Clinton is onto something with her attacks on car industry tax deals

Outlook

Hillary Clinton at a US election rally (AP)

A fascinating drama involving big business is brewing in the fog of Hillary Clinton’s election campaign. Hurt by Bernie Sanders’s attacks on her connections to big business, Ms Clinton has fought back with some tough attacks on America’s bad corporate citizens.

The most recent of these Clinton missiles homes in on the tax inversion deal done by the vast car parts maker, Johnson Controls. This Milwaukee-based industrial giant recently struck a deal to merge with Tyco in a move primarily designed for Johnson to be able to move its tax domicile to haven-status Ireland, where Tyco is based.

Ms Clinton, standing in front of Johnson’s headquarters in a recent campaign ad, declares that this deal is “an outrage”.

Her point is this: when the US car industry was on its knees amid the financial crisis, the government bailed it out with billions of dollars of taxpayer support. Johnson bosses were among those lobbying for the bailout, with its chief operating officer even testifying before Congress that the industry needed government cash. Now, with the bailout granted and the industry rescued, Johnson was running to Ireland to save $150m a year in US tax.

She is 100 per cent right to be outraged at this, and the American people should be, too. Yet, far from sheepishly keeping quiet and hoping the whole thing will blow over when the electoral battlebuses leave, Johnson is trying to fight back, claiming that her criticisms are unfair because it never personally received any bailout cash.

But its arguments are baloney. While Johnson wasn’t directly on the bailout list, it relies on the car industry for half of its sales, making interiors and other parts for Toyota, GM and other giants in the US. Had its lobbying for the industry bailout not been successful and the US car industry gone belly up, it would have lost tens of billions of dollars in sales. Indeed, the bailout was given just as much to support the huge, indirect supply chain as it was for the car-makers themselves.

Ms Clinton has hit on a rich seam in Johnson and should keep digging. The problem is, she’ll only stop US companies doing these Irish moves if the US brings its corporate taxes down into line with international standards. US businesses are currently taxed at nearly 40 per cent – double that of the UK. But for Ms Clinton, cutting tax on big business is hardly going to neutralise Sanders’s painful digs about her work for Wal-Mart and Wall Street.

The Pru strikes a chord in China

Although sales of luxury goods in China might have gone off the boil, day-to-day consumer spending on smaller items remains pretty strong. Just ask Prudential boss Mike Wells’s son. New York and Nashville-raised Jackson Wells is a singer-songwriter who is making a nice living singing in Mandarin to packed-out venues across China.

The Pru’s decent figures yesterday show it, too, is benefiting from a market where consumer income is up 9 per cent on a year ago – no matter what the Shanghai stock market tells you.

The rapidly growing Asian middle class may hesitate before buying a Hermès scarf, but they’re still tucking away a few bob every month into their life savings – or buying the odd ticket to Jackson’s gigs.

Pru’s Asia profits rose from £1.9bn to £2.4bn last year, enabling Mr Wells Snr to pay a special dividend; its M&G division may be finding life somewhat harder, as the rocky financial markets put would-be investors off, but the overall performance of the group was considerably better than the markets had been expecting.

No reason for Mr Wells to be to singing the blues, then.

Beware bankers’ deals that look too good to be true

It is early yet to draw too many conclusions from the growing scandal around Lobo loans. But it’s absolutely clear a full investigation is needed to sort the allegations from the counter-allegations.

If Lobos have been as bad for taxpayers as campaigners say, then their similarities with derivatives-based products sold by London bankers to naive councils in Southern Europe are uncanny.

Independent readers may recall the scandal, exposed in these pages in 2014, of how sharp-suited City bankers from Goldman Sachs and Nomura created and sold loans to naive local authority transport chiefs in Portugal which rapidly turned bad for taxpayers.

In those transactions, there was a common theme: the borrowers were always trying to get a lower interest rate than the general market could offer them.

The banks were only too happy to oblige in creating such products because, to generate loans offering low initial “teaser” rates, they have to create a raft of complex derivative trades on which they generate millions of pounds of commissions during the “manufacturing” process. And because of swaps and options that lie beneath the bonnet of such loans, the banks had made their profit before the loan had even begun.

Where such huge profits are being taken out of the lending process by banks and brokers, it surely makes it unlikely that the product is going to be a success for the client.

Borrowers – particularly when they are responsible for taxpayers’ money – must be wary of deals from bankers that look too good to be true.