On the day after Mrs Margaret Hodge, chair of the Public Accounts Committee, stood on her grandstand and repeated her views about large corporates acting unfairly and without ethics, we offer this little arithmetical homily about “profit”.
Here’s a story of Maggie Hedge, a hard-working market trader who made good.
On Monday she set up her stall with £100 of stock to sell at £200, hoping to make £100.
By Monday afternoon, she had done so well that she needed more stock for Tuesday. So she paid £200 for more stock. So at the end of Monday she had made a loss of £100.
On Tuesday she did even better. By lunchtime she’d sold nearly all her stock, so she ordered £500 more stock and a new table to sell from for £100. She’d made £400 and spent £600, a loss of £200.
On Wednesday it was clear she was onto a winner, but there was a problem, her supplier couldn’t offer her any more stock, she would have to order it in from Germany. Taking a deep breathe, she ordered £1000 worth of stock. She’d just earned that much that day, so she’d broken even.
On Thursday the stock arrived with a note from the German supplier that he would like to help her with other products if she could tell him what she could sell. She thought about it all day as she sold the new stock. She sold a thousand units that day, but spent £2700 on an air fare, a hotel room, more stock for Friday and Saturday, and a wage for her cousin Mary who would run the stall on Friday and through the next week.
Maggie took Friday off to design three new products and count up her earnings. So far, in her first week, she’d lost £1000, but increased her turnover tenfold.
A week later she came back to find Mary, not being quite as good at selling, had done ok, but there were 1000 units in spare stock in the store. Revenue for the past week was £6000 and she had spent £4000. Her first profit! She used that straight away to buy stock of the three new items she’d agreed with her supplier. He had found a really creative designer in Sweden to refine the new products. Together, they’d set up a company in Estonia where there was a freighting partnership with a customs clearance house in Felixstowe. They’d store stock on account for her at low cost to drawdown on quickly when needed.
Then Mary pointed to a letter that had arrived in the post. It was from HMRC asking her to account for her profits and meet her corporation tax obligations. They claimed she’d made profits of £7300 on goods sold since she set up, less £100 for her second table and £500 for Mary. At 20 percent tax rate she owed them £1460.
Now Maggie didn’t have that cash, she'd just committed it to new business supplies, but she did want to stay in business. So she took action; she laid off Mary, raised the price of her products by 20 percent, and phoned Estonia to slow down deliveries. Then, she booked a meeting with her accountant.
So now, Mrs Hodge, and all the other politicians out there who want companies to pay their “fair share” of tax, answer these questions:
In the cycle of business trading when is this tax fairly calculated?
In a globally trading world, with multi-skill supply chains, where exactly is this tax fairly applied?
If you cannot answer these questions simply, what’s fair or ethical about then setting up an imputed calculation of tax liability that generates staggering calculation complexities and large fees for well-paid professionals.
Can you explain what is ethical or fair about imposing a tax on margins which generates higher prices, less employment and slower growth?
Can you state clearly and simply exactly what you think profits are for? Does the state “own” a part of them and has it voted for that part in parliament?
Finally, moralising about “evil” activities pre-supposes that a business can have a “duty”. Well, its directors may have, but that only makes sense if that duty is clearly defined within a rule-based legal framework of company law. Are you really saying that tax payments are to be based on what politicians, acting like kings, think is ethical and dutiful? We suggest you read the Magna Carta.
TaxpayerScotland believes corporate taxes can never be based on a logically calculable tax base. With a tax guide now thousands of pages long and largely incomprehensible they should be scrapped. Businesses already pay large amounts of tax on their premises, wages and sales – to add a tax that encourages non-productive avoidance and destroys growth and jobs is perverse.
POSTED BY TAXPAYERSCOTLAND CAMPAIGN TEAM
| PERMANENT LINK Monday, May 13, 2013
Who protects the taxpayer?
In association with The Taxpayers’ Alliance nationally we have again published “The Town Hall Rich List” – a listing of all those in Scotland’s local authorities who earn more than £100,000.
In the past, we have been criticised for making such details public; some have seen it as undue intrusion into the personal lives of those we report on.
We demur. There are some very specific differences that apply to those who earn a living from the public purse.
The issue is not whether they merit the salaries they earn; you can spend many a baffling hour comparing a well-paid public servant’s apparent value versus footballers, farmers or factory workers; but that will get you precisely nowhere beyond subjective personal opinion.
The issue is this; highly paid public servants obtain their living at the expense of many others who earn a lot less than them. It takes thousands of our individual household Council Tax payments to pay their monthly stipend. They claim their value to us is based on collective needs that they say have been democratically agreed as requiring taxpayer-funded services to satisfy.
Unfortunately, most of these services are provided on a monopoly basis – we have no real say in their choice of what we get or its price. Many of us would take our services another way if we were not coerced into paying for them via our taxes. There is also a principle here, monopoly provision is always observably costly, producer centred and lacking in innovation – it’s also devilishly difficult to close down bad provision. Diverse, competitive provision on the other hand has to be forward thinking and tailored to customers – because bad provision creates losses and providers collapse.
In that sense, good governance suggests that taxpayers are protected best by plural competing services wherever these can be provided.
