So Labour is going to reorganise the tax system so that it gives breaks to good companies, that are building sustainable businesses and investing for the long term, and penalises bad companies, that are only interested in short term gains. Example of good company, Rolls Royce. That offers apprenticeships and has been around for ages. Example of bad company, Southern Cross. That structured its balance sheet in an inappropriate way and couldn't cope with downwards pressure on the fees it charged.
Er, right. The government and HMRC are going to draw up a set of clear rules (I believe tax law has to be clearly set out in statute, rather than a man from the Inland Revenue telling you that he doesn't like your attititude and you don't give out the right caring vibes) that will distinguish, in advance, between good long term businesses and bad short term businesses. That'll be the same government that was responsible for regulating UK banks and failed to detect that they were stoking up the biggest bubble since the South Sea, or Wall Street in 1929? Right, that should work fine, then. No problems.
I spent years of my life working as a professional money manager investing other people's savings in small companies that were quoted on the stock market. So did the Systems Administrator, as it happens. Bits of people's pension funds, and unit trusts. We looked at their financial numbers, and met their managements, and talked to stockbrokers' analysts, and tried to understand the markets they served, and their strategies for meeting the future requirements of those markets. Sometimes they were companies newly floating on the Stock Exchange, and sometimes they were companies whose shares were already listed, but which might have changed for the better, or been unfairly overlooked. It was a very old-fashioned form of investing. We handed over our clients' cash, and got some shares, which were held in custody somewhere (that became the Systems Administrator's department. I couldn't tell you much about it). There were no derivative instruments or short selling shares in small companies, back in my day. Your clients owned a stake in the company.
In order to invest enough money to make any difference to our clients' portfolios one way or the other we had to buy quite a lot of the small company's shares, say 2% or 5% or 10% of the entire company. If we changed our minds, or the company's prospects began to look a bit iffy, 5% of a company wasn't something we could sell that easily. It was likely to take several days or weeks, and we were likely to lose a lot of the money we had invested. Sometimes the company would go badly wrong, and trading in its shares would be susupended on the stock market, then we couldn't sell the shares, but they sat there on the valuation, where our client could see them, at a hulking loss to where we bought them. Sometimes companies went bust, and we lost all of our money. This was distressing to have to explain to our pension fund clients at the next quarterly pension fund meeting, and the loss of value harmed our performance relative to other funds. If that got too bad, we would be sacked. People working in the City regularly were sacked for performing badly, unlike, say, teachers, or nurses, or civil servants. If we made good judgements we would be given bonuses, and praised in financial magazines as talented investors. You can argue about the fairness of the level of the bonuses, though they were not in the same league as bankers get nowadays.
Now the prospect of being given bonuses and plaudits if we did well, and having to break bad news in person to people if we did badly and then being sacked, concentrated our minds wonderfully, almost as much as if we were to be hanged in the morning. Nonetheless, sometimes we invested in bad businesses. We didn't do it out of short term greed, or idle malevolence because we didn't care if, for example, the old people living in Southern Cross homes were thrown on to the streets. We just got things wrong. Events happened that we hadn't thought of. We failed to understand the significance of some of the facts known to us. People lied to us. And Ed Miliband believes that politicians and civil servants will be able to devise a set of clear tax rules, which other civil servants will then have the time to apply to all the companies in Britain, which will distinguish between good long termist and bad short termist companies. Well, do you believe it is going to work?
By the end of yesterday we had been given the example that only companies that offered apprenticeships should be eligible to bid for government contracts, and somebody representing small businesses had bobbed up on the TV explaining that this discriminated against them. I thought that there were some service businesses where apprenticeships were not really applicable. Does that mean that, say, catering and cleaning companies pitching for government contracts will have to produce some sort of documentation relating to their training programme for the Inland Revenue's inspection? Another spokesman on the radio said that small businesses that took staff on could be given incentives in the form of reduced NI contributions. I don't think Ed Milliband has ever worked for a small business, apart from maybe casual jobs when he was a student. I'm pretty sure he went straight from university into professional politics, and as his parents were Marxist intellectuals he probably wasn't much exposed to the realities of life in a small business in the home. Having seen a small (service) business from the inside over a period of several years, I know how much desperate juggling goes on trying to balance staff costs with the demands on the business, and how staff are apt to come and go, or work seasonally, or flex their days. Making NI more complicated to reflect exactly many more or fewer people are working there over an arbitrary period is not going to help anybody.
I have been reading Andrew Rawnsley's book about the latter part of the last Labour government, The End of the Party. It is a splendid read (though rather sweary). One of Gordon Brown's character traits that made his premiership unworkable was his desire to micromanage every last detail of government. Ed Miliband, who was Gordon's boy, now wants to codify this into the tax system and/or state directed corporate governance. I don't think it is going to work. Well, do you?
Addendum Sorry, I made a mistake yesterday about the parks. The pelicans and coots are in St James's Park, where there is a pond, not in Green Park. I should have gone and checked the names on the map, but I was tired, and conscious that it was time to shut down the laptop and start talking to my nearest and dearest. And I am now going to post this without previewing it, because our broadband is working at 0.00001% of what it is supposed to be. And I am tired, and it is time for me to close the laptop
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