The George Giveth, the Phil Taketh Away

Houses of Parliament

“Anti-Entrepreneur” was the first thought that entered my head, as I wondered why the Chancellor seeks to direct his tax-hoover exclusively on those whose industry underpins the greatest wealth in the UK. Then the light-bulb shone: it is politically expedient, playing to the gallery of those who are jealous, while economically, it is safe to attack entrepreneurs because they don’t complain, and cannot go on strike; they just don’t have the time.

There really wasn’t much in the speech, and the detail will emerge as the economists and tax specialists wade through the government press releases.  Our own Ian Abrey will be releasing his more technical analysis shortly, but for most business people the budget involved two sections:

  • There was the bit by which entrepreneurs and small businesses were abused, and,
  • There was another bit by which the Treasury will work out how they can abuse them more.

Entrepreneurs are the low-hanging fruit – they are just too busy working 24 hours a day to complain.  Perhaps this explains the comment that 1% of the population pays 27% of the income tax, since it is clear where the votes lie. But it does not sound like that 1% are under-contributing to me.

Compared to previous Budgets, the Chancellor was witty, for sure, and did not spend the first half-hour congratulating himself. Maybe he had his reasons. Nor did he mention Brexit, peculiarly. Much of the budget revolved around wider government policy, such as education, and I had to smirk when he indicated that after the Polytechnics were sprinkled with holy water and turned into Universities some years ago now, the trend has now gone full circle, along with rebirth of Grammar Schools and Technical Colleges. When will politicians learn to leave education (and all the professions) alone? Those involved in education may be happy to see £216m being made available for 110 new free schools – though that is less than £2m per school.

The Chancellor wants to tackle tax avoidance. How better than to turn his cannon against VAT on roaming charges and moving fixed assets into stock – matters with which no-one will be familiar. He will continue his attack on those who enable tax avoidance, and we wait to hear exactly how he defines his terms. I recall being lectured by a professional body in 2006 that we could be negligent if we failed to offer tax avoidance schemes.  We never did, but it shows how inconsistent governments can be when faced with public opinion.

Apparently the self-employed get too good a deal. He deftly ignored the down-sides of being self-employed (no holiday pay, sick pay or job security). The previous Chancellor helped them by scrapping Class 2 NIC’s. Although the real blows will be released while we are all on holiday in the summer, the taster for now is that NIC’s for self-employed people are going up 2% over 2 years. In one brilliant blow, the Chancellor will upset millions of self-employed people, for a total tax take of £140m.

All UK companies were looking forward to seeing their corporation tax rates fall, and this will not change, it seems.  What will change is that small businesses (usually entrepreneurs), who saw last year the rate of tax on their dividends go up as the tax credit regime was abolished, will now suffer more tax on their dividends. Once again the tax take will be small and the upset caused will be enormous.

Making Tax Digital (“MTD”) is supposed to be tax neutral. How then did the Chancellor conclude that deferring the entry of businesses below the VAT threshold into the MTD regime by 12 months will cost the Exchequer £180m? Do I detect some flying pork pies?

Business rates are the big headlines at present, and a package of reliefs was offered for small businesses to do very little but make it look like government was addressing the situation, especially for everyone’s favourite local pub. As for larger businesses and how to address the virtual business economy: the government will think about it and take soundings.

Other things the government will think about are simplification of Research and Development claims and the burning issue of North Sea Oil Revenues (don’t they belong to Scotland?).

An Initial Conclusion

The achievements so far and the objectives are laudable: we have a fast growing economy with low unemployment and inflation forecast at around 2%. Yet our borrowing is £1.7 trillion. Because governments do not produce balance sheets, only income and expenditure accounts, it’s hard to see what assets are backing that up. However, the Government says it wants to build productivity and infrastructure, delivering fairness.

