China In Your Hands

 

In all the excitement / anxious concern / farcical comedy / bewilderment (delete as appropriate) in the EU Referendum aftermath, Donald Trump Presidential Stage Show and the Sam Allardyce 'sting', we have taken our eye off the ball with China.

 

Forget the endless debating on whether you can justify putting the heating on (is it Autumn yet or still Summer?), the merits of what will be left of the Great British Bake Off post Channel 4 transfer, whether ‘Strictly’ is as good as it used to be and how has the very unelectable Jeremy Corbyn got elected as the Labour leader for just one moment……and let’s consider China as we really haven’t shown them the attention they deserve recently.

 

First things first, China is a big deal in world economic terms. They are the second largest economy in the world and will be the biggest over the next 10 years (give or take a few years).

 

However, there are some big concerns as their economic growth has been fuelled by credit and these things don't go on forever. Just look at our own banking ‘readjustment’ in 2008 / 2009.

 

Ken Rogoff  (the former chief economist of the International Monetary Fund) summed things up perfectly recently when he said “a slowdown in China is the greatest threat to the global economy” and a “hard landing for one of the main engines of global growth could not be ruled out”.  

 

The biggest issue is the increasing fear that China's economic boom was based on an unstable credit bubble. Enter UK Banks from stage left……

 

UK banks have $530bn worth of lending and business in China…...that is about 16% of all foreign assets held by UK banks.

 

This will play out for quite some time……let’s hope it unwinds nice and orderly (for once!).  

Bank Statement

 

If I am ever uncertain by the direction of travel of our economy at any given moment, I always look to the Banking Sector for an indication. Given the lack of clues coming from Theresa Mary May on the UK leaving the EU or anything remotely resembling an economic policy coming from the Chancellor of the Exchequer (who is Philip Hammond in case you (forgivably) missed it) currently, I am left with no choice but to seek a guiding light from ‘them lot’ (also known as the Banking Sector).

 

My rationale for using ‘them lot’ as a guide is simply due to the vast importance that the Banking Sector has for the UK economy (it accounts for 10% of UK GDP) and how the Government typically does all it can to protect it……and dare I suggest romance it.

 

Which leads us nicely (and very intriguingly) on to an issue that will confront UK banks post Brexit……

 

In short, UK based banks would lose the automatic right to trade in EU states if the UK left the single market and would strip banks of valuable ‘passporting rights’ that give unfettered access to the EU bloc.

 

Passporting rights are considered by some to be vital to London's position as a financial hub as it allows banks to serve clients across Europe without the need for licences in individual countries. However, if the UK were to leave the EU we are simply encouraging UK based banks to up sticks and move……with the hard cash ‘them lot’ make for the UK going with it.  

 

In the EU corner, Jens Weidmann (head of Germany's central bank) has said that “passporting rights were tied to the single market and would automatically cease to apply if Great Britain is no longer part of the European Economic Area.”

 

In the UK corner (presumably dressed as a clown) Foreign Secretary Boris Johnson has said that “such passporting rights would be preserved even if Britain left the single market after Brexit”.

 

Boris has never been short of words but has lacked conviction with his actions in the past. Let’s hope he’s right on this one or it will hurt ‘them lot’ and the UK economy as a whole.

 

We shall see.

A Sad Pension Perspective

 

I appreciate that the subject of pensions can offer dryness of Sahara proportions and seldom do I get accused of being exciting whenever I bring it up socially. I am boring enough as it is without compounding a listener’s misery further!

 

However, there has been some really interesting insight at the frustrations that Ros Altmann has incurred.

 

Her background is worthy of respect and her opinion is always of value. It is rare that she does not have her finger on the pension pulse. Her background has never been political, as she gained prominence as a pro bono campaigner for consumer rights on pensions and fought more corners against the Government for justice on the subject than she really should have. My cap is doffed.

 

Last year from left-field, she was appointed by then Prime Minister David Cameron as Pension Minister. However, such is her drive for fairness, she quit her post within a year.

 

Never one to back out of giving an opinion, she offered the following (and very concerning ) observations of her time as Pension Minister:

 

“It was a truly shocking experience. If you are a minister who actually wants to get things done, you have to fight constantly. The whole system seems geared to stopping ministers from trying to do too much and from engaging properly with the public or indeed the media. If I spoke to journalists directly, without prior permission or officials present, the whole machine would come down on me like a tonne of bricks.”

 

“Officials and other departments can also often prevent policy being made in the interests of the public. Much of my time was spent fighting to stop bad policies being pushed through, leaving less room to push better policies forward.”

 

“The bottom line is that I have seen how short-term political considerations can derail sensible long-term pensions policymaking. Trying to fight from within is like swimming against a tide, as urgently needed policy proposals are often rejected in favour of shorter-term political expediency.”

 

Pensions by their very nature are long term yet it is evident from Ros Altmann’s observations that they will not be used for anything other than short-term political point scoring.

 

Is it really any wonder that there is so little trust in pensions as a legitimate savings medium?

 

Perhaps the biggest question though……what’s in it for MP’s to change the culture and create solid long term pension policymaking when they are only ever guaranteed to be in position for 5 years?

 

All in all, very sad.  

Apple Tax Haven

 

 

It’s fair to say there has been quite a kerfuffle regarding Apple, their European HQ in Ireland and their tax treatment (or lack of it).

 

The basics of the story are that Ireland charges 12.5% Corporation Tax but did a ‘deal’ with Apple to give it a lower preferential rate to attract their European HQ to Ireland (and all the jobs and prosperity that came with it).

 

All is fair then……well, not in the eyes of the EU. It seems they have a bee in their Euro bonnet about a state sponsored preferential tax rate and have ordered Ireland to apply their normal tax rate and recover a whopping €13 billion in back taxes from Apple.

 

To put the preferential rate in perspective, Apple’s Corporation Tax rate was reduced from 12.5% to 0.005%......or to put that another way……€50 tax for every €1 million of profit. No wonder the European Commission got its knickers in a twist.

 

This is damaging for Ireland as it hits its international reputation and will make it less attractive as a destination for foreign direct investment. As for Apple, that’s a big old chunk of money for it to find and it will hit profits.

 

There is a winner though……the UK.

 

As Theresa Mary May informed us yet again last week, “Brexit means brexit”. Which means the UK should be grinning at the prospect of being able to offer Apple and its likes the same sweetheart deals with there being nothing anyone can do about it. Well, when we leave the EU that is.

 

Maybe, just maybe (say it very quietly) this Brexit thing might just offer a few perks.

 

Interesting.