50 per cent tax rate will discourage entrepreneurship

From The Taxpayers' Alliance

The TaxPayers' Alliance is releasing a new report by Dr. Jonathan M. Scott, Teaching Fellow at Queen's University Belfast whose research focuses on entrepreneurship, and Matthew Sinclair, Research Director at the TPA. The report shows that the new 50p tax rate will push the total tax burden on high earnings to crippling levels and argues that will mean fewer entrepreneurs and jobs. To read the full report - including a foreword from Julie Meyer, online "Dragon" and Chief Executive of Ariadne Capital - click here (PDF).

There is rightly increasing political and popular concern about unemployment. In response, parties are putting in place or proposing new schemes to provide specific incentives for employers to take people off the unemployment register or take on new interns and apprentices. The new TPA report, Tax and Entrepreneurship, shows that these policies do little to encourage the new firms that create the vast majority of new jobs. Despite a notional commitment to ‘enterprise for all’ and significant public expenditure on business support services to encourage entrepreneurship, there has been little progress on that measure in recent years with just a 0.3 per cent increase in new business registrations between 1997 and 2006.

The report also covers the effects of the new 50p top rate of income tax, which are highly controversial, some politicians have argued that it will put off entrepreneurs, while others have argued that the low amount of revenue expected from the change means it will make little difference. Tax and Entrepreneurship demonstrates how the tax system affects the decision over whether to become an entrepreneur in two key ways:

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Need to beef up your company board with outside help?

Ever thought of appointing an outsider to the board of your company? Or have you been asked to join a board?

Non-exective directors can bring a great deal of impartial good sense to help guide the management of any enterprise. But the role carries risks on both sides.

The Institute of Chartered Accountants of Scotland have published a booklet which will assist boards thinking of appointing one or more non-executive directors by outlining what they should expect the chosen individuals to offer.

On the other side of the fence it will help non-execs to fulfil their role and can be used by someone asked to become a non-executive director to help them decide whether to accept the position. It outlines a number of practical measures which would benefit both the company and the directors in their roles and in managing the potential risks.

This is not a definitive legal guide but offers practical points that all parties may wish to consider in order to help manage expectations on both sides.

You can download the free guide as a pdf file here.

"You are going to get slaughtered"

Today, in the light of the result of the Norwich North by-election, has not been a great day for the government.

Over at The Times, there's an interesting exchange between their man Daniel Finkelstein and Philip Collins, a former speechwriter for Tony Blair (remember him?).

DF: Do people in Labour get it, in your opinion? At Cabinet level, say, or senior adviser level, do they see what is coming?

PC: No, I don't think they get it at all. To help them I am going to write the next bit in capital letters. YOU ARE GOING TO GET SLAUGHTERED.

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The best time....could be now

Doing the job that we do, many of us at Riley spend an inordinate amount of time reading stuff. Mostly technical, business-newsy stuff.

Much of this arrives in blog-form and when we find a writer worth following, we stick with them using Google Reader.

One of the consistently interesting and not-at-all technical blogs is Seth Godin's.

Today, he writes this:

The best time to do great customer service is when a customer is upset. The moment you earn your keep as a public speaker is when the room isn't just right or the plane is late or the projector doesn't work or the audience is tired or distracted. The best time to engage with an employee is when everything falls apart, not when you're hitting every milestone. And everyone now knows that the best time to start a project is when the economy is lousy.

You can read this post in fully if you click here.

When will the recession end?

Well, it's all a question of definition. And by the traditional definition it could be over by the end of this year. However, the pain will endure rather longer.

A recession is a period when economic output declines; in the UK the precise definition is 'two consecutive quarters of negative economic growth - when real output falls'.

The first quarter that saw a downturn was July to September 2008 when the UK's GDP fell by around 0.5 per cent. There was a further decline in the quarter to December 2008 and during 2009 output is expected to fall by 4.25 per cent (IMF) and then start to pick up in 2010.

We will be declared to be 'out of recession' once we have two successive quarters in which GDP does not decline. That, of course, is a different measure entirely from the one that says we will be back on track once we have made up all the GDP we have lost. That's going to take a while longer.

Just how long is made clear in a graph published by the IMF in the paper they released yesterday (pdf).

This suggests that by mid-2012 UK output will still be around 1 per cent below where it was in June 2008. Now that's a long recession and as you can see from the graph, longer than any that most of us can remember. The damage is all the greater when you consider that our national losses are not only the fall in output but the fact we have missed out on the growth we would in normal times have had in those years - probably another 8 or 9 per cent.

There's plenty more in that IMF paper too: especially notable is the impact that the UK's economic problems have had on other countries (it's untrue that it's all the fault of the USA) and the insistence that government borrowing has to be sorted out - which of course means we need government spending cuts and tax increases.

House prices

It's been reported today that housebuilder Barratt has seen its average selling price for private homes drop by 19 per cent to £166,000 over the past year. What will happen next?

In the US prices in many areas have dropped by more than 30 per cent and there are expectations that the falls will continue. Some of the statistics are contradictory, but it does seem clear that price reductions in the UK have moderated - but will they now hold steady or fall again?

A continuation of prices downwards here or in the US will damage the banks, with more people sinking into negative equity and more loans turning bad. And of course much of the UK economy is linked to the housing market: builders, furnishers, estate agents, financial services and so on.

Despite the drops we have already seen, there are plenty of commentators who believe we in Britain may still be only half-way down to the likely low point. And in absolute terms, of course, our prices remain far higher than elsewhere. I was discussing this issue with someone in the US earlier this week and was told that in parts of the mid-West you can now find good two bedroom houses with a garage for $80-$90,000 (roughly £50-£55,000). At that price level first time buyers can step into the market easily. That's not quite the case here.

The UK is different, of course, because of scarcity and that makes it all the more difficult to read the future direction of prices. Except that they are unlikely to climb significantly as long as unemployment continues to climb - as it probably will throughout the rest of this year.

Britain is deep in 'a fiscal black hole'

Economist John Kay has written a piece in today's Financial Times that highlights the problems any future Chancellor will face as a result of the 'obfuscation' of the current government. You can read the article in full here.

Meanwhile over at the Spectator (Speccie to its friends) Fraser Nelson - who yesterday joined in a spat with Ed Balls after accusing him of lying - has commented on John Kay's thoughts:

In the FT, John Kay has written one of those columns that quietly sums up the calamitous cost of Brown/Balls fiscal model. He concludes that we'll have to raise some £70bn of taxes and then inflate our way out of debt—and this is a theme worth looking at in greater detail because I suspect it is what George Osborne will end up doing. "This year, Britain is likely to incur a fiscal deficit of more than 12 per cent of national income," Kay starts. "This figure is completely outside the normal experience of developed countries in peacetime. How did it happen and what are its implications?" How it happened is that Brown and Balls used their verbal tricks to conceal their reckless leveraging up of the British economy. "The British government, ostensibly committed to this principle [of running surplus in the good times], has obfuscated to abuse it so that Britain entered the recession with a large underlying deficit. The downturn turned a substantial gap in public finances into a chasm. This situation was aggravated by the speed and scale of the recession and the realisation that many of the earnings from financial services, which had previously boosted tax receipts, had been illusory. The contribution of financial services to public finances has been not only removed but reversed."

So we're in a mess - and we may have to vandalise the value of sterling to get out of it painlessly.

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It's difficult to see how much longer Gordon Brown and his chums can maintain their present line of 'Labour investment vs Tory cuts'. The extent of the financial hole Brown has created is being hightlighted by more commentators daily.