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Richard Murphy on tax and economics

Postscript to Friday

13 hours 15 min ago

Postscript to Friday:

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Tax is a big idea

15 hours 51 min ago

Steve Richards argues in the Guardian this morning that Ed Miliband may be right, and that ideas could be the factor that determines the outcome of the next general election.

This does not always happen, of course. The cult of personality is powerful. There are, however, moments when ideas can be pivotal. 1945 was one. 1979 was another.

Now I am not going to be so bold as to suggest that Labour is going to offer anything so radical a shift in the political mood as happened then. That would be very far from the truth. It is too mainstream in its economic thinking at present to offer anything like such a paradigm shift, and I see little prospect of that changing over the next few months. But that does not mean ideas will not matter for two reasons.

The first is there is no big personality in the forthcoming election. That, I think, is a fact. If Cameron was he would have won in 2010, and did not. Miliband says he is not. Clegg is history and Farage is already, I suspect, a spent and slightly comedic character (words, I hope, I do not live to regret).

And then there is the fact that it is all too obvious that the current government has no new ideas. It demanded a five year term in office and can think of nothing to do with it. This year’s legislative programme is threadbare. The ‘big ideas’ it has claimed to deliver including dismantling the NHS, threatening the effective supply of education and ruining the lives of millions into misery whilst imposing cuts that have not created prosperity are unpopular.

In that case it is up to opposition parties – and Labour has to take the lead – to deliver big ideas. Tax is one such big idea.

I have already suggested this year that the shadow economy is much bigger than HMRC suggest it is.

Tax debt is not under control.

Progress is being made on tax avoidance, but by no means enough.

Tax reliefs for big business are running out of control.

Even on business tax the bias in favour of big business and its owners against honest small businesses is becoming uncomfortably apparent.

The merit that a strong and enforced tax system has to offer is then a big idea whose time has come.

Invest in HMRC. Stop the tax cheats. Collect the debt. Close the loopholes. Make the system progressive. Be proactive in stopping international tax abuse. All make sense.

And all make money. Not one costs a net penny.

If balancing the books is the aim (rightly or wrongly) then making tax work for the benefit of ordinary people is one of the biggest possible ideas for the next general election. But, will anyone be brave enough to say so?

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Worry when the basic functions of the state begin to fail

16 hours 19 min ago

David Cameron famously argued before the 2010 general election that not a single front line service would be impacted by his programme of austerity. It was, of course, a blatant lie and I have no doubt he knew it was a lie, but I do wonder if he had any idea by how much he would corrode not just what he saw as a bloated state but the basic functions of the state that all consider necessary.

The FT has an article this morning that details the increase in the number of private prosecutions for fraud because the state is no longer willing to take these cases because of a lack of resources.

I detailed on page 24 of my report ‘In the Shade‘ on the role of what I call shadow companies in the UK shadow economy the significant decline in the number of prosecutions of company directors for failing to comply with the requirements of company law. Official records show no such prosecutions in Scotland since 2008.

This year barristers have been on strike because of cuts in legal aid. The Court Service has also endured significant cuts in funding.

The provision of law and order is one of the basic functions of the state that even right wing ideologues think it must undertake and yet it is showing signs of failing. I think we need to be worried. Unless there is confidence in the provision of law and order there is no state at all, but only disorder. That has not happened yet, some occasions apart, but the risk is real.

When cuts undermine the fabric of society then society is at risk. That risk does now exist and this should, I think, become a part of the political narrative of those seeking to offer alternative explanation of how we, as a society, should live.

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School holidays

Fri, 07/25/2014 - 07:46

According to my family there are better things to do than blog this morning.

I am succumbing to the wisdom of my crowd. I may be back later. And there again, maybe not.

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There’s nothing to celebrate about returning to 2008′s GDP: almost all of us are worse off still

Thu, 07/24/2014 - 18:53

Before anyone gets excited about GDP returning to 2008 levels (as is likely to be announced tomorrow) can I refer to this table issued by the ONS on 2 July:

The point is an obvious one: even if the absolute level of GDP has returned to the 2008 level GDP per head has not. It is at no more than 95% of 2008 level. And that means almost everyone in this country is still worse off than they were in 2008. That’s nothing for the government to celebrate.

