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Richard Murphy on tax and economics

How much is Apple on the hook for in Ireland? Or, how long’s a piece of string?

Tue, 09/30/2014 - 15:58

I’ve already explained I think Apple and Ireland have little way out of the allegations levied by the EU. But, how much is Apple on the line for?

Heather Self has said in the Wall Street Journal that she thinks it may be €200 million. I think that’s ball park fair.

BUT, (and I don’t  use capital letters in that way often)  there is another option here which could mean that Apple are exposed to considerably more liability.

My logic is that the companies that are being looked at are Irish incorporated companies that are not resident in Ireland.  Therefore, the estimate of additional tax Heather Self has, I think, made is is based solely on those taxes on profits arising within their Irish operations. That is  because although these companies were Irish incorporated they effectively only ran permanent establishments in Ireland which gave rise to profits in a branch in that country which were then, supposedly, subject to tax, although as the EU has shown, that may not have been appropriately charged. I have no doubt Apple would argue that the rest of the profits were elsewhere i.e. not in Ireland and so not taxable there under its territorial taxation rules.

Now, I cannot see how the European Commission could overturn Ireland’s right to have territorial tax system when a number of countries within the EU have such an arrangement, so there is little prospect of that being challenged.  There is, however, another potential challenge.  The fact is that whilst these companies claim to be not resident in Ireland it seems that for all practical purposes all their staff and all their activity was really undertaken in that country. What is more, Apple told a US investigation these companies were not in fact resident nowhere.  In that case the obvious question to ask is how did the Irish tax authorities decide what part of the total income was attributable to Ireland when there was in fact no basis for attributing any of the income to another place, when the company was nowhere else?  If it had been somewhere else then of course income could be attributed to that other place but when it was nowhere else how could any profit be allocated to somewhere which, by definition, was non-existent?

So, the question then arises as to whether Ireland in fact provided a second element of state aid by turning a blind eye to this fact that the companies in question were in fact, for all practical purposes, stateless except with regard to that part of profit that they negotiated might be attributable to the operations within Ireland.

I put this forward as conjecture, but if I was working for the Commission I would most certainly be interested in trying out this line of argument in the amount of charge to be imposed because at that point the scenario of penalty due changes completely.

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More comment on Apple and Ireland

Tue, 09/30/2014 - 15:11

I have been asked by many people for more comment on Apple and Ireland and what it might mean. I just wrote this and will share it:

Corporate taxes are based on tax adjusted profits and losses i.e. they start from accounting data and end up with a tax charge. There are numerous adjustments that can be made on the way, one of which relates to transfer pricing, which means that the profit at one end of a transaction is adjusted with the expectation that there should be a matching equal and opposite adjustment at the other end to ensure that profit is taxed only but in the right place. In this case there are a number of extraordinary omissions from this process. First, the accounts seem to have had little to do with the tax charge made. Second, there is no adjustment process as such to establish a ‘transfer price’ – the process for which the EU describe quite well at the beginning of their document.   Third there seems very little chance that compensating adjustments were made for those made in Ireland.   The result is that it is very hard to see how this process fits into any known basis for negotiating and an international tax advance pricing agreement for transfer pricing  purposes: it was simply a price negotiation i.e. what Apple was prepared to pay Ireland.   The basis for the allegation is, then, that Apple was not really in the Irish tax system at all and the advantage of being outside it was what constituted the value of state aid.   I cannot see how there is any real defence to this allegation unless it can be shown that the same deal was offered to all companies in Ireland, and I am certain it was not. The EU do not need to rely on the OECD guidelines and whether they were in place or not in 1991 or 2007 to win, in other words.   What the Irish press should be musing on is something much bigger, which is that if Apple lose will the EU ask for details of all other such deals from Ireland and ask for settlement there as well. And if so how many such deals are there, and how much is involved? That’s the hornet’s next waiting to be opened.

Another point to make though: this does not apply outside Ireland, but it shatters the case that there is no action needed elsewhere, and that is its significance.

Is this a tipping point on these issues. Not by itself, but it’s going to help the overall shift against abuse.

And for that reason the EU’s actions are very welcome.

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How can the UK government have subsidised pensions by at least £350 billion for pension funds to lose it all?

Tue, 09/30/2014 - 12:29

I have already drawn attention this morning to an article in the FT and a new report that suggests that in the UK pension funds lost an average of 0.7% of funds invested on behalf of their members from 2000 to 2013.

