It’s BP Week, in case you hadn’t noticed. The management has spent three days (presumably that’s the New BP Week) explaining how the business is to be transformed from a dirty old oiler into a glistening supplier of clean energy that we can all love while driving around in our electric cars.

To help things on their way, BP is pledging to reduce its carbon footprint to “net zero” by 2050, and expects its oil and gas output to decline by 40 per cent by 2030. The company’s accompanying annual Energy Outlook has given up forecasting, and instead sees three main “scenarios” for the years ahead, which might be described as good, bad and ugly.

In the good, we are magically transported to nirvana (net zero) by 2050. The bad sees a two-thirds cut in CO2 emissions, which means the output is still rising. The ugly is “business as usual” in which we keep on burning like there is no tomorrow.

Bernard Looney, BP’s newish CEO, is not a fan of business as usual. He is even encouraging the UK government to bring forward the deadline on the sale of petrol cars from the current 2040, a stupid move that is such a political crowd-pleaser that our disfunctional government might actually do it.

As for Mr Looney, he should be careful what he wishes for. He is promising to pour $5bn into renewables in the next decade. He thinks BP’s management and experience can deliver 8 to 10 per cent returns. As he did not add, this is the management and experience that has proved itself incapable of delivering big projects to time and budget and making money from them.

To be fair, BP is not alone here. The entire industry has a terrible recent record on capital allocation, but none is quite as bad as BP’s, which wrote off $17.3bn, or a quarter of today’s entire market value, in the last three months alone. No wonder the market was less than enthused this week by Mr Looney’s vision.

The only reason to think that his company can really reinvent itself is by sheer size and weight of money – the idea that BP can somehow magic returns of better than 8 per cent from renewables is a triumph of hope over experience.

Rather than aiming to top the popularity polls, he might ask himself whether the declining oil age can produce a few years of exceptional returns. Run the business for cash from low-cost sources and asset sales, with the proceeds distributed to the shareholders. By contrast, his Brave New World looks uncomfortably like putting the National Coal Board in charge of transforming that industry for the oil age.

A first-class air fare

The UK stock market has had quite a good Covid war. Participants have stumped up to fill holes in balance sheets, just as the textbooks describe the function of the market. But, boy, do those banks know how to charge.

Take the latest chunky equity raise, for IAG, the owner of British Airways. At the end of July, the company signaled its intention to raise €2.75bn to keep the show on the road while waiting for us to resume flying. The share price immediately adjusted down to 163p, half the June peak.

Nearly six weeks later, the terms were finally revealed – three new shares for every two held, effectively one step away from a rescue. The new shares will cost 92p apiece, a 36 per cent discount to the equivalent ex-rights price. In other words the shares would have to fall from today’s 128p to 92p in the next two weeks for the banks backing the issue to have to stump up.

For this essentially trivial risk (and the bureaucratic slog in preparing a 258-page document) the nine banks and one adviser earn fees of £70m, or around 3.5 per cent of the money raised. IAG shareholders will have to stay alert, and to understand that they get “subscription rights” rather than new shares. Fail to exercise them and they lapse, for no value. There is just one week left to sell them, and a fortnight left to stump up for new shares. Miss the deadline and you miss the plane. The banks’ money, by contrast, is, er, in the bank.

A nuclear option

Another nail in the nuclear coffin this week, with confirmation that there is no government bribe big enough to persuade Hitachi to embark on building a new power station in Anglesey. It’s been clear for some years now that these monsters are losing the race between improving technology and escalating health’n’safety demands. The grim story of Hinkley Point is enough to scare off any private sector investor.

Co-incidentally, the FT carried a letter from Tom Samson arguing the case for small nuclear plants, building on the expertise that powers submarines. There is something in this, although our fear of nuclear is now so ingrained that persuading us to have one in the next street will be an uphill task.

Unfortunately, the consortium Mr Samson heads is led by Rolls-Royce, which has no money to spare for the investment needed, while it struggles to survive in its core market of making aero-engines. If prospects for his small reactors are really that bright, the solution is to spin the business out and float it on the stock market. It would give those who are constantly moaning about the UK’s lack of appetite for technology the chance to put their capital where their mouths are.

If you have tears, prepare to shed them now. Should the UK’s tax-savvy entrepreneurs be made to pay more, then they will all flee the country. Well, you can hardly blame a trade body for sticking up for its trade, but the pre-emptive strike from the British Private Equity & Venture Capital Association to the hint of reforms to capital gains tax is, like so many of its members, a bit rich.

The real gravy in the private equity game is the so-called “carried interest”, essentially a punt on a deal turning out as good as hoped, and which can yield multiples of the six-figure basic salaries that come up with the rations for participants. Carried interest is treated as capital gain, rather than income, and so is taxed at 28 per cent, rather than the 45 per cent top rate of income tax.

Apparently, the boundary between income and capital tax rates “is conceptually drawn in the right place,” in the opinion of the BVCA in a private paper. Others disagreed. The Financial Times’ report of it this week produced 435 responses, mostly varying from slightly cross to spitting tacks. As some of them pointed out, to call carried interest a capital gain is something of a stretch, since there is often no capital at risk in the first place.

