Secrets of the Jobholder’s Pension

David Emery boards his time machine for a preview of the Jobholder’s Pension era.

Department for Work Spokesperson (DFW): Department for Work…. How may I help you?

 David Emery (DE): When am I?

 DLS: 6 April 2014, by the pensions timetable.

 DE: Sorry, did you say Department for Work? I’m looking for the Department for Work AND Pensions.

 DFW: Well, we used to be the Department for Work and Pensions….

 DE: That’s the one….

 DFW: But we became the Department for Work after the glorious Stakeholder Revolution and the public debt crisis.

 DE: Ah yes, I remember it well.

 DFW: You haven’t heard this from me… but rumour is that a fundamental makeover is pending.

 DE: Mum’s the word! Won’t go further than the world wide web, honest!

DFW: We may re-brand ourselves as The Department for Leisuretime and Recreation to resonate with the spirit of   mass unemployment.

DE: Holy hyperdeflation…!

DFW: Never mind! “You looking for pensions? You come de right place!”

DE: What exactly is your function in The Department for… Whatever?

DFW: I’m a senior “jobholder”.

DE: You mean an “employee” ?

DFW: Oh, that is so passé. No one talks about employees these days except as an endangered species. We who are still able to sell our labour for money prefer to be known as jobholders!

DE: I’ll make a note of that.

DFW: There’s a whole new lexicon of jobholder terminology. I’ll see if I can find you a copy of the manual.

DE: I actually came to learn about the new Personal Accounts that are being mooted in my time zone. 

DFW: What you really mean is the Jobholder’s Pension…! 

DE: Right…

DFW: Well, you’re a little bit premature. 

DE: How so? The system was supposed to be fully up to speed by 2014. 

DFW: Well, there are a few operational glitches.

DE: Like? 

DFW: Someone spotted that all the wild proletarian enthusiasm for a Jobholder’s Pension translates into a ton of tax-relief. That’s the problem with simple financial products and auto-enrolment… There’s no disincentive to apply – a classic design fault. 

DE: So when will it be running at full bore, as it were? 

DFW: The official word is 2016. 

DE: I guess I could time-travel through to 2016 right now. 

DFW: Wouldn’t bother. Things will only have moved on by the time you get there. 

DE: Alas. The ancient Ant-in-the-Circle paradox. Incidentally, how did you solve the means-testing conundrum? 

DFW: Don’t ask! 

DE: Well, what was the solution? 

DFW: What part of “don’t ask” do you not understand? 

DE: Okay, okay…. Could I get a copy of the DFW’s Jobholder’s Pension scheme booklet for a working example of a model scheme?

DFW: Are you kidding? We public servants are lumbered with the archaic Timeserver (Defined Benefit) Pension regime.

DE: Lest we forget… 

DFW: We can be cast out on the full pension scrapheap as early as age 60. Now we will have to wait a whole extra year (at least) for our basic state pensions.  

DE: There, there… 

DFW: And all because of a master plan to privatise the State Pension system over the long term. 

DE: The Law of Unintended Consequences can be a real bastard. 

DFW: (Sob) Okay! Is there anything more you want to know? 

DE: Let’s go back to the Personal Account. How does it work? 

DFW: Dead simple! The Personal Account is a special version of the Jobholder’s Pension. Think of it as the Stakeholder of the Jobholder’s Pension.

DE: Ah! The gold standard…. 

DFW: Every employer – or should I say “jobgiver” - must set up a pension scheme for jobholders between the ages of 22 and State Pension Age earning the Primary Income Threshold at least, and who are not already members of a scheme generating minimum benefits. 

DE: Like…? 

DFW: Well, paying benefits of at least 1/120 of “band earnings” for each year of service to a maximum of forty. 

DE: Band earnings? You mean like The Sugababes? 

DFW: Not their earnings…. Your income between certain limits. 

DE: Only joking! 

DFW: Do not take the p***! Anyway, the jobgiver can either set up its own scheme paying at least the minimum benefits or it can install the ready made Personal Account. 

DE: So what’s so special about the Personal Account? 

DFW: Well, it’s m-i–le-s cheaper, because of h-u-g-e economies of scale. The world’s biggest occupational pension scheme, they say. Some upfront costs to get it going, true, but after that it’s plain sailing. 

DE: How much will it cost to set up? 

DFW: About £2bn at last count. 

DE: Chickenfeed! 

DFW: Mind you, the original PADA estimate was £0.5bn, back in 2007. 

DE: Close enough for me… By the way, what is this PADA outfit? Is that the Professional Autograph Dealers Association? 

DFW: Not exactly. 

DE: Anything to do with Parents Against Drug Abuse…?  

DFW: It’s the Personal Accounts Delivery Authority, idiot! 

DE: Okay, okay… So PADA will deliver the Personal Account, will it? 

DFW: Not exactly. It will create the Personal Account delivery infrastructure and then outsource the lot to a private sector partner – perhaps the biggest private-public partnership ever. 

DE: Who are the favourites to get the contract? 

DFW: Currently Great-West Retirement Services Ltd, Logica UK Ltd and Tata Consultancy Services. 

DE: “Tata to Your Pension…” That would make a great logo. 

DFW: I feel that it could count against them. 

DE: And how will this private sector partner deliver the Personal Account? 

DFW: Through e-channels. 

DE: What?

DFW: You know…, the web, e-mail, text messages and “future digital platforms”… 

DE: “Future digital platforms”… The wrinklies will love that. What about complaints handling? 

DFW: Why should there be any complaints? What could possibly go wrong? 

DE: “This is an automatically generated email. Please do not reply as the email address is not monitored for received mail….. Your message is three-millionth in the queue…. Your communication is important to us…” 

DFW: Let’s concentrate on the big picture, please! The real advance is that jobholders can be enrolled automatically in a Jobholder Pension unless they say nay. However, we are banking on some popular resistance to keep the public subsidy down. 

DE: No inertia selling at all, then? 

DFW: Correct! Jobgivers will have to tell their jobholders about the scheme, but we’re hoping that they will highlight the 4% (of band earnings) jobholder’s contribution rather than the 3% jobgiver’s dollop and the 1% from the Government (£3,600 p.a. max in total). 

DE: By the way, where does the company Stakeholder Pension fit in? 

DFW: Sent to the knackers yard in 2012. Mind you, many company Stakeholder schemes ended up as empty shells. 

DE: But what happens if the Jobholding Class… 

DFW: As opposed to the Working Class… 

DE: Precisely… What happens if the Jobholding Class revolts and opts out en masse? 

DFW: Back to shell schemes, I suppose. But at £2bn overheads, a most superior shell. 

DE: Indeed… Dear me, look at the time. I must be heading back to my own era.  

DFW: Yes. You definitely don’t want to miss the next time machine back.  

DE: Goodbye, then, and thanks for your time. 

DFW: My pleasure (Pillock!)

January 2008

Sir Alexander Belloc-Brayne snubs Davos, abandons Inertia Investing and speculates on the origins of Peter Hain’s downfall. 

Happy New Year! The Belloc-Brayne caravan is preparing to move on to South Africa for the annual “state visit”. Strictly entre nous, Lady Belloc-Brayne was looking forward to joining the great, the rich and the beautiful at the World Economic Forum Meeting in Davos. Alas, there seems to have been a “blunder” with the invitations list, so we are proceeding with the African agenda and leaving our finest statesmen, entrepreneurs and investment bankers to deliberate “creative capitalism” through “collaborative innovation”. Reassuringly, Condoleezza Rice has declared the U.S. economy “resilient”, structurally “sound” and with “healthy” long-term prospects and Her Ladyship now reluctantly agrees that our presence at Davos may not be imperative. Close call! 

I do declare that it has been a wild month for the global financial community. I can now reveal that the Belloc-Brayne Model Portfolio has abandoned Inertia Investing in favour of a flight to quality and that its assets now slumber in the gilts market waiting for a reviving cut in interest rates. Mind you, the Bank of England seems a touch reluctant to do the necessary, which I put down to a fit of pique at the Government’s subtle reminder about the “duty” of the retail banks to pass on base rate “cuts”– enough to induce a show of independence by the Monetary Policy Committee.  

Now that the dreaded “R”-word is admissible in polite society, one would have expected the Old Lady to have loosened the purse strings. Word is, though, that we may have entered a phase in which banks hoard any extra money rather than lend it out at derisory rates while households rebuild their cash balances. I do admit that I did not grasp the significance of the upward twist to Prodigal Mortgages base–rate–tracker margins earlier this month, which I now recognise as the legendary Keynesian liquidity trap at work. The way I see it, we First-Worlders may be obliged to build our future prosperity on exports rather than on conspicuous consumption at home – that is to say by promoting rampant materialism abroad. If I were an international banker, I should be pressing for an emergency mass distribution of credit cards in China. Well spotted, Belloc-Brayne! They will miss your brand of lateral thinking at Davos! 

