns of Michael Fish's notorious weather forecast -- "there is no hurricane coming", as well as some unimpressive attempts at conveying the power of the storm through dodgy CGI footage.
Amid all the cliches, however, I learned a couple of things. First, in a perverse sense, Michael Fish was right - the storm was actually quite a bit bigger than your average tropical hurricane, albeit not quite as intense. Second, and more important, the Met Office people had two very good excuses for their failure. French meteorologists happened to be on strike at the time. In addition, in these days of satellite weather imagery it's easy to forget that a mere two decades ago, weather forecasters still relied almost exclusively on reports from ships at sea. They knew there was something brewing in the Bay of Biscay, but as the storm headed north, shipping fled the area, meaning that there was no-one to pass on the word of how nasty it was becoming. Contrast this with the huge rainfalls that hit parts of the UK in July this year: forecasters not only raised the alarm days in advance, but also predicted with amazing accuracy which areas would experience the worst conditions.
This is also, of course, the twentieth anniversary of "Black Monday", 19 October 1987, when US stock prices fell more than 22% in a single trading session. For us money types, this is an event a bit like the assassination of JFK or the death of Princess Diana: you can remember exactly what you were doing at the time you heard the news. (If you care: attending a church youth group meeting, and trying to find Saturday Night Live on TV after a night out, respectively!)
On Black Monday I was helping to staff TD Bank's booth at the annual Treasury Management Association of Canada (TMAC) cash management conference in Toronto. (Wow, those were the days!) As luck would have it, we were the only firm that had decided to include in our display one of the new-fangled Bloomberg market data terminals, which displayed the Dow Jones average on a tick-by-tick basis. As the market began to fall, word quickly spread among the crowd, and our booth was clogged all day with anxious customers trying to see the screen, which was a tiny thing with an orange display. This was, of course, long before most people had mobile phones, let alone BlackBerries. As a result, an equally large crowd was milling around the big bank of payphones that all conference rooms had at that time (but probably don't any more).
I mention these two unconnected events because they are a reminder of just how recent are many of the things that we now depend on in our business and personal lives: satellite communications, on-line data access, mobile phones. Not that these things are an unalloyed blessing: it seems that by next year, it will be possible to use your mobile phone on aircraft. Ryanair has already said that it will be among the first to offer the service, though why it thinks that people who scramble for 99p fares will want to spend £2 a minute for a phone call, I can't imagine.
Amid all the cliches, however, I learned a couple of things. First, in a perverse sense, Michael Fish was right - the storm was actually quite a bit bigger than your average tropical hurricane, albeit not quite as intense. Second, and more important, the Met Office people had two very good excuses for their failure. French meteorologists happened to be on strike at the time. In addition, in these days of satellite weather imagery it's easy to forget that a mere two decades ago, weather forecasters still relied almost exclusively on reports from ships at sea. They knew there was something brewing in the Bay of Biscay, but as the storm headed north, shipping fled the area, meaning that there was no-one to pass on the word of how nasty it was becoming. Contrast this with the huge rainfalls that hit parts of the UK in July this year: forecasters not only raised the alarm days in advance, but also predicted with amazing accuracy which areas would experience the worst conditions.
This is also, of course, the twentieth anniversary of "Black Monday", 19 October 1987, when US stock prices fell more than 22% in a single trading session. For us money types, this is an event a bit like the assassination of JFK or the death of Princess Diana: you can remember exactly what you were doing at the time you heard the news. (If you care: attending a church youth group meeting, and trying to find Saturday Night Live on TV after a night out, respectively!)
On Black Monday I was helping to staff TD Bank's booth at the annual Treasury Management Association of Canada (TMAC) cash management conference in Toronto. (Wow, those were the days!) As luck would have it, we were the only firm that had decided to include in our display one of the new-fangled Bloomberg market data terminals, which displayed the Dow Jones average on a tick-by-tick basis. As the market began to fall, word quickly spread among the crowd, and our booth was clogged all day with anxious customers trying to see the screen, which was a tiny thing with an orange display. This was, of course, long before most people had mobile phones, let alone BlackBerries. As a result, an equally large crowd was milling around the big bank of payphones that all conference rooms had at that time (but probably don't any more).
I mention these two unconnected events because they are a reminder of just how recent are many of the things that we now depend on in our business and personal lives: satellite communications, on-line data access, mobile phones. Not that these things are an unalloyed blessing: it seems that by next year, it will be possible to use your mobile phone on aircraft. Ryanair has already said that it will be among the first to offer the service, though why it thinks that people who scramble for 99p fares will want to spend £2 a minute for a phone call, I can't imagine.
Thursday 18 October 2007
Halloween as metaphor
We learn this week that Halloween is now the third-largest retail event in the UK each year, after Christmas and Easter. It's rapidly squeezing out the uniquely British celebration of Guy Fawkes Day, in another example of the Americanisation of our culture.
Just what is Halloween? Well, in its modern form it involves sending young people onto the property of strangers, to threaten them and get them to hand over something that you want. I just can't imagine why something like that would be so popular in the United States.
Just what is Halloween? Well, in its modern form it involves sending young people onto the property of strangers, to threaten them and get them to hand over something that you want. I just can't imagine why something like that would be so popular in the United States.
Thursday 11 October 2007
The moral hazard of Gordon Brown
Just before last weekend, when it seemed likely that we would soon be plunged into an early election, Tory Leader David Cameron accused Gordon Brown of spending too much time focusing on politics and not enough on running the country. I thought this was a bit unfair, given the hailstorm of crises that Brown has faced since he replaced Tony Blair: terrorist attacks, foot-and-mouth, flooding, Northern Rock...
Most commentators, regardless of their political persuasion, seemed to think that Brown had handled these crises competently and with next to none of his predecessor's phony emoting. This is, of course, precisely why the opinion polls seemed to be moving in the Government's favour, opening up the possibility of an early election. Then a couple of populist (and wrong-headed and poorly costed) Tory tax proposals pricked the election balloon and Brown was forced to announce that there would be no election until, probably, 2009.
This should have been no more than a short-lived embarrassment for Brown, not least because there is no hard evidence that he personally ever favoured an early vote -- the worst that can be said is that he failed to rein in his closest advisors quickly enough. However, there are now signs that the phoney crisis has badly unhinged the Government, which is now firing off half-baked policy announcements in all directions.
The most egregious example so far is, of course, the pre-Budget statement, which borrows to a quite shameless extent from last week's Tory conference speeches -- inheritance tax reform, poll tax on the non-doms, changing the basis of taxation on air transport. Get a grip guys -- these ideas were intended to forestall an early election, not to become the centrepiece of public policy. Aside from the air tax reforms, they're not particularly good ideas in themselves (see my previous posting) and they're not really consistent with the supposed principles of the Tory party, let alone Labour.
Now Chancellor Darling is at it again, announcing new measures designed to prevent a recurrence of the Northern Rock debacle. While the debate about who is supposed to be in charge in these situations -- is it the Bank of England, the FSA or the Government -- is set to continue, the Government is moving ahead quickly with steps to improve the "protection" of depositors.
There's little doubt that the pre-Northern Rock level of deposit insurance was inadequate. Only the first £2,000 of each individual's deposits with a particular bank was fully covered, with 90% coverage between £2,000 and £35,000, and no protection above that. The Government has already decreed that £35,000 will be fully protected in future, but it intends to go much further, probably by requiring banks to pay premiums in order to raise the fully insured amount to £100,000.
There is a real risk that the Government is going to go all the way from a patently inadequate level of depositor protection to dangerously excessive one. The Association of British Insurers estimates that the £35,000 limit will cover 98% of individual bank accounts. If you have more money than this, there's a good argument that you should take some responsibility for your own protection by doing a bit of due diligence about the institution where you are keeping your money, but evidently that's not an argument the Government thinks it can afford to make right now. Interestingly, media commentators, even those on the right of the opinion spectrum, are shy about taking a stance on this as well.