I thought I would have a quick look at how much this dismal performance cost the UK using HMRC data:

Click on the table for a bigger version to open, and note I added the bottom line which is the total of current tax and NIC costs of pension contributions made.

Over the period when these funds managed to lose the pensioners of the UK money (even though those of many other countries made positive returns) we spend a total of £451 billion subsidising these pension contributions.

Now, I admit that in this time series some of the tax paid by pensioners will need to be deducted from the cost of tax reliefs given, because clearly over time there is a partial matching process going on here. Equally, not all need be matched: much of the tax paid will have been by people who made contributions before the period began, and so you could argue that the next cost was a but lower than £450 billion. I have no way of knowing by how much that might be the case (and nor has anyone else) but it would be very  surprising indeed if this was £100 billion, but just in case let’s call it that.

That still leaves a net £350 billion investment by the state in pensions and apparently that’s all been lost, and more besides.

Shouldn’t that give rise to these questions:

1) Why are we investing pensions in this way when there are clearly better options?

2) Why are we structuring pensions this way when it clearly allows the extraction of excessive fees for poor return from the system?

3) Why are we subsidising this failure with so much state money – enough, in fact, to represent a third of our real state debt right now?

4) Why are we tolerating the massive redistribution of wealth from many to a few that this system permits?

5) Why are we allowing so many funds to be put to idle and non-productive use outside the mainstream economy?

6) What can we do better?

7) Why aren’t more people asking these questions?

I address the sixth question here but admit that needs updating now.

The seventh is the question that is perhaps the most baffling of all.

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Tax, self employment and Laffer: a little bit of theory and a lot of condemnation of practice

Tue, 09/30/2014 - 08:58

I mentioned yesterday that Tax barrister Jolyon Maugham is planning to use his blog to open up discussion on tax policy and that I welcome that. Today he has published his first guest blog and it is by me.

The issue I deal with is one he asked me to address, which is the relationship between tax, the choice to be self employed and potential Laffer impacts i.e. whether progressive tax rates are likely to have any impact on effort.

The blog I wrote is here. It will appear on this site in due course, but right now might you take a quick trip to Jolyon’s blog to read it and then come back here to read the rest of what I have to say on this?

Rather to my own surprise the article I have written is firstly quite theoretical and secondly depends on some algebraic formulations of the issue. I did not push the maths as far as I might, and it would be fun to do so, but the essence of the argument is threefold.

The first is that tax optimisation would involve the detailed balancing of far too many variables for anyone to actually do it.

The second is that advance knowledge of the values of many of those variables is needed to tax optimise and that, of course, is not possible.

The third is that once income of £100,000 or so is reached tax rates tend towards being flat and there is then little reasons for Laffer to have any impact because planning involves tax rate substitution at best and hat this can usually reduce rates for those in this income range over those available to many on lower incomes where the pressure to earn income reduces choice and substitutability so that any talk of Laffer effects is, candidly, nonsense.

But if those three conditions hold true (and I am sure they do, the first two as a matter of fact and the last as a factor of the UK tax system and its interaction with income) then the, perhaps, bigger question is why in that case tax professionals spend so much time on the issue of supposed tax optimisation when by far the biggest and most important variable in the determination of net income may well be for the individual the level of gross income, on which far too few accountants can offer any useful advice, and for government the value of the variable I call V – which is the amount of gross income on which evasion takes place.

To summarise then, I think we have an accountancy profession that is focussing on the wrong issues, largely because most in it have little clue how to help anyone make money, and a government focussing on the wrong issue in tax design because it is ignoring the impact of evasion, whilst on the sidelines we have ideologues talking about Laffer when it is almost wholly irrelevant to debate in the UK.

If I’m right that makes the blog at Jolyon’s place worth reading.

 

 

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The EU v Apple and Ireland

Tue, 09/30/2014 - 08:41

The EU’s provisional decision in the case it is making against Ireland for providing illegal state aid to Apple is here.

The basis of the decision is summarised in para 69, where it is said that:

Based on the above, the Commission is of the opinion that the contested rulings do not comply with the arm’s length principle. Accordingly, the Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple. That advantage is obtained every year and on-going, when the annual tax liability is agreed upon by the tax authorities in view of that ruling.

The decision hangs entirely on whether or not OECD guidelines on transfer pricing were followed in this case, or whether instead an arbitrary allocation of profit was permitted. After some very good discussion of the OECD’s principles (whether or not you agree with them) the decision reached is just about unavoidable, and is as noted above.

