Teresa Hunter: It's no secret, our leaders have lost touch with reality

Published on Saturday 28 November 2009 12:22

IT TAKES a lot to stun an old cynic like me, but revelations that Lloyds shareholders were asked to vote through a merger with HBOS without being given full facts beggars belief.

It is more shocking than the fairy tales spun in the run up to the Iraq war. Evidence for war, combined with Tony Blair's Boys' Own sound bites, seemed laughable to me at the time. The idea that a bankrupt desert state had weapons of mass destruction which could threaten us within 45 minutes seemed so preposterous, I wouldn't expect a half-wit to believe it. Alas, I overestimated our politicians.

When it came to asking shareholders to approve a merger between two banks, it never occurred to me that all material information would not be fully disclosed. Yes, we knew HBOS was receiving short-term liquidity from the Bank of England, but that was on a different scale from last week's revelations.

So my jaw nearly dropped to Australia when it was revealed that HBOS was propped up by a secret 25 billion taxpayer loan. The very language suggests those governing us have lost touch with reality. Secrets are the stuff of romantic mysteries and spy novels, not the world of business.

It's not good enough for the Treasury or Bank of England to say the loans had to be kept secret to prevent panic. That's a separate issue from arrangements for a merger. Shareholders should have been told the truth about the basket case they were acquiring, in which case they would almost certainly have voted against. The law says so. Financial Services Authority prospectus regulations require the inclusion of all "necessary information, which is the information necessary for investors to make an informed assessment of the assets and liabilities, financial position, profits and losses" of those involved in a deal, and further requires this information be presented in "a form which is comprehensible and easy to analyse".

The prospectus was passed by a string of regulators, implying they all colluded with the government strategy of leaving Lloyds shareholders alone, rather than all taxpayers, to bail out yet another failed bank.

It's not surprising investors expressed their disillusionment at a meeting in Birmingham last week, going as far as to accuse the government of embezzling Lloyds shareholders' funds. Nor is the litigation which looks set to follow. Shareholders have joined to form Lloyds Action Now and plan to applying for a judicial review on the grounds that they would have rejected the merger proposals had they been in full possession of the facts.

Go with inflation flow

Anyone who wonders about the future path of inflation should consider this. The Bank of England has been quietly adjusting its own pension portfolio, so that it is 90 per cent invested in index-linked gilts, nicely inflation-proofed, thank you very much.

In a year when the bank has been pumping money into the economy by printing the folding stuff, and kept interest rates close to zero, it is interesting to note that it has cut its 22.3 per cent holding of fixed-interest government stock, which offers no inflation protection, from 22 per cent to 10 per cent, according to its annual report.

No Lloyds Banking Group exposure I see. No wonder the authorities could afford to be cavalier about insisting shareholders get correct information. Indeed, no banking shares whatever.

Of course we must point out that this in no way implies that the Bank has used its inside information about the state of our banks or prospects for inflation to influence decisions about its own pensions.

How could it? The pension fund is managed at arms' length.

Tax relief axe poised

Any higher rate taxpayers considering making pension contributions this year might be advised to bring them forward before Chancellor Alistair Darling stands up to deliver the pre-budget report on 9 December.

Cutting back pension tax relief to higher earners looks a distinct possibility at some stage, not least because in his April budget the Chancellor effectively broke the link between marginal tax rates and pension contributions.

In our new age of austerity, tax relief on pensions makes for easy pickings, particularly for those earning more than 43,875 and saving for their retirement. Whether the axe comes sooner or later is anyone's guess.

Lifting the Lib

There's been much talk of how a hung parliament could lead to chancellor Vince Cable, to almost universal applause.

Well, later this week we'll find out just how much stomach there might be for a Liberal Democrat chancellor when leader Nick Clegg unveils his party's tax policies to take them through the next election.

If I were a betting woman, I'd guess they'd remove all earnings below 10,000 from tax, realigning income tax and capital gains tax, and slash the CGT exempt threshold from around 10,000 to about 2,000.

They have already announced plans to surcharge properties worth more than a million, and to end higher rate tax relief on pensions.

With politics as with life… be careful what you wish for.