What's behind the headlines demanding a return to the office?

Instead of reimagining the world of work, our censorious press backs those whose wealth depends on the commuter-driven status quo writes Hettie O'Brien in The Guardian

‘Nobody can think that risking their health to save a multimillion-pound sandwich chain is a sensible endeavour.’ Photograph: Peter Summers/Getty Images

 With a deadly virus smaller than a speck of dust still circulating, it’s natural that many office workers would rather be doing their jobs from home. Though this inadvertent mass experiment in home working hasn’t been universally enjoyable, particularly for those living in cramped accommodation or juggling work and children, it has at least freed many from commuting, allowed some to spend more time in their local communities, and made cities less congested as a result.

But this isn’t what you’d think from the censorius press coverage of home working, which has treated it as a collective sickness that is stalling Britain’s recovery. Last week, the Daily Telegraph ran a piece stating that workers remaining at home will be more vulnerable to redundancy, with bosses finding it far easier to hand P45s to employees they haven’t seen during the pandemic. Its language was telling: people must “go back to work”, as if they are not already working.

An article in the Daily Mail reprimanded office workers for “boasting smugly about their exciting new ‘work/life balance’ and the amount of money they are saving on their railway season tickets”, as if these were morally reprehensible acts. “If your job can be done from home it can be done from abroad, where wages are lower”, TV presenter Kirstie Allsopp warned on Twitter, adding: “if I had an office job I’d want to be first in the queue to get back to work and prove my worth”. The meaning of these veiled threats is clear: if you stay at home, expect to lose your job.

Beneath this scolding is a message directed at those who aren’t complying with the old status quo. The service economy in financialised city centres depends on the consumption patterns of office workers: commuting every day involves not just buying a sandwich or a coffee from Pret, but helping to prop up an entire system. Were it not for the vast numbers flowing out of stations every morning, the capacity to extract astronomical rents, both from commercial and residential properties, would shrivel – and city centres would no longer be soulless corporate landscapes where multiple franchises of the same chain restaurant can be found within walking distance of each other.

Warnings from the CBI that city centres could become “ghost towns” if commuters never return belie reality: these have long been sterile places devoid of character – it’s just that in the past, it seemed unlikely they might change.

A recent YouGov poll gauging enthusiasm for this back-to-work mantra found that support for workplaces “encouraging [workers] to return to the office” correlated with age: 44% of over-65s agreed with this statement, while only 25% of 25- to 49-year-olds did so. That the over-65s, the age group least likely to be returning to the office, are the most enthusiastic supporters of this principle is unsurprising. The idea that you’ve got to be physically present to prove your value to your boss encodes an entire attitude to work – one firmly rooted in the Taylorist management doctrine of the 20th century, when employees were expected to conform to the objectives of the firm in exchange for a permanent contract. Today, the expectation of worker “flexibility” is more widespread, and surveillance that once relied on office overseers can now be conducted online (indeed, since the start of the pandemic, the demand for software that monitors workers while they’re working from home has surged).

Despite the media paranoia over home working, many managers don’t really seem to care that people aren’t back in the office. Some companies have said they will move to remote working full time, or at least allow employees to work this way some of the time. The people who seem most concerned about going back to work aren’t workers, or managers, but rentiers – a category that applies to many retiree readers of the Daily Mail and the Telegraph, a demographic that is likely to have paid off mortgages, receives generous pensions and contains a higher proportion of private landlords, and to the rentiers who have funneled their wealth into assets such as real estate and office spaces concentrated in urban centres. Until recently, both of these groups were relatively insulated from economic shocks affecting the labour market, their wealth dependent on the continuation of an old normal that now seems more precarious than ever.

The monstering of home working doesn’t really stem from concern about workers’ productivity or mental wellbeing. Instead it’s an attack on those who dare flout the rules that sustained the old normal. The survival of city centres, and by extension the businesses that extract rent from them, relies upon everyone playing their part – most of all workers. Telling people they must return to the office whatever the circumstances is a way to circumvent critique and insist upon the old normal returning, as if repeating a mantra were all it took to make it true.

When newspapers shriek that workers must return to the office, despite the reality that many don’t want to, they’re voicing what the sociologist Luc Boltanski called a “system of confirmation” – an utterance that is neither truth nor fact, but rather a way of reinforcing the status quo. But nobody can think that risking their health to save a multimillion pound sandwich chain is a sensible endeavour.

Since the pandemic began, societal changes that were supposed to be impossible have happened with relative ease. Workers were sent home overnight, and it now seems that many can do their jobs, if not fully remotely, then at least partially from home. Already, many people are talking of moving away from big cities to avoid the costs of high rent and long commuting times. And behind the claims of economic catastrophe caused by a drop in commuting, some independent businesses have reported that they are thriving. Instead of asking what will happen to city centres if the commuters never returned, we should be asking: what would the city, and the economy, look like if they weren’t organised this way?

Misconceptions about Art 370 - Is the Indian government misleading its people?

Why Marry?

by Girish Menon

In response to my piece Modern Marriages - For Better or For Worse, an erudite reader asked ‘Why Marry?’ This person also asked whether one could lead a better productive life without marrying? In this piece, this writer will give some views on the matter.

In India, despite all the modernity, sex before marriage and outside marriage is still frowned upon. Until consensual sex becomes as common place as meeting a friend for coffee, there will always be some supporters of marriage.

This also begs the question whether both individuals in a marriage are content with the quantity and quality of sex available?

Another question that arises is whether the absence of sex reduces the productive potential of an individual. I will plead ignorance on this matter too.

The economic rationale for marriage used to be property inheritance. Much has been written about it which I will not revisit. However, in these days of ‘reliable’ paternity tests, the need for marriage to ensure that property goes to the sperm donor’s offspring is obsolete.

Of course, I am of the view that no child should inherit their parents’ property. But there needs a lot of change in societal arrangements for this to happen; something which I don’t think will happen in my lifetime.

What of the children born of a sexual union, whether consensual or accidental? If it is consensual, then the couple should have a plan for raising their child. As for ‘accidental’ children - there shouldn’t be too many due to the availability of many pregnancy termination choices available for women in the market place.

What impact will this have on the population of a society? If trends are to be believed, all over the world where women have shown an upward trajectory in economic independence the rate of population growth has declined significantly. This augurs well even from a climate change perspective as the demand for resources could dwindle with a rapidly declining population.

Could there ever be a time when one would have to exhort women to produce more children? I don’t think that will be ever be necessary in the future, because by the time we reach this Utopia medical technology may enable production of full grown adults. This will also take away the burden of child care from either cohabiting partner leaving them free to pursue their potential.

Who owns the country? The secretive companies hoarding England's land

Multi-million pound corporations with complex structures have purchased the very ground we walk on – and we are only just beginning to discover the damage it is doing to Britain. By Guy Shrubsole in The Guardian 


Despite owning 15,000 hectares (37,000 acres) of land, managing a property portfolio worth £2.3bn and having control over huge swaths of central Manchester and Liverpool, very few people have heard of a company named Peel Holdings. It owns the Manchester Ship Canal. It built the Trafford Centre shopping complex and, more recently, sold it in the largest single property acquisition in Britain’s history. It was the developer behind the MediaCityUK site in Salford, to which the BBC and ITV have relocated many of their operations in recent years. Airports, fracking, retail – the list of Peel business interests stretches on and on.

Peel Holdings operates behind the scenes, quietly acquiring land and real estate, cutting billion-pound deals and influencing numerous planning decisions. Its investment decisions have had an enormous impact, whether for good or ill, on the places where millions of people live and work.

Peel’s ultimate owner, the billionaire John Whittaker, is notoriously publicity-shy: he lives on the Isle of Man, has never given an interview and helicopters into his company’s offices for board meetings. He built Peel Holdings in the 1970s and 80s by buying up a series of companies whose fortunes had decayed, but which still controlled valuable land. Foremost among these was the Manchester Ship Canal Company, purchased in 1987. The canal turned out to be valuable not simply as a freight route, but also because of the redevelopment potential of the land that flanked it.

Half of England is owned by less than 1% of the population



Peel Holdings tends not to show its hand in public. Like many companies, it prefers its forays into public political debate to be conducted via intermediary bodies and corporate coalitions. In 2008, it emerged that Peel was a dominant force behind a business grouping that had formed to lobby against Manchester’s proposed congestion charge. The charge was aimed at cutting traffic and reducing the toxic car fumes choking the city. But Peel, as owners of the out-of-town Trafford Centre shopping mall, feared that a congestion charge would be bad for business, discouraging shoppers from driving through central Manchester to reach the mall. Peel’s lobbying paid off: voters rejected the charge in the local referendum and the proposal was dropped.

Throughout England, cash-strapped councils are being outgunned by corporate developers pressing to get their way. The situation is exacerbated by a system that has allowed companies like Peel to keep their corporate structures obscure and their landholdings hidden. A 2013 report by Liverpool-based thinktank Ex Urbe found “well in excess of 300 separately registered UK companies owned or controlled” by Peel. Tracing the conglomerate’s structure is an investigator’s nightmare. Try it yourself on the Companies House website: type in “Peel Land and Property Investments PLC”, and then click through to persons with significant control. This gives you the name of its parent company, Peel Investments Holdings Ltd. So far, so good. But then repeat the steps for the parent company, and yet another holding company emerges; then another, and another. It’s like a series of Russian dolls, one nested inside another.

Until recently, it was even harder to get a handle on the land Peel Holdings owns. Sometimes the company has provided a tantalising glimpse: one map it produced in 2015, as part of some marketing spiel around the “northern powerhouse”, showcases 150 sites it owns across the north-west. It confirms the vast spread of Peel’s landed interests – from Liverpool John Lennon airport, through shale gas well pads, to one of the UK’s largest onshore wind farms. But it’s clearly not everything. A more exhaustive, independent list of the company’s landholdings might allow communities to be forewarned of future developments. As Ex Urbe’s report on Peel concludes: “Peel schemes rarely come to light until they are effectively a fait accompli and the conglomerate is confident they will go ahead, irrespective of public opinion.”

