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The Office For Tax Simplification - will it do what it says on the tin?

Further details have been given to Parliament about the new Office for Tax Simplification, intended to bring about a significant simplification of the UK tax system, with a view to increasing our international competitiveness by making the UK a more attractive destination for multinationals to site their businesses, and to freeing up the time of smaller businesses to concentrate on making profits rather than dealing with tax administration.

Tax professionals have traditionally had a rather cynical attitude to the promise (threat?) of tax simplification, as the promise has usually resulted in greater rather than lesser complexity within the tax system. This is largely the result, not so much of duplicity on the part of successive Treasury teams, as the sheer size and structure of the tax system itself, which makes simplification by tinkering a very difficult process indeed.

Nigel Lawson may have had the right idea in the mid to late 1980s, when he set out to abolish a tax each year, although he did sometimes put in place a substitute, as with capital transfer tax and inheritance tax. The point being that what is needed is a dramatic overhaul of the whole system, and not just a process of fiddling about with what we already have. One of the exciting things about reading accounting at University (OK, THE exciting thing) was undertaking the academic exercise of designing a tax system from scratch. Needless to say, it did not look anything like our current system!

And that is what worries me about this whole process, apart from concerns about forming a committee to achieve anything, let alone a comprehensive simplification exercise. I see no intention on the part of the Government to turn the OTS loose to fundamentally redesign the tax system; indeed one might regard it as particularly ominous that its first task will apparently be to examine some 400 tax reliefs to identify which of them remain necessary. Given the financial straits in which the company finds itself, one could be excused for seeing this as a convenient excuse to remove lots of tax reliefs from the statute book as a means of raising further tax revenue, rather than as a genuine process to streamline the system. After all, complexity arises just as much, and arguably much more, from complex anti avoidance legislation as it does from generous tax reliefs. And it would be a huge shame to miss such an opportunity to do something really fundamental with the tax system.

Let us just consider a couple of examples. Firstly, we have a tax credit system which is based on the principle that you first subject people to income tax and then 'untax' them by way of tax credits; might it not be simpler not to tax them in the first place? And we have a tax year which runs, for bizarre and scarcely credible historical reasons associated with the engagement of agricultural labour and the realignment from the Julian to the Gregorian calendar (see footnote for further exciting details), from 6 April to 5 April. Now if anything is designed to confuse those wishing to site their business in the UK it is this; virtually every other country in the world has adopted a calendar year as the tax year, but we cling obstinately to our weird and wonderful system. A single example will suffice to show the problems this creates for multinational business; it means that any calculation of double tax relief due has to span two tax years, potentially in each country. This is no way to 'do' tax in the modern global economy, so change the tax year!

So the interesting question is 'why not?' Why has no-one grasped this particular nettle and sat down to re-draft the UK system from scratch? I suspect a large part of the answer lies in the increasing levels of mistrust that the UK population harbours in respect of its politicians, fanned by a hysterical news media whose volume of participation in any particular debate often seems to be in inverse proportion to its understanding of the issues concerned. A fundemental modernisation of the UK tax system would be no doubt cast by opposition parties and media alike as taxation by stealth, an infringement of our ancient civil liberties and in general as a further example of the modern world going to the dogs. Given the amount of work involved, you can see why politicians do not have this vital project high on their political agenda. 

And then of course there are votes to be lost by tax reform. There is inherent in the UK tax system, and has been for some considerable time, a significant tax incentive for profitable businesses to operate as limited companies rather than as sole trades or partnerships, worth several thousand pounds a year to many businesses. This is in addition to the traditional incentive to operate as a company, namely limited personal liability for business debts. So at a time of economic hardship, when many businesses are struggling, the tax system is encouraging people to operate through a medium that will almost certainly fail to pay its creditors more than a small fraction of the money owing to them in the event of a business failure. And that is going to encourage the private sector to pull the UK out of economic crisis?

All of this is hardly a secret, yet despite a certain amount of huffing and puffing nothing has been done to address this tax advantage, for which there appears to be no logical reason, other than laughable attempts to deal with a related issue, the shifting of business income to inactive spouses. There are huge amounts of tax revenue to be made out of this, but of course there is the inconvenient fact that, due to the radical reshaping of the UK employment market over the last generation, there are now millions of self-employed people running their own business, largely no doubt taking advantage of this generous tax regime. And they all have votes. So who will be brave enough to grasp this particular nettle?

Now of course the worst thing from my viewpoint (and no doubt one of the best from that of the rest of the population) would be that, if a government actually took it upon itself to fundamentally simplify the UK tax system, the whole edifice of the tax profession, certainly insofar as it relates to planning and consultancy, would be under threat. Trying to be dispassionate about this, there is something quite appealing about the demise of a profession that has largely grown up out of the desire to (legitimately) withhold significant sums of money from the public purse, and which tends to be most effective in doing so for those who could nmost afford to pay large amounts of tax, and are therefore of course in a position to pay large fees to reduce their tax exposure. And of course there is a tremendous irony in that John Whiting, who is taking temporary control of the OTS, has long been associated with Price Waterhouse Coopers, a leading peddler of tax avoidance strategies, and will thus presumably become the ultimate 'poacher turned gamekeeper'.

So here goes for my top 10 genuine tax simplification measures, which really would make the UK tax system easier to navigate:

1. Move to a calendar-based tax year.

2. Admit national insurance is a tax and combine it with income tax.

3. Tax all drawings from unquoted close companies on the same basis, whether dividend or salary.

4. Abolish corporation tax and apply income tax to companies.

5. Abolish tax credits and increase personal allowances for income tax.

6. Reintroduce income tax child allowance.

7. Tax capital gains as income.

8. Abolish IR35.

9. Abolish all tax advantages of non-domicile status.

10. Prosecute all material tax evasion as a criminal offence.

And what's the betting no-one has the courage to do any of that, let alone all of it.

Mark Simpson

21 July 2010

Footnote on the UK tax year

Prior to the mid 18th century the new year in England began on 25th March, Anunciation Day. Thus 24 March 1699 was followed by 25 March 1700. This is one of the traditional quarter days for payments of rent, and more to the point at that time, the traditional expiry date for agricultural tenancies. Thus, because large amounts of agricultural labour moved to new jobs each 25th March, the year was measured from that date.

By 1752 the Julian calendar was 11 days out of kilter with the more accurate Gregorian calendar, used mainly in Catholic countries, and the UK decided to adopt the Gregorian calendar. As a result Wednesday 2 September 1752 was followed by Thursday 14 September 1752. In order to keep the year the same length in actual days, this involved moving the date of the New Year from 25 March to 5 April, although confusingly at the same time the UK adopted 1 January as New Year's Day (which I guess meant that other bits of 1752 disappeared as well as the 11 days. although not permanently - my brain is starting to hurt!) However, for fiscal purposes the 'old' new year date, as adjusted to the Gregorian calendar, was retained, and thus the fiscal year began on 5 April.

