30+mba-第42章

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category　to　the　other。　Mostly　these　efforts　are　illegal　or　at　best　dubious　and　
most　fail　the　avoidance　test　in　that　the　primary；　o。。en　only；　purpose　of　such　
schemes　is　to　avoid　tax　and　not　the　normal　pursuit　of　business　activities。　
HM　Revenue　and　Customs　（hmrc。gov。uk/cgt/index。htm）　provides　
the　latest　information　on　these　taxes。　
Capital　losses　
Many　sales　of　assets；　old　vehicles；　puters　and　so　forth；　involve　a　loss　
rather　than　a　gain。　Subject　to　offse。。ing　any　tax　relief　already　claimed　from　
writing　down　allowances　during　the　asset’s　life；　such　losses　are　usually　
offset　against　gains　made　on　the　sale　of　other　assets　within　a　set　time　period；　
usually　several　years。　
Pay　as　you　earn　（PAYE）　
Employers　are　responsible　for　deducting　ine　tax　from　employees’　
pay　and　making　the　relevant　payment　to　HMRC。　If　you　trade　as　a　limited　
pany　then；　as　a　director；　any　salary　you　receive　will　be　subject　to　PAYE。　
You　will　need　to　work　out　the　tax　due。　HM　Revenue　and　Customs　（　
hmrc。gov。uk/employers/employers…pack。htm）　gives　details　on　PAYE　in　this　
Employers　Pack。　This　is　a　plex　area；　as　no　two　employees　are　likely　to　
have　the　same　tax　circumstances　due　to　the　myriad　of　tax　credits　on　offer　
for　various　circumstances。　
Subcontractors　
panies　o。。en　seek　to　circumvent　the　plexities　of　PAYE　and　employment　
law　by　using　subcontractors。　This　is　particularly　so　in　industries　such　
as　construction；　but　here　there　are　strict　and　precise　rules。　Subcontractors　
must　hold　either　a　Registration　Card　or　a　Subcontractors　Tax　Certificate。　
Where　a　subcontractor　holds　a　Registration　Card；　the　‘employer’　must　make　
a　deduction　for　the　subcontractor’s　tax　and　National　Insurance　contribution　
（NIC）　liability。　Where　the　subcontractor　holds　a　Subcontractors　Tax　Certificate；　
the　contractor　will　pay　salary　gross；　leaving　the　tax　to　be　paid　by　
them。　At　the　end　of　the　day；　if　tax　is　not　paid　there　is　every　likelihood　that　
the　employer　will　be　pursued　by　the　tax　authorities。　
National　Insurance　（NI）　
Almost　everyone　who　works　has　to　pay　a　separate　tax；　National　Insurance；　
collected　by　HMRC　that；　in　theory　at　least；　goes　towards　the　state　pension　
and　other　benefits。　NI　is　paid　at　different　rates　and　self…employed　people　
pay　Class　4　contributions　calculated　each　year　on　the　self…assessment　tax　
form。
194　The　Thirty…Day　MBA　
The　amount　of　National　Insurance　paid　depends　on　a　mass　of　different　
factors；　married　women；　volunteer　development　workers；　share　fishermen；　
self…employed　and　small　earnings　are　all　factors　that　a。。ract　NI　rates　of　
between　1　and　12　per　cent。　HMRC　（hmrc。gov。uk　》　Library　》　Rates　&　
Allowances　》　National　Insurance　Contributions）　provide　tables　showing　
the　current　contribution　rates　and　elsewhere　on　the　site　（hmrc。gov。　
uk　》　employers　》　National　Insurance）　you　can　download　an　Employers　
Annual　Pack　with　all　the　plexities　of　NI　paperwork。　
Value　added　tax　（VAT）　
VAT；　a　tax　mon　throughout　Europe　though　charged　at　different　rates；　is　
a　tax　on　consumer　spending；　collected　by　businesses。　Basically　it　is　a　game　
of　pass　the　parcel；　with　businesses　that　are　registered　for　VAT　charging　
each　other　VAT　and　deducting　VAT　charged。　At　the　end　of　each　accounting　
period　the　amount　of　VAT　you　have　paid　out　is　deducted　from　the　amount　
you　have　charged　out　and　the　balance　is　paid　over　to　HM　Revenue　and　
Customs。　In　the　UK　the　standard　rate　is　17。5　per　cent；　while　some　types　
of　business　charge　lower　rates　and　some　are　exempt　altogether。　In　the　
UK；　businesses　should　register　for　VAT　if　their　sales　are　expected　to　reach　
around　￡65；000。　
The　way　VAT　is　handled　on　goods　and　services　sold　to　and　bought　
