Inflated influence….

I had my annual rail fare shock recently when I took my first trip into central London of the year. As I no longer require a season ticket, I am at the mercy of the various peak and off peak fares that my local operator charges. Once again the fare increase was noticeable and comfortably above what is laughingly known as the headline inflation rate.

Inflation is certainly back in various guises. There is currently the CPI rate that is almost twice the level which the Bank of England is meant to target. Petrol, utility and transport costs seem to have a life of their own. Global commodity prices are soaring. China is no longer the cheap production centre it used to be. And to cap it all VAT has just gone up.

With incomes stagnating for many people we should probably be feeling a lot poorer. Indeed the Governor of the Bank of England seems to think that this is a good thing. Hence the renewed fears of a double dip recession following the release of this week’s GDP figures which showed an apparently surprising decline in the last quarter of last year.

Back in the seventies, prices went up 20% and so did wages. It was an unwritten law of the UK economy at that time. Nowadays prices are going up and wages are not, a reversal of the so called new economic paradigm of the previous decade.

Some price increases are obvious and immediate such a train fares and petrol. Some are not. Many retailers have not passed the increase on as yet, probably because they snuck most of their increases in before Christmas and then have disguised the rest by imaginatively spreading them across their product portfolio and using promotions to disguise overall increases.

So are things really that bad? And what should clever businesses be doing about it regardless? Managing during this “phoney war” period of inflation is challenging, particularly as we now live in a flexible global economy where there are a myriad of influences affecting prices and wages.

However switched on businesses can look closely at all their costs and all their products. They should be able work out where they can increase prices, do deals with suppliers and keep their key staff happy. At times like this businesses really do need a good understanding of their finances so that they can model and manage their income and costs.

Of course the real threat to the economy remains interest rate increases. Price increases can be managed to a certain degree. I suspect higher interest rates will be much harder to do so.

Less regulation = more tax? Discuss…..

Apparently small businesses want to pay more tax. Well 57% of them would be prepared to pay more tax if there was less regulation. That is the eye opening conclusion of a recent survey conducted by the Forum of Private Business.

Actually that was the headline that accompanied the survey. What also came across clearly was the feeling that the tax system is favouring large businesses at the expense of smaller ones. Small businesses believe that large businesses are more able to exploit tax loopholes, thus avoiding taxes that smaller businesses cannot, which gives them an unfair competitive advantage.

Of course tax avoidance is not illegal. Most of us indulge in it through savings schemes such as ISAs or pensions. Put simply tax avoidance is organising one’s affairs to take advantage of tax legislation as it currently stands in order to minimise the tax that has to be paid.

However there is a feeling that certain tax avoidance (or should we call it minimisation) as practised by many large businesses is unfair. Indeed we have seen a number of recent demonstrations against corporations that are believed to be unfairly avoiding tax.

I can sympathise with this view to a certain extent, particularly as certain tax minimisation strategies come across as being aggressive or cynical. But much of blame for this falls squarely on the shoulders of the authorities. Poor or complicated tax law provides loopholes, which are then blocked by new laws, which then provoke new loopholes, leading to a spiral of complexity out of all proportion to the problem being addressed.

Inevitably the burden of this complexity falls disproportionately on smaller businesses, hence the calls for simplicity. This has led to the formation of the Office of Tax Simplification, which is tasked with providing independent advice on simplifying the UK tax system.

Obviously the problem with tax neutral simplification is that it will create winners and losers and as we all know the losers shout loud and long while the winners keep quiet and count the money.

However less regulation can and should ultimately mean less tax for all. A simplified tax code that clearly states what is and what is not allowed would make compliance much easier. This in turn would allow a slimmed down HMRC to focus on cracking down on evasion rather than wasting everybody’s time on routine compliance work, thus potentially increasing the overall tax take. A definite win-win scenario in my book.

I suppose to misquote a popular saying if an idea is to too simple to be true, than it probably is. Maybe I am being naïve about the whole simplification issue. What does everybody else out there think?

Crystal Ball Gazing 2011

It is around this time of year that most pundits start providing their forecasts of what they expect of the year ahead. Some will be serious, some will be humorous, most will be wrong. For the rest of us it is just a bit of fun to get us through those gloomy January days.

Although I don’t tend to go in for this sort of thing (or make new year’s resolutions ) one prediction that I am prepared to make is that Government in all its forms will continue to proclaim its undying support for small and medium sized businesses, state that they are the economic future of the country and then spend the whole year acting in a way that is totally contrary to what they have been saying.

This is all borne out by this week’s latest publication from the Department Of Business, Innovation & Skills entitled “Bigger, better business – helping small firms start, grow and prosper.” Perhaps the clue is in the title…..

The document is big on advice, web 2.0 technology, reaching out to under-represented socio-economic groups and mentoring. It has less to say on issues like funding, regulation and education. It has nothing to say about changing attitudes to enterprise among government departments, educational establishments and (whisper it) large corporates.

This is not intended to be a slight on many well-meaning good intentioned people. I genuinely believe that hearts are in the right place. However the attitude and culture required to survive and thrive as a small or medium sized business is totally alien to nearly everybody in government.

This is hardly surprising. People in government receive salaries, holidays and sick pay. They very rarely take any personal or business risks. They almost never have to lie at wake at night wondering where the cash is going to come from to pay their staff. In short they have no connection with the problems that SMEs face and therefore no real feel for delivering the right solutions.

Government is big. It acts big. It understands big. Therefore it can be no surprise that when it gets down to the nitty gritty of actions rather than words it will err on the side of big.

Never mind. In spite of everything (including government) good SME businesses will continue to succeed and grow, not because of Government help (or lack of it) but because they understand their customers, markets, people and finances. As the meerkat would say “simples”. And predictable.