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Business Comment

Anthony Hilton's Week: The tax-exile hedgies cowed into seeking a sneaky return


Leona Hemsley, a New York socialite of the 1980s, is today remembered for only one thing. When indicted and subsequently jailed for tax evasion, she was quoted as having said: "Only the little people pay taxes."

Sadly, her comment is even more true today than it was then. We may like to think that nothing is certain in this world except death and taxes, but if you are a big company, or a rich enough individual, it is just not true.

Mohamed Al Fayed, the owner of Harrods for years, paid less UK tax than might be expected for someone in his position thanks to a private deal he struck with what was then known as the Inland Revenue.

More recently, Dave Hartnett, the current boss of Her Majesty's Revenue and Customs, has been in bad odour with the Treasury Select Committee for his reticence in talking about a bill for £10m which he decided that Goldman Sachs should not have to pay.

They are indeed just one company among many about which the Treasury Select Committee is exercised, as it belatedly discovered that the cost of all these concessions runs into the billions.

Now I hear of a cause even more deserving than Goldman. Several of the hedge fund managers who so ostentatiously decamped to Switzerland a couple of years back in protest against the 50p top rate of tax are today almost dying of boredom – as are their spouses.

They have discovered that however pretty the Swiss scenery, cowbells are just not the same as Kensington. So some have quietly approached HMRC to ask whether they can negotiate a lower rate in return for coming back. They probably reckon that whatever they get will be cheaper than a divorce.

It is an interesting dilemma for the taxman. Fairness surely dictates that none of these people or businesses should get any special treatment; but against that the Revenue might take the pragmatic view that it is better to have them onshore paying something than offshore paying nothing. Whether the public at large would agree is a moot point. On that basis, why don't we all threaten to leave and then ask to be bought off?

Meanwhile, there are compensations. The Revenue's negotiators would surely be less than human if they were not quietly enjoying the sight of those fund managers who so arrogantly decamped just a short time ago now quietly trying to sneak back home.

Château Lafake

Lunch on Tuesday with a wealth manager – one of those people whose clients are all worth at least £100m – who had just been visiting some of his flock in China. Typically, he said, while most investors in the West are desperate to find ways to put money into the People's Capitalist Republic, the main preoccupation for his clients there was to find ways to get their money out.

It is not something the Chinese Government is too keen on, so it's not the sort of business he wants to encourage. Unlike UBS, it seems, which must have been hugely embarrassed on Thursday when a four-year-old document surfaced in a London courtroom which openly discussed creating an offshore account for an Indian client in apparent breach of Indian law.

UBS should see this as a business not an ethical decision, the memo said, because the person concerned was "a mega client for wealth management and a key relationship account for the investment bank..."

Meanwhile, my friend's wife, a wine expert, is busy selling French first growths to the newly rich of that country where the going rate for a good Château Lafite has now reached a quite ridiculous £5,000 per bottle. Interestingly, however, the total sales of Lafite claimed by even a handful of top-class restaurants and hotels in China which have it on their list is considerably in excess of the entire annual production of the French vineyard.

Hence my friend's top investment tip – if you can find it. Somewhere in China, he says, there is a printer with a gold mine of a business churning out wine labels which turn Chateau Lafake into Chateau Lafite. Of course that too is something the Chinese government says it is not keen on.

Quantity versus quality

On Monday, the Bank for International Settlements published a study saying that the Bank of England's £200bn splurge of quantitative easing had done less good than the Bank of England believed, and a further round would likely be even less effective. So on Wednesday Spencer Dale, chief economist at the Bank of England, used a speech at the Bloomberg Institute to deliver a spirited defence of the Bank's decision to do it again.

The policy requires the Bank to print money and use it to buy government debt from the current holders, mainly insurance companies and pension funds. It works, Dale explained, because the investing institutions then have to find somewhere else to put their money, and in the absence of much else they gravitate towards corporate bonds and shares. In this way, directly and indirectly, the capital they manage becomes available for business so it can expand and grow.

Agreed, it sounds a bit Heath Robinson but that is not really the Bank of England's fault. It has been forced to cobble it together to find a way to bypass the blocked-up banking system. But it appears to have worked nevertheless because in its first year, 2009, UK companies issued more corporate bonds and equities than in any year beforeor since.

But that does not mean it will work again this time, and Dale perhaps unwittingly gave reason to have doubts. He said that in spite of the fact that the first round of QE had mopped up £200bn of Government debt, there are in fact more gilts outstanding today than there were in March 2009 when the policy first started. Clearly the institutions have stocked up again. Instead of looking for companies to help with the cash they get from the Bank of England, the institutions have in recent times simply funnelled the money straight back into the next issue of gilts.

Now they are waiting for the Bank to come calling again so they can sell at a profit.