Tax-free... apart from all the tax he paid.

Emailed in by MBK, The Guardian at its self-righteous best:

Peter Mandelson received £400,000 tax-free in cash last year from a company he owns, accounts filed recently at Companies House reveal.

The company, of which he is the sole shareholder, gave the former secretary of state a loan for that amount in the financial year 2013/14 – a move described by a leading tax campaigner as likely to have been motivated by tax avoidance.

Salary payments or dividends from a small business are liable for tax under UK rules, but in the case of a loan to a director – provided a certain minimum rate of interest specified by HMRC is charged – the borrowing is not liable for tax. The official interest rate that applied at the time was 3.25%...

Richard Murphy, a chartered accountant and director of Tax Research UK, said Mandelson’s use of loans raised questions.

“How to extract cash from small companies whilst paying as little tax as possible on the way is a massive part of the UK tax avoidance industry,” he said, “Directors taking loans from companies they own is one way in which this is done, which has been widely condemned in the past when done by footballers and others.

Stuff and nonsense, and the Murphmeister really should know better.

Taking Mandy and his personal company together, he has to pay about £225,000 tax in total to end up with that magic "tax free" figure of £400,000.

It is because of a crude but effective anti-avoidance rule that says if a company 'lends' a shareholder £1, it must pay 25p quasi-advance corporation tax (known as Section 455 tax) just as if it had paid a dividend in the good old days when we had advance corporation tax i.e. withholding tax on dividends.

(This rule does not apply to loans to employees who are not shareholders, i.e. from a football club to a player, there are different anti-avoidance provisions for that).

The company can only make the loan and pay the Section 455 tax out of post-corporation tax profits, so it collects £625,000 in bribes and bungs fees for services rendered, pays 20% corporation tax, leaving £500,000. £100,000 goes towards the Section 455 tax and £400,000 is lent to our hero.

Now, the overall rate Mandy pays is 'only' 36%, compared to normal employment income (basic rate overall 40.2%, going up to 53.4% for additional rate taxpayers, which is what Mandy would be), but hey.

I hope this doesn't conflict with his obligations towards the EU...

From The Daily Mail:

Former Labour Minister Lord Mandelson is in line for a major Russian directorship, it was revealed today. He has been nominated to the board of Sistema, Russia's largest publicly-traded diversified holding company.

The Moscow-based company's activities span telecommunications, high technology, oil and energy, electronics and aerospace, banking, retail, mass-media, tourism and healthcare services.

... because if it does, he'll lose his lovely EU pension.

Peter Mandelson on top form

The Prince of Darkness tries to beat his own record for 'most factual and logical inaccuracies in one article' in today's FT:

Strike One: We [the EU] are attempting to reconfigure the largest economic space in the world since the United States of America was created.

When the first former colonies declared themselves independent and began coalescing into a new country, they accounted for a tiny fraction of the global economy. Even by today's standards, the size of the economies of all the EU member states is larger than that of the USA (I think - it's certainly one and a half times as many people).

Strike Two: But the fact that is rarely mentioned in this debate is that it is a choice between bailing out these states, or bailing out the German, as well as other, banks that are their creditors.

Nope. The choice is between extending further loans to Greece or just allowing it to cancel some of its debts (with infinite shades of grey in between). Funnily enough, the Statists (nominally left wing) prefer the former and free-market types (nominally right wing) prefer the latter. And by bailing out Greece we automatically bail out the banks - that is the same thing.

Strike Three: ... the “lifting” of the economies of Greece, Spain, Portugal and Ireland over the past decade was driven by what was demonstrably an unsustainable credit-driven boom. A boom that lessened the pressure on these economies to address underlying structural issues, while lack of adequate financial regulation facilitated the recycling of financial surpluses in the form of imprudent lending in Ireland and the southern member states.

I'm sure there's a country to which exactly the same applies which he's deliberately missed off the list - possibly because he and his mates ran it for thirteen years?

Strike Four: The writer is a former UK business secretary and EU trade commissioner.