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How to spot a tax haven

Thu, 07/24/2014 - 07:58

One of the questions I was asked on Twitter last night was how to spot a tax haven. There is no easy answer to this. One way is to decide for yourself after reading the book Ronen Palan, Christian Chavagneux and I wrote on the subject. This is now a little out of date but available in many languages. The Korean version is just out.

Alternatively, there is this paper I wrote that remains one of the more important I have produced, in my opinion, admittedly.

And there is the whole Financial Secrecy Index.

But if you want a short version tax havens are secrecy jurisdictions and these are defined by me as places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

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Welcome to the Hiddenwealth Games

Thu, 07/24/2014 - 07:49

As I watched the opening ceremony of the Commonwealth Games last night it occurred to me just how many participating states are considered to be tax havens. My timeline became active in the theme and as a result I tweeted this:

Credit to @daniel_nash for renaming the #CommonwealthGames the #HiddenWealth games because of number of tax havens involved.

Daniel’s suggestion was made in reaction to my tweets.

Based on the Tax Justice Network Financial Secrecy Index (full disclosure: I directed the first FSI, but not this version) the full list of participants that are tax havens based on the secrecy that they offer are as follows, with their rankings shown:

Rank Secrecy Jurisdiction Secrecy Score 76 Samoa 88 45 Vanuatu 87 28 Seychelles 85 65 St Lucia 84 73 Brunei Darussalam 84 26 Barbados 81 12 Malaysia (Labuan) 80 14 Bermuda 80 19 Mauritius 80 35 Bahamas 80 52 Belize 80 67 Antigua & Barbuda 80 80 St Kitts & Nevis 80 49 Gibraltar 79 77 Dominica 79 79 Maldives 79 81 Nauru 79 62 St Vincent & the Grenadines 78 63 Turks & Caicos Islands 78 70 Grenada 78 78 Cook Islands 77 61 Anguilla 76 9 Jersey 75 60 Botswana 73 4 Cayman Islands 70 5 Singapore 70 15 Guernsey 67 34 Isle of Man 67 20 British Virgin Islands 66 57 Ghana 66 17 Canada 54 36 South Africa 53 41 Cyprus 52 48 New Zealand 52 44 Australia 47 32 India 46 64 Malta 44 21 United Kingdom 40

Clicking on each name should bring up their FSI report.

I generally cut off at 60 when deciding whether a place is a tax haven but there are exceptions. New Zealand , Cyprus and Malta all sell very specific tax haven law abuse. And the UK is, of course, the hub of this network, making London the epicentre of this arrangement, which is why the Tax Justice Network wrote to the Queen about it a year ago.

The opening of the games was marked by a fund raising gesture for UNICEF. Unfortunately the tax haven activities of so many Commonwealth states – the Hiddenwealth – will undermine any good that appeal will do. It is corruption that undermines developing countries – but most especially that facilitated by tax havens and the lawyers, accountants and bankers who populate them. And have no doubt, children suffer as a result.

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Venn diagrams for our times: the impact of the financial crisis

Wed, 07/23/2014 - 07:33

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The strange case of Lidl’s accounts

Tue, 07/22/2014 - 07:43

I was interviewed by Joe Lynam for the Today programme at 6.49 am this morning (a link is available here for the next few days) on the strange case of Lidl’s accounts.

What’s strange about Lidl’s accounts is that there are none on public record in the UK. Despite its now economically significant presence in the UK it has not filed accounts with Companies House since 1996.

Now I stress that Lidl is not breaking any law in not filing accounts. It operates in the UK as a branch of a private German company and because that company is legally obliged to file accounts in Germany nothing is required to be filed here under UK law.

And I stress, this does not mean Lidl is not paying UK tax: I have seen the letter of comfort HMRC has (rather unusually, I suspect) supplied to Lidl saying that as far as it is aware Lidl is up to date with its obligations.

That does not, however, prevent me feeling distinctly unhappy about this whole arrangement. Firstly, nothing in the German accounts gives an indication of the scale of Lidl’s UK activities.

Secondly, those accounts are not, in any event, easily available in Germany.

Thirdly, we are left with the situation as a result of this loophole in our company law where a company with a significant UK presence is simply not accountable under UK law for its trade in this country to its UK stakeholders.

Who are those stakeholders? You are. It staff are. Its suppliers are. Its customers are. Many government authorities are. Its competitors are.

