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Follow the Monday Paul Johnson | accountingweb
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Follow the financial guru

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Covering his thoughts about every financial aspect of UK government today, Follow the Money by Institute for Fiscal Studies supremo Paul Johnson shows such remarkable insight Philip Fisher would like to see him as the next Chancellor. 

22nd Mar 2023
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follow the moneyIt is rare that anybody manages to become the ultimate guru or go-to person in any field. However, it seems that Paul Johnson, director of the Institute for Fiscal Studies (IFS) is now seen by the media as almost the only person who can understand and, more importantly, interpret intelligibly, the state of the nation.

Johnson has generously chosen to encapsulate his thoughts about every financial aspect of UK government today in a single volume, Follow the Money.

His skill sets as demonstrated in his book sub-titled “How much does Britain cost?” are quite remarkable, given that most economists pride themselves not only on the ability to bore for Britain but also confuse their audiences to the point where they are left in darkness.

Compulsory reading

There is a strong case to suggest that this book should be compulsory reading for accountants, particularly those who have a particular interest in tax matters. This reader certainly had a better understanding of last week’s Budget thanks to Johnson’s efforts.

Not only will it give you knowledge to impress clients but might also show trends, enabling you to spot potential tax planning opportunities ahead of inevitable legislative changes designed to increase taxes, almost certainly disguised as “tax cuts”.

While this is ostensibly a factual analysis, it sometimes reads more like a horror story and will not make comfortable reading for those in positions of power today, during the last 13 years of Conservative government nor, for that matter, Tony Blair or Gordon Brown.

As Johnson makes patently clear, prime ministers, Chancellors of the Exchequer and other senior government ministers have a nasty knack of making almost unbelievably bad decisions. Primarily, this is because they prioritise what they see as short-term gains (though many are not even that) over long-term benefits.

“We enter the middle years of the 2020s in worse economic straits than at any time I can recall,” he writes.

Tax eye-opener

AccountingWEB readers are most likely to be interested in the opening few chapters. These review our tax system in detail, look at its history – which is a real eye-opener – the position today and suggest wise options for the future. 

Johnson reminds us of the three big earners: income tax, national insurance contributions and VAT, before highlighting all the stealthy ways in which Chancellors like to bring in money without attracting criticism. He also identifies numerous anomalies in the tax system and reminds us that some of the biggest issues centre on local taxation of both companies and individuals.

It may not go down well with some accountants and their clients but Johnson leans towards taxes on the wealthy, particularly proposing major reforms to inheritance tax, capital gains tax and property taxation. Something is certainly going to be needed as the hounding out of gas-guzzling vehicles of every kind reduces government revenues by tens of billions over the next few years.

As this review is being penned, another example of short-termism could well be in the offing as the costs of HS2 spiral out of control yet again, while energy costs continue to cause deep concerns.

Follow the Money really is a wide-ranging book, also incisively considering all of the main areas of governmental spending.

Helpfully, at the head of each spending chapter, Johnson calculates the relevant annual outgoing. This will prove invaluable in putting into perspective a supposed windfall the next time that someone in government announces an extra £100m for, say, defence, health or education. Often what sounds like large giveaways are negligible in percentage terms.

Massive underspending

There has been massive underspending and governments will inevitably need to increase tax revenues to pay for health, education and, given the situation in Ukraine, defence. The problem is that so many measures implemented by governments for years, if not decades, make little sense, at least from an economic viewpoint.

Johnson loves tax simplification and is particularly strong on identifying and highlighting stealth taxes, particularly harsh on the personal allowance freeze, presenting cogent arguments for raising taxes by equalising the rates of capital gains tax and income tax and also removing reliefs here, there and everywhere, particularly from VAT.

Recipe for growth

He concludes by recommending a recipe for growth that is far more plausible than anything offered by today’s politicians, whatever their party affiliation.

With his training as an economist and a civil servant, together with a highly developed intellect, there is a strong argument to suggest that whichever party wins the next general election, they could do a lot worse than recruit Paul Johnson as an adviser or possibly even Chancellor of the Exchequer.

Not only would he have greater vision and understanding than anyone who has attempted this job in the last couple of decades, or possibly ever, but such a move would remove a perennial thorn from their side, since he would no longer be able to poke holes in bad government policy.

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