Outlook: A taxing matter the Bush Administration can ill afford to can

Iceland's marathon: Curried Ofcom Ê

According to an opinion article in yesterday's Wall Street Journal, which essentially claimed to speak for the Bush Administration, the US is about to torpedo the European Union's "Savings Tax Directive" (STD) by announcing it won't participate in the information sharing arrangements required to make the directive work. It is to be hoped that the article is wrong, for actually the STD is one of the more sensible pieces of legislation to have come out of Brussels in years, and it will benefit no one, least of all the US, to have it flushed down the pan.

The origins of the STD go back to a separate proposal to impose a withholding tax on all investment income within the European Union. Tax evasion on investment income is a big problem in certain parts of Europe, and the idea was that it could be tackled if all member states taxed the income at source. Gordon Brown, the British Chancellor, fought the proposal hard on the grounds that one effect of a withholding tax would be to drive the eurobond market, which is a big source of jobs and wealth in the City, offshore to places where there was no such tax. Other investment products would plainly have followed suit, making the tax positively harmful to European interests.

The compromise proposed by Britain, and eventually accepted by others, was the STD, which requires banks and other savings institutions to collect information on non-resident investors and share it with the tax authorities in the countries where the investors are domiciled. So far so logical. The only trouble is that in order to work effectively, everyone has to participate. If the US or Switzerland refuse, then it breaks down. If the writers of the Wall Street Journal article, Daniel Mitchell of the Heritage Foundation in Washington, and Andrew Quinlan of the Centre for Freedom and Prosperity, also in Washington, are as well informed as they claim, then that is precisely what is about to happen.

According to the writers, the main reason for opposing the directive is not that the US has become a home for a huge amount foreign capital – self interest in other words – but that the STD is just bad legislation on libertarian grounds. It's an invasion of privacy, they say, and it runs counter to the idea that money earned from income which has already been taxed once shouldn't be taxed again. It also runs counter to the notion of territorial taxation – ie that nations should tax within their own borders and leave others to do the same.

No doubt Paul O'Neill, the US's free-market thinking Treasury Secretary, shares these views, but is he really about to take the axe to an international agreement which is the best chance we've got of dealing with the growing problem of global tax evasion? The WSJ article starts from the premise that tax is just a lousy thing anyway, which may or may not be true. If there wasn't any tax, then there wouldn't be any problem. Er, right. But the fact of the matter is that there is tax, even in the land of the free, where in some states it is in the round higher than in Britain. We all know that the Bush Administration has a big problem with international agreements, but just what are the writers proposing? That the US condones tax evasion? Even Mr O'Neill might have a problem with that one.

As things stand, virtually all developed countries tax investment income to some extent. Nobody yet has a "flat tax", where income is taxed once but is then home free to earn as much as it likes without being taxed again. Furthermore, because the US itself has a big tax evasion problem, it already has bilateral arrangements with Switzerland and others which are very similar in their effect to what the STD proposes. It will be a bad day for everyone if the STD is canned, and if it leads to the withholding tax proposal rising Frankenstein like from the slab once more, it will be a particularly bad day for Britain.

Iceland's marathon

Bill Grimsey is a keen marathon runner, which is just as well given the gruelling task facing him at the Big Food Group, a name which looks more inappropriate with every profits warning. He has been chief executive of this sprawling mess of a company for 18 months now, and every time he opens his mouth, it seems to get smaller. The combined Booker and Iceland business may have sales of over £5bn, but after yesterday's horror of an announcement the market is valuing it at just £134m. Mr Grimsey's company is melting away before his eyes. It is the Iceland supermarkets division that is doing the damage. The boring Booker cash and carry chain trundles along without doing much one way or the other. But Iceland is a fragile operation which has been clumsily handled. This is a business whose customers are addicted to big bang price promotions and BOGOFS ("buy-one-get-one-frees"). Stop those and the customers go elsewhere. The absurd plan to go organic pre-dates Mr Grimsey and was quickly reversed when the damage became apparent.

The Grimsey plan is to wean customers off the special deals and replace them with a policy of every day low prices, which he believes will be less volatile. He may be right in the long term, but Iceland did it all too quickly in the early summer and the shoppers simply disappeared. Too late, the deals were later brought back, but margins have been cut to shreds in the process.

Mr Grimsey plans to refurbish and develop different formats for different geographic areas. The early signs are promising, he says, but out of a chain of 760 shops he has only done seven. The City's reaction to the latest disappointment was savage yesterday. The shares, which traded at over 300p when the former chairman Malcolm Walker sold £13m worth a year and a half ago, now stand at 38p. At that level the p/e is just 3, which tells you all you need to know about what the City thinks Mr Grimsey's chances of success are. Who knows Mr Grimsey may yet make something of what looks now like a busted flush. If he does, he would be manager of the year, the decade, the Millennium. But the Marathon Man has a long, long way to go.

Curried Ofcom

Lord Currie of Marylebone will make as decent a chairman of the Government's new communications super regulator as you could hope for. Together with Patricia Hodgson, who will presumably be confirmed shortly as Ofcom's first chief executive, the two will make a supremely well qualified and formidable combination. The more difficult question is whether Ofcom is such a great idea in the first place.

The idea is to mirror the success achieved with the Financial Services Authority in the broadcast media and telecoms arena. To buy the case for a single regulator you have to accept there is real convergence between these two hitherto very different communications industries. You also have to accept there is a case for combining the sort of price and competition regulation demanded by telecoms and some areas of pay TV with the content and quality regulation that presently applies to commercial TV. Confused? Don't even think about the fact the BBC won't fall within Ofcom's remit at all, and nor will the British Board of Film Censors.

There's been a lack of joined up thinking in the way the media and telecoms industries are regulated, but do you really need to create such a behemoth to address it? In justifying its existence, Ofcom could become a dangerously meddlesome beast.

jeremy.warner@independent.co.uk