The next Labour Government will take action to develop a system which is robust and effective in the modern world, which supports investment and job creation, and deals effectively with the complexities of international business. It must be fair to all and transparent, so that it can be better understood by the public. We will consider how greater transparency around revenues, profits, and taxes paid could be delivered domestically if international agreement takes time to be reached. We will also examine the international lessons on how we can improve transfer pricing rules, so that the way in which companies allocate their profits for tax purposes is fair.
“These are the tax facts Labour should stand by and they have the aim of delivering:
- A progressive tax system that is fair to all
- A level playing field for all business
- Strong support for a stable economy
- Stability in the future” Unite
I welcome the first paragraph: it signals moves that are firmly in the right direction.
I also though I recognised the second paragraph from Unite, and then realised I wrote it (page 11, here).
This statement is also welcome:
Labour supports tough penalties on tax evasion and relentless action to close down loopholes that allow people and businesses to unfairly avoid tax. The current government is failing to tackle tax avoidance and evasion, with the value of the tax gap now £35 billion.
I do not, of course, agree with that last figure, but Labour’s tough stance on this issue is welcome, as is there openness to listen to the issues.
They also such a commitment to provide the resources to tackle the tax gap:
We need to ensure that HM Revenue and Customs has the right resources, expertise and specialists in different sectors
Whilst Labour has not succumbed to the prime minster’s absurd claim that the UK now has no tax havens, saying:
The next Labour Government will also ensure that action to tackle tax havens and tax avoidance is top of the international agenda. This will require work at a domestic, EU and international level, including looking at Britain’s Crown Dependencies and overseas territories. We will prioritise increasing transparency in the Crown Dependencies and overseas territories, including requiring UK tax havens to reveal the identity of British tax evaders. Leading by example is the best way to make the case for a proper EU regime. However, such an approach should not be at the expense of working towards international agreement on those important issues.
It is only fair to note that there has been progress on this issue under the current government: the commitment to maintain it is what is significant. The current government does already appear to have lost that commitment. It is, for example, now a major opponent of country-by-country reporting in Europe.
There is marked contrast between the parties here so I looked up Labour’s policy on tax havens which is in a document called “Tax avoidance: tax havens” published by the Stability and Prosperity Policy Commission in 2013. There I found another familiar quote:
“Whilst it’s true that no-one loves tax what is becoming clear is that people – not just activists, but ordinary people up and down the UK – do not like tax cheats and realise that the time has come to address the problems that they create in the UK economy. The time for a new approach to tax has arrived.”
That’s also by me (page 9) and there are others from me in there too.
But what I really like is quote in there not written by me:
“There could be a ‘Gold Star’ system for businesses who pay their full tax.”
Is Labour backing the Fair Tax Mark?
Having said which, can I make clear I am not a member of any political party and will work with any non-racist politician on tax issues if they ask for reasonable assistance.
I was paid to write the Unite submission.
Where did US quantitative easing funding end up? Andrew Smithers thinks he has the answer on the FT blog:
I am sure he is right.
That was why we did and do need green quantitative easing.
The FT has said this morning that the Office for Budget Responsibility has told George Osborne that there is a new £20 billion hole in his budget forecasts. The reason, it says, is that “while Britain has staged a remarkable recovery, indicators of the economy’s capacity for future growth have deteriorated.” This means that “with unemployment falling quickly, the figures show that companies may have little room to expand production rapidly.”
Unpacking that just a little suggests that what Osborne has delivered is a situation where his drive for austerity has had some extraordinary consequences. By slashing state investment and by cutting public spending in a process combined with an increase in VAT he guaranteed a fall in earnings capacity that reduced consumption and inevitably resulted in a private sector investment slump. At the same time his failure to reform banking meant that there was a credit squeeze for small and medium-sized businesses just as hundreds of thousands of people were forced into self-employment by changes in the benefit system, all of whom have, as a consequence, ended up in marginal and low productivity work.
This combination of events meant that state investment has fallen well below previous levels, there has been very limited net private sector investment by larger companies and very little investment by smaller companies whilst people are being forced into extremely marginal employment. It was, inevitable, as a result that productivity was going to fall, and any upturn in the economy was bound to be constrained as a consequence. The Office for Budget Responsibility has just realised this. Despite the fact that we have two million or more unemployed people in this country, with one million of them being young people ready and willing to work and open to training, there is, apparently, no capacity to employ them.
Despite this the goal is a balanced budget. Let me reiterate something I’ve said often: we do not need balance budgets, any more than we need budget surpluses. In an economy worth at least £1.5 trillion a year which issues its own currency and with inflation running at more than 2% on average a deficit of up to £30 billion a year simply represents standing still: it is the debt that can be afforded because of the fall in the value of money. Balancing the books in that situation is an absurd objective; it is simply an exercise in shrinking the state at a time when it is very obvious that the demand for state services exceeds that for private sector activity.