The question then was whether there was a loss to Ireland that represented state aid. The EU is emphatic (para 50):

As regards the measure’s financing through State resources, provided it can be shown that the contested rulings resulted in a lowering of Apple’s tax liability in Ireland, it can also be concluded that those rulings give rise to a loss of State resources. That is because any reduction of tax for Apple results in a loss of tax revenue that otherwise would have been available to Ireland.

How much is involved? That the ruling does not yet say. It is not yet clear if the ruling will be applied to underpayment of tax on all the activities of Apple Sales International, which makes half of all Apple’s sales (or $4 billion), or just the Irish branch with sales of about €400 million, on which tax of between €1 and €10 million was paid in 2012. This obviously has massive implications for the outcome.

What is clear right now is that the EU is very confident indeed that based on 1991 documentation, published in the report, no attempt was made to follow proper transfer pricing guidelines when the extent of Apple’s profits to be taxed in Ireland were decided upon and a sum acceptable to the company was instead substituted in its place. This arbitrary amount was well below anything that any transfer pricing based ruling would have allocated in the opinion of the EU and it is hard to see Apple successfully contesting that.

If this ruling has value it is for precisely that reason. What the EU is saying is that the law should be upheld and it is not for states to show favour with regard to it or for companies to demand such favour. It is saying Apple sought such favour and Ireland granted it. Now it looks like the price will be paid. For the sake of the rest of the world’s businesses that is good news. Granting privileges has no place in a modern economy because it fundamentally distorts markets and rigs competition, but I am sure this is just the tip of an iceberg.

And yes, I did write this on a Mac. But would I and could I have done without this tax advantage having been given? That is the question.

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Pension fund performance is dismal so why is the state subsidising this failed industry?

Tue, 09/30/2014 - 06:42

The FT ha an excellent article that anyone with an interest in pensions should read this morning. The argument is clear from the title, which is ‘Fees are a scourge on pension funds‘.

The article makes three things clear. The first is that fees in most pension funds are much higher than for direct investing, but the returns aren’t necessarily any better.

The second is that getting data on this issue is nigh on impossible, but a new report is trying to put that right.

The third is that in the UK the average rate of return on pension fund investment between 2000 and 2013 was minus 0.7% despite the fact that these funds in the UK managed more money than UK GDP.

And there are no excuses for this rate of return: by no means all countries delivered such poor returns. Denmark managed 3.8% positive returns over the same period and we live in an era of globalised markets.

As the FT concludes from this dismal survey of UK pension performance:

This could all be summarised by that well-worn question: where are the customers’ yachts? The trillions of dollars worldwide invested in pension plans will continue to grow as more contributions roll in, providing a reliable source of revenue for the pensions industry and all its hangers-on. The outcomes for savers are hard to discover and much less certain. Is this the right way round?

I can’t argue with that, except to note that this dismally failing activity receives a subsidy of £50 billion a year from the UK taxpayer and still cannot produce a return. The article, as is commonplace, makes no reference to this fact, but it should.

The pension industry has failed the people of the UK.

It has failed to deliver the funds we need for new investment.

It has drained the UK government of funds.

But it has made a relative few in the City very rich indeed as they have captured the wealth of the majority for their own private gain – as the stats make very clear.

And it is now being used to promote inequality.

The time for major reform has arrived and the first question to ask is why the state is continuing to subsidise this so obviously failed industry?

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Osborne redefines the triple whammy – it’s now triple non taxation

Tue, 09/30/2014 - 06:23

It is very hard to imagine how George Osborne could have delivered more injustice in one announcement than he did yesterday.

What he announced was that anyone who had invested in a pension fund but who had not drawn down all that fund to pay a pension at the time of their death could now have their estate withdraw that money from that pension fund tax free and then pass it on to their heirs, also entirely tax free without any inheritance tax applying.

In principle what this means is that a person with ample spare income or wealth can now put money into a pension fund and get tax relief on it at their highest marginal tax rate (which means up to a 45% rebate) and then leave that money accumulating in that fund tax free until it reaches a ceiling of £1.25 million, at which time it can then be left until they die, at which time there is no tax on exit, offering considerable savings, and no inheritance tax either, the latter saving at least 40% in many such cases.

What Osborne has therefore created, as the FT confirms, is the most perfect tax free way for the wealthy to not only pass money between generations but to actually claim a tax subsidy whilst doing so. The result is quite staggering. This is triple non-taxation for the wealthy, and you can only presume that was his intended outcome.