While Peel Holdings is unusual for the sheer amount of land it controls, it is also illustrative of corporate landowners everywhere. Corporations looking to develop land have numerous tricks up their sleeve that they can use to evade scrutiny and get their way, from shell company structures to offshore entities. Companies with big enough budgets can often ride roughshod over the planning system, beating cash-strapped councils and volunteer community groups. And companies have for a long time benefited from having their landholdings kept secret, giving them the element of surprise when it comes to lobbying councils over planning decisions and the use of public space. But now, at long last, that is starting to change. If we want to “take back control” of our country, we need to understand how much of it is currently controlled by corporations.

In 2015, the Private Eye journalist Christian Eriksson lodged a freedom of information (FOI) request with the Land Registry, the official record of land ownership in England and Wales. He asked it to release a database detailing the area of land owned by all UK-registered companies and corporate bodies. Eriksson later shared this database with me, and what it revealed was astonishing. Here, laid bare after the dataset had been cleaned up, was a picture of corporate control: companies today own about 2.6m hectares of land, or roughly 18% of England and Wales.

In the unpromising format of an Excel spreadsheet, a compelling picture emerged. Alongside the utilities privatised by Margaret Thatcher and John Major – the water companies, in particular – and the big corporate landowners, were PLCs with multiple shareholders. There were household names, such as Tesco, Tata Steel and the housebuilder Taylor Wimpey, and others more obscure. MRH Minerals, for example, appeared to own 28,000 hectares of land, making it one of the biggest corporate landowners in England and Wales.

Gradually, I pieced together a list of what looked to be the top 50 landowning companies, which together own more than 405,000 hectares of England and Wales. Peel Holdings and many of its subsidiaries, unsurprisingly, feature high on the list. But while the dataset revealed in stark detail the area of land owned by UK-based companies, it did nothing to tell us what they owned, and where.

That would take another two years to emerge. Meanwhile, Eriksson had been busy at work with his Private Eye colleague Richard Brooks and the computer programmer Anna Powell-Smith, delving into another form of corporate landowner – firms based overseas, yet owning land in the UK. Of particular interest were companies based in offshore tax havens, a wholly legal but controversial practice, given the opportunities offshore ownership gives for possible tax avoidance and for concealing the identities of who ultimately controls a company. Further FOI requests to the Land Registry by Eriksson hit the jackpot when he was sent – “accidentally”, the Land Registry would later claim – a huge dataset of overseas and offshore-registered companies that had bought land in England and Wales between 2005 and 2014: some 113,119 hectares of land and property, worth a staggering £170bn.

 

Victoria Harbour building at Salford Quays, owned by Peel Holdings. Photograph: Mike Robinson/Alamy

Private Eye’s work revealed that a large chunk of the country was not only under corporate control, but owned by companies that – in many cases – were almost certainly seeking to avoid paying tax, that most basic contribution to a civilised society. Some potentially had an even darker motive: purchasing property in England or Wales as a means for kleptocratic regimes or corrupt businessmen to launder money, and to get a healthy return on their ill-gotten gains in the process. This was information that clearly ought to be out in the open, with a huge public interest case for doing so. And yet the government had sat on it for years.

The political ramifications of these revelations were profound. They kickstarted a process of opening up information on land ownership that, although far slower and less complete than many would have liked, has nevertheless transformed our understanding of what companies own. In November 2017, the Land Registry released its corporate and commercial dataset, free of charge and open to all. It revealed, for the first time, the 3.5m land titles owned by UK-based corporate bodies – covering both public sector institutions and private firms – with limited companies owning the majority, 2.1m, of these. But there were two important caveats. Although we now had the addresses owned by companies, the dataset omitted to tell us the size of land they owned. Second, the data lacked accurate information on locations, making it hard to map.

Despite this, what can we now say about company-owned land in England and Wales? Quite a lot, it turns out. We know, for example, that the company with the third-highest number of land titles is the mysterious Wallace Estates, a firm with a £200m property portfolio but virtually no public presence, and which is owned ultimately by a secretive Italian count. Wallace Estates makes its money from the controversial ground rents market, whereby it owns thousands of freehold properties and sells on long leases with annual ground rents.

We also now know that Peel Holdings and its numerous subsidiaries owns at least 1,000 parcels of land across England – not just shopping centres and ports in the north-west, but also a hill in Suffolk, farmland along the Medway and an industrial estate in the Cotswolds. Councils, MPs and residents wanting to keep an eye on what developers and property companies are up to in their area now have a powerful new tool at their disposal.

The data is full of odd quirks and details. Who would have guessed, for instance, that the arms manufacturer BAE owns a nightclub in Cardiff, a pub on Blackpool’s promenade and a service station in Pease Pottage, Sussex? It turns out that they are all investments made by BAE’s pension fund; if selling missiles to Saudi Arabia doesn’t prove profitable enough, it appears the company’s strategy is to make a few quid out of tired drivers stopping for a coffee break off the M23.

The data also lets us peer into the property acquisitions of the big supermarkets, which back in the 1990s and early 2000s involved building up huge land banks to construct ever more out-of-town retail parks. Tesco, via a welter of subsidiaries, owns more than 4,500 hectares of land – and although much of this comprises existing stores, a good chunk also appears to be empty plots, apparently earmarked for future development. One analysis by the Guardian in 2014 estimated that the supermarket was hoarding enough land to accommodate 15,000 homes. More recently, however, Tesco’s financial travails have prompted it to sell off some of its sites. Internet shopping and pricier petrol have made giant hypermarkets built miles from where people live look less and less like smart investments. In 2016, Tesco’s beleaguered CEO announced the company was looking to make better use of the land it owned by selling it for housing, and even by building flats on top of its superstores. As for the supermarkets’ internet shopping rival Amazon, whose gigantic “fulfilment centres” resemble the vast US government warehouse at the end of Raiders of the Lost Ark – well, Amazon currently has 16 of those across the UK. And it has grown very quickly: all but one of its property leases have been bought in the past decade.

Companies are increasingly taking over previously public space in cities, too. Recent years have seen a proliferation of Pops – privately owned public spaces – as London, Manchester and other places redevelop and gentrify. You know the sort of thing: expensively landscaped swaths of “public realm”. Aesthetically, they are all very nice, but try to use Pops for some peaceful protest, and you are in for trouble. They are invariably governed by special bylaws and policed by private security, itching to get in your face. I once found this to my cost when staging a tiny, two-person anti-fracking demo outside shale-gas financiers Barclays bank in Canary Wharf. Canary Wharf is partly owned by the Qatari Investment Authority, and – bizarrely – photography is banned. Within a minute of us taking the first selfie on our innocuous protest, security guards had descended en masse, and we spent the next hour running around Canary Wharf trying to evade them.

The Land Registry’s corporate ownership dataset contains millions of entries, and much remains to be uncovered. Some of the information appears trivial at first glance – a company owns a factory here, an office there: so what? But as more people pore over the data, more stories will likely emerge. Future researchers might find intriguing correlations between the locations of England’s thousands of fast-food stores and the health of nearby populations, be able to track gentrification through the displacement of KFC outlets by Nando’s restaurants, and so on.

But to really get under the skin of how companies treat the land they own, and the wider repercussions, we need to zoom in on the housing sector, where debates about companies involved in land banking and profiteering from land sales are crucial to our understanding of the housing crisis.

One particularly controversial aspect of the housing debate that has generated much heat, and little light, in recent years is the debacle over land banking, the practice of hoarding land and holding it back from development until its price increases.

In 2016, the then housing secretary, Sajid Javid, furiously accused large housing developers of land banking and demanded they “release their stranglehold” on land supply. Housebuilders, not used to such impertinence from a Conservative minister, hit back. “As has been proved by various investigations in the past, housebuilders do not land bank,” a spokesperson for the Home Builders Federation told the Telegraph. “In the current market where demand is high, there is absolutely no reason to do so.”

So who is right? This is a complex area, but one that is important to investigate. Can the Land Registry’s corporate ownership data help us get to the bottom of it?

It is common for UK pension funds and insurance companies to buy up land as a long-term strategic investment. Legal & General, for example, owns 1,500 hectares of land that it openly calls a “strategic land portfolio … stretching from Luton to Cardiff”. Its rationale for buying land is simple: “Strategic land holdings are underpinned by their existing use value [such as farming] and give us the opportunity to create further value through planning promotion and infrastructure works over the medium to long term.”

When I looked into where Legal & General’s land was located, I noticed something odd. Nearly all of it lay within green belt areas, where development is restricted. The company appears to have bought it with the aim of lobbying councils to ultimately rip up such restrictions and redesignate the site for development in future.

In the case of pension funds lobbying to rip up the green belt, it’s the planning system that is (rightly) constraining development, not land banking itself. And none of this implicates the usual bogeymen of the housing crisis, the big housebuilding companies. By examining what these major developers own, is it possible to say whether they’re actively engaged in land banking?

There is no doubt that many of the major housebuilding companies own a lot of land. What’s more, housing developers themselves talk about their “current land banks” and publish figures in annual reports listing the number of homes they think they can build using land where they have planning permission. As the housing charity Shelter has found, the top 10 housing developers have land banks with space for more than 400,000 homes – about six years’ supply at current building rates.

Prompted by such statistics, the government ordered a review into build-out rates in 2017, led by Sir Oliver Letwin. Yet when Letwin delivered his draft report, he once again exonerated housebuilders from the charge of land banking. “I cannot find any evidence that the major housebuilders are financial investors of this kind,” he stated, pointing the finger of blame instead at the rate at which new homes could be absorbed into the marketplace.

Part of the problem is that the data on what companies own still isn’t good enough to prove whether or not land banking is occurring. The aforementioned Anna Powell-Smith has tried to map the land owned by housing developers, but has been thwarted by the lack in the Land Registry’s corporate dataset of the necessary information to link data on who owns a site with digital maps of that area. That makes it very hard to assess, for example, whether a piece of land owned by a housebuilder for decades is a prime site accruing in value or a leftover fragment of ground from a past development.

