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Richard Murphy on tax and economics

Why a zero rate corporation tax is about undermining tax systems and democracy

Thu, 10/23/2014 - 16:55

I was asked today by a journalist why there might be problems with a zero rate corporation tax – which is an idea many on the right are now promoting. I replied that zero corporation tax creates many problems.
 
The first is that companies would then make no contribution at all to society despite the enormous privileges they enjoy, including limited liability, which literally means they can dump their losses on the rest of us.
 
Second, such a tax rate means companies would not pay for the services they use paid for by taxation  and there is no obvious reason why they alone should get this advantage. Do we really want to subsidise in such arbitrary ways?
 
Third, zero corporation tax would let anyone with excess income shift it to a company and have it accumulate tax free, so increasing the already massively problematic income and wealth inequalities  in society.
 
Fourth, tax authorities are the main and most effective regulators of companies. Without tax being  due no one would really look at company’s accounts at all and fraud and crime using companies would escalate.
 
Fifth, the burden of tax would then all fall on labour and not capital – leading to massive economic distortions.
 
Sixth, if companies were not taxed most significant capital gains would then also fall out of tax, so undermining another tax.
 
The list could go on, but the fact is zero corporation tax is actually about undermining the effectiveness of the tax system, the cohesiveness of society, the ability of the government to deliver the services expected of it and so eventually the rule of law and democracy itself because it would declare some income outside the scope of that law and the need to contribute to society. If you want to tear our society apart this is the way to start doing it.

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Reinventing the economy, and claiming back control of tax

Thu, 10/23/2014 - 07:16

I spoke at a conference on Reinventing the Economy in Glasgow last month. This is what I had to say:

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The October Taxcast from the Tax Justice Network

Thu, 10/23/2014 - 07:15

In the October 2014 Taxcast from the Tax Justice Network: never mind social welfare, how much is corporate welfare costing us? Across the US they’re going to start publishing the tax breaks and subsidies, and we take a look at the latest research in the UK.

Also: Ireland announces it’ll abolish the so-called ‘Double Irish’ tax dodge after the EU Commission finds Apple’s tax deal is ‘illegal state aid’. But what will they replace it with?

Australians discover the true state of the tax contributions made by their top companies and Tax Justice Network Africa makes history by taking the Kenyan government to court in an unprecedented case over a treaty with the tax haven of Mauritius.

Featuring: Tax Justice Network Director John Christensen, Greg LeRoy of Good Jobs First and the University of York’s Dr Kevin Farnsworth. (Dr Farnsworth’s research on direct corporate welfare in the UK has not yet been released but as soon as it is we will give further details).

Produced and presented by @Naomi_Fowler for the Tax Justice Network.

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Normal service will be resumed

Wed, 10/22/2014 - 07:24

But everyone needs a day off once in a while, me included

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Should nation states ‘compete’? A call for papers

Tue, 10/21/2014 - 06:06

I am on the organising committee for this conference and so encourage submissions ons in response to this call for papers:

SHOULD NATION STATES ‘COMPETE’?

City University, London, 25th / 26th June 2015

The 2015 research workshop co-organised by the Association for Accountancy & Business Affairs,i City University,ii and the Tax Justice Network,iii will explore the notion of national ‘competitiveness’. This opens up possibilities for papers on a wide variety of themes, including tax wars (tax ‘competition’), the dynamics of ‘beggar-thy-neighbour’ politics, regulatory degradation, regulatory arbitrage, policy responses to ‘competitiveness’ pressures, the impact of ‘competitiveness’ policies on home countries and third party countries.

Other related themes are likely to emerge as the workshop programme develops.

Offers of papers are especially welcome and early submission of an abstract of no longer than 300 words is encouraged. All submissions will be considered by the organising committee.

This workshop will bring together researchers, academics, journalists, policy staff of civil society organisations, consultants and professionals, elected politicians and/or their researchers, and government or international organisation officials.

The purpose of the workshop is to facilitate research through open-minded debate and discussion, and to generate ideas and proposals to inform and shape the political initiatives and campaigns already under way.

There will be a small charge for attendance at the Workshop. Participants are usually expected to finance their own travel although applications from students and others with limited means for bursary support will be considered.