That is why accounts are required on public record. When a company trades with limited liability the obligation to file accounts was created to ensure the trust placed in the company was not abused with all of us having to pick up the pieces if things go wrong. And in this case we have no clue what that risk is. That’s why this matters.

A year ago David Cameron told the G8 that trade, tax and transparency were at the core of his agenda. If he was serious then he would change the law so that Lidl and any company with a trading presence in the UK would have to file accounts for its UK operation as well as its operations as a whole with Companies House. Without that requirement companies like Lidl will continue to make a mockery of the disclosure requirements in UK company law.

And as result all other UK supermarkets will trade at a competitive disadvantage to Lidl because they simply do not know what it’s up to, which is another very good reason for this change in the law. A level playing field is an essential pre-requisite of fair markets. It’s time for ministers to commit to supplying it.

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Do you have to put your head in the sand to want to be Chancellor?

Tue, 07/22/2014 - 07:33

Our economy is in a mess. I think that should be obvious to anyone, and yet you don’t hear that message too often on the BBC news, ITV, Newsnight and much of the print media.

Ken Clarke had to leave the government before he could say the UK’s economic recovery is not ‘firm;y rooted’. Even so he was being mighty generous to George Osborne. Too many are; Ed Balls in particular.

Some realise how wrong this view is. Paul Mason is one of them. He was right to argue, as I think he did, in a Guardian article on Sunday that the most important theme in much of the UK economy is alienation.

That alienation is dangerous. As Phillip Inman has argued, debt and ageing pose massive problems in our economy. Those problems exist in the short term – when rising interest rates are going to push millions over the edge with regard to household solvency. They face the risk of real alienation, for that is what bankruptcy and all that goes with it is. By 2018, at the latest, I suspect this to be a crisis engulfing the next government of what ever complexion it may be, and yet neither Ed Balls or George Osborne want to talk about it. If Danny Alexander does, well no one is listening.

And Alex Andreou, also arguing in the Guardian, has in a sense pulled these themes together, albeit inadvertently (it’s me doing so, explicitly). As he points out, unless we have a vibrant population of young people then they can’t sustain the elderly – which is what the crisis of ageing is really all about.

What all three have in common is a concern that no one is addressing these issues. As Paul Mason says:

The moment a party says: “We stand for the low-paid worker against the loan shark, the rip-off landlord and the profiteering boss,” young people in places such as Bow Arts might show some glimmer of interest in politics – instead of the utter cynicism and detachment that is routine.

And as he also said:

Strangely enough, we once had a political party whose entire brand, and even name, was centred around improving the wages and conditions of people who work. 

His implication is all too obvious. Phillip Inman is not too subtle either:

Britain has become expert at putting off decisions and hoping for something to turn up. Without a return to ultra-cheap commodities, another technological/productivity revolution, or a return to more modest living and delayed gratification, it’s a plan that is running out of time.

It is Alex Andreou though who goes to the core of these issues though, when looking at them from a European Union perspective, when he says:

It is up to us to reclaim Euroscepticism – the critical assessment of how we want Europe to work for us and make it work.

In this sense Alex adds the most to debate even if I am sure Paul Mason was probably more read. That’s because Alex Andreou makes clear that there are issues that need not be mere matters of concern, and even anxiety, in the current situation, but about which action is possible. Paul Mason and Phillip Inman offer counsels of despair. So too does Alex Andreou, in part, when he says:

It is telling that the Europhobe alternative narrative always ends at a referendum endorsing exit. I have yet to hear a coherent narrative of precisely how the eggs are to be unscrambled.

But  it is his  twist on that argument is pivotal. He argues that whilst the right have a narrative it is one that does not work. It is a similarly incoherent narrative from the right that Osborne, Balls and Alexander will all offer at the next election.  Even if the spin on the EU will differ what Alex Andreou is saying is that all that these politicians will offer are tales of despair and resignation: that ,after all, is what the narrative of the balanced budget and the withdrawal from the responsibility of the politician to put forward an alternative (including on the EU) is all about. What that narrative, quite literally, represents is an argument that there is no choice.

Paul Mason and Phillip Inman do not move much beyond that despair. Alex Andreou does. As he says:

There is no doubt that the EU has lost its way. It has been captured by vested political, financial and corporate interests. It is up to us to reclaim it and reform it.

