How VAT damages trade skills

It's barely understood how VAT has been a factor in the destruction of the skills base of this nation:

To the retailer, the introduction of VAT was a godsend, sweeping away a mess of purchase taxes, replacing them with a simple one-stop tax that the customer barely notices - if at all. (How many people ask the shop assistant at M&S "....can you do something about the VAT"?)

To the wholesaler or industrialist, VAT is of no consequence, as it simply passes through unnoticed, improving the cash flow in the process, but impinging not at all on the price of the product. All prices are quoted 'Excl VAT'.

The VAT registered tradesman, however- the guy at the end of the line charged with prising this no small additional sum of money out of the customer - finds himself in competition with the unregistered tradesman who's decided to work on his own and remain below the VAT threshold. The effect on the marginal tax rates is simply staggering, and a simple calculation explains why we have seen a collapse in trade skills over the last thirty years. No one in trade dealing direct to the public would willingly take on and train staff when their main role becomes that of a tax collector. In order to compete, the middling business has to either swallow the VAT or risk prosecution for tax evasion. Yet there isn't a policeman, tax inspector or politician in the land who doesn't say "Can we do something about the VAT? The chap down the road doesn't charge it."

Locked into a lease on premises and hire purchase agreements on expensive machinery, the only way to compete is to avoid the direct sales business altogether. This explains, of course, not just the demise of the small joinery company, but all trades from PVC windows to car repairs. VAT favours big business, and puts an enormous obstacle in the way of small businesses to grow organically. When, in those dark days of 1985, I told my bank manager that VAT was going to be put on home improvements, he said "Oh good! It'll improve your cash flow". That might have been true had I been selling to the trade - when VAT is indeed of no consequence, and DOES improve cash flow - but selling direct to householders I knew that it would be ME that paid the VAT, as no one would stand a 15% hike in prices overnight. Worse, the government decreed it uneconomic to police individual tradesmen, and allowed a gap for the competition to seriously undercut the slightly bigger business employing a few staff, lumbered with plant and machinery, and locked into an overhead. As materials make up only a modest part of the cost, for the tradesman, VAT amounts to a tax on his labour. Hardly surprising then, that to this day, the individual tradesman wants to work on his own, as he can make around eight times the income for perhaps half the effort.* As a result, for ten years I simply handed my quarterly profits over to the VATman and watched the growth of a generation of shiftless young men denied the opportunity of learning a trade while subject to the discipline and example set by their master.

This is why we have a desperate shortage of skilled labour, a great unemployed pool of our own children and rely on cheap Eastern european neighbours to fill the gap.

When will we learn?

*If you don't believe me, e-mail me and I'll send you the figures.

How to wreck Small Business

Hello Mark

Perusing the economics commentaries in the business pages this Sunday morning: The lack of growth in employment is clearly the principal concern of the powers-that-be on both sides of the Atlantic. Yet having personally seen the clear correllation between excessive taxation and job destruction, I find it difficult to understand why this obvious truth (obvious to me, anyway) is so difficult for our politicians to understand.

The first (and best) example of this was demonstrated by the introduction of 15% VAT overnight on home improvements in 1985. I had an innovative product with growing sales, a factory, a growing workforce, and export potential. Had the status-quo been maintained, the Exchequer would have received growing income from steadily increasing income tax, corporation tax, and property rates (and also from the rents from my local authority landlord) along with reducing welfare payments from those new employees coming off the dole. In the event the overnight bombshell of VAT killed the business stone-dead. In April I had a full and growing order book but took not a single new order between then and August, when I sacked the remaining staff and changed the direction of the business with a dramatic downsizing (to just me, again). It was four years before the payroll reached the same level, but sales of the innovative product range were damaged for a generation by the inability to grasp the moment in 1985. Such is the damage wrought by the greed of big government.

Regards

Keith

PS And that was a Tory government!

A letter to my MP

Hello Mark,
You must have been pleased with the masterly performance from George Osborne on Wednesday, putting a great spin on what is a rather depressing message. After thirty five years in business, and having now weathered five recessions since starting out in self employment (as a carpenter/joiner in Mallorca) just as the economies of Europe took a dive in 1974, I have become rather more sanguine than some. After all these years of New Labour 'growth' we are seeing some chickens come home to roost.

