I think it’s come to something when even Dave Hartnett, the head honcho of HMRC, doesn’t appear to get basic economics.
Let me say upfront I am NOT advocating non-payment of tax. It is WRONG. But...
If Bob the Builder decides not to tell the taxman when he takes £400 cash in hand for a job, he isn’t “diddling” the economy. What does Dave think Bob will do with the £400? Burn it? Bury it? No – he’ll probably go out and spend it. In the economy.
Now, you can argue that he is depriving the government of money which could be used to fund public spending (though by the time the government’s finished with it I doubt the public will see even half of it). That is where the proper justification lies.
The grey or black economy, however you want to characterise it, is a cheat. It is depriving the needy of help, it probably places a higher burden on people who do pay tax because Treasury calculations about levels of taxation make allowances for non payment.
But it’s wrong to suppose this money simply disappears out of the economy. It probably goes back in as consumer and business spending. So what doesn’t appear in one place probably surfaces in another.
HMRC and the Treasury also have to consider reasons for non-payment. Is it because people are just being dishonest, or is it because a self-employed person doesn’t think it’s fair that he flogs himself for all the hours God gives then has to hand over 40% or 50% or the money?
These are complex arguments. The simple principle of contributing to wider health and wealth through tax is, in my book, unarguable. And not paying any tax is just criminal. But what’s the underlying message for the tax system? Are people being more dishonest? Or are they just feeling the pinch?
Friday 27 January 2012
Wednesday 25 January 2012
UK plc: a recession or a hiccup?
Today’s news that the UK’s GDP figures fell by 0.2 per cent in the last three months of 2011 will generate the usual stale, political hot air.
But I doubt it comes as any great surprise to anyone in business.
The GDP figure had already been comprehensively second-guessed by a series of business surveys which suggested that sentiment had been weakening from the summer onwards.
You have to attach the usual health warning to today’s number. This is actually an estimate from the Office for National Statistics based on its analysis of around 40 per cent of the data which goes into the GDP figure.
It will be revised at a later date, and past revisions have usually been upwards.
What’s behind the fall? A couple of interesting contributing factors – a mild winter has seen people turn down their heating, so electricity and gas production was down more than four per cent. November’s public sector strike – which took out the equivalent of a million working days – will also have nicked the number down a bit.
But they can’t hide falls in manufacturing, construction and a standstill in services, all of which tell a familiar story of weak demand in a cautious economy.
This is also a significant reverse on the third quarter of 2011, when the economy grew by 0.6 per cent. So the slowdown was a marked one.
There is no sign of any immediate improvement in this picture, and it won’t be in the least bit surprising if we see another negative number for the first three months of this year, especially with the continuing uncertainty in the eurozone – our main export market, don’t forget – acting as a drag on the global economy.
There are some optimistic chinks, though, and some of the sentiment I pick up from business people is that they’re getting pretty fed-up with the political doom-mongers.
Inflation is expected to continue falling this year, which should allow businesses to start rebuilding profit margins and consumers to feel like they’ve got a few quid spare. Tax changes for low and middle-income earners are likely to have a similar effect.
So the UK economy should get back on to a slow path to recovery in the second half of this year.
I’ll repeat a few salient points about where UK plc is right now: a swift recovery from a devastating financial crash was never likely because we are dealing not just with huge debts but the need to make structural change to an economy which has lost some activity permanently.
Our economy isn’t falling apart at the seams, because it is the sixth biggest in the world and has a welfare safety net which didn’t exist in the 1930s.
Businesses may be heartily sick of recession talk, but they’ll have to tolerate it for a few months yet. Nevertheless, this isn’t a return to the dark days of the crunch.
But I doubt it comes as any great surprise to anyone in business.
The GDP figure had already been comprehensively second-guessed by a series of business surveys which suggested that sentiment had been weakening from the summer onwards.
You have to attach the usual health warning to today’s number. This is actually an estimate from the Office for National Statistics based on its analysis of around 40 per cent of the data which goes into the GDP figure.
It will be revised at a later date, and past revisions have usually been upwards.
What’s behind the fall? A couple of interesting contributing factors – a mild winter has seen people turn down their heating, so electricity and gas production was down more than four per cent. November’s public sector strike – which took out the equivalent of a million working days – will also have nicked the number down a bit.