In 1800 a further day was 'added' to the Julian calendar, so the fiscal year began on 6 April from that date. The further day that was 'added' in 1900 was ignored for this purpose, and the year 1900 simply treated as a leap year, which it would not normally have been. So that is why our fiscal year begins on 6 April.  

Look Back In Anger - Emergency Budget 2011

This post is in two parts. The first represents my technical notes on Budget matters that I consider to be of interest to our clients. The second is my comments on the implications of the Budget proposals for future tax planning by businesses and individuals.

 

EMERGENCY BUDGET 2011: TECHNICAL NOTES

 

A. PERSONAL TAX

 

1. Income tax and national insurance rates, allowances and thresholds

 

1. From 2011-12 the income tax personal allowance will increase by £1,000 to £7,475. This is intended to be part of a process whereby the personal allowance increases to £10,000 by 2015-16.
2. The basic rate limit will be reduced by the appropriate amount to ensure that higher rate income tax payers do not benefit from this change. This limit will be set in October 2010 by reference to the September 2010 RPI figure.
3. Appropriate changes will be made to the upper earnings limit and upper profits limit for Class 1 and Class 4 national insurance respectively to ensure that these remain aligned with the income tax basic rate limit.
4. The employers’ national insurance threshold for 2011-12 will be increased by £21 in addition to the normal inflation increase.

 

 2. Capital gains tax

 

1. From 23 June 2010, where a taxpayer’s income and gains (net of annual exemption) exceed the upper limit of the income tax basic rate band, gains exceeding that limit (treated as the top slice of income) will be taxed at 28%.
2. Trusts and personal representatives will pay capital gains tax at 28%.
3. Entrepreneurs’ relief will be given by application of a capital gains tax rate of 10% (not a reduction of gain by 4/9) and will apply to a lifetime total of £5 million per taxpayer (previously £2 million).
4. The annual exemption remains unchanged at £10,100.
5. Gains made between 6.4.10 and 22.6.10 will be ignored in computing the applicable rate of capital gains tax.
6. A taxpayer can use 2010-11 losses and annual exemption to best advantage.

 

3. Pension scheme annuitisation

 

This has been deferred to age 77, pending legislation to end compulsory annuitisation.

 

4.  Settlor-interested trusts

 

Income tax repayments arising to settlors in respect of income from such trusts must be paid over to the trustees.

 

5.   Adult placement carers

 

Will be able to claim full capital gains tax main residence exemption where they use part of their home exclusively to house an adult placed in their care by social services.

 

B. BUSINESS TAX

 

1. Corporation tax main rate

 

Will fall from 28% to 27% with effect from 1 April 2011, and by a further 1% per year until April 2014, at which point it will be 24%.

 

2. Corporation tax small profits rate

 

Will fall from 21% to 20% with effect from 1 April 2011.

 

This means that the marginal corporation tax rate for the above years will be as follows:

 

Corporation tax year ending 31 March	Marginal rate of corporation tax
2011	29.75%
2012	28.75%
2013	27.5%
2014	26.25%
2015	25%

 

3. Capital allowances

 

The annual investment allowance will fall from £100,000 to £25,000 from April 2012.

 

The rate of writing down allowance on the main pool will fall from 20% to 18% for accounting periods ending after 31 Msrch 2012 (companies) and 5 April 2012 (sole traders, partnerships and LLPs). From the same dates the rate of writing down allowance on the special rate pool will fall from 10% to 8%.

 

A 100% first year allowance will be available on zero-emission goods vehicles acquired between April 2010 and March 2015 inclusive.

 

4. Research and development tax reliefs

 

For accounting periods ending after 8 December 2009, it is no longer a requirement for a company to own the intellectual property in the project for which it claims R & D tax reliefs.

 

5. New VAT penalty regime

 

This is to be introduced from a date to be confirmed.

 

Quarterly returns

 

Late filing

 

£100 penalty for the first late filed return.

 

This will start a 1-year penalty period.

 

There will be an addition of £100 to the penalty charge for each subsequent failure in the penalty period, which will be extended for a further year by each default, up o a maximum penalty charge of £400. Four consecutive returns will need to be submitted on time to escape from a penalty period.

 

There will be a 5% penalty where the failure continues for 6 and for 12 months.

 

Deliberate withholding of information by a taxpayer may result in a 100% maximum penalty.

 

Late payment

 

There will be no penalty on the first failure, which will start a 1-year period.

 

There will be a 2% penalty on the next failure in the penalty period, which will be extended for a further year. This will rise to 3% and then 4% for subsequent defaults in the penalty period. Four consecutive returns will need to be submitted on time to escape from a penalty period.

 

There will be a 5% penalty where the failure continues for 6 and for 12 months.

 

Monthly

 

Late filing

 

There will be a penalty of £100 for the first 6 returns filed late in the penalty period, then increasing to £200 per return.

 

Late payment

 

No penalty on first failure.

 

1% penalty on second, third and fourth.

 

2% penalty on fifth, sixth and seventh.

 

3% penalty on eighth, ninth and tenth

 

4% penalty thereafter

 

6. VAT standard rate change

 

The standard rate of VAT will increase to 20% from 4 January 2011.

 

There will be anti-forestalling rules to apply a 2.5% supplementary charge where an artificial prepayment scheme is applied. This will be deemed to happen where the customer cannot recover the VAT charged by the supplier and one of the following applies:

 

i.     The supplier and the customer are connected; or

ii.    The value of the supply exceeds £100,000; or

iii. The supplier funds the prepayment; or

iv. An advance VAT invoice is issued and payment in full is not required within 6 months (excluding hire purchase invoices).

