Thursday 28 September 2006

Enough Taxes Already

The Government have extended the time for their 'consultation' with us taxpayers re their Party Fundaing Review (here). Given Hazel 'Dalek' Blears' comments last week (here) the Labourites are sizing up our wallets once more.

So for what its worth and if you value your wallet, sign up today and express your dismay at the idea of state funding for Political Parties.

Top Ten Reasons below why this is such a bad idea:

1. Who then will tell them how much to take? How long before they raise the money they allocate themselves?
2. It is grossly unfair to smaller parties to insist the larger ones are better funded
3. Why should you pay for the BNP or Respect out of your taxes?
4. If their ideas were good enough we would donate freely
5. Conversely, why should they be supported for bad policy ideas
6. The current system actually works; Blair has been caught at it after all. This is not a failing system, it's a working one. They just hate getting caught cheating.
7. More Jag's for Prescott?
8. You currently pay on average 42.2% tax; that is enough already
9. It would affect your Human Rights to choice and freedom
10. There is no give and take here; they want your money, but what incentive are tehy offering in return?

Sunday 24 September 2006

Team Sports USA - not

A slight distraction this weekend has been the ryder cup. I am not a Golf fan really, but it is amazing the way the US are so bad at international team sports. They can't win the ryder cup with better players, the lose at basktball, ice hockey and even baseball to Japan.

I like Amercians and they are a very patriotic people; yet this does not seem to transfer to international sporting competition. It is a strange set of circumstances, but today it pleased me greatly!

Friday 22 September 2006

M ore F oolish I nvesting

I have never bought anything from MFI; always considered it a poor effort with low quality products sold over-priced.

However I feel a modicum of sympathy with the staff charged with trying to sort the mess out that management ahve made. However, this has now failed and the company is to be 'sold' for a pound.

Our old favourites, a Private Equity house, have come to the rescue. Albeit demanding £50 million from the remnants of MFI for taking on the business (see here). This should jsut about cover the interest payments on the debt for a year or two.

The parallel with Rover is noteworhty. Daimler too paid to get the company off its books and it stuggled on with the money covering the debts and salaries for 3 years until it collapsed; sadly, I predict the same for MFI. Without any manufactuing base or supply chain to support it there is no chance of it competing with IKEA etc.

If anyone you know works there, advise them to get out now, when companies go under there is little payout in redundancy money to look forward too. They should have enough time to find a new job though.

Wednesday 20 September 2006

The next civil war?

There have been a few articles in the media recently bemoaning the future facing us under-35's.

The BBC (HERE) has a discussion of how unfunded people's futures are at the moment. In addition (here) the current system we have of private pensions is providing less and less as the years go by.

However, the underlying story here is how the babyboomers are playing with fire. The current rate of their resource accumulation in society cannot be maintained for more than a few more years.

What will happen in 25 years time when the likes of I want to think about retirement but instead am paying massive taxes to fund the old who did not save for theirs whilst enjoying the good life.

There will be huge social implications to this and it will be a strong test of our society to hold things together. To some extent this almost cannot be avoided due to the huge mistakes the current government have made (see my previous posts); only the worst mitigated.

Could it lead to a generational war or revolution? I believe so.

Monday 18 September 2006

Behind the business news: Playing tax EU style

You may have seen at the weekend yet another proposed Spanish take-over of a UK insitution the tote in the Sunday Times.

Briefly, since 2002 the Spanish Government allows any good will in a deal (that is the amount over the price of the assests) to be set against future tax. This is different to the UK and other major European companies.

Thus Spanish companies, althought still having to pay up, can effectively write-off much of the cost at the government's expense. Hence we have seen this year O2, Abbey and BAA fall to Spainsh acquirers. The tax saving could be up to 20% of the goodwill. SO any other bidder would be hindered by this, as effectively the Spanish government is subsidising the bids

I make this point a) to be informative as to why so many of our companies are being taken over by Spanish companies and b) to show how playing with seemingly arcane tax law actually has big effects on our corporate ownership. All these companies used to pay tax on UK profits which will now no doubt move abroad over time.

This is one area where the UK is very poor competitively at the moment, losing out to the likes of Spain and Ireland for investment. I am not a fan of protectionism to stop this and nor of the EU setting our taxes for us. Instead the government should be looking to tie up these aggressive moves by our European partners; otherwise the short-term gain for the city as a result of the take-overs will become a long-term decline for our economy as corporate tax receits get drained abroad.