The BVCA is right to be apprehensive about whether the Office of Tax Simplification will look hard at the treatment of this clear anomaly, since the chancellor will know all about it from his time in the City. The practice is often dressed up as an incentive for entrepreneurs to take big risks in the hope of creating valuable businesses, but much more frequently is a pass-the-parcel game between private equity groups, using state-of-the-art financial engineering. Venture Capital Trusts, which really do back small businesses, are of little interest to the private equity kings.

The BVCA made similar arguments about damage when the rate on carried interest was raised from 18 per cent to 28 per cent. Since then, the industry has boomed. Today. the challenge for most private equity groups is finding suitable homes for their “dry powder”, capital committed for them to invest. If ever there was a suitable moment to deal with this anomaly, now is surely it.

The Help To Buy con trick

Look, we’ve got it all wrong on Help to Buy. Some of us uncharitable writers dubbed it Help to Buy Builders’ Yachts, as the subsidy allowed them to double their profit margins on new houses sold under the scheme. But it seems everyone can be a winner.

Homes England, the government agency in charge, has advanced £16bn since that nice George Osborne started the scheme in 2013. Apparently, it will recoup all that money by 2032, and make a profit for the taxpayer by the time all the loans have been paid off in 2048.

This is truly magical economics: 272,852 happy homeowners up to last March, builders becoming rich beyond the dreams of avarice, and a profit for the taxpayer. What could possibly go wrong?

Ah, say those spoilsports at the National Audit Office, what if house prices are not, after all, on a stairway to heaven? They worry that homeowners could find the house worth less than the debt they (and it) carry, and that the taxpayer “could lose out significantly.”

Greg Fitzgerald is the veteran brought in to rescue Bovis Homes from its own incompetence. He changed the company name to Vistry, and this week revealed the first results of his management, but he told The Times: “This will be my first downturn, if it ever turns into one on the housing side, where the government has a huge stake in the housebuilding market.”

Secondhand sales do not attract HTB, so will the secondhand buyers pay up? Who will homeowners who have effectively paid a premium going to blame if negative equity looms? The answer, of course, is the government. We have come so far down this road that the political cost of allowing the much-needed bear market in housing is always going to be too great. Or, as Mr Fitzgerald puts it: “I just question whether the entire housing market is too big to fail.”

Alors Aviva!

There are, according to Les Echoes, three serious buyers for the French businesses of Aviva, the insurance company that has successfully resisted all efforts to make it perform. The shares have twitched up this week on the hope that this time it’s different.

Well, maybe. The serious buyers will, we hope, have done their homework on a young man called Max-Hervé George. If they have not, they might like to look at Dan McCrum’s interview in the FT. Mr George, you see, has the ability to trade today on yesterday’s prices, thus allowing him a guaranteed profit.

This is a hangover from a different era, where his father spotted the potential in the Fixed Price Arbitrage Life Insurance contract offered by a company that was subsequently absorbed into Aviva France. The contract allowed investors to switch from one fund to another at week-old prices.

Running it is a full-time job, since Aviva has made the process as difficult as possible, up to and including law suits, but there seems no limit to the (risk-free) returns his contract could bring him. It is well past the point of negotiating a suitable settlement for his money machine, but better late than never.

Shocking statistic of the week: A loss-making car company is now considered to be more valuable than the entire UK stock market. That’s not strictly true, since Tesla has managed to show a profit in recent quarters, but only because other carmakers are obliged to buy carbon credits to avoid heavy fines for not meeting new emission standards – hardly a long-term source of revenue.

The statistic illustrates how miserable the performance of London shares has been in recent years, but it hardly gives a true picture of the health of the market. The FT100 index is dominated by some big, dud companies, with the banks at the top of the list. Since they are not allowed to pay dividends even when their directors think they can afford to, they are impossible to value. Suffice to say that Lloyds Banking, Barclays and HSBC are all worth twice as much dead as alive, if the book value of their assets is any guide.

It would concentrate a few minds at the Bank of England were Lloyds’ management decide to shrink itself and return half its capital to the long-suffering shareholders, but that would be considered so outrageous that a way would be found to prevent it. Meantime the share price sulks at levels not seen since the 2008 banking crisis.

Among other big duds, few can match Aviva, now under new management (again). Like the previous new management, the CEO is promising radical action, but she might yet be frustrated by the arcane rules regarding solvency requirements which make breaking up the group awkward and expensive. The shares first reached today’s price 32 long years ago.

Then there is BT, whose newish management faces the familiar three-way stretch between the pressing need to bring fibre optic cable to the masses, an intractable pension fund deficit, and coping with too much debt. The dividend has already been sacrificed. The shares are lower now than they were at privatisation in 1984.

However, the biggest drag on the FTSE100 has been oil. Two of the world’s biggest half-dozen majors are listed in London, and recent history has not been happy. BP suffered from the disaster in the Gulf of Mexico, while Royal Dutch Shell has a different type of self-inflicted wound.

A devastating analysis by Ron Buosso for Reuters spells out just how much Big Oil has squandered in recent years, either on vast over-running projects or exciting takeovers. Few deals match Shell’s $54bn purchase of BG in 2016. Chief Executive Ben van Beurden argued that it would support Shell’s dividend under almost any imaginable oil price scenario. Despite his lack of imagination, Van Beurden is still there despite being forced to cut the dividend for the first time in half a century, slashed by two-thirds to help deal with the group’s burgeoning debt.

