Parliamentary Connections

One of the biggest governmental fiascos of recent years has to be the chaos that has enveloped the planned Home Information Packs. The smart money now has to be on them never seeing the light of day, although the energy certificates will have to be re-born to comply with European legislation. They, however, are essentially a sideshow.
This is one of those policy cul-de-sacs that governments occasionally back themselves into by making grand pledges to “improve” something that may have its faults, produces lots of grumbles and always creates the feeling that somewhere there is a better way of doing it but actually works, albeit imperfectly.
The key is that whatever is the sudden focus of a politician’s reforming zeal has been in place for a long time and isn’t obviously broken but gets a disproportionate amount of attention devoted to its imperfections, totally obscuring the fact that it works. The hidden trap is that it is something that doesn’t lend itself to perfection so they end up buying short term popularity that comes with long term grief.
The starkest example of being seduced by this folly of striving after perfection where it is truly the impossible dream is the Poll Tax. No-one particularly liked the old property rating system for funding local government but it largely worked. However, in the late 70s the Tories were desperate to embrace what they imagined were popular causes and so pledged to reform the rating system without having a clue how they were going to do it. Rather like Labour with is all too vague pledge to improve the house purchase process.
To cut a long story short, the Tories struggled to find a suitable replacement for the rates, then embarked on a huge assault on local government and its funding which exacerbated the anomalies in the existing system and, eventually, found themselves saddled with the Community Charge – the Poll Tax – because Mrs Thatcher could not contemplate a U-turn on her pledge to abolish the rates. Disaster and the end of Thatcher premiership were the result. Now we have something in the Council Tax that looks incredibly similar to the old rates.
Back to 2007 and we can see that one lesson Labour appears to have learnt is that when you look over the precipice you don’t have to jump.
They actually started pulling back from it in July last year when they dropped the home condition reports from the packs, probably the one element that most potential home buyers would see as potentially useful to them. From then on the packs looked to be just an additional burden and cost in the already fraught and expensive property selling process. It was such a flimsy construction that one assault by the Royal Institution of Chartered Surveyors brought it tumbling down.
The arrival of HIPs is, in theory at least, merely postponed but look for a ministerial champion and it is like watching rabbits scurry back to their burrows when the fox arrives for lunch. With the Gordon Brown new broom about to sweep over the horizon it looks as if HIPs will be swept under the carpet as quietly as possible. Given the opposition has never been a fan of them this is likely to happen with minimal fuss.

As we watch yet another summer downpour, pressure is building up on the government to increase spending on flood defences. It is fast becoming an issue it cannot ignore.
The scientific and political debates about the causes, effects and future pattern of climate change will rage for generations to come but anyone who looks up at the skys and casts their mind back 10 or 20 years knows the stark reality: our climate has changed. When your home or business has been flooded out you aren't interested in the big picture debate: you just want to know how to stop it happening again.
We know we can't influence the weather directly, we also know that whatever contribution we might make to reducing carbon emissions is likely to benefit a future generation and have a negligable immediate effect. This means it comes down to protecting ourselves and our communities against the consequences of changing weather patterns and rising sea levels. Which is where flood defences come in and which is why the pressure from the Association of British Insurers and major insurance groups like Royal and Sun Alliance is intensifying. They need all the support they can get. Anyone in an area affected by flooding should be lobbying their local council, MP and the government for real action on this. The ABI's paper on climate change is focussed and practical and provides a sound background for anyone taking up these issues.
We know that flood defences are not cheap but they do work as they found out in Boscastle this week where a second disaster was averted because of a new defence system.
We also need to government to come to its senses and stop pursuing massive house building schemes on flood plains of which the proposed Thames Gateway development is the largest and most misguided. If this goes ahead future generations will curse us when they are faced with the awful dilemma of how to deal with a major tidal surge up the Thames estuary. Will they raise the (by then much enlarged) Thames flood barrier to protect central London knowing that this will inundate the Thames Gateway new town built on the Thames flood plain? You and I know what the answer will be and it won't be good news for those seduced into setting up home in Thames Gateway.