That's NewSpeak for "The writer currently receives various annual payments from the EU, and will receive an annual index-linked pension of £31,000 at age 65, provided he continues to promote the cause of the EU"

Fun Online Poll/Science

The outright winner in last week's Fun Online Poll, Who is the real Prince Of Darkness?, was Peter Mandelson, with 82% of the votes. Ozzy Osbourne was a distant second with 18%.
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Following some interesting debate here, which appeared to get bogged down in the detail, let's see if we can beat CLOUD to the right answer at a fraction of the cost. This week's Fun Online Poll asks: "Do ionized particles encourage low-level cloud formation?"

Vote here or use the widget in the sidebar.

Fun Online Polls: Planning, Iceland, The Prince of Darkness

A big thank you to everybody who took part in last week's poll. 86% thought that we'd end up richer "If we allowed more housing, roads, railways, factories and power stations to be built in the UK.", as against 14% who thought we'd end up poorer. Sadly, those 14% probably represent a vast majority of UK voters. Ah well.

I was going to do a Fun Online Poll on whether we should declare war on Iceland, but Ross beat me to it, so please cast your vote over at his.

Following the Hoon/Hewitt shenanigins, Mandy was back on Newsnight this evening, which prompts this week's poll question: "Who is the real Prince Of Darkness?". Candidates are Ozzy Osbourne and Peter Mandelson.

Cast your vote here or use the widget in the sidebar.

More carbon tomfoolery ...

From The Evening Standard:

As world leaders gathered for the long-awaited UN talks, the US Environmental Protection Agency was set to declare carbon dioxide was now officially a “public danger” — a move that will allow the President to bypass Congress and slash greenhouse gases.

From The Telegraph:

... passengers flying to and from Europe will pay an extra €23bn (£21bn) to €35bn on the price of their tickets between 2012 and 2020 based on an estimated carbon unit price of €25, [The Carbon Trust's] new report will say next week.

This would compensate the aviation companies for the amount of permits they will have to buy if the heavy emitters do not switch to greener fuels. However, the sector is given 82pc of its permits for free - and could see huge windfall profits if it adds the value of these free allowances on to ticket prices...

NB, The Carbon Trust is a quango, which begs the question, why is one arm of the government handing out these permits for free and another arm of the government explaining pointing out that they'll not achieve their intended purpose? Perhaps the EU dreamed this up ...

... ah, here we go. From The Times:

LAKSHMI MITTAL, Britain’s richest man, stands to benefit from a £1 billion windfall from a European scheme to curb global warming... The scheme grants companies permits to emit CO2 up to a specified “cap”. Beyond this they must buy extra permits. An investigation has revealed that ArcelorMittal has been given far more carbon permits than it needs. It has the largest allocation of any organisation in Europe.

The investigation has also shown that ArcelorMittal and Eurofer, which represents European steel makers at European level, have lobbied intensively in Brussels. This has included threatening to move plants out of Europe at a cost of 90,000 jobs, and asking European commissioners to meet Mittal...

Good work, Mandy!

Continuing my occasional series on Peter Mandelson keeping his options open, from today's Queen's Speech:

Constitutional Reform and Governance Bill

Creates basis in law for Parliament to scrutinise treaties ("scrutinise" - not actually "vote on" or "reject" or anything). Ends the by-election of hereditary peers to sit in House of Lords. Provides for disqualification of peers convicted of serious offences or subject to a bankruptcy order. Allows peers to resign peerages. Repeals legislation limiting protests around Parliament. Generally extends to whole UK.

Peter Mandelson (3)

Bloody Hell, that was quick ...

From an interview in the FT, 29 June 2009:

FT: That’s touching. Have you ever considered renouncing your life peerage and standing again for the House of Commons?
Peter Mandelson: It’s not possible legally to do that.
FT: There’s no way you can do it?
PM: Nor have I made any inquiry. [Laughter]. Therefore, I’m trapped.
FT: Is it really not possible?
PM: I believe. I believe it is for life. That is what a life peerage is.
FT: Does it feel like a life sentence now you’ve got the taste for British politics back again?
PM: Of course, you could always change the law.
FT [Laughs]: Part of the next Labour manifesto?
PM: You may see it on Monday.
FT: Really? That is a joke, I presume.
PM: We’re not allowed ...

From the BBC, 18 July 2009:

Life peers are to be given the right to resign from the House of Lords - something hereditary peers have been able to do since 1963.