More information about this workshop is available from: John Christensen, Tax Justice Network, john@taxjustice.net.

 

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Towards a progressive fiscal policy: work in progress

Tue, 10/21/2014 - 05:53

My friend and co-author, the economist Howard Reed, had a powerful article on the Compass blog yesterday in which he trailed work we are proposing to do over the next few months.

Having dealt with Labour’s policy on the deficit first of all (with an analysis with which I concur, and which I recommend you read) Howard moved on to the measures that he and I think need to be taken to deliver fundamental change during the course of the next parliament. As he puts it:

Of course, it is very easy to criticise; but what should Labour’s policy be instead of the current Tory-lite offering? A full policy analysis and ‘alternative manifesto’ will have to wait until my forthcoming Compass report with Richard Murphy in early 2015. Here I offer only a few guiding principles.

Firstly, there is a desperate need not only to stop, but to reverse, most of the spending cuts made since the Great Recession of 2008/09. With spending cuts set to account of over 90% of total fiscal consolidation compared with only 10% tax rises, it is clear that many of the poorest and most vulnerable families – particularly low income families in work – are bearing the brunt of austerity. This pattern needs to be reversed and fiscal consolidation should be rethought from scratch, with the aim that poorer families should be spared any pain if at all possible. Labour’s proposed ‘zero-based spending review’ should be recast as a ‘spending convention’ – analysing each and every spending cut undertaken since 2010. At the central government level, all cuts with a regressive distributional effect should be reversed unless a more progressive alternative policy can be implemented at the same or lower cost instead of a simple reversal. Meanwhile, cuts to local government funding should also be reversed and similar enquiries into the impacts of cuts undertaken in each locality. Participatory budgeting techniques, as seen recently in Paris, could be used at both local and national level to advise on the biggest priorities for additional expenditure.

The ‘spending convention’ should be accompanied by a tax and social security commission which over a period of (say) 18 months should draw on a wide range of expertise from academia and the third sector to design a more progressive – and simplified – tax and benefit system. The key features of this new system would be: (1) a basic income payment for all families sufficient to reach an acceptable minimum living standard; (2) merging the national insurance and income tax systems into a comprehensive income tax; and (3) replacing council tax, stamp duty and other taxes on capital and property with an annual wealth tax and a land value tax. All these taxes would be designed to be steeply progressive. The new system could be introduced 2 or 3 years into the next parliament alongside the reversal of many of the spending cuts, and should be designed to raise enough net revenue to ensure a balanced current budget at revised spending levels when the economy is at full employment. At the same time, given that the economy is still very weak at the moment – despite a return to modest growth in 2013 – there is ample opportunity to use Quantitative Easing to provide extra funds for public spending as Britain makes its way through a long and drawn-out recovery. This approach, which combines a refreshed, progressive tax-and-spend fiscal policy with a radical monetary policy – will ensure that the people who got the economy into the mess of 2008/09 should pay for it, and not the impoverished innocent bystanders.

The third plank of policy should be aimed at rebalancing the economy in the medium term to stand the UK in much better stead in the event of further financial turmoil in future. This includes better financial regulation, a green new deal to make the UK economy much more sustainable and resilient, a rebalancing of the the economy away from the City and financial services to reduce the likelihood of another crash, and a decisive shift away from the industrial feudalism of the plc and private equity dominated neoliberal economy towards a social economy which foregrounds worker-managers, cooperatives, social enterprises and crowdfunding. Compass’s recent report on the economy, Building Blocks, offers some excellent initiatives in this vein.

It looks like we have some work to do over the next few months.

 

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Why haven’t we got an Office for Tax Responsibility?

Tue, 10/21/2014 - 05:29

The UK has an Office for Budget Responsibility. I admit I have my doubts about it, and its independence. There are good reasons for that. When it sits right in the middle of the Treasury and has no apparent independent funding and is not allowed to, for example, look at alternative policy proposals to those put forward by the government the idea that it is somehow free of the influence of the Chancellor is a little hard to sustain, although I would like to think it possible that it might be otherwise. We all benefit from a genuinely critical eye that if it seeks to offer constructive advice.

And in that spirit, and having looked at the fiasco that is this year’s Tax Gap report from HMRC, isn’t it obvious that we really do need an Office for Tax Responsibility in the UK?

The first thing I would say is that if we were to have such an Office it would have to be independent of the Treasury. An endowment fund sufficient to let it operate for ten years would allow for this.

A Board, made up of senior civil servants, but not connected to the Treasury, and a single representative from each party in the Commons with more than 30 seats might ensure sound governance.

The Office should report to the PAC. That is where the accountability should lie, I think, well away from the Treasury.

The primary task would be to monitor the tax gap. Ex-HMRC staff could be engaged on this, but no revolving door would be allowed.

Others might also be engaged. These could include private sector specialists and academics. But again, a revolving door straight back into large companies may not be allowed.

And the budget must allow for research to be commissioned on this issue from a variety of sources: one viewpoint would clearly not be enough.

What else might this Office do? Well, it could monitor tax proposals in advance of announcement. We would all do with preventing another Gordon Brown 0% corporation tax mistake, or the raising of personal allowances based on the claim that they take people out of tax.

And this Office’s commentary could be published on budget day to provide some objective appraisal on the day. Research would have to be in house in that case: real expertise would be needed, so the budget will have to allow for it.

All this, I stress, is not a full fledged idea. It is just an outline right now.  But I think it’s an avenue to pursue, not least because it would stop HMRC publishing self congratulatory nonsense and would also make them accountable to someone with the means to hold them to account- which is not the case at present.

Thoughts?

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What SSE have done to get the Fair Tax Mark

Mon, 10/20/2014 - 19:45

I have applauded SSE for getting the Fair Tax Mark today, but I have also seen comment that suggests that SSE have not done much to achieve this award.

This is quite wrong. They have significantly changed their tax reporting. First they have published a new tax policy.

I may not have written it quite like that, but this is SSE’s policy, not mine. The Fair Tax Mark looks at the commitments made and this one clearly rejects tax avoidance, and that is what we expect.

Second they have considerably enhanced the tax disclosure previously made in their 2014 accounts. To imply this is the same as any other company is just incorrect. Take, for example, the fact that there is a country-by-country reporting note here. You won’t find a note like that in any other FTSE 100 company right now.

To say SSE got this without making a significant change to their reporting is just wrong.

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Who’s next for the Fair Tax Mark?

Mon, 10/20/2014 - 15:20

The Fair Tax Mark is focussing on UK parent companies right now – so some energy companies do not fit the scheme as yet, but after SSE getting the Mark there are plenty of other FTSE 100 consumer facing companies who could also get the Fair Tax Mark, such as:

  • Tesco
  • Sainsbury’s
  • M & S
  • Morrisons
  • WH Smiths
  • Associated British Foods (owners of Primark)
  • Easyjet
  • ITV
  • Next
  • Kingfisher (owner of B & Q)
  • Whitbread
  • Severn Trent

And, of course

  • Vodafone.

And whilst not in the FTSE there is also, of course, John Lewis

I’m sure the FTM would be happy to take their calls.

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Margaret Hodge on SSE being awarded the Fair Tax Mark

Mon, 10/20/2014 - 07:33

Margaret Hodge MP, Chair of the Public Accounts Committee has commented on SSE being awarded the Fair Tax Mark. She said:

I welcome SSE’s commitment to being open and honest about its tax affairs. Too often companies hide behind commercial confidentiality to disguise their activities, claiming that transparency about their tax affairs would damage their competitiveness. I don’t buy that, and the public don’t buy that.

SSE clearly feels it has nothing to fear – and potentially a lot to gain – from responding to public demands for greater openness. There is no excuse for other companies not to do the same, and make this new standard in transparency the norm, not the exception.

This kind of information will enable we the public not only to see how much tax SSE is paying, but to make a meaningful assessment of whether this constitutes a fair and appropriate amount of tax relative to the profits it is making in the countries where it operates.

The key issue is, I think, in the middle paragraph. It’s now for others to follow in SSE’s path and become Fair Tax Mark accredited.