 

7. New VAT flat rate scheme rates

 

These will apply from 4 January 2011 as follows:

 

 

Category of business	Appropriate percentage
Accountancy or book-keeping	14.5
Advertising	11
Agricultural services	11
Any other activity not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Business services that are not listed elsewhere	12
Catering services including restaurants and takeaways	12.5
Computer and IT consultancy or data processing	14.5
Computer repair services	10.5
Dealing in waste or scrap	10.5
Entertainment or journalism	12.5
Estate agency or property management services	12
Farming or agriculture that is not listed elsewhere	6.5

 

Category of business	Appropriate percentage
Accountancy or book-keeping	14.5
Advertising	11
Agricultural services	11
Any other activity not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Business services that are not listed elsewhere	12
Catering services including restaurants and takeaways	12.5
Computer and IT consultancy or data processing	14.5
Computer repair services	10.5
Dealing in waste or scrap	10.5
Entertainment or journalism	12.5
Estate agency or property management services	12
Farming or agriculture that is not listed elsewhere	6.5

 

Film, radio, television or video production	13
Financial services	13.5
Forestry or fishing	10.5
General building or construction services*	9.5
Hairdressing or other beauty treatment services	13
Hiring or renting goods	9.5
Hotel or accommodation	10.5
Investigation or security	12
Labour-only building or construction services*	14.5
Laundry or dry-cleaning services	12
Lawyer or legal services	14.5
Library, archive, museum or other cultural activity	9.5
Management consultancy	14
Manufacturing fabricated metal products	10.5
Manufacturing food	9
Manufacturing that is not listed elsewhere	9.5
Manufacturing yarn, textiles or clothing	9
Membership organisation	8
Mining or quarrying	10
Packaging	9
Photography	11
Post offices	5
Printing	8.5
Publishing	11
Pubs	6.5
Real estate activity not listed elsewhere	14
Repairing personal or household goods	10
Repairing vehicles	8.5
Retailing food, confectionary, tobacco, newspapers or children’s clothing	4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries	8
Retailing that is not listed elsewhere	7.5
Retailing vehicles or fuel	6.5
Secretarial services	13
Social work	11
Sport or recreation	8.5
Transport or storage, including couriers, freight, removals and taxis	10
Travel agency	10.5
Veterinary medicine	11
Wholesaling agricultural products	8
Wholesaling food	7.5
Wholesaling that is not listed elsewhere	8.5

 

Comments

 

The title of this blog does not mean that I am confusing my Osbornes, but it seemed appropriate in view of the clear theme in the new Chancellor's speech that the previous government had been reckless in its spending. It was widely anticipated that pain would be on the tax agenda, and so it proved overall, although not exclusively. So here are my thoughts on the planning implications of George Osborne's first Budget:

 

Personal tax

 

Income tax and national insurance

 

Given the £1,000 personal allowance increase and the matching uplift in the lower threshold for employers' national insurance, the dilemma about what salary to pay a director/shareholder of an owner managed business appears to have been solved. Take a salary equal to the personal allowance from 2011-12, pay a modest amount of employee's national insurance (it appears that the thresholds for primary and secondary contributions are diverging from 2011-12) and claim corporation tax relief at 20% on the gross salary. I reckon that means the following:

 

Salary £7,475

 

Employee NICs @ 12%

on excess above £5,720 £211 

 

Net salary    £7,264

 

Corporation tax relief on £7,475

@ 20% £1,495

 

So it costs the company £5,980 to pay the director £7,264. Looks like good planning to me!

 

Capital gains tax

 

We are quite used to manipulating the income of owner managers operating through limited companies to avoid paying higher rate tax, and we will need to consider this even more carefully where they make gains in excess of the annual exemption in future.

 

The increase in the entrepreneurs' relief limit is unexpected but nonetheless welcome, as is the protection of the effective 10% rate against the increase for higher rate taxpayers.

 

Corporation tax

 

We are squarely back in a tax regime that is going to encourage businesses to operate as limited companies, given the planning opportunities available using that structure.

 

Capital allowances

 

A couple of years;' warning of this one, perhaps encouraging businesses to grasp the nettle of major capital investment now rather than delaying. Many smaller businesses will not find these changes a problem, as they will never spend more than £25,000 on plant and machinery in a year, and will thus always get full upfront relief for this expenditure.

 

Research and development

 

The relaxation of the intellectual property rule is hugely important, as it opens up the possibility of the 'dream' tax planning scenario of IP held by the owners of the business outside the company whilst the company claims enhanced tax relief on development of the IP. This can be a hugely efficient structure from a tax planning perspective.

 

VAT penalty regime

 

This is a big move away from the payment-focused regime we have been used to, placing equal importance on getting the paperwork in on time as well as the cheque. Businesses will need to adjust to the new regime in advance of its arrival.

 

VAT rate rise and forestalling regime 

 

The only surprise here is that the increase has been deferred until 4 January 2011 (my 49th birthday, as it happens), which is presumably again to encourage people to spend now to beat the VAT rise. Again we have forestalling rules, but given that they are only designed to restore the status quo one is tempted to say "why not have a go anyway?" And they do also appear to be relatively easy to get around. Given the relatively modest rise I doubt we will see a proliferation of the type of scheme we saw when VAT was introduced on domestic power, when my father in law bought his electricity and gas for about 3 years in advance - he is a stern and unbending Tory, but he has never forgiven Kenneth Clarke for this measure.

 

Overall impressions

 

I will confess, and have done so frequently in this blog, that I have not been a George Osborne fan. However, he came across pretty well this afternoon I thought, at least so far as I could tell given the appalling broadband reception I had to put up with whilst trying to watch the speech on my office computer! He really has been left with the mother and father of all economic messes to sort out, and I guess we should all wish him luck.

 

One thing I will say is that there are far fewer Budget notes this time around, and much less obscure anti-avoidance legislation than we have been used to. It is interesting to see this light touch applied at the same time as significant tax rises, given that we can expect to see significant avoidance activity in the light of direct and indirect tax increases, and this has actually been facilitated in the small company arena by the corporation tax, income tax and national insurance changes. Thus whether the tax revenue forecasts are met in practice will be interesting to see. The pain appears to be being spread fairly evenly, and thus arguably fairly, but will those with the best tax advisors be spared their share of the suffering? Watch this space!

 

 

Mark Simpson

 

22 June 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planning for the new capital gains tax regime

I have been giving some thought to the implications of the anticipated capital gains tax rise, and have come up with the following conclusions:

