The corpse of David Laws's political career is still warm in its grave, yet The Telegraph is already gunning for Danny Alexander over the alleged flipping of his second home.  But that's not the bit of the story that interests me.  I choked on this section:

The new Treasury minister also claimed more than £1,800 from his office allowances to pay a firm of chartered accountants for financial advice. One invoice specified that the firm advised him on tax and prepared his personal self assessment form.

Now, I accept that accountancy and tax advice are legitimate business expenses.  It's totally acceptable that an entrepreneur should be able to pay for them out of the business and claim them as allowable expenses for tax purposes.  What sticks in my craw is the idea that the taxpayer should somehow pay the full whack for them.

The entrepreneur still bears the cost of accountancy and tax advice.  If the tax code gets particularly complicated and the accountant's fees go up, the entrepreneur must find extra money to pay the higher bill.  It's the entrepreneur who must forego other expenses if money gets tight, or must work harder to find new sources of business to fund these and other business expenses.  As members of society, our participation is merely the tax foregone by tolerating them as legitimate business expenses.

Compare that to our MPs.  They are responsible for overseeing legislation, including the annual Finance Act process.  It's their fault that the tax code is so complicated in the first place - they worked on the committees that scrutinised the Finance Bill and they voted on it in Parliament.  So if they find the tax laws hard to deal with they have only themselves to blame.

As a result, if they do feel they need advice, they need to find the money to pay for it themselves out of their salaries.  Like other salaried mortals, accountancy and tax services are ordinarily paid for out of post-tax income. We don't get to deduct tax advice pre-tax.

And neither should they.  Let's hope Danny Alexander, should he have to refund any house-flipping profits, also refunds the taxpayer for his personal tax advice.

Filed under: Current issues, Politics, Taxation with tags danny alexander, david laws, mps' expenses, sleaze, tax agents, telegraph
3108No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F05%2Fshould-mps-claim-for-tax-advice%2FShould+MPs+claim+for+tax+advice%3F2010-05-31+07%3A17%3A23Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D3108

Who said accountants were boring. The Telegraph has huge amounts of fun with a delightful story about two neighbours who just can't seem to get along:

Back in 2007 when PricewaterhouseCoopers decided to build a new office next to Ernst & Young's More London HQ it was described as an "exciting move" for the firm.

Three years later with the building nearing completion the two companies are starting to realise quite how exciting things could get. At their closest point the two offices are roughly 10m apart – leading to concerns rival employees could spy on each other.

First blood in the battle has gone to PwC with the installation of blinds that close automatically whenever audio-visual presentation equipment is switched on and an office layout that ensures no computer screens face windows.

E&Y is unlikely to be far behind. On Tuesday it said it was "evaluating a number of options".

Er, didn't they see this coming? I don't suppose it would ever have crossed my mind to have spied on a competitor like that, even though I share - with the late John Peel - a love of staring out of the window.

E&Y's offending building, shown to the right, is part of the rather swish More London complex near London Bridge. There's a funny sort of stream that runs down the middle of the street - you can see it in the picture - which serves no purpose as far as I can tell other than to trip up the unwary.

There's a picture of PricewaterhouseCoopers's building here.

And no doubt we can look forward to more tales of accounting espionage involving these firms in the future!

Filed under: Entertainment, Ethics with tags big 4, ernst and young, espionage, pricewaterhousecoopers, telegraph
30074 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F05%2Faccounting-espionage-at-the-big-4%2FAccounting+espionage+at+the+Big+42010-05-27+10%3A40%3A51Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D3007

The Telegraph describes a new survey which sets out in stark detail the massive gap between what we expect to receive from our pensions in retirement and what we will actually receive based on our current payments.

For example, a 43-year-old on average earnings of £25,000 and saving about 6pc of salary into a pension expected to receive a retirement income of about £15,000, this year's survey found. But such savings would in fact produce an income of just £5,900 a year.

Just how anyone who is capable of earning £25,000 genuinely believes that you can generate enough capital to provide 2/3 of your pre-retirement income by saving such a tiny proportion for 20 years isn't explained. We have a massive financial literacy gap in this country and it's about time something was done to fill it. The last 13 years, in which we have regularly been promised the earth while never having to face up to the bill, haven't helped.

It's not all bad news. If our average earner increases his contributions to 19% and has a full state pension, he can see his 2/3. Otherwise he'll just have to work longer.

Filed under: Economics, Other blogs with tags financial literacy, pensions, telegraph
2895No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F05%2Fthe-gap-between-what-we-want-from-our-pensions-and-what-we-are-willing-to-pay%2FThe+gap+between+what+we+want+from+our+pensions+and+what+we+are+willing+to+pay2010-05-20+09%3A34%3A48Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D2895

Jeff Randall, writing in The Telegraph, makes the following observation:

The "success" of New Labour's economic expansion was a sham, based on a simple formula: spend more than we earn; pass off consumption as investment; wallow in self congratulation. Through the "boom" times of 2003-2007, all of Mr Brown's budgets involved massive borrowing. He told us we were getting richer, while in effect making us poorer.