Local authorities however continue to adopt the one-entity-provides-all model. And then look what happens. Directors of Infrastructure Services, Enterprise Planning, Neighbourhood Services, Community Services, Corporate Services and so on appear, all earning six figure sums – as administrators of plans - meeting in “cabinets” to design “strategies” across “multiple agendas” with “diverse objectives” – demanding staff levels commensurate with the “complex administrative planning” that makes them so “busy”. And you thought you wanted empty dustbins, good roads, clean streets, nice parks and help for the helpless?
This is a 19th century model of provision carried forward into the technically complex world of the 21st century and in the process gathering a thick and costly layer of management psychobabble and codswallop.
We’re looking for a change; a local authority that throws away the monopolistic method and privatizes, contracts out and walks away from much of what is considered important today. Let the schools run themselves, let a roads trust look after highways, let contractors deal with rubbish, parks and toilets. Pull away from daily management of those with chaotic lives, localise compassion, tighten down on wasteful spending until the inefficient providers squeak instead of taxpayers.
With a small population, Scotland doesn’t need mission statements and integrated plans; it needs devolved actions provided by multiple competing providers. We’d save fortunes … and I for one would happily pay a lot for any Chief Executive who would protect my tax liabilities.
POSTED BY EBEN WILSON - DIRECTOR, TAXPAYERSCOTLAND
| PERMANENT LINK Thursday, May 09, 2013
Layering it on
The Scottish Government has announced that “a planning tool is being developed to ensure that hospitals and communities have the right beds in place to treat patients”.
It will be used by all health boards to ensure the NHS has the right type and number of beds and staff in the right place. The planning is to be delivered this through the boards’ "joint strategic commissioning plans".
The governance goal appears to be to “instil a consistent approach across Scotland”, part of a general trend integrating adult health and social care.
Well, excuse us, but isn’t this a perfect example of duplication in government that costs taxpayers a fortune. A little examination shows us that this “plan” is delivered by:
A ministerial team of civil servants.
A strategic working group inside NHS Scotland.
The planning teams inside each Health Board.
The strategic plan managers in individual hospitals.
The managers working on bed availability in each hospital.
And then in addition, there will be a set of cross-discipline administrators delivering both the beds and the co-ordination services between clinical care and social care services.
Ensuring that “hospitals and communities have the right beds in place to treat patients” strikes us as something so central to a health service that we would have thought such plans would be part and parcel of daily life for the NHS. But this is how Scotland’s Government works; note that the tool does not yet exist; “it is being developed” in response to changes in demographics and needs.
Is anyone asking if this is an efficient and productive way to run a health service? Top down, in one monolithic block, dedicated to a centralised planning process? We doubt it and it is costing taxpayers in Scotland a huge amount of money that does not go on clinical or social care.
Finally, a little addendum that might make you laugh if you are not weeping already. The government says: “The new tool will be used alongside the established workforce planning tools which have been made mandatory for all NHS boards.” They’ve already got plans in place, this is more of the same!
And as for the consistent approach, something beloved of central planners? They also say: “The tool will take into account the demographics and health needs of each local health board area, to help NHS boards plan their services.” So it’s centrally consistent, but locally inconsistent, to obtain consistency?
Time to let go from the centre in our view.
POSTED BY TAXPAYERSCOTLAND CAMPAIGN TEAM
| PERMANENT LINK Friday, May 03, 2013
Think Big, think Global
Something is stirring in the consciousness of the English – and offers a lesson to Scots.
The election results favouring UKIP can be read two ways. This could be Little England voting against more immigration, or it could be Bigger England voting against Euro-power. It’s probably a bit of both. Whatever part of the distaste for Europe involves the latter; it has parallels in Scotland’s relationship with the rest of the UK. Nationalists don’t want to be ruled by London as London does not want to be ruled by Brussels.
If that is so, then the question for all of us is what sort of place do we want to have in the world if we are an independent UK, or an independent Scotland? And there is one clear reality here that we cannot avoid – globalisation.
The comments today by Simon Henry, chief finance officer for Shell, tell all Scots something. Free lunches from oil and gas are not on offer. We have to earn our extraction rights in a competitive global world. Mr Henry is quite clear that the North Sea tax regime means that “developments in the North Sea at the moment remain relatively unattractive”. That sentiment could apply to all industries: whisky, food, engineering, software, creativity and tourism. They all need investment, or we slip slowly downhill to penury.
This is the real challenge for Scotland; we need to look outwards and remember that we live in a world where real wealth is created globally. This understanding should not exactly be difficult for a nation that built ships, steam engines, bridges and other engineering miracles worldwide to earn much of its present wealth. But it will be difficult if we are permanently inward looking, juggling super-progressive personal taxes and carbon sequestration schemes, over-taxing business property and discussing wealth taxes.
England is ahead of us here, largely because London is not England, but the world at work and play. Hopefully, some of the English who voted UKIP also recognised that Europe itself has become inward-looking, defiantly defending its social democratic traditions while ignoring the changes in the rest of the world. If Scotland can avoid the same fate, there is no-one like us for productivity, practical creativity and sheer international acceptability – that’s a true global asset.