1. It seems likely that the rise will not occur until 6 April 2011, leaving the rest of 2010-11 to put planning in place. Neither retrospection nor a split tax year appears a realistic alternative.
2. Crystallisation of losses may be advisable to allow these to be offset against future gains.
3. Use of limited companies to hold investment assets may now be a more viable alternative. A corporation tax rate of 21% suddenly looks attractive for a higher rate taxpayer compared to a 40% capital gains tax rate 
4. Transfers of ownership between spouses / civil partners will become more important due to the link between IT & CGT rates, in order to crystallise gains in the hands of the taxpayer with the lower marginal income rax rate.
5. Where taxpayers have control over income levels (e.g. directors and shareholders of close companies) it may be possible to reduce income levels for a particular year to allow gains to be taxed at basic as opposed to higher rate.
6. Using the 2010-11 annual exemption is likely to be important, as the exemption level may fall dramatically for 2011-12 and later years.
7. It will become more important to ensure that particular assets qualify as business assets (it is assumed on the basis of government comments that some form of entrepreneurs’ relief will remain), and thus reviews of significant cash or other non-trading asset holdings will become even more important. There is an '80% trading' test for entrepreneur's relief to apply, and considerable uncertainty as to how this works in practice, at least on the part of HMRC!
8. Negligible value claims will become more important to establish on a timely basis, where assets are held which are of little or no value but have a CGT base cost.
9. Where EnterpriseManagement Incentive Schemes (EMISs) are set up, it has become more important to ensure that each EMIS holder has rights to acquire at least 5% of the company shares, so as to be eligible for entrepreneur’s relief on ultimate sale of the shares. This is one of the major attractions of tax-favoured employee share option schemes.
10. Living in rental properties as the main residence at some point in the period of ownership becomes a much more attractive proposition for CGT purposes. There are generous CGT reliefs for properties which have been the taxpayer's main residence even for a short period of time during the period of ownership.
11. Elections for main residence exemption will become more important, as will careful planning to maximise available PPR exemptions. Where a taxpayer has two or more residences at any one time, he or she can elect which should be treated as the main residence for any particular period. 
12. Investment strategies are likely to change, with life assurance bonds becoming relatively more attractive compared to equities, unit trusts etc.
13. Establishing non-UK residence for a minimum 5-year period becomes a more attractive proposition if large gains are anticipated.
14. A careful eye will need to be kept on the future treatment of furnished holiday lettings, as trading treatment for CGT is now of vital importance. Consider triggering a disposal to a settlor-interested trust to cover the possibility of the withdrawal of CGT business assets treatment?
15. Careful note will need to be taken of the share matching rules when planning disposals, with particular reference to the ‘bed and breakfasting’ rules and the possibility of a disposal by one spouse / civil partner and a re-acquisition by the other. Bed and breakfasting is selling and buying back shares over a short period (30 days for CGT purposes), but the rules in this respect can be circumvented by different spouses buying and selling the shares.

Hopefully some food for thought here, although detailed planning for specific circumstances will remain essential.

 

Mark Simpson

 

26 May 2010

Key provisions of Companies Act 2006

I venture with trepidation into relatively virgin territory for this blog. We tax people have to know bits of company law now and then, but for many of us our last concerted study of the subject was when (if) we did accountancy exams, which for some of us was a very long time ago indeed. Nonetheless, Companies Act 2006 is now fully implemented, and has introduced a number of significant changes for private companies, which I guess it is useful to have listed for ease of reference.

MEETINGS AND RESOLUTIONS

Written resolutions

To pass a resolution of the company (a 75% vote for a special resolution, required to change the company's constitution, or a 50%+ vote for an ordinary resolution) it was formerly necessary to hold a formal meeting to vote on the resolution. In recognition of the fact that many such meetings took place only in the imaginations of all concerned, it is now possible to pass a written resolution, requiring the same percentage vote as previously but not now requiring a meeting, simply a circulation of the proposed resolution. This is a sensible practical change to recognise commercial realities.

Annual General Meetings

The requirement for all companies, however small, to have an AGM similarly led to numerous utterly fictitious meetings being deemed to have taken place. Allowing companies to dispense with AGMs if they so wish is another sensible change along the lines of the previous example.

Standard 14 days' notice of shareholders' meetings

For those who still need, or prefer, to have formal meetings, those worries about whether enough notice had been given for the particular kind of meeting are a thing of the past, as there is now a standard 14 day notice period. The ability for all shareholders to sign a consent to short notice of a meeting remains in place.

COMPANY OFFICERS

Company secretary

Is now an optional post for a private company, which will avoid sole directors and shareholders racking their brains to find a suitable company secretary.

Directors

Must now be aged at least 16, and all companies must have at least one human director (i.e. not corporate, as opposed to not extra-terrestrial!)

Can now legally borrow money from a company of which they are a director.

FILING OF ACCOUNTS AND RETURNS

Filing deadline

The period for filing private company accounts is now 9 months from the end of the month in which the accounting period ends, as opposed to exactly 10 months from the accounting date (the bane of the lives of those with a 30 April year end).

Small & medium-sized company definitions and audit exemption thresholds

The definitions of small and medium-sized companies for filing purposes are now as follows:

Turnover    Balance sheet total Employees

 

A small company must meet at least 2

of these tests: <£6.5m <£3.26m <50

A medium-sized company must meet at

least 2 of these tests:  <£25.9m <£12.9m    <250

To be exempt from the requirement for

an audit a company must meet 2 tests:    <£6.5m <£3.26bn

Charitable companies

Charitable companies are now subject only to the normal audit exemption.

Shareholder information

Reduced information on shareholdings is now required, both in the Register of Members and on the Annual Return.

Late accounts filing penalties

Months late Penalty

Up to 1 £150

1 to 3   £375

3 to 6   £750

6 or more    £1,500

The above penalties are doubled in the second year if there are two consecutive years of late filing.

COMPANY CONSTITUTION ON INCORPORATION

The Memorandum of Association is now a much shorter document, supplemental to the Articles of Association, which can now be based on on of 3 sets of Model Articles as well as based on Table A (as revised for the purpose).

New companies limited by shares are now required to file a Statement of Capital.

CAPITAL REDUCTION

It is now possible for a company to reduce its share capital by way of a Solvency Statement procedure, as well as by way of a purchase of own shares.

FINANCIAL ASSISTANCE FOR THE PURCHASE OF A PRIVATE COMPANY'S OWN SHARES

This is now legal, avoiding the requirement for an expensive and complex 'whitewash' procedure in such cases.

RESTORATION OF DISSOLVED COMPANIES

Is now possible in certain circumstances without recourse to the Courts. 

If any of the above is absolute rubbish I will plead taxation practitioner's ignorance of company law, but I believe it all to be a correct summary of the brave new world of company law.

Mark Simpson

24 May 2010

First coalition Budget date set - so what can we expect?

George Osborne's first Budget as Chancellor of the Exchequer will be on Tuesday 22 June at 3.30pm. Putting aside the sheer excitement of two Budgets within just over 3 months (I'll have to go for a lie down soon) this is of course an extremely important Budget for a number of reasons:

1. Given the colossal scale of the Budget deficit, it will set the tone for the coalition's fiscal and spending policy for the next 5 years.

2. It will be closely examined to see how far it reflects the (to some extent) divergent policies of the coalition partners.

3. It has the potential to nudge the UK economy back into recession if it cuts the wrong things or cuts too deeply, or imposes too much of a tax burden on a struggling business sector.

4. It is a massive first test for an unproven Chancellor, who has at least 3 people on the coalition front bench with him who a number of people believe are better qualified to do his job than he is (I'm thinking of Messrs Hague, Clarke and Cable, unless you have any other candidates).

So let's have a think about these factors, and see where they might lead Mr Osborne on 22 June.

