the times | Saturday September 5 2020 2GM 51
Business
A leading investment bank has pre-
dicted the government will extend the
furlough scheme in an attempt to slow
the “large and rapid deterioration” of
the jobs market.
Morgan Stanley said that, given
Britain’s relatively slow transition off
furlough, it expected an extension to
the scheme, albeit in “a less generous
and more targeted format”.
The coronavirus job retention
scheme was launched by Rishi Sunak,
the chancellor, in March to enable
employers to lay off staff temporarily,week. Even so, taxes will have to do
the heavy lifting because public
services are under strain and, rela-
tive to other countries, the UK is
not highly taxed.
“Tax, as a fraction of national
income, is high by historical
standards [but] significantly
below many other coun-
tries,” Mr Johnson said.
“It is possible to run a
pretty effective eco-
nomy with a higher
tax burden. That is the
case in Scandinavian
countries, Germany,France, Italy and so on.” Germany
and the Scandinavian countries
are fiscally conservative. They
tend to run balanced budgets or
low deficits by taxing everyone
more, not just the rich.
As Philip Booth, a fel-
low at the Institute of
Economic Affairs,
said: “In most
northern European
countries the tax
systems are not
very much more
redistributive
than they are in
the UK, but they
get a higher
amount of tax right
across the population.”There’s no excuse for
ground rent racket
A
s if housebuilders hadn’t
nailed enough goodies
already: profits
underwritten by Help to
Buy; banks doling out
95 per cent loan-to-value mortgages;
a housing shortage boosting demand.
The stuff that delivered former
Persimmon boss Jeff Fairburn his
£75 million bonus, despite his
expertise in half-built homes.
They’re not all as greedy as him
— and Persimmon’s been cleaned
up since — but the industry’s still a
big enough money-spinner not to
also need to fleece its customers. Yet
that’s the claim from the
Competition and Markets Authority,
alleging that four of the top players
ripped off leaseholders in a potential
mis-selling scandal. It’s opened
enforcement action against
Persimmon, Barratt, Taylor Wimpey
and Countryside Properties.
There’s a case to answer, even if
not for the first time the regulator is
late to the party. Its inquiry spans
2000 to 2018, taking up the
floorboards on 700,000 long-
leasehold homes: 600,000 flats and
100,000 houses. It’s got two main
gripes. First mis-selling: such as
failing to tell buyers how ground
rents would go up over time or
kidding them into buying a
leasehold home when other
purchasers on the same estate
bought theirs freehold. Second, over
the way ground rents rocket,
sometimes doubling every ten years.
Most egregious is houses being
sold leasehold: a practice that in
some cases saw housebuilders
knock a bit off the asking price,
knowing they’d more than get it
back by jacking up the ground rents.
That they then packaged up the
rental income and sold it on to third
parties merely raised the cost and
hassle for anyone wanting to
convert leaseholds to freeholds.
The CMA claims this sort of
caper is still going on. But ask
Persimmon and its says it stopped
selling houses leasehold in 2017 and
securitising ground rents in 2014. It
reckons 10,000 of its 300,000
houses sold since 2000 were
leaseholds. Barratt says it sold about
1,000 leasehold houses a year from
2000 — 6 per cent of the total —
and also halted the practice in 2017.
Taylor Wimpey stopped then, too,
even if the CMA reckons it’s the
worst offender alongside
Countryside for big jumps in ground
rents. Taylor Wimpey has already
apologised and set aside £130 million
to settle with customers.
Clearly, there have been some
shabby goings-on. But does it
amount to mis-selling? The CMA
launched its inquiry after MPs on
the housing committee published
their report on “Leasehold Reform”:
one paving the way for mooted
changes to the law, yet to be
implemented, to prevent the sale of
new leasehold houses and cut
ground rents to zero for new leases.
As Dave Jenkinson, Persimmon’s
outgoing boss, told MPs, there are
“five clear points of contact” before
a customer buys a leasehold home,
including the reservation and
mortgage stages. Buyers must be
legally represented too. As he put it:
“There is no way the solicitor would
not tell them that it was a leaseholdproperty and explain the ground
rent.” Well, maybe. Whatever, all
four companies deny mis-selling.
The CMA may struggle to make
that charge stick. But shares in the
quartet fell by as much as 7 per cent.
And there is no excuse for the
ground rent racket. The regulator’s
right to hammer the message home.Bailout or bale out?
H
ere’s the latest from Sir
Richard Branson’s airline:
“Virgin Atlantic completes
solvent recapitalisation”. So
successfully, too, that it’s instantly
having to cut another 1,150 jobs —
on top of the 3,550 already gone.