Good to see the PM limbering up for Davos with a jaunt around Asia, drumming up a spot of trade in British luxury goods.  Incidentally, I am sure that there is much to be learned from our Chinese friends about handling food-price inflation, which recently hit 18.2% in the Middle Kingdom where the noodle makers are the current enemies of the people. I dare say that a similar naming and shaming exercise might shatter the milk cartel back home. 

It seems that the PM’s Asian mission may have delivered a solution to the Northen Rock affair too, with the Virgin consortium increasingly confident of making a winning bid. I dare say that the Virgin Branson’s presence on the tour might have shortened the lines of communication somewhat, although Her Ladyship insists that Sir Richard and Mr Brown will have been separated by some kind of Chinese wall. Of course, the bidding process remains entirely transparent and the Olivant shower are as much in the game as Prodigal Life. Everything to play for! 

I have been going over the finer detail of the Government rescue strategy for The Rock, which seems to entail securitising the Bank of England’s £25bn loan and flogging it off to the financial institutions. Ingenious! I wonder what they will call this new instrument. Her Ladyship suggests the Collateralised Debt Obligation, which has a familiar ring. I have, however, written off to the Treasury (cc HMRC) pointing out that, as a cautious investor (who has recently joined the flight to quality), I would rather not risk my money underwriting Northern Rock’s debts – and seeking its blessing to deduct £2,000 from my January tax remittance (HMRC systems permitting). I anticipate a favourable response. 

We have, of course, been royally entertained by events at Société Générale. Lady Belloc-Brayne says that had M. Jérôme Kerviel called European stock markets correctly, he might have been declared a hero who saved a French bank from untold billions worth of American-inspired sub-prime losses, rather than a villain charged with faux usage de fondes.  I must say that I am somewhat sceptical of the official sub-prime to rogue-trading losses ratio and slightly puzzled by the five-day gap between the unmasking of a financial terrorist and notification of the markets – during which the Société managed to unwind €50bn worth of futures positions without frightening the horses and to bounce the Fed into a 0.75% cut in the discount rate (followed by another 50 basis points to “get ahead of the curve” and demonstrate its composure under fire). Something in my water speaks of “innovative collaboration”. Oh dear! Can one run a bank from gaol? Was its ein Einbruch in eine Bank gegen der Gründung einer Bank? Nurse, meanwhile, has formed a strong emotional bond with M. Kerviel and is resolved to write to him in prison, although she rules out marriage to one who robs the rich at no personal gain. 

I must say that I was saddened by the stepping down of Jimmy Cayne from day-to-day management at Bear Stearns, following the unfortunate collapse of two of its hedge funds and $1.9bn worth of sub-prime write-downs (to date). A bit hasty, but I suspect that a 53% fall in the stock price may have swayed the shareholders just a touch.  No way of knowing… The way I see it, Mr Cayne may well be suffering the cold revenge of Wall Street for refusing to contribute to the Long Term Capital Management whip-around back in 1998. Anyway, it is pleasing to read that the father of the credit crunch, Dr Alan Greenspan has found gainful employment at the Paulson & C. hedge fund despite a savage attack on his record by the venerable Anna Schwartz, (co-author of A Monetary History of the United States). Mind you, Paulsons seem to have done well out of the sub-prime crisis and must have recruited Dr Greenspan to reveal where the rest of the bodies are buried. 

Great pity about Peter Hain’s relinquishment of his multiple ministerial portfolios. The way I see it, though, Mr Hain has been struck down not so much by criminality or incompetence but by the curse of the Department for Work and Pensions. There’s a special providence in the fall of a sparrow… Commiserations, then, to young James Purnell on his appointment as the seventh DWP Secretary in seven years – the beginning of the end of a promising political career. 

I am pleased to see our parliamentarians setting an example to the public sector by graciously accepting a modest pay increase. The way I see it, however, the level of public sector pay in the current round may be more of a budgetary than an inflation problem – a case of too little money chasing too many public servants. I note that the European Commission warns that we are at risk of breaching the sacred Stability & Growth ceiling, now that government borrowing has hit £36.2bn in eight months against its £38bn twelve-month target, with the Northern Rock rescue set to put a further dent in the public finances. Can’t see what the fuss is about. The way I see it, there is always the Network Rail option of declaring a contingent liability to keep the Golden Rule in commission. 

Must rush! Nurse will be along any minute with another high-bulk snack (between meals). It seems that I am being fattened up ahead of the Government’s ingenious new anti-obesity campaign in which corpulent citizens will be paid to lose weight.  Well, that’s one way boosting one’s earnings in a recession, I suppose.  Must get ahead of the curve… 

Sir Alexander Belloc-Brayne reflects on a tumultuous month in the City and beyond and ponders a new bid for inclusion on the Honours List.

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Sir Alexander and Lady Belloc-Brayne (and Nurse) extend the compliments of the season to all readers.

December 2007

December, how…shall we discourse the freezing hours away? Lady Belloc-Brayne and Nurse have been doing their bit for our beleaguered economy by joining in the great contra-cyclical £800-per-second post-Boxing Day spending round. Her Ladyship seems determined to counter institutional short-selling in the securities markets by taking a “long position” in the high street and insists that conversion of my cash into haute couture and gold bijouterie is a perfectly rational response to the inflation outlook and a sinking pound.

It seems that the magi have arrived early at Goldman Sachs, bearing a $20bn bonus pool – the fruits of some contrarian wagers in the US sub-prime sector. Mind you, there are signs of an early Epiphany at the Treasury, too, where an army of advisers have rung up fees of £50m to date putting Northern Rock to rights – with (happily) no end in sight. Congratulations to the Olivant group for winning equal preferred-bidder status in recognition, perhaps, of their philanthropic plan to “profit” the taxpayer by granting the Bank of England the right to buy 5% of The Rock at a premium to a rights-issue share price. Apparently “equality” means that the Olivant and Virgin consortia are entitled to a £5m Treasury subsidy apiece even if The Rock is nationalised – a figure that contains an element of “time value” reflecting the degree to which the rescue is running behind schedule and which will surely incentivise their advisers to pick up the pace. Pardon me if I do not dwell overlong on this wretched credit crisis which seems to be traversing the same ground with increasing severity. I am relieved, though, to read of the Bernanke plan to end reckless lending practices by forcing mortgagees to consider affordability and verify income and assets – revolutionary measures that will surely guarantee that the burnt Fool’s bandaged finger never goes wabbling back to the Fire.

I must say that I prefer a more spiritual dimension to my Yuletide, although the prospect of the proverbial money-changers being turned over is a trifle fundamentalist for my taste. Encouragingly, our Government seems determined to engineer an “inclusive” Christmas by trailing a ground breaking Sukuk bond for the guilt-free enrichment of our Islamic citizens. Her Ladyship (somewhat bewilderingly) discerns echoes of the Stakeholder ethos – presumably in the sense that there was “no interest” in that either. I confess, however, that I was moved by a Daily Telegraph case-study in which a believer declared that Shariah-compliant financial products would provide alternatives to her Premium Bonds and would allow her to follow her religion “through my bank account”. O ye of little faith…

I do declare that it has been a grand month for financial services, led by a Pensions Bill that introduces default enrolment into Personal Accounts in lieu of membership of a “good” employer’s pension scheme. Alas, it seems that we are already at odds with EU law, which forbids auto-enrolment into a “good” Group Personal Pension. I have written to the PM urging him to score his signature out of the Lisbon Treaty unless Brussels relents – if he ever catches up with his European peers, that is. I must say that I regret the consolidation of multiple generations of State Additional Pension benefits, being one of the happy few to have amassed Graduated State Pension, SERPS and State Second Pension rights which, the way I see it, should entitle me to a bonus for collecting the full set. Her Ladyship, meanwhile, is livid at the retreat over legislation that would have allowed working mothers to make up nine years worth of Basic State Pension premiums – a u-turn that seems to have surprised the entire House of Lords which was under the united illusion that it had endorsed the measure in July.

Delighted that the Government has finally brought the Financial Assistance Scheme into line with the Pension Protection Fund at a cost of £725m, after first spinning the diversionary line that Messrs Brown and Darling were blocking the move in favour of a cheaper model. Mind you, we still await publication of the seminal Young Commission report promised for November 2007 but which will not see the light of day until well into 2008. I hear that the Ombudsman’s report into Equitable Life has been delayed for the third time to incorporate “substantial representations” from the usual suspects. At any rate, rumour is that the Equitable is up for sale – by when the long grass will have flourished into impenetrable jungle. The way I see it, though, they should bundle Equitable with Northern Rock. Good thinking, Belloc-Brayne! A top post awaits at The Equitable Rock. I shall write to the FSA urging a spot of fast-track regulation, and to the Virgin Branson mob suggesting that they apply for that banking licence tout de suite, without which they cannot accept deposits – a potential Achilles’ heel given that The Rock’s plight is said to stem from over-reliance on the wholesale money market.

Word is that the FSA may soon be eclipsed by a European Super Regulator which could bring the City under foreign control and enhance our sovereignty further. “We didn’t have people lining up outside the banks and we didn’t have to hand out liquidity to a bank,” quoth Economics Commissioner Joaquin Almunia. Well, he may have a point notwithstanding the €348.6bn distributed by the ECB to 300 banks this month – and when Eurozone inflation has broken through the 3% barrier. “It’s worth noting because there are people who think they can give us lessons in monetary policy,” says Mr Almunia – and quite right too! Incidentally, I see that the Union Bank of Switzerland has just flogged SF19.4bn worth of convertible notes to the Singapore Investment Corporation and an “unnamed” Middle Eastern investor at a “triple-A” 9% coupon rate. Mind you, Switzerland isn’t in the Eurozone, which probably explains it.

Anyway, how good it is to watch our FSA justifying its existence with some eye-catching initiatives such as the insider-dealing investigation into the Pearl Assurance takeover of The Resolution Group. Nice touch to demand that the suspects conduct the inquiry themselves. Equally impressive was the raid on the offices of sub-prime broker Black & White, with ten police officers diverted from the war on terror to block the exits – a fine example of light-touch regulation.

By the way, I hear that Norwich Union has been fined £1.26m after the fraudulent surrender of £3.3bn worth of life assurance policies in 2006 using policyholders’ details obtained via its helpful call centres. Meanwhile, the Datagate saga seems to be playing itself out rather nicely in the public sector with HMRC losing the details of 6,500 Country Assurance clients (held on a “pensions cartridge” in plaintext, sans password protection), the Department for Work and Pensions suspending all “data exchanges” with local authorities (after mislaying discs containing council tax and housing benefit claimant details) and 3m British learner-driver records going walkabout in Iowa! Something in my water tells me that there will be no great purge of the Mandarins, prompted by the spectacle of former HMRC head, Mr Paul Gray (who resigned over the loss of 25m client records) amicably serving out his notice in the Cabinet Office on “special projects to develop civil service skills” – which presumably embrace IT security. No hard feelings!

Damn and blast! Her Ladyship tells me that I am not on the New Year Honours List - again! Nurse suggests that we now approach an outfit called Noble Titles to petition His Majesty David Drew Howe, the newly self-crowned King of the Isle of Man for a dukedom, a countship or a viscountship. Apparently it is all perfectly legal as Noble Titles does not actually sell the honours but merely solicits the Lord Advocate’s Office of the Monarch on our behalf. Word is that the modest £50k to £90k fee goes to a “non-profit” charity in sub-Saharan Africa, although Her Ladyship and I will make a point of visiting the Kwaze-Kwasa project in Malawi during our annual tour of Southern Africa, prior to any investment. Meanwhile, I have dropped a note to the Labour Party…

Must rush. Lady Belloc-Brayne has found a loophole in the Chancellor’s simplified capital gains tax regime, allowing crystallisation of past indexation if one’s assets are passed to a spouse before April 2008. Her Ladyship demands action but I smell a rat!

Sir Alexander Belloc-Brayne anticipates a catastrophe in the City but is more forgiving than most on the condition of Government.

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November 2007

No warmth, no cheerfulness, no healthful ease…(no dosh)… November! I fear that a catastrophe looms in the City, where the bonus pools are forecast to fall by as much as 50% this year – save in Wealth Management, they say, where the Belloc-Brayne Model Portfolio is operating on the Micawberist expectation that something will turn up. I should add that Lady Belloc-Brayne still disputes the auxiliary hypothesis that a balanced household budget contributes to the sum of human happiness, hence the insistence on the traditional organic, free-range turkey for our Christmas table despite breach of the £100 barrier. Further down the food chain, a basket of 25 staple items at Asda, Tesco and Sainsbury’s is said to cost 12% more than at this time last year. Luckily our official inflation rate is 2.1% or we would really be in trouble.

No worst, there is none…. We now await the aftershock of the liquidity implosion in which the bond insurers (“monoliners”) face a credit derating while the liability underwriters brace themselves for $6bn worth of Directors & Officers and Professional Indemnity claims. I suspect, though, that the universal debtor will be giving thanks for the the life of Judge Christopher Boyco of the Ohio District Court who has blocked the repossession of fourteen homes on the grounds that Deutsche Bank cannot prove ownership of the mortgages which have been “pooled” and flogged off to Lord knows who. A Daniel come to judgment!

Meanwhile, I read that the Iranians and Venezuelans have been badgering OPEC ministers to price crude oil in any currency but the US dollar. Knife-edge stuff! All it would take to send the global economy into freefall would be for someone to name a teddy-bear after President Mahmoud Ahmadinejad. The way I see it, the greenback is on the verge of fulfilling its destiny as a “reserve currency” – behind the euro. Interestingly, bond spreads in the Latin quarter of the eurozone seem to be widening vis-à-vis Teutonic debt, just as our leaders prepare to consummate European constitutional union – an irresistible economic force meeting an immoveable political project, perhaps? And lest we forget, congratulations to the EU on the rejection of its accounts by the Court of Auditors for the thirteenth year running – a proud achievement as it nears its sixteenth birthday, albeit still two years shy of the age of criminal responsibility in Belgium.

But, soft! what light through yonder window breaks from the direction of the Low Countries, where human life is shown to be sustainable in the absence of a central government – a condition that may be of comfort to a Britain saddled with a paralysed Administration shadowed by an unready Opposition. Her Ladyship frets that secession by Flanders and Wallonia from the Belgian federation may embolden our rebellious Scots. The way I see it, our situation up North is containable thanks to an early retreat by the Nationalists on such election-winning promises as a three-year Council Tax freeze, waiving of student debt and a £2,000 first-time homebuyer’s grant. Nothing like a string of broken pledges to cement the Union of Great Britain and Northern Ireland.

I hear that BOE Governor King and Chancellor Darling are to be recalled by the Treasury Select Committee to explain conflicting testimony regarding their first emergency consultations over Northern Rock, in the light of confusion as to whether they took place before or after the depositors bolted. Her Ladyship scents a purging of the Augean stables in the Whitehall and Bank districts. Strictly entre nous, I have a small side-bet on Baroness Shriti “Shrieky” Vadera for Chancellor, ostensibly a junior Department for International Development apparatchik by day but said to be tasked with undoing Mr Darling’s CGT reforms and cutting backroom deals for Northern Rock.

Good to see the Virgin Branson emerging as the preferred bidder for The Rock. I am delighted that the Government has its eye on the ball and is ignoring distractions manufactured by counterbidders such as J.C. Flowers who complain that the Treasury does not return calls and hint that the auction has the transparency of a Blue Peter or GMTV premium-rate phone-in competition. Word from the bourse is that The Rock’s share price is defying gravity on the loyalty of small shareholders – to the chagrin of any number of short-sellers who may just be finding themselves at the sharp end of an accidental corner manoeuvre. Strictly entre nous, I am still confident that the Prodigal Group’s Barings-scale buy-out offer of £1 (financed out of a head-office whip-round) will yet win over The Rock shareholders – particularly if the Bank of England declines to waive £2bn worth of interest and the Treasury plays the nationalisation card.

I am inclined to treat our Government’s other difficulties as light relief from present tribulations. The way I see it, the matryoshka-style funding of New Labour is no more than an amusing lapse that is easily contained by our all-embracing money-laundering legislation – although one cannot be quite sure of Mr Abrahams’s true position in the nest. I suppose that an audit of our personal bank statements is advisable, if only to establish that the Belloc-Braynes have not become unwitting donors to the Labour Party. I must say that if I were applying to the Highways Agency for planning permission, I too would show modesty over the scale of my donations to the ruling clique. Ce n’est pas pecher que pecher en silence. I dare say that the return of £650,000 might prove a little painful for New Labour, which must surely be languishing close to the sub-prime debtors’ zone. Wonder if anyone would be willing to plug the financial void overtly? Silly question, Belloc-Brayne! What are taxpayers for?

