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Richard Murphy on tax and economics
Updated: 5 min 53 sec ago

Why deflation matters

Thu, 10/16/2014 - 06:46

UK inflation has fallen to 1.2%, as measured by the consumer prices index (CPI), which is the government’s preferred measure. The retail prices index measure of inflation is, admittedly, higher at 2.3%. Either way, these are exceptionally low figures. But does this fall matter? I was a question I was asked on Twitter, yesterday.

The answer is that it matters, a lot. Deflation is pretty disastrous for an economy for two fundamental reasons. The first is that investment spending can grind to a halt when deflation occurs. The reason is obvious: if you expect something to be cheaper soon you may defer buying it. If that becomes habitual money suddenly stops flowing into the economy. And given that we’re already in a pretty marginal economic situation where growth is having no real impact on the well -being of most people, withdrawing money from the economy is the last thing we need. So, let’s be blunt, deflation removes any prospect of any form of growth in the economy – sustainable or otherwise. Human nature and the desire for a ‘bargain’ guarantees that.

Then there’s the second problem. This is if anything more serious for anyone who owes money (and most households in the UK do). Deflation increases the value of that debt. It actually increases the real amount that has to be paid. This has the effect of taking yet ore money out of the economy – because it increases the cost of loan repayment which has the economic impact of increasing savings, and more savings are the last thing we need right now when the economy is short of spending.

There are two further impacts of this increasing cost of existing loans. The first is that this increases the risk of loan defaults – and that could create another banking crisis.

And if the value of loans goes up inequality increases because those to whom the money is owed see the value of what they will be repaid increase. And since loans are taken out, pretty much by definition, by the have nots and are repaid to the haves (and yes I am allowing in saying that for the fact that loans are created by banks) then inequality will inevitably rise, which is bad for the economy because those with wealth do not spend all their income, almost by definition, because that is how they became wealthy in the first place.

Deflation does then have no real advantages at all. Thankfully it can be easily addressed. Simply having the government invest significantly more to boost economic activity solves the problem whilst creating wealth and long term assets of value. When interest rates are also very low – as they are – the cost is virtually negligible as well in real terms, which makes ignoring this option something akin to economic madness.

The only problem is that economic madness has gripped the upper echelons of the UK political classes. So don’t expect action to prevent deflation any time soon.

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The UK company is the favoured tool of organised crime

Thu, 10/16/2014 - 06:23

The Independent has first rate report on money laundering using UK front companies this morning. The report itself is detailed and well worth reading: billions of dollars of criminal money look to have entered the ‘clean money’ system  as a result of the scam used.

From my point of view what is interesting is that the ease of access to UK companies, and the light touch regulation of them by Companies House and HM Revenue & Customs is fundamental to this criminal abuse, which the Independent makes clear is happening in the UK precisely because we choose to have that approach on these issues.

This has been a recurring theme of my work. My latest report on it is here. It’s my belief that money launderers are not the only criminals to benefit: tax evaders in the UK do so too, at a cost to this country of tens of billions a year precisely because millions of companies exist virtually outside the law in the UK.

For the sake of enforcing the law, sending tax returns to all companies, enforcing their submission, improving company registration requirements and (of course) employing the staff to ensure that these regulations are complied with we chose to forego enough income for the government to solve the NHS funding crisis. That, I stress, is a choice by the government because we need not tolerate this crime.

Which opens up another possibility. Should there be a crime of criminal neglect to collect tax due and payable, only applicable to ministers and senior HRC officials responsible for such failures? I am quite sure that this crime is knowingly committed right now. Why should we let those committing it get away with it?

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GFC2 coming our way?

Wed, 10/15/2014 - 15:14

I know it has been said I have called seven of the last three stock exchange downturns and I am, it is true, generally bearish, but this looks like trouble to me:

 

That’s the FTSE 100 for the last five days.

Now take the last twenty years:

 

Note a pattern?

It’s always hat the market tries to get to 7,000, and fails, and then begins to fall back heavily.

Why this time? German recession, weakness elsewhere, failed economic policies, deflation likely meaning a real risk of increasing bad debts, banks about to fail stress tests (I suspect) and a raft of evidence that we have simply done nothing to get rid of the failed thinking of 2007 and there’s every reason to think another financial market crash is just around the corner.

Of course, as a result government borrowing rates are tumbling so that the cost of government investment is minuscule in real terms, meaning that the way out of this crisis is obvious to anyone with eyes wide open.

