What debt crisis?

It is now a decade ago that the "Jubilee Debt campaign" started. The hope was to reduce the debt of poorer nations to something that could be managed by the turn of the century (ie before January 2000).

But it was only when I was reading a magazine this morning that I realised the parallels between this (ongoing) campaign and the recent debt crisis hitting the richer countries.

The poorer countries were plagued by irresponsible lending - long term debt in return for current spending power (sometimes used to finance the lives of the politicians controlling the countries rather than making any difference to the country at all). The current crisis has come out of irresponsible lending - to people who cannot afford to pay back their mortgages, presumably on the back of ever-increasing land values which meant the banks would get their money back one way or the other.

Of course it is more complicated than that, but the solution seems to be grossly unfair.

In the current crisis, billions have been spent very quickly to bail out the banks to avoid a global economic crisis. There are conditions on the billions - at least I assume there are. But for the HIPC (heavily indebted poor countries) it has taken years to obtain relief - Haiti obtained relief earlier this year but only after years of negotiation (see the jubilee debt campaign press report).

Iceland - one of the financial centres which has suffered most in the banking crisis has said it will not repay more than it can afford (see michael hudson's article which featured in the FT). But poorer countries have not been allowed this luxury.

What is the answer? It is complicated! A starting point though must be to think again about the meaning of wealth. If we are just pursuing money and what money can buy, these crises will happen again (Alan Greenspan - former head of the US Federal Reserve). This suggests we should invest in something more valuable. For example our home should be just that, not an investment we can borrow against...

But how about giving poorer countries the same chance we have given ourselves and relieve a little debt? After all it wont cost anything like what we have just spent on our banks.

False self-employment

There has been quite a lot in the tax press about the consultation document issued in July. A major concern is that the consultation is not about whether or not subcontractors in the construction industry are really employees, but how to change the rules to tax them as if they are. The Revenue are working on the assumption that there are lots of people out there cheating the system and they need to find a way to deal with it. But when they have actually taken people to court, the courts have often confirmed that the subcontractors are indeed self-employed.

There is one major issue which I have not yet seen much talk about - compliance cost issues.

Yes, more NIC and a little bit more tax is paid by someone who is employed compared with someone who is earning the same money but is self-employed.

But the CIS scheme (the scheme for taking some tax at source from subcontractors) is reasonably flexible and can tax someone who is working for every day in the month and just as easily someone who only works one day a week for a number of different people.

The PAYE system (the scheme which the Revenue want to adopt for labour-only subcontractors) cannot cope very easily with people who have more than one job at the same time or who regularly move between jobs. The default position is likely to be that subcontractors will be taxed at basic rate because the PAYE paper-trail will not allow a better tax code to operate. As the basic rate is now 20% and the main CIS rate for labour-only subcontractors is also 20%, the difference subcontractors will see is the additional NIC payable under the PAYE system.

But the paper-chase could be horrendous. Every time someone moves from one contractor to another there will be a P45. So working alternate weeks for two different contractors will mean 52 forms P45 a year. It will also mean that both contractors will have 26 different lines on their end-of-year PAYE return for this subcontractor. The CIS scheme would involve just 24 monthly summaries. And, of course, the contractors will need to not only process all these P45s (probably online) but also a joining form (P46) each time a subcontractor starts on a new site - so that is another 52 forms.

More importantly, can the Revenue cope with these new complex personal tax cases? For each of these subcontractors they will have to undertake an end of year review to check whether personal allowances have been given or whether higher-rate taxes are due. Can their computers cope with large numbers of small employments or will Revenue staff have to rely on working papers and just transferring the totals into the tax calculation system?

For higher earners there may also need to be a review on NICs paid - a problem when you work for more than one employer in the same month.

How many more Revenue staff are going to be employed to deal with all this?