This is an extreme example, but Big Oil’s attempts to do something different have frequently ended in expensive write-offs. On what we know currently, it is unlikely to be any different this time, as they pivot towards fashionable greenery. The only consolation for us shareholders is that the balance sheet will not stand another awfully big adventure, and the next management might decide that sticking with the black stuff is more rewarding, if less exciting.

The US indices are flattered by the spectacular performance of the tech giants, as Simona Gambarin argues for Capital Economics. Take away those big duds, and the performance of UK shares is comparable with other markets. The key question is whether those dinosaurs are really doomed, or whether their fortunes can be revived with good management, but that’s a story for another day.

Farming Today

On Thursday last week The Times splashed a banner across the top of its front page warning of rising bread prices, thanks to a weather-beaten British harvest. It was perhaps unfortunate that the very same day, the International Grains Council published its forecast for this year’s harvest.

Here it is: “Total global grains production will reach 2.230 billion tonnes this marketing year, up 50 million tonnes from the July forecast and 9% higher than the previous year (2.181 billion tonnes).” For good measure, the wheat crop is also expected to be a record.

This is not the “we’re all doomed” narrative that sustains the BBC or the Climate Catastrophists, and the paper has not found space to report the IGC forecast. If it does so, it might add that the record harvest is from a dwindling acreage under cultivation, that food shortages are nearly always a consequence of politics, and that your loaf is unlikely to cost more next year.


Mike Gooley was looking forward to writing a celebration of next month’s half century of Trailfinders, from his “pathetic little start-up” to today’s top-rated business. Instead, he’s hopping mad, because the travel industry has behaved so badly in the pandemic.”Embezzlement is defined as the use of monies for a purpose not intended” he writes, pointing out that airlines and travel companies are free to use advance funds to finance their costs “and even dividends and bonuses.”

From the start in 1970, Trailfinders had two bank accounts, one for the business and one for customers’ money. Over the years, profits have been retained, so that “we have been able to refund our clients while we wait to recover your money from airlines.”

In a perfect world, all travel businesses would be obliged to have segregated accounts at all times. Considering the industry’s woeful performance, it would restore trust and might even stimulate demand from nervous travellers. Perhaps the government could ask Mr Gooley to draw up the rules.

Every organisation makes mistakes. The test is not whether it does so, but the reaction when the extent of the mistake becomes apparent to those at the top. On this scorecard, failures are being chalked up faster than with A-level algorithms.

The directors of Boohoo Group were shocked – shocked – to be told that dresses they were selling for £25 were being made in little better than slave conditions. The board of Rio Tinto had no idea that some irritating pieces of rock in the way of their iron ore mine extension marked an ancient Aborigine site. By the time the Financial Conduct Authority noticed that a private firm selling mini-bonds ought to be stopped, investors had been gulled into parting with £267m, much of which is now lost.

Let us assume that those in charge in each case thought they were doing their best. Even so, at Boohoo the non-executive directors would have been justified in asking how the alchemy of transforming cloth into fashion was accomplished for that price. After the Sunday Times expose, and some dithering, the company appointed QC Alison Levitt to run an independent enquiry.

It has not started well. The home secretary has written to Boohoo’s CEO to raise the pressure to come clean. The Ethical Trading Initiative, a body which looks at just such issues, points out the obvious problem of the company marking its own homework. Rather than a narrow focus on conditions in Boohoo’s suppliers, the ETI wants an examination of the whole industry.

The brokers at Shore Capital point out that associating semi-slave labour with glamorous fashion is not a good look, and have shifted their recommendation to sell. Bohoo’s founders, Mahmud Kamani and Carol Kane, responded to the slump in price that followed the Sunday Times story by investing £15m more in the shares, which have since risen by a half.

By contrast at Rio Tinto, the blunder looks more like cock-up than conspiracy. The CEO has taken a (temporary) pay cut, and everyone is making the right noises of contrition. Unlike that to the Aboriginal site, the damage is likely to be temporary.

The same thing cannot be said at the FCA. London Capital & Finance’s “mini-bonds”, which offered wildly inflated returns, would not have stood up to any competent analyst’s examination. Had the authority closed it down when outsiders first told it so, £200m of investors’ money would have been saved. As it is, at least three-quarters of the £237m they put in has been lost.

Prosecutions will surely follow, while the other focus will be on whether there are grounds for compensation. The FCA tried to wash its hands of the affair, arguing that the bonds were not authorised. It was pushed into appointing QC Elizabeth Gloster to investigate, but this week the authority’s incompetence forced her into a second delay, after it admitted to finding a further 3,500 documents, a year and a half after her appointment. She has every reason to be hopping mad.

Conspiracy theorists have plenty to tuck into here. The chairman of the FCA at the time was Andrew Bailey, since promoted to governor of the Bank of England. Should the Gloster report find sufficient evidence of early warnings, or worse still, evidence that Mr Bailey knew, his position might be fatally undermined.

So, three institutional failings, three different responses. Mining is by definition a rough and dirty industry, but there is no excuse for rough and dirty responses elsewhere. Others might note both cases and think how better to respond if they make egregious mistakes.


