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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Ted Baker Audit Failure, SRT Marine Big Deals and Population Growth

The bad news this morning for holders of retailer Ted Baker (TED) is that the company has announced an independent review of its inventory. It says it has identified that the value of inventory held on its balance sheet has been overstated. It estimates that the figure is up to £25 million and that it relates to prior years. This looks like yet another audit failure (the auditors are KPMG).

The share price is down 10% today at the time of writing but it’s been falling for a long time so it’s now down well over 80% from its peak at the start of the year. Warnings about its stock holding are not new. This is what the Investors Chronicle had to say in October: “Ted Baker’s stock levels have been a cause for concern. Inventories have grown consistently in recent years, reaching a peak of 37 per cent of revenues at the full year”. For a clothing retailer to hold that much stock seems simply unreasonable. That report came after an unexpected half year loss. I suspect that even worse news may come out in due course.

On Friday an article by Simon Thompson in Investors Chronicle contained a puff for SRT Marine Systems (SRT). This made for interesting reading as I used to hold the stock – sold at 25p in 2012, price now 52p. I sold because of repeated lack of progress and overoptimistic forecasts of big deals in the pipeline. The CEO (he’s still there) seemed to be a perennial optimist and even analysts started to become wary. Revenue and profits jumped around from year to year (big profits in 2019 after losses in 2018) and the share price jumped around similarly. Simply not the kind of company I like to hold.

Has anything changed to cause Simon to tip the share? The basis is a big deal (a “game changing contract worth £31.8 million”) to sell AIS systems for marine surveillance in the Philippines. There are also other similar deals in the pipeline. This is what is says in the recently published Interim Report in which they also reported a major loss: “Most of our system discussions are confidential in nature and usually have a long gestation period due to the nature of a government turning a general idea into a real system with all the necessary regulations, budgets and approvals. Over the last few years, we have followed a very steep learning curve in respect of understanding the realities of the intricacies and complexities of the processes that each of these large contracts must complete prior to SRT being contracted. Whilst predicting timescales remains imperfect, this knowledge now enables us to more accurately characterise system opportunities with regards to their status within a customer’s process and better understand the real time window within which we would expect to be contracted and start implementing an SRT-MDA system. We hope this will reflect in an improving ability to provide market updates on the status of future system contract opportunities”.

Big projects also create big risks though, and soak up working capital. Will they be completed on time and within budget? Will the customers be satisfied and pay on time? I won’t be jumping in to follow Simon Thompson’s tip just yet. I’ll wait to see if the leopard can change its spots.

Another interesting article over the weekend was one by David Miles (Professor of Economics at Imperial College). It was headlined: “Why our rising population will bring with it a decreasing standard of living”. The article argues that with a rising population the country needs to invest more simply not just to maintain the capital asset stock but to cover the demands of the extra population – for housing and transport for example. But the higher the population growth, the less your ability to maintain assets per person unless you raise savings. But that means lower consumption, hence we become individually poorer.

Population growth is certainly a concern of mine, and likewise for many other people who live in the London area. What follows is a article I recently wrote on that subject for another organisation:

London Congestion – It’s Only Going to Get Worse

As anyone who has lived in London for more than a few years probably knows, the population of the metropolis has been rapidly rising. This has resulted in ever worse congestion not just on the roads but on public transport also. The roads are busier, rush hours have extended and London Underground cannot handle the numbers who wish to travel on some lines during peak hours. Even bus ridership has been declining as the service has declined in reliability and speed due to traffic jams.

The Greater London Authority (GLA) has published some projections of future population numbers for the capital and the conclusion can only be that life is going to get worse for Londoners over the next few years.

The current population is about 8.8 million but is forecast to grow to 10.4 million by 2041, i.e. an 18% increase. This increase is driven primarily by the number of births and declining death rates. The relatively high numbers of births in comparison with what one might expect is because London has a relatively youthful population. One can guess this is the case because of the high numbers of migration from overseas which results in a net positive international migration figure while domestic migration to/from the rest of the UK is a net negative, i.e. Londoners are being replaced by immigrants.