We have already had a fair insight into the coalition's tax plans last week, so were are potentially better informed on that side of the agenda than the spending side. Apparently the government is looking at £6 billion of immediate spending cuts, which will not be in the areas of health or international aid. Nor, we are assured, will they impact on front-line services, which, as an assurance, is about as standard in these circumstances as pre-election claims that there are £billions of bureacratic waste just waiting for a new government to cut. The latter, incidentally, tend to prove frustratingly elusive once the new government gets into power.

I like the story from David Laws, Chief Secretary to the Treasury, that his predecessor Liam Byrne left him a note saying "There's no money left", but joking apart, the main hint we have had on the targets for cuts is a scaling back of child tax credits and child trust funds for those on above average incomes. I also wonder whether the phenomenally generous grant and matched funding regimes for business training will also have an appointment with the scissors, but the spending side of the budget equation is not my specialist subject.

I have been rather surprised by the extent to which the tax proposals released so far are influenced by Liberal Democrat policy; perhaps evidence of hard bargaining by Team Clegg in the coalition negotiations, or perhaps compensation for policy sacrifices elsewhere. Perhaps this just reflects the fact that Lib Dem fiscal policy was more clearly stated, and maybe more thoroughly formulated, than its Conservative equivalent.

So bad is the situation that tax rises and spending cuts really have to go hand in hand, which explains why the Conservatives are going to have to move away from their usual tax-cutting agenda. Given history on this subject, predictions of a VAT rise appear well-founded, as we have seen these in the late 70s and early 90s from previous Conservative Chancellors faced with problems balancing the books in a recession. So 20% VAT looks very much on the cards from (say) 1st August, particularly as it has the advantage of an almost immediate cash impact, unlike direct tax changes which would probably have to be deferred until April 2011. 

Thus fiscal policy will be driven more by the extremity of the financial situation than party political dogma, which to a large extent makes it futile to try to attribute particular tax policies to specific coalition partners (not that this will stop the media trying to do so, no doubt).

The most interesting part of the Lib Dem tax agenda, at least for a professional working in the field, is the proposal to increase the income tax personal allowance to £10,000, which it appears will be phased in over the life of the Parliament. The idea is to take several million people out of the tax system altogether, thus reducing some of the formidable administrative burden on HM Revenue & Customs, and freeing up resources to mount an effective pursuit of tax evaders. This is long overdue, as initiatives such as the Offshore and Liechtenstein disclosure facilities have demonstrated that the manpower available to HM Revenue & Customs is woefully inadequate to match the flood of information now available on the subject of offshore bank account holders. A purge of the 'black economy' within the UK is also long overdue.

I see these anti-evasion steps as essential to prepare the ground for what I anticipate will be another plank of coalition tax policy pre-figured in the Lib Dem manifesto, namely an attack on tax avoidance. The specific form anticipated by the Lib Dems in this respect is a general corporation tax anti-avoidance rule, as operated successfully by Australia, among others. In general terms this will state that tax avoidance action taken by corporate taxpayers will be ineffective unless sanctioned by HM Revenue & Customs, either retrospectively (if the taxpayer wants to take the risk) or by way of an advance clearance procedure (paid for by the taxpayer at commercial tax advice hourly rates) if the taxpayer craves certainty as to the outcome of its actions.

I see this primarily as a shot across the bows of those arch-tax avoiders, the banks, who are likely to elicit zero public sympathy if they whinge about this infringement of their freedom to implement highly artificial schemes to keep more of their rapidly burgeoning profits out of the hands of the taxman. Thus it has the potential, at that level, to be that rare thing, a popular tax raising measure. To be fair, high level tax avoidance activity is not the sole preserve of the banks, but they are its highest profile exponents.

However, once the principle of a general anti-avoidance rule is in place, there would be a grave temptation to expand upon it. In this respect there is at least one, and realistically three, elephants in the tax avoidance / tax mitigation room which, at a much more modest level, are depriving the government of £billions of potential tax revenue. Will the coalition have the political will and the fiscal ingenuity to mount an effective challenge in these areas, or indeed will the extremity of the financial situation force them to do so?

The aspect of 'everyday' tax avoidance that was acknowledged by the previous government, but in no way effectively dealt with, was income splitting between spouses. I characterised Angela Eagle's response to the Arctic Systems decision in 2007 as the equivalent of King Lear's speech of empty defiance to his evil daughters:

"I will do such things --
What they are, yet I know not: but they shall be
The terrors of the earth!"

and so it proved, as the draft legislation introduced to counter income splitting proved to be woefully inadequate to the task, let alone potentially hugely unpopular with that large chunk of the electorate which finds itself, by accident or design, in business on its own account. There is a lot of tax revenue to be generated in this particular political minefield, but it will not be easy money to gather, either politically or intellectually.

Closely akin to the income splitting issue is the whole question of tax-driven incorporation. Despite the demise of the laughable 0% corporation tax rate (a massive driver of this tendency) and the basic rate of income tax falling below the small companies rate of corporation tax, there is still significant tax advantage to be gained for even a moderately profitable business from trading as a company as opposed to a partnership or sole trade, particularly if the business can afford to reinvest some of its profits as opposed to distributing them all. Now it is possible to mount a tenable argument that limited liability is sufficient reward for trading through a corporate vehicle, and that the choice of business vehicle should be fiscally neutral. Use that as an argument to raise taxes on close companies (national insurance on close company dividends / a higher corporation tax rate for close companies?) and you again find yourself in potentially lucrative, but politically highly charged, tax-raising territory.

The third area where the government leaks significant amounts of tax is that of self-employed categorisation. The irony of this particular situation is that it is largely driven by government departments, in desperate need of expert input on various matters but determined not to burden themselves with highly paid and hard to dispose of employees. Their solution has been to engage consultants on a self-employed basis, who no doubt quite often engage in incorporation and income splitting for good measure. The tax and national insurance loss as a result is highly significant.

Talk of laughable government initiatives such as the 0% corporation tax band brings us neatly to IR35. Other government departments having opened the Pandora's box of consultancy, the Treasury desperately tries to jam it back in the box with a spectacularly ineffective and misjudged piece of legislation. The concept is vaguely sensible; where an intermediary is placed in what would otherwise be an employment relationship, ignore its existence and tax the relationship as if it were an employment. But the means of implementation is clumsy and complex, it is easy to avoid (and thus ineffective), and worst of all tax faults, it is perceived to be unfairly targetted at a specific group of taxpayers.

For, instead of telling other government departments to stop engaging consultants, the Treasury chose to apply the tax charge to the consultants rather than the government departments, and chose to apply IR35 pretty much exclusively to computer consultants, which is where the biggest issue lay with government subcontractors. Discriminatory taxation is not good taxation, particularly when it doesn't in fact succeed in 'doing what it says on the box'.

