Happy Friday. I hope The Week That Was will become a fixture of the end of your week. Here’s what caught my eye over the past few days:-
MORTGAGE RATES & RUMOURS
This month, the cost of fixed rate mortgages began to rise. An average two-year fixed rate mortgage has risen 0.04 percentage points since 1st October to 2.24 percent, with 21 lenders upping their rates. The uptick is owing to a jump in swap rates (the rate of interest charges between banks for lending to each other), with the cost filtering through to mortgage rates charged to borrowers. This, in turn, comes after Bank of England governor Mark Carney hinted at the potential need for an interest rate rise to bring inflation nearer to its 2 percent target.
Some intermediaries are encouraging clients to lock into a fixed-rate deal as quickly as possible. The rationale being that, as monetary policy tightens, mortgage rates will only increase. Whether that is the Bank’s plan is anyone’s guess. After all, this has been Carney’s persistent bluff. If he just teases a rate rise, markets will respond near enough as though there has just been a small one. This provides most of the intended benefit – keeping inflation in check and money cheap. Great for borrowers, not so much fun for savers.
AIRBNB’S TAX BILL
Airbnb paid £188,000 in UK taxes in 2016. Its British sister company, Airbnb Payments UK, made a pre-tax profit of £960,000, paying out the £188,000 in corporation tax. Its other UK offshoot, Airbnb UK, reported a pre-tax profit of £463,000, but gave shares to staff, which are tax deductible. Meanwhile, the California-based company collected rental payments for UK property owners (hosts) of £657m, the commission of which is booked through an Irish subsidiary.
Clever accounting has been commonplace since time immemorial, and usually says more about a tax regime than it does business. If companies are finding loopholes, the current system is not fit for purpose. How do you reconcile companies that capitalise on network effects with conventional tax regimes? Labour might be calling for an increase in corporation tax, but taxing profits in a global economy where moving capital is increasingly easy is at best futile, and at worst a dangerous dampener on enterprise and innovation.
One option might be a cash flow tax (CFT), which would tax at the destination of sales, rather than where profit was seen to be created, removing companies’ urge/need to shift their tax base abroad. If you’re interested, take a look at what happened when Estonia introduced CFT. The country’s tax system holds the accolade of most competitive tax system in the OECD by the International Tax Competitiveness Index.
Last year alone, Airbnb, as it was keen to point out, boosted the UK economy by £3.46bn. Unless you believe that state redistribution is the optimal way of ensuring more money in the pockets of ordinary people, perhaps our focus ultimately should be on value to the individual, not tax.
LENDIT UK TAKEAWAYS
Zopa, the P2P lender that announced last year that it’s building a bank, has unveiled its products suite, and says it has almost finished the tech to launch. Speaking at the conference in London this week, CEO Jaidev Janardana said Zopa Bank will offer customers unsecured personal loans with no early repayment charges, and credit cards with no introductory offers but a flat rate fee. It’ll also offer auto-loans and savings and investment products.
Zopa is joining the ranks of several digital-only banks taking on the industry. Janardana told the conference that the company is “in a lot of close communication with Monzo, Starling, Tandem”, and said that they all realise the key competition are the incumbents.
While each has focused on different products, Monzo has stolen the march on customer numbers, with 400,000 users of its top-up cards (who are set to be moved to current accounts over the next two months). Meanwhile, Revolut, which doesn’t have a banking licence and currently offers multi-currency card and free money transfers, has 900,000 users.
And one for the diary: LendIt is launching a new event, BlockFin Summit. The blockchain conference for financial services will be held as part of LendIt USA in April 2018, in San Francisco.