The Sunday Times - UK (2022-05-22)

The Sunday Times May 22, 2022 3

Especially when I once paid myself in (presumably very small) gold bars that I never even saw, because I’d read in the papers that there was no national insurance due on these at the time. I was in my twenties and thought it was clever and funny then, but I now know better. I realise, 40 years on, that us business folk have a debt to society — and I spend a lot of my working life on the responsible business platform shouting about it. Where would I/we be without schools to teach our workers to read and write as kids? Who would care for them when they got sick without our wonderful hospitals? How would we drive our goods to our warehouses, shops and customers without our road network? And who would protect our goods without the police force? If business people don’t want to pay their taxes here, then maybe they would be happier somewhere else. Good luck to them — I will be the first to wave them

prison service costs only £3 billion a year to run (I would like the government to spend much more on rehabilitation as opposed to more prisons, but that is another story). Can you imagine how much good we as a nation could do with that leaked tax cash if we could retrieve it — or, better still, if we could stop it escaping in the first place? Why do I give a damn about this?

Paying tax shouldn’t be optional for successful people

If they don’t want

to be taxed, I’ll be

first to wave them

off at Heathrow

four years has been incredible, and TaxWatch is already one of the most respected organisations in the sector. It tracks all forms of tax abuse and works very hard on what to do about it, and has started a national discussion on what tax avoidance actually is (HM Revenue & Customs’ definition is “bending the rules of the tax system to try to gain a tax advantage that parliament never intended”, which most of us don’t seem to realise). TaxWatch is constantly holding HMRC to account and, in conjunction with this, investigating the “tax gap”. This is the amount that is leaking out of the bucket (tax not being paid by virtue of fraud, avoidance, scams and people “making a mistake” on their tax returns). We think it is actually much more than HMRC estimates, with possibly more than £50 billion going awol every year (and more again during Covid). To put this in perspective, the entire

I

t wasn’t easy to track down Richard Brooks. He certainly wasn’t in the phonebook. Richard is a senior investigative financial journalist at Private Eye magazine, a legend — but not someone you’d recognise if you bumped into him. He is also the author of a seminal book on tax, The Great Tax Robbery, and another on accountancy, Bean Counters. I had just read the first, was very inspired by it and wanted to invite him to tea — as you do. So I found his agent, who introduced us and did just that. I used to have my London meetings in a tiny, windowless room at the back of a branch of the Richoux coffee house in Mayfair. The staff were lovely and it was much cheaper (and nicer) than a West End office. Anyway, back to the story. I wanted to talk to Richard about an idea in the very last paragraph of The Great Tax Robbery: his suggestion that we needed to

“monitor systematically multinationals’ tax payments and actions (or inactions) against tax avoidance: TaxWatch perhaps”. I agreed passionately. I remember him looking me up and down with a “What the heck do you want?” sort of expression when he arrived; he was understandably a bit wary being asked to meet a complete stranger in a slightly weird venue — after all, he does come across a lot of rogues. Anyway, long story sideways, he is a lovely guy and we got on very well. Thus TaxWatch was conceived. I was happy to put up the initial loot but we needed a team to do the work, as Richard was pretty busy already. Doing what he does, he is very well connected and he soon put a squad together, with the brilliant George Turner as chief executive and Richard himself agreeing to chair the editorial board. We were off to the races. The work they have done in the past

Julian Richer Sound Advice

off at Heathrow. Of course, the public services they enjoy cost something, and we should be happy to pay for them. Denmark has one of the biggest public sector budgets in the world, but it is also one of the happiest nations. PS: avoiding wasting our precious taxes is also important. Labour-intensive capital projects such as the mass building of homes that could be let at genuinely affordable rents would be great for the 8 million people living in substandard accommodation. They would also create many thousands of jobs, and the tax paid on those earnings would stay in this country. In my opinion, that would be a far better use of taxpayers’ money than poor value vanity projects such as High Speed 2 and the Hinkley Point nuclear power station — but that discussion is for another day. Julian Richer is founder and managing director of Richer Sounds

GERARDO JACONELLI

SOCIAL TARIFFS One lever that Ofgem could pull is the social tariff,where customers subsidise the bills of those least able to cope with high energy bills. Most social tariffs have been phased out, replaced by the government’s Warm Home Discount scheme, which gives customers up to £140 off their electricity bill. However, they could be reintroduced. Scottish Power boss Keith Anderson has called for one to replace the price cap. It would mean firms charge higher sums and then give discounts to poorer