But we wouldn’t be here if people had possessed that quality over the last five years.

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Selling off the NHS

Wed, 10/15/2014 - 12:59

For more information click here. 

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The EU adopts full tax automatic information exchange – but HMRC need the staff to deal with the data

Wed, 10/15/2014 - 09:14

The following press release was issued by the EU yesterday:

The Council agreed today on a draft directive extending the scope for the mandatory automatic exchange of information between tax administrations, enabling them to better combat tax evasion and to improve the efficiency of tax collection.

The proposal brings interest, dividends and other income, as well as account balances and sales proceeds from financial assets, within the scope of the automatic exchange of information. It thus amends directive 2011/16/EU on administrative cooperation in the field of direct taxation.

“Today we took a major step towards greater transparency marking the end of bank secrecy in tax matters in the European Union”, said Pier Carlo Padoan, minister of economy and finance of Italy and president of the Council. “We decided to implement within the EU the new global standard on automatic exchange of information developed by the OECD and endorsed by the G20. This shows the EU is still at the forefront of the fight against cross-border tax fraud and evasion, for the benefit of all citizens.”

It was only in 2009 that I was told in the UK Treasury that such moves would never happen but now they are, and note the scope. This is not just interest this is dividends and other income, as well as account balances and sales proceeds from financial assets coming within the scope of automatic information exchange.

Now we need this exchange to take place within the UK economy as well. It is absurd that it does not. Then we would see real progress on tackling tax evasion if (and it’s a massive if) HMRC had the staff needed to use this data. That’s why work on this issue has to continue.

But what it does prove is that those of us who contribute positively to debate on tax have made a difference. No wonder some are so worried

 

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On emanations, eructation, polysemy and the right to debate

Wed, 10/15/2014 - 09:05

David Quentin tweeted during a tax discussion yesterday that companies “really are emanations of the state; creatures of statute”.

David was absolutely right and he used the word emanation correctly, meaning something which originates or issues from a source. Given that there is no company that can exist without statute law then it should be beyond dispute, one would have thought, that companies emanate from the state.

Not to the tax trolling pedants it was not: far from it in fact. Ben Saunders, a key member of that tribe, was straight into action, arguing that David had to be wrong as there was a legal definition of ‘emanation of the state‘ and as such no other could be used – and as it disagreed with the use David was making of it he had to be wrong.

This means Sunders missed a fundamental polysemic point – which is that a a word can have many meanings. But not to the tax trollosphere they can’t. In their puritanical fervour everything has a precise and certain meaning, even if it is known only to a few of whom they think they are amongst the chosen few, and woe betide anyone who might challenge their perception of the status quo.

David acted with good grace, as he always does. Jolyon Maugham made clear he thought David was right. And David had the last word – posting:

I am very happy to admit that it was a grave error to use the word “emanation”; should have said “eructation”

For those not familiar with eructation, the politest interpretation is burping.

I admit I think I might have used the word flatulation – the coincidence of source with the commentary offered would have been too strong for me to have resisted.

But the real point is what really went on here. David used a term correctly – and in the context of his political economic thinking surrounding these issues – and was jumped upon not because he had made a valid point – which he had – but for three other reasons.

The first was to try to discredit him using a narrow interpretation of a phrase which would be familiar to only a tiny number of people.

The second was, no doubt, to narrow debate to the terms of reference the tax trollosphere wanted it to be engaged upon.

And the third was to consequentially suppress discussion of alternatives to a current situation where reform is needed.

This is this groups standard modus operandi. It is, no doubt, deliberate. It is largely effective – these people do very clearly discourage debate – and it therefore suppresses free speech by many so that the very narrow view of these very limited number of people appears to have more support than any reasonable analysis might suggest appropriate. That is why I will not have anything to do with them, and will not let them respond here to this post (they will have plenty of other places to do so).

But there us something else to note as well. The ten (or less) people I would associate with this activity have between them, as far as I can see, never once come up with a single notable contribution to debate or a single original idea of any sort whatsoever. Their aim appears to solely be to deter others from considering reform to a system that is patently not working.

And that’s why anyone who wants serious tax debate has to exclude them from contributing because fair and open discussion is not possible when they are determined to prevent it. Which is why I won’t be on Jolyon Maugham’s blog again, because much as I admire his ambition his terms of engagement do at present prevent any possibility of success.