But population increase in London does not have to be so. The chart below shows you the trend over the last 100 years and as you can see London has only recently reached the last peak set in 1939. During the 1960s to 1990s the population fell. What changed? In that period there was a policy to reduce overcrowding in London and associated poor housing conditions by encouraging relocation of people and businesses to “new towns”. But when Ken Livingstone took power he adopted policies of encouraging more growth. His successors have continued with those policies and have promoted immigration, e.g. with Sadiq Khan’s “London is Open” policy.

London Population Trend

Many Londoners complain about the air pollution in the London conurbation without understanding that the growth in businesses and population have directly contributed to that problem. More people means more home and office heating, more transport (mainly by HGVs and LGVs) to supply the goods they require, more emissions from cooking, and many other sources. The Mayor thinks he can solve the air pollution issues by attacking private car use and ensuring goods vehicles have lower emissions but he is grossly mistaken in that regard. The problem is simply too many people.

Building work also contributes to more emissions substantially so home and office building does not help. But the demand for new homes does not keep pace with the population growth resulting in many complaints that people have to live in cramped apartments or cannot find anywhere suitable to live at all. Likewise new public transport capacity does not keep pace with the increased demand. There is some more capacity on the Underground but only on some lines and not much while Crossrail which might have helped has been repeatedly delayed.

The economy of London is still buoyant.  But all the disadvantages of overcrowding in London mean that Londoners are poorer in many ways. Indeed if Professor Miles is right, they will be cash poorer as well. Those who can move out by using long-distance commuting or relocating permanently thus leaving London to be occupied by young immigrants.

Any Mayor who had any sense would develop a new policy to discourage immigration, encourage birth control and encourage emigration to elsewhere in the UK or the Rest of the World. But I doubt Sadiq Khan will do so because a poorer population actually helps him to get elected. It’s a form of gerrymandering.

If Sadiq Khan wanted Londoners to live in a greener, pleasanter city with a better quality of life then he would change direction. But I fear only intervention by central Government will result in any change.

Go here for more details of the GLA projections of London’s population: https://data.london.gov.uk/dataset/projections-documentation

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

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Tesco and Barclays Legal Cases; Rent Controls and Telford Homes

A few events transpired last week which I missed commenting on due to spending some days in bed with a high temperature. Here’s a catch-up.

The remaining prosecutions of former Tesco (TSCO) executives for the accounting scandal in 2014 that cost the company £320 million and resulted in the company signing a Deferred Prosecution Agreement (DPA) and paying a big fine has concluded. The defendants were found not guilty. The prosecutions of other executives were previously halted by the judge on the grounds that they had no case to answer. Under the DPA, Tesco were also forced to compensate affected shareholders.

Everyone is asking why Tesco agreed to the DPA, at a cost of £130 million, when it would seem they had a credible defense as no wrongdoing by individuals has been confirmed. The defendants were also highly critical of the prosecution on flimsy evidence that destroyed their health and careers. This looks like another example of how the UK regulatory system is ineffective and too complicated. The only winners seem to be lawyers.

Another case that only got into court last week was against former Barclays (BARC) CEO John Varley and 3 colleagues. This relates to the fund raising by the company back in 2008 – another example of how slow these legal cases progress in the UK. This case is not about illegal financial assistance given to Qatari investors as one might expect, those charges were dropped, but about the failure to disclose commissions paid to those investors as part of the deal and not publicly disclosed. The defendants deny the charges.

Comment: this long-running saga seems to stem from the Government’s annoyance over Barclays avoidance of participation in the refinancing of banks at the time. Lloyds and RBS ended up part-owned by the Government, much to the disadvantage of their shareholders. Barclays shareholders (I was one at the time) were very pleased they managed to avoid the Government interference, precipitated by the Government actually changing the capital ratios required of banks. Barclays were desperate for the Qatari funds of at least one £ billion with one Barclays manager saying “They’ve got us by the balls….”.

Will this case conclude with a conviction, after a few millions of pounds spent on lawyers’ fees? I rather doubt it. And even if a guilty verdict is reached, how severe will be the likely penalty? Bearing in mind that the damage suffered by investors as a result seems minimal, i.e. it’s purely a technical breach of the regulations, it seems both pointless and excessive to pursue it after ten years have elapsed. Again the only winners seem to be lawyers.

