On Catching Up

I don’t tend to follow the news much on holiday. Anyway, while I was away and since I got back to the UK, various things have happened.
To take a few. The Bank of England has cut base rates from almost nothing to a bit
less. This means our pensions, which were unaffordable, are now
slightly more unaffordable.
The Government has this summer decided, as a consequence of a vote the
result of which the majority of the country now regrets, that any
attempt to bring the country’s finances into balance is no longer
worth attempting. See the above, re pensions.
A hospital in Grantham is no longer offering a 24 hour A&E service. Not, not enough money, but not enough doctors, however much we are prepared to pay them.
Spending on the NHS is rising by 1 per cent a year. The amount that
needs to be spent, because of our ageing population and our refusal to
stop eating ourselves to death, is rising by 3 per cent plus. This is
going to end how?
A review of the banking system which has run for several years has
come to the conclusion that there is nothing much wrong with the banking
system. The man responsible was on R4 Today defending this conclusion.
Not terribly well.
Nothing that has happened over the past decade would lead one to the
conclusion that there is anything wrong with the banking system,
would it?
The Government has decided to delay the decision to build new
electricity capacity that will be desperately needed in half a decade because it
is always easier to delay a decision than to take one. As it happens,
I think that new Hinkley Point plant is the wrong solution to that
problem. But to solve it, we have to decide to do something. Not
nothing.
This means the lights will start to go out about when the country runs
out of money and the pensions of people now nearing retirement prove to be inadequate. That will make for an interesting couple of months, won’t it?
Oh, and staff on Eurostar are going on strike over the Bank Holiday, thereby
screwing up any number of people’s summer holidays. Their reason? With no sense of discernible irony, they are unhappy about their work/life balance.
Welcome home.

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On Google, Tax, And Ageing Relatives

Someone I know who is self-employed has just asked, via Twitter, why she has to pay tax at a rate of 20% and Google, which is significantly richer, has to pay at 3%. Let me explain.

It is because it is easier for HMRC to extract tax at 20% from a private individual or small company than it is to extract it, at any rate at all, from a global corporation. Such corporates pay tax on a largely voluntary basis, at a rate they calculate is the barest minimum level to prevent consumers from becoming so disgusted that they boycott their services. Or burn down their head office.

Let me explain further by example, though for reasons of privacy I will hedge around some of the details. Several years ago I took over the financial affairs of an Ageing Relative. Said AE had become incapable of looking after these for themselves, and those finances were in a mess.

To do this requires obtaining something called a Lasting Power of Attorney (LPA). This takes some months, because there are certain understandable safeguards put in place by the law to stop the young raiding their Ageing Relatives’ bank accounts. The process was made more difficult by the incompetence of the solicitor involved.

One of the AR’s problems was the lack of a tax form for some years, partly because of carelessness and partly, more recently, because of lack of the necessary ability. As a result, HMRC wanted a form filled in by the deadline that year, even though AR’s financial incomings and outgoings were awfully simple and easy to track, consisting of two private pensions and one state one.

I could not fill in that tax form until I got that LPA. Also, I needed some information about those pension payments for the relevant year from HMRC. There was a delay on the LPA. HMRC was unhelpful, to say the least, in providing that information.

As a result, I missed the tax deadline by some months. Once the form was in, HMRC issued a notice fining me £800, to come out of AR’s assets.

I rang and explained the reason for the delay. It was physically impossible for AR to fill in the form, and once this became obvious, it took me some time to put myself in a position to do so for him. In part because of delays by HMRC.

The tax man I spoke to said, quite fairly, that I had a good point and should appeal. Now, guess to which body appeals against the actions of HMRC go? Indeed, to HMRC, which in its wisdom decided its earlier decision was the correct one. Odd, that. The fine was paid.

It is easier for the tax authorities to extract money from someone who was, during part of this process, literally on their death bed than to extract it from the likes of Google, Amazon, etc, etc. This is why we pay and they don’t.

On Economic Micawberism

George Osborne wants the country to adopt the economics of Micawberism. He wants to bind future Parliaments to only spend what they receive in taxes. This is how the UK economy was run in Victorian times and in the first couple of decades of the last century; ever since, it has been received wisdom among economists that there are times when it is appropriate for governments to borrow to stimulate demand.

The Tory government is barely a month old, and it comes up with one of the worst cases of political spin and posturing for years, a piece of legislation apparently dreamt up by someone utterly ignorant of the basic principles of the British constitution. As I learnt when training to be a lawyer, it is one of the founding tenets of the latter that Parliament cannot bind its successors, that any measure introduced by one administration can be repealed subsequently by another.

