Tag Archive | "business support schemes"

Big Brother Database or Tax Cuts?

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Big Brother Database or Tax Cuts?


Yesterday, I wrote an article suggesting how this government could reduce taxes to help stimulate growth in the economy. This was partly a Keynesian approach, given I argued that it was possible that these tax cuts could be self-funding, if my proposals worked. The reason for this was, if we do nothing, there is likely to be a significant surge of people claiming benefits, rather than generating income for government coffers. My proposal was, if the government was going to borrow to invest, they would be better off doing so, with a natural stimulus, rather than bringing forward capital building projects which would only benefit a small section of the economy.

My proposal, amongst other things, was that government should reduce the basic rate of personal tax by 5%. Over a period of 3 years, this would cost around £45bn, less than 10% of the cost of the banking bailout. However, by allowing us to retain more of our own money, we could decide how and where we would spend the extra money we were ‘permitted’ to retain. If we were to spend it in much the same was as we did before the crash, my argument was and is, that more small and medium sized business would survive and therefore more people would remain in employment. I noted that some 13.5m people were employed by small businesses and these same companies accounted for, just shy of 50% of UK Plc’s output. However, I also noted, that the Keynesian approach was that government should adopt a balanced budget, that is to say, they should cut back government spending in certain areas, to allow them to invest in other areas. Having read my post this morning, addressing the usual, inexcusable typos, I decided that I should expand on my own theory.

For example, my pet hate is the government’s proposed Big Brother Database, which I think is a massive attack on the civil liberties of every person in this country and an unforgivable intrusion into our right to privacy. That said, this government, if it goes ahead with this initiative, is expected to spend some £12bn on this massive Big Brother Database. Now quite apart from the fact that we know this government has never yet managed to bring an IT project in on budget, the figure that needs to be allocated is huge.

Therefore, the question I wanted to ask was:
Which would you prefer a Big Brother Database that infringes our civil liberties and intrudes on our privacy at a cost of £12bn or an immediate 4% cut in the basic rate of income tax for at least 1 year? From 20% to 16%? – I know what my answer will be.

Then I went on to look at other large government capital expenditure projects, this time I focused in on the much criticised NHS Database Project. It is worth noting that the original cost was estimated to be £2.3bn, by 2006 that had rocketed to £12bn, with some independent estimates suggesting it could cost as much as £32 billion. Most medical professionals question the viability of this project, the public have barely been consulted on such a massive project and even though some £2bn has already been spent, there is little to show for it. So, lets be generous, and take a middle figure between the governments estimate of £12bn and the independent estimates of £32. This leaves us with a likely cost of £22bn.

Therefore, my question is:
Which would you prefer, to shelve or cancel the NHS Database or receive an immediate cut in the basic rate of income tax of 5% for at least 18 months? The reason I have said ‘at least’ is because if this additional money prevents people losing their jobs and claiming benefits, then it would be possible to extend the period of the tax cut, perhaps indefinitely.

So what of the ID Database Project. Yes, I know, this government is completely obsessed with databases, it is a pity, they do not also consider the massive security risks associated with having all of this information on computers. However, I digress, this particular project, is simply aimed at having all of our personal ID information in one place. The cost, an eye-watering £5.4bn.

So, once again, my question is, which would you prefer, an ID database where only the government and its agents see the benefit, or an immediate cut in the basic rate of income tax of 2%, for a least one year, from 20% to 18%?

My basic premis is that this government has an obsession for massive information technology projects, most of which have been so poorly considered, specified and planned that they are either doomed to failure or massive cost overruns. This governments track record of waste is well documented and appalling. Most of these pet projects are not wanted by the public and it has to be said, the vast majority will allow government to know everything their is to know about every single legal citizen in this country. Because this government is obsessed with using IT to spy and control its subjects. At this time, the biggest threat to our security (apart from the government itself) and our well being, is the state of our economy, not terrorism. Yet no-one from government has suggested shelving, postponing or cancelling any of these Big Brother databases. Even though, combined, these 3 projects alone, will cost a staggering £40bn. If the government were to add an extra £5bn, we could all benefit from a reduction in the basic rate of income tax of 5%. From 20% to 15%, for a period of 3 years, if we are lucky, this would be able to see us through this period of recession. In addition, as I have argued earlier, if this money is invested into the economy by us, then jobs could be saved, government would benefit from the revenues brought about by indirect taxes, business taxes and fewer unemployed claiming benefits.

