28 Feb 2014 Squandering money on inefficiency
I suggested to the Paymaster General this week that the UK needs an e-invoicing Tzar. I’m not sure what amused him more – the idea of an e-invoicing Tzar or my scouse pronunciation of the word Tzar.*
I was privileged this week to have a drink and a conversation with Francis Maud, a senior Minister in the UK’s coalition government. His other role is the Paymaster general – he, in name at least, holds the purse strings for all government spending. Together with a small group of senior Tungsten people, some of their clients and Susie West, I had the opportunity to share thoughts on electronic invoicing, it’s importance in the UK and to discuss what the government could be doing to encourage its adoption.
Mr Maud told a few amusing and insightful stories. In one he described a visit to Estonia where, extraordinarily they have achieved astonishing success in the use of e-government. “How have they achieved that?” Francis Maud wanted to know. The answer it seems was because of two factors. As a new country, Estonia had no legacy – no baggage and secondly, they had no money. Clever and efficient ways of doing the business of government wasn’t optional.
This rings few bells for me. We value choice but sometimes, when the luxury of choice is removed there is only the pragmatic option left. It seems counter-intuitive but sometimes removing choice forces best practice and Estonia is a good example. An example to be followed? Should the UK and other governments remove the choice and mandate e-invoicing? Should we mandate what we know to be common sense or should we cling to the options and leave life complex?
But the other aspect to the Estonia story is also very relevant – the issue of legacy,
Many of the business conventions that are employed in the west today are based on the methods of trade developed by Italian bankers in the 16th century. The way we trade including systems of banking and credit were all fine-tuned to meet the needs of merchants trading in the far east. And while many aspect have been modernised some of the core principles remain the same. Old habits die hard and today, despite our delusion that we are part of a digital economy, about 80% of the B2B invoices in Europe are pieces of paper.
For over 20 years, the lawmakers in Europe have grappled with the growth of e-business and it’s is only recently that the European Union has developed something which comes close to a common understanding of what an electronic invoice is. You could sympathize. It’s not possible to simple throw away centuries of convention and legislation. Starting from scratch and reinventing trading rules from 1st principles to take into account modern technology is no easy task – impossible perhaps. But that’s what the Brazilians and the Mexicans have managed to achieve. The have reinvented the business of invoicing and tax collection.
Today in Brazil, the tax authorities know about every business transaction before it happens. They know about every delivery of goods and services and the tax due. Law enforcement agencies including customs officers and police have the power and the tools to check on goods in transit to make sure that all the documentation is in order and that tax is being collected properly. Whereas in Europe and North America, electronic invoicing is about efficiency, in Latin America it’s about maximizing tax revenue.
All a bit heavy handed some might think. A level of government interference in business that is going a step too far maybe. But to those – especially those in Europe – who think that there’s no need to further police tax collection, let me say one thing. Greece.
Whereas the taxman in Latin America is proactively monitoring trade in real-time, ensuring it is calculated correctly and ensuring it’s paid, the taxman in the UK is looking retrospectively at the accounts of the likes of Google and Starbucks, scratching his head and asking “Why don’t you pay tax?”
If it were up to me, if I was the e-invoicing Tzar – I’d force the change. There are arguments that remain unsettled but while there isn’t enough money to pay for the public services that we feel we deserve, we shouldn’t be squandering resources on the choice to remain inefficient.
*I’m using excessive artistic license with the truth. This didn’t actually happen. But I wish it had.
Pete Loughlin can be found on twitter @peteloughlin