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.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.