The bigger banks will no doubt be aghast about this. They will argue that they will pay the bulk of the premiums even though they are the least likely candidates for failure. Smaller institutions with riskier business models, like Northern Rock, will get something of a free ride, which only makes it more likely that problems will occur again some time in the future -- what economists call "moral hazard". However, it's reasonable to believe that they won't be saying these things very loudly, at least in public, for as long as the memories of queues outside Northern Rock branches remain fresh.
Inheritance tax, non-dom tax, deposit insurance -- populist measures all, bespeaking a panicky Government making policy on the fly. And they may not be through yet -- the Government says it is re-examining the model for payment for seniors' residential care, in response to complaints from people forced to sell their homes to pay their care bills. It says it wants to preserve the principle that better-off users should pay, but given the way things are going at the moment, another ill-judged giveaway must be in the offing.
Most commentators, regardless of their political persuasion, seemed to think that Brown had handled these crises competently and with next to none of his predecessor's phony emoting. This is, of course, precisely why the opinion polls seemed to be moving in the Government's favour, opening up the possibility of an early election. Then a couple of populist (and wrong-headed and poorly costed) Tory tax proposals pricked the election balloon and Brown was forced to announce that there would be no election until, probably, 2009.
This should have been no more than a short-lived embarrassment for Brown, not least because there is no hard evidence that he personally ever favoured an early vote -- the worst that can be said is that he failed to rein in his closest advisors quickly enough. However, there are now signs that the phoney crisis has badly unhinged the Government, which is now firing off half-baked policy announcements in all directions.
The most egregious example so far is, of course, the pre-Budget statement, which borrows to a quite shameless extent from last week's Tory conference speeches -- inheritance tax reform, poll tax on the non-doms, changing the basis of taxation on air transport. Get a grip guys -- these ideas were intended to forestall an early election, not to become the centrepiece of public policy. Aside from the air tax reforms, they're not particularly good ideas in themselves (see my previous posting) and they're not really consistent with the supposed principles of the Tory party, let alone Labour.
Now Chancellor Darling is at it again, announcing new measures designed to prevent a recurrence of the Northern Rock debacle. While the debate about who is supposed to be in charge in these situations -- is it the Bank of England, the FSA or the Government -- is set to continue, the Government is moving ahead quickly with steps to improve the "protection" of depositors.
There's little doubt that the pre-Northern Rock level of deposit insurance was inadequate. Only the first £2,000 of each individual's deposits with a particular bank was fully covered, with 90% coverage between £2,000 and £35,000, and no protection above that. The Government has already decreed that £35,000 will be fully protected in future, but it intends to go much further, probably by requiring banks to pay premiums in order to raise the fully insured amount to £100,000.
There is a real risk that the Government is going to go all the way from a patently inadequate level of depositor protection to dangerously excessive one. The Association of British Insurers estimates that the £35,000 limit will cover 98% of individual bank accounts. If you have more money than this, there's a good argument that you should take some responsibility for your own protection by doing a bit of due diligence about the institution where you are keeping your money, but evidently that's not an argument the Government thinks it can afford to make right now. Interestingly, media commentators, even those on the right of the opinion spectrum, are shy about taking a stance on this as well.
The bigger banks will no doubt be aghast about this. They will argue that they will pay the bulk of the premiums even though they are the least likely candidates for failure. Smaller institutions with riskier business models, like Northern Rock, will get something of a free ride, which only makes it more likely that problems will occur again some time in the future -- what economists call "moral hazard". However, it's reasonable to believe that they won't be saying these things very loudly, at least in public, for as long as the memories of queues outside Northern Rock branches remain fresh.