Friday 15 September 2006

Enviroment today

my policy idea for the day is on Tim Montgomerie's conservative home today (here). Thank's to Tim for that and also greta timing given all over the BBC news this morning was some grim warning about how we all have 4 years to change or die.

Hopefully my idea is more sane and practical.

Thursday 14 September 2006

Brown: How not to play it

Here is a link to the BBC news site today concerning an interview with Gordon Brown that has been widely reported.

At the end of some bare faced lying abou thow he and Blair are to be frineds for ever, Brown goes for the emotional trigger by talking about his lost daughter.

Of course Gordo will be affected for ever by this tradegy; it is something I have suffered too.

However, to brin this up now, a week after he has been lambasted as uncaring and reserved, just stinks of pure NuLab spin.

This of course can never be proved, but the rest of the article is so full of blatant lies that this piece at the end feels just too uncomfortable. Is there nothing this man will not sacrifice to get high office?

Wednesday 13 September 2006

The Big Crunch; Real World Example

I posted on the dangers of our current debt market earlier this week. Below is an look at a deal happening this week that demonstrates my hypothesis. Again, I am trying to avoid city-jargon that is used to hide the truth from the uninitiated.

The Times today reports on Cinven's buy-out of the remaining part of Gondola Holdings, the owner of high street pizza express.

As you may well know, Pizza Express is a good company, their restaurants and full and had been expanding rapidly until a year or two ago.

Then Private Equity became involved. TDR and Capricorn loaded the company with debt and paid themselves dividends; then they refloated the company last year to raise more money and profit for themselves (to the tune of £135 million).

Looking at the most recent report (, you can see the company making a loss on turnover of £200 million odd. Openings are down from 20 last year to 14 this year - I wonder why?

Why? The company can't pay its debts and so having made a fast buck TDR and Capricorn are out of there. Cinven to the rescue; but whooa, the Times article says Cinven is paying £900 million with £350 million in debt finance. This won't help to turn the company around. How long before they start closing 'under-performing' sites.

Even the analyst in the Times interview admits to the situation. albeit in city-speak to hide the truth:

"The high level of borrowings acts as a straitjacket on the debt side, while the 48 per cent stake held by TDR and CVI acts as a straitjacket on the equity side, preventing Gondola from doing a rights issue. Until it resolves that situation, its growth prospects will be pedestrian."

A rights issue (more money from shareholders) when the company floated a year ago (huge investment by shareholders and influx of new money).

All this financial shenanigans is playing with this company to no economic purpose. The group needs to grow and needs investment and good management (which it may or may not have). How is having £350 million of debt going to help, say at an interest rate of 7% and that £25 million a year, or over 10% of income spent just paying the interest, let alone the capital on the debt. Where will the investment in pensions or new product come from? Not surprising the company has lost £4 million this year!

these deals happen daily - look at where you work and see if it affects yourself and potentially your company!

Inflation update

Further to my post last week, see an article from today's telegraph below.

Even with their CPI/RPI fix inflation is heading steadily skyward. Hope you can all persuade your bosses to giv eyou good pay rises come January!

Inflation hits highest level in nine years
By Edmund Conway Economics Editor
275 words
13 September 2006
The Daily Telegraph
(c) 2006 Telegraph Group Limited, London
LARGE rises in gas prices and food costs have unexpectedly pushed inflation higher, increasing the likelihood that the Bank of England will have to raise interest rates again before the end of the year.
The Consumer Price Index rose from 2.4 per cent to 2.5 per cent in August, Government figures showed. This equals the highest rate since Labour came to power nine years ago.
The Office for National Statistics also disclosed that gas bills had risen by almost 40 per cent in the past year - the biggest rise since records began in 1963. The figure does not take into account the most recent increases ann-ounced by gas providers.
Economists warned that households might have to endure another rise in borrowing rates later in the year. Last month, the Monetary Policy Committee unexpectedly raised interest rates to 4.75 per cent and may raise them to five per cent in November.
The Bank of England aims to keep inflation close to two per cent and one of the most effective ways to lower prices is to raise borrowing costs.
Mervyn King, the Bank's governor, has warned that there is an even chance that inflation will hit three per cent in the next six months and that it is likely to rise even further during the next two years.
Mortgage lenders were yesterday urged to ensure that borrowers could afford repayments after it was revealed that 750,000 people had missed a payment over the last year. Citizens Advice said young people were most likely to miss a payment.