There is, however, more to it than that. As is very obvious, there are now very few state services that can now be cut without causing considerable hardship either directly through the imposition of poverty, ill-health, reduced life expectancy or unemployment or indirectly by reducing our long-term prospect for sustainable economic activity which has massive consequences for younger generations. As a result of further cuts would only increase the harm already caused by the programme of austerity. I would add, that with the exception of tax increases designed to reduce inequality (the 50p tax rate, new wealth taxes, reform of council tax so that higher value properties are appropriately charged, changes to corporation tax to penalise the accumulation of cash, etc) there is no justification for tax increases at the moment and the opposite may be true: we can actually do with tax cuts to improve people’s living standards, with VAT being the obvious place to start.
In that case, where is the money to come from to create the new productivity that is required in our economy? I’ve said it before, and I will say it again; there are three sources.
The first is closing the tax gap. I will be writing much more on this over the next few months.
The second is green quantitative easing, whose time has surely come.
Thirdly, as I have also argued, the time has come for a levy on pension funds where I have proposed that 25% of all new contributions should be directed towards the creation of new employment activity, whether in the UK or not (to deal with EU lawyers’ concerns), with tax relief being denied on contributions made of this target is not met.
In combination I believe that these three sources of finance could release a wall of cash to fund the investment that we need in the UK economy to deliver the growth that will be sustainable into the future, produce a low carbon economy, create employment, reverse the current decline and provide us with that missing part of the economic equation that Osborne has so effectively destroyed, which is hope.
There is, however, no prospect that George Osborne will deliver this. Regrettably, so strong is the economic consensus, no one else appears to want to do so either. We are stuck in a malaise created by the poverty of our economic thinking and not by the reality of our economic potential. That’s what’s so sad about the predictability of George Osborne’s response to this latest forecast, which will be yet more cuts.
The Guardian has an editorial today that marks the fact that we have had a o.5% bank base rate in the UK for five years now, a wholly unprecedented period both in terms of the rate being so low and, in any modern era, for consistency.
The web link for the editorial supposedly summarises its argument as follows:
Given the scale of the calamity that hit the economy in 2008, worklessness has been nothing like as bad as we had any right to expect
I can’t disagree, but in a very qualified way given the arguments the Guardian makes. I was far from alone in expecting unemployment rates to rise well above current levels as the crisis emerged between 2008 and 2010. Of course I am pleased that has not happened, but let’s be clear about two things. The first is that this may not have much to do with low interest rates and second that there have been massive opportunities that such low rates offered that have been foregone during this period and the Guardian has overlooked these issues.
Why have unemployment rates being lower than expected not been the sole result of low interest rates? I’ll suggest three reasons. First, as my research has shown, that containment of unemployment has been in no small pat due to the creation of an army of self employed people earning very low profits in what are likely to be very low productivity businesses utilising very little capital where interest rates have little or no impact on the cost base as a result.
Second, we know that many more jobs have been kept going because of zero hours and minimum wage contracts that have again passed the cost of unemployment onto employees whilst preserving the profits of UK businesses, which have seen an upward trend over this period in terms of GDP share once the initial blip of 2008 was cleared.
Third, the behavioural trend no one expected was the inclination of business to hang on to staff in this recession. This was made possible by the changes in terms and conditions noted above but also another factor that the Guardian ignores, which is that whilst interest rates remained positive (at least nominally, and in the market place for all borrowers but the government, actually in practice) wage rates have fallen considerably, with most in the UK seeing their standard of living fall over this period as a result.
It is these three factors which have prevented rising unemployment, albeit that they have not helped the young, who were not in the market in 2008 and so were not in the happy position of being retained by anyone.
For them though the second issue, the failure to exploit low interest rates for economic advantage in a variety of ways has been the big issue which explains why they have been and are still being denied economic hope. This is where the failure to embrace the fundamental Keynesian logic of keeping long term interest rates low to stimulate investment as the return on money is deliberately kept low has not been grabbed by either business or, most particularly, government.
We know business has not done this: big business is sitting on an enormous cash pile it has no clue what to do with and which it has certainly not been pushing into new productive investment.
We know small business has not been investing because the benefit of low interest rates has not been passed onto it in the form of affordable credit by the UK banking system.
And, worst of all, government has been dogmatically refusing to invest when doing so had no net interest cost to it, such have been gilt yields. So, far from interest rates having helped employment the opportunity for them to do so has largely been squandered. Nearly free money has, quite literally, gone to waste when it could have been transforming the UK economy.
We have instead had all the adverse affects of this monetary policy. Pensioners, in particular, have suffered. But so too have we all, and mainly because of the rhetoric surrounding this issue rather than any necessity flowing from it.
First of all that is because austerity has been promoted because of an artificially promoted fear of borrowing that was supposed to push the cost of interest and the burden of debt repayment onto future generations. And yet, as the FT notes today in an article to mark the same anniversary, quantitative easing (which the Guardian editorial ignored) has neutered much of that argument. In an effective admission that something I have long argued to be the case has actually happened, the government has now decided that the cost of interest paid on gilts purchased by the Bank of England under quantitative easing arrangements will no longer be treated as a cost to the government because it simply round trips back into the government’s own coffers. This £375 billion of gilt funding has therefore, effectively, been monetised as a result and this part of the national debt has, for all practical purposes been cancelled for good. You can now safely assume it will never be repaid.