So, my final question, is which would you prefer? Government to spend £40bn on 3 highly questionable information technology projects at a time of this massive economic downturn, or more money in your pocket. £40bn on IT projects, or a 5% cut in the basic rate of tax for 5 years. QED!

Footnote:
I have also argued strongly for a significant, simultaneous cut in the Bank of England bases rates from 4.5%, to 2%, with all taxpayer funded banks being ‘required’ to pass on this cut to their customers. This will reduce the number of repossessions and/or increase the amount of money available to us, to reinvest into the economy. I am sure there will be economists out there that can or will pick holes in my arguments, well go ahead, someone needs to come up with some ideas, because it is pretty clear to me, this government hasn’t got a clue, the Conservative Party has backed themselves into a corner with their negative, one size fits all ‘austerity’ assessment of our economic future and none of the other parties have any influence. Sad, but true!

Posted in Big Brother, Civil Liberties, Conservatives, General, Labour, Lib Dems | Comments (7)

Gordon Brown, its time to introduce tax cuts

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Gordon Brown, its time to introduce tax cuts


At prime ministers questions time, Gordon Brown, once again, decided to take all the credit for “creating 3 million new jobs” and none of the responsibility for the ‘bust’ brought about by the credit funded boom that was his creation. Instead, he avoided all of the questions he was asked and once again, came out with the same old mantra, that the problem was the fault of the Americans and the bankers. Nothing new there then.

He did imply, however, that he believed that the government should invest in times of recession, a sort of embracing of the Keynesian approach. However, John Maynard Keynes did not suggest that government should simply spend, but that there should be a balance. He also argued, that it was possible that if government used borrowed money wisely, it could be self-financing. For example, most people want to work, which means that given the opportunity, they will not be a burden on the state, but an asset. In addition, companies want to sell their goods, at a fair price, employ people, succeed and therefore, be an asset to the state.

To achieve this, people need to have money to spend, yet the state takes nearly 50% of what we all earn. That is way, way too much. A reduction in direct taxation, would be much less expensive than building new schools and hospitals earlier than was originally intended. Moreover, a construction boom will be very limited in terms of assisting the wider economy. What we need is more money in peoples pockets, which they can invest in buying goods and services offered by retailers, service providers and manufacturers. In other words, a natural stimulus, not a false one.

If people feel poorer, then they will push their employers to pay them more, this adds a further burden to struggling businesses and places inflationary pressures on the wider economy. In addition, public sector workers, who account for some 20% of all employees in the UK are starting to get increasingly vocal about higher wage increases and they are backing this up with threats of industrial action. This is no good to anyone. Furthermore, if they succeed in getting higher wages, this will be a cost borne directly by the taxpayer and will inevitably result in a cut in services as the public sector attempts to balance the books.

We know that a boom based on easy credit is not the answer, nor does the equity in a property really amount to tangible wealth. The Keynesian approach advocated, amongst other things that borrowing to provide tax cuts can provide an aggregate increase in demand and, that properly targeted, it could be self-financing, because demand will create or save jobs and people that are employed, are not a burden on the state. In addition, companies that are selling goods, will be pay tax and sell goods that, for the most part, attract VAT.

A cut in direct taxation would have an immediate and tangible affect on the publics ability (not necessarily willingness) to spend. If this would was coupled with a substantial, perhaps 2 or 2.5% cut in bank base rates, then the benefits would multiply as would the potential speed of recovery. The government has indicated that they want to spend £12bn to create a database to spy on the public, apart from the fact that this is both unnecessary and a massive attack on our civil liberties, it is also something that is a nice to have, rather than a need to have. That notwithstanding, even if they proceeded with this database, the chances are, the contract would be awarded to an American company! Yet this £12bn, could ‘fund’ a 5% cut is direct taxation for nearly 3 years, if you were to ask the public what they would sooner have, there are no prizes for guessing their likely preference.