The measure will be included in a Constitutional Reform Bill, due to go before Parliament on Monday. The bill will also bring an end to the hereditary principle. The changes would mean peers, such as Lord Mandelson, would be free to give up titles, stand as MPs and possibly take up more senior government posts. Although Lord Mandelson is the government's first secretary, the jobs of foreign secretary, chancellor of the exchequer or prime minister would pose constitutional difficulties for an unelected peer.

Competition time: Guess who said this ...

"It's not the government's money, it's the taxpayer's."

Answer here.

Meaningless/Misleading Statistic Of The Day

From the BBC:

More than 60,000 orders for cars under the UK's scrappage subsidy scheme have been placed since the initiative was announced, new government figures show... Business Secretary Lord Mandelson said the scheme had given the carmaking industry the boost it needed. The scrappage scheme was announced at the end of April and the latest figures cover orders from then until 7 June.

OK, my magic fag packet says there are twenty million cars on the road, and that the average age at which they totally conk out is 15 years. So assuming all drivers 'need' a car, rather than just owning one (e.g. me, I find having a car bloody handy, but since Her Indoors bought herself one as well, she only having a licence to drive an automatic, I wouldn't say I 'needed' mine any more. Sniff.) we'd expect people to buy about 1.3 million new cars every year, or 150,000 in a six-week period (the scrappage scheme has been running for six weeks). So on that basis, orders are still down by sixty per cent.

Basically, there are far too many unknowns to say whether the car scrappage scheme will have any overall effect (or even what the net cost/benefit to the taxpayer is), in particular, we don't know how many people have merely accelerated a purchase from next year to this.

Further, as the bulk of cars on UK roads are built abroad, it might have helped "the carmaking industry" but not necessarily "the UK carmaking industry".

First Secretary of State and Lord President of the Council, the Baron Mandelson, of Foy. Allegedly.

That whole GM-Vauxhall-Opel bail-out thingy

I just don't get this whole outcry about the German government buying up General Motors' European operations.

For sure, it breaches the EU rules against state subsidies (an example of Good EU Rules, but as ever, they only apply to countries other than France or Germany, so in practice they are fairly worthless).

For sure, they'll shut down Vauxhall and keep Opel going, and up to 20,000 jobs will be lost in the UK (taking the upper end of the range suggested by the BBC, i.e. 5,500 employees at Vauxhall plus all the jobs at suppliers etc).

But let's not forget that there is chronic over-capacity in car manufacturing - because of this macho idea that £1 earned from manufacturing and exporting a car is somehow worth more than £1 earned from something girly like inward tourism - and that even German car manufacturers are shifting production eastwards because of the cheaper labour.

And somebody has to own GM's European operations. It appears that the German government is going to hand over $2 billion dollars of German taxpayers' finest to do so, which is about £1.25 billion in proper money.

Let's assume the UK government were to enter and win the bidding war and take over Vauxhall and Opel*, they end up with two loss-making companies**, at least one of which has to be shut down pronto (in the vain hope that supply-capacity and demand will be brought back into line), so they would shut down Opel (to protect 'British jobs for British workers') and end up with an additional colossal bill for redundancy payments and so on. Divide £1.25 billion by the 20,000 UK  jobs we have 'saved', that works out at a princely £62,500 per job, plus a pro rata share of the cost of shutting down Opel, and the rest.

Is it not better for Peter Mandelson (or Lord Thingy of Whatsit, as he is now known) to draft another one of his press releases announcing that although, sadly, Vauxhall is to be shut down, the German government has kindly offered to pay each Vauxhall worker a £25,000 redundancy payment and chip in a few million for 'local regeneration' in Luton and Ellesmere?

Or do we, the taxpayers, really want to underwrite the next British Leyland? I personally do not want to own shares in Vauxhall, neither directly nor indirectly, and I don't see why the UK government should force me to do so. Losing half our money on bailing out Lloyds/HBOS and RBS hardly recommends the UK government as a sound investor, does it?

* Actually, it does beg the question of why GM is selling off Vauxhall, Opel and Saab as a job lot. If they played their cards right and appealed to the protectionist instinct of what are, broadly, socialist-populist European governments, GM would end up selling Vauxhall to the UK government at overvalue, Opel to the German government at overvalue and Saab to the Swedish government at overvalue, but hey, they haven't even got the hang of debt-for-equity swaps yet.