Private equity has burst on the national consciousness with a vengeance in the past couple of months. The sector has made an art form out of keeping its head down and when it was forced above the parapet it has been found sadly wanting.
Appearances before a hostile Treasury Select Committee were certainly not part of the plan and the leaders of the sector seem to have been ill-prepared for the political onslaught that has confronted them in recent weeks. The lack of political nous has already cost Peter Linthwaite the boss of the trade association – the British Venture Capital Association – his job and the sharp differences of opinion between the heads of the major private equity firms have played into the hands of those who believe that a harsher fiscal regime needs to be imposed on this sector.
Most of the rest of the financial services sector is quietly sitting on the sidelines thinking that this doesn’t have much to do with them and that the worse that can happen as the political debate heads towards its conclusion is that a few private equity fats cats get walloped with a big tax bill they can easily afford to pay. This could be a trifle naïve.
The nature of these political bandwagons is that they tend to roll; or, to mix metaphors and put it more starkly, once the Treasury Select Committee tastes blood it is not going to be inclined to let up the hunt. The question then becomes, what next?
The most immediate implication of any new tax regime will be that the complex market forces that surround the private equity sector will be realigned and the nature of such realignments is usually that there are some unexpected and unintended consequences. These will keep analysts and commentators very well employed over the next few months and will make high profile private equity deals just a little bit thinner on the ground – this could mean that inviting headlines about making the likes of Peter Cullum multi-billionaires won’t be top of the sector’s priorities. More interestingly for the rest of us is the thought of what next for those now reinvigorated in their hunt for “unjustified” tax breaks.
Where will their attention turn? Tax havens and tax exiles – whether corporate or individual – have never been popular with the left and many aspects of offshore domicile could easily come under harsh political scrutiny. This could have huge consequences for many insurance firms and fund management groups. It will certainly make it harder to argue for a generous approach to the problems caused by rapidly rising property prices and the need to review the scope of Inheritance Tax and Capital Gains Tax. The private equity row has decisively changed the political climate so that attempts to lift large numbers of people out of tax regimes they should never have been in will be closely scrutinised to see what extra advantages the so called super rich might also enjoy as a result.
So, as we watch the Treasury Select Committee's investigation unfold and smugly think that it has little to do with the rest of us, we might wan to think again.

In the interests of transparency I ought to point out that Incisive Media currently has private equity owners (Apax) and publishes for the private equity sector.

The clearing of the decks before this week’s changing of the political guard has brought an unexpected bonus for the insurance industry with the announcement by Treasury minister Ed Balls that all travel insurance sales are going to be regulated by the Financial Services Authority from January 2009.
This argument has been running for years with travel agents fighting a fierce but misguided, rearguard action to stay out of the regulatory net. They initially won an exception with a lot of high sounding promises about better training, self regulation and monitoring of consumer complaints. We all knew that was only abit of polite window dressing to cover up the fact that the FSA couldn’t cope with taking on travel agents at the same time as the rest of the general insurance sales show.
Nevertheless, the Association of British Travel Agents had a chance to get their members in line but failed to take it. If ABTA had have introduced a tough training standard, a rigorous self-regulatory regime and done something to reduce the outrageous commissions their members earn off selling travel insurance they may have kept them out of the regulatory net. They failed on every count so no-one should feel sorry for them or their members. I certainly do not believe that statutory regulation per se will many force travel agents to stop selling insurance as ABTA has claimed today. Most of them earn far too much in commissions to chuck it in at the first scent of an FSA inspection.
Of course, what could happen is that the FSA starts to take a dim view of policies where less than 40% of the premium ends up in the hands of the underwriter and enforce some sort of disclosure regime on the market. Now, that would provoke a shake-out.
In the meantime, the industry as a whole will benefit from the Treasury’s change of heart. Travel insurance attracts a disproportionately high level of complaints and critical press coverage, tarnishing the image of the whole industry. Statutory regulation gives everyone a chance to put matters right and whatever job Ed Balls goes onto, the industry should be grateful to him for this legacy.
The only shame is that we have to wait until January 2009 for it to bite.