Saturday, January 29, 2011

The smoke clears

After several years of having a half-baked and ill-enforced smoking ban (which basically exempted 90% of the cafes and bars in Spain) the real thing came into force this month and Spanish public premises are all now supposed to be smoke free.

For all the complaints from bar owners worried about a loss of business and predictions of economic ruin, it was an inevitable move. It's only a few years since the UK got its ban but a reversal back to the old, smoky ways is unthinkable. I am sure that in Spain too it will seem incredible within a couple of years that it was once acceptable to make non smoking customers sit wreathed in the second hand smoke of others. But ...

It appears Spain's conversion to a smoke free environment is not happening without a fight. It's partly down to the economy (a fear that bars and cafes will lose business and an important sector will shed jobs and income) but also fairness.

Not so much the old libertarian position that bar owners should be able to set their own rules, passive smoking fears trumped that a long time ago. The real fairness argument links back to the old law. This stated that bars and cafes over 100 square meters had to be smoke free or have a separately closed off area for smokers with extractor fans. Some owners invested considerable sums (35,000€ in this case - Marbella Smoking Rebel) all of which is now wasted. Worse still they may have taken out loans to finance the changes which they will have to pay back from reduced income. The industry is sure that takings will be permanently down because so many Spaniards smoke.

A recent demonstration by hoteliers, cafe owners etc in Palencia featured banners saying things like "If you don't smoke, we don't get paid. Let us live" and "Total ban, sector ruined.".

You can understand the anger. Regardless of whether smoking bans are fair or not, inconsistent and careless law-making is certainly unwelcome.

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Saturday, January 22, 2011

Are price comparison sites a rip-off?

One of the big benefits of the internet is price transparency - quickly being able to see comparative prices and grab the best deal. The price comparison site has sprung up to make this easier and they are now a routine part of life for most of us. But are they to be trusted?

One reason for doubt has to do with a certain cuddly meerkat and an annoying opera singer. PC sites spend a fortune on advertising suggesting they are chasing a very profitable slice of business. If companies can afford saturation TV advertising it usually means they have very high profit margins and you should be wary. Examples are online Bingo, 118 services and certain car insurance companies - it is their customers' cash they are splashing with these campaigns.

So without having any direct information about the profitability of PC sites I can be pretty confident they make a lot of money and this is reflected in the prices. Perhaps it is no coincidence that motor insurance premiums are reported to be rocketing (33% rise in premiums). Direct line, which doesn't use PC sites, uses that fact in its advertising saying that you can save money by cutting out the middle men and their fees.

Another point of concern is how broad the coverage of a site is. You assume that quotes are gathered widely from all market participants but sometimes only 10 or 15 are actually featured out of hundreds of possibles. Some companies besides Direct Line generally don't deal with PC sites - RBS, Green Flag, Tesco, Churchill.

When you consider the ownership of some sites then things can become even murkier. For example Admiral, a FTSE 100 insurance giant, owns and some customers have complained "Admiral always come out top of their comparisons". The meerkat company is owned by insurance group BGI.

The papers have been full of reports recently about which claims to find the best price on heating oil. It is PC site owned by an Irish company that also delivers heating oil and has ten different brands which are all featured on the site. Some newspapers have conducted tests and found that the site has directed customers to their own brands even when much more expensive than rivals. It is an apparent conflict of interest which the government is looking at - Energy Minister demands heating oil enquiry.

Another danger was highlighted by the Telegraph last week:

Biba, the British Insurance Brokers' Association, claimed this week that some sites were giving people insurance quotes that did not reflect their individual requirements owing to the focus on the lowest headline price. This has led to customers buying products with higher than expected excesses, or which are unsuitable.

"They [comparison sites] have become the tail that wags the insurance industry dog," warned Biba's head of corporate affairs, Graeme Trudgill. "They have made it all about the price and not the cover."

A final conclusion: it's pretty simple really - don't forgo price comparison sites if you find them useful, just don't assume that they are the last word on price and do at least some shopping around, including offline in some cases.

Latest article at Advoco (my Spanish tax site) What should you do with your savings in 2011?

Friday, January 14, 2011

Can you do business in Spain without registering?