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SSE breaks the Fair Tax Mark into the FTSE 100

Mon, 10/20/2014 - 06:54

SSE plc – the Perth based energy company that has almost 9 million UK customers –was announced as the first FTSE 100 company to have been awarded the Fair Tax Mark today. That’s a bit of a landmark for tax justice campaigners.

After more than a decade of campaigning for change with regard to tax, tax havens, corporate reporting of tax and pressure being brought to bear on governments to create change in all these issues the time had to come when things needed to change on the ground and corporate behaviour had to begin to change to match the reality of people’s expectations. One company does not make a revolution, but after the announcement in September that FTSE 350 company Go Ahead Group plc had been awarded the Fair Tax Mark, SSE’s joining the group of companies pioneering this Mark does represent a real step forward in corporate awareness of the importance of tax to people in this country.

SSE did not get the Mark without some effort. What the Fair Tax Mark expects from companies is reporting on tax issues that goes way beyond current Stock Exchange, company law and regulatory requirements. This is not token gesture stuff either.

So, for example, law requires that a company explain its overall corporation tax rate but as all journalists and other users of accounts know, a multitude of sins can be hidden behind that figure. What SSE is now explaining is its current tax rate, and then separately its deferred tax rate. That’s important, because it’s the current tax rate that reflects what will be paid to government and so is the figure most people are interested in. Mix current and deferred tax (which may be paid one day, but without saying when) together, as law currently permits, and no one has a real clue why a company is, or is not, settling its expected tax bill. For SSE this story is important: it’s paying more tax than most people might expect. It’s getting that on the record.

But in the area of deferred tax it’s also saying something that most companies come nowhere near explaining, which is what part of its deferred tax bill might be due in the foreseeable future. This is pretty important information for investors as well as stakeholders.

And, from a tax campaigner’s perspective it’s notable that SSE talks about why it has used an Isle of Man company – but then also makes clear that the company in question is wholly taxed in the UK. This is accountability at a level almost unknown on such issues.

As too is the fact that SSE is reporting its results on a country-by-country reporting basis – which in its case means splitting them between the UK and Ireland in a way that it has not done before. This pioneers reporting on this basis in the FTSE 100 in a way that matches the recent demand of the OECD for the production of this type of data for tax purposes, but which the G20 did not have the courage to demand be placed on public record, where this type of accountability is essential if companies are to really be held to account for their actions.

Accountability is right at the core of this. SSE has adopted a new tax policy as a result of this process of being awarded the Fair Tax Mark, and in doing so makes clear that it will not undertake artificial tax planning and nor will it use tax havens to save tax.

In the process SSE has done three things. First it has shown that this type of reporting is possible. Many have said it is not, and having a FTSE 100 company prove otherwise is vital.

Second, it has made clear that it realises tax is important to its customers – and that their opinion matters on this issue. That shows how far tax has moved up the policy agenda. It’s now making real waves and is enough to have commercial significance. There is clear indication here that in their opinion SSE thinks that tax justice pays.

And third, SSE have thrown down a gauntlet to other companies by effectively suggesting that they should follow in their path and also put their tax affairs on public record in this way.

The Fair Tax Mark was created to indicate those companies brave enough to take the step of really engaging with being transparent on tax. That’s an essential part of tax justice. It’s welcome to see that it’s now arrived in the FTSE 100, and SSE are to be applauded on their courage in taking this step – and on the story they have to tell.

Now, who is next?

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Cameron’s immigration controls are a joke because he won’t control UK companies

Sun, 10/19/2014 - 19:53

David Cameron is apparently going to control immigration by denying UK national insurance numbers to some immigrants.

Whatever the legalities of the proposal (and I suspect it is a long way from meeting any required standard of European legality) the plan is straightforwardly naive because any UK immigrant may quite legally get hold of a UK company for under £100 with no questions required to be asked as to their identity or what they intend to use the company for.

Then the UK immigrant can use their newly acquired company to sell their services as a contractor to just about anyone with few or no questions asked, and if they are trying to be legal they can then withdraw all the rewards of their efforts by way of dividend fro the company,  for which no NI number is required.