Inheritance tax, non-dom tax, deposit insurance -- populist measures all, bespeaking a panicky Government making policy on the fly. And they may not be through yet -- the Government says it is re-examining the model for payment for seniors' residential care, in response to complaints from people forced to sell their homes to pay their care bills. It says it wants to preserve the principle that better-off users should pay, but given the way things are going at the moment, another ill-judged giveaway must be in the offing.
Tuesday 2 October 2007
Dumber than a bag of hammers
The tax proposals outlined by the Tory Shadow Chancellor to the party's annual conference this week are strikingly dumb, as well as being way out of line with the party's presumed "principles". If elected, the Tories plan to reduce the burden of taxation on unearned income (inheritances) while boosting it on earned income (as represented by the demonised "non-doms"). They will also in all likelihood pump the housing bubble up even further. Nice one, George.
The party's distaste for inheritance tax was made clear in the recent Redwood Report, which proposed replacing it with a reformed capital gains tax. As I said at the time, that's not a bad idea. However, the party has gone much further, with a plan to eliminate all inheritance tax on estates of less than £1 million, exempting family homes altogether.
The party claims that it detects a growing level of worry among taxpayers about the widening application of inheritance tax. Actually, it's not the taxpayers who are worried: they'll be dead when the tax comes through. It's the people hoping to benefit from the bequests who are concerned. But should taxation policy be rewritten to exempt almost all bequests? The largest single item that most people pass on to their heirs is the family home. True, people have diligently paid their mortgages in order to own the place; but most of its value is a result of the surge in UK property prices that has resulted from the last deecade and more of low interest rates. The homeowners have not earned it in any meaningful way, and it's hard to make a case that it should be exempted from tax -- particularly when the Tories propose to make up the revenue shortfall by taxing earned income, of which more below.
At the other end of the housing ladder, the Tories plan to exempt all first-time buyers from property taxes on homes sold for less than £250,000. One can only imagine the chicanery this will lead to, as husbands and wives take turns being the "first time buyer" of their first two homes. And it would be naive in the extreme to think that the removal of the tax will do anything except push asking prices higher, eliminating some or all of the hoped-for benefit to buyers.
In a bigger-picture sense, the Tories' pandering to the UK property obsession looks badly misjudged. Property often seems like the main driver of the UK economy and the favoured savings mechanism for a large part of the population, at the expense of more productive investments. (When did you last see a column in one of the weekend money supplements saying "I don't trust the housing markets so I'm putting my money into stocks and shares"?)
If the Tories get their way, there will be no tax on the first-time homebuyer; none on sales of the family home during one's lifetime; and none on the family home as part of a bequest. Can it really be smart to exempt such a key sector of the economy so completely from taxation? The Tories have castigated the Labour Government for making housing unaffordable through excessively cheap credit: it looks like they intend to do the same thing through wildly favourable tax treatment.
What makes this so much worse is that the Tories plan to pay for this needless and dangerous giveaway to homeowners by means of a new flat-rate tax on non-domiciled UK residents. Everyone has been attacking the non-doms lately, and no doubt a tax on them will play well with Daily Mail readers, but does anyone know who they are and exactly how they are treated?
Well yes, actually -- I do. When I returned from Canada to the UK a decade ago, I was given non-dom status. (For what it's worth, I no longer claim it). Non-dom status allows a UK resident to avoid tax on assets held outside the UK and on sums earned outside the UK while resident here. It emphatically does not exempt people from UK income tax: money earned in the UK is taxable in the normal way, and any money remitted from abroad is also fully subject to tax.
For me, the main (in fact almost the only) benefit was that it allowed me to keep my "Canadian" capital away from the UK tax man, on the assumption that I would return to Canada when my assignment in London ended. So here's the first question for the Tories: I was already paying income tax on virtually all of my employment earnings, which I received in the UK. Would I also have had to pay your proposed £25,000 non-dom tax? And given that there is probably a huge number of non-doms in similar positions to mine, and a whole lot more in relatively low-paid occupations, how can you possibly expect to raise £3.5 billion from your new poll tax? Do you really want to drive away the entrepreneurial Europeans who have moved to London in recent years by doing something as ill-judged as this, in order to pump yet more money into the housing sector?