What better illustration of the
unprecedented turbulence in the
aviation industry?
Don’t blame Sir Richard for the
latest “heartbreaking” news, as the
airline’s boss Shai Weiss put it. The
Necker Island knight took some
brickbats, not least here, for his
corona bailout pleas. But, after that,
he sorted the Virgin Atlantic
problem himself: a £1.2 billion
private-sector rescue, including
£200 million cash from Sir Richard
himself, who suddenly recalled he
had lots of money tied up in his
Virgin Galactic stake. Virgin ended
up with less UK government help
than British Airways, Easyjet,
Ryanair and Wizz, recipients of
Covid loans totalling £1.8 billion.
But he wasn’t expecting the UK
and US to make such a hash of their
pandemic travel rules. Transatlantic
flying is 70 per cent of Virgin
Atlantic’s business and, since March
16, it’s been caught between Trump
not letting most UK nationals in
and BoJo’s endlessly evolving 14-day
quarantine rules.
It’s tricky to legislate for a virus.
And Virgin struggled in the good
times. But Mr Weiss is hardly alone
in calling for “robust passenger
testing regimes” on both sides of the
Atlantic to at least cut quarantine
time. As ex-PM Tony Blair noted,
the UK’s approach is “killing”
international travel. The latest
Virgin job cuts are proof of that.In fantasyland
H
iring a former Disney exec as
the new Pearson boss was
always going to require some
Magic Kingdom creativity. So hats
off to chairman Sidney Taurel for
getting into character. He organised
a Mickey Mouse process, where the
fellow he hired, Andy Bird, began as
a non-exec interviewing other
candidates before taking the lead
role himself. He then laid out a pay
package fit for a Pluto-crat,
complete with a $9.4 million “golden
hello” and $20,000 a month
allowance for a New York flat.
Mr Bird was between jobs, having
left Disney in 2018. So no big
surprise that voting agency Glass
Lewis is urging investors to reject
the “excessive” package. Yet that
would cause chaos. And Mr Taurel
has said Pearson’s big shareholders
are “supportive”. You doubt he’s
Goofy’d things up that much.business commentary Alistair Osborne
but question is when
What 1p on the tax rate raises from...
Income tax £5.7bn
National insurance £6.4bn
VAT £7.2bn
Tax revenue as a share of GDP by country
France
Denmark
Belgium
Sweden
Finland
Austria
Italy
Luxembourg
Norway
Netherlands
Greece
Germany
Iceland
Hungary
Portugal
Poland
Spain
OECD average
UK
Canada
New Zealand
Japan
Israel
Australia
Korea
Switzerland
Turkey
US
Ireland
Chile
Mexico
0% 5 10 15 20 25 30 35 40 45
Rishi Sunak and Boris Johnson head
to a Cabinet meeting on TuesdaySpeculation about tax rises may be pre-
mature. Senior Tory MPs and econo-
mists say it is possible that the budget is
watered down, there are no tax rises,
and the spending review ends up being
a one-year holding plan, rather than
the three to five-year settlement ex-
pected. In that event, Mr Sunak would
wait until the recovery is entrenched
before unveiling new fiscal rules that
demand the “difficult things” that could
dent fragile economic confidence, they
say. Now is not the time to threaten tax
rises, businesses say.
For the moment, Mr Sunak is torn
between “treating the British people
with respect, showing them how we
plan to correct our public finances” and
promising that there will be no “horror
show of tax rises with no end in sight”.Furlough will be extended, top bank says
with 80 per cent of their wages being
paid by the taxpayer up to £2,500.
It is being phased out, with employers
gradually taking back responsibility for
paying furloughed staff and the scheme
due to end next month.
Morgan Stanley economists Jacob
Nell and Bruna Skarica cited the “com-
paratively modest” cost of extending
the scheme, estimating that a six-
month extension, by which time they
assume a vaccine will be widely avail-
able, would have a net cost of £3 billion.
They said the decision by EU coun-
tries such as France and Germany to
extend furlough schemes could helpsway the government to follow suit.
“We see a risk of material scarring from
an October windup, which could we
think add several percentage points to
unemployment and delay recovery to
pre-Covid levels significantly.”
Despite the effectiveness of furlough
in mitigating job losses, the economists
said the “underlying picture in the
labour market data was still one of a
large and rapid deterioration”.
They said there were a possible
130,000 redundancies to come, the
worst affected sectors being non-food
retail, car and aviation manufacturers
and restaurants and hotels.Dominic Walsh
Senior Tories say
speculation about tax
rises are premature