I must say that I judge the HMRC “Datagate” outcry to be similarly overcooked. I am sure that the discs will turn up, just as my glasses and the car keys always do after the regulation panic attack. Nurse says that were she in charge of the search, she should be scouring the dives of Tyne-and-Wear (rather than the municipal dumps) where 25m sets of confidential personal records may conceivably have been mixed with standard hallucinatory audio-visual material for the after-work stimulation of bored 23-year-old IT personnel. Her Ladyship sees this affair as the culmination of a decade of slapdash government and fears that the data could fall into the hands of fraudsters. The way I see it, though, prior possession by the Revenue alone suggests that this may already have occurred, given rumours that the National Audit Office’s demand for sight of the entire database stems from distrust of the samples routinely submitted by HMRC.

In fairness, this episode is surely the unintended consequence of a laudable attempt to spare the taxpayer the £5,000 fee demanded by Electronic Data Systems (EDS) to make the data safe. I am delighted that HMRC is taking a similarly stern line with fund managers by demanding ISA subscriber details in plaintext to save the cost of decryption. Incidentally, I have a dim memory of the EDS role in the design of the tax credits computer system, which proved incapable of handling the volume of claims or doing the sums, leading to the clawback of overpayments from our poorest families – for which it was punished by placement on the list of contractors for the national ID card project. Harsh but fair!

There are, however, more convincing signs of governmental disintegration. Things fall apart; the centre cannot hold when a former Lord Chancellor threatens to sue the Cabinet Office for reneging on a six-figure pension. Word is that His Lordship wants a stipend of £104,000 in recompense for a “salary sacrifice” in office, but that the falcon cannot hear the Falconer, as it were. It seems to me that His Lordship has a strong case, albeit a touch reliant on his own statement to the House of Lords in 2004 on the subject of his pension entitlement. Can’t argue with precedent!

Must rush. Her Ladyship and I are expected at the local racing pigeon club to lend our support to protests against the declassification of its activities as a “sport”, which would render the loft liable to business rates. Her Ladyship suggests that we petition the Queen (in her capacity as benefactress of the Royal Pigeon Racing Association) to withdraw her patronage from HM Revenue & Customs. That’ll teach ‘em!

Sir Alexander Belloc-Brayne reflects “On Liberty” and suspects that Great Britain may have joined the euro regime by stealth.

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October 2007

“What of October…. the month of tension, the unendurable month?” with the Belloc-Brayne Model Portfolio braced for the annual re-enactment of the 1987 stock market crash – a charming rite in which speculators implore central banks to cut interest rates, albeit in the middle of a commodity-driven inflation.

Glad to see the Northern Rock crisis under apparent control. I suspect that a rash of sub-prime executive “write-offs” across the Atlantic has prompted the Treasury Select Committee to accuse Rock chairman, Dr Matt Ridley, of “clinging to office” – a charge that, oddly, has not been put to Sir Callum MacCarthy of the FSA and other regulatory grandees. I must say that it has not been a vintage month for the MacCarthy Commission, which stands accused of briefing against the Bank of England. Moreover, it now has to contend with whispers that it has been taken for a ride by endowment and pension compensation seekers (perish the thought), as well as an heretical court judgment that allows financial advisors to reclaim damages paid to mortgage-endowment holders in the absence of a shortfall at maturity – a ruling that strikes at the very heart of principles-based regulation which was created to punish any right deed enacted for the wrong reason. Never mind! All shall be well, and all manner of thing shall be well at The Rock now that the Virgin Branson has bid for the Bank, financed partly by demolishing the net worth of its current shareholders – a solid foundation for an ethical financial services colossus and mausoleum for a “dead” brand.

I read that the Bank of England is rethinking its lender-of-last-resort facility now that our cash-strapped banks are flocking to the ECB, where their anonymity is respected and interest rates are more forgiving – a turn of events that convinces me that we have entered the euro regime by stealth, without the promised referendum! Still, it is good to see the BOE admonishing the credit rating agencies for handing out AAA grades to Collateralised Debt Obligations. Word is that Moody’s earnings have undershot third-quarter estimates by four cents a share. I have written to the Corp asking whether its credit rating is to be revised and suggesting that it alter its name to Poor & Standard’s (Ha, ha!). The way I see it, though, it is time that we moved on and prepared for mass capital flight from the USA (led by our Asian and Middle Eastern allies) and sub-prime crises in the Baltic and Balkan outposts of the EU where the euro currency peg is blamed for economic overheating. Rumour is that global commodities markets may be slightly over-leveraged and that the spreadbet-on-the-option-on-the-forwards structure may yet implode if some gifted innocent ever insists on taking delivery of the underlying in kind rather than cash. The best is yet to come!

Her Ladyship and I were most impressed with Mr Brown’s scholarly On Liberty lecture outlining a new balance between security and our civil rights, although it seems that the latter does not embrace an entitlement to vote on our constitutional status in Europe. Well, may Mr Brown’s “red lines” prove to be as unyielding as England’s left-hand touchline on Rugby World Cup final night, now that the Lisbon (Reform) Treaty has gone through on the nod despite Bulgaria’s rearguard action over the principle of having “euro” spelled out in Cyrillic characters to distinguish it from its term for urine. The way I see it, though, the promise of a British referendum applied to the European Constitution, which is an unrelated document despite 440 overlapping clauses spotted by our European Scrutiny Committee. No breach of promise, ergo, and no less ethical than the LibDem offer of a plebiscite on an unrelated question! I am aware that the great constitutional architect, Monsieur Valéry Giscard d’Estaing says that “the institutional proposals of the constitutional treaty…are found complete in the Lisbon Treaty, only in a different order” – and so what! The old order changeth, yielding place to new, doth it not? And there’s an end to erosion of our sovereignty for ten years, save for the odd challenge to our working time opt-out, our right to work on beyond age 65 and the 500,000 “British jobs for British workers” promised by Mr Brown to the TUC.

I am impelled to defend our Chancellor and his skilful 2007 Pre-Budget Report and Comprehensive Spending Review. I must say that I have little truck with criticisms of the tax simplification measures, which bring the CGT regime within Mr Darling’s comprehension while complicating life for serial entrepreneurs and their staff, the life assurance industry (“we’re buggered”) and his own business advisers. Good to see the Government attempting to divide this collusion of vested interests by resurrecting the Retirement Relief Fund, and by barring discussion of CGT at the first sitting of the Prime Minister’s Business Council for Britain, where the agenda “is about high-level issues, not micro stuff” – the latter in accordance with John Stuart Mill’s dictum that a man is not at liberty to make himself a nuisance to other people, particularly to the PM.

I feel obliged to illuminate some of the subtleties of the Pre-Budget Report, notably the transferable Inheritance Tax nil-rate band (which lifts IHT-free capital from £600,000 to…er…£600,000 per married couple), advancement of the capped State Second Pension to the year 2009 and extension of the 11% National Insurance rate to annual earnings of £40,840. I dare say that Gordon himself could not have done better. I note that the OECD ranks Great Britain in tenth place out of the thirty most taxed (wealthy) nations, at 37.4% of GDP. I must, however, dispute the Shadow Treasury spokesman’s claim that we are enduring the highest tax burden in peacetime history. Call me an old hair-splitter if you will, but I was under the impression that we were fully stretched on at least two military fronts. Nervos belli, pecuniam infinitam – a state that might be more evident to the taxpayer had we retained conscription.

Hurrah for Pensions Minister Mike O’Brien for rescuing the final-salary scheme from extinction by halving the indexation rate of deferred benefits for ex-employees. “There is no single magic bullet solution,” says Mr O’Brien who now seems to be turning to slow poison. There is some predictable mewling over the failure to extend this timely measure to the public sector – hardly necessary, the way I see it, given that your average public servant is more inclined to cling to office than indulge in opportunistic job-hopping. I hear that Mr O’Brien accuses financial advisers of telling their clients to avoid putting money aside for retirement, lest they prejudice their means-tested welfare benefits – prompting our IFAs to ask whether they can now ignore the FSA’s code of conduct. No way of anticipating the answer to that one! Word is that The Authority is set to launch a “shadow shopping” pilot in which members of the public will be recruited to snitch on their advisers – a ploy based on the original “mystery shopper” idea devised by the Consumers’ Association, save that shadow shoppers will have “genuine financial planning needs”. If I were an IFA (which thank the Lord I’m not, sir!), I should now be insisting upon remuneration by upfront fee rather than commission. When in doubt, play it by the book!

Incidentally, I was saddened by the resignation of Auditor General Sir John Bourn on the technicality of £365,000 worth of travel expenses rung up on 43 junkets over three years. Word is that Sir John accepted hospitality from BAE Systems, no doubt as part of a shadow shopping exercise aimed at getting to the bottom of the Al-Yamamah arms contract. By the way, I wonder what would make a proper gift for King Abdullah bin Abdul Aziz Al Saud when he visits our shores? A copy of Gordon’s On Liberty lecture, perhaps? Nice one, Belloc-Brayne. Your diplomatic skills are still impeccable!

