Haldane Pain

 

 

There has been quite a kerfuffle in the economic / pension world over the past week.

 

In short, Andy Haldane who is the Bank of England’s Chief Economist (he’s a big deal) decided to go public with his opinion that “I confess to not being able to make the remotest sense of pensions”.

 

Oh dear.

 

Not having a ‘foggy’ about pensions is pretty damn important given that there are hundreds of billions sloshing around in those darn pensions. Just a 1% collective change in how these pensions are invested could cause a financial collapse the likes of which we have never seen before. Or just a 1% collective withdrawal from pensions would see inflation reach 15% within a heartbeat. Or there is the financial impact of the State Pension rising from age 65 to 66, 67 and 68. Just a couple of thoughts off the top of my head that make pensions pretty important don’t you think?

 

Being able to make sense of pensions should be the bear minimum prerequisite for the role of a Chief Economist surely?

 

This is the same man that was voted one of the ‘most influential people in the world’ by Time magazine in 2014.

 

No further questions your honour.

Whitehall Shortfall

 

 

You’ve got to love this story……for all the wrong reasons.

 

So the story is that the Cabinet Office decided 2½ years ago to farm out Whitehall’s office function to save up to £500 million a year. Ministers transferred back-office functions like human resources, payroll and accounts to private sector companies in a plan which was supposed to “radically improve efficiency across departments”.

 

At the time, Cabinet Minister Francis Maude stated “it will save the taxpayer half a billion pounds a year.” Well that was me sold straight away. £500 million in the public coffers can only be a good thing.

 

Fast forward 2½ years……and there has been an official independent spending review (by the National Audit Office – cardigan wearers which can be trusted) which has concluded that £500 million a year saving has not materialised and it has actually ended up costing £4 million a year more than previously.

 

It has blamed an in-efficient hand over by the Cabinet Office and stated that costs will continue to rise as a result.

 

Which all leaves the Government rather embarrassed with a large helping of egg on face.

 

But we shouldn’t just take this story lightly when we stop and think about it……

 

Firstly, they are messing about with our money and making poor decisions.

 

Secondly, if they can’t implement an efficiency saving how can the UK public have confidence for other public money to be managed carefully?

 

Thirdly, why has nobody been held accountable for this (especially at a time of sweeping austerity measures and public sector cuts)?

 

All in all, a pathetic story which leaves a bitter taste in the mouth.

Right Bloody Scandal?

  

The bailout of the banking sector was at best a mess and at worse a scandal, with no obvious or clear winners to date. The periodic update of the financial positions of the banks we have a stake in does little to create confidence.

 

Enter stage right……‘Our’ Royal Bank of Scotland has reported a £968 million loss for the first quarter of 2016. Just to ensure a couple of points are put into perspective for you:

 

1.   By the word ‘our’ I refer to our 73% public ownership of the bank.

 

2.   The £968 million loss was double the loss in the same period of 2015.

 

So all not looking good then? Well, that’s the theme that the press / media are running with. But scratch beneath the surface and take a ‘glass half full’ approach and actually……

 

3.   The losses included a one-off dividend payment of £1.2 billion to the UK Government to allow dividend payments to shareholders in the future. Or to put that another way……it would have posted a profit of £225 million.

 

We could (and I have) debated on whether it would have been more financially beneficial to have let RBS fail......but there do appear to be green shoots of recovery for the bank, which in turn means a financial return for the UK public purse.

 

So the big question remains, is the Royal Bank of Scotland glass ‘half full’ or ‘half empty’.

Nicer ISA?

 

 

Individual Savings Accounts (ISAs) were introduce in April 1999 and designed to offer a very simple to understand tax free environment for us all to save into. Well, that was the intention.

 

Fast forward 17 years (and absurd levels of political meddling) and I thought the current state of ISAs couldn’t offer a bigger contradiction to the ‘simple’ concept given that we have Cash ISA, Stocks & Shares ISA, Junior ISA, Innovative Finance ISA, Flexible ISA and Help To Buy ISA. How wrong was I……step forward the new Lifetime ISA to be added to the spaghetti ISA soup.

 

History tells us that when you make something complicated that is financial or tax related, the masses will be turned off from it. The complication will defeat the objective. Just look at Pensions as a great example…..the complicated rules create the disinterest. You have to feel incredibly sorry for the under 40’s who simply don’t know whether they are coming or going with the various ISA and Pension options available. At best it is a minefield. At worst it is an incentive to ignore saving for the long term all together.

 

In reality, the new Lifetime ISA was a typical political / Budget shiny headline, not backed up with any reality. There are so many overlapping schemes for tax exempt savings that I really do question the motives of W1.

 

Until there is a clear and simple path, confusion will continue to reign.

 

Such an avoidable shame.

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.