In addition, the government is intending to proceed with the £13bn NHS computer system. There is no proof that the system will work, nor has their been a sensible cost/benefit analysis. This project should be shelved and the money used to invest into small and medium sized businesses. I wrote an article yesterday, outlining some of my own ideas to assist small businesses. These companies employ 50% of our workers, some 13.5m people and provide nearly half of our output. An investment in this area, could secure jobs, companies and tax revenues.

It is true, governments cannot prevent a recession, but they can, through careful management of their (our) finances, targeted initiatives and the shelving of non-essential investment programmes, reduce the length and severity. Had the conservative party not nailed their colours to the mast, with an austerity assessment of the UK economy, claiming that “the cupboard was bare”, then they could have proposed this type of solution. Instead, they must either say that they got it wrong, or the Labour government, if they are bright enough to steal the initiative, will be able to come out of this smelling of roses.

For what it is worth, I am not convinced that this government, or the other political parties will want to endorse my suggestions, because they seem more interested in telling us what won’t work, rather than what might. It is this dithering and indecision that will damage this economy. Whatever action is taken it needs to be bold, decisive and meaningful. Therefore, in summary, my suggestions are as follows:

  1. Shelve the £13bn investment in the NHS computer system
  2. Cancel the proposed £12bn Big Brother Britain database
  3. Reduce direct taxation by 5% for a minimum period of 3 years
  4. Implement a package of incentives and tax reductions for small business
  5. Instruct the independent Bank of England to slash rates from 4.5% to 2%
  6. Ensure that all taxpayer funded banks pass on the full cut immediately, which should encourage the others to follow or lose

My suggestion will cost a tiny fraction of what the government has already invested into the banking system and provide a tangible stimulus to the economic activity of this country. Above all, it may just ensure that we can watch the news and receive some good news. If the government introduced, or the other parties proposed such an initiative, I do not believe anyone, other than a few discredited bankers and economists (who already got it wrong), would criticise the move. The bottom line is it is our money and we should be allowed to keep more of it and decide where we will invest it.

Posted in Conservatives, General, Labour, Lib Dems | Comments (3)

Don’t let small businesses become a political football

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Don’t let small businesses become a political football


There is a real risk that the plight of small business, the so called SME (small and medium enterprises) are becoming a political football as each party attempts to outdo the other. Labour are saying they will “do whatever is necessary“, where have we heard that before? Then they put up a pittance to address the issue, to put this in perspective, the amount proposed is probably much less than they paid the consultants for advice on the banking bailout. I am not advocating state aid as such, but less government interference and an understanding of what makes small business tick.

David Cameron suggests that a 1% cut in national insurance contributions for companies employing less than 4 people. This he claims will save these businesses up to £600 per year! What? Is he serious, this would barely cover an organisations business rates for one month. He then suggests that small businesses should be allowed to defer VAT payment and PAYE etc., for up to 6 months. Yes, I agree, this will aid cashflow, but the reality is, for many who need to take advantage of this option, it will only delay the inevitable, leaving a large hole in the HMRC balance sheet.

What is clear, is that none of these ministers really have a clue how small businesses operate, what is important, or what policies will make a real difference. They seem to believe that a little tinkering here and there will make it look like they are doing something positive. Wrong, wrong, wrong! Our MP’s visit one or two businesses, ask a few questions and then try and portray themselves as in touch, or knowledgeable on the subject. Instead, they have had, at best, a very limited overview of a couple of businesses. There are 13.5m small and medium sized businesses, yet they talk to a handful, what is the point?

What is clear is that there are many ways in which government can aid small business, some initiatives will cost money, most will not. Some options will work for some businesses and others may only receive a small benefit, but it is something. That said, there has to be a starting point, and I would like to include my two penneth. Firstly we need to look at some hard facts, so that government, ministers and members of parliament can truly understand the risks of doing nothing or just tinkering with the issues. This subject is so important, that it needs to be addressed in the same way as the banking bailout, I am not talking about numbers, but effort and thought.