The evidence that this government is promoting the trickle up of wealth in this country has been accumulating over time, but this has to be one of the most blatant exercises to encourage that ever presented by a government in this country. It really is staggering.

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The FT’s rewriting the history of the Occupy movement

Tue, 09/30/2014 - 05:57

Gideon Rachman has written in the FT this morning, saying:

The Chinese authorities will also be hoping that the current demonstrations in Hong Kong, which started under the banner of the “Occupy Central” movement, will have more in common with “Occupy Wall Street” – which fizzled out – than with the student movement in China in 1989.

Mr Rachman clearly has a very selective short term memory. I recall Occupy on both sides of the Atlantic ending in oppressive state and police activity and anything but fizzling out.

Perhaps he thinks he was the victor and so has the right to re-write history.

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So George is going to introduce a Google tax. If only he knew I first wrote the Google tax story

Mon, 09/29/2014 - 12:51

George Osborne is, apparently, going to introduce what he has always said is impossible, which is a tax on Google’s profits resulting from its habit of trading in the UK despite it claiming it has no real link with the country. I welcome that. I’ll be keen to see how he does it.

He says the tax will raise hundreds of millions and if successful I would not disagree. But there is good reason for that. Back in 2009 I was the first person to investigate Google’s tax abuse of the sort that became well known by 2011 and is know a given fact, worldwide. In that 2009 article I said the loss would be £100 million for just that one company way back then. So George is now doing what I have asked him to do all along in tackling this abuse, which was so easy to spot, but which his own officials have always denied is part of the tax gap (George: please note).

Now it’s time he realised where to look when it comes to tax problems to be tackled and took a leaf out of my new report on the issue of where he should go next instead of waiting five years, as seems to be commonplace, next time.

Hat tip just for George: evasion is the next big thing and you have to invest in HMRC to solve it.

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A new space for debating tax

Mon, 09/29/2014 - 11:06

Jolyon Maugham, a tax barrister whose work I have given occasional mention to on this blog, is seeking to open up his blog for a wider debate of tax policy by bringing in a range of writers to add to the opinions he can offer.

As he has said on this decision in a blog he published today:

I started writing my Waiting for Godot blog with the objective of enhancing public understanding of, and improving the quality of public and political debate around, tax. Hence, the Blog’s title. I try to write thoughtful pieces, typically touching upon some tax issue in the public eye.

Jolyon’s spot on with regard to the need for such informed debate and I welcome it, a fact he acknowledges by saying:

The tax community as a whole has been very supportive. With its assistance, this blog is frequently able to break stories across the tax technical and legal press. I am particularly grateful for the support of Richard Murphy, whose public position in the field is without parallel, and who has frequently directed his considerable following to blog posts featured here. Richard knows – for his support comes despite the fact that much of the analysis here he would disagree with – the value of the project and of high quality debate.

Jolyon’s right: he and I disagree on many things for whilst he is a member of the Labour Party we are very clearly in different places on the left. But, and this is the key point, if this gives rise to serious, policy based discussion rather than crass analysis in support of the status quo or based on myth and not fact (all seen far too often in comments from supposed professionals who should know better on this blog, including today) then I’m very willing to take part, be shot down, take the bruises and then come back for more. That’s how issues are resolved and matters properly taken forward.

My own first contribution is, I think, out tomorrow and made me think during the course of its writing. That’s no bad thing. So, I’d like this policy Jolyon is promoting to work – but it does rely very heavily on his ability to edit appropriately and to keep commentary to the straight and narrow, which by necessity means keeping the trolls at a distance.

 

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UK government subsidies for the savings of the wealthiest are the fourth biggest part of state spending

Mon, 09/29/2014 - 10:23

I wrote on this blog last week about the £50 billion annual subsidy given to pensions each year. Some have argued the true figure is £38 billion but that is not true. We would recover tax on pensions paid out of past contributions whether or not we give current contributions. So £50 billion is definitely the correct figure and comes from the following table for the tax year 2012/13 and represents total tax cost of £34.8 billion plus total NUC cost of £15.2 billion:

Let me put that in context. Total UK tax receipts were £556 billion in that year (page 108, here). So in effect £1 in every £11 of tax receipts was spent subsidising the pension savings of those in the UK who were, by definition, at least well off enough to save, whether personally or by taking a job where part of what they might otherwise earn was diverted by their employer into a pension fund. There is no reason to think that situation has changed now.