Tuesday 12 September 2006

The Big Crunch

Today I will try to explain something complex in a way that I can understand and hopefully will be of use to people outside of the City.

The world of Private Equity has stormed our Financial Services Industry over the past 4 or 5 years. In effect, private companies have been sponsored by banks to lend money to existing plc's. As they are not banks they are not held to the same levels of scrutiny or credit worthiness; these companies are known as CLO's.

The business of CLO's is to lend money against the AAA credit given to them by the bank. They then make money from fee charges to investors who provide their initial equity and interest payments from companies they lend to. Companies are at the mercy of CLO's for their borrowing and can't control who owns their debt.

However, events have spiralled out of control. Now these companies lend money at silly prices. Often in deals there are 7 or 8 levels of complex debt; only a couple of years ago 3 was considered byzantine. However, all this lending has meant much liquidity in the market which in turn has allowed companies to borrow more - stoking the market for the CLO's.

Sooner or later this has to crash, the companies simply can't pay the interest they owe and they are 'leveraged' to a level of debt that they won't be able to pay. As long as there is a bull market the whole situation is a wealth creating circle. When it fails though there is a big crunch; think Dot Com. The CLO's are all in this together and when companies start to miss payments they will be left with worthless debt.

So the companies go bankrupt, the CLO's get taken down too. People lose jobs for reasons they don't understand and can't control. Interestingly the banks have protected them from this situation by selling on all the risk to other CLO's and hedge funds.

As of today deals are being done on the tipping point, companies borrowing money and being re-financed at 8.5% interest; that leaves nothing after paying debt ofr investment or weathering a storm. In the papers today companies such as Capital Radio are prime expamples of well known organisations facing this dilemma.

When the crunch comes there will be a massive upheaval and economic dislocation. The city boys have pocketed their money already and will be away to the Caribbean. What about you and your job? What about our good companies going to insolvency and shedding jobs or being bought on the cheap by foreign investors? What of the effects on our national tax income as compaines pay less overall due to faliure and debt?

These are huge issues for the government, who record of regulation in the area is negligible and only slowly improving; but too late. I hope both Brown and Osborne are considering this issue because it is the most likely scenario for the beginning of the next recession and it is happening right now

Thursday 7 September 2006

Pensions a stain on capitalism

Tony Blair has a lot to answer for on this issue. By increasing taxation on pensions he has effected a huge reduction in UK pension saving, moreover most organisations have used this as an excuse to close their final salary schemes to new members.

This has perpetrated a huge crime of the current 50+ generation on their own children. The article above reflects this in its attack on Executive pensions. Current directors of companies have realised how important retirement pay is to them and so have gone out of the way to boost their packets. At the same time staff have reduced prospects. For a Labour government this is a total travesty of their values, enfeebling workers whilst the bosses make hay!

Blair started this, but business greed has made the situation much worse than it needed to be. There are many spurious reasons as to why companies have closed pension schemes for younger members; fundamentally it has helped current corporate earnings to reach record highs in the US and UK. I think this a terrible situation to have arisen as I am a firm believer in the market.

However the lack of regulation and lack of power that the staff or shareholders have over executives has led to this situation. Now only the government of the future can try to reverse this development with hefty tax incentives for saving. Directors too should have the humility to tie their pay packets and pensions to performance too and the investors need to shout more often than the rare occasions they have managed in recent years. Otherwise the Unions will rise back once more with a valid case of exploitation and we all know the price the UK paid for Union power plays in the post war economy.

Let's see something from Mr Brown on this; but then his pension is a very cushy number so don't hold your breath.

A-Day for Blair

So Mr Blair will be speaking to his financial advisors today (KPMG I believe) about his pension arrangements. With 20 years in office he has the full monty MP's pension plus cabinet top up.

For all the press about his home in Notting Hill I don't think there will be much effort expended making the mortgage payments; particularly with the huge advance he will get from his memoirs alone. Plus the ill-gotten gains of 'rights' campaigner Cherie.

Of course Blair may not go today and I for one hope he does not. I remember watching the Tories tear themselves apart at the end of the 80's. When the blood letting gets going it does not end until all the players have left the stage. Witness the recent Tory revival an enitre generation later. Same rings true for the SDP/Liberal alliance.

So today and over the next few months we will hopefully be watching not the end but the beginning of some truly colourful tribal warfare for Labour and my how they deserve it.