The UK’s 4.4m small and medium-sized businesses (SMEs) are the engine room of our economy, accounting for 47% UK employment (13.5m), 99.7 per cent of all enterprises and 48.7% of UK Plc turnover. Within the SME sector, some 4.2m actually employ less than 10 employees and a further 167,000 less than 50. In fact, SME’s actually employ 60% of the ‘private sector’ workforce. It is, therefore, self-evident that small business is the primary vehicle for innovation which leads to new jobs, new industries and new wealth for this country and its people. Tangible and effective moves on issues such as tax, regulation, education and infrastructure are areas which are most likely to have a positive impact on small businesses. Only government can do this, because in most cases, they caused to problem in the first place.

It is worth noting that the government currently has in excess of 3000 ‘business support schemes’, yet the Federation of Small Business claims that just 4.4% of their respondents confirmed that they had used any of these schemes. This cannot, by any stretch of the imagination be called a success, but that is hardly surprising, with this number of schemes. Where is a small business to start? Okay, so the government has indicated that they want to rationalise this to around 100 schemes, but given few of these schemes have any tangible method to measure success, it is difficult to see how this government will determine which schemes to scrap.

Business Link is probably one of the best known and supported schemed, but even this ‘local’ initiative has many detractors, who complain that emails are not answered, those charged with supporting small business have little understanding of their needs and that there is very little depth within the organisation. This would imply that whilst the initiative has merit, it needs a vast overhaul.

So what would I do? Well I am going to put forward some of my ideas, some relatively simple, others rather more controversial and perhaps complex. Nonetheless, if we are to avoid a genuine catastrophe within the SME sector, it will require bold, new initiatives and the introduction of some former programmes that have been withdrawn by this government.

I believe Business Link is a good programme, but it truly lacks depth and promotion. There are a good number of semi-retired and retired business people and out in the market and their skills are going to waste. I believe Business Link should look to recruit these people and bring them on board on a casual or self-employed basis and utilise them as business mentors. Many will have sector experience and/or specific skill sets such as finance, sales, marketing and so on. To waste this resource is ridiculous and many, I am sure, will be grateful of the opportunity to get involved in something tangible and the additional income that could top up their pensions. Of course, the recruits don’t have to be retired, there is no reason why full-time, experienced business people should not be recruited to this programme.

In addition, I believe that Business Link should be able to provide small business with specific advice on key areas, such as sales, marketing, health & safety, legal, employment law, exports, finance and so on. I know that Business Link will claim that they already do this, but my point is that they should seek to employ the best, not the cheapest, so that the small businesses can have access to the best advice.

This government has wielded the stick over everyone ever since they came into office, particularly where it comes to HMRC and regulation. They do not appear to have understood, that most ‘normal’ people use and respond better to a combination of carrot and stick. The New Labour government has always and continues to act as a schoolyard bully, not supporters of small business. They are the first to claim to be business friendly and that may be the case where businesses can afford the services of lobbyists, but it is most certainly not the case for small business. This has go to stop. Government must act and act now to reduce the burden of red tape imposed on small business.

Here are my proposals, in no particular order.