** So that makes three loss-making companies, including Saab.

Fun Online Poll Results: Starbucks 2; Mandelson 0

Starbucks Founder & CEO Howard Schultz scored a resounding 2-0 victory over Lord Mandelson Of Thingy in this week's Fun Online Poll.

Eighty three per cent of us would trust Schultz more to run the economy, as a further humiliation, eighty per cent thought that Starbucks probably made better coffee than Mandelson as well.

This week's Fun Online Poll - do you agree with the government's housing policies? Vote here or in the sidebar.

A little help with drafting a press release

Scene: the plush offices of Christophe de Margerie, Chief Executive of Total SA, telephone rings.

CM: 'Allo?
[static]
CM: Allo? 'O iz zere?
Stangely Familiar Voice: Ah, Christophe! Let's keep this brief. You know who I am ...
CM: Peter? Iz zat you?
SFV: ... and I know where you live.
CM: [drops phoney accent] Oh it is you. What can I do you for?
SFV: You realise you've put us in a bit of a tight spot here. 'Lindsey', 'Italian workers', 'wildcat strikes', ring any bells?
CM: Mmm, yeah.
SFV: You do realise that we have an independent and conscientious civil service in this country. There'd be nothing I could do to help if the corporation tax people were to take a closer look at your transfer pricing policies; or if the Health & Safety people take a closer look at your floating hotel; and there is still the question of the original exploration licence; all sorts of things could happen.
CM: And?
SFV: I can see your press release vividly. In fact, I happen to have a draft here in front of me. It mentions stuff like 'corporate social responsibility', 'after consultation with local labour representatives', 'constantly re-assessing our cost base', 'gesture of goodwill', 'utitlising the skills of the local workforce', you get my drift? It should be coming through to your secretary as we speak...
[pause while fax arrives]
CM: [shaken] OK, I see what you mean. I'll see what ...
[line goes dead]
CM: ... I can do. [reverts to phoney accent] Merde!

"Boosting credit"

The government is now seriously considering lending people money (directly or indirectly) they don't have to buy cars they don't need (presumably to impress people they don't like).

The key phrase is here: "Business Secretary Lord Mandelson said work to boost credit had begun ..."

*sigh*

You can't just go round 'boosting credit'. You have to imagine the economy as a series of ever smaller concentric circles, or a cone built up therewith:

1. The biggest circle is "the economy" i.e. people specialising and exchanging goods and services. This happens in the most straitened circumstances, e.g. smuggling and black market during wartime, even when there's no 'confidence' or trust in your counter-party, basically a barter economy.

2. Once things settle down, there is a smaller circle called "trust" or "confidence" where people exchange goods and services on tick, or for "credit" or a tradesman takes on an apprentice and trains him up - this wouldn't happen without a reasonable degree of faith in the future - that the customer pays up or that the investment in the apprentice pays off.

3. To oil the wheels of barter economy, we have another smaller circle, this fine thing called 'money', a measure of (relative) value, a medium of exchange and a store of value. It is a way of measuring the trust that we have in each other, or indeed the soundness of the money itself. If I agree to mow your lawn (a service worth £10) on the promise that you'll baby sit my kids next week (another service also worth £10) that is a form of "money" - it measures our relative indebtedness to each other. Whether you give me a tenner this week and I give you it back next week is irrelevant.

4. The next smaller circle within "money" is "money deposited with banks" which banks lend out to homebuyers and businesses to be repaid out of their future income. The depositor has to trust the banks; the banks have to trust the borrower; and the borrower has to have faith in his own future earnings capacity

5. Within the tiny circle "money deposited with banks" there is an even smaller circle called "money lent to borrowers" and so on.

6. Right in the middle of all this is a minuscule circle called "numbers on bits of paper" which have precious little to do with anything, this teeny tiny sub-sub-sub-circle represents a tiny tip of the giant cone called "the economy"

Mucking about with numbers on bits of paper achieves nothing if the bigger circles (the economy, trust, confidence etc) are shrinking. Giving people government-backed loans to buy cars just ain't going to work. Most car companies have been offering cars on credit at low interest rates for years, that all worked fine as long as people were still labouring under the illusion that the economy was doing fine, but not now and not for the foreseeable future. The only thing that might get those cars shifted is massive price cuts, maybe 50% off list price or something.