And yet, despite the fact that it was always obvious that this was going to be the case, it was said that we had to have austerity to keep debt and interest payments under control. It is now obvious that this was a straightforward lie. In that case now is the time for all politicians to admit that debt is not the problem it has been claimed to be, and nor are interest payments the burden on the public purse that has also been claimed. What is more, now that this can be admitted it is also time to admit that we could now issue more debt if we wanted to in exactly the same way that was done with quantitative easing but on this occasion to promote employment. The way to ensure that would work would be to issue this through what I have long called green quantitative easing.
This would have been the way to use low interest rates to achieve three things: lower unemployment, sustainable economic growth and the investment in infrastructure that this country really needs. That opportunity has been squandered and in my opinion that is the point to note on this anniversary. Yes, it’s good that unemployment did not reach 4 million, but there is nothing to celebrate in the reasons for it not doing so. Nor is there anything to celebrate in the opportunity lost over the last five years to rebuild our economy at almost no cost. Celebrating a near miss is not the same thing as celebrating a success, but a near miss is the best that we got. No one should not be hanging out any flags.
Japan considers tax on Bitcoin transactions as part of crackdown
There is one good reason for Japan wanting to do this: it has come to the apparent conclusion that Bitcoin is a commodity used for speculative purposes and not primarily as a currency just as the UK has come to the reverse (incorrect, I think) conclusion.
Japan also wants to impose a tax after the collapse of two Bitcoin exchanges within days of each other leading to the loss of significant numbers of the supposedly always traceable currency, giving a lie to its supposed transparent quality for crime-beating purposes and to its merit as a regulation free zone. Tax, it is thought by Japan, would help impose that regulation.
It looks like HMRC made the wrong decision at the wrong time. There’s always time to reverse it.
HMRC have this week given publicity to their initial estimate of the VAT tax gap for 2012 – 13. This is their estimate of the amount of VAT that should have been paid if UK law had been complied with compared to the amount of VAT that was actually received by them in that year. This is what it looks like:
I will have a lot more to say on this issue shortly. Suffice for now to say that the VAT tax gap has increased and That cannot be down to changes in VAT rates on this occasion: this must be down to inadequate resources.
The simple fact is, you cannot sacks staff at HMRC without consequences. This increase in the VAT tax gap is one of them.
A functioning democracy in Ukraine would be welcome, but we should be as worried about its demise in the UK
Martin Wolf argues in the FT this morning that there are four condition for democracy. They are, he says, citizens committed to the process; guardians committed to defending democracy including opposition politicians; free and open markets and, lastly, the rule of law. I am surprised that he did not refer to a free press, but I suspect that they fall into his category of guardians of democracy. This apart, I think his analysis powerful and appropriate.
There is, however, a problem, and I think that Martin Wolf knows this. Within neoliberal systems, and within the states that the neoliberal system has promoted, including Russia, these conditions either do not exist or they are being progressively undermined.
We do not, for example, have free and open markets. The tax haven systems of the world are designed to undermine such markets, just as they are designed to undermine the concept of citizenship by removing many from the obligations of the states in which they either reside or trade or make their income.
The concept of citizenship is also under attack: there are those who now say that unless a person pays tax they should not have the right to vote. It is, I agree, a minority view, but one that would not have been heard very long ago.
And, as for the guardians, as I argued in The Courageous State, politicians of all the major parties in the UK have been committed to the idea that government is necessarily dysfunctional and that markets and competition provide the answer to all economic allocation problems. That is clear indication of their failure to act as guardians of democracy when it is very obvious that the state has, as one of its functions, to correct the externalities that markets create.
As for the rule of law, our lawyers in this country are on strike on Friday because of the denial of justice to too many on the basis of their inability to pay, a process that inevitably undermines the rule of law by creating inequality in access to justice.
Martin Wolf wrote about the creation of democracy in Ukraine. That would be a good outcome for the current crisis in that country. I would welcome it. But, equally, I look forward to the guardians of democracy standing up for it in this country, and do so, too often, in despair rather than any realistic hope.
I am pleased to note that seven political parties are represented in the list.
The essence of this guidance is that trading in bit coins is now not subject to VAT, whilst trading recorded in bit coins is now definitely subject to taxation in the same way as any other income.
However, the key differential factor with regard to bit coins is that this is a ‘ cryptocurrency’ about which HM RC say, in a release laden with gobbledygook:Purpose of this Brief
This brief sets out HM Revenue & Customs (HMRC) position on the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies, specifically for Value Added Tax (VAT), Corporation Tax (CT), Income Tax (IT) and Capital Gains Tax (CGT).Readership
Anyone making charges or otherwise receiving income, in whatever form, from activities involving Bitcoin (or other cryptocurrencies), including:
- Bitcoin miners
- Bitcoin traders
- Bitcoin exchanges
- Bitcoin payment processers
- Other Bitcoin service providers
Bitcoin is seen as the world’s first decentralised digital currency, otherwise known as a ‘cryptocurrency’. The advent of cryptocurrencies such as Bitcoin is a new and evolving area and determining their legal and regulatory status is ongoing. Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.
HMRC understands that Bitcoin operates via a peer to peer network, independent of any central authority or bank. All functions such as issue, transaction processing and verification are managed collectively by this network. All Bitcoin transactions are recorded in a shared public database called a ‘block-chain’. New Bitcoin is produced when a new block is attached to the chain. A new block can only be added to the chain when the answer to a complex cryptographic algorithm is solved. Participants in this activity are known as ‘miners’.