If young George decrees by statute that we must all paint our front doors blue, then his successors can repeal this daft measure, if they have the requisite majority. Likewise, any statute that forbids public borrowing can equally be cancelled. It has no lasting or binding impact.

One can only assume it is a measure designed to embarrass Labour, who would have to take the decision whether to vote against it, so apparently confirming their high tax, high spending principles, or go along with such an idiotic law.

Parliamentary time is not meant to be used to stage publicity stunts designed to make the other side look silly; it’s expensive enough keeping the whole ridiculous circus on the road for the purpose for which it is designed.

There is one irony missed in all this, though. One of the objections to the Human Rights Act, and the whole human rights paraphernalia, is that it requires the UK government to sign up to a set of principles that sit above the will of Parliament and cannot be challenged or set aside by same.

The most strenuous objectors to this, on the basis that it is an unconstitutional block on Parliamentary autonomy and the UK’s right to manage its own affairs, as enshrined in that same constitution, have come from the right wing of the Conservative Party.

On Scotland, And Tax

I met a Scot the other day who offered me some good investment advice. Buy property just below the England-Scotland border, close enough so you can commute across it to Edinburgh or Glasgow.

He believes that when the Scottish Parliament is given the chance to set its own taxes, it will automatically increase them, to pay for its absurd ambitions to become a Sandinavian-style high tax social democracy. It will be cheaper to move to England, where taxes will remain as they are, and commute.

The flaw in this argument, though, is that corporate taxes will almost certainly go up, probably before personal ones. Companies that can move out of Scotland will do so. A number said they would, had the independence vote gone the way of the SNP. There won’t be that many jobs to commute to.

My canny Scot also suggested that the plan was an English one, to give the Scots enough rope to hang themselves. Raise taxes, run out of money, and see where it gets them.

Except that under the devo-lite arrangement promised to the Scots, the English will be the rescuer of last resort. This would mean the third bail-out. The first created the Act of Union in the first place, after the Scottish middle class foolishly sank its money into the failed colony in Darien, on the Isthmus of Panama. (Though this collapsed, in part, because the English Navy blockaded it.)

The second was the rescue of the Royal Bank of Scotland, at a cost of £45 billion, by the British tax-payer when the financial crisis hit. The other bank to be rescued, Lloyds, only needed this because it was strong-armed by the Labour administration to buy the other big Scottish lender, HBOS.

I reckon you could date the third rescue to about 2021.

Incidentally, the conspiracy theory is gathering ground that it is all a plot by the Tories to persuade the Scots to make the idea of a high-taxing SNP so unpopular in coming years that Scotland swings wildly to the right. So making the Labour Party unelectable. It is a theory I suspect we will hear again.

On Tax, and Greed

Amazing, the things you overhear on public transport. I was sitting listening to a man, I assume an accountant, droning on and on to his companion about how he could help his clients avoid on capital gains tax. On and on. I am not sure which struck me more. Was it the horrifically boring nature of his job, finding technical loopholes that allow rich people to avoid paying the amount of tax they should? It must be soul-destroying to devote your life to anything that dull or unrewarding.

Or was it the fact that he appeared not to possess a shred of moral awareness, or the realisation that the way he had chosen to earn his substantial salary might be deemed wrong and shameful by many right-minded people. Doubtless professional torturers, drug dealers and people who work for tobacco companies feel the same.

I doubt any of the above occurred to him. I have, by the nature of my work, known many very rich people, and a surprising number are extremely mean when it comes to paying their way in society. Many give to charity, often as ostentatiously as possible. They show off at charity auctions; their publicists ensure their generosity does not go unnoticed. The parable of the widow’s mite comes to mind.

Then they employ accountants like my fellow passenger to ensure their contribution towards the way of life they expect in the country they have chosen to live in is as small as possible. If not, in some cases, non-existent.

This week we learnt of a huge tax avoidance scheme benefitting a number of very rich people, many of them show business types. They include a pop group with a studiedly anti-establishment image. There seems to be at least one who genuinely did not know of the benefits the scheme provided, presumably having been enrolled unwittingly by accountants, and who seems to have paid back the tax saved.

We also learnt that, through the incompetence of the tax man, several of the beneficiaries cannot be pursued to repay the tax they avoided. This probably doesn’t square with the experience of ordinary people, certainly not with my own experience, which is that the tax man does not give up, whether right or wrong.

I can’t believe anyone likes paying tax, though oddly enough a small minority, if questioned in an opinion poll, claim to. If I were as rich as some of these people, though, I would feel a deep sense of shame if caught avoiding it, however legally, by employing expensive accountants like our friend above. When is enough really enough? When does greed, and the love of money, more money, more, more, expunge any sense of shame?