But they can’t hide falls in manufacturing, construction and a standstill in services, all of which tell a familiar story of weak demand in a cautious economy.
This is also a significant reverse on the third quarter of 2011, when the economy grew by 0.6 per cent. So the slowdown was a marked one.
There is no sign of any immediate improvement in this picture, and it won’t be in the least bit surprising if we see another negative number for the first three months of this year, especially with the continuing uncertainty in the eurozone – our main export market, don’t forget – acting as a drag on the global economy.
There are some optimistic chinks, though, and some of the sentiment I pick up from business people is that they’re getting pretty fed-up with the political doom-mongers.
Inflation is expected to continue falling this year, which should allow businesses to start rebuilding profit margins and consumers to feel like they’ve got a few quid spare. Tax changes for low and middle-income earners are likely to have a similar effect.
So the UK economy should get back on to a slow path to recovery in the second half of this year.
I’ll repeat a few salient points about where UK plc is right now: a swift recovery from a devastating financial crash was never likely because we are dealing not just with huge debts but the need to make structural change to an economy which has lost some activity permanently.
Our economy isn’t falling apart at the seams, because it is the sixth biggest in the world and has a welfare safety net which didn’t exist in the 1930s.
Businesses may be heartily sick of recession talk, but they’ll have to tolerate it for a few months yet. Nevertheless, this isn’t a return to the dark days of the crunch.
Tuesday 17 January 2012
Inflation begins the journey down
The Office for National Statistics says both key measures of inflation fell significantly in December, with Consumer Price Inflation dropping from 4.8 to 4.2%, and Retail Price Inflation (a measure which also includes mortgage interest payments) down from 5.2 to 4.8%.
In terms of recent history these are still comparatively high numbers, but the point here is that these falls were driven by drops in the costs of two of the key staples in life – fuel and clothing.
We’ll see another significant fall in inflation when the January numbers come out [in February] because that’s the point at which a rolling, annualised number sees the additional impact of last January’s VAT increase drop out.
Price reductions from energy companies will also feed into the numbers but the background noise suggests these reductions are only temporary.
The fall in inflation isn’t necessarily a good sign at the moment because it is a direct result of weak economic demand around the world forcing down the prices of commodities. So it can go hand-in-hand with high unemployment.
But it could improve economic conditions in the months ahead because it will give business a chance to rebuild their profit margins. They can’t put prices up in the current climate, but if their costs are lower the bottom line should improve anyway.
It could also – finally – ease the squeeze on hard-pressed consumers, whose downbeat mood has weighed heavily on the economy for so long.
It’s doubtful that margin improvement on its own will kick-start the economy but could it provide at least a little bit of ammo for investment and job creation?
Government will be watching the inflation figures like a hawk, clearly hoping that business margins and better-off consumers come to the rescue of growth.
In terms of recent history these are still comparatively high numbers, but the point here is that these falls were driven by drops in the costs of two of the key staples in life – fuel and clothing.
We’ll see another significant fall in inflation when the January numbers come out [in February] because that’s the point at which a rolling, annualised number sees the additional impact of last January’s VAT increase drop out.
Price reductions from energy companies will also feed into the numbers but the background noise suggests these reductions are only temporary.
The fall in inflation isn’t necessarily a good sign at the moment because it is a direct result of weak economic demand around the world forcing down the prices of commodities. So it can go hand-in-hand with high unemployment.
But it could improve economic conditions in the months ahead because it will give business a chance to rebuild their profit margins. They can’t put prices up in the current climate, but if their costs are lower the bottom line should improve anyway.
It could also – finally – ease the squeeze on hard-pressed consumers, whose downbeat mood has weighed heavily on the economy for so long.
It’s doubtful that margin improvement on its own will kick-start the economy but could it provide at least a little bit of ammo for investment and job creation?
Government will be watching the inflation figures like a hawk, clearly hoping that business margins and better-off consumers come to the rescue of growth.
Tuesday 10 January 2012
Broadmarsh: The Never-Ending Story
We all thought the acquisition of Broadmarsh by the owners of the Victoria Centre was all over…well, it ain’t now.
Yes, Capital Shopping Centres secured agreement to buy the centre off former owners Westfield and the Post office Pension Fund.