One amusing aspect of this case was the grim “mug-shots” of 3 of the defendants attending court that appeared in the Financial Times. It was clearly a cold day and one of them was wearing a beanie hat. Is this the new sartorial style for professional gentlemen? Perhaps so as my doctor turned up wearing one to attend my sick-bed. Clearly I may need to revise by views on what hats to wear and when.

One has to ask: Are the cases of Tesco and Barclays good examples of English justice? Prosecutions after many years since the events took place while the people prosecuted have their lives put on hold, their health damaged and with potentially crippling legal costs. This is surely not the best way of achieving justice for investors. Justice needs to be swift if it is to be an effective deterrent and should enable people to move on with their lives. Complexity of the financial regulations makes high quality justice difficult to achieve. Reform is required to make them simpler, and investigations need to be completed more quickly.

Investors might not have noticed that London Mayor Sadiq Khan is going to include a policy of introducing rent controls in his 2020 election manifesto. Rent controls have never worked to control rents and in the 1950s resulted in “Rackmanism” where tenants were bullied out of controlled properties. It also led to a major decline in private rented housing as landlords’ profits disappeared so they withdrew from the market. That made the housing shortages in the 1960s and 70s much worse. The current housing shortage in London would likely be exacerbated if Sadiq Khan has his way as private landlords would withdraw from the market, leaving tenants still unable to buy although it might depress house prices somewhat.

But the real damage would be on the construction of new “buy-to-let” properties which would fall away. Institutions have been moving into this market in London and construction companies such as Telford Homes (TEF) have been growing their “build-to-rent” business in London.

Sadiq Khan is proposing a policy that he would require Government legislation to implement, which with the current Government he would not get. No doubt he is hoping for a change in that regard. Or is it simply his latest political gambit to get re-elected? In the last election he promised to freeze public transport fares as a vote winner, so he clearly has learnt from that experience. But he’s probably already damaging the private rented sector.

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

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A Vision in a Dream, After Coleridge

The following manuscript has recently come to light, perhaps written by an acolyte of poet Samuel Taylor Coleridge.

Roger Lawson

<A Fragment>

In London did Sadiq Khan

A stately Transport Strategy decree:

Where the Thames, the sacred river, ran

Through caverns measureless to man

   Down to a sunless sea.

So twice five miles of fertile ground

With walls and tower blocks girdled round;

And there were gardens bright with sinuous rills,

Where blossomed many a conker tree;

And here were roads ancient as the Romans,

Enfolding sunny spots of greenery.

But oh! that deep romantic chasm which slanted

Down among the City streets!

A savage place! As Mammon rampaged free

As e’er beneath a waning moon was haunted

By women wailing for West End shopping!

And from this chasm, with ceaseless turmoil seething,

As if this earth in fast thick pants were breathing,

A mighty fountain momently was forced:

Amid whose swift half-intermitted burst

Huge fragments vaulted like rebounding hail,

Or chaffy grain beneath the thresher’s flail:

And mid these dancing rocks at once and ever

It flung up momently the sacred river.

Fifty miles meandering with a mazy motion

Through East End industry and London’s suburbs,

Then reached the caverns measureless to man,

And sank in tumult to a polluted North Sea;

And ’mid this tumult Sadiq heard from far

Ancestral voices prophesying air pollution doom!

   The shadow of the dome of the GLA

   Located nigh the sacred river;

   Where was heard the mingled pleas

   From politicians left and right.

It was a miracle of rare device,

An un-costed Transport Strategy at the behest of Sadiq!

    A damsel with a dulcimer

   In a vision once I saw:

   It was an East European maid

   And on her dulcimer she played,

   Singing of Mount Street Mayfair.

   Could I revive within me

   Her symphony and song,

   To such a deep delight ’twould win me,

That with music loud and long,

I would build anew that dome,

Upon a new democratic model!

With freedom to ride the roads at will,

And all should cry, Beware the wrath of Khan!

His flashing eyes, his floating hair!

Weave a circle round him thrice,

And close your eyes with holy dread

For he on honey-dew hath fed,

And drunk the milk of Paradise.

<End>

The Alliance of British Drivers’ comments on Sadiq Khan’s London Transport Strategy are present here: http://www.freedomfordrivers.org/against-mts.htm . Please register your opposition.

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

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