SHELTER SPOILT MY CHRISTMAS PARTY?

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SHELTER SPOILT MY CHRISTMAS PARTY?

One of the nice things about Christmas is the office party.  One of the things I traditionally do is collect together the cracker jokes (or to be precise corny riddles based around a Christmas theme) and challenge all my work colleagues to guess the punchline.  Last week we had the Blackstone Moregate party.  This is a financial services company with which I am connected.  The party was held at Braxted Park in deepest Essex, which, like many stately homes, has built a large marquee in its grounds at which it mounts parties.

Imagine my horror when the first person to pull a cracker, shouted “Robert, there’s no jokes in the crackers”.  I thought he was pulling my leg.  How can you have a cracker without a joke?  Christmas crackers were invented in 1845-50 by a sweet-maker, Tom Smith (so the internet informs me) who thought that a cracker with a sweet or small toy and a joke or riddle would be a fun way to sell the sweets and toys.

Indeed, not only did our crackers have no jokes, they had no toys or other trinkets either.  Instead they contained a glossy slip of paper telling us on one side, “Your Fortune Telling Fish has predicted happiness for those in need, and a cleaner planet”, and on the other that, “By pulling this cracker, you are helping Shelter support thousands of families facing homelessness.  What’s more, by removing all plastic components from these crackers, we’ve prevented more than one million pieces of plastic from inevitably ending up in landfill.  Together, we’re fulfilling the true Spirit of Christmas”.

I am puzzled how preventing me having fun fulfils the true Spirit of Christmas.  Christmas is Christian celebration, the Mass of Christ, to celebrate the birth of Christ.  Celebration and fun go hand in hand.  The Bible tells us that the wise men from the East bought gifts for the baby Jesus.  Surely putting a small gift in a Christmas cracker that can either be used or given to a child to play with reflects the spirit of Christmas.  The spirit of Christmas is surely love.  Having fun with one’s fellow human beings is a reflection of love.  I do not think that the Shelter Puritan Christmas reflects the true spirt of Christmas.  Although much in the Bible is not intended to be taken literally, I doubt that actually the wise men turned up empty-handed and lectured the baby Jesus on how lucky he was to have a manger when many had less than that, so rather than give him a gift they were supporting others less fortunate.  I’m not saying that Jesus would not have approved of such a sentiment, but merely that I don’t think he was against people having fun and that fun and compassion are not mutually exclusive.

Actually, the leaflet also bears the logo of Duni, who I have never heard of but whose website tells me that they “deliver high quality table setting concepts and accessories that help restaurants, caterers and take-away businesses create goodfoodmood”.  It is accordingly not readily apparent why they should want to preach to the likes of me.  It also tells me that some 10 percent of their products are plastic-based and then says, “So why are we selling plastic at all?  One reason is that we actively want to persuade our customers to shift to fibre-based solutions.  If we simply stop selling plastic produces, our current customers may get them from another supplier instead.  And then the environment has gained nothing”.  So if they won’t stop selling plastic products, why should they deprive my friends’ grandchildren of the trinkets that traditionally come in crackers?  Most of these are not plastic, they are metal or paper.  And if I want to give a plastic toy car to a kid and don’t find one in my cracker, I will buy one, “and then the environment has gained nothing” in the same way as if Duni stops making plastic products.

My cracker also included a slip of paper saying, “Describe the word Turkey without saying the words, Bird, Roast, Gobble.  That’s easy.  “This cracker is a turkey which means that it disappoints expectations as it does not contain the traditional joke and trinket that are essential to the traditional spirit of Christmas crackers.

My cracker did contain a strong paper hat though.  None of that flimsy thin tissue paper that will disintegrate quickly in landfill.  Sturdy paper that will take years to dissolve.  Or perhaps I am supposed to keep it and reuse it at next year’s party.

By now you probably think that I am heartless and do not care about the homeless.  I certainly do not care about Shelter, whose website tells me that it helps people through advice, support and campaigning and that it spends 21% of its donations on fundraising.  But that is mainly because I think their campaigning one-sided and that they seem to me unable to recognise that private landlords have a vital role in housing and, it seems to me, want to regulate them out of existence.   I do however support a smaller charity that provides food and accommodation to rough sleepers in Westminster and only spends around 7% of my donations on fundraising – oh, and likes to give the homeless presents at Christmas because it wants them to have the pleasure of unwrapping them.

A merry Christmas to all.  If you want a Shelter Puriton Christmas, feel free to do so.  I am going to eat too much and drink too much and not feel at all guilty!

ROBERT MAAS

WHEN IS TAX AVOIDANCE ACCEPTABLE?

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WHEN IS TAX AVOIDANCE ACCEPTABLE?

Last March the Treasury published a document headed, “Tackling tax avoidance, evasion, and other forms of non-compliance”.  It starts:

“The vast majority of taxpayers, from individuals and the smallest businesses to the largest companies, already pay their fair share toward our vital public services.  This government recognises its duty to that compliant majority to build a fair tax system, and through that system to make sure that those who try to cheat the Exchequer, through whatever means, are caught and forced to pay what they owe”.  It goes on a few paragraphs later:

“But the government must also stop those who try to hide from their obligations.  There remains a minority who try to break the rules, or enter into avoidance schemes …  This government has shown that it will act against this”.