Of course, if they are not trying to be legal then they might know that many hundreds of thousands of companies (at least 400,000 a year) fail to comply with their legal obligation to file accounts and tax returns – or any other return required by law. This fact is now so widely known it provides the perfect opportunity for abuse. If the immigrant wishes to simply take their money and run right now there will be almost nothing to stop them because neither HMRC or Companies House almost ever do anything to chase these companies.

And as a result what David Cameron has proposed is absolutely absurd precisely because he is so wedded to cutting what he calls the burden of red tape on business that he has created the perfect opportunity for anyone to abuse what he wants to do on immigration, even if it were legal.

He really ought to learn that if you want to use the law as a weapon you do have to both uphold it and be seen to do so, and we are a million miles from doing that with UK company and tax law right now.

For more information on this read my report from earlier this year on this issue.

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Fair taxes are key to a fair share for all

Sun, 10/19/2014 - 07:22

This is a guest blog from Meesha Nehru of the Global Alliance for Tax Justice, which I am pleased to support. Estimates are those of the GATJ:

Growing inequality within and among countries has become a defining issue of our age.

Every week brings another damning report about the harmful consequences of this pervasive problem.

Recently, Credit Suisse reported  that one per cent of the world’s population possesses nearly half of its wealth.  The combined assets of more than 3.5 billion people don’t equal what is owned by that elite group.  And that’s not the whole story.  Most estimates of inequality discount money and assets hidden away in secretive offshore locations.

It is the time-worn story of the rich getting ever richer while the poor become even poorer. his is a global crisis with a devastating impact. Inequality is denying populations across the developed and developing world access to the services required to meet their basic needs. This is troubling news not just for human rights now, but also for our collective future. Without adequate financing, we cannot achieve our long-term development goals or begin to face issues such as climate change.

But it doesn’t have to be this way. The Global Alliance for Tax Justice  works for a world where prosperity is fairly shared. Tax is a powerful tool to achieve that goal. But for people to receive their fair share, everybody has to pay their fair share. This is not happening. Mainly rich individuals and multinational corporations are refusing to contribute to the society that made them wealthy in the first place. They exploit legal loopholes and avoid paying billions in tax.

Each year Africa loses at least $60 billion in revenue because of the current system. That is more than it receives in aid. Yet more is lost in North and Latin America, Europe and Asia.

Just think of the schools that could be built, the healthcare provided and the opportunities that could be generated if democratic governments had access to this cash.

Representing a coming together of people and organisations all over the world, the Global Alliance for Tax Justice aims to end once and for all the damage being caused by such extreme inequality.

We work to:

End financial secrecy

There are some $21-32 trillion in financial assets hidden in offshore secrecy jurisdictions or tax havens as they are more commonly known. As it is hard for governments to trace the ownership of this wealth, it goes largely untaxed, hugely increasing inequality within and between countries. At the same time, current accounting rules allow large corporations to get away with hiding where their true profits are made, meaning any tax avoidance can occur unnoticed. Whilst a movement towards greater transparency has begun, there is still much work to do to shine a light on how money really moves and where it is stashed.

Promote progressive national taxation

Within countries, elected governments have a choice about how to collect tax. They tend to choose a mixture of different taxes, some regressive, some progressive. Regressive taxes hit the poorest hardest, significantly reducing their total income relative to the impact it has on wealthier individuals. Examples of these include flat rate taxes or indirect taxes such as VAT. On the other hand, progressive taxes increase on those with more ability to pay, thus helping to share out some of the wealth accumulated at the top so that the whole of society benefits.

Create a fairer global system

In a highly globalised world dominated by large multinational corporations, it is essential to ensure that taxes are paid where the true economic activity occurs. Under current global rules, this is often not the case, and companies are able to shift profits around the globe to places where they will be taxed less. This has a particularly devastating impact on developing countries. To combat the problem, we need to develop a new set of rules and to ensure that all countries’ voices are heard during the process.

The Global Alliance believes that tax justice has to be a central part of any inequality-focused agenda. In 2015, we will be working on this issue via our global campaign to make multinationals pay their fair share. We urge all others working on inequality to sign up, and help us to take forward the discussion of how tax justice can support social justice for all.

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