In my experience as an accountant most people wish to play by the rules, do the right thing, fulfil their responsibilities etc ... so long as doing so is not unduly complicated or punitively expensive.
A consequence, which I see a lot, is a frustration among people in Spain who want to do business legally but are put off by the red tape and tax implications, especially social security and IVA (spanish VAT). The problem applies mainly to small part time businesses where the income is expected to be patchy or very low. If you are only expecting to earn a couple of hundred euros a month or are doing something which brings in revenue periodically (e.g. running courses) then it is totally infeasible to set up as properly registered business with the following expenses:
monthly social security
accountancy costs
quarterly taxes
In addition all businesses have to charge IVA which, while it should not be an expense of the business, nevertheless results in higher charges to the customers and a lot of admin.
Also you can't declare income for tax unless it has been earned through a registered business with the IVA accounted for. It's like the old saying about it not being possible to be "a bit pregnant". You can't be "a bit legal" - it's all or nothing. If you want to make your small business earnings legal you have to do all three things - start paying the social security, deal with IVA and pay income tax.
The situation is a bit more complicated than this (see the autonomo guide on our website) but in essence that is the situation - it is totally uneconomic to legalise a small business unless you expect to earn a decent income right away - you either don't start up in business at all or do so on a cash in hand basis.
And lots of people in Spain do. Much more so than in the UK. One of the reasons for this is that in the UK there is a threshold of 70.000 before which businesses do not have to register for VAT. This means small businesses do not have to worry about one of the main business headaches until they are well-established. Imagine if Spain had a similar system - some IVA would be lost to the government but many more businesses would go legal and pay income tax and social security. Some would grow big enough to start paying IVA.
In the UK some voices are calling for the VAT threshold to be raised even further. The Federation of Small Businesses has suggested a rise to 90.000£ would create 35,000 new jobs according to the BBC. Spain can only dream of such a windfall. But this is what Spain badly needs. With so many people unemployed and the Spanish economy stagnating, making it easier to initiate LEGAL new businesses is essential.
The UK also has national insurance breaks for small businesses and is much more flexible in allowing income to be declared when there is no job or registered business involved. Spain desperately needs a similar approach.

Saturday, January 8, 2011

Are public sector pensions really gold-plated?

You can usually tell when the British press have stumbled onto a big issue that strikes a chord with the public - not only is there a rash of stories on the theme but there is usually an emotive word or phrase which crops up in all the headlines: scrounger, fat cat, asylum seeker, hoodie, dodgy expenses etc Recently "gold plated" pensions supposedly awarded to public sector workers have been in vogue.

As an article just published on our main website ("Prospects for the UK State Pension") explains, government attempts to control the state pension are only part of the battle to stop the UK's long term finances collapsing. The growing amounts they pay to retired public sector workers pose almost as great a risk; the system is forecast to be in deficit by 14 billion pounds a year within the current decade.

Some economists and ministers call the final salary pensions paid to public sector retirees unaffordable and unjustifiable; a time bomb ticking under the already rickety national finances.

But union spokesmen defend the pensions referring to their members as mostly "low paid" and resisting calls for pension contributions made by their members to be raised and for pensions to be based on average career, not final salaries.

"Public sector workers already pay a sizeable amount into their pension schemes year in, year out," said one. "All workers deserve a good workplace pension, whether private or public sector."

Sounds reasonable but in reality the private sector pension system has been eroded for years under attack from public policy and low returns in the equity and bond markets (themselves largely the result of government interest rate policy). Low interest rates, touted as a great way to revive the economy, are actually a transfer of wealth from savers and pensioners (anyone who doubts this should check out the current annuity rates) to bail out debtors, including the government. Why should the public sector be shielded from these realities?

The argument that public sector workers are low paid no longer really stacks up. The Labour years were generous to public sector budgets and mostly went on increased salaries. 38.000 public sector employees get over £100.000 a year. The average pensions received seem quite low (see table below) in some jobs but these averages include people who have worked for a short time in the public sector and are not the rewards for full lifetimes of employment.

My own view is that the government should honour the commitments they have made to public sector employees so far - many of these have worked for much of their careers with lower salaries in times gone by when public sector pay did lag behind. In future though they should move, as many private sector, employers have, to defined contribution, fully funded pension schemes which do not pose a threat to future taxpayers.

Public sector pensions (England, Wales)


% salary paid*

Employer contribution*

Pension age*

Average pension

* Depending on scheme Source: Independent Public Service Pensions Commission report, government departments


9.5% - 11%





8.5% - 11%

14.2% - 26.5%

55 or 60





60 or 65








5% - 8.5%


60 or 65


Civil servant

1.5% - 3.5%

3% - 18.9%

60 or 65


Local government

5.5% - 7.5%




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