 

Shoppers in the Trafford Centre, a shopping mall until recently owned by Peel Holdings. Photograph: Oli Scarff/AFP/Getty

Second, the scope of Letwin’s review was drawn too narrowly to examine the wider problem of land banking by landowners beyond the major housebuilders. As the housing market analyst Neal Hudson said when it was published, the “review remit ignored the most important and unknown bit of the market: sites and land ownership pre-planning.”

In fact, if Letwin had raised his sights a little higher, he would have seen there is a whole industry of land promoters working with landowners to promote sites, have them earmarked for development in the council’s local plan, and increase their asking price. As investigations by Isabelle Fraser of the Telegraph have revealed: “A group of private companies, largely unknown to the public, have carved out a lucrative niche locating and snapping up land across the UK.”

One such company, Gladman Land, boasts on its website of a 90% success rate at getting sites developed. Few of these firms appear to own much land themselves; rather, they work with other landowners, perhaps signing options agreements or other such deals. Consultants Molior have estimated that between 25% and 45% of sites with planning permission in London are owned by companies that have never built a home.

This gets us to the heart of the housing crisis. Sure, we need housing developers to build more homes. But most of all we need them to build affordable homes. And developers that are forced to pay through the nose to persuade landowners to part with their land end up with less money left over for good-quality, affordable housing. By all means, let’s continue to pressure housebuilders whenever they try to renege on their planning agreements. But at root, we have to find ways to encourage landowners of all kinds – corporate or otherwise – to part with their land at cheaper prices.

Since the first appearance of modern corporations in the Victorian period, companies have expanded to become the owners of nearly a fifth of all land in England and Wales. Much of this land acquisition is uncontested: space for a factory here, an office block there. But some of it has proven highly controversial. Huge retailers and property groups like Tesco and Peel Holdings have eroded town centres and high streets by amassing land for out-of-town superstores, and lobbied to maintain a culture of car dependency. Multinational agribusinesses have exacerbated the industrialisation of our food supply and accelerated the decline of small-scale farmers. Property firms have made tidy profits from the privatisation of formerly public land – which might otherwise have gone into the public purse, had previous governments treated their assets more wisely.

Though the veil of secrecy around company structures and what corporations own is at last lifting, thanks to recent data disclosures by government, there’s still much that needs to be done to make sense of this new information. The Land Registry needs to disclose proper maps of what companies own if we are to get to the bottom of suspect practices like land banking, and give communities a fighting chance in local planning battles.

Legally obliged to maximise profits for their shareholders, and biased towards short-term returns, companies make for poor custodians of land. Nor are corporate landowners capable of solving the housing crisis. Hoarded, developed, polluted, dug up, landfilled: the corporate control of England’s acres has gone far enough.

Will UK house prices ever rise again?

The recent gains could turn out to be a huge historical anomaly writes Merryn Somerset Webb in The FT

If there is one thing that drives financial journalists in the UK to distraction it is celebrities. Every weekend the money pages of newspapers carry interviews with various semi-famous people asking them about how they invest. Every weekend the semi-famous people say they don’t invest in the stock market or save into a pension because it is too complicated. They invest in property instead. Buy houses, they say, and you have something “you can see”: You “know where you are with bricks and mortar”. 

The problem with this is simple. You might think you know where you are with bricks and mortar. But the truth is that you probably don’t — unless you have a complete grasp of how population trends, interest rates and political priorities have shifted over the past century and how they might shift again over the next. Just because the period in which most of us have become adults has been one of almost nonstop property price growth does not mean that it makes sense to extrapolate that growth indefinitely. It might not.

The latest Deutsche Bank Long Term Asset Return Study (written by Jim Reid and his team of analysts) takes a proper look at the evidence. It turns out that fast-rising house prices in the UK are a relatively recent phenomenon. They have risen on average 3 per cent a year in inflation-adjusted terms since 1939 (a total of 834 per cent). But before that they mostly fell — 50 per cent in inflation-adjusted terms from 1290 to 1939. These data are obviously not precise — Reid points out that the housing market has changed beyond all recognition over the past 800 years and that the numbers have been collated using “many assumptions”. However, you get the general idea. Perhaps our celebrities should be spending less time assuming their financial future will be the same as their financial past, and more time asking two questions: What changed in the middle of the last century? And will it change back? 

The answer to the first question brings us to demographics. The world began to change in 1796 when Edward Jenner introduced the first vaccine for smallpox (the major killer of the time) and so created a dramatic rise in life expectancy and the beginnings of a rise in the number of people in the world: the global population rose by a mere 0.17 per cent a year until 1820 but 0.98 per cent a year from then to 2000 (this rise was what allowed the industrial revolution to happen, by the way). However, it is the past 70 years — the ones most of us use as our map for the future — that have been genuinely dramatic: from 1950 to 2000 the global population more than doubled, from 2.5bn to around 6.1bn.

That has had all sorts of consequences — ones that have long looked mystifying if you don’t understand population but which have looked rather predictable if you do. If you had looked properly at birth rates in the G7 in the postwar period you would not have been surprised that inflation and unemployment rose in the 1970s as the baby boomers began to both “jostle for their first jobs” and to consume global resources on a huge scale, says Paul Hodges chairman of London-based strategy consultancy IeC. 

You would have expected stock markets to start to boom in the 1980s as those same boomers moved into their thirties and forties and started to pour cash into investments to finance their retirements. And you surely would have known that all those babies growing up in the affluent stability of the postwar world would want to form their own households and would be encouraged by rising global affluence to want to do so in bigger and better houses than their parents. You might also have noted the political power of the boomers and guessed that the regulatory environment would be shaped to suit them — think tax relief on mortgage payments and no capital gains tax on the sale of primary homes in the UK, for example. And so it began. Demand pushed up prices — and pushed them up even more in low-supply Britain than elsewhere. 

As prices rose baby boomers figured that homes looked like a hot tip of an investment and, enabled by the rise of the fiat money system (the final collapse of any link to the dollar to gold in 1971 meant money supply was able to rise with the population), bought more. Nearly half the 2.5m buy-to-let investors in the UK now say they are “pension pot” investors. They own one house to live in and another as an investment. Perhaps, says Reid, “housing is the ultimate population-sensitive asset”. “As a small island with heavy control over new home building, high population growth but limited supply has put massive upward pressure on prices over the last several decades.” 

He is right of course. But it is worth noting that the whole thing could never have happened without the full support of the central banks. One of the consequences of population growth was the abolition of a formal connection between currencies and gold, something that has allowed governments and central banks to print money and shift interest rates around as they like. That, in turn, has given us a long period of very low interest rates — which have shoved a rocket booster under house prices. In the UK, the actual monthly cost of buying a home fell dramatically after the financial crisis and has been more or less flat for several years. Even as the price of houses has risen, the fall in interest rates has kept the mortgage cost of buying much the same. 

On to the second question: will this all change back? Is it possible that we might be moving into an age of static to falling house prices? It is. Listen to the pessimists and you might think the global population will soon double again. But the rate of growth peaked long ago (in 1968 at just over 2 per cent a year). It is now down to more like 1 per cent. The main driver behind the extraordinary past 70 years is receding: the baby boomers are more likely now to be sellers than buyers. You could argue that the attractiveness of the UK as a place to live means our population will rise indefinitely and so will property prices — but to do so you would have to pile a lot of assumptions on top of each other: that the UK remains desirable; that it remains desirable enough that people are happy to pay a hefty premium for a house in it; and that it remains open to high levels of immigration. 

At the same time interest rates are beginning to drift up again. Jim Reid notes that the 1950-2000 period has been “like no other in human or financial history in terms of population growth, economic growth, inflation or asset prices”. It may stay that way. 

Worse (for those who want house prices to rise forever), legislation is on the turn. In the UK, the fast rise in house prices has created a class of winners and another of losers. The losers have had enough — and our cash-strapped government is now on their side. 

So second-homebuyers have been hit with council tax rises and an additional rate of stamp duty (an extra three percentage points). Buy-to-let investors have seen a sharp reduction in the scope of the tax relief available to them on their rental income as well as a shift in power back towards tenants (in Scotland in particular), stricter affordability requirements on their mortgage applications and a raft of new energy efficiency rules and licensing laws. They also pay capital gains tax at 28 per cent when they sell their properties (it is 20 per cent on everything else). There are also calls for new wealth taxes on all UK property — or sharp rises to council taxes at the top end. All four major UK parties are now showing interest in land value taxes and in scrapping what tax exemptions there are left for property owners. 

The recent budget didn’t have much in it, but space was found for two measures — a cut in the capital gains tax relief on houses that were once main residences, and a consultation on a 1 per cent surcharge for non-UK residents buying UK property. It doesn’t look good does it? 

So when will the shift to what was normal in the housing market 80 years ago begin? You could argue (and Hodges does) that it began in 2000 as the baby boomers started to shift down — and that the boom since 2009 has been a last gasp of a soon-to-slow market. With the Brexit fog all about us and fallout from the financial crisis still clearing, it is hard to tell what is causing what. But look to London and that makes some sense: prime London house and flat prices are down 30 and 25 per cent, respectively, since their peak several years ago and most data now show nationwide prices rising slightly less than inflation. 

There’ll be volatility here for a while — a post-Brexit bounce seems inevitable, for example, and a bout of consumer price inflation is likely over the next decade (you can see it coming in rising wages), something that might make holding real assets such as property not the worst idea in the world. But if prices revert to very long-term means, the period in which all our celebrities have made their property fortunes is going to turn out to have been a huge historical anomaly. I wonder what the ones who are being asked “property or pension” in 30 years will say.

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If you are in my office it's already too late - James Sexton

How Britain let Russia hide its dirty money

For decades, politicians have welcomed the super-rich with open arms. Now they’re finally having second thoughts. But is it too late? By Oliver Bullough in The Guardian


In March, parliament’s foreign affairs committee asked me to come and tell them what to do about dirty Russian cash. As a journalist, I’ve spent much of my career writing about financial corruption in the former Soviet Union, but the invitation came as something of a surprise. After all, ever since I was at school in the 1990s, British politicians have welcomed Russian money to our shores. They have celebrated when oligarchs have bought our football clubs, cheered when they’ve listed their companies on our Stock Exchange. They have gladly accepted their political donations and patronised their charitable foundations.