But here we are a couple of months on and the Office of Fair Trading has decided to train its microscope on the deal.
I understand it was the OFT’s own decision to do so, a result of its routine monitoring of all large-scale merger and acquisition activity in the UK. It was not responding to a complaint.
There are four possible outcomes – it decides the deal doesn’t qualify for a detailed investigation under the terms of the Enterprise Act; it can conclude the deal raises no competition issues; it can decide it DOES raise competition issues and refer it to the Competition Commission; or it can ask CSC if there is anything it can do/sell to remove any potential competition issues.
The OFT has launched this initial investigation because it thinks it is worth investigating whether one developer owning both major shopping centres in the same city reduces competition for shoppers/retailers.
Where does this leave the Broadmarsh/Victoria Centre redevelopments? Well, treading water perhaps momentarily.
This initial OFT investigation takes roughly 40 days, though any comments about it from interested parties have got to be with them by 24 January.
Who are the interested parties? The ones the OFT will listen to most are shoppers and retailers because it is their ability to enjoy competition and choice that it believes could potentially be lessened by Broadmarsh and the Victoria Centre being owned by the same company.
To cut to the chase, the big issues are whether shoppers will have enough choice if the same landlord owns two destinations, or whether CSC would be able to dictate rental levels and who goes where to retailers because it calls the shots.
Will the investigation lead to anything? Doubtful – with shop chains struggling again the lack of choice comes from a weak economy and the web not market domination. Similarly, there are two sides to the rental landscape: yes, they’ll all have to deal with one landlord now, but don’t assume they would have been less than ruthless themselves if the opportunity to play one developer off against another were still around.
In any case, regulatory interference in development in a depressed retail market would go down like a lead balloon.
The OFT may simply be doing its duty here and making sure people know it didn’t ignore the domination of a city by a single developer.
I’ll conclude this latest instalment of the Broadmarsh Saga with the comment on the OFT probe from Nottingham City Council, which clearly wishes someone, somewhere would just stick a spade in the ground: “It is unfortunate that this referral has been made because although we don't expect it to be successful, it will undoubtedly add delay to our talks over the future development of the south end of the city. We had started constructive discussions with Capital Shopping Centres over their future plans for the Broadmarsh shopping centre and we will continue to negotiate with them irrespective of this development."
So may be this is just a final hiccup. But don’t hold your breath...
Yes, Capital Shopping Centres secured agreement to buy the centre off former owners Westfield and the Post office Pension Fund.
But here we are a couple of months on and the Office of Fair Trading has decided to train its microscope on the deal.
I understand it was the OFT’s own decision to do so, a result of its routine monitoring of all large-scale merger and acquisition activity in the UK. It was not responding to a complaint.
There are four possible outcomes – it decides the deal doesn’t qualify for a detailed investigation under the terms of the Enterprise Act; it can conclude the deal raises no competition issues; it can decide it DOES raise competition issues and refer it to the Competition Commission; or it can ask CSC if there is anything it can do/sell to remove any potential competition issues.
The OFT has launched this initial investigation because it thinks it is worth investigating whether one developer owning both major shopping centres in the same city reduces competition for shoppers/retailers.
Where does this leave the Broadmarsh/Victoria Centre redevelopments? Well, treading water perhaps momentarily.
This initial OFT investigation takes roughly 40 days, though any comments about it from interested parties have got to be with them by 24 January.
Who are the interested parties? The ones the OFT will listen to most are shoppers and retailers because it is their ability to enjoy competition and choice that it believes could potentially be lessened by Broadmarsh and the Victoria Centre being owned by the same company.
To cut to the chase, the big issues are whether shoppers will have enough choice if the same landlord owns two destinations, or whether CSC would be able to dictate rental levels and who goes where to retailers because it calls the shots.
Will the investigation lead to anything? Doubtful – with shop chains struggling again the lack of choice comes from a weak economy and the web not market domination. Similarly, there are two sides to the rental landscape: yes, they’ll all have to deal with one landlord now, but don’t assume they would have been less than ruthless themselves if the opportunity to play one developer off against another were still around.
In any case, regulatory interference in development in a depressed retail market would go down like a lead balloon.