from　other　European　countries　is　subject　to　another　set　of　rules　and　procedures。　
HM　Revenue　and　Customs　（hmrc。gov。uk　》　Businesses　and　
Corporations　》　VAT）　publishes　a　series　of　guides；　such　as　‘Should　you　be　
registered　for　VAT？’　and　a　General　Guide。　
VAT　is　a　legal　minefield　with　fine　judgments　being　the　order　of　the　day；　
as　Marks　&　Spencer　can　confirm。　For　decades　it　was　obliged　to　pay　VAT　
on　its　chocolate　teacakes　as　the　Revenue　categorized　them　as　a　biscuit；　a　
luxury　rather　than　‘food’　and　hence　liable　to　VAT。　M&S　has　persuaded　the　
European　Advocate　General　that　the　Revenue　was　wrong　and　so　is　in　line　
for　a　￡3。5　million　refund。
Economics　
。　Schools　of　economic　thought　
。　Market　structures　and　petition　
。　Managing　growth　
。　Understanding　business　cycles　
。　Fiscal　and　monetary　policy　considerations　
。　Assessing　economic　success　
The　jury　is　out　on　who　the　got　the　whole　subject　of　economics　under　way；　
but　two　serious　contenders　are　Aristotle　（382–322　。。。。）　who；　in　his　work　
Topics；　got　the　subject　of　human　production　under　way；　and　Chanakya；　
whose　treatise　Arthasastra　（economics）；　wri。。en　in　the　period　321–296　。。。。；　
laid　out　a　framework　for　the　economic　management　of　India’s　agriculture；　
forestry；　wildlife；　mining；　transport　and　trade。　
Alfred　Marshall；　the　dominant　figure　in　British　economics　until　his　
death　in　1924；　defined　economics　in　his　influential　textbook　Principles　
of　Economics　as：　‘a　study　of　mankind　in　the　ordinary　business　of　life；　it　
examines　that　part　of　individual　and　social　action　which　is　most　closely　
connected　with　the　a。。ainment　and　with　the　use　of　the　material　requisites　
of　well…being。　Thus　it　is　on　one　side　a　study　of　wealth；　and　on　the　other；　
and　more　important　side；　a　part　of　the　study　of　man。’　Today　that　definition　
has　been　shortened　in　most　textbooks　on　the　subject　to：　‘Economics　is　the　
social　science　which　examines　how　people　choose　to　use　limited　or　scarce　
resources　in　a。。empting　to　satisfy　their　unlimited　wants。’　
The　dismal　science；　as　economics　is　o。。en　referred　to；　reveals　something　
of　the　contradictions　inherent　in　the　subject　itself。　Science　to　most　people　
means　a　subject　prising　fundamental　truths　that　hold　good　under　all　
conditions　and　forever。　Two　and　two　equals　four；　or　the　area　of　a　circle　=　
πr2；　work　equally　as　well　as　propositions　in　Mongolia　and　on　the　Moon。　
But　put　two　economists　together　and　you　will　get　three　economic　theories。　
Worse　still；　if　you　put　three　together　you　could　end　up　with　six！　
7
196　The　Thirty…Day　MBA　
SCHOOLS　OF　ECONOMIC　THOUGHT　
Groups　of　economists　who　broadly　share　the　same　views　are　collectively　
known　as　schools。　Thinking　of　these　as　places　where　people　are　learning　
about　a　constantly　changing　dynamic　subject　is　a　more　useful　concept　than　
considering　economics　to　be　a　science。　With　Buddha　seeking　to　eliminate　
want；　Malthus　who　was　sure　that　human　populations　grew　faster　than　
food　production　and　so　charity　was　self…defeating；　Marx　and　Keynes　who　
for　different　reasons　saw　the　state’s　role　as　central　and　Adam　Smith　whose　
‘Invisible　Hand’　saw　all　economic　activity　as　being　subject　to　the　law　of　
unintended　consequences；　there　has　been　and　is　some　scope　for　diversity。　
The　two　economic　theories　that　every　self…respecting　MBA　must　have　an　
appreciation　of　are：　
。　Keynesian：　A　theory　of　macroeconomics　developed　by　British　economist　
John　Maynard　Keynes　and　documented　in　his　book　The　General　
Theory　of　Employment；　Interest　and　Money；　published　in　1936。　He　argued　
that　low　demand　is　the　primary　cause　of　recessions　and　that　government　
fiscal　policies　（see　below）　should　be　the　method　employed　to　
create　employment；　control　inflation　and　stabilize　business　cycles。　
This　work　initiated　the　modern　study　of　macroeconomics　and　guided　