When journalists and academics pointed out that these murky fortunes could buy influence over our democracy and undermine the rule of law, they were largely dismissed as inconvenient Cassandras warning MPs to beware Russians bearing gifts. But earlier this year, after the poisoning in Salisbury of the former spy Sergei Skripal and his daughter Yulia, those little-heeded prophecies jumped straight into the pages of Hansard. “To those who seek to do us harm, my message is simple: you are not welcome here,” Theresa May told the House of Commons on 14 March, in a speech that blamed Russia for the attack. “There is no place for these people, or their money, in our country.”

Britain’s entire political class joined the prime minister in this screeching handbrake turn. MPs who had long presented the nation’s openness to trade as a great virtue suddenly wanted to be seen as tough on kleptocrats, tough on the causes of kleptocrats. Having allowed so much Russian money into Britain, these MPs were now seized with concern that Vladimir Putin might, through his power over his nation’s super-rich, be able to influence our institutions. Were we selling Putin the rope with which he would hang us, they wondered.

That is why, on 28 March, I took a seat in committee room six, a chamber high up in the Palace of Westminster, with heavy furniture, a view over the River Thames, and a carpet like a migraine. The foreign affairs committee exists to monitor the work of the Foreign Office – essentially, to keep an eye on Boris Johnson – but its members can investigate any subjects they choose. This time, they had chosen to look into the money Putin and his cronies hold in Britain and its overseas territories, with a view to exploring fresh opportunities for sanctions.

I had brought along a list of things I wanted to talk about: how we should improve our defences against money laundering; how we need transparency about who owns property; how MPs themselves must stop taking money from dodgy ex-Soviet oligarchs if they want others to do the same.

Oliver Bullough talking to the the Foreign Affairs Committee in March. Photograph: parliamentlive.tv

But the first question, from Priti Patel, the former international development secretary, threw me: “Can you give the committee a sense of the scale of so-called ‘dirty money’ being laundered through London?” she asked.

It is a vast question, worthy of a book in itself, and one that even the National Crime Agency would struggle to answer, let alone me. Then came her second question: “What assets has that hidden money gone into?”

I tried my best – I mentioned property, private schools, luxury goods – but I think she and I both knew I’d fluffed it. I should have brought along specific examples, with times and dates and names. The embarrassing truth is that, although I have written about Russia and its neighbours for two decades, during which I have increasingly specialised in analysing corruption, it had never really occurred to me to ascertain precisely how much stolen Russian money had found a home in the UK, or to chart exactly where it had ended up.

If someone like me had been this culpably incurious, it is hardly surprising that politicians with dozens of other priorities have had to scramble to understand what we’re facing. But for the past couple of months, I have belatedly tried to discover an answer to the foreign affairs committee’s questions.

It turns out that the situation is even more worrying than I had suspected.
One way to begin investigating exactly how much Russian money there is in Britain – and how much of it is dirty – is to look at the official data. According to Russia’s Federal State Statistics Service, at the end of September, Russian investors held financial assets in the UK worth a total of $3.5bn (£2.6bn). Our own Office of National Statistics provides a broader measure of all Russian investment in the UK, and assessed it – at the end of 2016 – at £25.5bn.

That seems like a lot of money but, on a national scale, it’s small change. Investors from Finland alone have a stake in Britain worth twice that much, and we don’t lose sleep over the Finns destabilising our democracy. Sadly, the statistics are telling a misleading story. Russian money that moves through another jurisdiction before arriving in Britain isn’t counted as Russian and, since the overwhelming majority of money that enters and leaves Russia does so via tax havens such as Cyprus and the Bahamas, this means the official figures reflect only a small portion of the money the MPs were interested in.

Over the past decade, £68bn has flowed from Russia into Britain’s offshore satellites such as the British Virgin Islands, Cayman, Gibraltar, Jersey and Guernsey. That’s seven times more money than has flowed directly from Russia into the UK. (On top of that, some £94bn has poured out of Russia into Cyprus, £13bn into Switzerland, and £23bn into the Netherlands, which has its own network of tax havens.)

This wealth is not actually in the offshore centres – it is just registered there, which helps to obscure its origins. If you’re a Russian official whose wealth is wildly disproportionate to your salary, this anonymity allows you to spend your money in London without anyone realising you’re a crook. The French economist Thomas Piketty estimates that more than half of Russians’ total wealth is held offshore in this manner – some $800bn (£597bn) – and by a tiny number of people, perhaps just a few hundred. “Rich Russians live between London, Monaco and Moscow,” Piketty wrote in a blogpost in April. “Post-communism has become the worst ally of hyper-capitalism.”

This means that there is not a single sewer pumping dirty Russian cash into the UK to which we can attach a meter, so as to measure its output. Instead, the cash is diluted into the great tidal flows of liquid capital that pour in and out of the City of London every day, from every corner of the globe. The ordure churned out by Russian crooks and kleptocrats is thus, thanks to the skilled attentions of the tax havens’ best brains, indistinguishable from ordinary investment.

Gorey harbour in Jersey, a UK crown dependency and international finanical centre. Photograph: Brian Lawrence/Getty Images

One of the few studies to forensically address this phenomenon came from analysts at Deutsche Bank, who, in 2015, looked at discrepancies in the records of money that flows into and out of the UK, and concluded that since the early 1990s, £133bn had arrived here without ever being publicly accounted for. They estimated that “less than half” of that sum was likely to be Russian, which means that Russians could have secret holdings here of up to £67.5bn, on top of the officially declared figure. (That is still a small amount compared with the holdings of German, American or French investors.)

So whose money is this? How is it getting here? The bank’s analysts didn’t look into that question. However, had they wanted to, they could have walked down the hall and asked their colleagues, since it turned out that Deutsche Bank itself was a significant culprit in spiriting money out of Russia without informing the authorities. Less than two years after the report – called Dark Matter – was published, Deutsche Bank traders in Moscow were caught secretly moving $10bn (£7.5bn) of their clients’ money out of Russia by illegally exploiting the stock market. (As a result, the bank had to pay finesof $425m (£317m) in the US and £163m in the UK.)

With institutions as sophisticated as Deutsche Bank working to hide Russian money, it is unsurprising that the total amount in the UK remains vague. So there is no real answer to the foreign affairs committee’s first question, except to say that the volume of Russian money in Britain is far larger than the official statistics would have us think.

There are two reasons why we should be worried about this. The first is the low-probability but high-impact chance that Putin is hiding money here in the financial equivalent of sleeper cells, ready to slip out and buy influence when a crisis comes. The second is more significant: no one steals money if they can’t keep it. By letting Putin’s allies launder their stolen fortunes, and hide them in our country, we are drawing a line under their crimes, and rewarding them for actions we should not be condoning. Do we really want Britain to be the Kremlin’s fence?

To attempt an answer to Priti Patel’s second question – what assets has all this money gone into? – we need to look at how wealthy Russians responded to the collapse of communism. They chose to spend their newly freed money on assets they had long been denied, and ones that could not be taken away from them. Above all, they bought luxury goods and property outside their own country, particularly in London.

In early 1993, rich Russians were enough of a novelty for the Independent to report that three of them had bought flats in Kensington – at prices between £200,000 and £320,000 – under the headline “Property – a haven for rich refugees”. A month later, a Russian tycoon dropped £1.1m on a house in Hampstead, and then bought all the contents, too. “All he took into the house were four televisions and a vanload of carrier bags from Harrods,” an estate agent told the Evening Standard.

Those purchases were the first ripples of a tsunami of wealth that crashed over the whole south-east of England, with spectacular consequences. In 2013, an analysis by the estate agency Knight Frank estimated that almost a tenth of all buyers at the top end of the London market came from the former Soviet Union, while rival estate agents Savills calculated that Russians like to buy the biggest houses of any group of purchasers. Average house prices in Kensington have risen eightfold over the past two decades, at least partly thanks to the influx from Russia.
The poster boy for ostentatious expenditure has been the oligarch Roman Abramovich, who bought Chelsea football club in 2003. But even his London house – valued at £125m – was second division in the spending league. In April 2011, a Ukrainian bought the world’s most expensive flat – the penthouse at One Hyde Park – for £136.4m. Five months later, a Russian bought Park Place, a stately home near Henley-on-Thames, for £140m. Russians who acquired homes valued merely in the tens of millions barely deserved notice.

Among those lesser buyers was a banker called Grigory Guselnikov, a boyish 42-year-old who moved to London in 2008. He and his family came on tier 1 investor visas, which provide successful applicants with residency in exchange for an investment (of, at the time, £1m) in government bonds. In the eight years to September 2015, Russian citizens made up 764 of the 3,396 people who paid for these so-called golden visas – making them the second largest group of applicants, after Chinese citizens. This arrangement brought in around £800m of Russian investment, but the flow dropped markedly after April 2015, when the UK authorities began to check the origin of the money used to buy these government bonds. Once rigorous checks were put in place and the price of the visa was doubled, the number of applications fell sharply. In the final quarter of last year, just 16 Russians applied for a golden visa.

Guselnikov believes that politicians’ sudden panic about Russian money in Britain is misplaced. When we met in his office in a grand terraced house on Grosvenor Square, he began by pointing out that Russian money had less influence over British business than people think. “I can’t recall any big enterprise controlled by Russians, or any big company. They open restaurants, wine shops, they buy luxury stuff like football clubs.

“Where the impact is significant is real estate,” Guselnikov continued. “And primarily real estate in London.” His most high-profile investment was the shop that houses the Rolex concession on the ground floor of One Hyde Park, which he bought in 2011 for £12m (and sold for £20m three years later), and which demonstrates the peculiar dynamics at the top end of the property market, where the price of residential property is inflated beyond any conceivable income it could generate. “There is a shop, with advertising, 300 sq metres and the price is £12m. The flat above has no advertising, no shop, no ability to make money; it’s the same size, 300 sq metres, and cost £25m. The shop was two times cheaper than the flat, that was really funny,” he said, with a laugh.