What he is saying is that of course there are faults in the economic and power structures that we have; it would be absurd to think otherwise. But this does not mean we withdraw from discussion or resort to the discredited solutions of bygone ages (like balancing budgets).  What we should instead seek to embrace is an active recognition of these failings as the start point of an alternative narrative.

That is the foundation for a radical politics of change that is intended to deliver empowerment. When all we’re being offered is a tale of despair and powerlessness by all the major political parties you can see why I think Alex Andreou’s argument pursues his concern to the necessary next step on the way to progress in a way that few will currently do.

I wish others would have Alex’s courage. We certainly have candidates for Chancellor who do not and who instead appear to wish to put their heads in the sand. Paul Mason and Phillip Inman are right to note the poverty of those candidate’s thinking and the alienation it induces. But Alex Andreou is also right to say the time for noting it has passed. The time to deliver on alternatives has arrived. It’s unlikely to happen in 2015. But we still have to work for it, nonetheless. I hope I am.

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OECD move against tax dodging will not benefit poor countries

Mon, 07/21/2014 - 16:44

The following press release was issue by Chritian Aid today. I think it sound comment:

The Organisation for Economic Co-operation and Development (OECD) which is supposed to provide guidelines for good practice among its member states have missed another opportunity to show they are committed to ensuring developing countries benefit from changes in international tax practices, says Christian Aid.

Today the OECD announced comprehensive details of a new global standard on Automatic Exchange of Information, the process by which jurisdictions can share details of offshore accounts and account holders – vital for tackling tax evasion.

This could be done either through a bilateral tax agreement between countries, or via the OECD’s preferred option Multilateral Compent Authority Agreement (MCAA), in which all countries signing up have to share information with all other signatories, making it much easier, in theory, to spread the reach of automatic information exchange.

Welcome as such an agreement might be, the details are rather less positive as it appears it could be open to abuse by tax havens unwilling to divulge details of those taking advantage of the secrecy they offer.

For any party to the MCAA can arbitrarily prevent any other country to which it takes a dislike from signing up. Those most likely to be barred will be poorer countries with which tax havens have been reluctant to sign bilateral tax treaties in recent years.

Joseph Stead, Christian Aid senior economic adviser, said today: “There is an estimated US$9trillion of developing country taxpayers assets held offshore, revenues from which should be a significant source of financing for development. But thanks to the decisions of the OECD many developing countries are likely to have to wait much longer to be able to enforce their own tax systems.

“While there are some things to welcome in today’s announcement, it will be too easy for developing countries to be excluded. As well as the fact that admission to the multilateral process can be vetoed without reason by any country, there is no mechanism for allowing developing countries to opt out of the requirement to provide information temporarily until they have the capacity to do so.

“This would be a simple way to show the process was actively encouraging developing country participation and to enable them to benefit as quickly as possible.”

There has been no official explanation as to why developing countries have not been offered a staggered approach to automatic information exchange, but there is a suggestion that some countries are opposed, especially offshore centres.

“Since the move to automatic information exchange began we have heard rumours that some offshore centres are focusing their attentions on developing countries, knowing that they will be/can be excluded from such developments, and so provide a source of continued business profiting from tax evasion,” added Mr Stead.

“It must be made clear that this cannot happen. We need to see all financial centres commit to multilateral automatic information exchange with all countries requesting information as quickly as possible. This includes not just the likes of Switzerland which has talked of only agreeing to automatic information exchange with countries with close economic and political ties, but also places like the USA and Australia which are yet to commit to early adoption.”

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Customers think fair tax the most important ethical issue for big business

Mon, 07/21/2014 - 08:31

According to the FT this morning:

Boards must take control of setting a company’s ethical values and be prepared to dismiss chief executives whose values are not compatible with the culture they seek, says the Institute of Business Ethics.

As they note:

The study comes as trust issues continue to dog corporations, seven years after the start of the financial crisis.

Those boards may be wise to take note of a survey by KPMG reported in The Grocer, which says:

Company tax arrangements are more important to consumers than Fairtrade and the environment, new research has found.

Noting Tax Research UK’s role in changing public opinion, The Grocer notes that KPMG’s report found that unsurprisingly fair pricing and quality issues were vital to brand perception but that paying fair tax was more important to consumers than treating suppliers fairly, employees fairly, minimising environmental impact and charity support.

Two thirds of consumers felt large companies were doing the bare minimum to engage with ethical issues. KPMG urged companies to communicate better.