Of course, that was Theresa May’s government, not Boris Johnson’s. 

It was David Cameron’s government that cut the pension annual allowance to £40,000 (and from 2016/17, £10,000 for a 45% taxpayer).  This limitation does not prevent higher sums being paid into the pension scheme but the excess of the contributions over the £40,000 (or £10,000) figure is taxed on the employee at 40% or 45% as if it were income of his.  With a defined benefit pension scheme, i.e. one where the employee is guaranteed a pension of a specified percentage of his final salary, the amount taxed on the employee is the amount by which the value of his pension rights increase in the tax year above the £40,000 or £10,000 figure.

Many people have grumbled about this but, as far as I am aware, very few have stopped working as a result of this tax charge.  A £40,000 pension contribution each year still produces a pension that is greater than most people’s annual salaries.  Not so hospital consultants apparently.  What is good enough for other people is not good enough for them.  They are apparently refusing in droves to work overtime.  The Department of Health and Social Care estimates that one in three family doctors and consultants are turning down extra work in case it increases their pension pots by so much that it leads to a large tax bill.

So the NHS has been trying to come up with a way to avoid this tax charge.  After a number of attempts to placate its staff, it has now said that a doctor can ask the NHS pension scheme to reimburse him or her for the tax bill if it exceeds £2,000 and that the NHS will make a “contractually binding commitment” to make up the lost pension on retirement, i.e. to pay the pension that would have been due had the funds not been depleted by reimbursing the doctor for the income tax charge.

To many people that sounds like tax avoidance.  So how do the government square absolving one privileged section of the populace from the effect of the tax laws with that “duty to that compliant majority to build a fair system”?  They don’t even try to.  Matt Hancock, the Secretary of State for Health and Social Care, has apparently admitted that this “could constitute tax avoidance” but that it is in “the wider public interest” for the State to pay doctors’ tax bills in this way.

Most people would question that.  How can it be in the public interest to relieve a small group of people from their responsibilities to the State?  If it is in the wider public interest to insulate a few people – all of which are likely to be in the top 5% of earners – from a tax charge that Parliament in its wisdom felt fit to impose, why wasn’t it in the wider public interest to give a slug of money to Thomas Cooke and Mothercare and British Home Stores to save the thousands of jobs for less well-off citizens?

Of course if the pension charge is damaging productivity, it should be scrapped.  Parliament should have recognised that it was ill-conceived and bound to reduce productivity.

The £10,000 cap was introduced by clause 23 of the F(No 2)A 2015.  Introducing it to MPs on the Finance Bill Committee the then Minister, David Gauke, explained, “Clause 23 and Schedule 4 ensure that the cost of pensions tax relief is fair, manageable and affordable.  These changes will restrict the benefit of pensions tax relief for the highest earners …  These provisions … are focused on the wealthiest pension savers, to ensure that the benefit they receive is not disproportionate to that of other pension savers” (Hansard 13.10.2015).

Rob Morris for Labour responded, “I have to say that I am delighted by the clause” and later, “I urge my hon Friends enthusiastically to support the clause”.  They duly did!  The debate lasted around 5 minutes with none of the other 28 members of the Committee suggesting that the clause might have any undesirable side effects.

I have nothing against rich doctors.  They work very hard and deserve what they earn.  But so do rich lawyers and industrialists and bankers – and even accountants.  Why is it not in the public interest for such people to be excused tax too?  That is a rhetorical question.  It is fairly clear that, with a general election approaching, the last thing that a Minister hungry for re-election wants is for the NHS to be seen by the public as unable to function.  Who cares whether businesses function?  Not many in the electorate!  What a way to run a tax system!

ROBERT MAAS

ARE SECONDHAND RETIREMENT FLATS UNSALEABLE?

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ARE SECONDHAND RETIREMENT FLATS UNSALEABLE?

“Tens of thousands of families have seen their inheritances decimated after elderly relatives paid inflated prices for new retirement homes that have collapsed in value, an investigation by The Times have found.  Prices of retirement flats in developments by some of Britain’s biggest housebuilders have plummeted by up to 90% in the face of costly annual management charges and ground rents”.

Sometimes you read things that are so incredible that you cannot believe they can possibly be true.  But if the massive investigative power of the Murdoch empire (or at least The Times bit of it) has been delayed on an investigation, I hesitate to cast doubt on the results of their investigation.

Traditionally, as a rough rule of thumb, the cost of a house has been roughly 30% land, 30% construction, 30% development profit and 10% other expenditure.  Accordingly, a 90% reduction in value not only means that the building has become worthless, but in addition that the value of the land itself must have fallen by two-thirds.  That seems so unlikely that the claim of a 90% fall is wholly incredible.  Even if a greedy developer added 100%, the value of the land would have had to have halved.  And people are not wholly stupid.  If a developer of retirement flats tried to sell them at twice the market price of a similar flat in the same area, it is hard to believe that he would have found many purchasers.