This was, of course, the modus operandi of another major fraud on the people - Bernie Ebbers's deception at Worldcom. The trick is very simple. Ordinarily, things a business spends are expensed. That means they reduce profit. However, some expenditures lead to ongoing benefit for the company. For example, a new machine might help support business activities for many years to come. These types of expenditure are different to expenses, and accounting recognises this. Instead of reducing profit, they are recorded on the balance sheet and written down over the period that they continue to be useful to the company - often several years.

Bernie Ebbers oversaw a massive exercise in reclassifying ordinary business expenses as capital expenditure. Instead of reducing profits, these costs were piled on the balance sheet; a sort of accountant's "sweeping it under the carpet". And it did indeed delay judgement day, until finally the SEC, perplexed at how Worldcom could be profitable while AT&T was not, asked too many questions. Such frauds cannot work forever, because ultimately either the company runs out of cash or it must account to its investors for the spiralling capital items on its balance sheet.

What's amusing about Worldcom is the comparatively trivial sum of money involved - some $11bn in overinflated assets.

Compare that to Gordon Brown''s toxic economic legacy - a budget deficit of some £160bn in one year and a string of deficit budgets before that during a time of extraordinary economic boom.

Brown was also master of redefining ordinary expenditure as if it were a capital item. He loved to talk about spending in terms of 'investment' in public services when in fact it was actually staff salaries.

Bernie Ebbers is currently serving a 25 year jail term as punishment for his accounting crimes. Brown has been shuffled out of power but remains an MP. When will he get a proper day of reckoning?

Filed under: Financial management, Politics with tags bernie ebbers, deficit, fraud, gordon brown, telegraph, worldcom
28131 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F05%2Fnew-labours-worldcom-style-fraud%2FNew+Labour%27s+Worldcom+style+fraud2010-05-16+08%3A39%3A57Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D2813

Harry Mount fumes at the price of an iPad here compared to the US:

I had one sent from America. My 64GB device retailed for £500 in America; it’ll cost £600 here. The cheapest 16GB version costs £340 in America; it’ll go for £429 in Britain.

He doesn't provide sources for these prices. US prices are usually quoted before relevant state/city sales taxes are added. But the retail price of a machine sold here will include VAT at 17.5%, which accounts for the bulk of the difference in price.

Case closed?

Update: Telegraph fesses up - VAT is the answer.

Filed under: Other blogs, Taxation, Technology with tags apple, harry mount, idiots, iPad, telegraph, vat
26741 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F05%2Fthe-price-of-an-ipad-as-evidence-of-rip-off-britain%2FThe+price+of+an+iPad+as+evidence+of+rip-off+Britain2010-05-08+11%3A38%3A39Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D2674

The original use, in modern parlance at least, of the term "vampire squid" was in Rolling Stone magazine in reference to Goldman Sachs:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

So it's amusing to read the comments to this piece by Andrew Brown about a hotel unable to recruit a local cleaner:

80 years of the socialist State has ‘worked its magic’.

A heady mix of welfare, social, minimum wage and insidious socialists promising the Nanny State cures all, gives you everything for ‘free’ and wraps you in cotton wool paying you to do nothing.

Only problem is some ever poorer suckers has to pay for this socialist largesse and as the real economy gets drained by the blood sucking socialist vampire squid it’s 53% of GDP has destroyed our productive use of capital, wealth creation, competitiveness, even private pensions/savings and destroying our infrastructure.

(emphasis added, original by Velocity on Apr 17th, 2010 at 2:17 pm)

How cute that the epithet used to describe the uber-capitalist investment bank seen by many as an organisation that crushes ordinary people is now being applied to the UK public sector.

(There's a good article here which explains, ruthlessly, why Goldman Sachs is not a giant vampire squid. The equivalent charge against the state remains as yet undefended.)

Filed under: Other blogs, Politics with tags andrew m brown, goldman sachs, rolling stone, telegraph, welfare benefits
19481 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F04%2Fthe-vampire-squid-swims-full-circle%2FThe+vampire+squid+swims+full+circle2010-04-17+14%3A17%3A12Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D1948

The Telegraph today has decided to put the boot in to the WWF and the whole carbon credits scheme. It trumpets that one particular scheme "would make WWF and its partners much richer, but with no lowering of overall CO2 emissions." Not zesty.

I've always been a bit troubled by carbon credits, even without today's story or the news that the scheme might be riven with inflation. Because it always seemed rather back to front. It's rather like that time when you've parked your car in a multi-storey car park; when you return there's a burly kid sitting on the bonnet. He informs you that it would be a grave pity were anything untoward to happen to your vehicle, and adolescents can be so unruly these days, can't they? He's been patiently looking after your car for you. Perhaps you'd be so kind to make a small donation so as to ensure that nothing bad happens in future?

