18 November 2012

That was week ending 16th November 2012

No deal to Green deal

In last week’s article I explored the difference between “knowing what you are there for” as opposed to “knowing what you are there to do” A piece of news from last week demonstrates just how wrong everything goes when you forget “what you are there for” and blunder blindly into areas where you have no competence and are therefore bound to fail.
The “Green Deal” is a flagship government policy to make homes more energy efficient and ultimately cut energy bills. If you haven’t heard about it or are not clear what it actually is then you are not alone. Announced in June last year, so far not a single household has registered for the scheme. The scheme enables people to borrow up to £10k to have loft and wall insulation installed. The loan is repaid over up to 25 years through higher bills but the expected savings must be equal to or greater than the cost of the work.
Now if you old fashioned like me this sounds like a second mortgage. Perhaps your walls and lofts may be at risk if you fail to make the repayments. Joking apart, the scheme is so riddled with uncertainty that it is no surprise that even people who have heard of it don’t find it attractive. Also if like me you have had a rash of pimply youths (pun intended) knocking on your door and claiming to be from a government grant service and are not trying to sell you anything, it has also become intensely irritating!
One of the things government is to there for is to ensure that the country’s assets are maintained and improved, so developing a policy to improve insulation in our housing stock is fine. However they didn’t stop there. They went on to design and launch a consumer home improvement product with a personal finance component included. What experience or competence does government have in this field? None. So no take up is no surprise. Can you imagine Proctor & Gamble launching a new cleaning product without thorough market research and testing and a carefully planned and fully resourced launch and marketing campaign?
This is not the first time this has happened. A previous spectacular example was the Millenium Dome. This a was a Tory government scheme but the Labour government decided to not only to proceed with its construction but also to go into the entertainment industry as well. Civil servants were appointed to run it with the inevitable disastrous results. Since it has been run by entertainment industry professionals it has become a great success.
All politicians and government officials have become so sure they know what’s good for us that they can’t resist going into areas they know nothing about. The same happens in business when instead of setting clear directions for the people who know what they are doing and letting them get on with it, managers have to micro manage every aspect of what their people do.

Taxing Times

The debate about how much tax businesses pay or don't pay rumbles on. The week started with Amazon, Starbucks and Google appearing before the Public Accounts Committee (PAC). Amazon made the mistake of sending Andrew Cecil their “Head of Public Policy” or PR man to you and me. He was eaten for breakfast by Chair of PAC Margaret Hodge describing his responses as “unacceptable nonsense” and accusing him of being clearly “not credible”. Why some businesses when they are clearly in a hole over an aspect of the way they do business persist in sending out these lightweight PR people to continue digging I don’t know!
The politicians have now moved the debate to the moral high ground where they take the high ground and make it very clear that business is on the low ground. Ms Hodge accused the companies of using accounting strategies that were “cynical” and “unjust”. She didn’t stop there, adding “we are not accusing you of being illegal; we are accusing you of being immoral”. When politicians start “accusing” others of being “immoral” we are well into pot and kettle territory. Just how many jobs with their accompanying income tax, NI and VAT tax revenues have Ms Hodge and her colleagues on PAC created recently? Any chance of a grown up dialogue that could get to the root of the problem and find practical solutions goes out the window as soon as the “M Word” is deployed.
Whilst there is a ”moral” dimension to the problem of some companies being able to legally reduce their tax liabilities to near zero, this is not a helpful argument. The real point is about competition. If these businesses can save huge amounts of money by paying very low tax on their profits this gives them an unfair and unearned advantage over their competitors who are not able to access the same mechanisms. Andy Street, Managing Director of John Lewis put is finger right on it.
“There is less money to invest if you are giving 27pc of your profits to the Exchequer. Clearly, if you are domiciled in a tax haven you’ve got much more. They will out-invest and ultimately out-trade us. And that means there will not be a tax base in the UK”.
Not a single mention of morality just plain common sense that highlights what the real problem is and what the consequences could be.
What this whole episode is demonstrating is that the taxation system for any business based or operating in the UK is a mess. Even a dog would not want it for dinner. The world has changed a great deal but the tax system has not, apart from continuous tinkering. This is why Tolley’s tax guide is now twice the size it was 10 years ago.
Politicians think a “competitive” business tax regime is just about tax rates, but it is not, it is also about the system itself. Reasonable rates of business tax based on a simple, transparent and above all stable system is what businesses really want. There are lots of reasons why businesses would want to operate in the UK but a tax system that mean they pay little or no tax shouldn't be one of them.
Several other commentators made this point about the failings of our tax system last week. However not one politician, whether a government minister or an MP lauding it on a House of Commons Committee, gave it a mention. Those of us in business need to give them an earful on this at every opportunity.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

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