In the ‘Wealth of Nations’ written in 1776, Adam Smith argued that taxation should follow the four principles of.
These principles form a solid basis for taxation today; however, they are not always followed.
Sometimes, taxes hit certain categories of taxpayers or kinds of consumption whilst leaving others relatively untouched. In other words, what I would call ‘relative unfairness’.
A good government should levy taxes whilst minimising negative effects on the economy.
Taxes can have significant effects, altering the decisions that individuals and businesses would make if the taxes were not in place.
They can also have a major impact on economic development and growth. Capital, for instance, tends to flock towards countries where lighter-touch tax regimes are in place.
If personal taxes are too high, the individuals may have a disincentive to work, in particular those whose higher skills and experience are essential to the future success of business.
In summary, if Governments get the taxes wrong then less money may be made available for investment and less effort to focus on business growth.
When Adam Smith set the basic tenets of taxation, scarcely would he have believed that 244 years later the world would be paralysed by the Coronavirus pandemic.
The current situation is undoubtedly serious but pales into insignificance compared with the Spanish Flu outbreak in 1918. This infected around one-third of the world’s population and up to 50 million people are estimated to have died.
There was no social media to spread the gloomy word nor the BBC to spread fear. There was no NHS.
Actions have Consequences.
Governments all around the world have reacted to Covid19 by creating a climate of fear and the UK turning the NHS into something close to being saintly.
I always think it is better to be over cautious rather than under cautious but UK policy has proved to be a folly. The consequences of this include:
- the devastation of our economy
- many businesses failing or being crippled and lives and dreams being shattered
- significant mental illness and even suicide
- the complete abandonment of those with other conditions, notably cancer
- allowing certain businesses to have an unfair competitive advantage and others being ‘thrown to the dogs’
- a closed down education system
- generally favouring older people over younger (it will be the under 30s largely left to pick up the tab).
- the adoption of generic policies with a ‘one size fits all’ approach.
It was not the fault of nightclub owners or bowling alley operators that their businesses were closed down. The example of garden centres is perhaps even more stark. The big stores were free to sell plants and flowers, whereas the independent garden centres saw their stocks destroyed and have their businesses decimated.
The above shows multiple examples of unfairness. The decision to lockdown saw a record fall in growth over a quarter. Reduced production/lower consumption and massive Government spending, notably on the furlough scheme.
I am well placed to talk objectively about the above as my own group of businesses flourished during lockdown. We adapted and we understood what people and businesses wanted. We were able to combine a lot of the free help and advice with good profitable business.
In the newspapers on Sunday 30th August it was widely reported that there would be a:
- corporation tax rise of 5 points to 24%
- ‘smash and grab’ on pensions
- significant change to Inheritance Tax
- change in Capital Gains Tax bringing it into line with Income Tax rates
Despite the ongoing effects of the Government’s fear strategy, the overall situation is amazingly close to normal. In fact, consumer spending is currently higher than it was a year ago. The final level of unemployed people will be high but less than I would have thought a month ago.
I am not aware of a single Aspen Waite client that has failed, despite fears for several, four months ago. Several are in fact doing extremely well.
Those who have adapted and taken on board the challenges faced by ‘the new normal’, as we have, will be the better for it. There is a greater focus on human issues, well-being and the work-life balance.
But confidence, on the whole, is fragile and too many of our fellow citizens are driven by fear. What the country now needs is balanced and fair reporting, strong leadership, common sense and sound economic policies.
This Government has been a bitter disappointment to me. Populist theories, no real belief or policies and everything it does is focused on:
- protecting the NHS from a Covid19 overrun
- preserving the Northern vote that facilitated the landslide in the December 2019 election
As Margaret Thatcher so wisely observed, “if you drive down the middle of the road you will hit cars coming both ways”.
It is much better to have values and stand for something. The wisdom of this approach can be seen by the Tories losing their 26 point advantage in the opinion polls.
The Tory party is supposed to be the party for businesses and the aspirational. We need the Wealth Creators, such as myself, to be incentivised to invest and follow their entrepreneurial instincts.