There are sensible things that could be done to reform property taxation, inheritance taxes and the taxation of non-domiciled residents. The Tories are proposing none of them.
The party's distaste for inheritance tax was made clear in the recent Redwood Report, which proposed replacing it with a reformed capital gains tax. As I said at the time, that's not a bad idea. However, the party has gone much further, with a plan to eliminate all inheritance tax on estates of less than £1 million, exempting family homes altogether.
The party claims that it detects a growing level of worry among taxpayers about the widening application of inheritance tax. Actually, it's not the taxpayers who are worried: they'll be dead when the tax comes through. It's the people hoping to benefit from the bequests who are concerned. But should taxation policy be rewritten to exempt almost all bequests? The largest single item that most people pass on to their heirs is the family home. True, people have diligently paid their mortgages in order to own the place; but most of its value is a result of the surge in UK property prices that has resulted from the last deecade and more of low interest rates. The homeowners have not earned it in any meaningful way, and it's hard to make a case that it should be exempted from tax -- particularly when the Tories propose to make up the revenue shortfall by taxing earned income, of which more below.
At the other end of the housing ladder, the Tories plan to exempt all first-time buyers from property taxes on homes sold for less than £250,000. One can only imagine the chicanery this will lead to, as husbands and wives take turns being the "first time buyer" of their first two homes. And it would be naive in the extreme to think that the removal of the tax will do anything except push asking prices higher, eliminating some or all of the hoped-for benefit to buyers.
In a bigger-picture sense, the Tories' pandering to the UK property obsession looks badly misjudged. Property often seems like the main driver of the UK economy and the favoured savings mechanism for a large part of the population, at the expense of more productive investments. (When did you last see a column in one of the weekend money supplements saying "I don't trust the housing markets so I'm putting my money into stocks and shares"?)
If the Tories get their way, there will be no tax on the first-time homebuyer; none on sales of the family home during one's lifetime; and none on the family home as part of a bequest. Can it really be smart to exempt such a key sector of the economy so completely from taxation? The Tories have castigated the Labour Government for making housing unaffordable through excessively cheap credit: it looks like they intend to do the same thing through wildly favourable tax treatment.
What makes this so much worse is that the Tories plan to pay for this needless and dangerous giveaway to homeowners by means of a new flat-rate tax on non-domiciled UK residents. Everyone has been attacking the non-doms lately, and no doubt a tax on them will play well with Daily Mail readers, but does anyone know who they are and exactly how they are treated?
Well yes, actually -- I do. When I returned from Canada to the UK a decade ago, I was given non-dom status. (For what it's worth, I no longer claim it). Non-dom status allows a UK resident to avoid tax on assets held outside the UK and on sums earned outside the UK while resident here. It emphatically does not exempt people from UK income tax: money earned in the UK is taxable in the normal way, and any money remitted from abroad is also fully subject to tax.
For me, the main (in fact almost the only) benefit was that it allowed me to keep my "Canadian" capital away from the UK tax man, on the assumption that I would return to Canada when my assignment in London ended. So here's the first question for the Tories: I was already paying income tax on virtually all of my employment earnings, which I received in the UK. Would I also have had to pay your proposed £25,000 non-dom tax? And given that there is probably a huge number of non-doms in similar positions to mine, and a whole lot more in relatively low-paid occupations, how can you possibly expect to raise £3.5 billion from your new poll tax? Do you really want to drive away the entrepreneurial Europeans who have moved to London in recent years by doing something as ill-judged as this, in order to pump yet more money into the housing sector?
There are sensible things that could be done to reform property taxation, inheritance taxes and the taxation of non-domiciled residents. The Tories are proposing none of them.
Subscribe to:
Posts (Atom)