A Political Manifesto

A few years ago I penned some policy suggestions for a new political party. I just had a clear out of some of my old files and thought it was worth publishing as it’s still very topical.

Reference Policy Suggestions My suggestions for policies in those areas and others are below:

Finance

1.       The personal taxation system is way too complicated and needs drastically simplifying. At the lower end the tax credit system is wide open to fraud while those on low incomes are taxed when they should not be. The personal tax allowance, both the basic rates, and higher rates, need to be raised to take more people out of tax altogether.

2.       The taxation of capital gains is also now too complicated, while tax is paid on capital gains that simply arise from inflation, which are not real gains at all. They should revert to being indexed as they were some years ago. For almost anyone, calculating your own tax that is payable is now way too difficult and hence requiring the paid services of accountants using specialist software.

3.       Inheritance tax is another over-complex system that wealthy people avoid by taking expert advice while the middle class end up paying it. It certainly needs grossly simplifying, or scrapping altogether as a relatively small amount of tax is actually collected from it.

4.       The taxation of businesses is inequitable with the growth of the internet. Small businesses, particularly retailers, pay a disproportionate level of tax in business rates while their internet competitors often avoid VAT via imports. VAT is now wide open to fraud and other types of abuse such as under-declarations, partly because of the EU VAT arrangements. VAT is in principle a simple tax and the alternative of a sales tax would create anomalies but VAT does need to be reformed and simplified.

5.       All the above tax simplifications would enable HMRC to be reduced in size and wasted time in form filling by individuals and businesses reduced. Everyone would be a winner, and wasted resources and expenditure reduced.  

6.       The taxation of company dividends on shares is now an example of the same profits being taxed twice – once in Corporation Tax on the company, and then again when those profits are distributed to shareholders. This has been enormously damaging to those who receive dividends and the lack of tax credits has also undermined defined benefit pension funds. The taxation of dividends should revert to how it once was.

7.       The regulation of companies and financial institutions needs very substantial reform with much tougher laws against fraud on investors. Not only are the current laws weak but the enforcement of them by the FCA/FRC is too slow and ineffective. Although some reforms have recently been proposed, they do not go far enough. Individual directors and senior managers in companies are not held to account for gross errors or downright fraud, or when they are, they get off too lightly. We need a much more effective system like they have in the USA, and better laws.

8.       Shareholder rights as regards voting and the receipt of information have been undermined by the use of nominee accounts. This has made it difficult for individual shareholders to vote and that is one reason why investors have not been able to control the excesses in director pay recently. The system of shareholding and voting needs reform, with changes to the Companies Act to bring it into the modern electronic world.

9.       The pay of directors and senior managers in companies and other organisations has got wildly out of hand in recent years, thus generating a lot of criticism by the lower paid. This has created social divisions and led partly to the rise of extreme left socialist tendencies. This problem needs tackling.

10.     Governance of companies needs to be reformed to ensure that directors do not set their own pay, as happens at present, but that shareholders and other stakeholders do so. Likewise shareholders and other stakeholders should appoint the directors.

11.     Insolvency law needs reform to outlaw “pre-pack” administrations which have been very damaging to many small businesses. They are an abuse of insolvency law.

Transport

1.       Way too much money is spent on rail transport and trams which cannot be justified on any cost/benefit analysis. HS2 is just one extreme example of this. Meanwhile the road system does not receive enough investment – this has resulted in traffic congestion, wasted time which is damaging to the economy and lots of poorly maintained roads (e.g. potholes). Only 25% of direct tax on vehicles is spent on the roads.

2.       Public transport should generally pay for itself. In London alone there is a subsidy of £1 billion per year on buses which is totally unjustified. Many of these subsidies are given to people who could afford to pay for their travel, even when they are receiving social security benefits.

3.       Road safety has flat-lined due to an excessive focus on speed reduction and the perversion of the law by the use of police waivers to force people to take useless “education” courses. Policies have been distorted to enable the police to make money from drivers, while improving the roads, better education and other policies to reduce road casualties have been ignored.

4.       Charging of drivers via road pricing to reduce congestion should be opposed (as it does not work and is just a money-making taxation scheme). Likewise Clean Air Zones where drivers are taxed for driving some vehicles, all of which were legal when purchased, should be stopped and the whole focus of environmental legislation should be reviewed. EU regulations in this area have made illegal air pollution levels when there is no real evidence of danger from them. ULEZ and CAZ schemes are just a way to raise taxes with little real benefit on health grounds and no cost/benefit justification.

5.       Likewise the EU has mandated speed limiters (ISA – Intelligent Speed Adaptation) for all vehicles in future which will delay vehicles and not contribute to road safety, while generating millions of speeding fines on innocent drivers. There should be a commitment not to follow the EUs lead on such legislation.

Education

1.       Education should be free for all those who can justify they will benefit from it. At present too many people go to university who will be unlikely to benefit from it and they should be redirected to lower cost vocational courses.

2.       Loans to support students taking courses should be interest free.

3.       There needs to be a much stronger focus on technology education in the UK as only people with such education will contribute positively to the economy.

4.       There needs to be more emphasis on the use of technology in teaching to improve the productivity of that profession which has basically not changed in hundreds of years. The use of on-line resources can assist and would enable teachers to be more productive and hence be paid more.

Environmental, Climate Change, Population and Housing

1.       There should be more attention paid to the real science of environmental impact rather than the hysteria of left-wing campaign groups.