Must rush. Nurse has taken herself off to what could be one of the last quiz evenings to be held at our village pub, now that the Treasury wants to include non-alcohol revenue in its rateable value calculation. Her Ladyship will be along any minute now with my supper, a dish apparently inspired by the new World Cancer Research Fund cookbook that promises a long and miserable life.

 

Sir Alexander Belloc-Brayne reflects on trouble at t’Rock and on how to survive a banking crisis.

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September 2007

Home, sweet home…! Call me an old fussbudget, but an extended stay in Baden-Baden could well have turned out to be more injurious to the finances than any banking crisis in the old country. Not a word, but I think I have foiled Her Ladyship’s plans to adopt a foreign domicile by insisting on a return to the Green and Pleasant to lead the sellers’ strike over the HIP fee that is now bringing the three-bedroom tier of the property market to a halt, if our estate agents are to be believed – and why should they lie? I sense that Nurse would like nothing better than to man a picket line and bellow “Scab! Scab!” at every likely vendor. Fortunately, natural bureaucratic obstacles such as daily local authority search limits and foul-ups on the energy-efficiency assessment front are working just as well. Dans ce meilleur des mondes possibles… tout est au mieux.

I sense the hand of history (to quote one who has since disappeared) in the spectacle of the first run on a British bank since the aptly named Overend & Gurney went belly up in 1866. Word is that the clever money has fled to National Savings, which tells me that the public is responding enthusiastically to Chancellor Darling’s appeal for a return to old-fashioned banking – and with savings rates from 2.6% p.a. to 5.15% p.a. at the NS&I, one doesn’t get much more stick-in-the-mud than that! Her Ladyship, meanwhile, has turned up a decent-sounding Tracker Online number paying 6.1% p.a. and hailed as a leading “easy access” account by a raft of omniscient consumer finance websites. A trawl through the fine print reveals that the provider is an outfit called Northern Rock. I have made a mental note to write to the proprietors of Moneysupermarket, Moneynet, Moneyextra and Moneyfacts, commending them on their attention to detail.

We are all terribly impressed by the deft handling of the Northern Rock crisis, which must surely qualify as a textbook Sisyphean effort. Rumour has it that some sober and benevolent hedge fund will buy up The Rock – no doubt restoring stability but denying the Bank of England the honour of ascending to our fifth-largest mortgage lender at a stroke. If I were BOE Governor King (which thank the Lord I’m not, sir!), I should seize the moment and launch one of those 25-year fixed-rate mortgages championed by our visionary Chancellor. Good thinking, Belloc-Brayne! Your eye for a market opportunity is as keen as ever!

Some pretty nifty footwork on show by the members of our regulatory troika in their tireless efforts to limit the damage and deflect the blame. All credit to Governor King for coming up with that EU Market Abuse Directive argument-of-last-resort after failing to pull off the cover-up – or covert rescue as it is known in banking circles. Caught everyone on the hop – not least our hard-nosed Treasury Select Committee and the European Commission itself, which has since retaliated by branding the King construal “outlandish” and the very rescue of doubtful legality. To Mr Darling an honourable mention in despatches for pledging to underwrite every last penny on deposit – unless your bank isn’t big enough to bring down the whole house of cards. I must say that I am looking forward to hearing the FSA’s case for not getting round to stress-testing the banking system for a shortage in the readies – but it has until October to think one up.

Strictly entre nous, my own position lies somewhere betwixt that of the banking Right-to-Lifers and the monetary Darwinists led by Professor Willem Buiter of the London School of Economics who hold that The Rock is “not too large to fail”. Can’t quite make up my mind, although I now have a fair idea of where the Professor does not hold his life savings. Something in my water tells me that the moral hazard school will prevail and that the financial services industry will stump up the £7bn for Mr Darling’s safety net. Word is that the main burden will fall on behemoths such as HSBC, Royal Bank of Scotland, HBOS, Barclays and Lloyds TSB – which may well be the straw that precipitates the dreaded systemic run on the banking system. National Savings, here we come!

Meanwhile, I have been spending many a pleasant hour watching the Labour Party conference at full bore in Bournemouth. Splendid address by Mr Brown, who seems to have secured an hypnotic hold over the electorate through the endless repetition of a small number of jingoistic words and phrases – a routine that apparently goes down well with the ladies and which may be worth trying out on Nurse, who at last may be persuaded to play Trilby to my Svengali. At any rate, that ploy should ensure that a nation which has endured the slow demolition of its pensions will not revolt over threats to its remaining assets. Incidentally, you will be glad to know that the Belloc-Brayne Model Portfolio has recovered to the extent that I am very nearly back to my pre-crisis equilibrium of fear and greed – a vindication of the principles of Inertia Investing and testimony to the displacement of cash as the haven of last resort.

Lady Belloc-Brayne is much taken by Mr Brown’s natural humility, shown most notably in his (implied) suffering of the little children to come unto him. How agreeable it is to hear echoes of the Good Book falling from the lips our leaders – although promises of ever more money for the NHS, the Financial Assistance Scheme and one-to-one tuition in our schools may require the public finances to manifest some of the properties of the widow’s cruse. The way I see it, Messrs Brown and Darling have abandoned the old triumphal rhetoric celebrating the exorcism of boom and bust from national economic life. How strange! Mind you, one should not write off the Tories, whose pious Blueprint for a Green Economy urges us to dismount from the “hedonistic treadmill” – a credo that we can surely export to developing nations like China and India, and which may regain us the intellectual and spiritual leadership of the world.

I am reassured by the recruitment of Alan Greenspan to our government of all the talents, in an advisory capacity – presumably in recognition of his status as Father of the Credit Crunch. I wonder how his prophecy of a doubling in the inflation rate and twin-digit interest rates is playing in the Treasury and in the spin doctor’s surgery. Word is that our government debt has risen to £19.1bn for the year to August – in defiance of former Chancellor Brown’s well-judged April forecast. Fortunately, the Office of National Statistics has stepped up to the plate and decreed the £21bn Northern Rock drawdown facility to be a contingent liability that will not appear on the public balance sheet. Mind you, we British are a lot more resilient than the French, whose Prime Minister has been telling Corsican farmers that France is broke and cannot raise their subsidies. It doesn’t say much for national morale when a government panics over a trifling liability of 66% of domestic income. Lord knows, the British public sector pension deficit alone amounts to some 92.5% of our 2006 GDP – and see if we care!

And breathes there a man with soul so dead who does not rejoice at the abject EU surrender over our right to an imperial weights and measures system in perpetuity! Well, at least one of Gordon Brown’s red lines has held – one less reason for a referendum on the Reform Treaty and one more for a general election, I suppose. The way I see it, we should not rest until we have seen off the plots to revoke our £3.6bn annual EU rebate and to replace the royal coat of arms and Queen’s message in our passports with “European language” – halting the rot that set in some twenty years ago with the adoption of a common burgundy EEC passport cover. For some must watch, while some must sleep – and who knows what colour (and shape) Gordon Brown’s line will be by Christmas.

Must rush! Lady Belloc-Brayne is petitioning me to lead a national campaign for the restoration of our pre-decimal currency, while the tide runs in our favour. Keep the pounds, shillings and pence! Nurse, however, has chosen to interpret the EU retreat on imperial units as a licence to go out and get “stoned”.

Sir Alexander Belloc-Brayne takes the waters in Baden-Baden and reflects on the state of the global economy and international relations.

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August 2007

Summer is i-cumin’ in… Be that as it may, the Belloc-Brayne household is i-goin’ out… to take the waters at Baden-Baden. Lhude sing cuccu, you may think, considering the aqueous nature of our English summer this year. However, Lady Belloc-Brayne insists that there is a qualitative difference between the water that descends from the skies and the sort that bubbles up from the earth. There’s no arguing with that.

I must say that there is no sign of financial and natural disasters out here in Baden-Baden. Not exactly the eye of the storm, but Lady Belloc-Brayne says that the town has been spared on account of a visitation by the eleventh plague last year, in the guise of the England World Cup Association Football squad and its camp followers. Something in my water says that Her Ladyship is eyeing a permanent move to this particular corner of some foreign field where the Poor are not inevitably with us – no matter what it says in the Gospels. I am mentally rehearsing the case for our British domicile, which currently rests on the cost of putting our four-bedroom home on the market. However, Her Ladyship seems to be ahead of the game and is already talking in terms of our “two-bedroom-two-study” residence, which could well evolve into “student accommodation” if our Government goes all the way with the Home Inspection Pack.