Shopkeepers 1, Landlords 0

Commercial buy-to-let is not a uniquely British activity, but it reflects our unique obsession with property. After all, you are buying physical assets, leases frequently contain upward-only rent reviews, the landlord is a preferential creditor, and the shopkeeper remains liable even if he passes the lease to someone else. What’s not to like?

An increasing amount, it seems. The earthquake in the high street has revealed that commercial leases are too one-sided to be sustainable, and the balance of power is being redrawn. The owners of shops occupied by New Look are finding out the hard way where the market is taking them – a turnover-based rent as low as 2 per cent on most stores, and zero for three years on the rest of the 470 in the portfolio.

There will be real hardship here for some individual landlords, and while the owners of the business are playing the usual private equity/hedge fund role as cardboard villains, more struggling chains will not survive without some similar scheme. The British Property Federation, the commercial landlords’ trade body, is doing its best to hold back the tide, but with too many shops in the UK – even before Covid and internet commerce – they had better get used to the new look, however badly it suits them.

A very expensive Hut

Good news for holders of UK tracker funds: The Hut, a rag-bag of frightfully modern and e-savvy bits and pieces (“We build brands. We drive ingenuity. We create experiences”) will not qualify for inclusion in the FTSE 100 index. This is because too few shares are being offered in the forthcoming flotation, and because founder Matthew Moulding is retaining a sort of golden share. Still, he expects to raise £920m for a market value of £4.5bn, or 25 times earnings before nasties, which is presumably why he needs seven bookrunners plus NM Rothschild to handle the issue. Best of luck to the buyers.

They are having a wonderful post-Covid time at Persimmon. The buyers of their new homes are queuing up, the margins are fabulous, and the supply…well, you don’t want to build too many, too fast, do you? This week’s results positively glowed with financial health; profits and completions were both impacted, but recovery has been swift. The market loved the numbers and the prospects for big dividends later in the year.

Persimmon, you will remember, is the housebuilder whose remuneration committee failed to see that the then CEO could make a fortune if things went really well for the shareholders. His successor, who was awarded £40m from the same scheme, is off, and his successor his just departed ahead of schedule from bus operator National Express.

As the UK’s biggest housebuilder, Persimmon seems to be taking a bit more care when it comes to the buyers than it has in the past, with a “customer satisfaction” score up from 83 per cent to 90 per cent this year. Many of those new homeowners relied on the government’s Help to Buy scheme.

Since this is only available for newbuilds, perhaps they were grateful to scramble onto what many people still think of as the housing escalator. In fact, this escalator stopped some time ago, and the scheme has served principally to allow housebuilders to sell at inflated margins – in Persimmon’s case, £31 of every £100 of sale price is profit. In theory, Help to Buy (Builders’ Yachts) comes to an end next year, but seems certain to be extended by our spendthrift government.

The builders’ prospects have been further improved by the cut in stamp duty for most house purchases. This, too, is supposed to be temporary, but as with pensioners’ free bus travel, winter fuel allowances and so many other crowd-pleasing concessions, it will prove almost impossible to reverse.

The bungs to housing are more pernicious., and far more expensive. Help to Buy is forcing people into homes they hope they can afford, rather than homes they want to live in. Not only does the subsidy on the loan run out after five years, but the subsequent buyer will not get the same help. If the housing escalator is now in reverse, there will be a lot of unhappy homeowners.

Housebuilders would be even more unhappy, which is why they build out at such a leisurely pace, despite their thousands of available plots. Persimmon built 4,000 homes in the first six months of 2020. Pre-Covid, it built 7,584 in the same period last year, so its 89,000 plots would take six years to develop, even if it returned to previous construction rates.

Here is Bryce Elder in his Markets Now column in the FT: “Persimmon sales since July are up an hilarious 49 per cent year-on-year as Help To Buy funnels all the credit-starved first time buyer demand towards the newbuild cartel, creating a giant sinkhole into which the whole housing market will shortly crash.”  Oddly, nothing remotely similar appeared in the next day’s paper.

Another bank failure

Banks, we were told during the last financial crisis, are too big to fail. Of course, given their pivotal role in the economy, they are. However, from an investment standpoint, they have failed spectacularly. At 28p, Lloyds Banking shares are not much above the 23p they hit in 2011, and half the worst price during the panic of 2008.

All the bank shares have been put to the sword, wounded by administered rock-bottom interest rates, and given the coup de grace when they were barred from paying dividends this year. After all, if the company cannot pay out profits to its shareholders what is the point of owning the shares?

Have patience, says Gary Greenwood at Shore Capital. Everything has conspired against bank shareholders this year, but these things will pass. The shares stand at around half the value of the banks’ tangible assets, and they have more capital than they know what to do with. As he does not add, this has been such an annus horribilis that the banks might as well “kitchen sink” the numbers, and take as gloomy a view of loan losses as the rules allow.

The Bank of England has hinted that dividends will be allowed next year, but there is no sign that the market is paying attention. Shore guesses that Lloyds will pay out half its earnings next year, or 2p a share, for a 7 per cent yield. Of course, the risk of banks finding new ways of losing money is ever-present, as we saw with PPI. Negative interest rates would wipe out their margins and cause us to take our money and bury £20 notes in the garden.

