Fresh allegations overshadow welcome cultural shift in City
LET us hope yesterday won’t eventually be remembered as another disastrous day for Canada. Hewlett Packard’s inflammatory attack on the accounts of Autonomy, the UK tech giant it now owns, is either a wrong-headed attempt by a struggling US firm to try and justify why it failed to do its due diligence properly and over-paid for Autonomy – or it is a damning indictment of what was once the UK’s flagship tech giant and its blue chip City advisers. Crucially, Autonomy’s founder Mike Lynch emphatically denies all the allegations.
On the plus side, however, Kweku Adoboli, the former trader was sentenced to seven years in jail for the biggest fraud in British history. While his behaviour dealt the City another horrid blow, highlighting that controls were too lax in some institutions, and helped accelerate thousands of job cuts at UBS, at least justice has now visibly been meted out. It is vital for London’s battered reputation that those who engage in financial crime be punished. We now need to see people jailed for Libor rigging. It was also excellent news to see shareholders defeat the executive pay proposals that accompanied Xstrata’s merger with Glencore; this exercise in shareholder democracy and ownership rights led Sir John Bond, one of the City’s most distinguished grandees, to resign as Xstrata chairman last night. During the good years, shareholders failed to scrutinise their boards sufficiently; the fact that this is now changing is an extremely important shift.
But none of these improvements will be remembered if the row between HP and Autonomy’s founders gets really ugly. We shall soon find out what is to be.
PENSION TAX RAID
WE knew since the Tory party conference that George Osborne would be launching another tax raid on the “rich” next month. This may take the form of limiting the size of contributions eligible for tax relief to no more than £30,000 or £40,000, down from the present £50,000 (itself slashed from £255,000).
The tax system should be simple, with no loopholes; but this simplification should happen in a revenue neutral manner, not as an excuse to further hike taxes. It is a tragedy that this government still thinks it makes sense to increase the average and marginal tax rates of people who are already toiling away to make a living. That this would come as quid pro quo for welfare reform is irrelevant, a sordid deal between Tories and Lib Dems.
Cutting the amount that can be put tax free into a pension makes more sense than further reducing the limit on the value of the pot, now £1.5m. But we are close to a tipping point for these kinds of products: they only exist because of tax breaks. Why would you put any cash in a pension – and be unable to touch any of it, even in an emergency, for many decades, without a massive tax advantage? Osborne is well on his way to finishing Gordon Brown’s destruction of the once great UK pensions marketplace – a great paradox given that auto-enrolment into the new official pension system is just starting.
The alternative for the government – if it wants to continue providing tax-privileged savings vehicles – would be to expand individual savings accounts (Isas). These don’t offer a tax benefit at inception, unlike pensions; but the tax benefit is continuous as dividends and capital gains are untaxed. It would reduce Osborne’s revenues very little in the first year or two were he to double the size of Isas; doing so at the same time as hammering pensions would at least lessen the severity of the blow to taxpayers.