They might want to apply for the Fair Tax Mark. And yes, of course I declare an interest in saying so. I am one of its directors.

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Venn diagrams for our times: economic objectivity

Mon, 07/21/2014 - 08:15

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Venn diagrams for our times: politics and economics

Sun, 07/20/2014 - 07:16

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We really do not need a budget surplus

Sun, 07/20/2014 - 06:36

Ed Miliband has made a promise to deliver a budget surplus during the course of the next parliament.

I have explained time and again why this is not possible. A recent version is here. A prime minister may wish to balance a budget but doing so is a matter very largely beyond their control.

Then there is the often overlooked fact that we do not need a balanced budget, for reasons I explain here.

Finally, I do not think a left of centre government should be trying to balance a budget now because to do so will inevitably shrink the economy in the current economic environment. I explain why here, slightly wonkishly, but this is the one to read if you don't do the other two.

I am sure there will be those who support Labour who will not like me pointing these matters out, but it is not the job of this blog to be party political. I think Labour's commitment to a balanced budget – even if only a balanced current budget – is a serious error of judgement at this time and it's important to say so now. This commitment will cost jobs, deliver cuts, reduce growth and cause stress for many who did not in any way create to the post 2008 financial crisis. That does not seem like a left of centre strategy to me.

And before those from the right think about commenting, may I just remind them of the comments policy of this blog?

 

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George has got his dream: the UK’s now a tax haven

Fri, 07/18/2014 - 14:02

In February 2006  George Osborne  went to Ireland and gave a speech  that would reward study by those interested in recent political history.  What I recall from a conversation very soon afterwards with a breathless member of his entourage in London ( who has, I think,  recently been promoted in the ministerial reshuffle)  was the overall enthusiasm for the Irish tax system that the Conservatives then displayed.  The message was, in effect, a very simple one: ” Ireland’s got Google because of low tax rates, and we need to do that here”  was the message I was given at a time when it should also be recalled that George Osborne was a fan of flat taxation and many other eccentric ideas.

George  forgot flat taxes but he did not forget Google, or Ireland.  In fact, just as he said he would back then,  he has reformed a great deal of UK corporate taxation to not just mimic Ireland, but  to actually seek to outdo it in the tax haven offering that the UK has to make.

So, he  has cut tax rates, enormously. He has revelled in the  creation of what is, effectively, a territorial tax system for groups of companies  and has overseen the effective dismembering of the U.K.’s controlled foreign company regime which was designed to prevent tax haven abuse by UK-based multinational companies.  Coupled with the patent box regime (a Labour legacy) and  his own special regime for group treasury operations based outside the UK, you would think that George’s aim was to make sure that no large company should pay tax in this country,  even if they might elsewhere. It has worked:  just look at Barclay’s recent announcements on its global taxes with not a penny paid here but rather  more elsewhere.

The aim was summarised in that 2006 speech. This is what he said then in praise of Ireland:

So the low business tax rates generate strong revenues for the Irish exchequer, from the added prosperity and higher income tax paid on the more and better jobs. That in turn encourages the formation of ‘clusters’ of industrial expertise which stimulate progress and innovation in those industries, leading to more economic growth.  And in a world that is increasingly knowledge-driven, that kind of growth is absolutely fundamental to long-term prosperity.

It so obviously worked for Ireland, didn’t it? It’s as if George  never noticed the subsequent crash and continued, helter-skelter, to import the idea wholesale into the UK nonetheless.

And so let’s move to 2o14. Today the FT has reported:

[US pharmaceutical company] AbbVie has sealed its proposed £32bn takeover of Shire, the UK-listed speciality pharmaceuticals company, in one of the biggest deals so far to involve a US company shifting its tax residence overseas.

As they continue:

AbbVie’s successful bid also continues the trend of US companies using foreign acquisitions to put their offshore cash beyond the reach of the US taxman – a practice known as “inversion” that is facing increasing political scrutiny in Washington.

AbbVie said that, while its administrative headquarters would remain in Chicago and its listing in New York, the merged entity would be incorporated in the Channel Island of Jersey and have its tax residence in the UK.