Let me also put that spend of £50 billion into context that year. This is a Guardian summary of government spending in 2012/13 based on Treasury data:

So, £50 billion comes in bigger than anything but education, health and social security and near as makes no difference the same as debt interest – until one realises that about one third  of that was actually paid straight back to the government as a result of quantitative easing and so the real figure was about £35 billion there.

The amount we spend subsidising the pension savings of the wealthiest people in this country is our fourth biggest state spend.

Let me put this figure into another context which is the total state spending on pensions in 2012/13, which is, again, the year for which most accurate data is available, was £109 billion, as shown in this table:

State subsidy of private pensions does then cost 45% of state pension spending or, if the total is aggregated 31% of a combined spend of £160 billion.

Let’s also put the number on the context of total non-pension social security spending – again using 2012/13 data – which as the table shows was £97 billion. In that case the subsidy to pension payments for those in work who can afford to save is near enough half that of all spending on those who cannot make ends meet.

Then let me put this in another context. The benefits cap of £26,000 that the Conservatives want to reduce to £23,000 supposedly saves at most £110 million a year – or 0.22% of the cost of private pension subsidies each year.

And the child benefit cap Labour is proposing will supposedly save £400 million a year – or 0.8% of the cost of private pension subsidies.

Why make these points? Precisely because they make clear that all this discussion on austerity and benefits and the need to cut down is completely missing the glaringly obvious point that whilst the poorest in this country will be hit hardest, as will families with young children, those who can afford to save are getting a massive state subsidy.

Is that just is the first question?

How can it be when we are facing austerity that one of our biggest state spending categories is intended to redistribute wealth upwards?

And how can it be that we are willing to suffer such enormous tax leakage on this because even if tax is eventually paid on some of the pension recovered the following have to be taken into account:

a) Usually up to 25% of a fund can be taken tax free

b) There is never a penny of recovery on the NIC cost of contributions

c) Income tax is almost invariably recovered at a lower tax rate and many years in the future, if at all.

Take these factors into account and the chance of future tax recovery from these reliefs is well under £6 billion in my estimate, and quite probably less in current terms. This really is the most massive tax give away, and almost all of the funds in question are taken out of the productive economy, moved into City based speculative activity where almost none leaks into real investment activity but vast amounts are lost in paying enormous sums to those working for City institutions that only goes to fuel even greater inequality.

And, as I showed in my 2010 work on this issue, the subsidies given to in fact cover the entire cost of all private pensions paid in the UK right now – suggesting that in fact all pensions are really paid at direct cost to the state anyway but with massive rake offs for for the financial services industry ion the way.

If you were to design a way to provide pensions this is about the worst one possible.

And today George Osborne wants to make it worse.

The time for reform is now. But no one wants to talk about it.

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Osborne plans to increase inequality in the UK

Mon, 09/29/2014 - 06:02

This one’s in haste as I have early morning commitments, but I’ve just read of Osborne’s new pension and inheritance tax plans.

The essence is you will get tax relief on money paid into a pension plan.

If you do not draw all the pension pot in your old age it can then be left untaxed to heirs.

And inheritance tax thresholds will be increased to make sure that this tax will probably not apply to it.

In other words what Osborne is offering is double non-taxation for those able to save.

Putting that in context, this is part of a plan to hit the poorest as hard as possible with benefit cuts whilst at the same time saying that if you can afford to save you need not pay tax at all.

Leona Helmsley once said only little people pay tax. But that was in the USA. George Osborne seems intent on delivering the same option here but introducing what will potentially be a pure consumption based tax system in this country where the accumulation of wealth will be rewarded by non taxation.

At a time when we now known how harmful inequality is to societies this is a deliberate policy to increase it. And that is what is so wrong with his plans.

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Why local money?

Fri, 09/26/2014 - 15:37

I like this. It explains that local money can work. It’s a dimension to money that is little understood.

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Pension tax relief costs £50 billion a year

Fri, 09/26/2014 - 10:23

The cost of subsidising UK pension tax relief has reached £50 billion a year. The following table, issued earlier this year, has been re-issued by the government today:

 

The relevant figures are £34.8 billion tax and £15.2 billion NI from right hand column.

It’s long been my suggestion that this relief should be abolished at higher rates. The new stats provide no estimate that I can see of what this cost is (but if anyone else has found it, please point it out).