Carbon credits isn't quite the same, but it's close. It's paying people who currently don't pollute and who we don't want to pollute to not pollute, while permitting those who do pollute and who we don't want to pollute to keep on polluting. This has the very unfortunate side effect of allowing British and American consumers to keep on living the life of Riley while suppressing the middle-class aspirations of hundreds of millions of Chinese and Indians.

Instead of matching carbon emissions to production, which makes it, unjustly, a Chinese/Indian problem, we should be matching carbon emissions to consumption. This would allow developing nations to develop, while forcing the developed world to face up to the inevitable consequences of its own policies.

Filed under: Current issues, Economics with tags carbon footprint, carbon trading, consumption, telegraph, wwf
1330No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F03%2Fcarbon-debits-not-credits%2FCarbon+debits%2C+not+credits2010-03-21+14%3A22%3A21Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D1330

Via The Telegraph, two funky tax tools from Reform. Design your own tax system and see just how much tax you're paying compared to ten years ago.

Both tools are here.

Using the latter calculator, I can see that I'm paying nearly £5,000 more in income tax and some £2,000 in employer's NI. My employer is paying £2,500 more. How on earth are we running a massive structural deficit when we're paying so much more tax?

Even worse, the tax take goes up even more in 2011-12. The pain is far from over.

Filed under: Other blogs, Taxation with tags deficit, reform, tax, telegraph
1286No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F03%2Fbe-your-own-chancellor%2FBe+your+own+Chancellor2010-03-19+22%3A04%3A31Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D1286

Daniel Hannan reminds us that he was one of the few who opposed the bank bailout.

I remember how lonely it felt to be oppose the policy at the time - until the first opinion poll was published, showing that more than two thirds of the electorate disapproved of handing over their taxes in order to rescue some very wealthy individuals from the consequences of their errors.

With every day that passes, it seems clearer that the people were right, the politicians wrong.

Labour is making merry with how the Tories opposed elements of the stimulus package. Wouldn't we be in a much worse place if we had followed their instincts?

I'm not sure that we would. We should have supported savers, not borrowers. Banks should have had to rebuild capital the old-fashioned way, by encouraging deposits. They should have had to accept that unpayable loans at stratospheric multiples to poor customers or companies with ridiculous business plans will simply have to be written down. And people who overextended themselves should have been forced to face the music.

Instead, we have a truly toxic legacy to look forward to. Irresponsibility has been rewarded, while caution and thrift punished. This is the complete opposite of what government should have been trying to achieve.

Filed under: Current issues, Economics, Politics with tags banks, daniel hannan, telegraph, too big to fail
989No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F03%2Fthe-bailout-was-a-big-mistake%2FThe+bailout+was+a+big+mistake2010-03-13+08%3A08%3A39Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D989

The Times carries some useful tips today on how to check your tax code, the simply brilliant British invention that ensures that income from salaried employment is (usually) taxed at precisely the right amount. So I'm astonished to learn in the Telegraph via Guido that the Tories plan to axe the Pay-As-You-Earn system (PAYE) if they gain power.

Amazingly, PAYE dates from 1944, decades before computers. While it may be an imposition on employers, which probably explains why countries like the US don't have it, its huge benefit is that it liberates ordinary people with simple tax affairs from the need to file a tax return.

I don't see how a cashflow based taxation system will work.

Firstly, Britain is obsessed with having a progressive tax system; 'progressive' in this context means tax rates that go up as you earn more money. PAYE handles this by forcing the employer to do all the hard sums. If you get income from another source, they tell HMRC which then fixes it through either this year's or next year's tax code. How will the next pound you earn be taxed under the Conservative proposals?

Secondly, it's far from trivial to work out what a particular piece of income might be. Let's say I receive a Paypal payment from someone. Is it because I sold them something on eBay (possibly taxable at the marginal rate if it's a business, but not otherwise)? Is it a gift (not taxable)? While clever computing might help in some situations, it looks like another NHS supercomputer problem in the making. Times a million.

Thirdly, as Guido points out, there are serious privacy issues here. The State has the right to take you to court to force you to hand over money to it. That's not quite the same as allowing it instant access to your PIN so it can take your money when it likes.

Fourthly, this is simply bad politics. The Tories will be lifting a burden from companies, which cannot vote, and placing a heavy administrative burden on people, who more or less do. Lessons can be learned from the US. There, a quarter of a billion people have to navigate the fiendishly complex IRS rules and regulations to file their own personal tax return. Then they have to do exactly the same again in respect of their state taxes for every state they have worked in. It's insane.

Yes, there are faults in the system. But let's not underestimate how much PAYE has freed millions of ordinary people from tax filing drudgery. It doesn't deserve to be binned just yet.

Update: Clever Tim Worstall sees the upside - pressure for lower taxation.

Filed under: Current issues, Other blogs, Taxation with tags conservatives, guido fawkes, hmrc, nhs supercomputer, paye, privacy, tax returns, telegraph, tim worstall, times
4142 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F02%2Fgoodbye-paye%2FGoodbye%2C+PAYE%3F2010-02-20+10%3A35%3A10Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D414