As well as mining, activities include the buying and selling of Bitcoin and providing exchange facilities for parties to trade Bitcoin with recognised currencies. Bitcoin may be held as an investment or used to pay for goods or services at merchants where it is accepted. In the UK, there are already a number of outlets, including pubs, restaurants and internet retailers, that accept payment by Bitcoin.
The unique characteristic of this currency is, therefore, that a user can create it. This is the supposed adapter at it called ‘mining’. This is and activity giving rise to profit that is equivalent to the age-old right of governments called seignorage: that is, the surplus that arises when a unit of currency is created.
There is no hint in the release as to how that surplus is to be taxed. As a result it is clear that HMRC have missed the biggest potential challenge from Bitcoins, which is that they claim a right of government, attributable to a state, which is to make a surplus from the creation of the medium of exchange. In the process they duck the fundamental destabilising nature of this activity which is intended to create a currency that is beyond the reach of taxation. As an exercise in opening the barn door and letting the horses bolt, this is a particularly good example.
There is a debate in Westminster today on the closure of HMRC’s Enquiry Centres, all of which are due to close in the next three months with up to 1,300 compulsory redundancies arising as a result.
PCS is the union that represents many of these staff, and as many readers of this blog will know, I have worked with that union over a number of years. They have issued the following briefing in advance of this debate and I think it worth sharing it here:
PCS welcome the Westminster Hall debate secured by Ian Lavery MP on the closure of HMRC enquiry centre closures.
Enquiry Centres provide a vital public service, which allows taxpayers to access free, expert advice from highly skilled HMRC staff.
On 12 February HMRC announced that a Needs Enhanced Support (NES) service model will be rolled out and will result in the closure of HMRC’s entire Enquiry Centre network, consisting of 281 offices, would close by the end of June 2014, putting 1,300 HMRC jobs at risk of compulsory redundancy.
The most likely taxpayers who will be prevented from accessing the proposed new service due to cost are the unemployed, those on low incomes such as migrant workers, pensioners and child benefit and child tax credit claimants. These taxpayers rely heavily on the free service currently provided at enquiry centres.
During 2012, 2.5 million taxpayers visited HMRC enquiry centres and 340,885 made a face-to-face appointment with a member of staff in order to comply with their tax duties and receive advice on their benefit entitlement. Enquiry Centres also provide free telephone lines and internet access to taxpayers.
If the closures go ahead, taxpayers will no longer be able to walk into an enquiry centre to receive assistance. The current service will be replaced by a tailored telephony service and customers will be required to phone a contact centre that, after vetting them, may refer them to another advisor. Only if the ‘tier two advisor’ deems it appropriate will a taxpayer who is classed as ‘Needs Enhanced Support’ be given the option of a ‘tier three’ face-to-face appointment.
HMRC commenced a pilot of the NES model in the North East of England in June last year.
The NES model consists of a triage function to identify customers that require extra support at the point of contact. However, all initial customer contact, with the exception of deaf customers or those with speech impairments (who have the option to use an online form to request a face to face appointment) will be by telephone to HMRC’s Contact Centres.
By the end of September, with only 10 per cent of the anticipated call volumes for the enhanced support telephone advisors, HMRC extended the scope so that any caller could qualify for extra support, whether they needed it or not, even if they lived outside of the pilot area. The pilot, which was due to end in October, was extended the pilot until the end of 2013, leaving little time for a thorough evaluation to take place prior to the decision being made. PCS is concerned that HMRC changed the criteria to justify their predetermined conclusion of the pilot.
The enquiry centres in the pilot area have remained closed in 2014. However, some had to be reopened in late January to allow customers to use the free internet facilities because contact centres were struggling with caller demand ahead of the self assessment deadline.
HMRC’s contact centres are significantly under staffed and not resourced to deal with additional calls. The Public Accounts Committee has been critical of call handling and set HMRC a performance target of 90% of calls for 2013-14. Performance for December 2013 was 76.2% with HMRC accepting that it is unable to meet their 2013-14 targets. Poor performance levels are likely to decrease significantly from April 2014 when HMRC decide whether to end the contracts of the 3,000 Fixed Term Appointment staff recruited in 2011. 89.84% of calls went unanswered on the tax credit renewal date on 31 July 2013.
It was identified early on during the pilot that significant numbers of customers will not be able to call contact centres or interact with the website due to cost and low or mobile/internet access in many parts of the UK. HMRC have agreed that alternative access solutions would need to be identified if the new model was to be successfully rolled out nationally without reducing the number of taxpayers who voluntarily engage with HMRC. PCS is concerned that such solutions have not been found.
The inability to access the service via broadband was highlighted in the public consultation exercise responses as a fault in the proposed new service model by stakeholders, particularly those in Wales – as detailed in the response submitted by Powys County Council.
PCS is concerned that unless a solution is found to address access it will increase the number of taxpayers prevented from engaging with HMRC. The department has done no work to estimate the amount of revenue that could be lost from uncollected tax due to this problem. Similar concerns were raised by a large number of stakeholders in their consultation responses, including the Association of Taxation Technicians, Citizen Advice Bureau, Diverse Cymru, Gingerbread, Institute of Chartered Accounts in England and Wales, Lancaster City Council, Milton Keynes Council, TaxAid, a number of individual tax payers.