  • Government must reduce personal tax for all by 5%. This will cost around £40bn over 5 years. However, it will reduce the pressure on businesses to increase wages, it will negate the public service sectors claims for higher wages to take account of higher inflation, so at least in this sector it will be self-financing and above all, it will (potentially) provide a natural stimulus to the economy. If people spend more, jobs can be saved and government will not have to pay out tax payer funded benefits. Instead, they will benefit from tax receipts through national insurance contributions, income tax, VAT and so on. Contrary to popular belief, this type of initiative introduced now may even be self-financing.
  •  Government must extend the ‘small business rate scheme’. Business rates are often the third largest expenditure for a small business, after wages and rent and proportionally higher for those with turnovers of less than £1m. I believe businesses with a turnover of less than £1m or employing less than 10 people should receive a 100% rebate, with a progressive programme for larger businesses. Furthermore, business should not have to apply for these rebates, they should be automatic, given many small businesses are not even aware that they have an entitlement.
  • There should be a cut in small business corporation tax (businesses with a turnover of less than £5m) from the proposed 22% (2009) to 17.5% and the introduction of a tax threshold (before tax is payable) of £50k
  • The VAT registration threshold should rise from £67k to £200k. HMRC, whilst retaining their vital role of collecting VAT revenues, should be directed to be supporters of business, in partnership, rather than assuming that every unpaid tax collector (anyone registered for VAT), is out to shaft them. They must also stop issuing threats to “wind up” companies that are a little late with their returns. A late return does not mean that the business is in danger of folding, it is more often than not, something that is considered a bind, a burden and therefore, not necessarily something at the top of the priority list. Fines for late returns from small business should be ceased immediately, except for persistent offenders, particularly in the current climate.
  • VAT rules on exports need to be simplified. Current HMRC will offer advice, but cannot be held responsible for it, unless they agree to put it in writing (a ruling). Missing Trader Fraud has now meant that HMRC assumes that everyone is trying to do something dodgy on exports. As a consequence, they make life very difficult, especially when it comes to Europe, because often HMRC will tell the trader that they must charge VAT, the European customer argues that this is wrong and the order is lost to the business and, of course, UK Plc. In addition, small business are expected to shoulder the financial burden if VAT cannot be recovered by HMRC, even if the HMRC provided the information that exempted a transaction. I know many companies that despair of HMRC when it comes to exports, so much so, that many now avoid European exports,rather than take on the VAT risk!
  • Unlike sole traders, for tax purposes, if you are a director of a limited company, you are an ’employee’ of the company. You are therefore liable to pay Class 1 NIC’s on your earnings. The limited company is also liable to pay Class 1 NIC’s as your ’employer’. This practice should cease for businesses that turnover less than £1m or employ less than 5 people.
  • Small business should be encouraged to take on the long term unemployed and those that in receipt of disability benefits (some 2.5m), but can work. Small business employers could be offered a full rebate on all employer NIC’s for employees that are classed in either of these categories. This will assist small businesses, increase the opportunities available for the long term unemployed and result in a massive reduction in the burden on the state from those who are in receipt of benefits, rather than contributing. This initiative could be self-funding or even offer a surplus.
  • Small business often have to use large commercial vehicles out of necessity, yet they are now being penalised as a consequence of the increased vehicle excise duty, under the guise of an environmental or green tax. This should be reduced to the lowest tariff for small businesses with a turnover of less than £5m
  • Government should understand that a ‘one size fits all’ approach to business is not appropriate, especially where employment laws are concerned and specifically in the case of businesses with a small workforce. For example, parental or maternity leave obligations may not adversely affect a company employing 100 or more people, but a small business employing 4 people, could lose 25% of its resources overnight. The employment laws must be relative to the size of the workforce and the regulations relaxed for all employers with a workforce of less than 50. Employees have a choice, if they want all of the benefits of parental leave, maternity leave, paid sick leave and so on, they must look to find a job with a larger employer.
  • Government bodies, local authorities, NHS trusts, agencies and so on, must be required to actively encourage trading with small, local businesses. Most small businesses are not aware of  supply opportunities with government agencies and if they are,  they find the paperwork too time consuming or complicated, especially for what may be low level or uncertain returns. Therefore, many do not pursue this opportunity. Businesses with a turnover of less that £1m should be given free access to www.supply2gov.uk, rather than charged £180. Many local authorities, for example, use the same suppliers as they have done for years, instead, they must be required to encourage new suppliers, they must assist these companies to complete the paperwork and offer constructive advice. Tenders have to remain open and unbiased, but the process of encouraging new local suppliers has to become a priority. Similarly, where possible local government bodies should be required to share their tenders amongst more companies, rather than using a single source.

Cashflow
Cashflow is important to small business. In fact, many small businesses fail or cannot expand, not because of a poor business model, but because of the pressures on cashflow. Invariably, this is the fault of larger companies that will not adhere to agreed payment terms, this problem now is all too common. The small business is often reluctant to chase too hard, in case the supplier refuses to place further orders. Government must legislate, to require all large companies, perhaps those with turnovers of over £5m, to pay on time and where they do not, offer a fast track legal recovery system for small businesses to recover their outstanding invoices.