The OFT may simply be doing its duty here and making sure people know it didn’t ignore the domination of a city by a single developer.
I’ll conclude this latest instalment of the Broadmarsh Saga with the comment on the OFT probe from Nottingham City Council, which clearly wishes someone, somewhere would just stick a spade in the ground: “It is unfortunate that this referral has been made because although we don't expect it to be successful, it will undoubtedly add delay to our talks over the future development of the south end of the city. We had started constructive discussions with Capital Shopping Centres over their future plans for the Broadmarsh shopping centre and we will continue to negotiate with them irrespective of this development."
So may be this is just a final hiccup. But don’t hold your breath...
Monday 9 January 2012
Fat cats and own-goals
They earn fortunes, they're arrogant, they leap from one multi-million job to another no matter how well their outfit is performing . You’ve got to be brave or foolish to stand up and back big business bosses in the current climate.
So what are you all staring at me for?
OK, here goes. Public anger about the perceived unfairness of PLC pay packages compared to the wages Mr and Mrs Average take home may be understandable in the wake of the biggest financial crash in living memory.
But there’s a clue in that sentence: How many of those among us who inhabit Planet Average know how to stand up in front of a room of industry analysts and explain why their Price/Earnings ratio is where it needs to be?
Thought not.
How many of us are willing to live in a hotel room for months on end because all the action in the business is taking place on the other side of the globe?
Well, I like holidays as much as you do but since this involves staring at office walls may be I’ll give the long haul travel a miss, eh?
And how many of us are willing to stand up and push the button on 300 jobs because a rival’s new technology has pulled the rug from underneath one of our key revenue streams?
I don’t see many hands going up for that one, either.
Now, I know the odd PLC chief exec and it’s fair to say their lives do not include some of the mundane frustrations which leave me muttering at the end of the day. Like most people I mutter a lot about money (why is there never enough of mine in those bloomin’ holes in the wall?). I doubt Mr PLC does. He’ll have a company credit card and his PA probably knows when he’ll need a few readies in his briefcase.
But it’s not the readies that really exercise public outrage at the moment. It’s a package which is likely to run into a six-figure salary, a performance-related bonus, dividend payments and share options. The kind of package that means the moment you sign your contract is the moment when you take on millionaire status.
Now, I don’t think there are that many people who begrudge Sir James Dyson his millions. After all, he effectively invented his millions by putting a cyclone into a plastic container which, today, does everything from cleaning carpets to drying hands. So fair dinkum.
But what about some bloke who started off as a tax & audit accountant and, well, just rose through the management ranks? The bloke, indeed, who presided over a 30% fall in the share price but still marched away with a golden goodbye? This is where the PLC CEO equation starts to get distinctly iffy, especially if that 30% fall in the share price was caused by a drop in revenues which led to cost-cutting and job losses (sorry, ‘right-sizing the headcount’ – y’know what I mean).
I could go on, but I won’t. Countless self-elected righters of wrong and soapbox experts have decided that Big Business is Full of Fat Cats so All Big Business is Bad.
That’s cobblers. So, let me put a few counter-arguments.
PLCs are crap at explaining what they do to the public. They spend too much time waffling on to analysts and shareholders, nowhere near enough talking about the patents they’ve taken out, the jobs they’ve created, the wages they hand out, the contracts they pour into supply chains, the taxes they pay.
Creating value for shareholders is all well and good, but when PLC bosses end up in a situation where politicians are suggesting that the shareholders should vote more formally on whether they should actually get any of that value something’s gone a bit wonky on the PR front, hasn’t it?
PLCs are also one of the reasons why we gave birth to such a strong financial services sector (told you I was being brave), and some of most talented lawyers and accountants on the planet.
But despite the name (PLC simply means anyone can buy their shares), these are PRIVATE enterprises. They are not taxpayer-funded democracies. Giving a PLC chief exec a six-figure salary is not depriving frontline council services of money, and whether it’s right or not is surely a matter for these businesses. It’s their profit or loss, remember.
My biggest beef with this whole kick-the-corporates agenda is this. It's been dressed up by some as a natural consequence of the financial crash, almost a key component of recovery. It's nothing of the sort - reining in top bosses' pay might pander to prejudices and make a few politicians look good, but it'll do diddly-squat for economic recovery.
