TaxPersonal TaxEuro plays mind games

Euro plays mind games

There's nothing like an economic downturn to illustrate the importance of psychology in the business world.

Recessionary jitters are contagious, causing a crisis of confidence even when there is often no empirical evidence to back up the fears.

Tory veteran Michael Heseltine is predicting that another psychological phenomenon will hit next year, this time concerning the euro.

Speaking at a UK200 Group national conference in London last week, he warned that the real impact of Britain’s self-imposed exclusion from the single currency would be felt next year when eurozone countries are forced to drop their own national notes and coins.

This, he said, would force their populations to stop thinking and transacting francs, Deutsche Marks etc and do so in euros instead.

He predicts a surge of competitiveness will result, and that Britain’s exclusion from the currency will become much more obvious.

He is well known for his pro-euro views, although many disagree with him.

But this particular point is hard to contest.

The psychological impact of millions of our European business partners thinking in euros, not to mention hordes of Brits who spend their holidays in Europe’s resorts, should be something that is considered in the euro debate.

The best is not enough Talking of Europe, last week saw around 60 of the continent’s best tax minds meet at a conference in Brussels, staged by the European Federation of Accountants, to discuss VAT and how it could be reformed.

They were supposed to thrash out radical reform ideas, but though a few tried valiantly to get them talking in terms of paradigm shifts, these intelligent men mainly discussed tinkering around the edges of the current system.

It is clear this is not enough. Small businesses are staggering under the burden of administration caused by the current system which appears to have moved away from its original objectives.

The complexity has become untenable, VAT exemptions no longer resemble anything that could be described as a coherent list supported by a clear, over-arching principle.

Failing to discuss radical ideas for reform is to ignore the very clear fact that VAT is costing business huge sums and is diverting money away from investment.

Government and tax experts alike must engage with the idea that VAT has not kept pace with economic developments and is therefore in need of profound change.

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