Editor's letter

The mood music doesn't favour tax simplicity

Don't expect a simpler, more transparent tax system anytime soon, says John Stepek. Thankfully, there still remains plenty of scope for sensible tax planning.

The angst over Britain's steel industry. The "Panama Papers". The collapse of the second-biggest merger deal in history. What do they have in common? They show just how big a comeback politics has made in the economic sphere. For a long time the received wisdom was that politics didn't matter. Political gridlock was the best thing that could happen to a country. While politicians squabbled, businesses could get on with making money.

Not now. The British steel industry has huge problems, and each has its roots in one government policy or other. "Green" taxes have driven up UK energy costs. Low interest rates have created a crippling pension deficit (put simply, the lower rates are, the bigger the deficit, because returns are assumed to be lower).

Europe may or may not be responsible for tying Britain's hands on state aid and tariffs, but it certainly provides a good excuse. And China's command economy has left it producing far more steel than it needs, driving down prices. What's the solution?For many, it's yet more government intervention. We disagree but we suspect it will happen all the same.

Then there's the collapse of Pfizer's $160bn bid for Irish-domiciled peer Allergan. Pfizer's reason for doing the deal was primarily to escape high US corporate tax rates. So when the US Treasury rushed through tougher-than-expected rules this week to penalise "tax inversion" deals, there was no reason for Pfizer to carry on. You may well argue that mergers based on tax domicile shopping are a bad thing. But it's only now that the government has decided the time is ripe to tackle it. Can it be coincidence that the Panama papers hit the headlines in the same week?

It's easy to be cynical about this millions of documents from an offshore tax lawyer reveal primarily that Russia, the Middle East and Fifa may be involved in ethically dubious finance quelle surprise! But it's all part of a new backdrop that investors need to be keenly aware of.

Last week, our editor-in-chief Merryn Somerset Webb noted how growing numbers of multinationals are warning that changes to global tax policies are set to hit their profits. The Treasury crackdown is yet another example, and with the mood music around Panama making it even easier to conflate all forms of tax efficiency with tax evasion, the path of travel is clear.

We could tackle this by having a simpler, more transparent tax system. Instead, populism dictates that we'll get ever-more intrusive "guilty until proven innocent" rules and "bash the rich policies", which will fall hardest on middle-class high-earners rather than on plutocrats. Thankfully, for most, there remains plenty of scope for "acceptable" tax planning from 6 April, between an Isa (individual savings account) and a pension, for example, you can put away £55,240 a year tax-efficiently. Take full advantage while it lasts.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
What are the best ways of raising more money in tax?
Economy

What are the best ways of raising more money in tax?

Given that whoever wins next week's election will be going on a massive spending spree, we're going to need to raise at least some of that money throu…
5 Dec 2019
What are the biggest mistakes investors make when it comes to tax?
Investment strategy

What are the biggest mistakes investors make when it comes to tax?

The tax implications of an investment are something we rarely consider until after the event. That could prove to be an expensive mistake, says Domini…
27 Nov 2019
Buying bitcoin could be the best way to play the remote working boom
Bitcoin

Buying bitcoin could be the best way to play the remote working boom

The coronavirus pandemic has accelerated the move to home working, flexible employment practices and the rise of the “digital nomad”. One of the best …
21 Oct 2020

Most Popular

How will we repay our vast debt pile? Do we even need to?
Sponsored

How will we repay our vast debt pile? Do we even need to?

In his recent articles looking at different aspects of the fixed-income investing world, David Stevenson looked at inflation. Today he looks at a clos…
19 Oct 2020
Buying bitcoin could be the best way to play the remote working boom
Bitcoin

Buying bitcoin could be the best way to play the remote working boom

The coronavirus pandemic has accelerated the move to home working, flexible employment practices and the rise of the “digital nomad”. One of the best …
21 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020