It's like standing in your front room, blowing up a balloon and expecting your whole house to expand as a result. It doesn't - it just takes air out of your living room and into the balloon. If your house is collapsing, it won't make any difference.

*/sigh*

Set the controls for the heart of the sun!

I reckon that this is the week that a recession was finally tipped over - quite wilfully - into a Depression. Replacing a lunatic corporatist US President with a lunatic socialist/protectionist US President would have been bad enough, but the last straw is the bail-out for UK car manufacturers.

This story contains just about everything I've ever railed against:

1. "The package includes a scheme to unlock £1.3bn of loans from Europe for car manufacturers and major suppliers."

It's not from 'Europe', it's from the European Investment Bank, an arm of the EU. I'm a Ukipper, 'nuff said.

2. "... the government would also guarantee up to £1bn of further loans."

That's a hiding to nothing, as I explained here.

3. But shadow business secretary Ken Clarke said the European loans were announced last year and called the whole package "pretty small beer ... I'm slightly disappointed..." the Tories had suggested loan guarantees for the finance arms of car companies in November. "Here we are months later and during that time sales of cars in this country have dropped by half whilst the government dithers," he told MPs.

And he said on the "key subject" of getting people who could afford it credit to buy cars - the government had only said it was "looking at steps" to address it.

Nulabour, Blulabour - can't we at least have the choice between a Big Government party which wants to nationalise everything and a small government party which doesn't? As I said before Xmas, "each party promises something more generous than whatever it was that the other party just promised, at the moment, government guarantees for such lending are top of the agenda." When I suggested that instead of just trying to prop up the housing market, why not do new car sales, I was being ironic, FFS.

4. He said the measures would boost the industry and lay "the foundations of its reinvention for a low carbon future". They include ... another £1bn in loans to fund investment in green-friendly vehicles. Regional development agencies and the Technology Strategy Board are to be invited to bring forward new research and development programmes into cleaner engines, lighter cars and "plug-in hybrids".

Ah, nice to see a couple of quangoes jumping on board. Again, as I said at point 5 here "Once The Quangocracy and The Righteous realise all this, they will ask 'Why should the banks lend money to young Arthur Simmonds with his climate-change-causing-car repair workshop? We think that the banks should lend to The Malcolm and Cressida Ethical Living Awareness Project.' That way lies chaos."

5. ... he said there would be "no blank cheque" and any schemes supported had to provide jobs, develop new technology and processes for the long term and provide value for money.

There, there dear. I'm sure that's what they said when the nationalised the constituent parts of British Leyland.

6. "Unite general secretary Derek Simpson told the BBC he was pleased the government had made a start in helping the car industry but questioned whether the loans would be enough."

That's another euphemism that annoys me - 'helping' instead of 'giving money to'. And The Unholy Trinity of trade unions, government and rent-seekers are gathering ...

7. "Friends of the Earth welcomed the announcement but said more needed to be done to make sure the car industry was building cars that used less fuel - and providing incentives for people to buy them."

Hurrah! Not just quangoes, but a fake charity (TM Devil's Kitchen) jumping on board.

Let's just do a bit of rough arithmetic. Prior to the downturn, people replaced their cars every ten years. About 30% of total pollution relates to the manufacture of a new car and the disposal of the old one, and 70% to petrol/diesel use. So that's 30 pollution-units ('PUs') to replace, and 7 PUs to run it per year (total one hundred PUs). In a downturn (like now) you could quite reasonably expect cars to be run for twenty years, not ten. So over the next ten years, that creates 70 PUs. If we are forced to replace a car, cost 30 PUs, the number of PUs emitted over the next ten years would have to be rather less than 4 per year if there is to be any reduction in PUs, or if your current car does 28 mpg, your new car would have to do at least 40 mpg for the next ten years for there to be an overall reduction. It is quite conceivable that Friends of The Earth are indirectly sponsored by European car manufacturers who make such economical cars, is it not?

8. Finally, isn't this all about preventing job losses? As this fine Readers' letter of the day pointed out ...

It doesn't take an econometric model to conclude that transferring wealth from the productive to the unproductive sector results in a negative-sum game. For every 10,000 jobs saved in the car industry, it is likely that 20,000 to 30,000 jobs will be destroyed in the sectors that are forced to pay for the bail-out.

