11 October 2018
Lens on the Week
UK
BREXIT: Paturiunt montes, nascetur ridiculus mus (Horace). Well, the first part of that is certainly true. The mountains are indeed in labour and Mr Juncker, Mr Tusk, Mrs May, Mr Raab and their friends in the Brexit zoo are all showing more signs of optimism. Will it be a ridiculous mouse which emerges? There is certainly talk of a fudge by which the UK remains part of the Customs Union for a time, but that will need to be sold to Cabinet. In the end nobody knows. So there is little point in spending more time on it.
SALISBURY: The investigative website Bellingcat has fingered a Russian military doctor Alexander Mishkin as the second man in the GRU team that attacked the Skripals. Like his colleague Colonel Chepega he is the holder of a Hero of Russia decoration. The Shaw Sheet does not have a cloak and dagger correspondent so readers who are interested in the details of the investigation are referred to the Bellingcat wesite.
FACEBOOK: Loud protests from all political directions at the fact that Facebook only paid £7.4 million in corporation tax last year, Dame Margaret Hodge, chairman of the all-party taxation group, stating that “it may be legal, but it is not moral.” In fact, she is probably missing the point. It is not so much a question of morality as of the rules being out of date. No doubt Facebook, whose intellectual property is presumably held outside the UK, can say perfectly fairly that little of its profit is actually generated here. The trouble is that in the case of modern IT companies, the place where the profits are generated is not necessarily the place in which the customers reside. What we need is a system for taxing profits connected with the UK customer base. Unfortunately that is a difficult thing to devise. One possibility would be to extend the rate of VAT, but, quite apart from any EU complications, that means charging tax whether or not there is a profit, something which will stifle start-ups in an industry which is already too concentrated. Another possibility is a new system of profit allocation. The difficulty there is that if profits are not to get taxed twice the same system has to be adopted by other countries.
This is an area which needs thinking about carefully and probably internationally. The tax magazine Tax Journal published proposals by John Watson of the Shaw Sheet as long ago as January 2014. Here is a link. Stepping back from the detail, though, the broad message is that our tax system, like our laws of privacy and as to competition, is ill suited to the cyber world. As always, developments in technology need to be followed by new political, economic and social structures. There is a lot of catching up to do.
AMAZON: It has been reported in The Times that Amazon has been funding the Muslim Research and Development Foundation, an Islamic charity, which approves of FGM, child marriage and stoning to death for adulterers. Apparently a donation is sent to the charity whenever its supporters buy products. Amazon claims only to accept charities which do not promote “hatred, intolerance or discrimination based on sex, religion or sexual orientation”. However, the government’s counter extremist commissioner has said that the founder of the charity, Mr Haddad, is sending a “misogynistic, racist and homophobic” message. His supporters say that he is an eminent scholar and not a hate preacher.
Whatever the rights and wrongs of all this, it is at least something other than Brexit for the newspapers to write about.
International
BRAZIL: Jair Bolsonaro, the far-right presidential candidate, won the first round of elections last Sunday. He gained 46% of the votes; his left-wing opponent, Fernando Haddad, gained 30%. Mr Bolsonaro (a congressman and former army officer) will face Mr Haddad (a philosopher and former mayor of Sao Paolo) in a run-off on October 28.
Before the election, Mr Bolsonaro’s Social Liberal Party was little known; it is now the second largest block in Congress and has dozens of state governors. Politicians with links to the military now occupy 67 of Congress’s 513 seats. If Mr Bolsonaro becomes president, as he is expected to do, he intends to introduce military leaders into his cabinet; he has chosen a retired general as his vice-presidential candidate. He is in favour of private gun ownership and extreme law-enforcement measures, admires the period of oppressive military rule from 1964 to 1985 and is infamous for remarks denigrating women and minorities. He was stabbed during campaigning last month and spent three weeks in hospital.
The election represented a collapse of the political establishment, rejected because of massive corruption; the Carwash investigation has implicated four former presidents, a third of the Congress and half of the Senate. Ex-president Lula da Silva, of Mr Haddad’s Worker’s Party, was unable to stand as a candidate because he is serving a 12-year prison sentence for corruption; his protégé, ex-president Dilma Rousseff, has been impeached.