Similarly, the idea that Alan from admin can sit on the board and have a say in how much the directors get paid suggests politicians think business is some kind of collectivist utopia. That or they're guilty of cynical populism. As if...
And if we’re off on a fairness kick, what about the worst offenders of all? They earn fortunes, they're arrogant, they leap from one multi-million job to another no matter how well their outfit is performing.
And their contribution to UK economic growth consists of kicking a ball...
So what are you all staring at me for?
OK, here goes. Public anger about the perceived unfairness of PLC pay packages compared to the wages Mr and Mrs Average take home may be understandable in the wake of the biggest financial crash in living memory.
But there’s a clue in that sentence: How many of those among us who inhabit Planet Average know how to stand up in front of a room of industry analysts and explain why their Price/Earnings ratio is where it needs to be?
Thought not.
How many of us are willing to live in a hotel room for months on end because all the action in the business is taking place on the other side of the globe?
Well, I like holidays as much as you do but since this involves staring at office walls may be I’ll give the long haul travel a miss, eh?
And how many of us are willing to stand up and push the button on 300 jobs because a rival’s new technology has pulled the rug from underneath one of our key revenue streams?
I don’t see many hands going up for that one, either.
Now, I know the odd PLC chief exec and it’s fair to say their lives do not include some of the mundane frustrations which leave me muttering at the end of the day. Like most people I mutter a lot about money (why is there never enough of mine in those bloomin’ holes in the wall?). I doubt Mr PLC does. He’ll have a company credit card and his PA probably knows when he’ll need a few readies in his briefcase.
But it’s not the readies that really exercise public outrage at the moment. It’s a package which is likely to run into a six-figure salary, a performance-related bonus, dividend payments and share options. The kind of package that means the moment you sign your contract is the moment when you take on millionaire status.
Now, I don’t think there are that many people who begrudge Sir James Dyson his millions. After all, he effectively invented his millions by putting a cyclone into a plastic container which, today, does everything from cleaning carpets to drying hands. So fair dinkum.
But what about some bloke who started off as a tax & audit accountant and, well, just rose through the management ranks? The bloke, indeed, who presided over a 30% fall in the share price but still marched away with a golden goodbye? This is where the PLC CEO equation starts to get distinctly iffy, especially if that 30% fall in the share price was caused by a drop in revenues which led to cost-cutting and job losses (sorry, ‘right-sizing the headcount’ – y’know what I mean).
I could go on, but I won’t. Countless self-elected righters of wrong and soapbox experts have decided that Big Business is Full of Fat Cats so All Big Business is Bad.
That’s cobblers. So, let me put a few counter-arguments.
PLCs are crap at explaining what they do to the public. They spend too much time waffling on to analysts and shareholders, nowhere near enough talking about the patents they’ve taken out, the jobs they’ve created, the wages they hand out, the contracts they pour into supply chains, the taxes they pay.
Creating value for shareholders is all well and good, but when PLC bosses end up in a situation where politicians are suggesting that the shareholders should vote more formally on whether they should actually get any of that value something’s gone a bit wonky on the PR front, hasn’t it?
PLCs are also one of the reasons why we gave birth to such a strong financial services sector (told you I was being brave), and some of most talented lawyers and accountants on the planet.
But despite the name (PLC simply means anyone can buy their shares), these are PRIVATE enterprises. They are not taxpayer-funded democracies. Giving a PLC chief exec a six-figure salary is not depriving frontline council services of money, and whether it’s right or not is surely a matter for these businesses. It’s their profit or loss, remember.
My biggest beef with this whole kick-the-corporates agenda is this. It's been dressed up by some as a natural consequence of the financial crash, almost a key component of recovery. It's nothing of the sort - reining in top bosses' pay might pander to prejudices and make a few politicians look good, but it'll do diddly-squat for economic recovery.
Similarly, the idea that Alan from admin can sit on the board and have a say in how much the directors get paid suggests politicians think business is some kind of collectivist utopia. That or they're guilty of cynical populism. As if...
And if we’re off on a fairness kick, what about the worst offenders of all? They earn fortunes, they're arrogant, they leap from one multi-million job to another no matter how well their outfit is performing.
And their contribution to UK economic growth consists of kicking a ball...
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