How much is that doggie in the window?

Panacea comment for Financial Advisers and Paraplanners

26 Feb 2018

How much is that doggie in the window?

This HMRC document hit my desk last week. What a great idea, it shows how your ‘hard earned’ is spent by the state on your behalf.

Out of a tax take of £19,302 the welfare spend is more that the amount taken for servicing the national debt, education and defence combined. And they are the 4th, 5th and 6th highest spends.

Welfare accounts in this case for almost 25% of this total tax gathering for 2016/17.

I used to hear a lot about hard pressed families in the lead up to the last couple of elections and I think there was a strong political point to make, but the point set the wrong thought processes off.

If this taxpayer is anything to go by, those hard-pressed families could be in such a situation because 25% of each taxable element of their working day is spent on providing welfare of some sort to recipients various and unknown.

Perhaps in the brave new world of disclosure, this document should give a breakdown subset of how this money is spent, where it is spent, who spends it and on what exactly.

There are some other very interesting perspectives thrown up in this document. The last in particular around the UK contribution to the EU budget. It is just £135, some 0.7% of the total bill.

I was/am very keen to see Brexit actually happen. I doubt it ever will.

But instead of sending buses around the country with messages on the side illustrating how much could be made available to add to the £3,918 from this tax bill on the NHS in the run up to the referendum, voting may have been somewhat different if the amount each taxpayer actually contributed to the EU was set out just like this.

I await another statement for 2017/18 that I assume will show how much has actually been spent from this income tax breakdown on Brexit?

Sadly I fear we will never know.


FSCS funding, the third way

The Tory party conference can always be relied upon to deliver some interesting sound bites.

One of the better ones for the financial adviser community was the most welcomed observation from Mark Garnier MP who sits on the Treasury Select Committee and has done so for some five years.

I know Mark and have met with him on a number of occasions. He seems a very decent, intelligent, forward thinking guy.

So when hearing and welcoming the news that he felt that banking fines should be used to reduce the burden of regulatory cost, in particular that of the FSCS levy, perhaps a further consideration for Mark is to investigate is why are the fines so very large and not levied on individuals? The reality, I suspect, is that these fines are not a punishment, they are just a tax revenue raising opportunity that nobody could possibly object to…..ever?

Over the last century or two the nations wealth and success was built on our vast below ground natural resources.

Coal, tin, oil, sand, cement, gravel extraction have all played their part but many fear that these resources have a limited life as dwindling stocks make it more expensive to recover.

Of course with all natural resources there is also a tax raising opportunity but if stocks of natural resource reduce or become exhausted this will, in turn, see tax revenues reduce and that spells trouble for HM Treasury.

But we need no longer fear where the nation will turn to get more ‘natural resources’ from because of some very clever HM Treasury ‘fine fracking’ on the part of the last government.

He is 100% correct in saying that a debate was needed about where the money went.

For those that have no idea on the sheer magnitude of banking fines, this may help in understanding where they go and why.

A decision taken by Parliament on 27th February 2013 has seen a very big fiscal ‘gusher’ explode out of the ground in the form of 2014 banking fines being paid away to HM Treasury.

Banking fines levied by the FCA in 2014 were £1.462bn.

To put some contextual scale to this massive amount, the total revenue raised for alcohol and tobacco in 2014 was £1.97bn- that equates to 4% of total UK taxation revenues according to HMRC figures.

The FCA was obliged by statute to pay away £1.370bn of the fines the Treasury, the equivalent of 70% of all alcohol and tobacco levies for 2014.

In the run up to the May 2015 election this is where the money was spent according to a reply to a Panacea FOI request reply:

£35,000,000 to the Armed Forces

£10,000,000 to Armed Forces covenant

£40,000,000 toward veterans’ accommodation

£20,000,000 to Childcare, but exactly what is not known

£10,000,000 to medical training, again, exactly what is not known

£10,000,000 to Blue Light charities, exactly which is not known

£10,000,000 to Youth United

£5,000,000 to the Imperial War Museum/ WW1 gallery refurbishments

£ 1,100,000 an approximate VAT rebate for the Tower of London poppies sale to allow more money raised to go to charity. This is not a government donation. It is a fine redistribution and a very cynical play upon public sentiment and the war dead of WW1.

That gave a grand total of £141,000,000 going toward good causes leaving a pre election pot of £1.322bn left over.

Note, no money to MAS, FSCS or Pensionwise- the most morally obvious homes for such largesse.

I wish Mark and his TSC colleagues well but fear that the Manchester conference sound bite will fall on very deaf ears at HM Treasury.

The only real worry for HM Treasury will be what to do if the banks rehabilitate themselves.