PCS is concerned if a decision is taken to close its enquiry centre network HMRC have not provided evidence that they have complied with Section 149 of the Equality Act 2010 (the PSED) and Section 75 of the Northern Ireland Act 1998 which requires Government Departments and Ministers of the Crown to have ‘due regard’ to the need to eliminate unlawful discrimination, advance equality of opportunity and foster good relations.
HMRC has refused to negotiate or consult with PCS over these plans. A detailed evaluation and options paper were presented to HMRC’s Executive Board prior to their decision in January – neither document was shared with PCS before a decision was taken on the future of enquiry centres.
The first meeting scheduled with the Minister David Gauke MP over the closures, will not take place until the morning of this Westminster Hall debate. A meeting that was agreed to by his office after the debate was announced.
We urge MPs to use the opportunity of the Westminster Hall debate to raise concerns about the closures with the Minister.
Jonathan Ostry, the deputy director of the IMF’s research department, has an article in the FT this morning concerning the paper he and colleagues published last week on the relationship between equality, taxation, redistribution and growth.
This is an important paper, the findings of which need to be widely known and the article makes clear the views are those of the author so I share his conclusions here. They are:
First, inequality matters, not only for its own sake but also because it makes an important difference to the level of economic growth. More unequal societies have slower and more fragile economic growth. It would thus be a mistake to imagine that we can focus on economic growth and let inequality take care of itself. Importantly, we established that growth is faster in more equal societies than in less equal ones, regardless of whether they have highly redistributive tax systems. The lower growth observed in highly unequal societies does not seem to be a side-effect of redistribution, as some people have claimed.
Second, we found little to suggest that a modestly redistributive tax system has an adverse effect on growth. True, there are some signs that highly redistributive tax systems – the top 25 per cent of our sample – may crimp economic performance. But the levels of redistribution seen on average in the broad cross-section of countries we looked at seem to have had negligible direct effects on growth.
Put these two observations together and you come to an important conclusion for policy. Making the tax system modestly more redistributive seems to have little direct effect on growth.
In fact, this understates, if anything the conclusion they reached. They say that even large scale redistribution does not appear to harm growth.
The article, I know, comes with a few caveats attached but the message is clear: the argument that redistributive tax policies (such as a 50p tax rate in the UK) harm growth has been holed well and truly below the water line.
In unequal societies it is now clear that if we want innovation, opportunity, jobs and growth then tackling inequality through progressive taxation is a very clear way to achieve that goal.
I have already discussed the likely reasons for this finding: what we now have to ensure is that this is widely known and understood.
According to the Guardian, David Cameron will today “repeat Margaret Thatcher's mantra that there is no such thing as government money – only taxpayers' money.”
This is an interesting idea, largely because it is completely wrong but also because of the status it has been given by those seeking to diminish the role of the government.
Let's consider firstly why the claim is wrong. One of the simplest ways to prove this is to simply go and ask for your share of the money back. Oddly, given what Cameron is saying, you will not find that there is any part of thegovernment's money that is earmarked as yours. That, of course, is because none is.
Second, try not paying what the government thinks you owe it and see what happens. Assuming there are staff still in the relevant HMRC office you will find they will firstly take a dim view of your approach and will secondly begin legal proceedings to recover the sum you owe. Any defence that you offer along the lines that the Prime Minister says that the government only hastaxpayers' money will not help you; you will discover that the law thinks that what David Cameron is saying is yours very definitely belongs to the government.
That, of course, as a matter of fact, is true. The law of property is created in this country in exactly the same way that the law of tax is created: parliament considers a matter and passes an Act and it becomes law. And parliament has decreed time and again that if you earn certain forms of income (most of them, in fact), buy many goods and services, own, dispose of or gift certain assets (even if involuntarily on death), move some things out of the UK or transfer your right to do many of these things to a company, trust of partnership then you will pay tax in some form or other, subject to any allowances or reliefs it too has chosen to give.
This means that the fact is, as I have often argued, that you actually do not ever have an unimpeded right to that part of your income that you owe in tax. That said, you may have the legal right to claim, in some situations such as when in self employment, the full sum owing to you by a customer out of which tax will be paid. If you're an employee you don't even have that right: you can only claim your income after tax has been deducted at source. But the reality is that the self-employed person (or company) is really in exactly the same boat, as is shown to be the case if VAT charged is part of the sum due by the customer. In that case the self-employed person has the absolute right to recover the full sum due to them, including by suing for it if need be, but that never makes the VAT their property. They always collected that for the government and that is to whom it belongs.
The same is true of the income tax (or corporation tax) that the self employed person owes to the government. This money never belonged to the taxpayer. It always belonged to the government and the lability to pay it always existed, even if the precise amount could not be certain at the time it was received. The taxpayer could of course have spent it all, and some rather unwisely do, but bankruptcy courts tend to beckon those who go down this route.
