Jeremy Warner's Outlook: Tax debate has become like angels dancing on a pin head. Parties struggle to differentiate

Pension concerns in Tata's Corus bid; Clamping down on payment protection
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The Independent Online

So there's another complete waste of time, money and paper then. No sooner had Lord Forsyth of Drumlean published his proposals for reform of the tax system than George Osborne, the shadow Chancellor and the man who commissioned him to write the report, slapped them all down.

Well, perhaps not exactly, but what he did say was that however the Tories decide to fiddle around with the tax system, if and when they get elected to power, the overall effect would be revenue neutral. Mr Osborne promises to "rebalance" the tax burden, but not to reduce it. Any future reduction would have to be "fully funded", the clear implication being that it would have to be paid for by offsetting cuts in public spending.

So much for Lord Forsyth's suggested £21bn in tax cuts. The Conservatives will not be fighting an election on any such tax- cutting promise. Figuring out the reason why doesn't demand a great deal of thought. Under Gordon Brown, the present Chancellor, the tax burden has been steadily trending upwards. In such circumstances, £21bn is neither here nor there. Indeed, it is hardly enough to counter last year's increase in the amount of tax being raised, and certainly hugely short of the sort of number that would be needed to return Britain to a low-tax economy.

Yet at the same time, it is quite big enough to make the business of paying for it highly problematic. Mr Brown already has a considerable squeeze on public spending pencilled in for the years ahead. Finding further savings to fund a tax cut of this size would be quite a challenge. Mr Osborne concluded that it would by unwise to commit himself to it.

As it is, the tax cuts proposed by Lord Forsyth's "Tax Reform Commission" are quite regressive in manner. According to analysis by the Institute for Fiscal Studies, the measures as proposed would benefit the better- off more than the low-paid. The same may well be true of the "rebalancing" proposed by Mr Osborne, particularly if cuts in business taxes are funded by imposing bigger green taxes.

Green taxes tend to fall uniformly on society, which makes them proportionately more expensive for poorer income groups than higher ones. This is particularly the case with fuel duties. It is exceptionally difficult to design green taxes which are progressive in nature.

Even so, the differences that separate the three main parties on matters to do with tax and spending are becoming ever more marginal and difficult to discern. They are about detail, not substance. The argument is about how the money is raised and spent, not the quantity of it.

The Tax Reform Commission proposes a cut in the rate of corporation tax to 25 per cent and greater simplification of the tax system to make Britain competitive on business taxes once more. Both of these measures are reforms that the present Chancellor would agree with and no doubt try to push through if he thought he could afford them. Indeed, it wouldn't surprise me if he attempted to shoot the Tories' fox on corporation tax well before it ever becomes an electoral issue. There are, in any case, few votes in cutting business taxes.

If tax is no longer a defining political issue, you have to wonder what is. Competence, I guess, is what it now comes down to. Which party and which leader does the electorate most trust to run the country competently? It is hardly an alluring choice.

Pension concerns in Tata's Corus bid

There's many a slip, but unless things go badly awry overnight Corus will today agree to the promised £4.1bn cash bid from India's Tata Steel and recommend it to shareholders. With the shares comfortably above the mooted 455p offer price, the stock market is still betting on rivals.

As I have said, I may end up eating my words, but it seems to me that much of this is just wishful thinking, or, worse, disinformation put about by hedge funds who had been banking on more. Corus has had a for-sale sign hoisted above its head for at least nine months now, and, so far, only Tata has come striding through the door.

That doesn't necessarily indicate an abject lack of interest from anyone else. Others may simply have been holding fire in the belief that an eventual downturn in the steel cycle might mean Corus could be picked up for a lower price. Tata's bid may galvanise them into action. Yet the Russians look too busy with other things to be bothered with Corus, while the Brazilians have already tried to merge with Corus once and failed.

Even so, an alternative offer shouldn't be discounted altogether. Once others see how Tata is financing its bid, others may be tempted, for this is much more akin to a private equity buyout than a corporate merger. Tata is putting up 40 per cent of the consideration, but the rest comes from borrowings which will be secured against Corus itself.

This considerably limits the risk to Tata should things go wrong. That risk is instead transferred on to the lenders. You could say that Tata is buying the company with its own money, a concept that the fans of Manchester United were incapable of getting their heads around when Malcolm Glazer did the same thing with their football club. It shouldn't be allowed, they bellowed, but it was.

Corus already has more than a billion pounds of debt hanging around its neck. To further leverage such a highly cyclical business with another £2.5bn may not be entirely wise.

Interestingly, Corus has one of the most healthy and fully funded occupational pension schemes in the FTSE 100. At the last count, it had a surplus of £208m, as measured by international accounting standards. This is more a function of the historically low life expectancy of steel workers than decent funding and inspired management, but, even so, to have a pensions surplus at all is a remarkable thing of which few other major companies can boast.

Yet the surplus disguises a set of pension liabilities which must be amongst the biggest in corporate Britain today - a massive £12bn of them. In such circumstances, trustees and regulators are bound to be concerned about any transaction that financially weakens the sponsoring company.

Tata plans to address these concerns by topping up one of the funds with a £150m one-off contribution, and by increasing ongoing contributions to the other. The delicate negotiations which have surrounded these pledges would not be easy for alternative overseas bidders to replicate swiftly. Indeed, the spade work that Tata has already done in smoothing its path gives it a head-start rivals will be hard pressed to close.

Clamping down on payment protection

The market in payment protection insurance has long provided robust support for the view that all business is essentially theft. It is also evidence that even after the scandals of pensions and endowment mis-selling, the financial services industry still struggles to understand that serving the customer should be its raison d'être, not repeatedly ripping him off.

Lenders have been stuffing these good-for-nothing policies down their borrowers' throats in ever-growing quantities. So much so, that the prospect of a regulatory clampdown now threatens to do substantial damage to some lenders' profits. The conclusion the Office of Fair Trading draws in referring the market to the Competition Commission is that consumers are paying too much for something that many of them do not need.

Depressingly, the regulators can do what they will, but in the round it is unlikely to make much difference. Financial services seem to conform to the water bed principle of charging. Squash them down in one area, and they only rise up in another. It is only a matter of time before other, still more ingenious, ways of ripping off the customer are found.

j.warner@independent.co.uk

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