His second point was that it was a misconception to think Russians are Machiavellian masterminds buying up slabs of Britain in order to undermine us from within. “You have to understand why people buy real estate abroad – they see it as their pension, they want to diversify the risk. In Russia, you have to be ready to lose everything, you never know what will happen,” he said. “They just spend money here. They don’t invest, they spend.”

One reason the Russian super-rich come to Britain, Guselnikov said, was for education. His own children attended private schools, although they now have British passports, so they were not counted among the 2,806 Russian children attending schools surveyed by the Independent Schools Council last year. By multiplying that total with the average fees parents pay, we can calculate that a minimum of £48.3m comes to Britain’s private schools each year from Russia.

Guselnikov said banks had become more stringent in their checks on the provenance of money in the last few years, so it was unlikely that significant flows of dirty money were entering the UK from Russia any more. But he conceded things had been different in the past. “If any dirty money is invested in UK property, it was before 2008; or before 2011 at the latest, not now. I don’t think the UK’s attractive any more, I don’t think it’s possible any more,” he said.

It may well be that, as Guselnikov said, many honest Russian businesspeople have indeed been behind these purchases of London property. However, thanks to tax havens and skilled enablers from the world’s major financial institutions, their money has been mingled with the proceeds of theft, bribery and corruption. Imagining that Britain will be unscathed by this influx is the macro equivalent of letting a kidnapper, a bent copper, and a heroin trafficker move into your village, and still expecting warm chats at the school gates.

Transparency International published a report last year, which, relying only on public sources of information, identified 160 properties in the UK, together worth £4.4bn, that had been bought by what it called “high-corruption-risk individuals”. Most of those properties were in London, and half of them were within three miles of Buckingham Palace – and that is just a fraction of the true total. “There is currently no credible deterrent in place for money-laundering failings from estate agents,” the report noted.

Two years ago, a former fund manager called Bill Browder gave evidence to parliament’s home affairs committee in which he revealed how $30m (£22m) that had been stolen from the Russian state by a group of corrupt police officers and officials had come to the UK, via 12 different banks, and been spent on an array of luxury goods: $176,000 went on chartering a private jet; $192,000 on redecorating a yacht; $20,000 on private school fees; $41,000 on a wedding dress; $295,000 to pay off an exclusive women-only credit card that offers “the most privileged and luxurious service”.

Browder, who was born in the US but is a British citizen, ran a successful Moscow-based fund until 2007, when the corrupt officials fraudulently claimed ownership of two of his investment companies. They realised that, by fiddling the books, they could claw back the $230m in taxes that he had paid on the year’s profits, which is what they did. The $30m that ended up in the UK derived from this act of grand larceny. When Browder’s lawyer Sergei Magnitsky exposed the fraud, he was arrested and detained in jail, where he was beaten and denied treatment for pancreatitis until he died. Browder has devoted the years since Magnitsky’s death to seeking justice for his lawyer, and punishment for those responsible. He employs a team of forensic accountants, who have traced the movement of the money that was stolen from the Russian budget.

The spending that he described to parliament fitted the pattern laid out by Guselnikov: it was being blown on luxury goods, rather than being invested to win influence over British politics or society. But that doesn’t mean we shouldn’t be concerned about it. This money should have been paid as taxes and spent on hospitals, schools and other services in Russia. Instead, it had been stolen from taxpayers and splashed on an absurd array of goodies. This is the kind of money Britain has been happily fencing for decades. Even now, British MPs only seem to care about it because its owners might harm our national security, rather than because it should be returned to the people it was originally stolen from.

Browder told the home affairs committee that he had traced chunks of the stolen money to 11 other countries – including France, Switzerland and the US – and investigators in every one of those countries had opened criminal cases based on the information he provided. But in Britain – where he had spoken to the Metropolitan police, the Serious Organised Crime Agency (now part of the National Crime Agency), the Serious Fraud Office, and HMRC – he had been turned away every time.

Why was Britain the only country that declined to act on the information Browder provided? His conclusion was that too many influential people – lawyers, bankers, accountants, property developers – were dependent on dirty Russian money for their livelihoods. “If that money was stopped,” he said in 2016, “certain people would find themselves without businesses, and I think those people have political weight in this country.”

Many British institutions have indeed accepted donations from wealthy Russian businesspeople: Sadiq Khan’s City Hall from Elena Baturina, whose husband was mayor of Moscow; the Conservative party from Lubov Chernukhin, whose husband was one of Putin’s ministers, and who paid £160,000 to play tennis with Boris Johnson and David Cameron in 2014.

 

Prime minister David Cameron with Russian president Dmitry Medvedev in Moscow in 2011. Photograph: Stefan Rousseau/PA

But it is not venal politicians who are stopping British police conducting investigations into the laundering of Russian money in the UK. According to Tristram Hicks, who was the detective superintendent in charge of economic crime at the Met until 2009, and who now acts as a freelance consultant to police forces around the world, the problem is far more serious than that.

In order to prosecute a foreign crook in Britain, you need to prove their money originated in a crime of some kind, and that requires evidence from overseas. Essentially, if you want to prosecute a Kremlin insider, you need evidence from the Kremlin, which naturally it will not provide, and that stops investigations from progressing. And this is not just a British problem. After France, Switzerland and the Netherlands received information from Browder that some of the stolen $230m had been spent in their countries, they froze the assets in question – but their criminal investigations are yet to secure convictions. Only US prosecutors have managed a result, and even that was just an out-of-court settlement, without an admission of guilt by the defendant. “You cannot underestimate the technical hurdle that is bringing the evidence to a British standard for a British court,” Hicks said.

That isn’t the only obstacle to investigating money laundering. Given that all wealthy Russians have political connections – otherwise, they wouldn’t be wealthy – if the UK does gain cooperation from Russian investigators in a prosecution, the defendant will invariably claim, often with good reason, that he is being politically persecuted, which allows his lawyers to discount the evidence being used against him.

Take Andrey Borodin, the owner of that £140m house in Henley-on-Thames. He arrived in Britain in 2011, pursued by Russian charges of having defrauded his own bank. Borodin insisted the charges were politically motivated, and gained asylum here. Had prosecutors brought charges in the UK, his lawyers could have discounted any evidence from Russia as the revenge of political rivals, and Hicks conceded this would essentially doom the prosecution’s case. “That’s hard to argue against,” he said.

There is also a third difficulty that Hicks didn’t address, which is just as serious. If a wealthy, ruthless Russian faces investigation, he can stop any chance of prosecution by killing the witnesses. This may well have been what happened to Alexander Litvinenko, who was murdered with radioactive polonium-210 in 2006, and who was working with Spanish and British authorities to expose Russian money flows. It may also explain the death of Alexander Perepilichny, a 44-year-old banker who was helping Browder’s team to understand the destination of the $230m stolen from the Russian budget, and who died while jogging in Surrey in 2012. Investigators at first thought he had suffered a heart attack, but it appears that he may have been poisoned with a rare plant extract.

In short, to bring a successful money-laundering prosecution against a wealthy Russian, officers need to win cooperation from Moscow, which is all but impossible; to convince a UK court that any cooperation that does result was not politically motivated, which is extremely difficult; and then to keep their witnesses alive, which has proven rather hard. In the circumstances, it’s not surprising that the NCA decided bringing a prosecution in the Magnitsky case was not the best use of its resources.

The amazing thing is that we have tolerated this situation for so long. Britain has consistently welcomed Russian money, and consistently ignored the warnings of those concerned about what it is buying. In March 2000, when Putin was still just acting president and had spent six months pulverising Chechnya, Tony Blair dashed to St Petersburg to be the first western leader to secure a meeting with the new man, and to urge more investment in each other’s countries.

At least Blair could claim not to have known what kind of man Putin was, but David Cameron had no such excuse. In September 2011, Cameron went to Moscow to seek business for the City of London, although most of the facts that are currently concerning MPs about Russia were already known. Litvinenko had been murdered five years previously, and Russia had given one of the Met’s suspects in the case a seat in parliament. Magnitsky had died in jail two years earlier, and his tormentors were walking free. But Cameron went to Moscow anyway.

“The whole point about trade is that we are baking a bigger cake and everyone can benefit from it and this is particularly true, perhaps, of Russia and Britain. Russia is resource-rich and services-light whereas Britain is the opposite,” Cameron told students at Moscow State University, on a trip that also involved meetings with Putin and his then placeholder president Dmitry Medvedev.

In his speech, Cameron boasted that Russian companies accounted for a quarter of share offerings on the London Stock Exchange. “Governments need to remember that businesses don’t have to invest in our country – they choose to. And we need to help them make that choice,” Cameron said. “It means minimising the burden of regulation so that business and entrepreneurship can flourish.”

With a prime minister who considered regulations on the origin of money to be a burden, it’s unsurprising that not many of them were made. This approach did not of course begin with Cameron, or even with Blair. In fact, it goes back to the mid-20th century. After the second world war, Britain was all but bankrupt, the City of London was somnolent, and economic power rested on Wall Street. City bankers wanted to get back into business, but were frustrated by the weakness of the pound, and its unsuitability as a means to finance the world’s trade.

  Vladimir Putin and Tony Blair in Downing Street in 2003. Photograph: Grigory Dukor/Reuters

Their salvation came from an unlikely quarter: the Soviet Union, which didn’t want to keep its dollar reserves in US banks. Instead, it kept them in London, where British banks began lending them to each other in an entirely unregulated market – they became known as “Eurodollars” – thus giving birth to offshore finance, and providing the City with the startup capital it needed to get back in business. By the end of the communist period, Soviet institutions routinely sent their money through Britain’s offshore territories, and the City was booming. The Central Bank in Moscow even had a shell company in Jersey, which it used to hide money from the government that it was supposedly a part of.