The simple fact is then that you only ever have a legal entitlement to your income (and any other property you own, come to that) after the tax due as a result of the process of acquiring or owning or using it has been paid. It's your net income after tax that you own; the rest very definitely belongs to the government. If is partly because we all innately know that is the case that we find tax cheats so offensive.
So why will David Cameron so blatantly misrepresent the truth today? Does he really not understand the rights of the organisation he heads? Or is it that he is being deliberately misleading?
I very strongly suspect that Cameron is, like Thatcher before him, spinning a deliberate falsehood for political reasons. So what is he trying to say?
First he is suggesting the insignificance of government. It 'has no money of its own; its a nothing'.
Second, he's breeding resentment: 'the government's got your money'.
Third, he's trying to undermine the supply of services by the government: 'you could spend this money better'. It is odd how this changed in the face of flooding but has now been forgotten again.
Fourth, he is, of course, arguing against redistribution by the government: 'it's your money the government gives away to benefit scroungers' is the sinister message he is making.
And he is undermining the collective responsibility of democracy: 'take back what is yours' he is saying instead.
This is cynical manipulation. It's just not true. And maybe someone should challenge him on it. They could start with a very basic point. Hand him a fiver and ask whose it is? Who created that note? Who protects its value? Who enforces any claim to its ownership by an individual? Who demands it be accepted a legal tender? No individual does any of those things: the government does. In that case the taxpayer's money only exists because of government action.
So whose money is it? Cameron's claim is bizarre.
It's ad wrong, of course, as it would be for him to say he is not democratically accountable for the good stewardship of government funds for which he must be held responsible. But that's a very different claim indeed.
The level of interest in last week’s post on the Fair Tax Mark has been such that we want to say some more about it and encourage further debate on the issue.
Why was ICAEW supportive in principle? Because we believe – and always have believed – that reasonable measures designed to increase transparency in company accounts should be welcomed. This includes disclosure of tax related information.
If a company wishes to disclose more about its tax position than is required by law then it is free to do so, just as a company wishing to stick rigidly to minimum disclosure required by law is free to do so. This freedom of choice is a fundamental right in our society.
The letter of the law must always be respected. If the law isn’t delivering the result Parliament intended then it should be changed. When the discussion moves away from the actual letter of the law to the more subjective spirit of the law, to fairness and to parliament’s intentions, different people inevitably have different interpretations. That is as true of ICAEW Chartered Accountants as it is of any other section of society.
We would have grave reservations about a Fair Tax Mark that was awarded by a self-appointed group. Such a mark would have little credibility. In the version that was launched last week, steps have been taken to address this concern. The Mark is applied for, not awarded and no company is obliged to apply. In the main, the criteria seem to us to be those many companies already meet. It gives UK companies wishing to make a public statement about their tax affairs an opportunity to do so, should they wish.
As it currently stands therefore ICAEW sees the Fair Tax Mark in its new guise as a positive development.
It is not without its challenges and, as you would expect we have some reservations. We disagree, for example, that only corporation tax is important in measuring a company’s contribution. Employers’ NIC is a real cost to employers and a real tax burden. PAYE and VAT may be collected on behalf of government rather than being borne by the company but if the company did not employ the individuals or generate the sales in the first place, there would be no PAYE or VAT to collect.
We also believe that it is wrong to dismiss the idea that companies consider tax rates when deciding whether or not to locate in the UK. Views differ and there is an equally valid view that if the UK tax regime is attractive then more companies will locate here and the tax base will expand. If this results in more tax flowing into the Treasury then that must be good for the UK.
The Fair Tax Mark is also initially only available to companies that trade solely in the UK. A similar mark is surely appropriate for unincorporated businesses. Extending the mark to UK-owned multinationals and to foreign-owned multinationals with subsidiaries in the UK will pose some considerable challenges.
Finally, there must be total transparency and consistency in the criteria for assessing ‘fairness’ if the mark is to achieve the necessary credibility. The mark must explain how and why its assessment differs from that of any relevant authorities if their assessment of ‘fair’ and ‘right’ is to be widely accepted.
We would not support a mark that was imposed or one that involved companies being branded for failure to sign up. We do support freedom of choice and believe it is right that consumers should be concerned about the attitude that businesses take to tax.
In short we believe that the Fair Tax Mark is a positive development but that to succeed it needs further work and above all it must be seen as clearly independent in the same way as accounting standards.
I welcome this statement: it remains broadly positive about the Fair Tax Mark. How could I object to that?
The Institute reflects some comments made by others. For example, there appears to be demand for a Fair Tax Mark for unincorporated businesses alto Institute offers no better clue as to how this can be offered when such the businesses are not required to put their accounts on public record than any other commentator has to date. I would be interested to discuss this with them.
Likewise, the Institute suggests that governance is a key issue. Maybe they would like to nominate a representative to work with us?
What I can say is that we are very definitely open to all developments so long as they serve the best interests of consumers who wish to decide between companies on the basis of their tax compliance because that is the core of what we are about.
The government published new data on the income of the self employed, employed and pensioners last week. The information was by constituency; I have, to make it manageable, made it regional, and to give you a chance of reading it taken out pension data and information on tax paid (although the whole regional table is at the bottom if you want to look at it: click to make it bigger):
I sorted the data on total median income.