Panacea petition for financial advisers and paraplanners FCA fines skim. You can only milk a cow so long before you’re left holding the pail.

I had the good fortune to meet former US President Ronald Reagan a good few years ago while walking along the beach in Santa Monica. Although in his declining years he cut an impressive figure and gave me a very snappy salute and a smile.

In his prime he had an interesting take on Governments and taxation, saying “a Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it”.

The increasing cost of regulation on firms is significant and for firms who have consistently kept a ‘clean sheet’ there is a feeling that this is not being rewarded quite as it should be.

In what form that reward should be had previously been understood to see fines levied for bad practice and behaviour used to reduce the regulatory cost on firms who had ‘done the right thing’ with their customers.

But that is no longer the case.

Indeed it appears quite surprising that many so in the industry (if my recent conversations are to be a guide) are oblivious to the fact that those whopping fines (some £1,461,875,800 in the year to mid December 2014) are not being used to reduce costs in a way that may, indeed should be expected.

We felt that a degree of clarity was now required as the fines were, it seems, just going straight to the Treasury, without passing ‘Go’. A craftiliy legislated ‘skim’ of gargantuan proportions

What seems even more bizarre is that the vast fines levied by the FCA are against, in many cases, banks bailed out by the taxpayer on the actions of the Government.

Yep, you are right. The taxpayer ‘owned’ banks are fined for bad behaviour, therefore, these fines are in effect paid by the taxpayer and not the offending individuals.

In levying these fines the Treasury and the FCA are simply engaging in a breathtaking form of state sponsored and legislated money laundering.

It goes like this.

  • Banks bailed out by the government of the day
  • Bad behaviour of epidemic proportion discovered and/or declared
  • Regulator investigates in a manner that would do General Melchett proud
  • Guilty verdict delivered
  • Sentence predetermined and fines calculated
  • Fines paid to the FCA by the very banks that have been bailed out by the taxpayer.
  • Money returned by FCA to the Treasury, who it could be argued has paid the fine by way of earlier taxpayer bailout.
  • And it’s tea and cakes at the Ritz before you know it.

This is madness. If the banks, especially state supported banks, are such villains keep them out of the FCA’s jurisdiction and budget, quarantine them in the Treasury or Bank of England until they are safe to come out, disease free.

I wrote to the FCA with a ‘Freedom of Information’ request in November, it read as follows:

“The total amount of FCA imposed fines levied so far in 2014, according to the FCA website today stands at £1,471,431,800. There was an understanding, possibly even a requirement in the industry, that fines would be used to reduce the regulatory cost burden on firms. In fact rewarding good practice at the expense of bad. It now appears that this is no longer the case. I would be grateful if you could confirm the following:

 How much of the above figure has been paid away to the Treasury in 2014 for so called ‘good causes’ use? 

On what or whose authority was this ‘pay-away’ made possible

When was that decided?

Was the original intention of cost reduction made clear to the Treasury before the decision to ‘pay-away’? 

Was any attempt made to persuade the Treasury that fines should really be used to offset the regulatory cost burden on firms? 

What was the budgeted cost of regulation to date in 2014? 

What is the actual cost so far for regulation in 2014?”

The reply, now received reads as follows:

Freedom of Information : Right to know request

Thank you for your request under the Freedom of Information Act 2000 (the Act), for information about FCA fine levies and HM Treasury (HMT).  The full request is shown in the attached Annex. 

Your request has now been considered and we hold the information which falls within the scope of your request. I have numbered your request for ease of reference and will answer each point in turn.

1               How much of the above figure has been paid away to the Treasury in 2014 for so called ‘good causes’ use? 

To date, we have received, £1,461,875,800 rounded to the nearest 100, (99.4% of £1,471,431,800 of the fines issued in the calendar year 2014).  The net figure paid to HMT of £1.37bn (as at 10/12/2014) reflects payments made in 2014 to date (iro 2014 fines only)     less 2014/15 budgeted Enforcement costs   which we retain and give back to fee payers.  We have no knowledge of what HMT do with these funds, as once they are paid over it is up to HMT how they use the money.

          The penalty receipts paid over to HMT are as per paragraph 20(6) of Schedule 1ZA Financial Services and Markets Act 2000 (“FSMA”), attached. 

2               On what or whose authority was this ‘pay-away’ made possible.

This was a decision by Parliament, Statutory Instrument 2013 no.418 – Financial Services and Markets – The Payment to Treasury of Penalties (Enforcement Costs) Order 2013.

3               When was that decided?

The above-mentioned Statutory Instrument was laid before Parliament on 27th February 2013 and came into force on 1 April 2013. 

