Posts Tagged ‘Regulation’

VAT is the problem?

January 13, 2011

With thanks to my esteemed colleague, VAT expert John Voyez, for his insight. Any errors or omissions are entirely mine!

Well, what a lot of rubbish has been written in the press in the last week or two about the increased VAT rate – never let accuracy get in the way of a good headline !

Just for the record, there is no VAT on most children’s clothing, no VAT on most basic food items, no VAT on train, bus and airplane fares, no VAT on books, newspapers and magazines, no VAT on residential housing construction, no VAT on most drugs and medicines, no VAT on betting and gaming, no VAT on education, no VAT on insurance or financial services, no VAT on ordinary postal services, no VAT on most sport activities, no VAT on entry to museums, no increase in VAT on a range of items including children’s car seats, domestic fuel, contraceptives, energy saving equipment, products that help you stop smoking, and, finally, no VAT on cremation or burial (unlike other taxes, death is still VAT free) !

So post 4th January, it will not cost you a penny more at the weekend to slap on an anti- smoking patch, jump on the bus to go to Sainsbury’s where you can buy some clothes for the kids, and at the same time buy most of the weekly shop, including a copy of Sporting Life, before picking up some aspirin to ward of the headache for when you drop in at the bookies on the way home and lose your savings (accrued VAT free) on the 2:30 at Epsom, followed on Sunday by a game of football at the local sports centre in the morning, and a trip to the museum (because you feel you should at least do one thing educational at the weekend), before finally falling asleep in your newly built Wimpey home in front of your brand new 90″ plasma 3D HD TV screen you have just bought, which unfortunately did cost you 2.5% more in VAT.

And, just for the record, if you are still feeling hard done by, most of our EU counterparts have for many years been paying VAT at 20%, and in some cases at a rate well in excess of 20%!

So VAT, exactly, is the problem?


Ode to an Emergency Budget

June 23, 2010

George Osborne spoke, he set the scene….

The nation is in debt.

We’re broke and he will fix it,

Clearly no need to fret!

A billion here, a billion there,

We’ll find the money now.

The poorest will be better off,

But nobody’s sure quite how.

For entrepreneurs, it’s not too bad,

That capital gains tax charge.

£5m they say, at 10%

What’s left may still be large!

For public sector workers,

The cuts will run quite deep.

Let’s hope there’s no strike action,

No promises to keep.

With VAT @ 20 per cent,

Luxury spending may wither.

So if you’re thinking of splashing out,

Whatever you do, don’t dither!

They say you’re still young at 66,

The new retirement age.

But it seems too late to me, you know,

To leave the employment stage.

So some have won and some have lost,

A very taxing day.

There’s only one question that now remains,

Will Capello stay?

A nation of entrepreneurs

February 21, 2010

Napoleon said we were a nation of shopkeepers, unfit for war against France, but are we in fact emerging as a nation of entrepreneurs, ready to take on the world?

At a recent breakfast held by the Non-Executive Directors Association David “Two Brains” Willetts, the Conservative MP for Havant and Shadow Secretary of State for Universities and Skills, said that fewer younger people were getting jobs, whilst older people were being retained by their employers for longer. At the younger end, he highlighted a lack of joined up thinking in the education system, an obsession with league tables and a lack of apprenticeship opportunities. At the older end, employment law and the cost of providing pensions were contributory factors.

But Julie Meyer, founder of Entrepreneur Country, said that she hardly knew anyone under 30 who wanted to work for somebody else. This is supported by a recent survey, where 38% of the 2,000 respondents (both old and young) said that they do or plan to run their own business at some stage in their career.

The fact is that the younger generation, the so called “Generation Y”, is different. They are tech-savvy, multi-tasking, confident and ambitious. They are also achievement oriented with a strong and healthy commitment to family and lifestyle.

So is this the new paradigm? Are we entering a new age of individual capitalism, where people take responsibility for their own futures, rather than trusting in employment or, ultimately, the State?

It is to be hoped that whoever wins the next election will understand the fundamental changes that are happening in our society. It is these that must drive our education and skills agenda, encouraging entrepreneurship and providing both vision and purpose to future generations.