This is one of the problems with trying to ascertain the volume of dirty Russian money in London: how far back do we go? Do the fees Midland Bank received for banking Soviet money in the 1950s still count as Russian cash, and if so, are they dirty? Does the commission the estate agent earned by selling those flats in Kensington in the early 1990s count as dirty money? And what about the £800m that Russians paid for government bonds in return for golden visas? Or the $41,000 of Magnitsky money that was spent on a wedding dress in London? How many times does money have to circulate in the economy before we decide it’s not dirty any more?

This money is so deeply embedded in the UK that extracting it, or even identifying it, would be an unrivalled feat of investigation. “It would be impossible,” says Prem Sikka, professor of accounting at Sheffield University. “They have the big accountancy firms advising them where best to stash the money, to conceal it, to disguise it, all kind of things. The brains of this pinstriped mafia are available to everyone. They’re for hire.”

Recently, I spoke to Jon Benton, who led teams fighting dirty money at the Met and the NCA, and advised Cameron at the Cabinet Office, until his retirement in 2016. “We used to get these suspicious activity reports coming in, Russian ones, all the time. It would be for an investment or a property or a load of other things,” Benton said. “You’re looking at something that doesn’t look right, doesn’t smell right, but we had a tiny number of resources. To get caught up in some really complex Russian money-laundering case, when we weren’t going to get any assistance – you have to weigh it up. Do I try to throw lots of resources at this, when I know I’m really going to struggle to get the door open?”

Benton was optimistic about the introduction of so-called unexplained wealth orders, which came into effect in February this year. Once a UWO has been issued, property is frozen, and its owner has to respond and justify why they own it. But that will only confiscate property, Benton noted. It won’t put anyone in jail.

“The time when we might have been able to do something about this was 20 years ago, when it wasn’t particularly sophisticated, and the large sums of money were just arriving in the country,” he said. By ignoring the provenance of dirty cash, and allowing it to be spent on property, British authorities have cleansed it of its taint: it is legitimate investment now. “Unpicking all that is a real challenge. The reality is that it’s probably the hardest area to penetrate in the world.”

We don’t know how much dirty money there is in the UK, nor do we know exactly where it is, and there’s nothing we can do about it. Or rather, there’s nothing we can do about it with the laws as they stand, and without giving greater resources to law enforcement agencies. Almost 100,000 UK properties are currently owned via offshore companies, obscuring their ownership, many of them undoubtedly by Russian criminals and kleptocrats we could happily do without. The government has promised to force these offshore companies to disclose their true owners, but that won’t be until 2021. For the next three years, criminals will be free to profit from their property in the UK without admitting they own it. Why can’t we hurry that up? To answer both of Priti Patel’s questions – how much money is there, and where is it? – we need transparency.

The foreign affairs committee published its conclusions this week, drawing on the evidence that I and others gave it, and they were impressively robust. Its report demanded a more coherent government approach to the “assets stored and laundered in London (which) both directly and indirectly support President Putin’s campaign to subvert the international rules-based system, undermine our allies, and erode the mutually reinforcing international networks that support UK foreign policy”.

Earlier this week, it was reported that Abramovich is finding it hard to renew his British visa, and some newspapers are speculating that this suggests Britain is already pioneering a new approach to Russian money, one that demands checks on the fortunes even of the very richest, and even when there is no apparent evidence of corruption. We do not yet know the reasons for the delay in the Chelsea owner’s visa, but such checks should be welcomed anyway: in cases where evidence emerges that someone is corrupt, that person should be kept out of Britain. But this alone is insufficient; we need to find the dodgy money that is already here. Confiscating it and finding a way to return it to the Russian people would diminish those who mean us harm, while simultaneously helping those we wish to befriend.

That requires strengthening Britain’s investigative power. The National Crime Agency and the UK’s police forces currently lack the resources to bring the prosecutions that could really make a difference to criminals’ calculation about whether to bring their money here. If we wish to prevent Russian kleptocrats from buying our country, we need to start catching them and their enablers in the act, and prosecuting them. That is the only true deterrent.

How a tax haven is leading the race to privatise space

Atossa Araxia Abrahamian


On a drizzly afternoon in April, Prince Guillaume, the hereditary grand duke of Luxembourg, and his wife, Princess Stéphanie, sailed through the front doors of an office building in the outskirts of Seattle and into the headquarters of an asteroid-mining startup called Planetary Resources, which plans to “expand the economy into space”.

The company’s engineers greeted the royals with hors d’oeuvres, craft beer and bottles upon bottles of Columbia Valley rieslings and syrahs. In the corner of the lounge stood a vintage Asteroids arcade game; on the wall hung an American flag alongside the grand duchy’s own red, white and blue stripes. Between the two flags was a prototype of a spacecraft designed to roam the galaxy, prospecting asteroids for precious natural resources that would someday – at least in theory – make the shareholders of Planetary Resources very wealthy earthlings indeed.

The nation of Luxembourg is one of Planetary Resources’ main boosters. The country’s pledge of €25m (£22.5m) – which includes both direct funding and state support for research and development – is just one element of its wildly ambitious campaign to become a terrestrial hub for the business of mining minerals, metals and other resources on celestial bodies. The tiny country enriched itself significantly over the past century by greasing the wheels of global finance; now, as companies such as Planetary Resources prepare for a cosmic land grab, Luxembourg wants to use its tiny terrestrial perch to help send capitalism into space.

Space exploration has historically been an arena for grand, nationalistic operations that were too costly, dangerous and complex for civilians to take up without state backing. But now, private companies now want in, raising questions that, until recently, have seemed like mere thought experiments or hypotheticals: who can lay claim to an asteroid and all of its extractive wealth? Should space benefit “all of humankind”, as the international treaties signed in the 60s intended, or is that idealism outdated? How do you measure those benefits, anyway? Does trickle-down theory apply in zero-gravity conditions?

Space is becoming a testing ground for these thorny ethical and legal questions, and Luxembourg – a tiny country that has sustained itself off of regulatory intricacies and tax loopholes for decades – is positioning itself to help find the answers. While major nations such as China and India plough increasing sums of money into developing space programmes to rival Nasa, Luxembourg is making a different bet: that it can become home to a multinational cast of entrepreneurs who want to go into space not for just the sake of scientific progress or to strengthen their nation’s geopolitical hand, but also to make money.

It already has a keen clientele. Space entrepreneurs speak of a new “gold rush” and compare their mission to that of the frontiersmen, or the early industrialists. While planet Earth’s limited stock of natural resources is rapidly being depleted, asteroid miners see a solution in the vast quantities of untapped water, minerals and metals in outer space. And the fledgling “NewSpace” industry – an umbrella term for commercial spaceflight, asteroid mining and other private ventures – has found eager supporters in the investor class. In April, Goldman Sachs sent a note to clients claiming that asteroid mining “could be more realistic than perceived”, thanks to the falling cost of launching rockets and the vast quantities of platinum sitting on space rocks, just waiting to be exploited.

“[Mining asteroids] is not a new idea, but what’s new is state support of the idea,” says Chris Voorhees, the chief engineer of Planetary Resources. “Everyone thought it was inevitable but they weren’t sure when it would occur.” Now, he says, Luxembourg is “making it happen”.

The grand duchy – which has all the square footage of an asteroid and, with a population of half a million, not all that many more inhabitants – has earmarked €200m to fund NewSpace companies that join its new space sector; to date, six have taken it up on the offer. It has sent officials to Japan, China and the UAE to talk about space exploration partnerships, and appointed space industry veterans, including the ex-head of the European Space Agency, to advise them. In May, it took out a glossy supplement in Scientific American magazine to signal it is committed not just to helping businesses, but to advancing research as well.

And in July, the parliament passed its law – the first of its kind in Europe, and the most far-reaching in the world – asserting that if a Luxembourgish company launches a spacecraft that obtains water, silver, gold or any other valuable substance on a celestial body, the extracted materials will be considered the company’s legitimate private property by a legitimate sovereign nation.

The presence of royalty at Planetary Resources HQ ahead of the passing of the law was a canny part of the country’s space incursion. The young couple was there to dazzle, charm and lend gravitas to the operation – European aristocracy doesn’t show up in suburban office parks any old day – but the mission’s greater aim was to impress upon Silicon Valley executives, the bemused Luxembourgish press and space scientists around the world that mining asteroids was no longer science fiction. To that end, the royals were accompanied by about 40 of their subjects, all of whom had a role to play in this emerging industry.

Etienne Schneider, Luxembourg’s congenial deputy prime minister, led the delegation. With his easy manner, excellent English and penchant for fancy cars, he cuts a Macronian figure: a product of European socialist political parties, sure, and a social liberal to his core – Schneider is married to a man – but one who will willingly play handmaiden to global capitalist interests should the right opportunity arise. He announced recently that he would be running for the role of prime minister in 2018.

With Schneider came a delegation of scientists, trade attaches, bankers, lawyers and local journalists who switched between German, English, French and the local language, a consonant-heavy mix of Flemish and German with the occasional foreign word thrown in to supplement: “meeting”, “framework”, “brunch”. (“We don’t have all the words,” a member of the delegation told me sheepishly.) In French, the language is known as Luxembourgeois, which pretty much says it all; the duchy’s 500,000 citizens, who have a GDP per capita of $104,000 (£78,800), are the wealthiest in the world after Qatar’s, according to the International Monetary Fund.

The Planetary Resources team took their benefactors on a tour of the labs where its hardware is built. The company isn’t mining asteroids yet, but to benefit from Luxembourg’s concessions, it opened an office in the grand duchy this year. Up close, its Arkyd 6 spacecraft – which is ready for launch – looks just like satellites look in the movies, only smaller. It had multiple flaps and appendages, including an infrared sensor, a star tracker to orient the craft in space and a GPS unit, which works only in the earth’s orbit.

Once the tour was complete, cocktail hour began. Schneider, who owns a vineyard, bounced from one conversation to another, brimming with enthusiasm. To end the visit, Chris Lewicki, the CEO of the company, gave a toast praising Luxembourg’s contributions “to an abundant future for all of humanity”. As a parting gift, he presented her royal highness with a necklace. Instead of jewels, it was studded with tiny fragments of asteroids.

