Letters to MoneyWeek: Time to reform our tax system
A selection of letters sent into the MoneyWeek office, and their replies.
As a member of a firm of accountants, I thought that the editor's letter in MoneyWeek 848 concerning tax simplification hit the nail on the head. We are overburdened with tax laws. With changes coming in two budgets per year, it has become almost impossible to advise clients how to structure and run their businesses, let alone advise on individual personal financial tax affairs.
The tax system needs a major overhaul. HM Revenue & Customs employees do their best, but their numbers have been slashed from around 90,000 to around 60,000 and this department is supposed to be one of the most important government functions. Without an effective HMRC, we will not be able to raise the necessary funds to run our hospitals, schools, police and other public services.
Some of the changes are very simple to introduce. For example, there are now four different rates of capital gains tax that may apply, depending on your individual tax rate and whether you dispose of shares or a buy-to-let property. I would slash the CGT rate to a standard flat rate of 10% with no reliefs. Stamp duty land tax must be reduced. We need to give landlords an incentive as they provide a valuable service, while also allowing first-time buyers into the arena.
We need to reduce overall taxation to enable people to invest and spend. When I ask clients whether they have set up a pension or save into an individual savings account, most say they have little or no money remaining at the end of the month to save.
It's no surprise that younger people today, after paying back their student loans, ask why so much is taken out of their pay and why they can't get on the housing ladder.I entirely agree that national insurance be scrapped. It's a tax that few people understand, especially if you are self-employed and end up playing class 4 contributions on your profits for no benefit.
Yes, there is no doubt that our tax system has become increasingly complicated and dysfunctional over the past couple of decades. We rarely see any of the much-promised simplifications instead we see plenty of additions to the tax rules. Cynics might expect that accountants would welcome a more complex tax code, since it would increase demand for their services, but the frequency of changes has got to the point where it's difficult even for professionals to keep up, as you note.
This problem extends beyond tax rates. For example, our pensions system, which is closely linked to tax, has also become convoluted and ineffective. The case for far-reaching reforms should be evident to those on all sides of the political spectrum, whether one believes in a high-tax or a low-tax economy.
The car bubble must burst
I keep coming across articles about the subprime car bubble, including one in MoneyWeek issue 848. I must admit I'm astounded by all the new vehicles I keep seeing and that they are mostly top models that sell at a premium price.
I know a number of people who are driving around in cars which are way above their normal type of vehicle, and I know that their financial situations have not got any better and in most cases worse over the last few years. Hence, while I hate to say it, any increase in overall monthly household expenditure (such as an initial small increase in interest rates affecting their monthly mortgage costs) could spell trouble ahead. It is interesting to read that already 5% are in arrears to the tune of 60 days.
This has echoes of the subprime mortgage market on a smaller scale, so it would be interesting to know what investors should be keeping an eye on. It seems there has to be a shorting opportunity here. If so, who should we be shorting? The lenders behind the borrowings? The car manufacturers who have depended on car finance to drive sales? The organisations who have bought these bundled-up debts?
The growth in car loans in recent years has been rapid and the history of practically every credit boom since the beginning of time suggests that it has almost certainly created a pool of low-quality loans that will sour quickly when the economy turns. It seems unlikely that the impact will be anything like as great as the subprime mortgage bubble. The amount of debt involved is far smaller, and while car loans have been securitised (bundled together to be sold to other investors), there has not been the opportunity for these to be distributed through the financial system in the way that subprime mortgages were.Nonetheless, it seems likely that some firms that have profited from the boom will suffer in the bust either in the form of direct losses on car loans, or in the form of lower profits as the boost to car sales from excessive lending fades. We'll be looking at the investment implications in detail in an article in a forthcoming issue of MoneyWeek.
Don't bet on the fishing trade
With regards to your round-up of share tips concerning Fishing Republic and Angling Direct (MoneyWeek 846), I have been involved in the fishing tackle trade as a retailer for 50 years, so I have anin-depth insight into the trade.It is often said that fishing is a very popular sport. However, no poll has ever established exactly how many times an angler might go out in a year. A man might "go fishing", but three or four occasions in 12 months does little to support a specialist trade. Essentially the fishing tackle supplier, be it at either wholesale or retail level, has just 100 days in the year when the weather allows them to earn a profit. The overheads of course are incurred 365 days per year. My suggestion is to forget investing in the fishing tackle business if you want to see a good return on your money!
We have no particular insight into the fishing tackle trade and neither, so far as we know, do the authors of the original pieces in Shares and The Times that we were summarising. So it's always interesting to get feedback from readers with a background in a business.
One broad point that may or may not be relevant here is that specialist retailers can sometimes see fast growth initially due to their opportunity to consolidate a fragmented sector. Once the easy gains from consolidation are over, underlying growth is sometimes disappointing.
Writing to MoneyWeek
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