Abellio, NS and why the Amsterdam express always goes via Dublin

The sleek intercity train connecting Amsterdam to Rotterdam zips between the two cities in just 40 minutes and, with a walk-up price of just €15.40 (£13.50), puts our fares to shame. The Dutch railways are still nationally owned, operated by Nederlandse Spoorwegen (NS), and the route between the two cities claims a 100% punctuality record. But the Dutch have been in uproar over what might be another record: one of the most shameful tax deals in Europe, and one that throws the spotlight once again on Ireland’s dubious corporate tax policy.

In recent years, the Dutch have been horrified to discover that while they buy their train tickets from a state-owned company, a significant chunk of the money has been funnelled through Ireland. That’s because NS Financial Services, 100% owned by NS, bought the trains, then leased them back to NS, while being incorporated in Ireland. In doing so, its profits have come under Ireland’s 12.5% company tax rate, rather than the 25% prevailing in the Netherlands.

The result? A state-owned Dutch company has, since 1998, paid around €177.2m in tax to Ireland rather than to the Dutch ministry of finance, even though the ministry is the 100% shareholder of NS and the trains were operating entirely in the Netherlands. A further €1bn in accumulated profits is understood to be held in Ireland. Furious Dutch MPs have roundly condemned the Dublin structure as unfair tax planning and tax avoidance.

Anger over this deal has bubbled away for years, and NS has now caved into political pressure. In February it said all train leases had been moved back to a subsidiary in the Netherlands.

British train passengers (and NS owns Abellio, the operator for East Anglia) may be interested to learn that just along from NS’s office at 10 Lower Mount Street, Dublin, lies the office of Eversholt Investment, at number 22 Lower Mount Street. What is Eversholt? One of the UK’s major train leasing companies, which boasts that it has “approximately one quarter of the UK passenger rolling stock leasing market”.

Eversholt UK Rails Ltd made a profit of £43m and had net assets of £764m in 2016. Its Dublin subsidiary Eversholt Investment is one of three companies Eversholt has incorporated in the republic. In 2015 the subsidiary paid £20.7m in dividends, and another £14.7m in 2016. Asked why it has businesses incorporated in Ireland, Eversholt said: “Since December 2015 all leasing income of the group has been subject to UK corporation tax. The Irish structure was put in place by previous owners and the legacy structure is being unwound as part of an ongoing corporate simplification.”

One can only conclude from this that the British public has also, until relatively recently, been denied tax revenues, with the money diverted instead to the Irish exchequer.

These tax structures based around Ireland’s ultra-low tax rate are entirely legal, but morally ambiguous, to put it mildly. Last week the International Monetary Fund identified that fully a quarter of Ireland’s super-soaraway 7.8% GDP growth in 2017 was down to a bit of paper-shuffling whereby Apple books the intellectual property of its iPhones, made in Korea and Taiwan, through an Irish subsidiary. The real economic impact and real jobs generated are negligible.

But the practice does mean that Ireland picks up tax revenues from Apple and other multinationals which by any moral measure should be paid elsewhere at a higher rate. Ireland’s corporation tax haul soared from £3.5bn in 2011 to £8.2bn last year. And now that the UK is departing the EU, Ireland has lost a friend in Europe.

Dublin may regard its 12.5% rate as a “red line” in negotiations, but without London’s resistance, it can’t be long before a Franco-German alliance demands harmonisation of corporation tax across the EU. The days of “leprechaun economics” are surely numbered.

Act now to save the UK’s high streets, Mr Hammond

There’s a new trend sweeping the high street this spring but it’s not the lilac blazers and cowboy boots predicted by the fashion press: it’s shrinking stores.

It is particularly in vogue in the struggling department store sector, where Debenhams wants to prune at least 30 stores and House of Fraser wants to slash its high street footprint by a third.

The death of the department store has long been predicted as shopping habits change, and after a year in which pre-tax profits tumbled 85%, Debenhams didn’t look too lively when it updated investors last week.

After a series of missteps, boss Sergio Bucher, hired 18 months ago to lead a turnaround, is under growing pressure to show he can dig the retailer out of a hole that has also seen the company’s value crash from more than £1bn to just short of £300m in three years.

His grand plan is to turn its dowdy department stores into places for a day out, with space for restaurants, gyms and hair salons, to give them more oomph in a digital age. But the current retail backdrop is increasingly unforgiving, as spending falters at a time when the cost of running shops is rising.

Bucher – who joined Debenhams from Amazon – railed against a business-rates regime that gives internet rivals a leg up. “The government is responsible to make sure we have an even playing field,” he said. “Right now, business rates give an unfair advantage to online pure-play competitors.”

The numbers are big. In April, the struggling retail sector was hit with a £226m increase in rates, according to advisory firm Altus Group. Debenhams pays £80m a year.

Last year the chancellor Philip Hammond promised to look at how digital players are taxed, but since then there has been a deafening silence. What will it take to get the government to act?

Interest rate rise won’t be blown off the agenda by bad weather

After basking in temperatures warmer than parts of California in recent days, the freezing conditions and heavy snows of last month might seem a distant memory. But over at Threadneedle Street, the “beast from the east” has policymakers at the Bank of England fretting over the health of the economy.

GDP growth is forecast to have fallen by half as diggers and cranes fell idle and shoppers stayed at home. Inflation dropped further than expected and retail sales figures were particularly weak. Mark Carney, the Bank’s governor, hinted rates could remain on hold at 0.5% as a consequence.

But one of the other nine members of the monetary policy committee set to make a call on 10 May, Michael Saunders, reckons the fears are overblown. He says the British economy could withstand rates as high as 2% in the coming years.

But the Bank needs to be careful. Unlike Michael Fish, who could only watch when he was proven badly wrong about the great storm of 1987, the Threadneedle Street forecasters have the power to make the economic weather. The MPC needs to show caution as Britain leaves the EU, with Brexit having the potential to blow the economy drastically off course. Getting the decision wrong could act as a drag on the economy just when it needs most support.

Still, there are early signs of strength. Saunders reckons GDP growth could be as high as 2% this year (the IMF is forecasting 1.6%), while the return of real wage growth will help hard-pressed British workers and could add to inflation.

Initial estimates for sluggish growth from bad weather are typically revised higher at a later point. Meanwhile, the Bank also needs to raise interest rates so it can deal with the next recession, whenever it comes.

For these reasons, higher interest rates this year seem as inevitable as the recent mini-heatwave being followed by April showers. The only question is a matter of timing.