Lady Belloc-Brayne and Nurse are dividing their time between the “Russian Quarter” that seems to have sprung up on the higher reaches of the Baden-Baden property market, and regular expeditions to the shopping precinct, with Sir Alexander in the traditional role of Paymaster General. Nurse is much taken by the local designer jewellery, known colloquially as schmuck – presumably after the fellows who buy it for their wives and mistresses. As a man of finance, I am taking a professional interest in the biometric credit card used in these parts, which relieves the elderly shopper in particular of the burden of recalling a PIN. Vorsprung durch Technik… Unfortunately, one needs to remember the finger that one has registered, which does occasionally create congestion at the tills. I have seen the future…

By the way and lest we forget, I can recommend a rather good local wine marketed under the Fatima label – which turns out to refer to the Christian name of a Frau Wimmer rather than to the daughter of the Prophet. Nevertheless, I am inclined to report my initial suspicions to the intelligence services lest the enterprise turn out to be a front for an Iranian-backed Shia cell (Badr-Meinhof, perhaps? Ha, ha!). I suppose that I am obliged to alert the Financial Services Authority too, under the letter of our money-laundering legislation. Anyway, well spotted, Belloc-Brayne! A “tied agency” at MI6 is surely yours for the asking. Our man in Baden!

Good to see the FTSE recovering bravely in our absence. I do declare that I am rather proud of our Bank of England for keeping its head while American and European central bankers engage in an undignified display of dove-eat-hawk monetary policy. Most impressed by our new Chancellor’s sphinx-like resolve to abide by the spirit of central bank independence. “Silence is as full of potential wisdom… as the unhewn marble of great sculpture“, saith Her Ladyship (after Huxley) – or, the way I see it, whereof one knows sweet sod-all, one must pass over in silence (after Wittgenstein).

We are all naturally saddened by the human casualties of the financial upheavals – notably Edward Cahill of Barclays Capital, who has fallen on his sword after the brutal junking of at least three of his SIV-lite funds by the debt-rating agencies, and Martin “Mr Sub-Prime” Finegold, who has lost his Midas touch and fallen on his arse instead. Her Ladyship suggests that I circulate a petition in support of Blackstone’s opposition to the Baucus-Grassley Bill that would have publicly-traded asset management and investment advisory services taxed as corporations, and which would have lopped $525m from its modest $2.27bn net income in 2006. Incidentally, word is that some pension fund trustees and private investors may sue the hedge funds for issuing misleading prospectuses and for general mis-selling – presumably on the grounds that they were never told that their investments could fall in value. Where is the Financial Services Authority when you need it?

Lady Belloc-Brayne is cheered by the generosity of Goldman Sachs and Barclays Capital, which have splashed out $3bn and £800m to shore up their aptly named Global Opportunities and Cairns High Grade funds respectively. I am, however, having difficulty getting Her Ladyship to accept the institutional logic of not extending the precedent to Prodigal Life mutual funds. As for Nurse’s concerns about her self-invested personal pension, I have been able to reassure her that, as an unfunded retirement benefit scheme (UFURBS), it is quite intact. Strictly entre nous, though, I am at a loss to understand why securitised loans should be known as Collateralised Debt Obligations, when the absence of collateral seems to lie at the root of the problem. Her Ladyship suggests that the “damage” is silent. That must be it!

I must say that folk in this neck of the Schwarzwald are remarkably calm about the European Constitution and seem genuinely nonplussed as to why we Britons should object to rule from Berlin via Brussels. The way I see it, the Reform Treaty is not so much a constitution as a reconstituted Schlieffen Plan – which did not require a referendum either, if I recall. Meanwhile, the locals are celebrating the news that Bundeskanzlerin Angela Merkel has topped the Forbes List of the world’s most powerful women for the second consecutive year, ahead of Chinese Vice President Wu Yi, Tamasek Holdings CEO Ho Ching, Condoleezza Rice, Pepsico CEO Indra K. Nooyi, Indian Congress Party President Sonia Ghandi and countless other distinguished harridans. Word is that Frau Merkel is currently in China promoting liberty, intellectual property rights, environmental conservation, flexible exchange rates and other ideas to which the Chinese Government is famously receptive.

I notice that there is quite a hoo-hah about the quality of our imports from the Middle Kingdom – no doubt an oblique attempt to erode its impressive trade surplus and divert attention from its pre-eminence in creative recycling, as manifested in such innovations as diethylene-glycol-enhanced toothpaste, eels raised on contraceptives and soy sauce made from fermented human hair. Yum, yum! Meanwhile, Her Ladyship tours the stores in search of the detergentless WasH20 launderer, which works by passing an electric current through the water– a technology that has no doubt has been tested on dissidents by the Chinese equivalent of our Health and Safety Executive.

Rather alarmed by a looming stand-off around the North Pole between the Americans, Canadians, Russians and Norwegians over oil deposits rendered exploitable by global warming. Can’t think why the Russians should lionise the Mir-1 crew just for planting a titanium-alloy flagpole on the Arctic seabed. Hardly Everest, is it! Word is that the Bolsheviks are beefing up their armed forces and conducting joint military exercises with the Chinese People’s Liberation Army – equally pointless, the way I see it, given that any conflict is more likely to erupt in the commodities and capital markets. Mind you, I fancy the Russians to hold a natural comparative advantage in the oil-extraction business, given their vast experience of labour relations in the Arctic Circle. We might have to send in our troops after all – perhaps on the pretext of bringing democracy to the polar bears and the ringed seals.

Must rush. Nurse has rediscovered her joie de vivre on hearing that our Baden-Baden visit coincides with Grosse Woche at the Iffezheimer race course, where one can easily find oneself rubbing shoulders with an Arab sheikh, a Russian oligarch or a hedge fund manager on the lookout for a safer investment.

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Sir Alexander Belloc-Brayne reflects on Providence’s assault on the Nation’s real estate and paper assets, and rumbles a palace coup.

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July 2007

Now is the summer of our discontent… I shall spare you the full detail of my plaint other than to say that Lady Belloc-Brayne’s dream of a vacation in Venice has lost its singular appeal. They we I see it, we might as well remain at home and watch the waters rise and the financial markets fall. Strictly entre nous, I now repent my ridiculing of the clergy for detecting the anti-materialistic hand of the Almighty in last month’s Yorkshire floods – a revelation that rings truer with every seemingly co-ordinated attack on our real estate and paper assets. It’s a hard rain…

Word from the ONS is that as much as 60% of our national wealth lies in residential property, which suggests that the summer of 2007 may be a greater social leveller than anything yet devised by the Socialists. More alarmingly, a Joseph Rowntree Foundation study says that the “average” household is disappearing – a statistical anomaly discovered by project-leader Professor Danny Dorling, along with the revelation that rising wealth does not make us happier – a point contested by Nurse who notes that a pay rise would not necessarily make her any unhappier either.

Lady Belloc-Brayne is more sanguine about the state of the financial markets and is confident that the Federal Reserve chairman will live up to his claim that the United States is deflation-proof by virtue of his power to print money – a boast that earned him the nickname of “Weimar” Bernanke in 2002. Her Ladyship draws comfort from the hovering presence of the China Development Bank with its unique know-how that has kept the Shanghai Composite Index at record levels. I confess to some unease at the prospect of the Chinese Communist Party and its proxies taking positions along the commanding heights of our economy. While we may baulk at selling them the rope with which to hang us, the same cannot confidently be said for the shares in the Manila hemp factory if the hedge funds have any say in the matter.

I must say that I was quietly impressed by Mr Brown’s appropriation of the Queen’s Speech – clearly the first shoots of the promised constitutional reform. I can’t say that I was surprised by Her Majesty’s subsequent tantrum during the royal photographic shoot, which the BBC passed off as a tiff over a tiara rather than as a protest against a de facto de-coronation. Lady Belloc-Brayne has given me a copy of Tom Bower’s biography of Gordon Brown, Prime Minister. A bit quick on the draw is Mr Bower, though I could not resist skipping to the end in a vain search for the obituary. Her Ladyship says that Mr Brown has extended his political longevity indefinitely by conscripting key ideological opponents to his government. The way I see it, the strategy seems not so much to neutralise the Tories and LibDems but to bury all traces of his predecessor in an unmarked grave, not least by backtracking on 24-hour drinking, gambling, cannabis consumption and other hallmarks of the Blair legacy.

Her Ladyship laments the lacklustre form of David Cameron and questions his visit to a Conservative aid project in Rwanda when he might have been posing with flood victims in his Witney constituency. The way I see it, Mr Cameron is conducting an authentic dry run for the repair of “our broken society” and is learning from the real experts about survival without clean water, fuel, shelter and livelihood – skills that may be needed back home on present environmental trends. On the brighter side, word on the bush telegraph is that Tory aid workers are teaching Rwandan children to play cricket. That’s more like it! Give a Tutsi a fish and you have fed him for but a day. Give him a cricket bat, and he can fend off a Hutu for the rest of his days. Tough love!

