15 Aug 2018

Stuart

15 Aug 2018

Good morning, 

Now I’ll be the first to admit that when it comes to thinking about what topics you want to read about with your morning coffee, I don’t expect tax reform to appear too high on anyone’s list.
 
However, this normally less-than-glamorous issue has been the subject of two rather interesting interventions in recent days, both of which reach the same striking conclusion on Britain’s complex and often cumbersome system – that an overhaul is required if the country is to be fit to meet the challenges of the future.
 
Paul Johnson, the director of the Institute for Fiscal Studies and regarded as an authoritative voice on money matters, has identified demographic change as the prime factor for revolutionising the way the government should generate revenue from tax. The fact that we are living longer is having considerable implications for the economy and public services, something that Johnson says the country's “pay-as-you-go system” is currently failing to take account of and must adapt to ensure that revenues from the economically active young is sustainable to support the older generation.
 
A report in the latest edition of The Economist also takes a macro view on whether today’s system is fit for the 21st century and finds that it’s not just changes in population that are outgrowing our current taxation model.
 
It finds that the practices of today are being left in the past as a result of a failure to keep pace with technological change, as well as an inability to find a solution to the rising importance of intellectual property, making it impossible to pinpoint where in the world global companies are making money.
 
As a way of avoiding adding to the already convoluted tax code, the report suggests that governments should swap their focus from firms to investors. Capital’s share of rich-world GDP has risen by four percentage points since 1975, shifting nearly $2trn of annual global income out of payslips and into the pockets of investors, and it is suggested that tax initatives should reflect this and be mindful of the reality that shareholders are less likely to emigrate to avoid taxes on investment income than companies are to relocate to safeguard their profits.
 
Whatever the answer, the question remains whether the short-term nature of our political cycle lends itself to such fundamental change. In the same way it's not a popular morning briefing topic, taxation has never been a vote winner in elections. It’s going to take some brave decisions to produce the efficient, certain, convenient and fair system that Adam Smith prescribed.

News 

Rescuers in the Italian city of Genoa continue to search for possible survivors after the dramatic collapse of a motorway bridge. 35 people were killed and 16 injured when dozens of vehicles fell 45m (148ft) yesterday. 
 
Counter-terror police have raided three addresses in the Midlands in connection with yesterday’s suspected terrorist attack following a car crash outside Parliament. A 29-year-old British suspect, who is not believed to be known to MI5 or counter-terrorism police, was arrested after swerving into cyclists and pedestrians shortly before crashing into a barrier yesterday morning.
 
85% of parents have accepted baby boxes, the Scottish government has revealed on the first anniversary of the programme. Exactly 52,065 boxes – which contain items including clothing, a play mat, books, a towel and a sling carrier - have been given in the first 12 months, an average of 1,000 a week.

 

Business & Economy 

The pay for the chief executives of the UK’s biggest companies rose by 11% last year, pushing their median pay up to £3.93m, a new report has found. The highest-paid chief executive last year was Persimmon CEO Jeff Fairburn, who received £47.1m. The High Pay Centre’s annual review of top pay also found that full-time workers received a 2 per cent rise over the same period. (£)
 
Regulatory and tax changes have been blamed for a 19% slump in buy-to-let mortgage activity since last year. Landlords took out 5,400 new buy-to-let mortgages for purchasing homes in June, 19.4% less than 2017, following new regulations that make it more difficult for highly leveraged owners to turn a profit. (£)
 
DIY retailer Homebase has become the latest UK retailer to announce plans to close stores through a Company Voluntary Arrangement (CVA). Restructuring company Hilco, which bought the DIY chain for £1 in May, confirmed the plans that will see 42 stores close, putting up to 1,500 jobs at risk.

Markets 

What happened yesterday?
London shares closed down slightly at the end of yesterday’s trading with mining stocks – led by Antofagasta – a major contributor for the drag. The Chilean firm saw shares fall by 6.4% to 891p after announcing a 16% slide in earnings for the first half of this year.

 
At a share price fall of 6.6%, Cairn Energy was the biggest faller on the more UK-focused FTSE 250, the index ending 65.4 points or 0.3% lower to 20,509.76.
 
Looking east, a cautious mood remains amongst investors despite a boost in appetite for Turkish lira, as the country seeks a way out of its currency crisis. The benchmark BIST 100 index is up 0.7% while the lira itself enjoyed a considerable bounce after falling to a record low by reaching TL6.5283 per dollar, a climb of 4.8%.
 
However, this feeling of positivity hasn’t translated across the whole of Europe. The Europe-wide Stoxx banking index was down 0.6%, failing to maintain earlier gains of 0.8%. Deutsche Bank analysts have sought to explain the hesitancy of investors, asserting that a “risk-off contagion” from the crisis remains, a considerable danger given the global banking system’s exposure to Turkey at the end of March stood at $223bn.

Finals
Falanz Group Ltd
 
Interims
Admiral Group
Balfour Beatty
CLS Holdings
Georgia Healthcare Group
Hikma Pharmaceuticals
Hochschild Mining
Lookers
Marshall Motor Holdings
Riverstone Energy Limited

AGMs
Afritin Mining Limited NPV
John Laing Environmental Assets Group Limited
Origo Partners
 
UK Economic Announcements
(09:30) Consumer Price Index
(09:30) Producer Price Index
(10:30) Retail Price Index

Intl. Economic Announcements
(12:00) MBA Mortgage Applications (US)
(13:30) Retail Sales (US)
(14:15) Capacity Utilisation (US)
(14:15) Industrial Production (US)
(15:00) Business Inventories (US)
(15:30) Crude Oil Inventories (US)

 

Columns of Note 

Roger Boyes examines the upcoming imposition of American sanctions on Iran and says that Britain should back the move in the interests of curbing Tehran’s influence in the region. He argues that Britain must detach itself from Europe’s view that the nuclear deal was “a unique piece of statecraft that has to be saved at all cost” and instead work to change Iran’s behaviour abroad, as it will create the conditions to lead to the eventual change of regime in the country. (£)
 
Writing in The Spectator, Isabel Hardman looks at the response from Jeremy Corbyn’s supporters over the Labour leader’s presence at the wreath laying event. Hardman says that it has been made easier for Corbynites to defend his actions – against photographic evidence – because too many people supported the myth of a “slightly eccentric backbencher who was happily pursuing his niche interests without much interest from the rest of the world” for too long. (£)

Did you know?

The Bank of America used to be called the Bank of Italy. Founded in 1904 by Amadeo Giannini, it was originally established to serve working-class citizens in the area, particularly Italian-Americans. The bank grew rapidly and became Bank of America in 1930.

Parliamentary highlights 

House of Commons
In recess until 4 September 2018
 
House of Lords
In recess until 4 September 2018
 
Scottish Parliament
In recess until 4 September 2018