Business rates: this toxic row will return unless we find a fairer alternative
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Version 0 of 1. It’s a bit rich for the chancellor, now reportedly in “listening mode” on business rates, to signal that he is aware of the challenges the digital economy presents to a property-based tax. That fundamental problem has been voiced for more than a decade and has simply been ignored by government. Amazon and the other big online retailers are no longer modern creations. Philip Hammond, one suspects, will end up inventing various reliefs to try to quell the anger of those small businesses in London facing increases of up to 400%. But something more than a sticking-plaster is required. If not, this toxic row will return every time potential rents – the basis for establishing rateable values – are recalculated. There are, of course, no easy alternatives to a tax that raises £28bn a year for councils and the government. We already have a sales tax called VAT and corporation tax applies to profit. As to complaints that firms in London and the south east will suffer the biggest increases, that could be regarded as just given that the capital continues to enjoy the benefits of a lop-sided economy. But it is illogical to impose revaluations in such a jolting fashion. The last adjustment in 2010 was based on rateable values in 2008, so neither Hammond nor Sajid Javid, the communities secretary, should be surprised by the fury. Property values would surely have to continue to play a role in a reformed system if serious sums are to be raised. But a purely property-based approach will only create more distortions and deepen resentment. Hammond, once he has settled on his best short-term fudge, should order a proper study of alternatives and ways to smooth increases. The answer – whatever it is – would create losers as well as winners. But a better-designed system that takes account of the changing make-up of the economy must be better than an approach that feels unfair because successive governments have lacked the will to attempt improvement. HSBC under scrutiny as woes continue Congratulations if you bought shares in HSBC this time last year: your investment has risen in value by 50%. So have the legal and regulatory clouds blown away? Is HSBC now enjoying the benefits of all that cost-cutting, restructuring and pivoting to Asia, as the bank insists on describing its strategy? Are shareholders’ dividends rising again? Not exactly. The biggest regulatory bust-ups may have passed but, as ever, there’s something new to worry about at HSBC. The latest entry in the bulging “regulatory matters” file is an investigation by the Financial Conduct Authority into potential breaches of money-laundering rules. It’s impossible to judge the seriousness of the inquiry from outside, but money-laundering and financial crime are sensitive subjects at HSBC. The US Department of Justice’s monitor is still on the prowl – a consequence of 2012’s deferred prosecution agreement – and his latest update raised “certain concerns”. The main instruction seems to be: move faster. HSBC can point to an expensive new IT system to combat crime, but it is clear that the monitor’s book is not closed. On the restructuring front, news is better. Chief executive Stuart Gulliver could cite a $1.2bn, or 4%, fall in “adjusted” operating expenses last year, which helps to pay for the heftier compliance costs. On the other hand, revenues (ignoring currency movements) were flat, disappointing the City. Headline pre-tax profits, swamped by write-offs and one-offs, fell by 62% but even at the underlying level the figure was still virtually unchanged at $19bn. The dividend was exactly flat at 0.51 cents a share. That feels better in sterling terms after the pound’s decline, which explains part of the bounce in the share price. A bigger factor is the expectation that interest rates will rise in the US. For well-capitalised HSBC, each quarter-point increase is worth $250m to $300m in net income. Very useful, assuming the US Fed Reserve obliges on the rate front. If not, investors’ excitement around HSBC will be hard to sustain. The UK’s biggest company is still struggling to find growth and the threat of protectionist trade policies is a serious worry. Tuesday’s 6.5% fall in the share price was overdue. BHP shareholders to reap rewards of rebound The mining industry’s new problem is how to distribute the spoils of the rebound in commodity prices. Well played BHP Billiton, which opted to increase its dividend above its promised minimum. That’s a better choice than Rio Tinto’s form of top-up – a $500m share buy-back. In a feast-or-famine business like mining, dividends beat buybacks every time. Nobody really knows when the commodity cycle will turn again. Share prices that have doubled in a year aren’t obviously bargains. |