This data could withstand a lot of scrutiny but let’s just touch on the obvious. First, median self employed income is on average (and it varies little) half of median employed income. There are three options: the self employed don’t declare half their income, or this differential is fact, or something between the two.
Second, the mean income of the self employed in London (those many politicians will meet) is 82% of mean income. This is totally aberrant compared to the rest of the UK as a ratio and by amount. In some constituencies that mean is over £80,000 income. The result is politicians think the self-employed are having a great time.
Actually, all those new self employed jobs are worse than poverty income for most.
This is deeply troubling.
In 2009 the Tax Justice Network published its first Financial Secrecy Index, a project I directed in its first iteration (but not since). It was, as a result, at least to me, quite critical that it be explained why secrecy was (and remains) the key issue of concern with regard to the activities that the locations in question facilitate and deliberately permit.
To put this in context, for the TJN that secrecy has always been key to tax abuse.
For others, such as Global Witness, the key issue has been corruption.
Crime has, of course, always been an issue of concern for others: that is the focus of much money laundering attention.
However, the paper I wrote to explain the significance of secrecy jurisdictions highlighted what I think to be an issue if even greater concern that has not, as yet, received the attention it deserves. My paper was called ‘Defining the Secrecy World: Rethinking the language of ‘offshore’. It was successful in one way: my use of the term secrecy jurisdiction has become widespread as a result, although I stress, I did not coin it; I did instead give it a clear definition.
However, what I really sought to do was describe what I called the ‘secrecy space’ within the ‘secrecy world’. I argued was in 2009, and still think now, that this relationship is fundamental to the way in which global capitalism works. I did, as a result argue, that a major misconception about financial transparency concerns the assumption that this ‘secrecy world’ where so much of the world’s trading and the vast majority of its shadow banking is recorded is geographically located: it is not. As I wrote then:
it is instead a space that has no specific location. This space is created by tax haven legislation which assumes that the entities registered in such places are ‘elsewhere’ for operational purposes, i.e. they do not trade within the domain of the tax haven, and no information is sought about where trade actually occurs… To locate these transactions in a place is not only impossible in many cases, it is also futile: they are not intended to be and cannot be located in that way. They float over and around the locations which are used to facilitate their existence as if in an unregulated ether.
That thinking is key to much if what I seek to do. I stress though; I am not saying these transactions are not recorded. Those of big commercial organisations (at least) are, necessarily, recorded. Even many of the criminal ones are recorded, at least so far as they impact on banking. The key point is not that: the key issue is that they are recorded in places where they do not occur which have decided for their own purposes that they are indifferent to the consequences of the transactions on this places where they actually have economic impact.
So, for example, no one really thinks there are hedge funds based in Cayman. We all know that the hedge fund managers in Mayfair and New York really operate these funds. But Cayman provides the secrecy jurisdiction that permits the creation of the secrecy space in which these transactions can take place, apparently unaccountably to anyone. That’s the significance of ‘elsewhere’ in the language of offshore that I created. It means that transactions are recorded that are known to have significance ‘elsewhere’ but with no question being asked about where that other place might be, or what the consequence for that place that might flow from them are.
Let me give another example. Google claims to sell advertising from Ireland to Indian advertisers. No one really believes that the economic substance of these transactions arises in Ireland. Google, we now know from UK Public Accounts Committee hearings, employs local marketing teams around the world on relatively higher salaries than are paid to the Irish team who supposedly close these sales. As Margaret Hodge MP clearly concluded, it is with those local marketing organisations that the economic substance of these transactions lies. It’s an affront to our intelligence for it to be claimed otherwise, and it’s that arrogance of that claim that has harmed Google’s reputation. But Ireland has created a secrecy jurisdiction that permits these transactions to be recorded without concern for the economic consequences or facts ‘elsewhere’. And it is, let’s be clear, secret: we do not know those consequences and that is not by chance; it is by design. It so happens that Google’s accounts, prepared as they are on a consolidated basis, which mean many transactions material to understanding its affairs are hidden from view, that facilitate this process.
That is why we need country-by-country reporting: we need to know what the consequences of these secrecy spaces are. We can measure it only be the shadows it leaves: that is the mismatch between what we know from prima facie evidence occurs (the sales by Google in India and many other countries) and the story told that this is not the case in the accounts of Google.
Tax havens claim they are ceasing to have that status. The claim is that automatic information exchange will end their harmful practices. I dispute that. Tax evasion is only one of the harmful practices they permit. The permission they grant to the world’s multinational corporations to operate unaccountably through the secrecy spaces they create may well be as pernicious, or worse. That secrecy has to be removed because it is what is undermining democracy, our way of life, our economic well being and the services we need to survive as communities. The battle against secrecy jurisdictions has a long way to go yet.
Note: The definition I gave to secrecy jurisdictions was:
Firstly, secrecy jurisdictions create regulation that they know is primarily of benefit and use to those not resident in their geographical domain.
Second, secrecy jurisdictions create a deliberate, and legally backed, veil of secrecy that ensures that those from outside that jurisdiction making use of its regulation cannot be identified to be doing so.
