The Pin Factory Blog

It is richly ironic that Goldman Sachs is now reported to be reviewing whether to relocate some of its spectacularly successful money making operation out of the UK to more conducive climes. The current Government’s tax and regulatory policies are identified as the trigger for this potential move. The prospect of handing over piles of cash to the UK Treasury to meet spiralling tax demands is clearly sticking in the collective Goldman gullet.

Yet Goldman Sachs has been one of the staunchest supporters of New Labour. The bank’s Mancunian chief economist, Jim O’Neill, responsible for coining the term BRICs, is a close friend and informal adviser to Gordon Brown, while the bank’s former chief UK economist, Gavyn Davis, amassed most of his considerable fortune when working for Goldman. Davis’s wife Sue Nye, was Gordon Brown’s diary secretary and continues as a special adviser and Director of Government Relations. The bank’s chairman, Peter Sutherland, is one of the most prominent advocates for the euro.

Last year Goldman Sachs paid £1.1 bn in UK corporation tax. It topped the league as the highest City contributor to the Exchequer. The bank’s 5,500 UK employees pay millions in income tax. Indeed, some of them pay well over a million each. The prospect of making an even higher contribution has caused some of them to form a queue asking the bank to relocate them to friendlier jurisdictions.

As 2010 unfolds one of the key themes we are likely to witness is the flight of well-heeled City folk to countries where the taxman does not grab the major slice of their income. Peter Sutherland’s previous appointment as a member of the Hong Kong Chief Executive’s Council of international Advisers may prove highly relevant as his employees line up to leave to more hospitable financial centres.

Testament to the inability of non-executive directors to maintain a rigorous oversight over the activities of banks’ executive team is reflected in the mounting losses reported by those two ugly sisters of Scottish banking, RBS and HBOS. Cross-examined by the Treasury select committee earlier this year, it was clear that the non executive members of the board had failed to rein in their CEO’s meglomania. What is more, it was revealing to learn that neither the chairmen nor the CEOs of the two banks had any banking qualifications. Nor had Adam Applegarth, the CEO of Northern Trust, or Matt Ridley, the chairman, ever sat a banking exam. [Cont'd]

Perhaps one should be relieved to learn that regulators have failed to come up with any plans on how to use their new powers granted by the Regulatory Enforcement & Sanctions Act that came into force yesterday.

The Financial Times reports that BERR – the Dept for Business, Enterprise & Regulation – had received no plans yet from the 27 national regulators allowed additional powers under this new legislation. Originally intended to streamline business regulation across the board, the Act actually provides powers for regulators to impose hefty fines on those who do not conform to a raft of regulations.

Ben Summers, a partner with Peters & Peters, a law firm specialising in regulation, told the FT that research by his firm revealed little sign of regulators making moves to implement the Act. "Given the new regime which the act heralds and the expectation which the government clearly has of it, there is a surprising lack of proposals from any of the national regulators", observes Summers.

Ominously, BERR says that it is having ‘constructive discussions’ with the 27 regulators that fall within the Act’s remit. If the new statute goes some way towards consolidating regulatory overlap it is to be welcomed, but in the meantime the jury remains out.

REG will monitor developments closely. If readers have any personal experience of the new Act as implemented, please get in touch with us at info@adamsmith.org.

Keith Boyfield is the chairman of REG, the ASI's regulatory evaluation group. For more articles on regulation, please visit our Regulatory Monitor webpage.

The Government finally took heed of the Adam Smith Institute’s advice and put the former state owned turf accountant – the Tote – up for auction. The Tote enjoys a valuable statutory monopoly of pool betting along with an empire of 450 betting shops across the country.

Originally, the Government was committed to selling the Tote at a knock down price to its own management ‘for the good of racing’, although this curious term was never defined by ministers. In reality, racing has been doing very nicely of late. Indeed, there never been so many racing events held in this country. Meanwhile, many prominent racehorse owners remain as tax exiles, huddled in offshore centres or clustered in the Gulf states. They hardly need a hand-out from the British taxpayer.

Auctioning the Tote offers the first real opportunity to identify precisely how much the business is worth. The sale of the Tote ranks as Gordon Brown’s first privatisation measure. There is likely to be interest shown from various bookies, including Gala Coral, BetFred and Paddy Power.

Neil Goulden, Gala Coral's chief executive, is busy writing a letter to the government confirming its interest. Meanwhile, a clutch of private equity firms are likely to show an interest in the Tote. Currently, one of their main problems is to find a rewarding home for their stockpiles of money – a message underlined at last week’s Super Returns conference held in Munich. Significantly, Gala Coral is itself owned by a consortium of private equity houses comprising Candover Investments, Cinven and Permira. All of them have deep pockets

Gerry Sutcliffe, the minister responsible for the sale, told MPs yesterday that the government would begin taking indicative offers straightaway. So, if you fancy a flutter, give him a call. The guide price is £400 million.

Keith Boyfield is the author of At Odds With Taxpayers: Why a Cosy Deal on the Tote is Bad for Punters and the Public. In 2004 the Adam Smith Institute submitted a formal objection to the European Commission concerning the Government’s proposal to sell the Tote to a Racing Trust for a figure well below its market value. The Commission agreed with our complaint and ruled that the Government’s plan constituted an illegal use of state aid.

According to reports in yesterday's Financial Times, the government are finally going to heed our advice and put the Tote (the state-owned betting company) up for auction. As we have consistently argued, from our influential 2004 report At Odds With Taxpayers to the present day, this is the only fair and straightforward method of finding out what the Tote is actually worth, and getting good value on the sale for UK taxpayers.

The government's original plan was to simply sell the Tote to the racing industry and the Tote's management at a knockdown price - "for the good of racing". However, the ASI challenged the government through a formal complaint to the European Commission's Competition Directorate, which twice ruled that the government's backroom deal with the racing industry would constitute an illegal use of state aid.

In any case, the racing industry and the Tote's management have only managed to muster £330 million, well short of the £400 million valuation placed on the Tote by PWC, the accountancy firm.

However, if the Treasury now goes ahead and auctions off the Tote, the price realised may be north of £500 million, according to our City sources. That is good news for UK taxpayers, and good news for racing too - since the government plans to give something back for 'the good of racing'.

However, it is worth remembering that horse racing as a sport and business has never been more prosperous. It would be far better to put the revenue raised towards cutting some taxes and maintaining some sports grounds, so that British kids can get some more exercise.