What I have also argued is that a condition of this relief is that 25% of all contributions – likely to easily exceed £80 billion pa – should be invested in job creation programmes. It is impossible to specify that these must be in the UK but the availability of specific infrastructure bonds would make this incredibly easy to link to investment in UK sustainable growth. £20 billion a year would transform that.

So why is no one adopting the idea? Is it another case of cowardly politics where it is too risky to demand that pension funds be used for social good rather then funding speculative bubbles?

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Borrow to Build

Fri, 09/26/2014 - 09:52

I liked this by John Aziz on Pieria today:

The only deficit strain, at this point, exists in the speeches of austerity-mongering politicians and commentators. Borrowing is cheap, inflation is low and there is still some slack in the economy in terms of people out of work and spare capacity even after a slow, painful six-year climb out of the trough. That suggests the real disease Britain has suffered from was not too much borrowing but a huge economic slump and mass unemployment. These economic indicators suggest that the British government could comfortably borrow a lot more to stimulate the economy and put people back to work. Investors are offering the money for them to do it! Borrow and spend until the yield on the 10-year hits 4 percent, or unemployment falls below 5 percent, whichever comes first. Build solar and wind and nuclear capacity, fix the roads, build out fibre optic broadband, build new bridges and railways.

It is very, very hard to argue with that logic. Unless you are an austerity-mongering politicians or commentator.

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Increasing the minimum wage by £1.50 an hour pays now

Fri, 09/26/2014 - 08:58

The following press release has been issued this morning by Unite, the union of which I am a member and for whom I work on occasion (including at present). It refers to work by Howard Reed, both a friend of mine and an occasional co-author of mine, and so I reproduce it in full as I think his findings are important, and I also trust them:

A major new independent report to be submitted to the Low Pay Commission today (Friday 26 September) has shown that a national increase of £1.50 per hour in the national minimum wage in 2015 would benefit 4.6 million workers by an average of £1,400 per year while at the same time adding an extra £2.1 billion to the public finances and potentially generating at least 30,000 new jobs.

The independent report, which forms the central plank of Unite’s submission to the Low Pay Commission, the body charged with considering the annual increase in the national minimum wage, shows that a £1.50 an hour increase in the minimum wage is affordable now and would bring a much-needed stimulus to the economy.

Written by eminent economist Howard Reed, formally of the influential think tank the Institute for Fiscal Studies, and commissioned by the trade union Unite, among the key findings of the report are:

  • A £1.50 per hour increase would help 4.6 million low paid workers, 60 per cent (or 2.8 million) of whom are women
  • The average net gain from a £1.50 per hour would be £1,400 per year gross (£813 net)
  • The increase would help the poorest families the most, with the biggest gainers in the bottom 60 per cent of income distribution
  • A £1.50 per hour increase in the minimum wage would be a boost for employment with a potential increase of 30,000 new jobs as a direct result of the increase.

When the increase is analysed by employment sector the biggest winners are workers in the retail sector where it is estimated over 900,000 will see a significant increase in their wage packets. The next biggest winners are those employed in the hospitality industry where three quarters of a million workers (750,000) will benefit while 190,000 cleaners will see a boost to their incomes.

The report adds weight to the growing calls for a substantial increase in pay for the poorest in the labour force. Last week, leading business figures from some of the UK’s leading employers, including Kingfisher, Findus and Stobart’s, all expressed concerns that the minimum wage had fallen in value, with a detrimental impact to the economy.

Commenting on the report Howard Reed director of Landman Economics said: “These findings show that a £1.50 per hour increase can only be a good thing for the economy. An increase would lift millions of low paid people out of poverty while at the same time it would increase income for the Treasury, which has seen tax receipts from employment drop, fuelling an increase in government borrowing. It would also create new jobs making it a case that is difficult to argue against.”

Earlier this year, chancellor George Osborne held out hope that the minimum wage could rise to £7 per hour this year, only for the increase to come this October to fall far short of that. The hourly rate will rise from £6.31 to £6.50, substantially below what economists agree is a living wage of £7.65 per hour (£8.80 in London).

Len McCluskey general secretary of Unite added: “We have long-argued for an immediate uplift in the minimum wage of £1.50 to get people out of poverty and get some real growth into our economy, not this phoney one fuelled by a housing bubble. This report shows that this is both affordable for employers, would in fact create not cost jobs, and is a great deal for the national finances. It need not be put off any longer.