It could get hot for Jonathan Brearley when he is quizzed by the business committee in parliament on Tuesday. Ofgem’s chief executive will be bracing himself for an onslaught as politicians — on behalf of their constituents — demand to know how the energy regulator plans to slash bills for consumers. Last week, Ofgem was pilloried for unveiling changes that were seen as helpful to the large energy suppliers, rather than households struggling with soaring bills on the back of sky-high wholesale gas prices. It proposed changing the price cap on standard variable tariffs every three months, instead of six, to give a more accurate reflection of current energy prices. The price cap rose to £1,971 for default tariffs in April and is expected to climb further in October at the next review. Ofgem also toughened its market stabilisation charge, in effect penalising firms that offer cheaper deals. The charge, introduced last month, means suppliers that poach customers have to compensate their rivals for gas they have pre-bought if wholesale energy prices then fall below a certain level. Originally, the charge kicked in if gas prices fell 30 per cent below the price cap; now it is 10 per cent. Fewer firms are likely to offer cheaper deals if they know it could land them with extra costs. Ofgem said the market stabilisation change meant “suppliers can buy electricity and gas needed [for] their customers confident they will be reimbursed if they are undercut by other suppliers if wholesale prices fall”. Personal finance guru Martin Lewis accused it of “selling consumers down the river”. Meanwhile, Citizens Advice said the changes would “make it harder for people to save on energy bills even if wholesale prices drop”. On Tuesday, Brearley and his colleagues will be asked how they plan to help households. But what powers are actually in their gift? Last year, wholesale gas prices continued to rise steadily. In the UK, natural gas typically trades at about 50p per therm, but by September the price was six times that, driving smaller energy suppliers to the wall as they were unable to pass on the costs to consumers because of the price cap. These failed firms — none of which were subject to any background or suitability checks by the regulator before it gave them a licence — mainly went through a process called “supplier of last resort”, where Ofgem decides on a rival to take on their customers. That did not apply in the largest collapse — Bulb, which had 1.7 million customers when it failed in November. Instead, it had to be put into “special administration”, where the government pays

Ofgem in need of light-bulb

moment as energy bills soar

The watchdog has made contentious

changes. What else

is in its armoury?

the running costs until a permanent solution is found. Today marks six months since that administration, with the government setting aside £1.7 billion to keep Bulb going. That sum is expected to climb much higher after Russia’s invasion of Ukraine in February triggered a surge in gas prices. Bulb has been the biggest failure but it is far from alone. The fallen suppliers will cost billions — and will go onto customer bills in the autumn. “If we promote unsustainable deals, we’ll go through it all again,” said an industry source in defence of Ofgem’s plans last week, referencing the wave of failures. Another senior source said: “Ofgem can make the system more fit for purpose in future, which will probably have some negative effect on

... competition. It’s probably
a price worth paying.
“But any benefits might be
in three or four years’ time,
when there’s another shock —
then we don’t get all the
[bailout] costs.”

Jamie Nimmo

households. “We need to find a better way of protecting the most vulnerable in our society,” said Anderson. It is understood that Ofgem considered the idea a few years ago, but ultimately backed away from it. Other measures sought by the industry include home insulation incentives. With the price cap changing every three months for standard variable tariffs, choosing the right deal will become a constant challenge for consumers, who could pay more just by picking the wrong rate. One supplier said it wanted Ofgem to regulate how deals are promoted on price comparison sites, which are not overseen by Ofgem, to ensure that customers are not misled. Lewis has proposed that Ofgem reverses the shift towards fixed daily charges regardless of how much energy is consumed. That has seen households unable to save as much money by reducing their energy usage.