4               Was the original intention of cost reduction made clear to the Treasury before the

          decision to ‘pay-away’?  

          HMT was fully aware of the arrangements in place to return penalty receipts back to the industry prior to introducing Statutory Instrument 2013 No.418.


5               Was any attempt made to persuade the Treasury that fines should really be used to offset the regulatory cost burden on firms? 

The predecessor body, the FSA, did discuss the impact of this new arrangement on firms with HMT and successfully made the case that penalty receipts paid over to HMT should at least be net of our Enforcement costs.  As a consequence, the regulatory cost of Enforcement activity is not borne by the industry.  This is evidenced by firms continuing to receive a “deduction” on their FCA annual fees.      

6               What was the budgeted cost of regulation to date in 2014?  

The FCA’s Ongoing Regulatory Activity (ORA) budget in 2014/15 is £452m as per our published business plan for 2014/15.The budgeted cost of regulation from April to 30 October is £264m. 

7               What is the actual cost so far for regulation in 2014?

          The actual FCA ORA expenditure from 1 April 2014 to 30 October 2014 is £264m, in line with budget.

If you have any queries then please contact me.

So, regulated firms are paying £264m in fees to the regulator to cover the FCA budget, in addition they are paying levies to the FSCS for the 2014/15 budget of £313m,for 2015/16 it will be set at £287m.

The levy can cause considerable distress to small advisory businesses as the sums are often large, unpredictable in amount, timing and require immediate payment.

While all this is going on, £1.37bn in fines is being ‘skimmed off’ to the Treasury and being used, assuming we actually believe the Government spin, for ‘good causes various’ like sending the Tower of London Poppies on a UK tour. Having seen the display last week, packed and ready at the Tower, I think some change may be left over.

To quote another former US President (George Washington) “It is better to offer no excuse than a bad one.” This is unfair, immoral and must stop.

The biggest obstacle to consumers getting easy access to independent financial advice is cost.

The biggest cost to financial services firms after salaries are for regulation.

Surely it does not take too much cerebral activity to calculate that with the FCA costs of £264m plus the FSCS budget of £313m, fines exceed regulatory costs by £894,431,800.

This chould mean that offsetting fines against the cost of regulation and compensation levies could have given the industry ‘good guys’ a ‘free ride’ for over 2 years and those hard pressed ‘consumers’ or give “low end savers” as Mark Garnier MP calls them, access to financial advice at a very much reduced cost as they can benefit too from the reduction in the regulatory cost burden.

Dare I suggest that these fines could have even funded the FSCS based upon the current budget for at least 4 years, again reducing costs for consumers?

That would be a very moral, even sensible use of such large fines would it not Mr. Osborne?

The Treasury is treating the financial services industry as a ‘milking cow’. The cost of demonstrably reprehensible bad behaviour, mostly by banks, should benefit the good guys ultimately reaching their clients, the great British consumer.

Henry Ford famously said, “it is not the employer who pays the wages, they only handle the money. It is the customers who pays the wages”.

And in the world of financial services it is ultimately the consumer who pays the bill for increasing fees by increased advice and product charges.

With politicians thoughts turning to the May 2015 General Election there are some questions that should be asked by those who own and operate regulated financial services businesses should they get door-stepped in the coming months.

The first action should be: “why are you using my industry fines to support Treasury spendin instead of reducing my fees”? 

The second should be to support my Downing Street petition asking that: 

Parliament should reverse SI 2013 No218 allowing consumers to benefit instead by way of lower product charges and access to lower cost independent financial advice as a result of fines for bad behaviour reducing regulatory costs on MY firm.

Take That!

Who’s been a naughty boy then?

Gary Barlow is the latest potential gong returnee joining an ever lengthening line of celebrity ‘victims’ being hung out to dry for ‘sins various’, all determined by a baying social media fuelled mob and on this occasion under the direction of one Margaret Hodge MP, that self proclaimed leader of the tax paying great and the good.

Yes, that same multi-millionaire former Labour minister Margaret Hodge, who faced questions in November 2010 over the limited tax paid by Stemcor, the steel trading company of which she is a shareholder and which was founded by her father and is run by her brother.

Analysis of Stemcor’s accounts by the Daily Telegraph in their edition of 10thNovember 2012 reported that the business paid tax of just £163,000 on revenues of more than £2.1billion in 2011.

There is a growing trend in UKplc for the so-called ‘vulnerable’ and dispossessed social minority to exert undemocratic control over the enfranchised majority. It would seem that to get your voice heard and action taken today you should belong to a minority group of some sort, preferably with questionable ethnic, religious or ethical agendas ideally funded with government grants.

