When Less is More

By Justin Urquhart Stewart 11:51 9- Jun -2009

There seems to have been a growing theme based around a single word of late – “less”. A bit less of just about everything would seem to be acceptable for most of us – and for most things.

Take our system of government (I wish someone would) where the “mother of all parliaments” has got itself into the “mother of all” messes. Less corruption would be good, and certain MPs should think clearly about what is actually legitimate tax avoidance as opposed to underhand intended tax evasion. Those that have got it wrong should be prosecuted – not after they have left office – but now.  At the heart of this lies the need for a less complicated payment mechanism for our politicians, and one which is clear, simple and understandable.  Oh yes and perhaps at the same time we could “defrock” those corrupt, and even convicted, peers who merely stain the reputation of our upper house (and don’t tell me we can’t, after all we took the head off a king - we could at least take a peerage off an Archer).

More than that, perhaps we should also consider having less MP’s (sorry, it should be fewer). With 646 of them with widely varying numbers of constituents, this seems an area ripe for reform. Add to this the extra layers of European, Welsh and Scottish assembly and parliamentary members, and we have built up a huge cost base of politicians to represent us. Is this really very cost effective and good value for money?

How about less Government? With Governmental influence and control stretching from health and safety through to nuclear defence, do we need actually to have so many centralised controls and rules? Additionally, what about the unelected governmental bodies – the myriad of seemingly unaccountable Quangos that have mushroomed over the past decade? Do we really need these bodies and, even if we did, how would we know?

Just how much government do you actually need? That fairly dysfunctional nation of Belgium has operated really quite successfully with no effective central government for months. Perhaps politicians might be big enough to step aside and let decisions be made locally and even by individuals without the mighty hammer of an all powerful central authority.

Possibly the most important area of reform, though, should be that of taxation.  Since the Labour government was elected in 1997, the taxation books have more than doubled in size. By way of illustration the LexisNexis tax “bible” has more than doubled since 1997. In that year it was a mere 4,998 pages of right riveting read; by 2008 this has expanded an astonishing 10,134 pages. Additionally I understand that the UK has now achieved the accolade of having the world’s longest “primary tax code” having just beaten India! It just shows how much tax tinkering has been going on. Why can’t we have someone stand up and say that as a policy it is their policy to halve the tax codes again and simplify them.

So who had benefitted from this – well probably just the tax advisers and accountants. For the rest of us it has not just meant more taxation, with tax free day (when your annual taxation is paid off as a proportion of the year) has now moved to some time in mid-May, but more importantly in my view, far more complication and confusion. After all, who fully understands the changes to the last budget on pensions – so far I have heard various interpretations – even from HMRC.

How about then just less taxes? I fully appreciate that given our current parlous financial state we are not going to be paying any less for a while, but we could at least make it simpler and more understandable – after all it is our money! Simple banding of income, simpler allowances and more straightforward incentives for saving for pensions and longer term reserves. This isn’t innovative, it's just common sense.

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New bull – load of bull?

The “green shoots” news seems to have been increasing by the day. Most, however, really just shows a slowing in the rate of decline rather than any positive improvement. The housing data is at least mixed, and the confidence indicators although generally improving, have been negative but just less so than before, but despite this the equity markets are climbing their “wall of worry”.

However the “credit crunch” has not yet disappeared - although that has not stopped some getting a bit too enthusiastic. The appetite for risk has increased a little, but lending capacity is still woefully thin. Last week mortgage approval figures were an improvement and were up for a third month in a row, from 40,000 to 43,000. This is significantly higher than its nadir in November last year when there was a low of a mere 27,000 for the month; the peak, by way of contrast, was back in November 2006 when we saw an astonishing level of 131,000. However, the current figures are still well below the normal house price inflation level of 70/80,000 per month.

Corporate finance facilities are also still under pressure with credit and insurance facilities still being squeezed, albeit at a gentler rate than before. So progress is being made but at a painfully slow pace.

As the days have progressed, so we have been able to shuffle forward on an investment plank to increase the amount of risk and investment we want to put back into the market. But just like inching along a see-saw, there will come a tipping point when we will have to pull back quite sharply. At moments like this, despite all the analysis from eminent experts, we should remember the wise words of the late and much missed economist JK Galbraith “There are those who don’t know and those who don’t know that they don’t know” – in other words we must spread our risks, and even increase our risks, but be prepared to change when the markets change.

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And finally......more bad news coming out of Afghanistan I am afraid. It seems that the Australians are threatening violence over the food in their mess. It turns out to be Dutch. Apparently 800 soldiers have complained that it lacks freshness and taste! “The least they can expect when they are deployed for six months is that they can eat proper food” said an Australian senator. “I think it was an insult to them” he added.
Well what’s wrong with pickled herrings and smoked eel – not very common in Afghanistan, I grant you but still quite flavoursome. Still, back to “roo burgers” I suppose.

Have a good week.

Justin A. Urquhart Stewart
Director
Seven Investment Management Limited