Public companies should be required to sign up to an ‘ethical small business practice’, where they undertake to pay all SME’s businesses within 30 days. This objective should be audited by the firms auditors and included in the company’s year end accounts. Where public companies fail to meet these obligations, they should lose the support of investment funds and/or face fines based on turnover. Further’ all companies with a turnover of over £5m should be required to provide their ‘average payment terms’ to Companies House in the form of, for example: 1. Average payment terms 30 days., 2. Percentage paid within terms 85%. Legislation does already exist in part, but it is not enforced by Companies House.

Banks & Credit Card Processors
Two organisations that can have a significant impact on small businesses are banks and credit card processors and yet, they are very lightly regulated and, for the most part, operate a virtual monopoly in terms of financial support services to small business. Banks can change terms, conditions and rates on a whim and often do, whilst credit card processors, successfully pass of much of their financial risk in relation to fraud, directly on to the retailer, through a set of onerous terms and conditions.

Many small business operate with a bank overdraft. Banks can, in many cases, withdraw these facilities with 24 hours notice, change the risk profile requiring further security, higher charges or apply penal interest rates and/or the interest rates are variable. Government must legislate, alternatively the regulators must insist that banks offer their customers the alternative of a fixed rate of interest or variable on all bank overdrafts, reviewed annually. Banks must be required to provide small business at least 6 months notice of their intention to withdraw or reduce overdraft facilities. Banks must permit small business to convert, on request, overdrafts into short or medium term loans at rates no less favourable than the overdraft rates.

Government or the regulator must come up with a formula to ensure that interest rates are ‘reasonable’ taking account of the risk, available security and Bank of England rates. For example, many overdrafts are charged at very high rates, even though banks have personal guarantees and/or a fixed and floating charge over all business assets. Where a bank acts unreasonably, small businesses should be able to refer the matter to a fast-track arbitration service which is binding on both parties. Banks that ignore these rules should be open to litigation if a business suffers or fails.

Currently all business credit card processors have a similar set of terms and conditions. These terms, in effect, pass off the risk of fraud to the retailer. Even when the retailer has had the transaction ‘authorised’ by the card processor and followed all of the rules. The card processors have an appeals process, but this is long-winded and I am not aware of anyone that has ever ‘won’ their case.  It is estimated that credit card fraud costs small business upwards of £200m every year and the figure is rising rapidly with the advent of the Internet.

Card processors automatically charge the retailer, whenever there is a suspected fraud, it is then up to the retailer to demonstrate that they followed the rules. However, where the transaction is ‘cardholder not present’, even if the retailer has used a terminal to verify the validity of the card, the address, transaction amount and signature strip number…if it turns out to be a fraudulent transaction, the card processor re-charges the retailer. Worst still, the card processors, may take 6 weeks or more, before they re-charge the retailer, even then, the first time the retailer is aware of it is, invariably, when they receive their statement.

These terms would undoubtedly be considered unreasonable in a court of law, however, any business that needs to transact debit or credit cards, has little choice, because all of the card companies have the same onerous conditions attached. If the retailer complains, the card processor will just terminate the contract. Government must legislate, alternatively the regulator must investigate this unreasonable practice as a matter of urgency. Card processors that have approved a transaction, must be required to honour the transaction, unless they can provide incontrovertible proof that the retailer was party to the fraud.

Now, I know that I have not included everything here and I am sure that more ideas could be added. Equally, I am certain that it is possible to pick holes in some of my arguments or suggestions. Although I hope that anyone that wants to criticise will be constructive and perhaps, offer alternatives. What I am adamant about however, is that whatever steps are taken to assist small business, they must be bold, swift and meaningful. Not all of my suggestions will cost money, some just require new or tighter legislation. Some will be self-funding and other initiatives may cost money, at least in the short-term. However, to ignore the plight of this sector, is, in many ways, more risky that allowing the banks to fail. Too much of our economic well-being is reliant on the SME businesses, from GDP, to taxes and employment to enterprise. Politician’s that use this aspect of UK Plc as a football, do so at their peril!

Posted in Conservatives, General, Labour, Lib Dems | Comments (5)

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