‘YESTERDAY’S WAR’ Instead of the market stabilisation charge, some suppliers had proposed levying exit fees on customers on standard variable tariffs who decide to switch; these fees would compensate for the gas bought by the company in advance. But the proposal was not popular, as it meant the customer would be charged for switching. Some say Ofgem should be encouraging competition, not limiting it. Greg Marsh, founder of consumer website Nous, believes Ofgem has “the wrong priority”. “They’ve seen this wave of business failures and I think they’ve felt the political heat from that,” he said. “But they’re fighting yesterday’s war today. The problem now is not that a bunch of energy suppliers have gone to the wall; it is that households are in huge practical distress.” An Ofgem spokesperson said: “Our top priority is protecting consumers at what is a very difficult time. Every time a supplier goes bust, this passes costs to consumers that we want to minimise. Our... risk assessments help to understand a supplier’s ability to provide customers with an essential service.” But while Ofgem can tinker, it is ultimately up to the government to bail out households. “The global gas price has been almost ten times higher than usual,” said a source. “Ofgem doesn’t have any budget for addressing issues like that. The people who do are the Treasury.” Industry bosses believe about £10 billion of state money will be required to help customers in the immediate future. And unlike the £200 energy discount announced by chancellor Rishi Sunak, it could be better targeted. One supplier estimated that a third of British households required help (the other two thirds would manage). That could mean £600 off a single household’s annual bill, as opposed to £200 off all bills. But Marsh said: “Even if the government threw all the tools that it has at the problem, there is still going to be an enormous shock.”

£1,971 The new energy price cap

£140 Warm Home payment

HOME COMFORTS FOR ENERGY BOSS

Not many executives could roll out of bed and straight into a board meeting. But for Moti Ben-Moshe, the Israeli businessman behind collapsed energy firm Extra Energy, early-morning meetings were not a problem, Jamie Nimmo and David Byers write. That is because a doorway in the company’s boardroom at its Birmingham offices led directly into Ben-Moshe’s own apartment. Software entrepreneur Ben-Moshe, 47, had built his own pad inside the offices of the company he founded. He launched Extra Energy in 2012 to cash in on the desire of Ofgem and the government to encourage competition in the energy market, but with little in the way of checks or scrutiny. Outside the confines of his apartment, staff worked like battery hens to attract more customers. “It was very strange,” said a source. “It was just another indicator of someone mixing what they believe is their wealth with what is a company’s proper resources.” Extra Energy collapsed in November 2018, one of the largest in a wave of failures that year. Its 130,000 customers were transferred to Scottish Power. Seven months earlier, Nick Read, who now runs the Post Office, had been brought in as chief executive, while Ben-Moshe became executive chairman. As administrators at PwC took charge of Extra Energy, they found a business in disarray. Money was not being collected from a large proportion of customers. Some had never even been billed. “They were very much focused on growing the number of customers, as opposed to the basic company stewardship and housekeeping that’s needed,” a source said. One former employee said there was no structure

to the customer service department. “Complaints were building up and it was getting out of control,” he said. “They didn’t know how to manage it.” According to PwC, in the days before it went into administration, £4.7 million was moved out of Extra Energy to Extra Energie GmbH (EEG), a German entity controlled by Ben- Moshe, which supplies energy there. He also has a company in Cyprus called Extra Energy Holding (Cyprus) Limited (EEHCL). EEG and EEHCL claimed to be owed £149 million and supplied proof of debt forms to the administrators. But no documentation was provided to support these claims, PwC said. The administrators also said that the books and records provided for the company’s statement of affairs were “incomplete”. PwC said it met “significant difficulties” in working with company staff to obtain this information and in some cases did not receive it. The business has now been put into liquidation. Business secretary Kwasi Kwarteng has applied to the High Court to disqualify Ben-Moshe as a company director in the UK. Ben- Moshe is understood to have indicated he will contest the claim. Extra Energy’s Cyprus arm did not respond to requests for comment.

Extra’s Moti Ben-Moshe

The UK has

legislation to

reintroduce

beavers but

nothing

on food

production

11% of UK income spent on food

100% rise in fertiliser costs

374% rise in gas costs

savings from stripping out deli counters and in-store cafés, suppliers feel, in reality, they are the ones footing the bill.

