What is it with the 'Rich'?

On R4 Today yesterday there was an item on Virgin's launch of an Entrepreneur Prize.  They had Branson talking about it / indulging in more self-promotion. Then they asked him about UK and Europe. He replied with something on the lines of:-

"Well, I won't be popular for saying this, but I think it would be a very bad for business for the UK to leave the EU.  Because 50 years ago when I started in business and was trying to sell records to Europe [he probably meant France] the added a 38% import duty on the records made it impossible for me to export".

Leaving aside that I read somewhere 'allegedly' that RB was involved in a tax fraud, which involved pretending to export record albums, he has as you would expect got the economics exactly the wrong way round.

His business did not 'lose sales' by being unable to export to Europe low priced records. It was the citizens of Europe that lost out by being denied the opportunity by their governments from saving by buying at low prices.

Europe has about 350m people. The global population is about 8Bn.  That leaves about 7.65Bn that Branson could still sell to.

The main lesson from this is that Branson might want private enterprise but he sure does not want free enterprise.

Reader's Letter Of The Day

From this evening's Evening Standard (page 45, 15 October 2013):

AS a non-resident, Sir Richard Branson is not [liable to] UK income tax, and as far as I am aware his main UK business interest, Virgin Atlantic, pays the correct amount of corporation tax.

But there is one area where Virgin Atlantic is sorely under taxed. The airline's five percent share of Heathrow landing and take-off slots is now worth £100 million, although they were originally given away free by the government in the Eighties.

The value of these slots is dictated by Heathrow's location and enforced scarcity. Much of the true cost of air transport is borne by residents under the flight paths, and without publicly funded transport links, Heathrow would be a less attractive destination.

A tax on the slots' value would be fair compensation for public costs, and a good source of revenue, as unlike air passenger duty they would have no impact on ticket prices.

Mark Wadsworth

No doubt he'll end up making Virgin Wine out of those sour grapes...

More financial illiteracy fun with Northern Rock

From The Telegraph:

Richard Branson’s Virgin Money has been accused of “asset stripping” following leaked details about the structure of Northern Rock’s sale. The sale of Northern Rock, which netted the Government £747m in cash is being part funded by existing cash in the bank itself. More than £250m of “excess capital” will be taken out from Northern Rock to help pay for the bank.

Oh dear, oh dear, oh dear, where to start?

When a company is being bought/sold, it is fairly usual to agree a target net asset value for the company in advance, and the purchase price paid on completion is adjusted up or down if the actual net asset value at the date of completion happens to be higher or lower than the target (which it usually is). So if the current owner of the company whips out £1,000 on the day before completion, it is of no advantage to him and the purchaser isn't bothered because the final selling price is then adjusted downwards by £1,000.

So VM paid £747 million for a company (or group of companies) with a net asset value of £912 million*. If NR really had £250 million in spare cash sloshing about, then in theory the government could have taken out that money and agreed a lower selling price of £497. Whether the government takes out the money and accepts a lower selling price or VM takes out the money and pays a higher selling price does not make the blindest bit of difference.

* NR's balance sheet total as at 30 June 2011, minus six months' anticipated losses to date of completion January 2012 minus £150 million in bonds which the government has allotted to itself.

Via MBK.

Richard Branson