All the bank shares are in similar travails. Lloyds has the advantage of a simple, domestic model, a market share that would not have been allowed in normal times, and scope to become much more efficient. Things can always get worse, but still…


Dig that crazy algorithm

Teachers want their pupils to do well, so they naturally take an optimistic view of their likely grades in external exams. Had teachers known beforehand that their predictions would become the actual qualifications, the temptation to indicate high grades might have become overwhelming. The scope for, ahem, encouragement to poorly-paid teachers from over-enthusiastic or wealthy parents would ensure an all-must-have-prizes approach. So to that extent, the wretched algorithm did serve a purpose, if not the one it was designed for.

There is £12.5bn of your money trapped in property funds, and the boffins from the Financial Conduct Authority seem set on keeping the door shut. Their latest wheeze is to insist that an investor who wants to sell must wait six months before she can get her money out. In other words, a non-solution to an insoluble problem.

These funds have always been a bad idea. The principal beneficiaries have been financial intermediaries who could lure in the punters with talk of investment “exposure” to a different asset class, one where the lumpy sums involved mean only the big boys can play. There was also a useful commission to be earned.

Property funds, promoted with the promise of instant liquidity, are particularly unsuitable for an asset class as illiquid as commercial property. Values,  often from surveyors who helped buy the buildings in the first place, always have an element of guesswork, along with pressure to take the optimistic view. The only sure way to establish the true value is to sell.

In today’s febrile markets, actual transactions are more like fire sales, with the current value of shopping centres, for example, too hideous to contemplate. An indication of how little these assets are worth is the bonfire that is the terrible twins of the property share market, Intu and Hammerson. One is bust while the other is embarking on another painful rescue, inviting shareholders to throw good money after bad.

They should decline the chance. An indication of true values today is the price of Land Securities, the sector’s biggest listed company. At the end of March it guessed that its portfolio (it developed the ghastly walkie-talkie car-frying block in the City) was worth £11.82 a share, down 12 per cent from the previous March. As the lockdown devastated the UK economy, that looks wildly optimistic today.

Its share price generally stands at a discount to net asset value, but even after staging a recovery last month, is 585p, a fire sale price, if you like. The shares look a far better bet than “supporting” the latest Hammerson refinancing out of some misplaced sense of loyalty.

Indeed, commercial property is so unfashionable today that contrary investors should be looking hard. Landsec will survive. The company plans to resume dividend payments in November. The office block of the future may look different, but it is not going the way of the shopping mall, and tenants will resume paying rents.

Some are already doing so. Last week little Regional REIT posted an upbeat statement and reported that 98.9 per cent of the rent due had been collected in the last quarter. The assets, as the name suggests, are mostly away from London and the shares have risen sharply this month, but at 81p they still yield 10 per cent. It’s the sort of share the holders of those property bonds should be buying, when they can finally get the remains of their £12.5bn out of lock-up.

Far from electrifying

July was a brilliant month for Tesla Motors in New Zealand. Sales jumped by 167 per cent. It was even better in Ireland, which posted a 400 per cent rise. Sadly, these are not key markets for the runaway electric car company, which sold a grand total 0f 71 vehicles in the two countries combined.

Elsewhere,  the picture is not so bright. Sales slumped in the UK and Germany, and collapsed by 94 per cent in the “early adopter” countries of the Netherlands and Norway, from 1,112 to 67. Now one month is not much of an indicator, and Elon Musk showed his ability to pull rabbits from his corporate hat this week with his proposed stock split. This changes nothing, but was enough to send the shares up by another 7 per cent.

True Tesla believers care little about such things, but reality bites, eventually. Despite subsidies for buyers and the freedom from most motoring taxes, buyers of electric cars are mainly the show-offs, early adopters and those wanting a second car to run around town and flaunt their greenery. Range anxiety and the cost (even after subsidies) continue to discourage the rest of us.

Now to that list has been added plunging second-hand values. This market is young and patchy, but Goldman Sachs estimates that the average resale value is around 40 per cent of the new price, compared to between 50 and 70 per cent for conventional cars. Improving battery technology is helpful for new car sales, but positively harmful for the value of older models.

Governments everywhere are trying to strong-arm buyers into electric cars, and in many countries have already convinced motorists that diesel is evil. But even with continuing subsidies, swingeing taxes on petrol and the promise of a massive (taxpayer-funded) investment in charging points, the verdict from the buyers is clear: we really don’t like them.

Not going Dutch

After last year’s great escape for Unilever, when its Dutch executives conspired with their government to end its cumbersome dual-headed structure and relocate to, er, Rotterdam, it was unlikely that those politicians would be happy to see the company go to London instead.

So it has proved. The left-wing (very) minority group in the parliament wants to impose an exit tax should Unilever’s current plan go ahead. This could amount to €11bn, a ludicrous sum which would far outweigh any savings from unification. The move is probably illegal under European Union law, especially as it is proposed to start from last month, making it retrospective legislation.

The proposal has almost no chance, even in an attenuated form, but it does serve to highlight the motive of those at the top of Unilever at the time, and why they had to go. They learned the hard way that it’s not their company.



John Roberts is a man on a mission. His mission is to become Europe’s, if not the world’s, supplier of fridges, TVs, computers and vacuum cleaners, all on-line. He is the founder and boss of AO World, and he wants to take his 3000 employees with him on the mission. If they can make him a billionaire and shoot the lights out, then they will share £140m.