Now this is curious. In 2008 Shire left the UK for tax purposes.  I reported on the move at the time. Then the  object was to  avoid any chance of UK tax arising under the then proposed changes to controlled foreign company laws that the Labour government was suggesting that  might have hit companies with substantial intellectual property, like Shire, hard.  With the power of retrospect, what a shame that Labour did not have the courage to put through those changes which are still so obviously needed to tackle international tax abuse, as the OECD is now saying,  but they did not. Shire left anyway, going to Ireland where I gather it has not paid a penny in tax in the intervening years.

And now it’s on its way back for tax purposes. Jersey’s there to save stamp duty, of course. And tax haven UK does very nicely for all other purposes. Territorial tax is now firmly in place. All those tax haven located funds within the new group can flow tax free back to the shareholders. New profits can be earned from intellectual property rights located either here via the patent box or in low tax jurisdictions without ever having to worry that the UK might ever question the arrangements and the US has lost out on all the tax on unremitted profits denied to it for years.

Welcome to tax haven UK, the place that turns a blind eye to profits made anywhere in the world, and to the simultaneous fact that none ever seem to arise here either. We’re happy with the odd dollop of PAYE every now and again; that does us nicely, apparently, just as George said back in 2006. Not that this deal, taking over a company really based in Basingstoke, will actually deliver any more of that either, I am sure.

No, this is just the wondrous world of tax believe that George set out to create to emulate Ireland. You have to say, he’s succeeded, but at cost to us all, to and many other nations on earth as well. His cup will flow over the day he leaves parliament, I am sure.

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Changing the balance of risk in tax

Fri, 07/18/2014 - 08:25

I have not commented in any depth on the newly contentious issues of follower notices and accelerated payment notices that have, as a result of legislation now becoming law, become the subject of much comment in the tax profession.

Details of these related issues can be found here and here. In essence, follower notices give power to HMRC to demand that a taxpayer amends their self assessment tax return in the event that HMRC think that they have won a ruling against a taxpayer in a case relating to a tax scheme similar to that which they think the taxpayer has used. The follower notice requires the taxpayer to either settle their dispute or face a large penalty if their dispute with HMRC is ultimately unsuccessful. The aim is fairly easy to identify: it is to prevent HMRC having to litigate each case of nearly identical tax avoidance separately when schemes have been mass marketed – as many have been. The contention issue is that there is effectively no appeal available against the notices when they are issued.

Accelerated payment notices allow HMRC to advise a taxpayer that they must pay tax that they have not settled as part of their self assessment tax arrangements because they have purchased an identified tax avoidance scheme. 1,200 schemes have now been identified where accelerated payment – or settlement before the status of the scheme has been resolved and therefore liability has  been proven – might be required by HMRC and the first demands are to be issued very soon. Again, no appeals are to be allowed, and the motive for that is very obvious: when these arrangements are necessary because litigation delays have meant tax has been withheld form HMRC for quite a number of years by tens of thousands of taxpayers (at least 40,000 are involved, and maybe more) permitting appeals would simply add another mechanism that would delay payment yet again.

The question to be asked is whether or not this is a reasonable course of action. In the view of many tax practitioners it is not, with claims circulating of the hardship such demands will cause as people without the means to make the payment are faced with demands for settlement for which they are not prepared. I have remarkably little sympathy with such claims: all involved know they were partaking in marketed tax avoidance schemes and all should have been aware of the risks involved when they entered the arrangements (and if not, they need to sue their advisers, which I am sure will happen in many cases). In addition, if they were not aware of the risks at the time they bought the schemes it is hard to know how they have not become aware of it over the last two or three years; surely no one has missed the crack down on tax avoidance? In that case the hardship issue can, candidly, be laid aside. These schemes were designed to unjustly enrich and if they have failed to do so I think there are many better causes where sympathy might be extended.

So what of the greater significance if these new provisions? What are these?

First, I think it fair to say that these arrangements are likely to be a temporary phenomenon. The sale of marked tax avoidance does appear to be be declining. The risks are now better known and the mood has changed. The arrangements have been introduced to tackle a back log situation where tax amounting to, it is suggested, £7 billion, might be at risk. It may have been appropriate to have put a sunset clause in the legislation as a result, only permitting use for a limited period without review. The power is appropriate I think in the current situation, but the risk of extension beyond the original intended clause has always to be considered. A sunset clause could close down that risk, and an annual opportunity to extend does exist in any event: a renewal clause could be included in a future Finance Act but would then require review and debate. I think there is merit in such clauses because they force that review.

