Gordon Brown did a lot of stupid things while he was in charge of Britain’s finances.
The labyrinthine tax credits system, flogging off all the gold, pretending to be prudent when he was splashing everyone else’s cash like it was burning a hole in his pocket – the list goes on.
But one of his most irritating innovations must be the Autumn Statement.
Now we have to sit through not one but two tedious opportunities a year for a wannabe prime minister to stand up and make us all watch as he figures out whose pocket to pick to fund his bribes to whichever special interest group he favours this season.
And George Osborne took full advantage of the opportunity yesterday.
The chancellor’s number one job – to get back into power
On paper, the chancellor’s job is to manage the country’s finances for the long-term good of the people. Or something like that.
In reality, obviously, his actual job is to make sure his party gets re-elected come the next round of voting.
One such round is coming up very shortly, in May 2015. So George Osborne’s primary job at this particular Autumn Statement was very clear: if you’re going to hammer anyone, make sure they’re a) unpopular, b) a relative minority and c) probably going to vote for us anyway.
And that’s what we got. The headline grabber, the stamp duty reform, is pretty clever. It lowers stamp duty for most people. That means – all else being equal – it will also push up the price of most houses under the £900,000 mark, by at least a little bit (if you have to pay less in stamp duty, you’ll be able to pay that little bit more for a house).
On top of that, it makes houses more expensive for anyone paying upwards of around £1m. So you’ve got a nod to the ‘mansion tax’ brigade, and the majority of the people paying extra are ‘metropolitan elites’ (who’ll vote Labour anyway), non-doms (who won’t vote), and those in the market for a country estate (who’ll vote Tory anyway).
Autumn statement: avoid banks and other political punching bags
We also saw more measures to crack down on evil tax avoiders. The big one here was a 25% “diverted profits tax” on “economic activity in the UK”. The idea is to make it tougher for big global companies to avoid tax on their UK activities by routing the profits elsewhere.
It’s not clear exactly how he’ll do it. Although presumably it’ll involve looking at how much business the company actually does in Britain and then drawing certain conclusions from there.
It may come to nothing. For every loophole that closes, another opens. But public opinion is another matter. You might be able to shift profits around the world, but shifting your entire business – particularly if Britain is a key market – is quite another thing.
In effect, the aim will be to make it less hassle for companies to just ‘fess up’ and pay the 21% UK corporate tax rate, rather than shelling out money to advisors for complex schemes that then don’t work and simply make them unpopular.
This is interesting. If I owned shares in the likes of Google, or Amazon, or other multinationals, then I certainly wouldn’t sell them off the back of a move like this. At the end of the day, you don’t invest in companies based on their corporation tax bill, so it’s not a reason to offload them either.
What’s of more interest is the potential impact on the sorts of tax haven nations – like Ireland, for example – that benefit from the tax avoidance schemes. Would hitting that sort of industry have a big impact on Ireland’s financial sector?
This targeting of corporate villains does lead on to a more specific lesson for investors from the Autumn Statement – avoid banks. They are still seen as valid punching bags. Better yet, from a tax-hungry chancellor’s point of view, they are punching bags filled with money.
Bank shares took a nasty hit yesterday as the chancellor said he was halving their ability to claim tax relief on past losses against future profits. In total, it’s likely to cost banks between £4bn and £3.5bn more in tax between now and 2020.
Now, I can’t say I feel sorry for banks in the slightest. If taxpayers and savers hadn’t bailed them out, most if not all of them would no longer exist in any case. That said, I don’t like this sort of cynical smash-and-grab either – it’s not healthy for politicians to see certain industries as fair game for surprise tax raids, as my colleague Matthew Lynn points out in the latest issue of MoneyWeek (out on Friday – if you’re not already a subscriber, get your first four issues free here).
But that’s the way the world is. And it amply demonstrates that, whatever can be said about the financial health of the banks, there’s still plenty of political risk in holding them. Which means it makes sense to avoid them where you can.
And as my colleague Merryn Somerset Webb has noted several times in the past, it might make sense to be wary of other easy political targets too – tobacco stocks, for example.
• This article is taken from our free daily investment email, Money Morning. Sign up to Money Morning here.