Pre-Budget? hmmm

9 12 2009

Now I’m in no way an economics expert, nor am I a stong member of any political movements, however, I am a Director of a company trying to make its way in this current economic climate, and as such, I like many others, will be paying attention to today’s pre-budget announcements…

On my drive to work this morning I couldn’t but hear lots of discussions with regards to the current economics of our situation and the current politics that now goes hand in hand with it. This is one of my many concerns of the present situation, that politics blinds the actual economics required in situations like this.

The cold facts

There is a lot of talk about trying to tax the mega wealthy, which too many people sounds like a great plan. However, the cold facts of life are that these people are highly mobile in regards to where they can work, but also that they will, and always will be, great at finding ways in which to pay less tax. It’s a cold fact, that Margret Thatcher extracted more revenue from taxes than previous governments by actually taxing less. This is simply because the lower tax meant the mega wealthy didn’t try to avoid it, plain and simple. Today I have heard tax bands of 50% and people calling for even higher tax bands, however the cold economics is that this will only lead to less revenue coming into the government…

In the past 13 years the size of the public sector has grown and grown, so much so that now figures state there are around 7 million people employed by the public sector. This is a hell of a lot of people and puts a great strain on the government’s resources, but does this mean the government should try to extract more money from the tax payer to accommodate this level of spending or should they look at other ways of improving their situation? I have worked with public sector bodies and unfortunately, many people will disagree with this I am sure, the public sector has it easy! The fact of the matter is that the quality of life working for a public sector is far better than that working in the private sector, though arguably the rewards in the private sector can be far greater (arguably). Please don’t get me wrong, doctors, nurses, bus drivers these people don’t get an easy ride, but people forget just what the public sector is. It is much more than the people you and I meet on the “front line” so too speak.


As a director of a company and as a BPM consultant I am constantly looking at ways in which companies can raise efficiency to increase ultimately their profitability. In times like these, efficiency is key to survival and growth, not the amount of money you turn over, or in the government’s case “bring in”. From just my own exposure and more importantly, people I know working in the public sector, it is clear that there is so much that can be done from an efficiency point of view. Ironically this may mean greater investment in areas, however that investment will ultimately raise efficiency of the public sector and therefore decrease its burden on the government.

The public sector is a prime example of a company (or in this case government) working with dis-economies of scale. This basically means they are so big, and when they continue to grow, they become even less efficient. Why is this? Typically this is because of the increased level of “red tape”, administration, lack of people wanting to take responsibility, and even worse, people looking like they are working but actually not contributing much. In organisations of such scale, it’s very easy to keep on board a lot of “dead wood”, simply because its hard to grasp who does what and what actually needs to be done.

Any solutions?

If you looking for an in-depth budget here please look away, all I believe needs to be done is to address the efficiency level within the public sector and the economy as a whole and to put money into people’s pockets. If people have money in their pocket, they spend, if they spend the economy grows. Simple…. The key in doing this is to make things as simple as possible and where complexities are required, ensure these are broken down into smaller more simplified chunks (simple business sense really). Here are some simple ideas:

  1. Scrap tax credits etc – in-place address the income tax bands and NI contributions people pay. Lower wages and people currently on tax credits simply aren’t taxed. There is no need for the added red tape of administering tax credits.
  2. Increase the income tax bands – there is nothing wrong with more and more bands that come into effect the more you earn. It has always struck me how odd it is to have people charged at 40% who lets say earn £50,000 per year, and charge people who earn £1m a year again in the 40% tax band….
  3. Utilise VAT correctly – this is effectively a tax on spending, which is ok, however if too high people don’t purchase products at the end of the day. It is therefore essential that this is kept at a rate that brings in as much revenue as possible, without stopping people purchasing items. A VAT sliding scale (in reverse) could be an option. With goods that cost more having a lower tax rate.
  4. Address stamp duty on housing. The problem with stamp duty is that it hinders the house market, which is one of the big factors in any economy. You don’t see any houses on the market for £255,000 for example, simply because in effect with the added stamp duty the buyer has to spend another 3%. In this situation how can the housing market be truely effective and help economic growth?
  5. Promote growth and small businesses by introducing a sliding scale for corporation tax. In addition, help small businesses employ people by reducing or removing small business contributions on PAYE and NI.
  6. Look to promote other industries within the UK. At present we are a services economy, which has many good sides and downsides. Ideally the economy should be more “rounded” and include manufacturing for example. Taxation in this country and unions make it hard for manufacturing to survive, this needs to be addressed.
  7. Reduce the amount of admin across the public sector. If needs be invest in IT and technology to raise efficiency. This ultimately will lead to vast reductions in the cost of running the public sector. This more than likely will result in reductions of staff, however, it should not impact front line services / people, in-fact it should free up greater investment in these areas.
  8. Invest in the country’s infrastructure. This is a classic example of spending to get the economy running. By making investments in the country’s infrastructure you put money in the workforce pocket, and you build greater future efficiency for the country. (Infrastructure need not be just roads etc).

I’ll finish there…..This is far too long a post that isn’t work related and some of us need to get back to work to ensure ends meet…