I wrote a series of tweets last night on the break down of the old tax consensus that was the foundation of much of post war prosperity in the UK. I put them on the blog, here. It may be worth explaining why I wrote them. On Saturday night I began another of my not infrequent disagreements with Prof Judith Freedman at the Oxford Centre for Business Taxation. This was the exchange: The article Judith Freedman referred to is here. So why did I think it boringly predictable? The list is long.
You could start with the patronising tone: that’s the Oxford Centre for Business Taxation all over. I have academics queuing up to tell me how offensive they find its tone to be. Civil society is treated, as in the article, as a bunch of simpletons to whom a few academic home truths need to be recounted.
Second, there’s the fact that the argument is, after the patronisation, decontextualised. The possibility that a financial transactions tax (FTT) was proposed precisely because it may reduce the risk that is imposed on society by financial markets is ignored in the discussion. It is assumed that the only purpose of the tax is to raise revenue. This is a typical neoliberal perversion on taxation. It is assumed by neoliberals that whatever the market might want to do is right and therefore any use of tax to alter those outcomes is wrong. Here, the argument is made by simply ignoring the possibility it might exist.
Third, the fact that the incidence of the tax may well be on bankers and their bonuses is ignored; a disingenuous claim (admittedly stated with less stridence that usual) is made that unspecified final consumers may suffer is offered instead. This is not a technical argument. Technical arguments would consider possibilities and state them all: this is deliberate one-sided suggestion that the mainstream reader may suffer alone and is therefore mistaken in their simplistic belief in the tax which the assured technocrat author is telling them, in thinly veiled code, might hit their pension. Actually, I strongly believe the reverse is the truth. An FTT will hit the churning which currently denudes many pensions of any increase in value. The fact that this argument is not considered makes clear there is nothing technical about this article.
And then the straw man is offered. Although an FTT is not a tax on wealth as it is a tax on trading it is suggested that a wealth tax be introduced instead. But I know this is a straw man because in the Mirrlees review, an Oxford Centre for Business Taxation production by proxy, the following is said of wealth taxes:
Levying a tax on the stock of wealth is not appealing.
In substance that sentence is the entire consideration of the issue as far as consideration of wealth tax goes, and it’s very clearly not technical; it’s subjective opinion, even in the form of its drafting. From then on Mirrlees only considers taxes on wealth transfers, which are not the same thing. That’s why I can say this is a straw man argument: the author must have known that if the idea was adopted by the charities and NGOs proposing the FTT it could also be dismissed on the same ‘technical’ basis used for the FTT.
So my argument is? It is simply that then neoliberal view: a deeply subjective view based on a view of the human being as a rational being in which markets always provide best solutions, not because they actually do, but because of the assumptions made by theoreticians that are intended to guarantee this outcome in their limited world view based solely on their belief in a mathematical reduction of human behaviour. There is nothing technical about this apart from the faux maths involved, it is a subjective choice that is offered and one that happens to neatly coincide with the neoliberal inclinations of the sponsors of such bodies as the Oxford Centre for Business Taxation, all of which are antithetical to the world view of the likes of Oxfam and the Robin Hood Tax campaign with its ‘irrational’ concern for redistribution of wealth, the externalities of markets and social justice, all of which are dismissed as irrelevant, or simply hysterical.
How do I know that? This was Judith Freedman’s reaction to what I wrote:
Oh dear: poor little subjective me with my concerns for human well-being that are leaving me overwrought. She followed up with this:
Unless, of course, she really does not know where it comes from. But in that case she Oxford need to wonder why she has a chair.
I haven’t always got my calls on the stock exchange right. No one does. Bu what I have said, consistently, is that the current market has been overvalued for some time. The fundamentals of consumer demand to support current values do not exist; QE funding has distorted markets, companies themselves have no clue what to do with the money they’ve got and we have a cohort of company leaders who are intent on extracting value for themselves and not making it for others. Add that up and there’s no way markets should be near all time peaks, even though they are (and yes, I do know indexation has an impact here).
I’m not alone in thinking this. The FT reports today:
US stocks are being propelled to fresh highs by investors borrowing a record amount of money in a high stakes gamble that is raising concerns over the potential for a sharp correction in the five-year bull run.
With the S&P 500 registering a fresh closing peak of 1,859.45 last week, margin debt – money borrowed to buy stocks – hit a record level in January, according to data from the New York Stock Exchange.
Peaks in the use of borrowed money have in the past been a precursor to big bear markets and viewed as a warning sign.
We’re living in a speculative bubble. And we all know what happens to them.
This isn’t as worrying as what’ happening in Ukraine. But add it to your list. It should be there.
The Testosterone Pit (not a name I would have chosen) has an article out this week that shows in just one graph what the US problem with corporate tax receipts is:
The source is Ralph Dillon at Global Link Data.
That’s also a clear indication of where a major source of the inequality problem comes from. The graph starts in 1947 and runs to 2012 (it is a bit hard to read that) and the blue line is US corporate profits and the red line federal corporate taxes. Tax havens, lobbying and tax avoidance fuelled the gap: we pay the price in economic stagnation.
This is the Chinese Bubble in a graph from the FT, this morning:
There are now three credit cards for every Chinese mainlander.
I believe in the need for credit, but I also believe in the control of credit. This looks out of control.
There’s a lot of potential for this to end in tears.