Second, more broadly, it would be worrying if an absence of a right to appeal become general in tax. There may be reasons in these cases, but more broadly it undermines any principle of justice. This is why review of these provisions will, in my opinion, be required.

More generally though there is another issue to consider. This new legislation sets out to change the balance of risk in tax. That is appropriate. Self assessment has, since the 1990s, been the basis on which UK taxpayers declare their tax liabilities i.e. it has been up to the taxpayer to declare all their income and to both calculate and settle the tax they owe and it is for HMRC to, by and large, check that process. This may not feel to be the case for those on PAYE, but nonetheless that is the essence of the system and as a matter of fact if a taxpayer submits a claim for a tax repayment on their tax return most are given the money they say they are owed without question being asked in the first instance. This is not just with regard to income tax; the same is also true for corporation tax and VAT.

Now before some shout I am well aware that there are mechanisms to delay repayment and that they can be put into operation, and are on occasion. My point is not that such mechanisms do not exist, but that there are now insufficient resources to make sure that they are used effectively. HMRC staff tell me that they think that too many repayments are being made where they think there should be intervention but there are not enough people with sufficient experience working at HMRC to make such decisions and so repayment is made inappropriately on more occasions then they think proper. I stress, this is anecdote, but I have no reason no reason to doubt its validity.

In that case is is, I think, unsurprising that the National Audit Office has highlighted the fact that the amount of debt HMRC has to write off as a result of its own mistakes has doubled in the last year, a matter I referred to here, whilst write offs of remaining irrecoverable debt remain significant at more than £5 billion a year.

The move on follower notices and accelerated payments are an attempt to recover £7 billion of debt, and that is welcome, but there is, I suspect, a bigger and ongoing issue out there of HMRC simply not having the resources to check repayments where there may be risk. If the balance of risk in tax is to change – and I think it is right that it should – then dedicating resources to checking repayment claims more thoroughly is a necessary next step. But right now HMRC is dispensing with too many of the staff engaged in the process. There is no sense in that.

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The budget deficit will not be cleared by 2019

Thu, 07/17/2014 - 09:34

The current Office for Budget Responsibility forecast is that the budget deficit will be cleared by 2019. The basis on which they make this rash assumption is growing tax receipts. I have offered this table analysing those receipts before, but it remains relevant and is based on the March 2014 forecasts:

It is, of course, good news that employment is rising now.

It is bad news that almost half of employment growth is in marginal self employed activity. I do not have the confidence of some that self employed earnings rise faster than wages in a recovery: that may have once held true but the underlying trend of self employed earnings is now inexorably down just as the trend in real earnings for most is down.

In that case I cannot see how tax revenue growth is going to significantly exceed the growth rate of the economy. It is obviously good news that more people are paying tax, but the danger is that the long term Treasury forecast has been built on long term trend data where overall income growth (largely fuelled by financial services) exceeded economic growth. That’s no longer true – especially as financial services employment is now falling.

And if my suspicion is right then there is no way tax revenue will balance the government’s books by 2019 even if it could deliver the cuts it is promising. It just won’t happen.

Someone needs to say it, and more than just me.

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The Spirt Level: the film is on its way

Thu, 07/17/2014 - 09:26
We need to fight inequality. Please watch this powerful film based around award-winning book The Spirit Level. And if you can please pre-buy your copy now and help them finish the film.

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Suppose no one really reads this at all?

Thu, 07/17/2014 - 06:26

Izabella Kaminska of the FT drew attention on Twitter to a blog on the apparent ability of GCHQ to manipulate the internet, as revealed by Edward Snowden. It is reported that they have a number of programs available:

  • Underpass is used to “change outcome of online polls.”

  • Slipstream and Gateway can be used to manipulate traffic to a website, inflating its page views and raising its search rank to alter perception of its popularity.

  • Gestator can be used for “amplification of a given message, normally video, on popular multimedia websites (Youtube).”

  • Clean Sweep allows GCHQ to “masquerade Facebook Wall Posts for individuals or entire countries.”

So, suppose no one reads this blog at all. Suppose this blog ranking for this site was fake?

But I seriously doubt that GCHQ would choose to rank this blog at number 1, so that seems pretty unlikely.

The point, though, is a serious one.  Google is no longer reliable with regard to the past and GCHQ can apparently fake internet traffic. How long is it before we lose faith in something we have come to rely on? I do wonder.

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