James Moore: The case of George the magician and disappearing rabbits at the Royal Mail

Outlook: Even Dennis the Menace might baulk at pulling off a trick as mendacious as this

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The Independent Online

Forget about the sober suit and the red box. George Osborne should turn up to the House of Commons dressed in the magician's traditional top hat and cape tomorrow. The Chancellor yesterday pulled not just one rabbit out of that hat by dint of the government's decision to take on the Royal Mail's pension scheme. He produced 28 billion of them.

How else to explain the £28bn that will next month be wiped from Britain's national debt?

Here's how it works: The scheme guarantees to pay members a pension based on their career average earnings. Like many other public-sector pension schemes, in fact.

As a result of the government takeover (always assuming Europe agrees) some £28bn of assets will be taken on to the Treasury's books. These can then be sold off with the proceeds used to reduce the deficit.

Sounds wonderful doesn't it? Of course there is just a small catch. Those 28 billion rabbits have been half starved and they're going to need an awful lot of carrots to keep them happy. That's because the Royal Mail's scheme is deeply in deficit. Its £28bn of assets don't even come close to covering the scheme's liabilities, which are estimated at about £37.5bn.

That's where the conjuring trick comes in. Because those liabilities are uncertain and won't be realised for a decade or two they won't be counted on the government's books as debt. Just like a raft of other unfunded public-sector pension schemes. The Treasury therefore gets the credit for assets with no hit from the liabilities it will be on the hook for.

But the credit is an illusion. As any pensions expert will tell you, the national debt has actually been increased by the size of the scheme's deficit, some £9.5bn. It doesn't really matter when that £9.5bn has to be paid. It will still have to be paid.

Now there might be sound reasons for doing the deal. It is no secret that the Royal Mail is struggling. The government wants to privatise but knows it can't do that unless some creative thinking is applied to the pension problem. Sadly, it has turned instead to some highly creative accounting.

And it is not even original creative accounting. The idea was first floated by a certain Lord Mandelson back in 2009. The pensions expert John Ralfe described the deal as a "colossal fiddle" then. This time he relied on the word "outrageous". Both may be examples of understatement.

Mr Ralfe was not referring to the deal itself. The government might have been on the hook for those pensions anyway. What he finds infuriating is the blatant dishonesty that is at work.

It seems rather appropriate that the Royal Mail is about to produce a set of stamps celebrating British comics such as the Dandy and the Beano. Although even the latter's star turn Dennis the Menace might baulk at pulling off a trick as mendacious as this one.


How spread betters are taking on a treble risk

Black holes were very much the issue du jour in the City yesterday. The £12m black hole found in the accounts of WorldSpreads is a drop in the ocean compared with the multi-billion pound hole in the Royal Mail pension scheme.

But that's no comfort to the spread-betting firm's thousands of clients, who are now facing significant losses after potential buyers (IG, Capital Spreads) understandably decided that taking on WorldSpreads wasn't a good gamble. By contrast to banks, bailed out by the taxpayer, the City will ultimately pay the price through the Financial Services Compensation Scheme. It covers the first £50,000 of losses. Clients with more than that will have to try their luck with their lawyers. The latter will want to ask some hard questions of the company's former directors and of its auditor, Ernst & Young, which maintained a delphic silence yesterday on grounds of "confidentiality". How convenient.

This one is going to run for a while. But it will be worth remembering the next time the victim of a Financial Services Authority fine for failing to keep client money separate from its own money moans about it.

As for the spread-betting industry, when you place your wager it seems that you are not only gambling that your call on the markets is correct. You are also gambling that the spread-betting company you've put your money with is run properly. And that its auditors and regulators are doing their jobs.


Amazon's tax break set to fuel fury of rival sellers

Never mind the Chancellor, it is Luxembourg's finances minister who has book retailers up in arms. At least those still independent of Amazon that is. Luc Frieden, it seems, dislikes the idea of taxing learning. Fair enough, so do we in Britain, which is why books and newspapers are zero rated for VAT here.

Unfortunately, for reasons that are the very height of perversity, ebooks fall under a different regime and incur the full rate. Unless, that is, you own a Kindle. Next year Luxembourg is going to follow the lead of France by testing the EU's tolerance with the introduction a "super-reduced" rate of 3 per cent on ebooks. And because, until 2015, VAT is imposed at the rate of the seller of goods and services rather than the buyer, Amazon looks set to be able to shave a few more pennies off its already keen pricing. Guess where its ebooks are sold from?

Rivals are already crying foul, and you can hardly blame them. Retailers in the UK have the Treasury to deal with. Its Conservative ministers hate EU rules, but they appear to be determined to obey them. So don't expect a happy ending unless it's Kindling that lights your literary fire.