31 MAY 2011
BCC backsdeficit cuts
THE government’s deficit reductionplans received a boost from theBritish Chamber of Commerce (BCC) yesterday despite the organisationdowngrading its growth forecasts forthe UK economy. The BCC slashed its growth predic-tion on Sunday from 1.4 per cent to1.3 per cent, with growth for 2012also being cut from 2.3 per cent to 2.2per cent. The government’s Office forBudget Responsibility has forecastgrowth of 1.7 per cent for this yearand 2.5 per cent for 2012. The BCC said the government’stough austerity measures, combined with higher than expected inflation, will squeeze disposable incomes,meaning economic recovery would be slower than previously thought.But David Frost, director general of the BCC, told the BBC: “We have hugelevels of debt in this country. Eventhis year we’ll be spending about£124bn more than we’ll be getting intaxes. We have to deal with this.” The defence came after Treasury committee chairman Andrew Tyrie branded plans to rebalance the UK economy as an “incoherent mish-mash”. He said: “There are half adozen ways to define what rebalanc-ing means and I don’t think minis-ters have used the term withsufficient precision.”
Time to celebrate Tax Freedom Day
WELCOME back to the office: today isthe first working day you actually getto keep the money you earn, ratherthan hand it all over to the state to pay for public spending. It’s Tax FreedomDay – a date which keeps moving laterinto the year as taxes keep going up. You may feel that the governmentspends too much, as I do – or you may actually want it to do even more. Butit is essential to remember that gov-ernment has a cost and that some- body has to generate wealth to pay forall the spending – and to think thatevery single penny earned by every single person working in the UK so farthis year has all been spent on payingfor the public sector does put mattersinto perspective. Tax Freedom Day, compiled in theUK by the Adam Smith Institute,measures all tax revenues – direct andindirect taxes, local taxes and nationalinsurance contributions – as a per-centage of net national income atmarket prices. This year taxes come to40.8 per cent of the economy on thatmetric; this is then converted intodays of the year, starting from 1 January. After working for the state for149 days, the first day of the year thatBritons work for themselves ratherthan the taxman is Tax Freedom Day –this year this fell on 30 May. In 2010, Tax Freedom Day fell three days earli-er – the delay is due to the govern-ment’s decision to push throughsevere tax increases to start pluggingthe budget deficit. There are other interesting find-ings. If we had to fully fund our 2011expenditure through taxes, and not borrow from global investors via thegilts markets, we would be unable tocelebrate Tax Freedom Day until 1 July. The tax burden also varies by region, depending largely on incomesand employment in the differentparts of the UK. Taking just incometax, it takes Londoners 51 days to pay their income tax bills, against just 35days for the Welsh. Taxes are needed to pay for spend-ing. But constantly hiking taxes, espe-cially those that damage incentives to work or invest, grinds the economy down and reduces growth. One key reason why the economy has beensluggish in recent months is that sofar the bulk of George Osborne’s fiscaltightening has come from tax hikes. Total public spending hit a recordhigh in April – yet Vat and nationalinsurance has gone up, the top rate of income tax is now 52 per cent (includ-ing NICs) and everybody is being clob- bered. We can’t borrow ourselves outof debt – but taxing ourselves to obliv-ion isn’t the answer either.
BUILD MORE HOMES
GENERATION rent – that is the latest buzzword to describe the plight of younger Britons. Last week I wroteabout the retirement crisis befallingmillions of asset-less Brits; today’sfront page describes an entire genera-tion squeezed out of the housing mar-ket by high prices and vast deposits. At the height of the bubble, toomany people were led to believe thatthey were entitled to own a home,regardless of income, savings or abili-ty to repay. Down that road lay sub-prime lending, 110 per cent mortgagesand total disaster.But the dream of a sustainableproperty-owning democracy can still be rescued. The answer is to allow vastly more homes of the kind thatpeople actually need to be built. That will push prices down and eventually allow young people back into the mar-ket. Anybody for a New Town, some- where close to London?
firstname.lastname@example.org Follow me on Twitter: @allisterheath
LORD Myners has taken the role of UK chairman at Swedish investmentfirm Cevian.He will join the Cavendish Squareoffices of the Stockholm-based firm, where he will work closely with the boards of companies Cevian investsin. Cevian has had a UK presencesince 2009 and has taken stakes infirms including Wolseley and OldMutual. The firm fits well withMyners’ vocal championing of activistinvestors, as he is known for engaging with its target firms. The former City minister has beenmuch sought after since leaving thegovernment, becoming chairman of Justice Holdings and joining JacobRothschild’s listed investment trustRIT Capital Partners. He gained plau-dits during his time as chairman of Gartmore between 1987 and 2001.
contacted Myners for acomment last night but was unableto reach him.
