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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.