Of course, I am not suggesting that in some parts of the country the value of retirement homes has not fallen.  Property prices can fluctuate.  But if they had fallen anything like as much as The Times claims, it is puzzling that, prior to The Times investigation, no-one seems to have noticed such an incredible phenomenon. 

Of course, if “management charges and ground rents” turn out to be much higher than a purchaser expected, the value could well fall to some extent.  The price that someone is prepared to pay for a serviced flat will obviously take account of the amount he will be required to spend each year in service charges and possibly also ground rent (although this is not normally a significant annual figure).  But not by 90%.

The largest builder of retirement homes is probably McCarthy & Stone.  A quick look on their website shows that they tell purchasers how much to expect to have to pay in service charges – and ground rent except where a property is purchased off-plan so the ground rent has probably not yet been fixed.  For example, I can buy a one-bedroom flat at a property in Trowbridge for £175,000 or a two-bedroom flat for £270,000.  They tell me that I can expect to pay a service charge of £39.73 per week for 1 bedroom and £59.66 for 2 bedrooms.  Also, I can expect to pay ground rent of £8.17 per week for 1 bedroom and £9.52 for 2 bedrooms.  That works out (for the two-bedroom flat) as an annual £3,102 service charge and £495 ground rent.

That certainly looks a lot for ground rent.  The website does not state the length of the lease, but it is probably either 99 or 125 years.  £495 a year for 99 years is getting on for £50,000, so a prudent purchaser would take that into account in determining how much he is prepared to pay.  But a prudent purchaser 10 years ago (or his solicitor) would have done so too, and it is unlikely that the ground rent increases every year, or even every 10 years.  It may well however increase at regular intervals (I would expect 15 or 25 years) but again the figures would almost certainly be stated in the lease, so could readily be reflected in the price someone is prepared to pay.

Although the ground rent looks high, the service charge seems modest.  I get for my £3,102 an intruder alarm, a house manager, access to a communal lounge, a camera entry system, 24/7 call system, landscaped gardens and, if I want it, the ability to rent a guest suite, the income from which reduces the service charge.  All those facilities need to be maintained and many are useless unless there are staff on hand to react to alarms, keep the lounge clean, etc.  Commonsense says that the service charge in a retirement development is likely to be greater than in a standard flat, because the main benefit of a retirement home is that there are facilities available to meet the enhanced needs of elderly residents.  Service charges inevitably increase each year in any serviced flat.  A person who chooses to live in such a flat surely cannot believe that the services are provided for free!

The Times tells us that they looked at nearly 500 retirement flats in 15 developments built between 2001 and 2015 and that “almost 80% of the homes sold since their first purchase had fallen in value with an average loss of £38,846.  15 developments is a very small sample but, leaving that aside, it hardly reflects prices “plummeting by up to 90%”.  If a flat has suffered a 90% loss of £38,846, it would have cost only around £43,000.  Even in 2001, it would have been very difficult to find a newly built flat at anything like such a low figure.

The Times did give one sad example.  A lady had bought a flat in a development at (I assume) Risingholm Court, East Sussex in 2009 for £197,000.  She died in 2015.  The executors put the flat on the market at £105,000, but it generated no interest.  They reduced the price to £65,000.  It still did not sell and the estate did not have the funds to pay the service charge (and presumably none of the 12 beneficiaries was willing or able to fund it to do so).  It therefore was forced to sell to Home to Home Exchange Ltd (who generate profits by buying a property for which they need a quick sale and marketing it in a more leisurely manner) which was prepared to pay them only £18,000 plus a percentage of any profit on resale.  Home to Home sold the flat a year later for £53,500.  The total amount received by the estate was £25,875.  The Times describe this as “Beneficiaries lost nearly £200,000, but the flat actually sold for £53,500, so the fall in value was actually only around £144,000.  The extra £28,000 was nothing to do with the fall in value.  It was attributed to the families’ unwillingness to wait until the market improved.  Nevertheless, a loss of £144,000 on a £197,000 property is shocking.

The difficulty is that no-one knows why such a large loss was suffered.  It seems unlikely that it had much to do with increases in the service charge.  One possibility is that there is less demand.  Risingholm Court consists of 47 flats.  It is in the centre of Heathfield but not many of the flats seem to change hands.  There are currently two one-bedroom flats for sale, one at £87,000 and the other at £20,000.  The reason for the huge disparity is not readily apparent.  Most people looking to move to a retirement home are in their 60s or early 70s.  That means that 10 years later most of the residents are likely to be in their 70s or 80s.  It seems likely that a 60-year old purchaser would rather choose a new development where most of the neighbours are likely to be his own age.  That may be the real problem with retirement homes.  That moving into such a home is held out as joining a community, but no-one is keen to be a newcomer in an established community.  If so, the price of peace and security in one’s old age may well be a large part of the cost of the house as retirement flats are unlikely ever to be readily resaleable. 

ROBERT MAAS