2.       Mrs May’s commitment to a zero-carbon economy, which is financially unaffordable, should be scrapped because there is no practical way to achieve it and it is based on very dubious scientific analyses.

3.       The population of the UK needs to be controlled, if not reduced, to improve living conditions and ensure a healthy economy. This can be achieved by tougher limits on immigration (along with better enforcement of existing rules), and encouraging the population to procreate less.

4.       Housing costs, and the inability to find suitable accommodation, are major problems for the young. Controlling/reducing population would help but other measures need also be considered including the financing of more social/rented housing.

Local Councils and London

1.       The funding of local authorities, and some of their important functions such as providing social care, needs to be reformed. At present they are too dependent on central Government funding which means obligations are often put on them without the funds to cover the cost.

2.       There are wide variations between the efficiencies of different local councils with many being wasteful. They should have guidelines and limits on how they spend their money, laid down by central Government, to avoid waste.

3.       London is a particular problem where it has become dominated by populist Mayors (both Labour and Conservative) and where elections are driven by national politics rather than local issues. The most recent Mayor, Sadiq Khan, has been pursuing a “gerrymandering” policy of increasing immigration to gain more people that are likely to vote for him, thus making London even less acceptable as a place to live than it has been for years. Crime, transport and housing are all in a major crisis. I suggest the position of the Mayor, and the Greater London Authority be scrapped as Mrs Thatcher did with the GLC when Ken Livingstone became so damaging. In other words it should revert to central Government control, with the local boroughs having more control over their own affairs. That would no doubt be popular with London borough councillors.

4.       Transport for London should be taken out of the control of the Mayor be made an independent body with an objective of making it a profit centre rather than a consumer of enormous subsidies. They should also lose control of the road network (the TLRN) where they currently have a perverse incentive to make the road network unfit for purpose so that more people use public transport from which they gain income.

I hope you find the above useful.

Yours Roger W. Lawson, M.B.A., M.B.C.S. ++++++++++++++++++++++++++++++++++++++

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Dunelm Results and Pay at Safestore

Dunelm (DNLM) published their preliminary results this morning (14/9/2022) – I no longer hold them. They were surprisingly good bearing in mind they are a homeware retailer – sales up 16% and EPS up 30%. Clearly the anticipated vulnerability to rising inflation and consumers being hit by a recession has not yet come to pass although forecasts for next year are lower.

They say trading in the first ten weeks of the year has remained robust and they remain on track to deliver FY23 results in line with expectations. With increased market share and a strong balance sheet they should survive any recession. A company to keep an eye on I suggest.

There was an interesting article in last week’s Investors Chronicle on directors pay at Safestore (SAFE) – a self-storage company. It was headlined “Safestore’s incredible largesse” and explained how the CEO received £17 million last year. That’s one of the largest pay-outs for UK listed companies and is way more than forecast in 2017 when some nil-cost share options were introduced.

I commented negatively on pay at this company after attending the AGM in 2019 – see https://roliscon.blog/2019/03/20/safestore-and-fundsmith-agms/ . Even institutional shareholders revolted at the pay scheme and changes were promised. I have been voting against their Remuneration Report ever since as I still hold the shares – they still got 27.8% against it in March this year.

The company has been producing good returns for shareholders as have other self-storage companies. It’s a growing market as houses get smaller, more people are renting flats and people accumulate junk they are unwilling to dispose of. One cannot complain about the management for exploiting this market well but the rewards are simply too generous.

I hate nil-cost share options and LTIPs that pay out multiples of salary and always vote against them. I wish more people would do so. 

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Alliance Trust Results and Directors’ Pay Cuts

Very long-established investment trust Alliance Trust (ATST) issued its annual results for 2018 on the 1st of March. Total return for the year was minus 5.4% with its equity portfolio slightly behind its benchmark index. It put this down to not holding a “narrow group of very large companies”. That performance is similar to my own personal investment portfolio and better than a number of active managers so I hope investors will be satisfied with it after the past revolution at the company.

It is of course disposing of Alliance Trust Savings which finally managed to show an operating profit after many years of losses, and it is also getting shot of some private equity investments and mineral rights in North America. It’s basically returning to its roots as a simple global investment trust which will please many investors.

Citywire have highlighted that many of the directors are taking a pay cut, with Chairman Lord Smith seeing his annual pay reduced from £120,000 to £80,000, Deputy Chairman Gregor Stewart losing £55,000 as he will no longer be a paid director of Alliance Trust Savings. Other directors’ fees are also reduced. Do not be too concerned about Lord Smith’s descent into poverty though – he still has a couple of other well paid jobs.

The pay changes are a rational move because although it was necessary to pay highly to new directors for the effort required to sort out the mess that was the company before Elliott launched their bid for changes, and for the reputational risk if they failed, it is hopefully now more stable and more similar to other investment trusts who do not pay enormous amounts to their non-executive directors. The pay changes will undoubtedly please the many Scottish holders of shares in the trust.

I do hold a few shares in Alliance Trust. I consider it can now be one of those core holdings that any investor who does not wish to track every gyration of the market can hold.

The current share price discount to NAV is 4.4% which is acceptable but the company says it is considering how they can stimulate additional demand for the shares. Investment trusts often have the problem of spending very little on marketing which can be a shame when they provide a low cost route for stock market exposure by investors and have a number of advantages over open-ended funds and ETFs.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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