“Millions of working people have seen their income reduce by an average of £1,600 during the life of this government as they work harder but get poorer. They deserve a better deal from our country and only a lack of political will is preventing them from getting one.”

Unite will be making its submission to the Low Pay Commission, the body responsible for recommending the annual level of the minimum wage, on the final day of the consultation period, Friday 26 September 2014.

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Creating the political consensus to fight tax evasion

Fri, 09/26/2014 - 06:36

My suggestion that the next, and biggest, issue to be addressed to deliver tax justice in the UK is tax evasion has already appeared to have had a welcome reception amongst tax professionals. There is also very obvious agreement that there can be no success on this issue without more resources being dedicated to tackling tax evasion, which would require a considerable reversal of the trajectory of travel in HMRC’s business plan and minister’s expectations of it. When I talk to many people with no obvious interest in politics tackling this abuse also appears to be popular. So what is the problem in making progress?

As I explain in my report for PCS, one of the biggest problems appears to me to be a lack of political will on politicians part to tackle this issue. The absence of this will has, to some extent, always baffled me. After all, politicians want to be elected to have power and to keep people happy through the use of that power so that they might be re-elected. You would have thought that in that case firstly collecting all the tax owing delivers power, secondly it stops a majority who are being cheated from being annoyed and third it maximises resource delivery by government at lowest overall cost (as well as creating a fair and level playing field on which all business can operate) and so it has to be a win: win.

And yet when I talk to some MPs (and not all from the same parties) I sense an enormous reluctance to take on what they see as ‘white van man’ (as the tax evader is almost always, and inappropriately I am quite sure in the majority of cases, described). There is a widespread fear that to talk about tax evasion is a vote loser. Implicitly that, of course, also acknowledges how widespread many realise the problem to be.

The outcome is that we have an apparent tacit agreement between politicians and tax evaders that the actions of the latter will be ignored, which is also, of course, a good explanation for HMRC doing the same.

I think this is ludicrous and believe that is this is the case then the time has come when a cross party platform on this issue should be created. Such cross party consensus exists on many issues, implicitly or explicitly (we will see it in action today on the perceived need to bomb ISIS). Why isn’t it possible for all main parties to pledge to tackle tax abuse?

There is after all, broad consensus on the need to tackle other crime, even if there are some policy differences on occasion on how to then treat the offender. So why isn’t there cross party consensus on the need to fund HMRC to beat tax crime? And given that doing so would provide the funds to help beat the deficit that is apparently the highest order issue on most politician’s agenda, why hasn’t this happened to date?

I have no idea how much a war will cost. But, however much it is, investing in HMRC would pay for it. I am totally confident of that. In that case surely the time has come for all parties to agree that a new consensus be built on this issue?

And if not, why not? Because if it can’t be created what does that say of politicians thinking on tax evasion? I can’t imagine any of them want to be seen condoning it, so why not join together to make sure that there is no electoral advantage from silence on this issue?

 

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Keep your mitts off the NHS

Fri, 09/26/2014 - 06:08

This is just too good not to share:

That is Harry Leslie Smith at the Labour Party conference.

He is a very good writer. I recommend his book, ‘Harry’s Last Stand’. This is from his speech:

As I stand here today, my heart is with all of those people from my generation who didn’t make it past childhood, didn’t get an education, grow as individuals, marry, raise a family and enjoy the fruits of retirement because they died needlessly and too early in another era of austerity, But my heart is also with the people of the present, who, because of welfare cuts and austerity measures, are struggling once more to make ends meet, and whose futures I fear for.

We should take note. These memories are fading. We should not forget them.

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War proves all spending is a matter of ranking priorities

Fri, 09/26/2014 - 06:00

I am sure others will say it, but it’s worth reiterating it: the decision to go to war today (and it will be nothing less than that) proves that all government spending is a matter of choice. To put it another way, it is about deciding what is important or ranking priorities.

We can apparently afford war over Iraq and Syria.

We cannot afford to make adequate provision for many disabled people.

Nor can we properly care for many elderly people.

And we cannot properly fund the NHS.

And yet we can load Tornados with weapons knowing that there will be innocent victims and uncertain and undefined military and political gains, if any.

We can afford to main and kill.

Why can’t we afford to care?