V

ince Russo, 63, has been growing peppers and tomatoes in glasshouses in the Lea Valley for 37 years. He recalls that ten years ago, supermarkets were selling a pack of mixed peppers — known as the “traffic light” in the trade — for £1.80. Today, Tesco sells them for 98p. “As a nation, we have got to wake up. Food is too cheap and we desperately need to get prices up. And that’s not because we are greedy — it’s to survive and make a small profit for reinvest- ment,” said Russo, owner of Valley Grown Salads in Essex. Privately, some supermarket executives have limited sympathy. “Suppliers love to bleat that they don’t make enough money, but the reality is the ones who are efficient and have invested well make pretty good returns,” one grandee said. Unlike some of his peers, Russo planted his crops this year, even though he cannot be sure he will break even. Last year, Valley Grown was paying 48.5p per therm for gas, but Russo has been quoted £2.30 per therm for the coming winter. Fertiliser costs have more than doubled and labour costs are up by 20 per cent. In the 1960s, the Lea Valley had about 1,200 acres of glasshouses growing fruit and vegetables. Today, Russo said, there are less than 300 acres, reflective of a broader trend: in 2019, the UK produced 64 per cent of the food it consumed, down from 78 per cent in 1984. The unfolding food crisis is spurring calls for the government to incentivise farmers to grow more wheat for domestic consumption, but in his “Build Back Bea- ver” speech at last year’s Conservative party conference Johnson pledged to

ensure that 30 per cent of the country’s landmass was effectively rewilded. Min- ette Batters, president of the National Farmers’ Union, is calling for a rethink. “We have primary legislation on the reintroduction of beavers and yet we have nothing on food production. We need a meaningful food strategy to out- line what we are going to be producing here and where we need to be producing more,” she said. “People in government have long held the view that food produced on our land is not important because we can just import it, but Ukraine has changed that forever and a day. This will be the litmus test of whether the government deems food security an issue of importance.” A Defra spokeswoman said good food production and environmental protec- tion must “go hand in hand”, and that the UK was either fully, or close to, self suffi- cient in beef, poultry and liquid milk. If Britain is to be less reliant on imported food, there will need to be a greater onus on domestic producers to use technology to reduce costs and improve the quality of our soil, degraded over decades by intensive farming. Shore Capital analyst Clive Black, former head of food policy at the NFU, believes the rest of the UK should follow the lead of Northern Ireland, where the government is mapping soil health in all of its 700,000 fields over the next four years. “Precision farming” involves a range of initiatives including sensors to identify soil water requirements and the use of satellites and drones to spot problems in crops that could be missed by the naked eye. The use of such techniques can help to reduce the use of fertilisers and pesti- cides. Progress in automation will yield savings in time — but the technology is still not yet good enough to pick fruit quicker than an experienced labourer. James Walton, chief economist at food researcher IGD, predicts it will take decades before automation can achieve big leaps forward in productivity. In the meantime, fruit and vegetable growers are left to rely on sourcing migrant labour through the seasonal workers scheme, which is capped at 30,000 people and scheduled to end in 2024.

O

utside the store in Wimbledon last Thursday, Lidl injected a little fun into opening day with a Wheel of Lidl Surprises. About a dozen customers lined up to spin a roulette wheel for a chance of winning a free banana, orange or even a bunch of spring onions. Beyond these sorts of gimmicks, the cost pressures facing supermarkets means they will not be feeling especially charitable in the coming months. Tesco chief executive Ken Murphy forecast operating profits could fall by up to £250 million this year. Sainsbury’s boss Simon Roberts said the chain’s pre- tax profits could drop by up to £100 million, and Morrisons warned investors of a significant hit to sales and profits this year. The willingness to countenance lower profits is an indication that the dis- counters, which now comprise 14 per cent of the market, are keeping their more established rivals honest on price. Still, research by the consumer group Which? found prices on hundreds of gro- ceries, including Kellogg’s Crunchy Nut Cornflakes and Warburtons bagels, had already increased by more than 20 per cent over the past two years. Marks & Spencer chairman Archie Norman forecast last week that food prices would rise between 8 and 10 per cent this year. In the longer term, the extent to which supermarkets can continue keeping a lid on prices will be determined by how much more cost they are willing and able to strip out of their already pared-back operations. Tesco is targeting another £1 billion in cost savings over the next three years. Sainsbury’s has forecast savings of £375 million. In some instances, scarcity of supply means suppliers are having more joy passing on cost increases to supermarkets. Batters said that production of eggs, milk, poultry and pigs could drop by 10 per cent amid soaring costs for energy and other resources. Tesco and Sains- bury’s hiked farm-gate prices for dairy farmers by 20 per cent and 14 per cent respectively this year. “The reality is that if supermarkets want to guarantee supply, they will have to pay more for their food — and that is why society is going to have to pay more for its food,” said Black.

Additional reporting by Laith Al-Khalaf Vince Russo faces rising heating bills for his Essex glasshouses and Jon Yeomans

The Sunday Times - UK (2022-05-22)

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