It is reasonable to wonder what, exactly, a marginal European monarchy, egged on by a vivacious gay socialist, was doing telling American entrepreneurs on the cutting edge of innovation that their hamlet-sized state could propel humanity – and capitalism – into deep space. The grand duchy has no national space agency, no launching sites, and only modest research capabilities. It opened its first and only university in 2003 and its military consists of 1,008 troops. Luxembourg does not fit the image of a spacefaring nation; in fact, some have questioned whether it should even be a nation at all.

Yet Luxembourg’s very essence – as a speck in the heart of Europe – allows, even requires, it to partake in such ambitious ventures. Its national motto is “We want to remain what we are” and, over the centuries, this independent spirit has endured occupations by the dukes of Burgundy, the kings of Spain and France, the emperors of Austria and the king of the Netherlands. Today, the state, which only gained full independence in 1867, occupies a curious position in the global imagination: a country with an outsized economic influence that everyone has heard of, but that no one can quite locate on a map.

According to Gabriel Zucman, assistant professor of economics at UC Berkeley, the country is hard to miss in the financial world. “Luxembourg has private banks like Switzerland, it has a big mutual fund industry like Ireland’s, it’s used for corporate tax avoidance like Bermuda or the Netherlands, and it also hosts one of the two international central depositories for securities, so it’s active in euro bonds,” he says. “It’s the tax haven of tax havens, present at all stages of the financial industry.” Tony Norfield, a former banker in the City of London who now writes on global finance, has described Luxembourg as “a paragon of parasitism”.

The story of how a marginal and relatively powerless country has survived world wars, economic crises and cataclysmic technological advances to become a banking and finance powerhouse tells us a lot about how far a small country can go if it devotes itself to anticipating and accommodating the needs of global capital. It’s a contentious business: for every happy shareholder praising Luxembourg’s business-friendly rules and money-saving loopholes, there’s a critic condemning Luxembourg’s willingness to expedite the regulatory “race to the bottom”.

 

Luxembourg City. Photograph: Design Pics Inc/Rex/Shutterstock

Then again, there aren’t many options for a country like Luxembourg besides exploiting its most valuable resource: its national sovereignty. And Luxembourg has done this more and better than any other country in the world. By crafting innovative rules, laws and regulations that only it could (or would) put on offer, Luxembourg has attracted banks, telecommunications companies and consulting firms before any of these industries came to dominate the global economy. Now, by courting asteroid miners before anyone else takes them seriously, it may very well end up doing the same thing for the commercialisation of space.

Luxembourg’s first significant attempts at liberalisation began in the late 1920s and early 1930s. As radio grew popular, the grand duchy decided not to create a publicly funded radio service like its neighbours. Instead, it handed its airwaves to a private, commercial broadcasting company. That company – now known as RTL – became the first ad-supported commercial station to broadcast music, culture and entertainment programmes across Europe in multiple languages. “By handing the rights to a public good to a private company, the state commercialised, for the first time, its sovereign rights in a media context,” notes a 2000 book on Luxembourg’s economic history. The title of the book, published by a Luxembourgish bank, is, tellingly, The Fruits of National Sovereignty.

Then, just three months before the stock market collapsed in 1929, Luxembourg’s parliament passed legislation exempting holding companies – that is, parent firms that exist solely to own parts of or control other companies – from paying corporation taxes. In the first five years after the law’s passing, 700 holding companies were established; in 1960, there were 1,200, and by the turn of the century, some 15,000 “letterbox” firms – one for every 18 citizens – were incorporated in Luxembourg. (In 2006, the European commission found that this exemption violated EU rules, so Luxembourg promptly created a new designation, the “family estate management company”, that complied with the country’s EU treaty obligations while offering many of the same money-saving advantages.)

Throughout the first half of 20th century, Luxembourg’s main industry was steel, but by 1980, that business all but collapsed. Even before its iron ore mines shut down, though, the grand duchy came to represent a discreet but powerful regulatory freedom. A homegrown economic model began to take shape: over the next decades, it would make a name for itself by passing legislation “designed to tempt the world’s hot money,” notes the Tax Justice Network, an anti-tax-evasion advocacy group.

The country’s policymakers also realized that less could really be more. According to Georges Schmit, a lifelong civil servant who has played a big role in shaping the country’s economy since he joined the ministry of the economy in 1981, a key component of Luxembourg’s early success was the fact that it did not have its own central bank. The country had been in a monetary union with Belgium since 1921, and didn’t impose reserve requirements on financial firms. This meant banks could lend or spend the money that they would have had to keep on deposit in other jurisdictions. In Schmit’s words, Luxembourg’s biggest draw “wasn’t our doing; it was the lack of our doing anything”.

Over the years, the government managed to coax over foreign financial institutions, from complex securitisation vehicles to Islamic banks. And on the consumer level, the state’s low taxes drew Europe’s tax-averse petty bourgeoisie. Starting in the 1960s, “Belgian dentists” and “German butchers” – the prevailing stereotypes cited in the international financial press – began taking daytrips to the grand duchy to deposit money to avoid tax at home. The Luxembourgish state even lowered fuel costs to attract the daytrippers, and in 1981, introduced legally binding bank secrecy comparable to Switzerland’s.

In the next century, the dentists would give way to Qatari princes, Chinese princelings and other global members of the global super-rich – or at the very least, their investments. “When a country is small, the rest of the world is big,” says Schmit. “Since independence we needed to find larger economic spaces, be they regional or continental.” By serving as a hub for investors, companies and markets during decades of rapid deregulation and globalisation, Luxembourg turned itself into an indispensable cog in the machinery of international finance.

In 2009, Schmit embarked for California to continue his life’s work: finding new ways for his country to attract money, this time as the general consul and trade envoy in Silicon Valley.

Since he had joined the ministry of the economy to devise new innovation strategies almost three decades earlier, his country seemed to have defied all odds and made virtues of its apparent weaknesses. Its small size had not prevented it from becoming the largest centre for investment funds in the world after the US. Its tiny population had not deterred multinationals and EU institutions such as the court of justice from basing their headquarters there. It had parlayed its status as a neutral country and founding member of many European organisations into sending three of its politicians – more than any other country – to preside over the European commission. And by marketing its easy access to Europe, an educated workforce, bank secrecy (which it voted to ended in 2014 under pressure from other countries and the OECD) and myriad regulatory advantages, the country built an outsized financial sector.

Crucially, Luxembourg never seemed to let an opportunity pass it by. Following its support for commercial radio 50 years prior, the country was the first in Europe to privatise satellite television. In 1985, the grand duchy granted a company called Société Européenne des Satellites (SES) the right to broadcast TV directly to viewers’ homes from a satellite positioned in space. “The big innovation is that this was a privatisation of space,” says Schmit, who served for 17 years on the SES board. “All the other operators were owned by governments through international agreements. This was the first commercial company that set out to use space for broadcasting.” When SES grew profitable, Luxembourg’s bet paid off: the tiny country became home to a telecoms giant, and, as an early investor, received a piece of the pie.

FacebookTwitterPinterest Prince Guillaume and Princess Stéphanie of Luxembourg. Photograph: Didier Baverel/WireImage

In the early 2000s, Luxembourg pounced at the chance to court retailers such as Amazon and Apple with tax incentives. There were the perks the state was happy to publicise – the lowest VAT in Europe, for instance – and there were case-by-case deals with large companies that it kept rather quieter. The companies flocked in, but in the aftermath of the financial crisis, with awareness of wealth inequality growing and austerity measures bruising ordinary Europeans across the continent, Luxembourg could only keep these arrangements under wraps for so long.

In late 2014, the grand duchy went from relative obscurity to complete infamy when the details of these “tax rulings” – versions of which were also carried out by Belgium, Ireland and the Netherlands – were disclosed by the International Consortium of Investigative Journalists. Known as the “Lux leaks”, the massive trove of leaked data revealed that, from 2002 to 2010, the country’s tax agency approved a series of confidential deals that allowed AIG, Ikea, Deutsche Bank and more than 300 other large firms to save billions of dollars they might have otherwise owed to other countries.

The rulings weren’t necessarily illegal, and they weren’t unique to Luxembourg, but they did cause a scandal, provoking damning reports in the media, protests around Europe and promises for tighter regulation from within the EU. Investigations on both sides of the Atlantic on related matters followed, and lawsuits revealed information on more companies still. (One memorable detail: Amazon’s 28-step tax-restructuring arrangement in Luxembourg was named Project Goldcrest after the country’s national bird.)

Around this time, Zucman, a recent Paris School of Economics PhD who studied with Thomas Piketty, began looking into Luxembourg’s role in international tax avoidance and evasion. His focus was not on the multinationals, but on Luxembourg’s thriving fund industry, which through niche regulations and loopholes allowed investors to avoid certain taxes, too. Luxembourg was a well-known financial centre, but the statistics Zucman dug up while researching his book, The Hidden Wealth of Nations, took him aback: in 2015, national data showed $3.5tn worth of shares in Luxembourgish mutual funds were domiciled in the grand duchy, while data from other countries accounted for only two of those trillions. The missing $1.5tn suggested to him that the money – which, he notes, was probably accumulating interest by the day – had no identifiable owner. That meant the countries to whom tax was owed on these ungodly sums were unaware of their existence.

Globally, Zucman calculated almost $8tn in financial wealth – which does not include real estate, luxury goods, gold or other commodities – has been stolen from countries and taxpayers in this fashion thanks to “secrecy jurisdictions” such as Luxembourg, the Virgin Islands or Panama working “in symbiosis”. In his book, Zucman described Luxembourg as an “economic colony of the international financial industry” and challenged its right to its greatest asset: its sovereignty.

“Imagine an ocean platform where the inhabitants would meet during the day to produce and trade, free of any law or any tax, before being teleported in the evening back home to their families on the mainland,” he wrote, referring to the country’s unusual demographics: 47% of Luxembourg’s 500,000 residents are foreign, and 44% of the workforce commutes in across nation-state lines each day for work. “No one would dream of considering such a place, where 100% of its production is sent abroad, as a nation.