Bankers, bailouts and bonuses- How to repay the debt

December 4, 2009

Political posturing, regulatory threats and an outraged media have done nothing to address the real issues surrounding bankers’ bonuses. The unanswered question is how some of the world’s banks, firmly on the ropes a year ago, are back in the business of paying mega-bonuses for 2009, claimed by some to be at all time record levels.

Subject to regulatory necessities, how banks choose to spend their money should clearly be up to them. It is simply not realistic or sensible for governments or regulators to attempt to skew the market in terms of pay and reward, however tempting or politically expedient it may seem. Interference of this kind represents the tip of the iceberg, adding to the inexorable growth of the nanny state. It follows that we need to examine the issue from the other end- the income and profits of the banks- and how these have been achieved.

Firstly, it is worth pointing out that the vast majority of bankers and banking staff are good, honourable, hardworking people who did nothing to contribute to the crisis and who will not benefit – in terms of mega-bonuses, at least – from its resolution. On the contrary, many have seen their lifelong savings wiped out through the poor performance and lack of understanding of boards of directors who failed to control, or perhaps actively encouraged, the actions of a very small minority.

But let’s get back to income and profits. We all know that the banks were bailed out by governments and that governments are paid for by us- the general public. We also know that banks are now busy rebuilding their balance sheets through increased charges and margins on loans, many of which impact on those individuals and businesses that can least afford it. Not to mention, of course, the massive fees that are being generated to recapitalise the businesses that lost money through the crisis. So far this all seems to be a one way street, a win/ win/ win scenario for the banks. And so it is.

I have not yet mentioned the real debt owed by the banks to the community- the impact of the bailout itself. Had the banks and their counterparties not been bailed out, many would have ceased to exist. Far from getting mega-bonuses, many of these lucky recipients would not even have a job.

All of this has recently been highlighted by a report issued on 17th November 2009 by SIGTARP, The Office of the Special Inspector General for the Troubled Asset Relief Program in the US (See Note 1). It’s heady stuff, involving the Federal Reserve, the US Treasury and  Maiden Lane III, a special purpose vehicle that bought the underlying collateral of a portion of AIG’s credit default swaps from a number of AIG’s counterparties- the banks.

What might have happened without any intervention is anybody’s guess, but page 20 of the report shows that over $62 billion of funds were paid out to the banks, over $16 billion to Société Générale alone, plus a host of others in the $1-$15 billion range. It’s worth remembering that this was not a bailout of the banks, but of AIG itself!

In the section of the SIGTARP report that deals with ‘conclusions and lessons learned’ there are a couple of key points:

  • The Federal Reserve tried to pursue concessions from the banks in relation to the AIG bailout, but failed. This was because the banks knew that the government would not allow AIG to fail. The banks therefore received approximately par or face value for their assets.


  • The unintended but unavoidable consequence of the bailout of AIG, through loans and asset purchases in connection with Maiden Lane III, was the transfer of tens of billions of dollars of cash from the Government to AIG’s counterparties- the banks.

It is clear that banks all over the world have benefited both directly and indirectly from the bailouts and that these benefits, paid for by the public, are now being used to pay bonuses and, potentially at least, reboot the merry go round in terms of asset bubbles and irresponsibility.

The question is what can be done about it? Restricting the banks outflows in terms of bonuses will only happen if there is less income or profit available. Tax and regulation are possibilities but are generally regarded as blunt instruments. But is there a fairer, more fitting, solution?

It should not be beyond the wit of man to calculate the approximate trading benefits, both directly and indirectly, of the bailouts to individual banks. The SIGTARP report is effectively a part of this process. Where the benefits were unintended or transferred value, as in the case of the AIG bailout, the resultant ‘debts’ should be recognised by the banks and repaid over time.

Such a course of action would recognise and reverse part of the taxpayers’ loss, whilst easing global government deficits.

A global oversight body should be established to negotiate and reach agreement with the banks and determine sensible and affordable repayment schedules. After all, if it can be done with MPs expenses in the UK, why not with the banks? Obama and Brown should lead it, and it’s difficult to see how the banks could complain.

Oh, and it might also reduce those mega-bonuses for a while. What could be fairer than that?

Note 1. Link to SIGTARP report: