GOOD and bad news greeted Gordon Brown on his birthday. The good news came in the form of bumper January tax receipts. The bad news came from the Office for National Statistics (ONS), which has decided that London & Continental Railways (LCR) should feature on the national balance sheet, where it will make a substantial addition to the debt that has kept increasing under Mr Brown’s long reign.
What a coincidence that only last week we should learn that Sir Adrian Montague, one of the Treasury’s most trusted business partners, should be trying to take over LCR. A takeover would not necessarily lead to a reversal of the ONS classification, but it would make it a possibility. Sir Adrian, we are told, was acting entirely under his own initiative in instigating takeover talks, and not at the behest of the Treasury. All the same, Sir Adrian might have been expected to pick up on the vibes of anxiety that had been generated in the Treasury by the ONS decision to re-examine the classification of LCR. Perhaps he realised what needed to be done without waiting to be asked.
The reclassification is a welcome sign of bravery from Karen Dunnell, the new head of the ONS. It may be the start of more to come. Len Cook, her predecessor, seemed to display anachronistic colonial defence to his Treasury masters, whose backing he needed to reform and beef up the organisation. Independence is now top of the agenda.
The ONS reasons that the Government has effective control of LCR and that is unarguably right. Fired by this battle honour, perhaps Ms Dunnell could quietly encourage her colleagues to revisit the case of Network Rail, where a sham legal and organisational structure appears to have been erected solely to keep the debts off the Government’s books.
Off-balance sheet financing is frowned upon when practised in the corporate world, but Gordon Brown has made full use of the technique in order to disguise the full extent of the obligations and financial commitments he has been piling up in the name of taxpayers. The Private Finance Initiative, of which Sir Adrian was a trusted pioneer, has stocked up obligations for future generations, many of which are still nowhere to be seen on the national accounts.
From one point of view, however, those accounts are looking better than expected. The Treasury’s record January tax receipts will have cheered the Chancellor but they are not the result of a particularly thriving economy. Instead, they reflect the new thuggishness of HM Revenue & Customs (HMRC).
The drive to increase corporate tax receipts has fostered a mood of unprecedented hostility towards business among tax officials. Companies claim that this belligerent attitude is in danger of becoming counter-productive and that some corporations will consider moving from Britain to more hospitable tax climes such as the Netherlands. This is an ominous reminder of the bad old days.
The response of HMRC to the Marks & Spencer case is typical of this new mood. The Treasury is bringing in all-embracing anti-abuse measures before it has even agreed to put into place the tax allowances demanded by the European court. Making the tax burden more onerous is almost always a bad idea.
Credibility test
BLOWING a final raspberry in the direction of the departing Macquarie, shares in the London Stock Exchange edged up a few more pennies yesterday. The move provided ample evidence that investors had long discarded any idea that the Australians might come up with a sensible offer for the LSE. It also demonstrated that the Exchange’s efforts to convince the market of its long-term value have sunk through.
Macquarie insists that the episode shows only its refusal to over-pay. But it also leaves the organisation looking rather silly. The consortium it had put together for the particular deal hardly enhanced its image.
That may not matter to Macquarie. It has been busily buying other businesses during the LSE farce, most recently a chunk of France’s toll roads. That is more where its expertise lies than in financial infrastructure. It might restore credibility here by going after LCR.
Shake-up needed at dozy IMF
FOR a central banker, Mervyn King has been refreshingly forthright about what he evidently feels are terminal inadequacies at the International Monetary Fund. In a speech in India yesterday, he argued that one of the world’s most feared financial institutions was snoozing its way to catatonia and badly needs reform.
Mr King does not seems actively hostile to this 60-year-old guardian of the defunct Bretton Woods currency system. But the Governor is used to practical daylight at the Bank of England. He has acquired a distaste worthy of TS Eliot for the endless conferences in windowless rooms leading to anodyne pre-digested communiqués saying nothing insightful or frank.
He seems to want to sweep away all those soporific diplomatic parties, from the Group of 7 to the Group of 77 and create one executive organisation that will conduct high- level economic discussion, have the global authority to speak the truth about financial risks and imbalances and the independence and clout to shame or bully governments into doing the right thing for the international community. For the next decade, that may just mean getting China to revalue.
The IMF is available for this role. The Bretton Woods system has been extinct for 30 years. It seems much less likely that it is capable of being the sort of UN Financial Security Council without politics that Mr King wants. Those other talkfests, from the G8 summit to the Organisation for Economic Co-operation and Development, will not easily abolish themselves. At least we now know what silent central bankers are plotting on the sidelines.
Citi gents
CITIGROUP, the world’s biggest bank, has a new vice-chairman of its entire European operation. Robert Swannell’s promotion will cheer those who suspect that the global banking giants have no time for old-fashioned client relationships. Mr Swannell joined Schroder in the days of gentlemen merchant bankers and stayed after the Citigroup takeover six years ago. His then chairman, Sir Win Bischoff, is now chairman of Citigroup Europe. At the time of the deal, few would have predicted such an outcome.
