The British tax system is now so complex that even the tax men do not understand it.

We always suspected it, but it is now official. HM Revenue and Customs has miscalculated the tax paid by almost six million people – about 10% of the population of the UK.

UK Treasury Building, London

It is difficult to say which is the more disgraceful: is it the fact that 4,300,000 have been forced to pay the government more than was due; or is it the fact that another 1,400,000 who assumed in good faith they had settled with the tax man for the year will suddenly face additional demands for money?

The average additional demand will be for £1,500 (about $2,250) – quite a lot of money for most people, especially those on a fixed budget in difficult times.

Viewed objectively, the most disgraceful aspect of all in this particular case is that most victims are indeed on a fixed budget, because it relates to PAYE, “Pay As You Earn”, the income tax levied on employees, who are usually on fixed salaries.

Viewed more subjectively, since PAYE is designed as a tax on employees, this particular blunder is less likely to impact directly on most entrepreneurs. However, it does beg an important question: if the tax man can make such a gigantic error in the relatively simple calculation of the taxes on fixed incomes, how many more mistakes are being made in the far more complicated calculation of taxes on entrepreneurs?

Most of us have our horror stories. Some are due to straightforward bureaucratic incompetence, but – to be fair even to the tax man – in many cases it is unfair to blame a poorly educated bureaucrat for failing to understand a system so complex that it baffles some of the sharpest minds in the land.

Everyone agrees that the system is bad, but every attempt at reform has made it more complex and therefore worse. The only solution is to junk the whole thing and start again – with a Flat Rate Tax. Some consider Flat Rate Taxes inegalitarian and therefore “unfair”. Perhaps – but surely not as unfair as a system that overcharges some, springs sudden additional demands on others, and has just been particularly hard on some of our poorest fellow subjects.

Moreover, here is a tax calculation everyone can understand:

Simple = Fair
Fair = Efficient

Zurich, Monday 16 August 2010

When most informed commentators are issuing dire warnings about the economic future of “Europe”, they usually mean the European Union, or at least the Eurozone.

So the warnings do not apply to Switzerland, which is neither a member of the EU nor in a particularly dangerous financial position. This is not to say that everything is perfect in Helvetia, or that the Twenty Six Cantons have some form of exemption from the problems of the global markets – but it does seem that Switzerland is in a far better condition to weather the storms than most other European countries.

Although Switzerland’s independence from the EU is currently working in its favour, it would be facile to attribute the relative prosperity of the Swiss to that one factor alone. It is rather a symptom of a number of deeper strengths that have allowed the Confederation to enjoy hundreds of years of wealth disproportionate to its natural resources.

1   In spite – indeed, because – of its small size, Switzerland has always understood its economy depends on being open to foreign trade.

2   The high sense of civic responsibility of the Swiss, combined with the small size of both the Confederation and its constituent Cantons, have always imposed a tight fiscal discipline on government. It is harder to hide public debt when it must be shared among a small population.

3   Swiss banking and tax laws have always been hospitable to outsiders with money.

4   Switzerland is proof that economic liberalism is compatible with a strong sense of social cohesion, based on shared traditional values. Switzerland is a clean and safe place in which to live and do business – a nation armed to the teeth in which there is little gun crime.

5   The Swiss retain a formidable work ethic, an obsession with the quality and precision of their products, and a passion for punctuality. Although Switzerland has been mocked as the nation which gave the world the cuckoo-clock, the clever little timepiece is actually a good symbol of the virtues that make a strong economy.

The combined impact of these strengths is a healthy economy, which means a strong currency. Perhaps that is why your contributor, trying to stretch out is his devalued pounds sterling, feels so impoverished travelling through this great nation.