The politics of pricing

The fear of "difficult conversations with clients".

As anyone in business knows, working out how much to charge for your goods or services is a perpetual conundrum. Charge too much and you risk losing customers; charge too little and you might not break even. It’s a difficult balance to strike at the best of times, but the present economic climate makes the challenge even harder. Deciding what the price of your services should be – and how you charge for those services – is one of the most important decisions that you can make when you run your own practice. So you need to do your utmost to get it right.

Charging per hour has long been the tried-and-tested billing model for the accountancy profession, and with good reason. The principle is that the fairest and most transparent way to recompense someone is by paying them for their time – hence the model is also used by a range of other professionals from lawyers through to IT contractors.

Traditionally, the hourly rates charged by accountancy firms tended to be calculated on the basis that a third of the fee would cover salary costs (hence it would vary according to the seniority and expertise of the staff member), a third would cover overheads and third would be profit. While this breakdown does not necessarily hold true now – the percentage of the fee needed to cover labour has increased, for example – it helps to explain why the charge-out rates of some Big Four partners are more than £1,000 an hour.

So far, so good. Except that from the client’s point of view, charging per hour does not necessarily seem that transparent. After all, they are not sitting in your office, watching over your staff while the work gets done, so they don’t know how efficient or otherwise your practice is. There is also the risk that they will be presented with a bill that is far larger than they expected at the end of the job, which is a sure-fire way to lose their business.

This piece first appeared here.

Photograph: Getty Images

This is a news story from economia.

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Richmond is a wake-up call for Labour's Brexit strategy

No one made Labour stand in Richmond Park. 

Oh, Labour Party. There was a way through.

No one made you stand in Richmond Park. You could have "struck a blow against the government", you could have shared the Lib Dem success. Instead, you lost both your dignity and your deposit. And to cap it all (Christian Wolmar, take a bow) you self-nominated for a Nobel Prize for Mansplaining.

It’s like the party strategist is locked in the bowels of HQ, endlessly looping in reverse Olivia Newton John’s "Making a Good Thing Better".

And no one can think that today marks the end of the party’s problems on Brexit.

But the thing is: there’s no need to Labour on. You can fix it.

Set the government some tests. Table some amendments: “The government shall negotiate having regard to…”

  • What would be good for our economy (boost investment, trade and jobs).
  • What would enhance fairness (help individuals and communities who have missed out over the last decades).
  • What would deliver sovereignty (magnify our democratic control over our destiny).
  • What would improve finances (what Brexit makes us better off, individually and collectively). 

And say that, if the government does not meet those tests, the Labour party will not support the Article 50 deal. You’ll take some pain today – but no matter, the general election is not for years. And if the tests are well crafted they will be easy to defend.

Then wait for the negotiations to conclude. If in 2019, Boris Johnson returns bearing cake for all, if the tests are achieved, Labour will, and rightly, support the government’s Brexit deal. There will be no second referendum. And MPs in Leave voting constituencies will bear no Brexit penalty at the polls.

But if he returns with thin gruel? If the economy has tanked, if inflation is rising and living standards have slumped, and the deficit has ballooned – what then? The only winners will be door manufacturers. Across the country they will be hard at work replacing those kicked down at constituency offices by voters demanding a fix. Labour will be joined in rejecting the deal from all across the floor: Labour will have shown the way.

Because the party reads the electorate today as wanting Brexit, it concludes it must deliver it. But, even for those who think a politician’s job is to channel the electorate, this thinking discloses an error in logic. The task is not to read the political dynamic of today. It is to position itself for the dynamic when it matters - at the next general election

And by setting some economic tests for a good Brexit, Labour can buy an option on that for free.

An earlier version of this argument appeared on Jolyon Maugham's blog Waiting For Tax.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues.