Outlook

: Fiesta man wins right to survive Global poser Tax simplicity

FORD HAS begun 1999 in expansive, not to say, generous mood. It has already forked out $6.5bn for Volvo and pounds 1bn for Kwik-Fit before the buds of spring have properly opened. So the pounds 500m it is spending to launch two new models at Dagenham in Essex fits firmly into the category of loose change.

For once, a motor manufacturer is not attempting to strong arm taxpayers into sharing the bill by making it a choice between state aid and closure. This time it looks like all the funding will come from the company. At first glance it seems an odd use of shareholders' money. Ford is not exactly short of spare capacity in Europe with plants in Saarlouis, Genk, Cologne and Valencia all producing far fewer cars than they were designed for.

For years, Ford's two UK car plants, Halewood and Dagenham, have laboured under the disadvantage of sharing model production with a rival and generally more efficient plant on the Continent.

When the time came to decide where to build the Escort replacement, Halewood came second to Saarlouis in Germany. It only now survives in a slimmed- down form because Ford has run out of room in Coventry to build the baby Jag, and the previous Government came along in the nick of time with a pounds 68m bung.

For a while it looked as if Dagenham, which shares production of the Fiesta with Cologne, might meet the same fate. For as long as Ford has been producing cars with the pre-fix Popular, the plant has looked in mortal danger of slipping back into the Essex swamps from whence it rose.

But Dagenham has slowly won the right to survive. It is currently Ford's most productive European plant, more by accident than design admittedly, and now the unions are positively bending over backwards in their desire to accommodate Ford's demands for flexible working. Wave farewell to overtime? No Problem. Take our annual holidays in March? Just say the word.

Dagenham's insurance policy against Ford reneging on the deal is that this time it will be the only source for a second model, probably some kind of people carrier. This is an act of faith by the Ford top brass in Detroit. Essex will have to prove it is more than just the home of shell suits and poor taste jokes.

WE HAVEN'T heard much about reform of the "global financial architecture" for some months now, so perhaps to make up for the lull, we yesterday got it full in the neck from both sides of the Atlantic. Robert Rubin, the US Treasury Secretary, gave a characteristically thoughtful update on official US thinking on these issues, while singing from broadly the same hymn sheet, suitably embellished with "Third Way" rhetoric and terminology, Gordon Brown, the British Chancellor, was at it as well, demanding that some kind of a resolution on reform be reached by the end of the year.

It is easy to be cynical about this grand G7 endeavour, billed by some as perhaps the most significant attempt at reform since Bretton Woods. Judging by both these speeches, not much has changed yet, and Mr Rubin's contribution, though filled with good intentions, seemed more of an excuse for doing nothing than anything else.

The complexity of the issues, and the obvious flaws and drawbacks in virtually all the proposed solutions, make agreement extremely difficult to achieve. As the crisis in emerging markets abates - or rather fades in the Western memory - perhaps the easiest thing would indeed be to do nothing. Certainly there is a feeling that any attempt at serious, all embracing reform has already run into the sand.

Yet we shouldn't underestimate the determination of policy makers, and although the impression may be of progress at a snail's pace, almost to the point of standstill, the wheels are grinding and change which might eventually lead to a quite considerable reinforcement of the free market system is gradually being brought about.

The most important of these changes are the dull, boring and worthy - measures to improve transparency, put in place universal standards of regulation and accountability, and mechanisms for making investors and lenders more aware of the risks they are taking on.

Much more problematic are the proposals that involve direct intervention in the market - reinforcing the IMF's position as international lender of last resort by giving it pre emptive powers and funds, or finding a credible way of tying creditors in and forcing them to participate in any bailout.

As a Yank and former investment banker, Mr Rubin is much more aware of the dangers and contradictions inherent in such an approach than his British counterpart. Give investors too much of a safety net, and they will ignore the risks. Close off the exit route too tightly, and they won't invest, or will demand an unacceptably large premium for doing so. As Mr Rubin has remarked on more than one occasion before, there are no magic wands, or easy solutions

.

SIMPLICITY is a much-underrated virtue. It ought to have pride of place in the design of any tax system. In practice, it rarely gets any more than a look in. For successive Chancellors, simplicity has invariably been way down the list of tax reform priorities. Virtually every year the Finance Bill gets fatter and our system of taxation more complex and confusing. The present Chancellor seems to have been particularly adept at adding extra layers of complexity, further obfuscating the big picture and disguising the real impact of tax on our lives.

It is this quest for simplicity which is the most appealing aspect of a call for radical tax reform in a new pamphlet published this week by the Centre for Policy Studies by Maurice Saatchi, the Tory peer, and Peter Warburton, economic adviser to the City investment bank Robert Fleming. In it, the writers list an extraordinary range of tax allowances and exemptions, and demand their abolition in favour of a much higher personal income tax threshold that would take many low earners out of the tax net altogether.

Most tax reliefs and exemptions are the result of the usually failed attempts of successive governments to engineer taxpayers' behaviour. Once in place, they are devilish difficult to get rid of, even though it is hard to think of any credible intellectual defence for them. Any Chancellor designing a tax system from scratch would abandon the lot. But the two authors do not stop at demanding simplicity in taxation. They also reissue the traditional call for smaller government and a lower tax take out of national income. In net terms this has risen from a low of 28 per cent of GDP in the Macmillan era to a high of 39 per cent under Mrs Thatcher in 1981.

Since then, it has fallen and risen again, to 37.2 per cent last year. They would like to see a return to 1950s lows, taking "tax independence day", the day on which the average person ceases to work for the Government and starts earning for himself, back from 18 May to 21 April. They link this to cutting benefits and reducing the "dependency culture" of the welfare state.

It is easy to see why Conservatives want to reclaim the tax-cutting agenda. The Labour Government achieved a spectacular political coup in cutting a penny off income tax in this year's Budget, even though the overall tax burden will be higher. The Opposition calls this "stealth" taxation, so perhaps Gordon Brown should steal a bit more Tory tax thunder by repressing his social engineering tendencies and recognising the merits of simplicity too.

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