which could be sent to Virgin in Britain; and a fee for the use of the Virgin trademark, which went directly to the trust overseas without incurring the attention of the UK taxman. Branson took advice from Harbottle & Lewis, the company lawyers, so that the trust was set up correctly. Apart from that firm, no outsiders – either companies or people – were consulted on the trust or its affairs.
Such an arrangement might have raised eyebrows at the Inland Revenue, particularly when put into effect by a pair of young businessmen who were still both under twenty-three at the time that the trust was established, and one of whom had already admitted to attempting to defraud the Customs & Excise. Yet this kind of trust arrangement was expressly allowed under British tax law; without it, Britain’s high income and capital gains taxes were too much of a disincentive to foreign entities who were considering doing business in Britain.
There was, however, a proviso. In order to avoid any liability to tax, it was important that the trust’s beneficiaries should all live overseas. Under UK tax laws, beneficiaries who lived in Britain could be taxed on their share of any capital gains that the trust made – even if they received no money from the trust. Their status as a potential or a future beneficiary could land them with a thumping tax bill. So the trust had to be set up either so that Branson and Powell and their families were not its beneficiaries, or so that no capital gains were actually made. The first of these conditions was hard to achieve, since the two men wanted to benefit from whatever financial success Virgin might achieve. The second condition was easier: as long as the trust simply held on to the income from the trademark it already owned, and did nothing that would ‘crystallize’ its capital gains, it could remain legally safe from tax.
The trust had discreetly accumulated substantial sums of money between the 1973 launch of the record company and the later decision to change Virgin’s trade mark from the twins to the handwritten logo with the big capital ‘V’ that the group uses to this day. When Coutts pulled the plug on Virgin, therefore, Branson suddenly suggested to one of the company’s financial people that they should approach the Bank of Nova Scotia. BNS, he said, held deposits in the Cayman Islands which Branson himself controlled. The bank would be willing to allow the company in London to borrow over £1m using those overseas deposits as security. That loan helped Virgin survive the recession.
BY THE SPRING OF 1981 it was almost ten years since Richard Branson had closed down Student magazine to concentrate on selling records by mail-order. A great deal had happened since then. Virgin had established a record label, a studio business, a chain of shops, a music publishing house; and although 1980 had been a miserably difficult year, the company was clearly beginning to prosper. Yet Branson had never conquered his early ambition to be a newspaper proprietor. For a man whose attention span was as short as his, there was something alluringly immediate about a business whose product was made one day, sold the day after, and discarded the next. The newspaper industry had a further attraction, too: newspaper proprietors had influence and respectability that would always be denied to the owner of a mere record company.
Branson would not have described himself as a friend of Tony Elliott, the founder and publisher of Time Out, the London listings magazine. But the two men were roughly contemporaries, and came from the same public school. They had the same unconventional approach to business, the same ability to guide and motivate young people, the same roots in the counterculture of the 1960s. Elliott had once even approached Branson, suggesting that the two should collaborate to launch a new magazine in New York. But the discussions had come to nothing when Branson realized that Elliott was trying to do to him what he himself had done to so many others: the publisher had no money, but was trying to persuade Branson that the two companies should establish a fifty-fifty joint venture.
By the turn of the 1980s, Elliott’s magazine had clearly become a successful and thriving business. Despite the handicap of a palpable left-wing militancy among its journalists, Time Out was the information source of choice for young, fashionable Londoners who wanted to know which films to see, where to eat, where to shop, and which exhibitions to visit. Its classified section was the place to look for meditation classes, for friendly people to sand the floors of your house, and for cheap flights to south-east Asia. The magazine also did a roaring trade in gay lonely hearts.
The idea of owning a listings magazine with a pronounced political bent would never have occurred to Branson had it not been for the strike that hit the magazine in May 1981. Like his counterpart at Virgin, Tony Elliott had soon learned to distinguish between the political ideals of his staff and the practicalities of running a business. But Elliott had made a damaging error in 1973, when his magazine was still small enough for a minor negotiating concession to seem unimportant. At that time, most of his staff were paid £25 a week; the editors of the sections received £30. When the local chapel of the National Union of Journalists demanded an increase in the rank-and-file wages to £35, Elliott had conceded the principle of a weekly wage of £32.50 – equal pay for all his staff, no matter what jobs they did. As Time Out continued to grow, the system became untenable; the standard company wage was at once too high for Elliott to be able to diversify into other publishing ventures, and too low for him to be able to attract talented writers into the magazine from outside. By the end of the 1970s, Elliott had made a firm decision: cost what it may, he would win back the right to pay some staff more than others. ‘I was pretty confident that we would in the end have either a Pyrrhic victory, in which the whole business would disappear,’ he recalled later, ‘or we would win.’
Initially, the former outcome seemed more likely. As soon as Elliott had insisted on changing the company’s wage structures, the staff struck in protest. The management locked them out, with the help of a court order; and some dismissed Time Out employees established a picket line outside the magazine’s Covent Garden offices. But the magazine itself had to cease publication.
A week after the publication of the last pre-strike Time Out, Branson telephoned Elliott at home.
‘Look,’ he said. ‘I’ve been thinking about your problem. What would you say to the following scenario?’ And Branson then outlined a plan that he would set up a new magazine called Stepping Out, or something like it, and would get it established quickly as a successor to the old Time Out. That would give Elliott the time he needed to outlast the patience of the pickets outside his office door. ‘Then,’ said Branson, ‘when you’ve sorted that situation out to the satisfactory conclusion that you want, I’ll close down Stepping Out and we’ll become the joint owners of the new Time Out.’
Elliott was no fool. He realized how much power such a plan would give Branson over him, and how little room for manoeuvre he would have once a magazine with a similar name was on the streets with his ostensible approval. But he swallowed his suspicions, and accepted Branson’s invitation to come down to the Manor on a Saturday afternoon with his girlfriend and two other people.
At Branson’s suggestion, he and Elliott went off for a walk at three o’clock, leaving their respective girlfriends behind. They returned several hours later, to the barely disguised irritation of Elliott’s girlfriend, and Branson insisted that they stay for dinner. The dinner – which the more sophisticated Elliott later dismissed as ‘school food’, citing it as evidence of Branson’s lack of attention to detail – proved to be a social disaster. Talk turned to the subject of the Social Democratic Party, the recent breakaway from the Labour Party led by a group of four senior politicians; and Branson, rarely someone to talk with interest about politics, became embroiled in a flaming row with Elliott’s girlfriend.
Elliott and his girlfriend left immediately after dinner. By the time they reached London, the Time Out proprietor had arrived at two conclusions.
