 I wrote here in January 2011 about the banking crisis in the UK and also about the way certain banks have been run for their executives and not their shareholders. - See blog post here.  Since then Barclay's share price has risen little, still not delivering great returns for their shareholders and today they announced a half-year adjusted profit before tax fall 17% year-on-year to £3.59bn; despite this they are spending £510m on bonuses. They are also planning to issue £5.8bn in new shares as part of a move to plug the £12.8bn capital shortfall created by new regulatory demands and on this news their shares fell again sharply. They are having to do this after the banking regulator - the PRA (Prudential Regulation Authority) issued tough new capital requirements at the banks, requiring them to have a 3% minimum ratio of capital compared to the amount of capital they hold.
So who is going to buy these shares in this "great investment" opportunity? I doubt there will be few takers from the retail investors and I certainly won't be adding them to my SIPP; it will be the institution pension funds that will suck them up, as they are the only investors who would be able to justify buying them. Now guess what effect that is going to have on all our pension pots? Is it going to provide them with larger or smaller returns?
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 The Baddies? So, the press have done with bashing the bankers for now and need to find another target for populist support...all those “big bad” corporations and companies not paying their taxes?
The politicians last week at the G8 decided to make themselves look good and try to curry favour with their voters by distracting from the really important issue of trying to drag us back to economic growth after the worst recession for a generation. There was a lot of tough talking about Trade, Tax and Transparency but what did it achieve? While Margaret Hodge is wasting time, money and oxygen in parliamentary select committees interrogating and vilifying some of the worlds greatest companies and employers such as Google, Amazon, Apple, Starbucks etc, she is entirely missing the point. These “big bad” corporations, unlike MP's and politicians, create employment and hence wealth and provide products and services that we, the customer love to buy and use. These companies have to pay all the taxes they are legally obliged to as none of them would operate on the wrong side of the law. They have a duty to their shareholders to minimize all their costs, including tax so they can maximize profits to generate investment for more growth and employment. So what exactly then are they being accused of? It is the government and politicians that make the rules and decide on the appropriate levels of taxation; the corporations in turn play the game, and pay what they have to, and surprise surprise, no more. Government clearly needs to change the UK tax laws to reflect the new digital world we all live and work in especially as most of these companies trade internationally but this takes time and is complex to achieve. However there could be an easier way to kill two or three birds with one stone. Maybe if governments become competitive as corporations have to be, they would become financially more successful? Surely then here is the answer.....rather than sniping at the corporations, the government should do something positive to attract them to the UK, so why not start by reducing the UK’s corporation tax so that it competes with the 12.5% rate of Ireland and what would then happen? Our unemployment would be reduced, tax receipts would increase, the deficit would be reduced and growth would return. Now that really that can't be to difficult to do, can it?  I have been thinking recently about all the taxes UK citizens and companies have to pay to live and work in this country and thought it would be a good idea to list them here, so here goes - Hope I have not missed any! Income
National Insurance Alcohol and tobacco Council tax VAT - why add this to energy bills? Road fund Fuel duty - on petrol & derv - why so high as oil companies already taxed? Air Passenger Duty - APD & other aviation taxes Carbon tax - another one on energy bills! Stamp duty - shares and house (wonder why the housing market is sluggish!) Capital gains Corporation Employers NIC Business rates Class 1a NIC ...and finally when we die....Inheritance (but only 3% of estates large enough for this) Tax Freedom Day, the first day we get to keep our earnings in the year is 30th May for 2013, and we will see how that changes for 2014. Now I have listed them I can start to compare these to other countries to help decide where I want to retire to! So what is the British Government up to now with the creation of these new Enterprise Zones?
Anything that can be done by Government to stimulate economic growth in the UK has to be a good thing, but why do it selectively by creating "government helped" and "government not helped" regions? Surely it would be more effective to offer all businesses in the UK where ever they are based, incentives by means of reduced taxes and red tape; this is what is really needed, not an artificial stimulus. I thought that they would have learnt a thing or two by now as these Enterprise Zones did not work in the 1980's so I do not know why they think they should work in 2011. Government really needs to learn to stop meddling in businesses and leave the entrepreneurs who create employment and the wealth of this country to run themselves. All these will do is create a false economy by moving jobs away from the 'no help" to the "have help" regions. Now thats hardly fair is it? See here for the details in full - http://www.bbc.co.uk/news/uk-england-14552193  After the coalition government's promise of “robust action” and the business secretary Vince Cable's tough talking, I thought there would finally be some action to curb the ridiculous levels of pay and bonus that banks pay their executives.
I suspect that most people find this practice obscene and unacceptable, especially as we are just about to start feeling the full force of the cuts and tax increases that the Chancellor George Osborne has had to make following the near crisis caused by Gordon Brown's lack of regulator control with the banks. However, it seems that the government has just backed down from this idea and so therefore we are not "all in this together" after all, and the only thing the bankers are in is the clover! So why do we only see the newspaper easy headlines bashing the bankers and why don't shareholders or fund managers join in this debate? Some might argue that it is necessary to pay these bonuses to keep the "high flyers" in the UK for their successful performance; but if we look at Barclays Bank LSE: BARC for example, who's new CEO, Bob Diamond spoke at the treasury select committee this week, their share price and market capitalisation is now lower than in was 5 years ago. How can this be when they have many "high flyers" working for them? Is it because the banks, public companies responsible to their shareholders, have been paying huge bonuses which leave not enough retained profit at the year end to distribute to their shareholders. The “high flyers” are clearly not adding value to the bank, just lining their pockets and sucking out all the value of the business for themselves with these bonuses. So who is running who? Are the banks being run to add value to the business for their shareholders or are the executives running the banks to simply pay for their bonuses. Surely the “high flying” executives can’t be doing their jobs properly if this what the most "talented" of them are doing. If they were on a performance related bonus, they clearly would be not be getting a bonus as the results they produce are so poor. I think their employment contracts need a serious review, especial for those banks where the tax payer virtually owners them, such as with Royal Bank of Scotland LSE: RBS and Lloyds Banking group LSE: LLOY So how have other FTSE 100 companies performed in the same period? Take the five years share price BG group (BG.) Their share price has doubled in 5 years, without the UK tax payer forking out a penny to help them and this is the other point. Banks are fundamentally a different kind of business to any other, as they underwritten by the British taxpayer and are not allowed to fail, so therefore they should be regulated very differently to other PLC’s. They are also not doing the job they are supposed to be i.e. lending money. I am sure they would argue that they are lending to businesses, credit cards etc, but their loans are not being taken up because the rates they are quoting are not realistic. The bank base rate is the lowest it has been for many years, but they are charging rates of 9-12%. You really do not have to be that clever to borrow money at 0.5% and then lend it at these rates, with free insurance paid for by the UK tax payer, covering you just in case you can’t make money from this! Could it even be argued that bankers are actually trying to destroy capitalism? Having helped caused the the credit crunch and the near collapse of the banking system they then go on to provide little return for the shareholders. If BG group can return that kind of performance for it’s shareholders, it shows there are plenty of really “high flyers” out there and I bet they do not receive the kind of bonus the bankers do. Just a shame they do not work at a bank. So who then has added the most value for shareholders and is doing the best job, and should receive the biggest bonuses? I'll let you work that one out! With thanks to digitallook.com for the information. |
AuthorThis is the Blog of David Knight with updates on EnigmaSounds & also some hopefully amusing, informed comments with the occasional rant and rave about this crazy world we all live on. My old archived blog can still be found at - http/david2knight.wordpress.com Categories
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