Jeremy Warner's Outlook: Now Havas moves on to Sorrell's radar screen

Inheritance tax
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The Independent Online

What's vincent Bollore, the Paris-based corporate raider, up to with Havas? A lot of people would like to know the answer after he raised his stake in the French advertising group this week to a whisker under 14 per cent, not least Sir Martin Sorrell, chief executive of WPP. Sir Martin admits to having been in touch with M. Bollore, one of Europe's shrewdest financiers, but beyond mischievously suggesting that they spoke about "the weather ... that's spelt w.h.e.t.h.e.r", won't comment on what's going on.

Sir Martin is still in the process of buying Grey Global, and serial acquirer though he is, I don't think even he would be ready for Havas quite yet. None the less, he plainly does have designs. He's twice tried to buy Havas's media buying outfit, Media Planning Group, and there is no love lost between him and Havas's chairman Alain de Pouzilhac.

The two locked horns in attempting to buy Tempus, the British media buying organisation, three years ago, and they have been publicly insulting about each other ever since. Sir Martin won, but M. de Pouzilhac manoeuvred him into a position where he horribly overpaid. They clashed again in the battle for control of Grey Global, the US advertising group. Again Sir Martin won. M. de Pouzilhac accuses Sir Martin of being a manipulator of people and a manager of speculation. For his part, Sir Martin says of M. de Pouzilhac that he is "economical with the actualite".

Whatever his end game might be, M. Bollore appears in the meantime to be after M. de Pouzilhac's hide. He wants him out and in Sir Martin he finds a natural ally. M. Bollore opposed the Havas bid for Grey. Indeed he offered to underwrite Havas's €400m rights issue on condition that M. de Pouzilhac drop his designs on Grey. Not only did M. de Pouzilhac refuse to do this, but he ended up bidding far more than he said he would.

Infuriated by the turn of events, M. Bollore has increased his stake to the maximum allowed. It only remains for him to team up with other disaffected Havas shareholders, of which there are many including the former Spanish owners of MPG, and M. Pouzilhac will be out on his ear. Mr Bollore will be seeking the appointment of at least two of his own representatives. What his game plan is after that is anyone's guess.

Too big to be a niche player, but too small for the big league of global advertising giants, Havas looks increasingly out on a limb. M. Bollore tells confidantes that he plans to add to his media interests, but actually that's not his style. He never invests without knowing exactly what the end game is, and in this case it's hard to imagine it is anyone other than Sir Martin. Maybe not this year, or even next, but I'm willing to bet that eventually Havas falls victim to WPP's insatiable appetite for growth.

Inheritance tax

According to reports, the Tories want to raise the threshold for inheritance tax from its present level of £263,000 to £1m, thus removing millions of estates from the obligation to pay death duties. The political appeal of such a move is obvious. The rich remain liable but the aspiring middle classes escape the tax trap. Yet it is not the right approach. The tax should either be abolished entirely, as Australia, Italy and even now Sweden (yes, Sweden!) have done, or it should be radically reformed.

Some credible proposals for reform have been put forward by the Fabian Society. The problem with the tax as it presently stands is that it fails to catch the super rich at all, for whom it is entirely voluntary. By offshoring, exercising exemptions for family-controlled businesses or utilising the seven-year rule, the very wealthy can easily avoid the full impact of death duties. But increasingly it does catch millions of not terribly wealthy middle class families who don't generally have access to expensive tax planning techniques or cannot afford to give the bulk of their assets to a descendant seven years or more before they die.

The Fabian Society proposes that the burden of the tax is therefore shifted from the estate to the beneficiaries, who would then be taxed as if the money was income. According to some estimates, the Treasury would raise more revenue this way than under the present system. So far so reasonable. Unfortunately, the idea presupposes that the principle of inheritance tax is a good thing which everyone broadly supports. Few beneficiaries would agree.

In an ideal world, the wealth acquired by each generation would be constantly recycled so that no child begins life with an unfair advantage.

The reality is that most of those who have acquired wealth want to hand it on. The desire to do this is as instinctive as procreation itself. There are some notable exceptions including two of the world's richest men - Warren Buffett and Bill Gates. Both of them are active lobbyists against President George Bush's plans to abolish inheritance tax in the US.

But then Mr Buffett is so wealthy that even if he paid half his worldly goods to the taxman, it wouldn't make any difference to the lifestyle of his descendents. In time honoured fashion for American wealth creators, Mr Gates has in any case already put a large part of his billions into a charitable foundation, through which he hopes to gain a modicum of immortality. Very noble, but not a luxury most of us can afford.

The present Government has no intention of abolishing inheritance tax, and nor apparently do the Tories, who want to save at least some of it for the public purse. But I wonder how realistic it is to hold the line when all around are abandoning it. If even socially responsible Sweden can abolish death duties, then it cannot be long before Britain is forced to follow suit.

If everyone charges the same tax, then there is no relative economic handicap in imposing it, but the moment other countries start to abolish it then the tax begins to damage economic vitality. There's no way of proving it, but I suspect that over time the continued imposition of inheritance tax will start costing the the exchequer more in lost forms of other taxation than it raises. A small, but significant minority will simply up sticks and move to Italy, Australia, or even Sweden, wherever it is they can best escape the tax. The effect would be to remove very substantial amounts of wealth creating capital and expenditure from the jurisdiction.

High rates of taxation are nearly always economically harmful, if only because the public sector is such an inefficient spender of the money so raised. The Liberal Democrats claimed this week to have produced the most carefully costed set of tax and spend proposals ever tabled by an opposition party, yet they are on a hiding to nothing in proposing a new, higher rate income tax band for high earners. The Lib Dems are possibly being more honest than Labour in admitting the need for higher taxes, yet they don't seem to have properly considered the adverse consequences for consumption and economic growth, and if the effect of higher taxes is to stunt growth, then they still wouldn't be able to afford all the things they want to spend our money on.

As my colleague, Hamish McRae, has already remarked, an ever shrinking pool of economically active workers is being expected to fund an ever expanding majority of those who don't work - from pensioners, to infants, to childminders, the disabled and the downright lazy.

Social policy, meanwhile, seems progressively skewed towards making work and self provision ever more difficult or costly - shorter working hours, extended maternity and paternity leave, higher state benefits. All these things are perfectly laudable provided they are affordable. My worry is that by the time we realise they are not, it will already be too late, and Britain will once again be assuming its bedridden position as the sick man of Europe.

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