This proposal is a huge improvement on the usual executive incentive scheme, which makes fortunes for a few at the top, and pays for a decent holiday for everyone else (at best). Here, executive payouts are capped at £20m each. Mr Roberts has already pledged his to charity. Mind you, he does own 23 per cent of the business, worth nearly £200m today.

This is all very communautaire, but his employees should not get too carried away. The share price, currently 169p, has to reach 520p for them to get anything, and 940p for the full payout. To avoid any artificial inflating of profits, the price would have to stay aloft until 2027.

Were AO some whizzy company with visionary technology or a commanding position in its market, then multiplying today’s share price by 5 1/2 times in seven years might be a possibility, but AO is a retailer of domestic appliances. It does seem pretty good at it, including recycling your old kit, but stealing market share during lockdown is not the same as destroying tough competitors like John Lewis and Dixons.

Total group sales last year were only £1bn, and profits painfully thin. As a test of how to motivate the workers, this will be fascinating to watch. AO shares have cheered up recently on Mr Roberts’ upbeat report, but even the 2014 issue price of 285p looks distant. As for that life-changing sum for the loyal 3000…

Time to end the ground rent racket

The Upwards Only Rent Review nurtured and sustained the commercial property business for decades, until it didn’t. This grotesquely one-sided arrangement – in practice, landlords could say accept it or you can’t rent the place – has collapsed, knocked down by the Creditors Voluntary Arrangement and given the coup de grace by the Covid-19 lockdown.

Now, with luck, another disgracefully inequitable property practice is about to be demolished in a corner of the residential market. Ground rents are the residential equivalent of those upwards-only reviews, another nice little bonus for housebuilders and a continuing source of revenue for rentier investors, often domiciled in anonymous tax havens, in blocks of flats.

The Law Commission has called time on this racket, affecting 4.3 million homes in the UK, with a set of proposals to reform leasehold ownership. This has been a long time coming, but when the commission points out that 95 per cent of the equity is with the homeowner, while the owner of the ground rent can effectively call the shots, the need for reform is obvious.

The Leaseholders’ Charity describes the reports as “a nail in the coffin for predatory commercial interests seeking to exploit the ‘feudal’ leasehold system. They are the most significant proposals for reform in a generation.”

The big housebuilding companies have already been shamed into better behaviour, but the owners of existing ground rents (some of them bought from the housebuilders in the past) will prove tougher nuts to crack. Their response is likely to mirror Shylock’s “I will have my bond” by arguing that a contract is a contract, and the leaseholder should have paid more attention before signing it.

Rather like the shopkeeper faced with an upwards only rent review, in practice the buyer of the property may have had little choice, having already stretched financially to her borrowing limit. The extra charges the ground rent owner can impose – for an alteration to the property, for example – are seldom spelled out, while leaseholders attempting the complex process of taking control from the freeholder must pay his legal costs as well as their own.

Commonhold is a perfectly serviceable alternative to many leaseholds. Widely used in other countries, it allows the freehold to be held jointly by all the owners of the flats or developments, but remains unpopular with developers, for obvious reasons.

It is a testament to the power of the property lobby that such unfair contracts have not been outlawed, or at least made less one-sided long ago. It is now up to the government to change the law, including for existing leases, in what would be a rare example of a piece of crowd-pleasing legislation that actually did long-term good.

Eat out, but don’t eat

Ah, the joys of joined-up government. Only days ago, the Chancellor revealed a £10 a head bung to restaurants to get us eating out (but only on Monday, Tuesday and Wednesday, and only next month) and now his boss is set to tell us we ought to order the salad, followed by fruit (but no cream). The motives of both men may be admirable, as usual, but as a microcosm of the shambles at the heart of this administration, it’s a peach (without cream).



Oh no, not another bung to the housing market. Our dynamic young chancellor at least left extending Help to Buy Builders Yachts off his all-you-can-eat menu this week, but since he has promised us yet another Budget in the autumn, it is too early to rejoice at the demise of this baleful scheme.

Instead, we had a stamp duty holiday, to kid ourselves that this would be of particular help to those on the lower rungs of the housing ladder. Why should it? The vendor will charge the buyer whatever he can get, and the stamp duty saving is likely to be reflected in selling prices. Similar schemes in the past brought forward some transactions in the months before they expired, but the principal beneficiaries were vendors, estate agents and the housebuilders’ cartel.

Underlying these schemes is the article of faith that house prices must never go down. No politician dare argue in favour of a proper bear market. The voters have so much invested in domestic property that prices cannot be allowed to fall to within reach of new buyers. As a result, governments must find ever-more ingenious ways of keeping prices up, while simultaneously trying to get more people into home ownership.

Thus the circle is squared, at a cost of buyers being granted mortgages at increasing multiples of their annual income, with no margin against any rise in interest rates, and vulnerable to the slightest fall in prices. The even less fortunate are forced into rented accommodation.

The partners-in-crime here are the big housebuilding companies. They have little interest in building quality homes to create communities where people really want to live, or in sufficient quantities to make a difference. Their interest lies in accumulating land and building estates, but not so many that the prices might fall. As a business case it has worked well for the shareholders, and brilliantly for the top executives. For the rest of us, not so much.