The general attitude of Socialism is to distribute wealth from the rich to the poor. There is nothing wrong with this, in fact I passionately believe in equal opportunity, the strong helping the weak and so on. My contention is that this is best done by the creation of a vibrant economy where wealth is created.
I am not aware of a single successful Socialist Government that did not understand business or the importance of wealth creation. The most successful Labour Government was arguably the New Labour, Blair/Brown administration. This appealed to business and created R&D Tax Credits and the hugely attractive Entrepreneurs’ Relief. Squeezing the pips out of the rich is not a good recipe for optimal tax collection. High tax rates, especially if disproportionately high compared to other countries, encourages tax planning and avoidance and drives capital overseas.
It is very tempting to look at the big hole in our finances and plug it by raising taxes.
Assuming though, that the motivation for doing so is truly collecting the most cash, then raising taxes rarely works. I am now regarded as a successful Entrepreneur and the Aspen Waite Group generates excellent profits.
We pay a substantial amount of tax and have created something like 50 jobs over the last two years, as well as supporting the wider business community. We have invested heavily in new projects, new technologies and innovation, whilst also establishing new businesses and investing in external businesses that would often have failed without financial support.
The Chancellor’s reduction of Entrepreneurs’ Relief from £10m to £1m seriously upset me. The rhetoric was that it was an expensive relief that just benefited the rich. Hogwash! This Government is seriously out of tune with the people who make this country the financial and innovative centre of the world.
The UK corporation tax regime used to have two rates of taxation, one for lower levels of profits and another for higher profits.
Why a company should be penalised for being successful, when it would pay more tax on such higher profits, is beyond me. Nonetheless, I did think that rates in the low 20s were at a sensible level. Certainly, I cannot see any particular merit in corporation tax being reduced to 17% as previously planned.
I would rather see an increase to at least 20% (but not 24%) combined with measures to stimulate the economy such as increased First Year Capital Allowances.
There also needs to be specific assistance measures for businesses that have suffered and have been unfairly treated by the lockdown, maybe an extended furlough scheme as a minimum.
I think it is counter-productive to allow businesses to fail when they could be saved with Government assistance. This could also include attractive investment breaks for individuals or corporations investing in distressed businesses.
I have always loathed capital and inheritance taxes. If two people had exactly the same level of income but one spent all theirs whilst the other saved, how can it be right that the more prudent person can end up with an Inheritance Tax issue that his counterpart would not have? But they would have paid the same amount of Income Tax. Here, it is reasonable to conclude that Inheritance Tax is both morally unjust and unfair.
Capital taxes come into a similar category, especially if the capital is derived from saved income. There needs to be a differentiation between capital gains arising from trading businesses and that from more speculative type investments. The proposed move to align capital gains rates with income tax rates is a massive disincentive to take risk, the type of risk that this country desperately needs its entrepreneurs to make. Were this to come into effect, I for one would severely throttle back my plans for expansion and certainly would not wish to invest in non-Aspen Waite companies.
Governments simply do not understand how businesses operate.
When I formed Aspen Waite 27 years ago, I borrowed £75,000 and received no pay for August and September. I then received £1,300 in October, £500 less than I had been used to. I have never paid myself anything like what my efforts deserved, always concentrating on building my business and its capital value. I have signed countless personal guarantees and put everything on the line. If I had failed, I doubt anyone would have bailed me out. I have been worried and flirted with failure several times.
The risk takers of this world need to be rewarded for their risk taking by being able to have their ‘day in the sun’ at rates which are appropriate to the level of risk they have taken.
So, at a time when the country needs businesses to bounce back and start recruiting again, we do not need populist policies being levied by this unprincipled Government to carry favour in the opinion polls.
Bashing the wealthy and the ‘fat cats’ has always been fashionable but this is not what the country needs, and certainly not from a Conservative Government.
Paul WWaite BSc Hons (Ecconomics)
Chief Executive Aspen Waite
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