Share buybacks, that process of paying some shareholders to go away at the expense of those who remain, is getting a bad name. It’s deserved. Buybacks’ principal effect is to pretty up the earnings per share, a key measure for executive bonuses. They also help disguise the dilution caused by employee share awards, while producing a nice little earner for the company’s brokers.
The general rule is to announce the sum to be spent, and to keep buying almost regardless of the price, until it’s all gone. At the height of the last crisis, some boards took fright and suspended their programmes, only to resume at dearer prices when the market recovered.
Returning excess capital to shareholders makes obvious sense. It allows the owners to squander their money rather than have the directors do it for them. Mechanisms to do this, through special dividends or capital distributions, are uncontroversial, but the buyback fails to treat all shareholders alike.
As so often, Simon Wolfson at Next is showing how to do it. Last year the management’s projections indicated that the shares were too expensive to justify using the company’s money to buy them, so shareholders got a special dividend instead. As markets plunged last week, the price has come back into range, and Next spent £32m on its own shares.
This increases Lord Wolfson’s grip on the business, since he doesn’t sell shares in what he sees as his family company. However, as the perspicacious Nick Bubb points out in his Daily Retailer blog, the buying also indicates that Next is avoiding the weather woes of others in the high street and that the management views today’s price as fair value.What’s not to like?
“Let’s put the cars of tomorrow on the roads of today” gushes the headline of Shell’s latest ad campaign, boasting with unfortunate timing about how far a single litre of fuel could take you.
Unfortunately, the roads of today have quite enough cars on them already, with congestion in London costing £5.3bn last year. According to Inrix, a “traffic information provider,” each car-commuter in the capital wasted £2,700-worth of time in jams, a sort of rough equality of misery with train-commuters. Across the country, the estimated figure is £13bn, and rising fast.
Still, next month the much-trumpeted investment in transport infrastructure is due to start. So, new roads, big improvements or new river crossings, then? Sadly not. Contracts worth £10bn are to be let for HS2, even though the gargantuan enabling Bill is not even law yet.
It’s hard to disagree with Edmund King (of the road) at the AA , that this new train set will make a minimal impact on the capital’s congestion. Unfortunately, new roads are even less popular than new railways, and those who are directly affected by the building works can cause serious damage at the ballot box. With politicians completely focused on next May, it seems Shell is right after all. However fuel-efficient, the cars of tomorrow will be stuck on the roads of today.
Better to tax the dead
It’s often said that inheritance tax is only paid by those who trust their relatives less than they trust the taxman. To which could be added: it’s only paid by the middling-rich slice of the population. The poor escape, and the seriously-rich buy expensive and ingenious schemes to avoid it.
Paying tax when dead certainly sounds better than paying it while still alive, and if we want a meritocratic society, the logic is unassailable. There’s even less logic in allowing those swept up the property wave into taxable territory to pass the family home on to their undeserving offspring.
The prime minister says he wants to raise the current threshold. This is a handy benefit for elderly voters (the Office for Budget Responsibility expects 200,000 of them to die in the four years after the election) but a rational policy would cut the rate to 10 per cent and make everyone pay it on death, without exception. It would no longer be worth while for the rich to avoid it, and might even yield more than the £3.4bn, or a half of one per cent of all taxes, that IHT raised last year.
This is my FT column from Saturday