There is a massive flaw in IR35, and that flaw has nothing to do with tax and everything to do with employment law. Employment tribunals and the courts have established a number of basic principles of employment law, one of which is that there can be no employment relationship without a requirement for personal service by the employee.

Now taken to its logical extreme I guess that could mean that none of us need be an employee; simply insert into the employment contract a right for the employee to provide and pay a substitute and, hey presto, you have a contract for services and a self-employed relationship. The saving grace from the Treasury's point of view is that most employers want to know who will be turning up for work on Monday morning, and thus regard employers' national insurance as the lesser of two evils in this respect. But.........

The whole point of IR35 is to deal with the situation where the contractor places an intermediary company between himself and his customer. The contractor would be very poorly advised if the contract between the company and his customer said anything other than that the company will provide an appropriately qualified and experienced individual to undertake the work specified in the contract. He would be spectacularly poorly advised if the contract mentioned him by name at all, other than as the signatory on behalf of the company. On this basis, where is the employment relationship in respect of which the company is the intermediary? Where is the requirement for personal service by a named individual? That is the fundamental flaw in IR35.

So does the coalition have the political will and the fiscal dexterity to find an effective replacement for IR35? Again economic imperatives may cause this question to be answered in the affirmative, but again at what political cost?

The other imponderable aspect of these potential changes is the impact on the finances of the business community; is this economically a good time to close down their tax mitigation opportunities wholesale? Tricky business this Chancellorship!

Another factor in the fiscal decision-making process will be the newly-established Office for Budget Responsibility (hark, is that a new 'quango' I see being formed?), which will take fiscal forecasting out of the party political realm, and will make recommendations to the Chancellor about the easing or tightening of fiscal policy required by the financial situation. This seems to mirror Gordon Brown's far-reaching decision in 1997 to de-politicise the setting of interest rates, which had been a tremendous success in helping to secure relative economic equilibrium until the banking crisis rendered it temporarily irrelevant. And it might also serve as a useful let-out for a Chancellor faced with unpopular decisions on tax rises or spending cuts to be able to say "I had no choice in the light of the OBR's recommendations". In any case, anything that depoliticises vital economic and fiscal decisions seems to me to be a good thing.

So, finally, what of George Osborne as Chancellor? It is difficult to imagine a less promising set of economic circumstances for a Chancellor to inherit, but then, rather like new football managers, the chances are that it is a job that you inherit precisely because there are big problems to solve - not too many managers get sacked at the top of the League, and not too many governments lose elections when all in the economic garden is rosy. It is interesting to contrast in this respect Kenneth Clarke's legacy to Gordon Brown with Alistair Darling's to George Osborne.

Given Mervyn King's gloomy prediction that whoever won the 2010 General Election would be out of power for a generation (either because they failed to take the necessary drastic action or because they took the necessary drastic action) Mr O has the odds stacked against him, and in fact those very odds may make it difficult to accurately judge his performance as Chancellor fairly. Anyone who has read my previous blogs will have recognised that I am not a fan of Mr Osborne on the basis of what little I know or have seen of him, but I would be only too pleased to be proved spectacularly wrong about him over the next few years.

Another interesting aspect, as I alluded to above, is the security of George Osborne's tenure at #11 Downing Street. Having got rather used to the idea of Gordon Brown as an immovable object at the Treasury (perhaps he wishes he had been rather more immovable with hindsight!) it came as a bit of a shock to find Alistair Darling's position in reputed peril last year, and given the high stakes involved it is difficult to see Mr Osborne's friendship with David Cameron counting for much if he doesn't cut the mustard as Chancellor. Also, whereas in Gordon Brown's day it was difficult to impossible to name an alternative Chancellor, we now appear to be spoiled for choice (I know Ken is probably a bit old for the job, but that leaves two very strong candidates, not to mention the likes of Michael Gove). So no pressure on George Osborne then!

All in all Mr Osborne may feel that he is in the position of the victim of the ancient Chinese curse "May you live in interesting times!" Interesting they will certainly be for tax-watchers in the UK, but with so much hanging on the coalition's handling of the economy they could also be fairly frightening for a while. My vain ambition to be Chancellor remains very much on the backburner; not a good time to take on the job, I fear!

Mark Simpson

17 May 2010

Coalition tax policy - some more meat on the bones

It is now rather clearer, although not entirely so, what the main planks of coalition tax policy will be when George Osborne presents his first Budget sometime in the next 7 weeks. The insight is useful for those considering planning prior to the Budget, assuming that retrospection and retroaction are ruled out (see below).

Income Tax

Such would be the cost of the Liberal Democrat proposal to increase the personal allowance to £10,000 that it is effectively impossible to implement at one fell swoop. However, the coalition has committed itself to this as a longer term objective. The logical assumption is thus that, over the fixed 5-year life of the current Parliament (another coalition proposal), the personal allowance would be increased by an average of £700 per year, allowing the objective to be met by 2015-16. This would take around three and a half million people out of the income tax net, although query whether national insurance thresholds will rise on the same basis?

The Conservative proposal for a partially transferable personal allowance between spouses and civil partners looks set to go ahead, which is seen as a tax break for couples where one partner spends most or all of their time on childcare duties.

National insurance

The 1% rise in employee national insurance from 2011-12 looks set to go ahead, but the equivalent rise in employer national insurance looks set to be scrapped.

Capital gains tax

The link between capital gains tax and income tax rates looks likely to be reintroduced, perhaps accompanied by a drastic cut in the annual exemption from the current five figure sum to, perhaps, £2,500. This would lead to a significant increase in capital gains tax on non-business assets, although gains on business assets appear likely to continue to attract generous reliefs. This is again broadly Liberal Democrat policy.

Inheritance tax

The Conservative proposal for a £1 million nil rate band looks set to be abandoned.

VAT

A rise to 20% is widely anticipated.

Tax avoidance

We can expect to see something of a blitz on tax avoidance activity from the coalition, which is only sensible given the scale of the budget deficit. It remains to be seen whether any distinction is drawn between avoidance and mitigation in this respect, or whether some of the more mainstream tax mitigation strategies are attacked also. Liberal Democrat policy is for a corporation tax general anti-avoidance rule with a taxpayer-funded clearance system, which I would personally welcome; whether this might be extended to other taxes remains to be seen. One would hope that this is matched by an equally decisive clampdown on tax evasion, which is after all illegal, and thus utterly beyond the pale in a civilised society.

Retrospection?

We have of course already had a 2010 Budget, and we have a tax regime in place for the current year. Opposition objections to the 'retroactive' nature of the pre-owned assets tax were loud and prolonged, so it will be interesting to see whether any of the above proposed direct tax changes are back-dated to 6 April 2010, or merely put in place from 6 April 2011, allowing a significant planning window for taxpayers to reorganise their affairs. One great advantage of VAT is of course that the rates are not set by tax year, which makes it such an obvious candidate for an early increase.

The proposed package leaves no one in any doubt that the coalition is serious about tackling the budget deficit, and appears unlikely to shrink from unpopular measures introduced with that aim in mind. Not, one feels, necessarily a recipe for electoral popularity, but a very necessary one for the UK economy.

Mark Simpson

13 May 2010

Coalition? - how Conservative and Liberal Democrat tax policies match up

After 13 years of Labour government I will confess to being slightly out of touch with the detail of Conservative tax policy, let alone Liberal Democrat fiscal proposals. So, as Messrs Cameron and Clegg consider a working arrangement for government, how do the manifesto policies of the two parties match up, and how easy would it be for the two parties to agree on a common fiscal approach?

Conservative manifesto proposals

1. Cancel the employees' national insurance rise of 1% due on 6 April 2011.

2. From the same date, raise the lower employers' national insurance threshold by £21 per week. 

3. Make £750 of income tax personal allowance transferable between spouses and civil partners.

4. Raise the inheritance tax threshold to £1 million.

5. Make the increase in the stamp duty land tax threshold for first-time buyers to £250,000 permanent.

6. A further (unspecified) levy on non-domiciled taxpayers.

7. End compulsory annuitisation for pensions at age 75.

Liberal Democrat manifesto proposals

1. Increase income tax personal allowance to £10,000 per year.

2. Restrict income tax relief on pension contributions to basic rate.

3. Align capital gains tax rates to income tax rates.

4. Reduce the capital gains tax annual allowance to £2,000.

5. Align benefit-in-kind taxation for employees with that for cash remuneration.

6. A general anti-avoidance rule for corporation tax, with a clearance procedure paid for by the taxpayer.

7. Bar stamp duty land tax avoidance using companies.

8. Use HMRC resources freed up by the increased personal allowance to more effectively target tax evasion.

Summary

At first sight the manifestos are hardly overflowing with common ground, if not being directly contradictory on any particular points. However, David Cameron did indicate on Friday a willingness to take on board the idea of a higher personal allowance, whilst suggesting that the Liberal Democrats might be comfortable with the proposed national insurance changes. I may also mischievously suggest that the negotiations with the Liberal Democrats might be a convenient excuse to drop the £1 million inheritance tax threshold proposal, which is starting to cause the Conservatives some embarrassment. Thus with a spirit of compromise there is probably nothing irreconcilable here.

What is clear, as I have said before, is that drastic action needs to be taken to address the colossal budget deficit which a new government will inherit. It may prove to be to the two parties' advantage that they have been less than specific on how they might achieve this, as this will avoid any embarrassing climbdowns by either side. The Conservatives are pinning great hope on eliminating waste, which I must say is a tune we have heard before, but then again government has certainly got bigger over the past 13 years, and can be expected to get considerably smaller given a change of government. Effective pursuit of tax evaders is long overdue; the HMRC disclosure schemes have been an interesting experiment in this respect, encouraging tax evaders to 'turn themselves in', but in order to address the hard core of the black economy more pro-active initiatives are required. However, I suspect this still leaves considerable requirement for further cuts and tax rises, and it will be the management of that process that will largely determine how successful the next government will be.

Thus I think there are more formidable obstacles in the way of an agreement than tax policy (Europe, immigraton and the voting system come to mind) and it is certainly not beyond the wit of man to envisage agreement being reached in this particular area.

Mark Simpson

10 May 2010

More green taxation - cycle to work scheme

It occurred to me this morning that I should have included a link to my earlier cycle to work scheme blog in my recent 'green carrots' blog, so here is that link!

Mark Simpson

10 May 2010

Top ten thoughts on the election campaign

OK, forget tax for once. Politics simultaneously attracts and repels me, but watching from a safe distance the current campaign unfold, and contemplating what is at stake when we go to the polls tomorrow, I have been driven to an in-depth analysis of the current state of politics in this country. This is, I emphasise loudly, a very PERSONAL view of the situation, and does not reflect any corporate view of Simpson Burgess Nash.

1. Negativity doesn't play well

It is easy to be negative. much more difficult to be positive. I have already complained about the lack of clarity about the parties' response to the economic crisis, and still key figures in the major parties insist on rubbishing the opposition instead of trumpeting their own virtues. Worst offender to my eyes has been Ed Balls, whom I suspect of costing Labour significant numbers of votes with his relentless, at times almost childish, knocking of the opposition. But he is not alone by any means. I don't think this works any more; the electorate's view of politicians is negative enough as it is without them contributing further.

2. We are not electing a President, we are electing 650 MPs

I despair of the media in this country, and have for some time. If a country gets the media it deserves, we must have done something pretty awful. Everything has to be simple (enough for the journalists to understand it, perhaps?) and black and white rather than shades of grey. So everything appears to be focused on the party leaders, whereas last time I looked we were voting for an MP in our own constituency, not a President. But then 650 little elections don't make easy copy in the way that one big one does.

3. Opinion polls are a waste of time

Because this is 650 elections, not 1, and local factors play to some extent in every seat. national opinion polls are of rather limited use. Remember the 1992 exit poll fiasco. Only one poll matters, and it is happening tomorrow. If media organisations want to waste vast sums of money commissioning them that is fine, but I fail to see what they add to the sum total of human understanding.

4. Voting is a post code lottery

This much over-used phrase is often used about the NHS or education, but seems to me to apply most clearly to general elections. Even in the depths of 1997 the Conservatives held on to around 170 seats, and the gloomiest prediction of Labour meltdown tomorrow does not suggest them falling below about 230 seats. Add in a eighteen to a couple of dozen safe Lib Dem & nationalist seats, and we have about two-thirds of the (non-Irish) seats on the mainland that are realistically never going to change hands, which presumably means that about two-thirds of us are pretty much wasting our time voting (on an individual rather than a collective basis, obviously). Is this good for democracy, discuss?

5. There is no plurality for any one party

The Labour party won a comfortable absolute majority in the last election with 36 - 37% of the votes cast (of those who bothered to vote). Even the Labour landslide of 1997 (43.2%) and the Conservative landslide of 1983 (42.4%) failed to deliver anything like 50% of the vote to the winning party. Subject to 3 above, the opinion polls suggest that no one party is going to get more than about 36% of the vote this time either. So should our electoral system normally deliver an absolute majority of seats to one party?

Indeed go beyond that. Is it not the case that there is a majority against each of the major parties? In my view certainly the Conservative party, and to a not much lesser extent the Labour party, polarise opinion among voters, and if you don't love them there's a pretty good chance that you hate them. And the Lib Dems are hardly in a position to point to empirical evidence that they are significantly better off from this point of view. There is a lot of negative voting around, which brings me neatly to my next point.

6. Tactical voting is a natural response to the electoral system

Given the prevalence of negative voting, and the effective disenfranchisement of large chunks of the electorate, the natural ingenuity of the voter leads him or her to find ways to make their vote count. Tactical voting has been around for a very long time, usually to the benefit of the Lib Dems, and might be seen in that context as an antidote to the bias in the electoral system against the third party. It ill behoves the Conservative party in particular to bemoan the prevalence of tactical voting when it benefits so massively from the first past the post system. On the other hand, tactical voting arguably takes us right back to the Presidential model of UK politics, voting the big picture rather than the local one, and is essentially a negative rather than a positive response to the political system. But then MPs have only themselves to blame if the electorate has a negative response to the political system.

7. Labour's sudden conversion to electoral reform / tactical voting is cynical in the extreme, and rather presumptuous to boot.

Not having noticed the Labour party being averse to the first past the post system in 1997, 2001 or 2005, I do feel that their Damascene conversion to electoral reform and tactical voting is extremely cynical. Yesterday the Daily Mirror was urging Labour and Lib Dem supporters to vote for each others' parties in a list of key seats. Apart from the fact that they were arguably focussing on the wrong seats (some that Labour will lose anyway and some that the Lib Dems will win anyway - journalists again!), this makes some rather sweeping assumptions.

Now that the 'new Labour' experiment appears to sleeping deeply, if not actually dead, we can perhaps assume that the traditional alignment of British politics has re-asserted itself, with the Lib Dems in the middle ground, as opposed to on the left, where they sometimes found themselves in the Blair years. Whilst it might be a reasonable assumption that the only logical place for a Labour tactical voter to go is to the Lib Dems, the reverse assumption is much more questionable. The Lib Dems have a right wing and a left wing, like any party, and the former would presumably be more inclined to the Conservatives than Labour, so I see the Mirror's analysis as deeply flawed. If the Labour party and the Liberal Democrats were interchangeable they would not be separate parties.

8. If the first past the post system is so good, how did we get into this mess?

Give or take a couple of spells in the 1970s, we have had no hung parliaments in this country since the 1920s. Thus, if you believe those who prophesy doom and gloom if no party wins an overall majority tomorrow, this almost uninterrupted 80+ years of majority government must have led to a golden age for the UK. Or perhaps not..........

Is it not conceivable that 'two heads are better than one', and that combining the talents of two of the three major parties (or even all three - see my previous post) might have a beneficial effect on the quality of government in this country? And that politics as a co-operative exercise might prove to be more beneficial than politics as an adversarial exercise? Or are our politicians so steeped in the politics of the 20th century that they cannot come to terms with the new politics of the 21st?

9. Two nations

To my mind the fundmamental problem of the first past the post system is that it leaves a massive chunk of the electorate effectively unrepresented by the government. The fox hunting debate led to widespread claims that Labour did not understand the countryside, and why would it, as you search in vain for a rural Labour constituency? Equally vain would be the search for city centre or inner city Conservative seats (I trust you will forgive me the truly exceptional case of the Cities of London & Westminster in this respect). So the current system gives absolute power to a party that has no connection whatsoever to a big proportion of the electorate. Ironically, the only party that has both inner city and rural seats is the Liberal Democrats, but that very spread of support is their undoing under the first past the post system.

Would it not be a good idea to have an electoral system that required any party that aspired to absolute power to engage fully with all sections of the electorate? The current system is an incitement to laziness and complacency on the part of the two main parties, both in terms of the need for them to attract the votes of a majority of the population and to win seats of all kinds in all parts of the country. If they had to win 50% of the vote to wield absolute power, they might take governing in the interests of all rather more seriously than they sometimes do at the moment. "We don't need to worry what they think, because we won't win seats there anyway" is a very dangerous thought for any government to fall prey to.

And would it not also be a good idea to have an electoral system that represented the views of the significant minorities who vote for the Greens, UKIP and the BNP, for example. “I disapprove of what you say, but I will defend to the death your right to say it” is a famous quote wrongly attributed to Voltaire, but however odious a particular view might be, a true and robust democracy would reflect any political view that has enough adherents to justify such reflection. We may get one Green MP in Brighton Pavilion at this election, and we may get a UKIP MP in Buckingham, but then again we may not, and the risk of denying significant numbers of voters a platform to express their views is that they seek alternative, less legal and formal ways of getting their point across. Plus, given Nick Griffin's stumbling performance on Question Time, I rather like the idea of the poverty of his political insight being exposed in the House of Commons.

10. Be careful with the Irish issue

Whatever you think of Tony Blair, which caters for a wide range of opinions, he succeeded where many had failed before him in producing a working solution to the woes of Northern Ireland, which I suspect will be the most positive aspect of his political legacy. The thought that it might not be a lasting solution is pretty much unbearable. Thus I react with great concenr to newspaper reports this morning that the Conservatives are considering a pact with the Unionists to bridge the potential gap between them and an absolute majority in Parliament. I can only hope that this is newspaper fantasy, becasue if anything would be calculated to wreck the ongoing peace process in Northern Ireland, it would be one of the political parties in the province wielding power at Westminster. You can. I am sure, imagine the Catholic reaction to such a development, just as you can imagine the Protestant concern if Sinn Fein and/or the SDLP ended up in a Labour / Liberal Democrat coalition. I cannot believe that the Conservatives would be unwise enough to consider such a course of action; even to do so would in my view render them unelectable as a government.

Summary

I believe that this election campaign has demonstrated that we need a new voting system, that the old model of two-party politics has broken down, that negative campaigning will no longer be tolerated by the bulk of the electorate, that our political system has become increasingly presidential, that the media cannot cope with the complexity of the new political landscape and has put aside any pretence of political impartiality, that minority parties continue to grow in strength and that old political allegiances are now much more fluid. I believe it will demonstrate that the Opposition can no longer assume that it need only wait for the Government to do something stupid to assume that it will be elected in its turn. And I believe that winning this election could be a poisoned chalice, given the emergency surgery needed on the economy over the next few years. As Peter Hain says, use your vote wisely!

Mark Simpson

5 May 2010

I told you so

Not perhaps my most inspired prediction ever, but I did tell you that last night's debate would not feature a party leader admitting to the scale of the current economic crisis or the enormity of the measures needed to deal with it effectively. And in case anyone thinks I am exaggerating or scare-mongering, read what Bank of England Governor Mervyn King and the Institute for Fiscal Studies have to say on the subject.

So what do you think, given that none of them can be in any doubt as to the enormity of the situation? Do they know what they will have to do, but are too scared of the electoral consequences of telling us, or do they not have the faintest idea how to cope with a crisis of this magnitude? Let us hope for all our sakes that it is the former, as in this case at least dissembling would be preferable to incompetence.

Mark Simpson

30 April 2010