Specifically, those jobs will be lost - or never created - in car repair workshops up and down the land who would have kept our motors going for twenty rather than ten years. If and when car manufacturing picks up, then they'd have a ready pool of skills, and so on, back and forth.

1984(17): Learning to love Big Brother

"I saw them gradually worn down, whimpering, grovelling, weeping - and in the end it was not with pain or fear, only with penitence. By the time we had finished with them they were only the shells of men. There was nothing left in them except sorrow for what they had done, and love of Big Brother. It was touching to see how they loved him."

... He [Winston Smith] gazed up at the enormous face. Forty years it had taken him to learn what kind of smile was hidden beneath the dark moustache. O cruel, needless misunderstanding! O stubborn, self-willed exile from the loving breast! Two gin-scented tears trickled down the sides of his nose. But it was all right, everything was all right, the struggle was finished. He had won the victory over himself. He loved Big Brother.

From Nineteen Eighty-Four by George Orwell.

"Tony Blair used to say his mission would be complete when the Labour Party learned to love Peter [Mandelson]"

From an interview with Peter Mandelson in last weekend's FT.

Bank bail-outs for beginners

The Goblin King, The Badger and The Prince of Darkness have all been on record in the past couple of days, wringing their hands about the fact that UK banks aren't doing what the government wants them to do (which is to prop up house prices via more reckless mortgage lending and, to a lesser extent, not pull the rug from under businesses), despite the massive taxpayer-funded bail out.

So, for the benefit of these senior government figures, here's my Noddy's Guide on How Banking Works.

1. In normal circumstances, money comes in from depositors, bondholders and shareholders ('investors'), the bank records this as liabilities and lends it out to mortgage borrowers and businesses ('borrowers') and records these advances as assets (banks are just middlemen, of course, they don't actually create new money - see footnote*). The bank receives repayments of interest and capital from the borrowers ('income'), and after deducting running expenses, the income is passed on to the investors as interest, dividends, bond redemptions and share buy backs ('expenses'). As long as there's confidence that house prices will continue rising, in the economy and in the bank, this all hums along quite smoothly:


2. Until one day, confidence in ever rising property prices and debt-financed businesses starts to erode; banks are less willing to lend, the value of the bank's assets (i.e. loans to borrowers) starts to look shaky, and these borrowers start running up arrears. In this case, the arrow from the investors flips round - they want their money back; or at least, they want to shift it from higher risk to lower risk investments in banks (from bonds to deposit accounts, for example) or from higher risk to lower risk banks. This now becomes the bank's most pressing concern - how to keep their creditors (the investors) off their backs before they start a run on the bank:


3. "Oh dear," thinks the government, "The whole property price bubble, on which the illusion of ever rising wealth was based is bursting, and less-well capitalised businesses are going to the wall. Let's fire hose £37 billion of taxpayers' finest at the banks!"

The Big Fat Arrow in the last picture represents the £37 billion (with promises of plenty more to come):


4. Now, in the name of All That Is Unholy, who in their right mind expects banks to do anything other than hoard that cash to cover withdrawals from deposit accounts, to keep up interest payments and redemptions on bonds, maybe even to continue to paying dividends, to send a false signal that the bank is still profitable?

FFS, is the government really surprised that the semi-nationalised banks aren't all too keen to continue granting mortgages secured on plummeting property values?

As an unfortunate result of all this, debt-financed businesses (who may be otherwise well run and profitable) are going to the wall, which of course exacerbates the down turn, but do not imagine for one second that the government gives a hoot. Businesses are merely there to bid for government contracts (i.e. make donations to whichever party is in government), to pay as much tax as can be milked out of them and to create jobs for regulators.

* This statement is hotly disputed, for example see Arthur in the comments. I agree that banks can create loans apparently out of thin air, but you must always remember that for every £1 they lend to borrowers they need to receive another £1 from investors. So the result of a credit bubble is that a lot of borrowers end up owing a lot of investors a load of money, but the banks are just middlemen - the bank's net asset position does not change by one penny as a result.

Lord Mandelson, Prince Of Darkness