Tax Donut blog

France and Hollande: a lesson in self-delusion

In my twenties we used to enjoy discussing politics. Whatever one person said, the other would counter, and so it would go on.

But once people started paying taxes and mortgages, they generally moved to a sensible middle ground. A lot of us described ourselves as “left wing in terms of supporting the genuinely needy, but right wing in terms of running a healthy and competitive economy to pay for it all”. The people to the left of us, politically, usually had lives that were conveniently cut off from the realities of being in the private sector; while those on the right were insulated from the realities of living on council estates etc.

Then we all seemed to get bored of political conversations, as we got used to the sad fact that every single group in our society looks after themselves. The bankers, the bosses of public companies, and certainly the unions and the whole public sector have done this very successfully for years.

However, in 2012 politics is very much back on the conversational agenda. Because a lot of people, especially self-employed people and people running small businesses, are pretty worried. We don’t have a salary in the normal sense, we have to go out and generate revenue from which to pay ourselves every month. In the current economic climate that is no easy task. Looking ahead, the challenge of putting money aside for our retirement is looking increasingly tricky too.

The election of Hollande in France meant that a group of us discussed little else but politics at dinner last night. France has not had a balanced budget in 30 years. It has spiralling debt. Its economy is uncompetitive and getting worse. Yet the electorate there is still craving more public sector expenditure. Austerity is too painful, so they want to borrow more money to grow their way out of trouble. Mitterrand did that in 1981 and then promptly had to slam all his expenditure into reverse when the financial markets decided they’d prefer not to invest in his country. Hollande says that this time it will be different. Really?

Hollande plans to put tax for the very rich up to 75%. We all loathe fat cat pay, but hasn’t every bit of analysis shown that super-high taxes simply don’t work? He also wants to limit executive pay in public companies to 20 times the salary of the lowest paid employees in those companies. That sounds like a more pragmatic approach and it will be interesting to see what it means in actual numbers.

But the most interesting aspect of the current developments is that France’s (and Greece’s) problems, as they grow, will spread to other weakened European countries and this in turn will impact the UK. The irony is that the resulting economic step backwards will be seized on as evidence of the failure of the UK’s austerity measures. So we can then all kid ourselves that borrowing yet more money will somehow make things better. But it won’t. Massive debt does not work for individuals. Nor does it work for small businesses or large businesses. There is no reason to suppose that massive debt, year after year, is somehow going to create a healthy economy in France, Greece or the UK.

Many commentators have uses the word “hangover” for our current economic situation. It’s a good metaphor. And having sworn we’d “never drink that much ever again” we’ll soon be opening another bottle of wine. But I think for now I’d prefer an Aussie Shiraz to a Bordeaux.

Rory MccGwire is CEO of BHP Information Solutions, publisher of the Donuts

National debt and tax dodges - is HMRC guilty of using a loophole in common sense?

I’ve just received an email from a Government department telling me that they are making some website screen changes based upon the feedback from users. It said ....

“Companies House will be improving the look of the WebFiling screens from the 22nd April 2012. The new screens have been based on customer feedback, and are aimed at providing a clearer and simpler experience for WebFiling users.”

A good use of funds?

Maybe I think this way because I am an accountant but it seems to me that when the country is up to its eyeballs in debt, spending money to fancy up a few web pages is not the best use of limited public funds.

How about using the money to reduce the nation’s debt, prevent cuts elsewhere, stop job losses or some other common sense solution.

A lesson in setting a budget

Does the Government need a little lesson in how to set and operate to a limited budget?

When I took some time out, a while back, to go back to college, I knew that I was going to be living on a tight budget – no benefits, grant or any income whatsoever meant that I needed to tighten my belt. So during this austere period I reviewed my spending ..

What did I really need and couldn’t live without? The answer was food, light, heat etc. In true 'hierarchy of needs' style I knew that I needed to fulfil my basic physiological needs.

Other needs were optional at that time – I was willing to compromise the fulfilment of them for my desire to go back to college.

I made spending choices.

Isn’t that what the Government should be doing? Maybe they are but, how can choosing to make these cosmetic systems changes be a good choice given the current state of the nation?

Tax Loopholes

Instead of these fancy new web screens, how about dedicating some money to reducing some of the tax loopholes that we keep hearing about? At the end of March, George Osborne sent a letter to the new head of HMRC, Lin Homer, laying out five key objectives for the next tax year. Read it at http://www.hmrc.gov.uk/news/cx-remit-letter.pdf

See if, like me, you think that these are possibly the most woolly set of objectives that could be set. But only last week Osborne was telling us how shocked he was at the tax avoidance loopholes being used by the rich. So why then has he not set some SMART - specific, measureable, attainable, relevant and timely - objectives for the new head of HMRC aimed specifically at eliminating these tax loopholes?

Biggest slice of the prize

Over the last few weeks I am sure that we have all seen numerous articles about tax avoidance. You’ve probably been annoyed at how the rich have used these obvious tax loopholes to pay less tax. Let’s not forget that many of these loopholes have been around for a few years and are not recent introductions.

One thing that has been conspicuous by its absence in many of these tax avoidance stories has been the quantification of the ‘slice of the prize’. Just how much are these tax loopholes costing the country?

Objectives

If I had to set the objectives for tackling these tax loopholes they would be:

• Tell me what the top ten (twenty – you pick the number) tax loopholes are in UK tax law?
• Tell me how much these loopholes costs the country each year?
• Tell me who you need on your team to fix / close them?
• How much would this team cost and what would the net gain to the country be if these people were on board to fix the loopholes?

The simple approach

Will someone come along and say “that won’t work, it is too simple, you don’t understand all of the very complex tax laws that these avoiders are using”.

Is there a tendency to hide behind something being complex to avoid fixing it?

Is it time to stop kicking the tax avoiders and accountants and kick the people who are in charge of running the very department who have the power to make the changes to reduce and eliminate these loopholes?

If they can’t fix them then get the people in who can – maybe the very people who are using them to save the rich the tax should be on the team!

Maybe I just think this way because I am an accountant!

But when I see a problem I go fix it – else it will always be there!

Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director ofwww.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions.