Thursday 4 September 2008

Don't just do something, stand there

Did Ronald Reagan ever actually say this? It fitted his philosophy that Governments often mess things up more than they improve them. And it's a phrase that really came to mind when I was reading last week about the slowly increasing number of companies seeking to base their HQ outside the UK because of the tax system - not so much the tax rates but more the lack of certainty about tax law and the increasing attempts to change the rules of the game.

A problem highlighted by next months publication of the UK's tax law: Tolley's 2008 tax handbook, which lists all the tax law, is more than twice the size of the 1997 guide. This constant change and expansion of complexity is a serious cost for business; the trouble is that it has a creeping effect and is slow to reverse. Companies take a long time to make a decision about location, and once made it is hard to get them back. And when they go our tax base reduces leaving the rest of us to make up the difference.

I remember when the Euro was being introduced Euro supporters suggested London as a financial centre (and as a massive contributor to the UK's wealth) would be damaged unless the UK joined the Euro. This always struck me as rubbish: London had many advantages of scale and expertise but most importantly it had a simple and understood governance structure - for regulation and tax. And for that reason London thrived. I always thought the only real threats would be things like Heathrow and travel chaos. I never thought the Government would mess up the governance process. But it is - especially by changing and complicating the tax system.

I suspect there are two reasons:
- the Treasury is desparate for cash and is trying to invent new ways of extracting it from people and business, and
- there are too many advisers and civil servants dreaming up new ways of doing things.

The moral: two, actually:

1. It is at least as important that a new Government simplifies the tax system to reuce its cost and to re-create a sense of fairness with tax payers as it is to reduce rates, and

2. Civil servants should very rarely try to do things. Much better that they just stand there.


Troy said...

Again, I'm with you 100%. Most people learn from their mistakes but it seems with Labour politicians that this mechanism is totally lacking. If an initiative fails then another initiative is needed, then another, then another. And nothing can function without the existence of a Quango.
I wasn't aware of the "Don't just do something, stand there" quote before - but it is brilliant!

Anonymous said...

I have nightmares about TAX!! And haven't the government made of jolly good job of messing things up?!

CJ xx