I returned to England in 1978 just in time to experience Labour's Winter of Discontent, and another nosedive in the economy. As I turned up one morning to install a porch for my very first UK customer, I met her setting off to the ATV studios to take part in a hand-wringing discussion about the dire economic future and the death of UK business. "What do YOU think?" she asked. I told her that I thought the increasing productivity promised by modern computerised manufacturing would bring on a Golden Age freeing us from wage-slavery, with a flowering of small businesses in trade crafts and art and food production. I rather think I was proved right in the fullness of time, although the look on her face told me she thought I was mad.

The one thing that was missing from George's performance, though, was anything to encourage these small businesses to take on staff. After struggling with ever-growing laws biased in favour of the employees, five years ago I grabbed an opportunity to get out before the roof fell in, and shut the business with the loss of twenty two jobs. I swore then, for the second time, as it happens, to never employ anyone again. Although I am now drawing the state pension, and (as Gordon stole my company pensions) I have to work for a living, this time round, with business booming following a phase of innovation permitted by not having to battle the staff on daily basis, I intend to outsource and licence my way to a pension.

Two questions:
1: Are you aware that private individuals have to pay VAT on the costs of developing their Intellectual Property?
My patent agent charges VAT that I can't reclaim as an individual. This amounts to a substantial imposition on a pensioner, even if (with a fair wind) I hope to live long enough to see the fruits of my innovations some years hence. What value-added does the government see in taxing my innovations? Is this designed to encourage us as entrepreneurs? Or is it just one of those silly things that HMRC slipped past everyone thinking that BIG BUSINESS is the source of invention? Ask George to give us a break, please.

2: I recall pointing out to your father (ed - then local MP) some fifteen years ago or more, that small businesses had the capacity to soak up most of the unemployment of Margaret Thatcher's time. The problem was, much of the time employing more staff wasn't worth the hassle, or the risk, and wasn't sufficiently rewarding. Regrettably, the suggestion fell on deaf ears, and I guess Euro Employment Law took precedence over sanity.
So,the question is - what plans does the Coalition have to make employers WANT to employ more staff? Surely, as I put it to Frank Field MP in 1992, during another economic nose dive, tax-breaks for employers MUST cost less than welfare payments.
It's frankly too late for me, but as George says, it's time for some radical thinking.

Yours ever
Keith

What an exciting day!

The BFRC window rating scheme is getting it in the neck big style. Here's the link to read the full stories: http://renegadeconservatoryguy.co.uk/category/energy-rated-windows/

On top of that, the issue of external misting of these efficient windows has prompted a flood of complaints from the public now that autumn has arrived. Those of my readers who have been paying attention will know that this issue was highlighted on TerryTheWindowman's website (RIP) around ten years ago when I first encountered the problem in my own office window. I did ask what the public would say when they found they couldn't see out of their nice new windows. I seemed to be in the minority then, but now we know. Here's the link: http://renegadeconservatoryguy.co.uk/a-rated-windows-problem/

Where have you all been since then?

Recession? What recession?

Phew! Grabbing a few minutes to catch up! Recent weeks have been hectic, with business piling in, the creative juices flowing with answers to long- standing problems appearing out of the blue, and dealing with all the issues that both business and leisure have been throwing at me. In particular, the unfolding (and predictable) shambles over the new Window Rating Scheme (particularly in view of the dodgy science involved): Predictable in the knowledge that it could never be more than a marketing ploy - in the same vein as the 'Secure By Design' label owned by the Metropolitan Police - and that those, like me, who view the whole thing as a well-intentioned job-creation scheme, would continue to stick with the entirely justifiable U-value calculators from truly independent sources such as the highly reputable BRE at Watford.

I never completed my treatise on DGU fabrication, started here in August to explain why these new- f angled slim sealed units for Georgian-glazing-bar windows are distinctly dodgy. That's 'cos it seemed superfluous while a full discussion was in full flow on Philip Rougier's ExpertExpert site. Here's the link to the relevant page for those interested: http://forum.expertexpert.com/viewtopic.php?f=9&t=42

So much for retirement, too much to do. must fly. More later.