Deficit v Surplus

 

As was reported last week, the Government borrowed £74 billion in the year to March, £1.8 billion more than George Osborne's borrowing target.

 

Don’t get me wrong, £1.8 billion is a lot of money (for dramatic effect it is…….£1,800,000,000) and £74 billion is a colossal figure (at risk of being boring……£74,000,000,000), but it is not all bad news. Firstly, £1.8 billion represents being just 2.5% over target. Secondly, the annual borrowing figure of £74 billion was £17.7 billion less than the previous year.

 

George Osborne has pledged to return the UK to a budget surplus by 2020 and I guess, he is broadly on track. But turning the current deficit into a surplus requires a £74 billion swing in just 4 years, which seems a huge ask when there are so many variables. Just look at how the banking collapse caught so many by surprise and the resultant recession it brought. Now factor in an impending EU referendum, the constant threat of war / terrorist attacks, volatile commodity prices, changes in Government the world over and it appears an even bigger ask to turn the deficit around.

 

I guess all George Osborne can do is to ‘control the controllables’……the next few years borrowing compared to the target will confirm just how in control he is.

 

Time will tell!

Tax Transparency

 

Add a large chunk of the Queen’s 90^th birthday, a generous helping of a state visit from Obama, add a couple of tablespoons of random statements on whether we should remain in the EU, a pinch of the Donald Trump and a splash of will Leicester City win the Premier League……mix well and bake for a few days. And what do you get……the whole tax avoidance scandal swept nicely under the carpet for all at Government. Well, for the time being anyway.

 

Having had time to reflect on the tax avoidance mess, a few things keep cropping up that really don’t sit comfortably with me.

 

Firstly, the public display of “I’ve got nothing to hide Gov’na” that has seen a number of senior members of Government disclose their tax returns. Hang on……should they not be available to the public anyway? MP’s are meant to be fair and transparent after all. And whilst we are at it, the financial affairs and tax returns of immediate family should be disclosed also. If MP’s don’t like it, then they don’t have to stand for election. It should be a privilege to be an MP and that may have to come with increased sacrifices. So be it.

 

Secondly, it is very difficult to understand how and why MP’s vote in a certain way. Their vote should represent the opinion of their constituents……but all too often they vote differently without having to go on record as to the rationale for it. Having MP’s financial affairs in the public domain at least allows us to eliminate a financial conflict of interest!

 

There are currently 650 MP’s that vote for the greater good of the UK. Yet we just don’t know how their voting preferences affect their personal circumstances or that of their family.

 

Surely it’s time to up our game on transparency.

Tax Needn’t Be Taxing

 

You would have done extremely well to avoid the hullabaloo surrounding a huge leak of documents that has lifted the lid on how the rich and powerful use tax havens to hide their wealth. The files were leaked from one of the world's most secretive companies……a Panamanian law firm called Mossack Fonseca. The files show how Mossack Fonseca clients were able to launder money, dodge sanctions and avoid tax.

 

Where the story got the attention of many was those who appeared to be implicated:

 

§  There are links to 12 current or former heads of state and government in the data.

 

§  More than 60 relatives and associates of heads of state and other politicians are also implicated.

 

§  The files also reveal a suspected billion-dollar money laundering ring involving close associates of Russia's President, Vladimir Putin.

 

However, the biggest scrutiny of all fell at the door of Number 10 and that of David Cameron. He invested in his father’s company (Blairmore Holdings) until 2010 when he became Prime Minister, which happens to be registered in Panama and used Mossack Fonseca. Let me put that another way……David Cameron invested in his father’s company that was deliberately registered elsewhere for tax avoidance purposes.  

 

I’ll leave the moral / political argument to the press, media and opposing political parties simply trying to outdo each other. For me though, there is a far bigger issue…..

 

The leaks identify 32,682 offshore companies relating to active clients in the UK. The UK was third behind Hong Kong and Switzerland. That’s frightening on every level. That’s 32,682 companies avoiding paying UK tax currently.

 

The deliberate confusion between ‘evasion’ and ‘avoidance’ is often made by people trying to make a political point. However, the 'evasion illegal, avoidance legal' distinction is used to confuse people. Illegal acts hide behind secrecy to masquerade as legal. At the end of the day, moving money offshore, creating structures and artificial transactions is (to me) tax evasion and avoidance.

 

Perhaps even more frightening is that this leak of documents is from just one law firm in one country……I fear this will only be the tip of the iceberg.

 

But as HMRC says……Tax Needn’t Be Taxing.