Yet the reality is that Government is increasing the burden of small and medium sized businesses, imposing higher effective taxes, massively increased administrative burdens through MTD and auto-enrolment, while effectively subsidising larger employers by supplementing salary costs with in-work benefits and credits, and thus distorting the unemployment figures.

Government’s words are all about developing the economy and encouraging growth, but its actions are more about restriction, control and red-tape, welcoming us back to the 1970’s.  How ironic that the squeeze on taxes and increased red-tape reminds me of the decade when we entered what is now called the EU.

There is a saving grace: at least the Chancellor did not do very much at all.

Brexit White Paper: Just a Spring Clean for the May Queen?

The_European_Parliament.jpg

Today, 2nd February, the government released its White Paper, following the Article 50 triggering Bill passing through the House of Commons. It is called “The United Kingdom’s exit from and the new partnership with the European Union”. I am sure there will be a suitable acronym in due course.

Press and pundits eagerly awaited the document which, in 76 pages including smiling photographs said, what Mrs May has always said, and little more: Brexit means Brexit. I read it, being a sad man who is interested in these sorts of things, and found it to be a helpful summary of the issues that will need to be addressed, with little to say how they will be addressed or why anyone should play ball with us, except that we are really good for everyone else so why would you not let us have our cake and eat it?

It does list 12 principles for the negotiation, most of which represent a statement of the bleedin’ obvious. For example, the concluding principle is “Delivering a smooth, orderly exit from the EU”; you will be shocked to hear that the government was not seeking utter chaos.

The Paper effectively tells us that the government intends to ensure that on the day we leave the EU, everything will be exactly as it is now, and then the government will pick off the bits it does not like. It reminded me of the sculptor who said he takes a piece of stone and chips away all the bits that don’t look like the subject of his art. It is a fine idea but I cannot truly imagine the EU letting us walk out the door with the only agreed change being that we can change what we like.

The paper states clearly that the government will be transparent, on the one hand, while, on the other, necessarily play its cards close to its chest. It has certainly done so in the Paper. I don’t necessarily say it is a bad thing either, but 76 pages full of words that tell us that the government will negotiate the best deal it can? Hardly a worthwhile exercise.

We can applaud the government’s intentions, but, as an adviser to businesses, I focused on sections 7 and 8. The first of these, concerning workers’ rights, merely said that ours are higher than the EU’s anyway, so there is nothing to consider. They even slipped in a reminder that they want worker representation on Boards for listed companies.

Section 8 is informative. It presents an interesting impact summary across many industrial sectors, but was merely a statement of how great the UK is.  It is true that the UK is very strong, but that gives us far more to lose than the EU. The paper even points out that we have implemented or over-implemented every Directive and Regulation from the EU, making us perfect trading partners.

If ever there has been a document which stretched the boundaries of saying nothing in as many words as possible, it was this.  The 12 Principles are aspirations, Utopian stairways to heaven perhaps, and that is great, and the detail behind the 12 Principles is little more than advertising puff.  It is intended to make us feel better and to explain why we ought to be able to negotiate a good deal.

The Paper – if its facts are correct – should make a negotiator feel strong. But it does not suggest how the team might deal with irrational intransigence arising from a desire to give us a good kicking as punishment for leaving the club.  The EU Project is one of faith. What the UK has done is to potentially damage the EU, and there are those in the EU who want revenge and do not care about the price.

Every statement in the Paper is one that says the UK will try to do a deal which is good for everyone.  Each statement, a bit like Mrs May’s speech to the Republicans, was carefully balanced with opposites so that in the end it meant nothing: The USA has a right to protect its borders, but it must allow immigration; The world must not rely on trade with China, but should definitely trade with China, and so on.

I do hope our negotiators are successful and I wish them luck. I don’t think this Paper will help much.