“The trade of sovereignty knows no limits,” Zucman continues. “Everything is bought; everything is negotiable. Luxembourg is not the only country that has sold its sovereignty, far from it … but it is the one that has gone the furthest.”

Scrutiny of Luxembourg’s tax practices – from the press, the public and the EU – spread at an awkward time. At the end of 2013, the country elected a new prime minister, Xavier Bettel, whose coalition government of democrats, socialists and greens wanted to distance themselves from the economic policies of former prime minister Jean-Claude Juncker and play by the EU’s rules. “Honestly, I am fed up with being accused of being a defender of a tax haven and a hotbed of sin,” Bettel said in a speech to the Luxembourg Bankers’ Association shortly after taking office. “We need to work on our image … we have much changed in the last years, now it is time to make sure that everybody knows.”

Etienne Schneider, then economy minister, was part of this effort, too. But instead of being applauded for breaking with the past, from the moment they took power the politicians were constantly reminded of their country’s indiscretions. The new government needed to square the Luxembourgish model of economic development with new political realities. It had to keep looking ahead. Most of all, it wanted to change the conversation.

A curious possibility had emerged the previous summer, when Georges Schmit visited Nasa’s Ames research centre in Palo Alto and found himself in conversation with Pete Worden, a former director of the centre. Over coffee, Worden told Schmit about the emerging NewSpace sector and about his dream of finding life on other stars and planets.

Schmit sensed Worden would hit it off with Schneider, so he introduced them. At first, asteroid mining struck Schneider as crazy. “I listened to him and wondered what this guy might have smoked this morning; it sounded like complete science fiction,” he recalled. But the more he listened, the more it made sense. Worden persuaded Schneider that “it’s not if it will happen, it’s when it’ll happen. And the countries who’ll be the pioneers will be the ones that’ll get the most out of it later on.”

From 2014 to 2016, a series of meetings between the Americans and the Luxembourgeois took place. If they resembled April’s trade mission, they will have involved tedious tours of technology companies, self-aggrandising speeches about how space would bring about Earth’s “third industrial revolution”, and many hours stuck in traffic – but also genuine wonder at what might happen if humankind made space their own.

Schneider hung his hopes – and his political future – on the stars. Here was a chance to change the conversation away from taxes and towards space; to establish an industry for Luxembourg’s future; to contribute to science and human knowledge, even. Besides, in such trying times, who didn’t like talking about the wonders of exploring the great unknown? NewSpace companies were certainly eager to work with Luxembourg. They were thirsty for funds and attention, and felt invisible in the US. Luxembourg was a place where they could get meetings with high-level politicians in minutes; where everyone spoke great English; where the bureaucracy was minimal, and the promise of low taxes remained. As one NewSpace executive told me this year: “We just want to work with a government who won’t get in the way.”

The only catch was the ambiguity of space law: companies wanted assurances that the fruits of their extraterrestrial labour would be recognised here on Earth. This is not a given. Unlike on Earth, where a country can grant a company a mining concession, or a person can sell the right to exploit their land, no one has an obvious legal claim to what’s outside our atmosphere. In fact, the Outer Space Treaty, signed by 107 countries at the UN in 1967, explicitly prohibits countries from claiming sovereignty over celestial bodies. The question now is: if nobody owns or governs the great unknown, who is to say who gets to own a little piece of it?

Since the emergence of the NewSpace sector, individual countries have attempted to lend some clarity to eager entrepreneurs, reasoning that the prospect of private property in space will encourage hard work and innovation. The American Space Act, passed in 2015, is the first “finders, keepers” law that recognises ownership of space resources, but it only does so for companies owned by US citizens.

In October 2015, Luxembourg commissioned a study on whether it could fill that legal void. The report, completed in 2016, noted that “while legal uncertainty remains, under the current legal and regulatory framework, space mining activities are (at least) not prohibited” and concluded that Luxembourg should pass legislation that gives miners the right to keep the extraterrestrial bounty they extract.

Such a law was drafted shortly after the study’s completion, and on 1 August 2017, it went into effect. Luxembourg’s bill does not discriminate by nationality, or even by the location of a company’s headquarters. In fact, the law indicates the country’s willingness to serve as a sort of flag of convenience for spacecrafts, allowing them to play by one country’s futuristic rules in the absence of universal, binding agreements. Rick Tumlinson, of Deep Space Industries, another space exploration company in which Luxembourg has invested, told me that there was value in Luxembourg’s law because it saw no citizens and no borders: just one blue planet from high above.

Six weeks after the trade mission in California, I disembarked from a tiny plane on the runway of Luxembourg City’s airport in a melee of grey suits and black carry-on roller bags. I walked past large wealth-management and equity-fund advertisements into the car park, where I caught the bus into the city centre, passing dozens of huge new building projects, a tramline under construction and two enormous yellow towers that, in the afternoon light, resembled twin gold bars reaching for the sky.

Luxembourg City. Photograph: Rex/Shutterstock

Within an hour, I was sitting at a table outside a dive bar opposite the old city’s bathhouse with Lars Schmitz, 29, and Gabrielle Taillefert, 21, two members of a local theatre and art collective called Richtung22 (Direction22). Over the past few years, the group has staged a series of performances lampooning their country’s mercenary modus operandi. Instead of writing their own scripts from scratch, the collective makes dramatic collages almost entirely out of primary documents: laws, press releases, speeches, transcripts from parliament, promotional videos and so on.

One of Richtung22’s early works satirised Luxembourg’s nation branding committee, which was set up in March 2013 to promote the country abroad. The play, which was financed in part by the culture ministry, was entitled Lëtzebuerg, du hannerhältegt Stéck Schäiss (Luxembourg, Vicious Pile of Shit). Since then, Schmitz says, state funds for Richtung22’s work have dried up.

In his spare time, Schmitz, who is slight of build with cropped blonde hair, works on antifascist and anti-capitalist organising. He has the droll resignation of a leftwing activist operating in a country whose politics are so abstract and so global that grassroots resistance must necessarily come in the form of farce. Richtung22’s latest play savages the country’s efforts to attract the NewSpace industry. Its title is Luxembourg’s Private Space Explorevolutionary Superfancy Asteroid Tailoring. Schmitz sees space mining as a high-tech spin on an age-old scam: selling sovereignty. “The country’s business model is hidden,” he said. “It’s making laws that companies want, and taking a risk on those companies. But the government uses it to say ‘This is how modern we are! This is something new!”

Zucman shares Schmitz’s view. “Adapting this strategy to the business of space conquest is what being an offshore financial centre means,” he says. “It’s not diversification. It’s just extending the logic of being a tax haven to new area.”

On stage, the entire space enterprise is portrayed as a cynical, money-grubbing, reputation-redeeming debacle dictated by private-sector interests. “We feel bad that our country does this to the world, and no one else here talks about this stuff,” Schmitz told me. He ran off a dozen or so Luxembourgish transgressions, including but not limited to aiding and abetting tax evasion and weaseling its way out of EU banking regulations. In such a small country, it’s hard to be so outspoken against the national interest. “People think we’re traitors,” he said.

Was there anything good about his country, I asked. “It’s beautiful,” Schmitz conceded. He was right: Luxembourg is beautiful, and was particularly charming on that balmy May evening. The city rests on two levels; the smaller “low” city’s quaint little streets and sidewalk cafes skim the river, while the “high” city centre is home to a lively main drag with pricey boutiques, fancy chocolate shops and chains such as H&M. Cafes advertise crémant – a local bubbly wine – and local dishes that borrow their richness from the French and their stodginess from the Germans.

The next day, I went to meet Marc Baum, an MP from the democratic socialist party déi Lénk (the Left). He handed me a policy paper his party published criticising Schneider’s space-mining proposal: they believe his law is inconsistent with Luxembourg’s outer-space treaty obligations, that it creates opportunities for billionaires to further enrich themselves and could be harmful to the environment. Even worse, it enshrines the notion of “competition instead of cooperation” between states. “It’s infinite capitalism!” Baum exclaimed over a cold beer on a terrace.

Baum, as it happened, is an actor, too. When we met, he was preparing to perform Eugène Ionesco’s Rhinoceros, an absurdist play about a town whose protagonists speak exclusively in cliches and end up turning into rhinos on account of their unquestioning conformity. Over the course of the drama, the townspeople justify their decision to “go rhino” by declaring that “humanism is dead, those who follow it are just old sentimentalists”. The play’s sole hero, Berenger, resists succumbing to “rhinoceritis”, but fails to save anyone else: he ends up being the only person in the whole town who does not grow a horn. The analogy between that and Baum’s own predicament seems a little on the nose. He was one of just two politicians who voted against the space law in July.

In June, about a month before his signature legislation was passed by the parliament, Schneider and some of his associates flew to New York for yet another sales pitch – this time, for the benefit of venture capitalists on the east coast.

His speech focused on the financial aspects of Luxembourg’s space race, and the country’s intention to get in on the ground floor of commercial space exploration. “Under the US Space Act, your capital has to be majority US capital,” he said, referring to US willingness to recognise property rights in space for its citizens. “We don’t really care where the money comes from in our country, as long as the money is clean.”

On Schneider’s telling, Luxembourg could do for the space-resource trade what it had done for the eurodollar market, international holding companies and multinationals: provide a safe, reliable base where they could operate in tandem with a keen and cooperative – or, by his detractors’ assessment, pliable and sycophantic – state. Schneider announced that after passing its law, Luxembourg would create its own space agency. This would not be a copy of Nasa, but would instead “focus only on commercial space resources”. He told the audience that Luxembourg would solicit private funding to capitalise NewSpace companies, and seek the advice of venture capitalists to decide what companies to invest in. If asteroid mining does, in fact, take off, Luxembourg will be what Schneider’s friends in Silicon Valley might call an “early adopter”.

It’s a gamble, for sure. But it’s difficult to imagine where Luxembourg would be had it not deployed this ingenious development strategy continuously over the past century. The global economy offers few alternatives than to serve it, and rewards its enablers richly. Perhaps a mercenary spirit is what it takes to succeed as a small country in the world – and that “we want to remain what we are” is just Luxembourgeois for the old French saying: plus ça change.