GRUesome: This week, details were released about the arrest of four GRU (Russian military intelligence) officers last April in the Netherlands, where they were caught red-handed trying to hack into the Office for the Prohibition of Chemical Weapons from a car parked outside the OPCW’s headquarters in the Hague. The OPCW was examining samples of novichok used in Salisbury the previous month, as well as investigating allegations of a chemical attack on Douma in Syria. The Russians were arrested in their hotel and their car was found to be loaded with spying equipment including mobile phones and computers which have yielded a mass of intelligence about GRU operations and operatives. The arrests were made on Friday 13th, a date considered to be inauspicious ever since that other secretive, powerful, ruthless but decaying organisation, the Knights Templar, was ambushed on that date.
EASTWARD DRIFT: In the general election in Latvia, the pro-Russian Harmony Party came first with 20% of the votes. The pro-Western governing Liepaja party won only 10% of the votes, so is likely to be ousted if Harmony can form a coalition. Harmony dropped its official agreement with Putin’s party, United Russia, last year but many believe that it is still loyal to Moscow and opposed to the EU and Nato (Latvia has been a member of both since 2004, and at least 1000 Nato troops are stationed in the country).
In presidential elections in Bosnia, Milorad Dodik – a Serbian nationalist and a friend of President Putin – appears to have won a place in the three-seat presidency (one each for the Muslim Bosniacs, the Orthodox Serbs and the Catholic Croats). If so, he will replace the moderate Serb Mladen Ivanic, who is pro-Nato and pro-EU. Mr Dodik supports the secession of Serbs from Bosnia.
Financial
MALLING IT OVER: We have touched on the troubled times facing UK retail shopping centre owner INTU in these pages several times recently. A bid from rival Hammerson was withdrawn after Hammerson encountered shareholder resistance to taking on more real estate in the troubled retail sector; then INTU lost its chief executive, followed by a set of results that were not terrible impressive. But perhaps salvation may be at hand. Deputy chairman John Whittaker, who already owns 27% of the company, announced last week that he and Saudi investor Olayan had teamed up with US investor Brookfield and were considering a bid for INTU. The company shares rose a third on the announcement, which brought its value of the company to around £2.5bn – still nearly a billion less than Hammerson’s bid value. Brookfield and Olayan are investors well experienced in property investment – though not perhaps as experienced as Mr Whittaker, who owns and runs giant developer and investor Peel Group. Peel built one of Britain’s largest retail malls, the Trafford Centre, which it then sold to INTU – hence Mr Whittaker’s stake in the target.
HOPING TO TAKE OFF: The airline industry grows ever more competitive, with margins getting thinner and profits under threat. Only last week Ryanair issued a profit warning, which followed the collapse of economy operator Primera Air two weeks ago, and the much bigger Monarch and Air Berlin businesses last year. That might make it sound a strange time to be contemplating setting up an aircraft leasing business – as former Ryanair deputy chief executive Howard Millar announced he is about to do. Mr Millar thinks though that his timing is perfect; every airline now is focussed on economy and on operating with as little capital as it prudently can – so leasing makes a lot of sense. Especially using Mr Millar’s aircraft – he is buying second hand planes, of which there are a large number around as many operators have been upgrading their fleets, especially in the narrow bodied sector which are most useful to the budget airlines. Mr Millar intends to float his new business, Sirius Aircraft Leasing Fund, on the London Stock Exchange next month to raise a touch under £200m initially, and to have that all invested and flying within six months. He is following the model set up by the UK railways business, where most passenger trains are owned by leasing companies, not the operator.
TROUBLE IN AD-LAND: Bad news for WPP, the advertising agency formerly run by Sir Martin Sorrell, who departed earlier in the year in somewhat controversial circumstances. In September the appointment was announced of longstanding WPP executive Mark Read as new chief executive to fill the long worn shoes of Sir Martin. Unfortunately his first big announcement was not great news – WPP has lost most of its contracts with Ford Corporation, the motor manufacturer. Ford has taken on BBDO, the giant agency owned by Omnicom, together with Wieden and Kennedy, a specialist innovation agency. Both are US domiciled and owned . WPP will be keeping some of its roles with Ford, such as public relations and the specialist China adverting account, but it is undoubtedly a blow for WPP and Read. It underlines two very difficult years for WPP which has perhaps failed to move fast enough into the viral and social media adverting fields, with consequent falls in turnover and profitability even before Sir Martin’s exit. Mr Read is believed to be working on a strategy for a revitalisation of the agency, which should begin to show through next year.