The Lunatics are on the Grass

 

“The lunatics are in my hall
“The papers hold their folded faces to the floor
“And every day, the paper-boy brings more” (Pink Floyd, Brain Damage)

More than forty years after Pink Floyd released “Dark Side of the Moon”, the lunacy continues and only the faces in the photos have changed.  Each day, I read the newspapers with increasing concern.  Is it old age?  Or am I right to be so stunned that I struggle to find the coherent thread that links the stories? And so I decided to explore that link.

Continue reading “The Lunatics are on the Grass”

Quarterly tax returns – HMRC’s thirst for knowledge

… about us.

HMRC published its consultation papers on 15th August called “Making Tax Digital” along with a series of other matters. Originally it was called “Making Tax Easier”. I assume they omitted the words, “to Collect” in error.  The Telegraph focused on the draconian penalty regime proposed (The Telegraph, 16 August 2016).  The Times was most interested in the new proposed powers of HMRC to penalise advisers involved in tax avoidance.

These proposals go to the heart of the relationship between government and the people. HMRC seeks powers to require unpaid work from citizens and will find itself destroying the understanding that used to exist. The relationship appears to be broken, and it seems like time to rethink it.

For centuries, tax was understood as government taking a share and using it as it saw fit. Excess taxation toppled Kings. Now, the people, and sometimes the media, are complicit in creating the illusion that tax equates to charity.  Tax is necessary for society to work, but it is not inherently a benign thing.

Continue reading “Quarterly tax returns – HMRC’s thirst for knowledge”

“Our wills and fates do so contrary run…

London Skyline

“… that our devices still are overthrown.
Our thoughts are ours, their end none of our own.” (W Shakespeare, Hamlet)

Similarly, the Romans said: “men make plans and the gods laugh”, and nowadays folk say “random, yeah?”.  What we know is that things never turn out as we expect.

Who would have thought that within a few little weeks, we would have voted to leave the EU, seen markets panic and re-stabilise, seen a Prime Minister resign and a new one take his place, our second female Prime Minister,  seen Boris Johnson in the political wilderness only to emerge within a fortnight as the new Foreign Secretary, see England knocked out of Euro 2016 and Portugal the winner, and Andy Murray winning Wimbledon again?  Well, one of those events was fairly predictable.  

Continue reading ““Our wills and fates do so contrary run…”

Survey: Has the Brexit Vote Affected You?

UPDATE: The survey below has now closed.  We are really grateful to those who took part and we will be conducting further research in due course.  Please do check back to take part in future surveys.  Our report is available here.

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First there was a vote.  A little more than a week later, we have no political authority in the country and Her Majesty must be thinking something like, “Well that’s a great 90th birthday present guys – I really could do without having to wade in and take control at my time of life” (I am sure the Royal thoughts are more eloquently put).  Apart from Parliament self-destructing, vast numbers of petition signing people threatening to hold their breath till they turn blue, and the leaders of the European Countries getting severe indigestion and threatening handbags at dawn, nothing has actually happened yet. Surely it is not news that half the UK doesn’t like being in the EU, and half does?

Never the less, based on this startling revelation, the banks have downgraded the UK’s credit, Sterling has sunk and rumours abound about the next knee jerk.  In the meantime, Mr Osborne may be thinking of making the UK a corporate tax haven, something we would all welcome?  Some question how on earth government can allow a fractional majority of the votes cast and less than 50% of the voting population to force a change as momentous as our removal from the EU. This is the same government, I think, that has said that, to go on strike in a key industry, a union should have a 60% majority?

We have now heard anecdotally that some overseas businesses are reviewing or deferring decisions to invest in the UK, while others say it is business as usual, and some report increases in sales.  With all the confusion, we would like to find some clarity.  Please would you tell us a little about your experience, and how the EU Referendum is or may be affecting you, by answering a few questions on our survey page?  The survey is open to anyone, but it can only be completed once by each person.  At the end of the survey, you can optionally leave your details and we will use them to contact you with any interesting results.

It takes about three or four minutes to complete.
Continue reading “Survey: Has the Brexit Vote Affected You?”