Monday 16 June 2014

Keeping Company

There are many areas of government and its dealing with commercial and business matters that need a good hard look to see what is what as time goes on, change occurs and things are not what they used to be.

A good deal of grief and trouble in the past has occurred when a government has not been aware of, or did not recognise, or failed to address areas that needed either adjustments or significant changes.

Regulation is one of them and that it is not just a question of monitoring what is happening, it is monitoring the monitoring and continually questioning the effectiveness and reality of the legal basis and underlying assumptions or ideas.

At present on the one hand we need to encourage and not just allow entrepreneurs to be able to function and get ahead by giving them a reliable basis for work.  On the other we need to watch out for malpractice, fraud and schemes that have damaging effects.

An area which is of key interest is the matter of company registration and monitoring.  Crucially. the whole question of what the concept of Limited Liability means now in a rapidly changing structure and business world.  This is not simple and has been an area of study and debate for a long while.

Recently, doing some trawling of Companies House records was illuminating and disquieting.  There it tells me that there are now three million companies registered in the UK.  If you take out from the population those not active economically, you are left with perhaps 45 to 50 million in total.

That means one company for every fifteen or sixteen people.  Clearly Companies House can only attempt to keep up with the recording of these and on occasion take some action against the most flagrant and identified criminal few that it can catch up with.  So what are all these companies for and why?

"Private Eye" has pointed out that in the Specsavers optical group each retail outlet is a company of its own, several hundred of them.  This enables accounting and financial moves linked to off short companies that massively reduce the tax bills.

At one time the administration of this would have been impossible because of the amount of paperwork and vast numbers of clerks etc. to run.  Now with computers, off the shelf accounting and management systems and the rest it is open to even small entities to become very complex in form.

If this is done for honest and open tax avoidance or to enable an efficient separation of differing functions in a firm it is one thing.  But all too often it is now becoming something else that is less than honest and an evasion not just of taxes, but of the law and any reasonable liability or responsibility.

Translated into very large companies and organisations with multiples of companies then they can become impossible to regulate or to pursue legally or in preventing actual financial crime.

At its worst when this engages in high risk activity and speculation beyond any reasonable definition of business, investment or finance we can find the losers demanding state support and bail outs.  Limited liability means passing on the pain and the cost to the taxpayer.

So in the end those on middling or lower incomes in ordinary lives or jobs are paying to support those at the higher end who cannot be touched because of the complexity and location of their liabilities which are limited in any case.

There are other distortions as well as some activities attract finance because risk has been eliminated but other, perhaps economically better cannot raise the finance because of lower real returns.

There is no sign of the present or any future UK government going near this question because it is difficult and disrupts too many with the wrong kind of interests.  Yet sooner or later these questions will have to be faced because of the attrition of the tax base and the rising tide of malpractice.

For a future Scottish government, the question of what kind of company registration and its basis is one of the key matters that will require immediate attention, hard thinking and hard decisions.  If only because of the general tax implications and the prevention of fraud and crime.

1 comment:

  1. I read Private Eye too. At times, the endless maze of fraud and dodgy dealing seems so grim and out of control that I wonder about cancelling my subscription.