I will start today’s Blog by admitting that on this week’s topic, I am a teeny-weeny bit biased, but for good reasons I believe. It seems inconceivable, that there hasn’t been a Chancellor of the Exchequer in living memory who has held any form of accountancy qualification or even experience.
Yes, a few have had banking experience, including the present incumbent of the post, but they’ve all hailed from the investment banking sector, with none of them ever getting their grubby little fingers dirty in dealing with Income Tax, VAT or National Insurance. In other words, they’ve never dealt with the taxes affecting ordinary taxpayers or most small to medium sized businesses (SME’s).
Economists, journalists and media pundits always seem to be jostling for TV and radio airtime with their own opinions, some of which have merit but more often than not are in conflict. The one grouping that really does know a thing or two about budgeting but are invariably never asked their opinion, are members of the accountancy profession.
There is arguably one notable exception, namely Dan Neidle of Tax Policy Associates, whom I have great respect for and have quoted him in various past Blogs. But, whilst I’m a fan of Dan’s crusades against unfair taxes, he is a lawyer who has specialised in tax cases, he is not an accountant.
The Economy
When it comes to the economy, pretty much every man and his dog seem to have an opinion as to where Rachel Reeves is going wrong. Even Rachel Reeves has admitted that she’s made a few ‘mis-step’s.
Whilst it can be amusing to hear the views of the various parties making up His Majesty’s Loyal Opposition one shouldn’t take their varied suggestions as to what Dear Rachel should do, with anything other than a large pinch of salt.
Pretty much everything I’ve heard in this respect, from mouths of Nigel Farage, Kemi Badenoch and Ed Davey recently, has been accompanied with the classic ‘get out of jail card’ of, ‘but of course it will depend on what state Labour has left the economy in!’
The bottomless pit
All of the pundits as well as all accountants, pretty much agree that a seemingly bottomless black hole has appeared in our Nation’s finances and it’s getting gradually bigger. On 26th November Ms Reeves will stand at the dispatch box and she will have the unenviable task of attempting to fill the hole without upsetting large swathes of the public and business.
The bottomless pit can only be filled in one of three ways, namely by reducing expenditure, increasing borrowing or raising taxes or a combination of all three. Unfortunately for Dear Rachel, every one of the choices is unpalatable to her, but let’s look at the choices in a tad more detail:
- Reducing expenditure: Given the ongoing efforts to cut government expenditure, her room for manoeuvre has been restricted by the need to increase defence spending as well as higher NHS and care sectors costs. So, even more austerity measures might be difficult, given the fact that her back benchers threw their collective dummies out of the pram when she tried a modest cut to welfare benefits recently.
- More borrowing: Increasing borrowing has been the go-to option since Adam was a lad, until France went into political meltdown recently. The bond markets nervously looked at other EU Countries and the UK and interest rates skyrocketed, partly because of Inflation worries. The end result, certainly in the short-term, is that any further borrowing will cost significantly more.
- Raising taxes: This is very popular, except with those who have to pay them, though it was interesting to see that inheritance tax changes were despised, especially by those who dream about being wealthy enough to face such a liability. Dear Rachel has already tinkered around the edges but is now facing the seemingly insurmountable problem of how to get more tax without it breeching her mantra of not increasing Income Tax, NIC and VAT on ‘working people’.
A bit more background
The Tory & Lib-Dem coalition taking the reins in 2010, seemed to mark a distinct change in attitude, from ‘we will spend as much as is needed’ to ‘we will only spend what we can afford’. This attitude has more or less prevailed until the General Election in July 2024.
Kier Starmer took the reins of power and announced that the age of austerity was over and also that his government would be fiscally responsible. Unfortunately for Mr Starmer and his sidekick Rachel Reeves, their stated aim of ensuring that the state would live within its means has been partially torpedoed by an unruly bunch of backbenchers demanding ever greater spending on welfare and a failure to kick-start increased growth in the economy.
To make matters worse, their absolute refusal to abandon or even amend one or more of the manifesto commitments on tax paid by working people, has resulted in an increase in borrowing in the short term.
Labour backbenchers clearly have the attitude of, ‘borrow like mad and to hell with the consequences’. They do not like stealth taxes and seem to favour imposing windfall taxes on anybody they consider to be ‘rich’ as well as introducing some additional punitive taxation on this group. Also, to make matters worse, they recently advocated a reduction of 2% in the National Insurance paid by employees.
So, what do accountants think?
Whilst most accountants feel some sympathy for the dynamic duo of Kier & Rachel because of their unruly party, this is tempered by a degree of incredulity that they have not proposed anything close to a pragmatic and common-sense approach to taxes and have thus far point-blank refused to abandon or even amend some of their manifesto pledges.
Can accountants do any better, I hear you ask, almost certainly is the reply you’d get. We would start by not borrowing to fund day to day expenditure and immediately start reducing borrowing. This would have two immediate benefits. Firstly, it would send a strong signal to the markets that we were serious about long-term debt interest (currently 8.3% of total public spending and costing around £115 billion). Secondly, it would also almost certainly reduce the rate we were paying and thus further reduce the cost.
Accountant’s view
I do appreciate that the pragmatic approach advocated by most accountants is difficult for politicians. None of us want to see the NHS et al, being so starved of money that they are no longer effective, but politicians have to accept that there is no magic money tree. We advocate a re-balancing of the economy to achieve steady growth and using the tax system to reward enterprise and hard work, not damage it.