To keep the gravy train moving, they are already lobbying for a further extension of Help to Buy. One day, the cost of this endless support will become too obvious to ignore. Until then, expect an extension of the stamp duty holiday, and do not rule out yet another dose of HTB, the crack cocaine of the housing market.


How wealthy is Gus O’Donnell?

Gus O’Donnell was one of the finest civil servants of his generation. For 32 years he climbed the ladder to finish as Cabinet Secretary, retiring aged 60 in 2011. He has not stopped since. His latest contribution is to lead an investigation into whether Britain should introduce a wealth tax, a question that is suddenly fashionable. It seems to command public support, probably from those who envisage a starting point just above the estimate of their own wealth.

Lord O’Donnell says he has no idea whether a big new tax is needed to try and bring the public finances back under control, but his team has had a good run at trying to assemble the evidence for a rational debate. This shows that private wealth has grown much faster than the economy, that inequality is starting to rise, that the over-65s command an increasing proportion of the total, and that London and the south east have the greatest share. Wealth is mostly concentrated in property and pensions.

Well, so far, so obvious, although it’s always good to have your guesses confirmed, and the numbers are helpful. One slight surprise is to find that Britain’s existing taxes on capital (stamp duty, capital gains tax, inheritance tax etc) already add up to more than in Canada, the US and France, and a lot more than in Germany, Italy or Japan.

The study rehearses the familiar arguments about the difficulty of measuring wealth in order to tax it, and how to deal with illiquid valuables owned by people with low incomes. The conclusion: it’s jolly difficult, which helps explain why other countries have abandoned wealth taxes in the past.

However, there is one glaring omission from the team’s trot round the course, which brings us back to Lord O’Donnell. His pension as a former top civil servant is based on a multiple of his years of service and his final salary, to produce a six-figure income for life, index-linked against inflation. According to Hargreaves Lansdown, a 60-year-old retiring today would need £5m to buy an annuity offering an index-linked income of £100,000.

So, dear Gus, is that entitlement wealth or not? He is an extreme example, but index-linked pensions based on final salary, almost extinct in the private sector, remain commonplace among state employees. This vast liability on future taxpayers is almost entirely invisible, and the public sector unions are (understandably) resistant to anything more than fiddling at the edges of the rules.

The treatment of such a valuable entitlement is at least as contentious as whether primary residences should be exempt from a wealth tax, yet warrants barely a mention in the 24 pages of this study.  The trio under O’Donnell who are actually doing the work are all employed in the public sector through their university affiliations. If they duck this question, their work will be worthless.



There can be few laughs in the boardroom of HSBC these days. The directors have managed the baleful double of infuriating their Hong Kong shareholders by being forced to scrap the dividend, while upsetting their British customers by kow-towing to the Chinese and their harsh new laws.

The bank can argue that it had no control over either of these events, but together they make straddling here and there increasingly painful. So far, there has been no rush for the exit by depositors at Midland Bank or its sibling First Direct, the UK businesses. However, as the anti-Chinese rhetoric increases here, HSBC may be forced into expressing more support for the regime there, or face “consequences” as the Chinese ambassador threatened after Huawei was shut out from UK markets.

It says much for the market’s view of UK bank shares that despite this, HSBC has been the least poor performer so far this year. This may indicate that money doesn’t care about the politics, but it has moved veteran analyst Ian Gordon at Investec to decide that the shares have fallen far enough even though he expects halved profits, a “rebased” dividend, and no return to last year’s payout before 2024.

Behind this grim prospect is the question of whether HSBC is really a British bank at all. It has predominantly British directors and UK residence, but with 92 percent of revenues coming from China and Hong Kong, its fortunes must be there, not here. It is Midland that is the anomaly. Buying it provided the excuse to transfer the group’s HQ from Hong Kong to London at another moment when tensions were rising.

With bank shares so depressed, and with dividend decisions subcontracted to the City authorities, selling the UK bank today would be a thankless task. No domestic buyer that could afford to pay would be allowed to own it.

However, a demerger would allow the market to price both, accelerating the process which is already under way, to turn HSBC into a Chinese bank, overtly rather than covertly regulated by threats from an increasingly belligerent regime. There are other UK-based businesses with most of their business overseas, like BAT or Rio Tinto, so the listing could stay here, including membership of the FTSE100.

This process is neither cheap nor easy, as Lloyds Banking discovered when trying to excise TSB from the group. In that case, the costs almost equalled the sale proceeds. However, the current two-way stretch at HSBC is only likely to get worse, to the point where even the magnificent salaries at the top of the bank fail to compensate for having to be nice to the Chinese authorities while pacifying the bolshy British consumer.

A familiar train of thought

You may not have read the whole of the 2020 report from the Infrastructure and Projects Authority, published last week. Some of those poor souls at the Department for Transport would like you to do so, because the successful A14 road upgrade has “overturned the widely held belief that UK infrastructure is always overdue and over budget.”

Sadly, the IPA is unable to say the same thing about the DaFTest project on the list, the much bigger and uglier HS2. “Successful delivery of the project appears to be unachievable. There are major issues with project definition, schedule, budget, quality and/or benefits delivery, which at this stage do not appear to be manageable or resolvable.”