Myners to chair Cevian UK
Former City minister Lord Myners will take another financial role
NEWS | IN BRIEF
Italy’s Berlusconi defeated
Prime Minister Silvio Berlusconi’s coali-tion suffered a humiliating defeat inmayoral elections in Milan and Naplesyesterday, casting doubt over the con-troversial Italian leader's future. Thedefeat in Milan –Italy's economic capi-tal –was seen as the most symbolicallysignificant and a bellwether for anti-Berlusconi sentiment. Berlusconi, 74, iscurrently facing charges ranging fromhaving sex with an underage prostituteto corruption and perverting the courseof justice.
Brent crude nears monthly drop
Brent crude oil fell below $115 a barrelyesterday, heading for its first monthlydecline this year, as investors weighedthe prospect that Europe’s debt crisisand a sputtering US economy may slowdemand. Public holidays in the US andUK yesterday kept trading volume atless than five per cent the daily norm.The US Memorial Day holiday weekendmarks the official beginning of summerdriving season, when gasoline demandusually rises. Prices are down nine percent for the month of May, the biggestdecline since May of last year.
Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: email@example.com www.cityam.com
Business Features Editor
Head of Distribution
This newspaper adheres to the system of self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the Editor’sCode of Practice, a copy of which can be found at www.pcc.org.uk
Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS
If you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or firstname.lastname@example.org
British Chamber of Commerce directorgeneral David Frostdefended the need toslash the deficit
WALL STREET “MISPRICED”LINKEDIN’S IPO
A prominent Facebook investor anddirector accused Wall Street of under- valuing the LinkedIn initial publicoffering earlier this month, con-tributing to the doubling of its shareson opening day. Peter Thiel, an early Facebook investor and co-founder of PayPal, said banks did not under-stand the full potential of the latestinternet companies and warned thatthe next Silicon Valley darlings wouldnegotiate hard when their turncomes to go public.
TAKEOVER PANEL URGED OVER M&A’SPENSION TOLL
UK’s largest corporate pensionschemes are pressing the Take overPanel to ensure that acquiring com-panies take account of a target com-pany’s retirement plan when makinga bid. They want the panel to force bidders to set out in formal docu-ments how an offer will affect a pen-sion scheme and its members.
TESCO PLANNING TO BOOST SALESWITH NEW BRANDS
Tesco, Brtain’s biggest retailer, ispreparing to launch the first of arange of new brands over the new few weeks as it seeks to bolster its per-formance. Philip Clarke, the new chief executive, is expected to launchthe new brands in both the food andnon-food businesses.
SMALLER HOTELS OFFER TRAVELODGEROOMS FOR GROWTH
Hotels in the UK’s big budget chainsare getting smaller, with the opening by Travelodge of sites with as few as20 rooms –half the company’s usualminimum size. The so-called Metroconcept will allow the country’s sec-ond-biggest budget hotel chain totake over unusual locations such aspubs, defunct cinemas or office build-ings.
ENERGY WATCHDOG “MISLED PUBLICOVER PRICE RISES”
Britain’s energy regulator has beenaccused of misleading consumers when it claims that suppliers are tooquick to raise prices and too slow tocut them. Ofgem has come underpressure on the issue after an inde-pendent report commissioned by thetrade body Energy UK said that theregulator’s analysis “cannot be reliedupon”, calling into question itsmethodology. The report was con-ducted by the consulting firm Nera.
SOUTHERN CROSS TRIMS RENT AS ITSTRUGGLES TO STAY AFLOAT
Southern Cross is cutting its rent by 30 per cent and remains locked innegotiations with its landlords tofind a longer-term solution as it strug-gles to stay afloat. The group, whichsaid that it would pay nearly a thirdless rent for the next four months.
EU PLANS TO STRIP UK OF BANK REGU-LATION POWERS
Sovereign control of financial regula-tion is under threat from Europeanmoves to harmonise rule books acrossmember states, the three men at theheart of the future Bank of Englandhave warned. Paul Tucker, the Bank’sdeputy governor for financial stabili-ty, Hector Sants, who will becomedeputy governor for prudential regu-lation, and Andrew Bailey, the Bank’schief cashier, said the UK’s proposedregulatory system risks becoming lit-tle more than a local police force forEuropean rules.
CASH-STRAPPED FAMILIES SWITCH£60BN-WORTH OF MORTGAGES TOINTEREST-ONLY
Up to 300,000 households haveswitched more than £60bn of mort-gage debt from repayment into inter-est-only deals in the last three years.
FAMILY DETERMINED TO KEEP HERMES
Family shareholders of French luxury company Hermès said they are deter-mined to keep their grip on the com-pany, while larger rival andshareholder LVMH Moet Hennessy Louis Vuitton SA sought to portray itself as a legitimate shareholder. Thetwo sides have been locked in a fightover a family-holding company and aregulatory investigation into how LVMH bought its shares.
EXTRA AIRLINE FEES SOAR
Airline revenue from add-ons to tick-et sales jumped to almost $22bn last year and continues to soar as morecarriers chase extra sources of income. Faced with rising fuel pricesand intense competitive pressure tohold down airfares, a growing num- ber of carriers world-wide are charg-ing passengers for services onceincluded in ticket prices.
WHAT THE OTHER PAPERS SAY THIS MORNING