What did Gary do?

He and other bandmates invested in 2012, it is alleged, at least £26 million in what was referred to as an ‘aggressive tax avoidance scheme’, putting money into two partnerships, run by Icebreaker Management, styled as music-industry investment schemes, according to reports.

Judge Bishopp, in a High Court ruling, declared that the partnerships set up by Icebreaker Management were to secure tax relief for members, and HMRC is now expected to demand repayment.

Take That’s lawyers insisted the band mates believed the investments were legitimate enterprises and that all four named paid “significant tax”.

Most wealthy individuals got to be just that with a little talent, some good luck and an awful lot of specialist professional support looking for the best ways to secure and grow their wealth, no matter how it was obtained.

Mr. Barlow is, I suspect, only guilty of taking financial advice to best invest his millions and avoidance, no matter how aggressive is not illegal.

Let’s keep an eye on FSCS defaults in the coming months if his financial adviser finds him or herself in the firing line from Mr. B’s legal team.

I think there are plenty of others who should be higher up the ‘Return your gong’ list; perhaps you would like to suggest some.

Shall we start with Sir Hector?

What goes around as they say………

Should five per cent appear too small, be thankful I don’t take it all


Jimmy Carr is now not alone; Starbucks Google, Amazon and a raft of other global mega-businesses have recently been accused by the Public Accounts Committee of “immorally” minimising their UK tax bills.

Do note the word ‘minimising’, and the fact that tax is being paid somewhere, just not much here in ‘Blighty”!

David Cameron speaking at World Economic Forum in Switzerland told big tax avoiders to “wake up and smell the coffee”, no doubt nicely primed by Grant Shapps who had said “I don’t think we’ve ever singled out a single company but I think that companies in this country need to pay their way.”

A very concerned Starbucks boss, Kris Engskoz, met with officials at No10 on 25th January and it was later reported, although denied, that Starbucks would put on hold plans to invest £100million in the UK.

This upping of the anti in the politically driven “Tax morality Wars” is not a healthy one and once again politicians have plumbed new depths in the application of “selective morality” and dual standards in UK society.

These are the same politicians who decided to raid millions from pension funds, enforce a delay to the retirement plans of millions, hit motorists with excessive tax on tax, take the taxpayer for an illegal expenses ride, send our troops into danger then not look after them as they should when maimed or injured. I am sure there is a lot more that can be added too.

Of course, all businesses should pay the tax due, but it is also the responsibility of businesses to their shareholders to ensure profits are maximised and as long as the vast and complicated rules have been adhered to and taxes have been legally minimised and not illegally evaded, politicians should not be conducting such high profile witch-hunt’s or indeed any witch-hunts at all.

Politicians conveniently overlook the fact that UK plc has seen many very rich foreign nationals land on our shores as the UK tax regime is seen by them as being far more attractive than their own country’s. With this in mind, is their legitimately seeking out of a more tax friendly country to live in, all to the benefit of the UK, not a detrimental tax loss to the country they have left?

And what about those illegally in the UK, currently estimated to be as high as 863,000- larger than the population of Leeds? Many will not be contributing to the tax system, the government cannot even find most of them and they certainly have never published even an estimate of illegal immigration in the UK, saying that it is almost impossible to count unrecorded entries into the country.

Cameron overlooks in his “aroma” search the fact that the very businesses they hold up for moral derision employ thousands in the UK, all of those pay tax and NI.

If UK plc wants more to collect more tax revenues they should simplify the system.

They should also stop wasting so much of taxpayers money on welfare, bureaucracy, wars and mission creep toward more wars, aborted rail franchise bids and excessive, expensive, poorly thought out regulation that hampers so many of the businesses who create the wealth and profits that results in revenue to UK plc.

Only this week we learn that Britain’s top taxman –accused by MPs of lying – has been hired by HSBC to advise it on honesty. The bank appointed Dave Hartnett, the former head of HMRC, as an adviser to ‘enforce the highest standards’ at the firm.

The decision to recruit the 61-year-old, described as Britain’s most ‘wined and dined’ civil servant who also sparked controversy over a total of 107 meals he enjoyed with corporate giants over a three-year period, was so sensitive that the Prime Minister had to rubber-stamp the former civil servant’s new job.

No morality issues there then David?

Clearly the the late George Harrison’s Beatles’ song Taxman provided the tax mantra checklist and it is as relevant today as it was then:

“If you drive a car, I’ll tax the street,

If you try to sit, I’ll tax your seat.

If you get too cold I’ll tax the heat,

Now my advice for those who die

Declare the pennies on your eyes”