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From tax avoidance to tax evasion: the new front for UK tax justice

Thu, 09/25/2014 - 06:03

We have been used to talking about tax avoidance  as a focus for the UK Tax Justice campaign for a long time now.  Companies like Google, Amazon and Starbucks have become well-known for the attention that they have received, and around the world these companies are now amongst the best known tax avoiders as a result.  At the same time it has been UK tax justice campaigners, whether people like me, or in the trade union movement, or in UK NGOs, who have drawn tax abuse through tax havens to the world’s attention, and as a result action on both tax avoidance and tax havens is now taking place.

But, as I’ve argued in my new report for PCS,whilst tax avoidance is important, and may cost the UK up to £20 billion a year at present, this figure has fallen, in my estimate, since 2008, and there are signs that it may fall still further.   No company wants to be the next Google and have their name  all over the papers and there is absolutely no individual who wants to be linked, as Jimmy Carr and Gary Barlow have been, to tax avoidance arrangements.  As a result I have some agreement with tax barrister Jolyon Maugham, who writing in the last day or so, has said:

On personal tax avoidance, in my opinion, the heavy lifting is done. … I do not see scope for significant further receipts. On corporate tax avoidance, the ability of any Government to act is a function in large part of matters outside its control. We must await development and implementation of the OECD’s BEPS project.

Whilst the BEPS project is important it does not offer  unbridled hope,  but based on my belief that the risk climate regarding tax avoidance has changed, and the fact that falling tax rates have reduced the losses (as I noted in my PCS report) and the fact that, as Jolyon has argued, the GAAR (inadequate as it is) plus the ability to recover tax in dispute direct from bank accounts and the right to issue follow on orders to those who have used marketed tax avoidance schemes have all changed the prospects of tax collection success in this area. Whilst the need for vigilance on tax avoidance has not gone, and some whole areas (as outlined in my PCS report) have yet to be tackled, there is no doubt that the balance of risks has changed here. Put bluntly, campaigning has worked and legislation has followed in its wake. That’s a cause for some celebration, but no back pedalling.

On tax evasion however the situation is very different. I estimate the loss to evasion to be in excess of £80 billion a year. HMRC think it only just over £20 billion. We are polls apart. Jolyon Maugham, without endorsing my data, says:

The battleground, now, is moving to evasion…. Tackling evasion is inevitably manpower heavy and I cannot see how HMRC’s capacity to close the tax gap in that field can have survived the significant cuts in HMRC staffing levels.

Andrew Goodall, a journalist and (importantly in this context, a chartered tax adviser) has tackled the same issue at AccountingWEB. There he reports the comments of Stuart Jones, a Lake District based chartered accountant, who I have long felt to be the sort of accountant every small business needs:

Kendal-based chartered accountant Stuart Jones wrote: “I can only comment on the microbusiness sector but evasion is rife. A tax office in every large town meant that HMRC staff saw what was happening locally. Nowadays it’s open house for evading VAT, income tax and national insurance contributions (while at the same time overclaiming tax credits) by being part of the cash economy. Businesses never register with HMRC, companies are struck off without any objections from HMRC, the list is endless.”

Jones added: “Politicians must address HMRC staff levels immediately.”

He told AccountingWEB today that HMRC “has all the tools to tackle evasion, but doesn’t have the staff”.

I think Stuart is right. HMRC might have told AccountingWEB yesterday that my PCS tax gap estimate is “over-inflated, flawed and muddled” but the fact is that they face a fundamental credibility issue in doing so, which is that they estimate the tax gap on errors in the tax returns they get and I look for the evidence of the money that never gets near a tax return that is sent to them – which Stuart Jones suggests is commonplace.

I’m not saying we need to forget tax avoidance or offshore but as I have pointed out to quite a number of audiences now, next year HMRC will get more information from banks in Cayman, Jersey and the Isle of Man on the operations of companies owned by UK resident people in those places than they will get from Barclays, Lloyds, HSBC and Santander on the operations of companies owned by UK resident people in Norwich, Plymouth, Cardiff, Aberdeen and Derry. That is, to put it bluntly, completely ludicrous.

The battle for automatic information exchange, from banks, from estate agents, from companies themselves and from financial services providers has to shift to the home front now so that tax evaders get fewer places to hide here in the UK in future. And that battle requires staff in HMRC and Companies House. Professionals in the tax profession can see that. PCS staff in HMRC know that – or they would not keep asking me to write reports for them. And yet HMRC and our politicians do net get the point. It’s time they did. Because some of the steps I recommend have the power to transform our economy. And that’s why we need to get on with tackling tax evasion, now.

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