economic　thinking；　only　diminishing　in　popularity　in　the　1970s　when　
violent　shocks　to　economies；　caused　particularly　by　escalating　oil　prices；　
simultaneously　led　to　high　unemployment　and　high　inflation　rates。　
This　challenged　the　central　implications　of　Keynesian　economics。　
。　Monetarist：　First　put　forward　by　the　economist　Milton　Friedman　and　
the　Chicago　school　of　economists。　Friedman　and　Anna　Schwartz　（an　
economist　at　the　US　National　Bureau　of　Economic　Research）　in　their　
book　Research　Monetary　History　of　the　United　States　1867–1960　argued　
that　‘inflation　is　always　and　everywhere　a　monetary　phenomenon’。　
Friedman　advocated　that　a　country’s　central　bank　should　pursue　a　
monetary　policy　（see　below）　such　as　to　keep　the　supply　of　and　demand　
for　money　at　equilibrium。　By　1990　monetarism　was　being　challenged　
as　it　could　not　be　reconciled　with；　among　other　things；　the　inability　of　
monetary　policy　alone　to　stimulate　the　economy　in　the　2001–03　period。　
MICRO　VS　MACROECONOMICS　
Microeconomics　is　the　study　of　economics　as　it　affects　small　units　such　as　
individuals；　families；　firms　and　industries。　Macro　is　a　study　of　the　forces　
that　affect　a　whole　economy。　The　main　concept　used　in　microeconomics；　
and　one　that　underpins　almost　the　whole　subject　of　economics；　is　that　of　the　
price　elasticity　of　demand。　The　concept　itself　is　simple　enough。　The　higher　
Economics　197　
the　price　of　a　good　or　service　the　less　of　it　you　are　likely　to　sell。　Obviously　it’s　
not　quite　that　simple　in　practice；　the　number　of　buyers；　their　expectations；　
preference　and　ability　to　pay；　the　availability　of　substitute　products　also　
have　an　effect。　Figure　7。1　is　that　of　a　theoretical　demand　curve。　
The　figure　shows　how　the　volume　of　sales　of　a　particular　good　or　service　
will　change　with　changes　in　price。　The　elasticity　of　demand　is　a　measure　
of　the　degree　to　which　consumers　are　sensitive　to　price。　This　is　calculated　
by　dividing　the　percentage　change　in　demand　by　the　percentage　change　
in　price。　If　a　price　is　reduced　by　50　per　cent　（eg　from　￡100　to　￡50）　and　the　
quantity　demanded　increased　by　100　per　cent　（eg　from　1；000　to　2；000）；　the　
elasticity　of　demand　coefficient　is　2　（100/50）。　Here　the　quantity　demanded　
changes　by　a　bigger　percentage　than　the　price　change；　so　demand　is　
considered　to　be　elastic。　Were　the　demand　in　this　case　to　rise　by　only　25　
per　cent；　then　the　elasticity　of　demand　coefficient　would　be　0。5　（25/100）。　
Here　the　demand　is　described　as　being　‘inelastic’　as　the　percentage　demand　
change　is　a　smaller　than　that　of　the　price　change。　
Having　a　feel　for　elasticity　is　important　in　developing　a　business’s　
marketing　strategy；　but　there　is　no　perfect　scientific　way　to　work　out　what　
the　demand　coefficient　is；　it　has　to　be　assessed　by　‘feel’。　Unfortunately；　the　
price　elasticity　changes　at　different　price　levels。　For　example；　reducing　the　
price　of　vodka　from　￡10　to　￡5　might　double　sales；　but　halving　it　again　may　
not　have　such　a　dramatic　effect。　In　fact　it　could　encourage　one　group　of　
buyers；　those　giving　it　as　a　present；　to　feel　that　giving　something　that　cheap　
is　rather　insulting。　
MARKET　STRUCTURES　
The　whole　of　the　subject　of　economics　as　practised　in　advanced　economies　
is　predicated　on　the　belief　that　market　forces　are　allowed　a　large　degree　of　
High　
High　
Low　
Price　
Volume　
Figure　7。1　The　demand　curve
198　The　Thirty…Day　MBA　
freedom。　New　firms　can　set　up　in　business；　charging　the　price　they　see　fit；　
and　if　their　strategy　is　flawed　they　will　be　allowed　to　fail　（see　also　Chapter　
8；　Entrepreneurship）。　Price　is　allowed　to　send　important　signals　throughout　
the　economy；　apportioning　demand　and　resources　accordingly。　But　perfect　
petition；　where　price　is　all