Conventional wisdom is discounting a snap general election on considerations of the state of the ruling party’s finances. However, I hear that New Labour has entered into a money-spinning partnership deal with a leading law firm to sell discounted Home Inspection Packs to party members – the most likely explanation for the unexpected promotion of Yvette Cooper to the Cabinet. A woman of no ability is a blessing… as they say in China. Incidentally, I wonder whether anyone has considered tapping the China Development Bank for some petty cash in exchange for a share of our GDP, to replace the revenue stream that seems to be the sole casualty of the cash-for-honours investigation. Can’t think why the opposition parties have refrained from attacking the Crown Prosecution Service’s ruling that only the equivalent of a formal contract between donors and Downing Street would have been sufficient to mount a successful prosecution. Anyway, well spotted David Perry QC! Give that man a peerage.

Meanwhile, I am looking forward to publication of the unexpurgated European Reform Treaty, albeit in French only for now and rendered “unreadable” to all save born-again Europhiles. Word is that an official English translation will be distributed to MPs in August despite Parliament having risen for the summer. Frankly, I will not be drawn by EU President Juan Manuel Barroso’s depiction of the European Union as an “organisation of empire” – a phrase cynically calculated to resonate with British voters of my generation. Nor do I take at face value Europe Minister Jim Murphy’s denunciation of the case for a referendum as “frankly absurd”. The way I see it, Mr Brown is keeping a plebiscite in his pocket as a silver bullet for despatching the last surviving Conservative fox!

Glad to see some sanity returning to the retail financial services market with the dismissal of Tom Brennan’s High Court lawsuit over so-called “unfair” overdraft penalty charges. One naturally admires Mr Brennan’s principled rejection of NatWest’s £3,000 peace offering on the grounds that it was nothing more than a ruse to “force” money into his account. Can’t say that I would not have taken the bait myself. Well spotted, young Tom! You’ll make a fine lawyer! Incidentally, I was most encouraged to learn the details of the Economic Wellbeing element of the National Curriculum which will no doubt help youngsters to manage their debt by schooling them in the basics of raising mortgages, balancing credit cards, bouncing cheques and avoiding higher education like the plague.

Elsewhere on the regulatory front, word is that employees who have been wrongly advised (or bribed) to leave their final-salary pension schemes will no longer have recourse to the Financial Ombudsman Service. Apparently, the legal position is that an adviser engaged by the individual is accountable for his sins but not one hired by the boss to counsel staff en bloc. Well, that clears up another anomaly. Greatly encouraged, too, by the Young Review proposal to fund the Financial Assistance Scheme out of the £20bn “inherited estates” of our with-profits life assurance companies. Eternal thanks to AXA, by the way, for creating the precedent back in 2003 by persuading the Treasury to allow it to transfer two-thirds of its inherited estate to its shareholders. For some reason, the FSA has set its face against this worthy public-private partnership. I do hope that it is not now going to cut up rough over the Inland Revenue’s noble plan to seize assets without having to satisfy the courts that its tax assessments are accurate. After all, HMRC assures us that this measure will be used as a last resort – and that’s good enough for me!

By the way, congratulations to the public sector for breaking the £1tr pension liabilities barrier, which represents a £39,000 contribution per household towards the long-term security of our public servants. Who says that we don’t pay enough into pensions?

Must rush! Still time for a cigarette before Nurse clocks on for duty. I do declare that the workplace smoking ban has rekindled memories of my schooldays and the frisson of the illicit drag behind the bike sheds. Thar she blows….!

 

Sir Alexander Belloc-Brayne reflects on the Challenge of Change and prepares to join a government of all the talents.

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June 2007

Stormy weather… Apparently, some Church of England bishops are of the view that the current deluge is God’s judgment on our profligate and decadent society – and that after giving us one of the balmiest Aprils since Creation. The way I see it, He sendeth rain on the just and on the unjust alike, as He has done ever since Noye’s Fludde.

Pardon me if I seem a little distracted, but Lady Belloc-Brayne has chained me to the telephone in readiness for the call to join the government of all the talents. I must say that I was moved by our new PM’s rendition of his school motto (I will try my utmost), which has a nice Boy-Scouts ring to it even if it has been expropriated by the Brownies. Most impressed with Akela’s determination to restore New Labour’s reforming zeal as an end in itself. I suppose that the best we can do is to pay our taxes and tell him to “keep the change” at the general election. A promising start, though, to concede that the tax burden has indeed risen – aside from an apparent shift of its incidence onto the working class from the shoulders of private equity partners whose carry interest is taxed as capital gain on business assets (at 10% after two years) on the whim of a former Chancellor whose name escapes me. The way I see it, though, the bosses v cleaners tax paradox could be resolved by retaining and extending the 10% income tax band which is due for abolition next April (at the behest of the same Unknown Chancellor). Good thinking, Belloc-Brayne! That could well turn out to be a perfect defence for any private-equity entrepreneur summoned before the Treasury Select Committee Star Chamber.

Glad to see young Yvette Cooper getting a seat in the Cabinet as Housing Minister – just reward for her deft handling of the Home Information Pack initiative. And very reassuring to have Peter Hain installed as Pensions Secretary – a portfolio normally held briefly on the road to high office rather than en route to political oblivion. I can think of no one better equipped to handle demonstrations against “pensions apartheid” by Financial Assistance Scheme claimants. Delighted, too, that Sir Ronald Cohen has joined the Brown inner circle, presumably as a consultant on “financial exclusion” given his prophecy of popular unrest over the increasingly unequal distribution of wealth – a threat that evidently did not arise during his time in the private equity trade. Her Ladyship says that Damascene conversions in later life are not unprecedented and cites the parable of Baron Joffe of Liddington who became the scourge of the financial services industry after cashing in his chips at Allied Dunbar.

Word is that Mr Brown has placed constitutional change at the top of his agenda – and not before time! Her Ladyship argues that the challenge has been rendered less daunting by the surrender of the bulk of our autonomy at Heiligendamm. The way I see it, though, only one man has noticed that the Reform Treaty is nothing but an amendment to past European accords (and, ergo, unworthy of a referendum) – an insight that has escaped Valerie Giscard d’Estaing, Angela Merkel, Nicolas Sarkozy, Manuel Lobo Antunes, Commissioner Margot Wallström, the European Commission’s own lawyers, Uncle Tom Cobley and all. Well spotted Tony Blair! Give that man a standing ovation!

I do confess that it was pretty exhilarating to watch Mr Blair going at full bore to the very end of his tenure and helping the Magnificent Twenty-Seven to forge a “single legal personality” for the European Union. Clever of Mr Sarkozy to airbrush the commitment to “free, undistorted competition” out of the Reform Treaty text, thereby expunging the central argument in favour of our Common Market entry in 1975. By the way, I must have missed the announcement that Malta and Cyprus will enter the euro regime on 1 April 2008. I wonder if anyone has told their nationals yet.

Lady Belloc-Brayne is up in arms at Mr Blair’s paltry early-retirement settlement of £300,000 in cash and kind. Her Ladyship points out that Parliament paid £40,000 to settle the debts of Pitt the Younger upon his death in 1806 (worth nigh on £2.5m in today’s wonga), although my impression is that “Honest Billy” was better known for fighting off the French than embracing their knavish tricks. Mind you, a spot of moonlighting in the Middle East should bring in a few quid and reassure us that our 49 vetoes were not ceded in vain at Heiligendamm. There is also some talk of conversion to Catholicism and of a role as Unifier of all Faiths on a global scale. Strictly entre nous, I should love to have been a fly on the confessional wall, on the prospect of a rather more candid Sacrament of Penance than that overseen by Lord Hutton.

Speaking of confessions, I trust that Mr Blair will declare (unto HMRC) other fringe earnings such as the estimated £500,000 advance for the memoirs and the odd $150,000 for the occasional speech on the American lecture circuit. I have written to HMRC inquiring whether one is liable for tax on rent-free occupancy of Chequers while one waits for one’s Connaught Square residence to be made ready. Of course, some allowance should be made for the fact that the Blairs have clearly been caught on the hop apropos their tenancy at No.10, having given notice to quit only three years ago.