Thus does the IPA join every other external examination of this Cameroonian vanity project in saying that it is a waste of money and scarce resources. A tragic little footnote records that HS2 “was reset…in February 2020 with an amended cost and schedule…and strengthened governance and control.” Goodness, if only they had thought of resetting it earlier.

They could reset it today, before any more of the £109bn has been squandered. Building almost anything else would represent better value for money than this railway. Completing the electrification of the main line to Cardiff, or that out of St Pancras could be done quicker, and for a small fraction of the projected cost.

The report rather coyly points out that it is too early to say how much impact Covid-19 will have on both the cost of construction and our enthusiasm for public transport. However, it’s a racing certainty that it will increase one and decrease the other. Now which way round would that be?

The Committee on Climate Change would like to make our lives a little more miserable. Its latest proposal is to outlaw sales of new petrol-engined cars by 2032, forcing us all into electric motors or ageing old bangers. The committee also wants to ban new domestic gas boilers after 2035, to complement the existing ban on them in new homes just five years hence.

Never mind that electric cars, despite subsidies, are hugely unpopular outside the UK’s affluent cities, or the little matter of replacing over £30bn a year in fuel tax. Never mind that gas is the obvious choice for urban central heating. Instead, we must all start drilling in the garden to install electric heat pumps, or buy thicker jumpers.

The Committee is one of those crowd-pleasing political initiatives designed to give the impression of a green government. The chairman, Lord Debden, is better known as John Selwyn Gummer, the man who forced his young daughter to eat a burger to show it was not going to give her mad cow disease. He was searching for an encore, and the committee seems ideal.

It’s not all his fault that he is making these fatuous recommendations. The Climate Change Act (another commitment which offered MPs the warm glow of do-goodery today and a nightmare for a far-future administration) demands that the UK is “carbon neutral” by 2050. We have not got far in the 12 years since the act was passed near-unanimously by  parliament; only two of his committee’s 31 recommendations for 2019 and 2020 have been met.

There is no serious analysis which shows a credible route to meeting the act’s absurd demands without causing grief. Unless we can generate power from moonbeams, the British face being stuck in their cold houses, afraid to start their ageing motor because the petrol tax has been raised again. As they do so, they could contemplate the hundreds of coal-fired power stations the Chinese empire will have built by then, producing enough CO2 to make any reduction here irrelevant.

As for the impact of a 2032 deadline on the UK car industry, the consequences are too horrible to contemplate. Twelve years is not long to plan for an industry which was already reeling from the war on diesel, started shortly after we had been encouraged to buy the cars to get more miles from a barrel of oil. Next year the European Union is imposing a brutal penalty regime on those manufacturers which cannot meet new CO2 emission targets.

Then came the lockdown and car sales almost stopped. The UK industry is gasping for further state aid, pleading for additional and tailored finance schemes, tax relief, business rates deferral, all topped off with a scrappage scheme. The carmakers’ sales pitch is yet to include a plea to buyers to look after their new petrol car because it may be their last, but the committee’s fantasy recommendation does bring the day a little closer.

He Tyried, but failed

Andrew Tyrie’s defenestration at the hands of his colleagues at the Competition and Markets Authority is a grim demonstration of why meaningful change is so difficult in Britain. He was forced out because he believes in competition (the hint is in the title) rather than the legalistic niceties of endlessly re-defining markets until the proponents have whittled their share down to below 25 per cent.

Nowhere was this better illustrated than in the proposal to merge Sainsburys and Asda. The bankers and lawyers argued that careful use of definitions, coupled with a programme of selling stores, would deal with local monopoly problems.  Somehow the fact that the two businesses would start with a 40 per cent share of the grocery market could be glossed over.

On that occasion, Tyrie’s common sense view prevailed, and it appeared that at last Britain had a competition regulator to match Margrethe Vestager’s robust approach to big company interests in the European Union. This week a CMA study concluded with a statement of the bleedin’ obvious, finding that Google and Facebook between them control 80 per cent of the £14bn digital advertising market, so no-one else can get a look in, and consumers are suffering “substantial harm”.

The conclusion? “We recommend that the government passes legislation to establish a new pro-competition regulatory regime.” The new body could be run by Lord Tyrie, answering the old question: Why is there only one Monopolies Commission?

Build, build, build, but don’t build this

The national lunacy that is HS2 was barely there in the prime minister’s build, build, build exhortation this week. Compared to the £109bn being poured into the decade’s worst vanity project, his pledge of a £5bn programme of infrastructure building is just a rounding error. Scrapping the railway would allow him to give £5bn each to 20 of the UK’s northern cities to spend as they see fit,  and still have change.

Meanwhile, a government-sponsored group has redrawn the pretty lines on the map to incorporate trans-Pennine trains from Manchester to Leeds (HS3). According to its proponents, this plan would save money, but on examination it is the sort of saving money familiar to anyone buying expensive clothes in the sales.

It adds the current £39bn estimate for HS3 to that for HS2 and finds that there is a (marginally) cheaper alternative. Nobody outside the Department for Transport (DaFT) believes any of these numbers anyway, and like Crossrail, that semi-mythical new line under London, the new idea incorporates a tunnel right under Manchester. What could possibly go wrong?