While on the subject of fair remuneration, I am delighted with the first proposals to emerge from the FSA’s Retail Distribution Review which is grappling with the curse of “remuneration driven” sales, though I am momentarily at loss to identify any other relevant “driver”. Apparently, salvation lies in the new professional financial planning & advisory and primary intermediary classes – the former fee-remunerated and the latter dealing in simple financial products. I note that the definition of “fees” includes “some payments that are currently treated as commissions” and that the set of “simple” products may contain those with “complex constructions”. Clarity at last! By the way, congratulations to HBOS for reaping the just rewards of its Treating Customers Fairly ethos, which has wiped £1.5bn off its market value. Word is that its unification of mortgage terms offered to new and existing borrowers has halved its share of the market for new homeloans in under a year. He sendeth rain etc…

Lifting mine eyes unto the commanding heights of the economy, there are signs that Mervyn King may decamp to the IMF after being outvoted on the level of interest rates last month. Were I Governor of the Bank of England (which thank the Lord I’m not, Sir!), I should not be inclined to hang around for the ordure to enter the air-conditioning system, especially after the meltdown of the two aptly named Bear Stearns “High Grade” structured credit hedge funds that threatens an economic depression of 1930s calibre – surely the final revenge of the sub-prime office-cleaning class upon the well-to-do. In any case, monetary policy is clearly not what it used to be. Time was when a central bank could reign in the money supply by raising interest rates. These days, the very opposite seems to be the natural outcome, as they are discovering in New Zealand where the economy is as liquid as a summer’s day in Sheffield or Hull – courtesy of Japanese Uridashi foreign currency bondholders who perversely favour an alien base rate of 8% over an indigenous one of 0.5%. Brave move by the NZ central bank to flood the forex market with dollars to curb the 10%-of-GDP trade deficit and reverse the 31% surge in the NZD/yen exchange rate – and as credible as King Cnut’s command over the tide. Perhaps they should try the haka next time.

Must rush. Lady Belloc-Brayne insists that I familiarise myself with the new Smokefree Law that takes effect on 1 July – all on account of Nurse who demands ozone or compensation in lieu (preferably the latter). Nil desperandum! I am sure that I can mount a convincing defence with the aid of the helpful flowchart on page 23 of HM Government’s manual (Concise Edition).

 

 

Sir Alexander Belloc-Brayne celebrates the financial rescue of Eurotunnel and prepares to succeed Warren Buffett at Berkshire Hathaway

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May 2007

Good to be back on English soil after our election-monitoring tour of duty in France. Her Ladyship and I are thoroughly charmed by the idiosyncrasies of French political life as exemplified by the appointment of Dr Bernard Kouchner to the Sarkozy cabinet. I don’t know about you, but I find it rather difficult to pigeonhole a former Minister for Health and Humanitarian Action in the Mitterrand government who supports the present Anglo-American occupation of Iraq while remaining “on the side of the oppressed”. Socialist Neo-Con is the best I can manage for now.

Predictably, that other great neo-con, Anthony Charles Lynton Blair has vaulted the Channel to be the first to embrace a kindred spirit and (presumably) to brief Sarko on the art of handling Gordon Brown – commencing, no doubt, with an inaugural dinner at the Granita, whose fare is known to distract the most single-minded of men. Tell it not in Gath, but Her Ladyship and I are quietly impressed by Mr Brown’s decision to forsake the foreign stage in favour of the old Green and Pleasant – listening to and learning from the common man in preparation for the age of open government. Not that our Gordon has ever lacked humility, mind, which explains why we have blanket means-testing, pension fund dividend taxation, next to no gold reserves and an average hourly tax rate that exceeds the minimum wage.

Incidentally, Her Ladyship and I are most grateful to the consortium of American banks that have rescued Eurotunnel from financial oblivion, without which the Belloc-Brayne caravan might still be stranded at our Parisian oasis. There seems much to commend in the ingenious Gounon debt-for-equity restructuring, even if it does entail exchanging their debt for our equity and gives the piranha carte blanche to asset-strip Groupe Eurotunnel before re-floating the skeleton on the stock exchange. It all gives work for investment banks to do…. The way I see it, however, 13% of Groupe Eurotunnel beats 87% of nowt – most of the time. Her Ladyship, though, is firmly opposed to the Gounon Plan on an important point of principle which seems to relate to the loss of our £1-per-trip Eurostar concession. Well, nothing lasts forever – least of all a Eurotunnel founder-shareholder’s perk granted in perpetuity!

I must say that there appears to be quite a head of steam building up on Europe, what with the chairman of Honda threatening to pull out of Swindon unless Great Britain joins the single currency – as good an excuse as any for quitting a dreary Wiltshire town. Her Ladyship claims victory over the European federalists in respect of the right of every freeborn Briton to use pounds and ounces in daily commerce, but I suspect that the Trojan horse may well have been calibrated in imperial units. Something in my water says that the departure of the great impostor from No. 10 may bring out the Europhile in Gordon Brown and that the five insurmountable barriers to monetary union will melt away as swiftly as they were erected.

Returning to matters of private equity, I read that the Chinese State Investment Company is to take a $3bn stake in Blackstone. Altogether more enterprising to venture the national foreign exchange reserves in high-yielding instruments than to lend to the Americans at the risk-free rate of interest – an attitude that captures the spirit of 21^st Century Chinese National Socialism rather nicely. Reports from Chongqing tell of schoolchildren ploughing their Spring Festival dosh into the Shanghai and Shenzhen exchanges, inspired by a rash of get-rich-quick investment manuals. Let a hundred flowers bloom… Keep this under your hat, but I detect a market for the Personal, Social and Health Education & Citizenship curriculum which preaches financial prudence to our own A-Level speculators. Should go down a storm with the little emperors out east. Well spotted, Belloc-Brayne! There may be a Queen’s Award for Export Achievement in this for you.

And hurrah for those splendid FTSE100 companies that have shaken off their six-year pension deficits. Shows what rising bond yields and a simultaneous asset-price bubble can achieve. All we need is a higher death rate and the final-salary scheme will be back in business! Word is that UBS and Aegon plan to buy out the pension funds of the remaining high-cap black-holers in order to remove obstacles to private equity deals. Very far-sighted! Mind you, things are a little bleaker in the public sector, where £29bn is paid out in pensions benefits each year against £19bn in contribution receipts. I wonder who picks up the tab? In fairness, public servants carry the burden of paying contracted-out rates of National Insurance for their State Second Pensions (available from age 60), so the taxpayer can hardly begrudge a subsidy of £50k per head – surely a small price to pay for a contented Civil Service!

Of course, we are blessed to have the Financial Services Authority on hand to defend our pension rights in the private sector. All the signs are that the FSA is clearing the decks for action, having suddenly abandoned its Split-Cap Investment Trust show trial on the grounds of “practicality” – a new criterion in regulatory history. Her Ladyship speculates that the FSA and the Treasury are preparing for a wave of compensation claims arising out of the mis-regulation of Equitable Life – hence the recent pre-emptive 500-page “brute force” rebuttal of the Parliamentary Ombudsman’s report. The way I see it, though, the FSA may be getting ready to act on the Fraud Advisory Panel’s demand that it police the Second Life “virtual online community”, whose avatars can launder Linden dollars with impunity and exchange them for US dollars. No one better equipped for the task than the FSA, which is widely perceived in the City as inhabiting a parallel universe.

Glad to see some clarity emerging in the retirement market, with Pensions Minister John Hutton standing firm against the do-gooders who would have him guarantee that £1 paid into the new National Personal Pension Account “will make savers £1 better off than non-savers…” I ask you! I am greatly relieved to hear that NPPAs will “face the same level of regulation as all other trust-based occupational pensions” which I take to mean that the Regulator will go ballistic if a £1 contribution turns out to be worth less than £1 through mis-investment as distinct from means-testing – and not before time! Meanwhile, the Inland Revenue has delivered another helpful pensions-simplifying measure, with HMRC Business Income Manual (Vol. 46035) hinting that employers’ contributions may no longer attract corporation tax relief where the “remuneration package is excessive for the value of work undertaken by that individual for the employer” – a principle that would seem to embrace virtually all executives at Prodigal Life. Too simple by half, if you ask me!

Must rush. One languishes in the wilderness for an eternity and then several job opportunities come at once. Nurse is badgering me about applying for the World Bank Presidency. I cannot quite bring myself to tell her that the post is traditionally occupied by an American Neo-Con and dashing her hopes of a Shaha Riza-type role which, at $193,590 p.a., pays even better than a lap dancer at The Crazy Horse. Meanwhile, Lady Belloc-Brayne has sent my curriculum vitae off to Berkshire Hathaway, where the hunt is on for the successor to the great Warren Buffett. Word is that the 600-odd applicants to date are a rum bunch, and include a Canadian mystic and a Talmudic scholar who moonlights as a hedge fund manager. Her Ladyship insists that my stewardship of the Belloc-Brayne Model Portfolio has not gone unnoticed and that my pioneering work in the field of Inertia Investing speaks for itself. Nebraska here we come!