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There is a problem with family companies, much of which comes down to too much tax planning

Wed, 10/15/2014 - 08:23

The FT reports this morning that:

Only one in 12 of the UK’s family-owned companies has plans to expand aggressively over the next five years, suggesting they could struggle to compete against their more dynamic foreign competitors.

The survey that supports the report was undertaken by PWC. As they noted:

only 16 per cent of turnover for UK family businesses came from overseas, compared to a quarter of family business turnover globally. Furthermore, only 8 per cent of UK family companies said they aimed to expand aggressively in the next five years, compared to 57 per cent in China, 40 per cent in the Middle East, 40 per cent in India, and 16 per cent in the US.

Let’s ignore for a moment PWC’s reasons for doing this work, and any spin they might have put on the results and presume the findings are true. Then let’s think about what this means.

First, it says that family business is not as important in the UK as it is in most economies. We have a much larger non-family sector proportionately than most economies because quoted companies are so significant in the UK (although China, obviously, has significant state enterprise). So it is probable that like is not being compared to like here. That has not been highlighted, as far as I can see.

Secondly, the report ignores relative expected growth overall. The IMF hopes the UK may manage 2 to 3%. In developing countries it is still expecting 5% or more (which is a doubling of the economy in 14 years). That’s something of an omission.

Third, the report likely ignores realism: UK businesses are, I suspect less likely to over inflate their ambition than US ones.

But all that being said, let’s get down to the nitty gritty. First, this is a sales pitch by PWC. Obviously you would hope that they were selling their ability to solve the underlying fundamental problem, which is a lack of entrepreneurial skill in the UK, but that, of course, would be too much to hope.  Instead they are selling their services in succession planning,  and this no doubt comes down to their ability to sell something else, which is absolutely at the core of this issue,  and that is tax planning.

The term ‘ family company’  does in itself have a strange connotation to me.  I have had a career as both a practising chartered accountant, where I focused as much upon entrepreneurial advice as on tax, and as an entrepreneur, creating and growing real UK businesses.  The truth is that most growth does not happen in family companies:  real entrepreneurial activity requires the putting together of a team of people with compatible skills, vision, and drive to create new products and services and it is rare that all those skills are available within the constraints of a marriage or an extended family, let alone across generations. They might exist, but don’t count on it.

So, in that case ‘family companies’  usually represent inherited wealth where the primary motivation is maintaining that wealth and not risk taking.  In fact,  those with wealth are by far the least likely to be risk takers because the fear of loss is much greater in their case  than any  perception that they might have of potential upside gain from risk taking. This is especially true in a society as status driven as the UK is.

And that means that  in these companies, just like large business, tax planning is likely to be the focus of more ‘innovation’  then any other activity.

So, what is the real need that this report highlights?

The first is that  there is a pressing need  for more business advisers who actually understand what real  entrepreneurial business is. They are sorely lacking in the upper echelons of the UK accountancy profession. And for the record,  being promoted through the ranks of an accountancy practice to partnership, or having worked for an extended time in a large company where there was a guaranteed salary at the end of the month is not in any way relevant entrepreneurial experience:  it is instead just about the most conservative career path that anyone can take.

Secondly,  current tax incentives that encourage the concentration of wealth, including those in inheritance tax legislation, need to be revisited. We need incentives that encourage the wider ownership wealth, including the ownership of so-called ‘family companies’.

Thirdly, we need to stop thinking that the Big 4 have the answers to problems. They don’t. All they have are good sales pitches.

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You didn’t believe tax abuse was big business? Think again

Wed, 10/15/2014 - 06:32

There are still those who say that tax abuse is not big business. And there are others who deny that it is, all too often, tax that is now driving business decisions despite the fact that it is so obvious that most large companies have not an inkling of commercial or entrepreneurial innovation or drive to share between them.

For those who delude themselves in this way this headline from the FT this morning should be a rude awakening:

 

The AbbVie purchase of Shire was always about US tax abuse. And the loophole has, it seems likely, been closed by Barack Obama – who had to over-rule Congress to achieve that goal on behalf of US people.

And the tax part of this deal was obviously so valuable that AbbVie may be willing to pay $1.5 billion to walk away from Shire now that the tax loophole has been closed.

That’s by how much tax abuse drives big business. Don’t doubt it. Never question it.

And if you wonder why this is the case, then link the issue directly to director’s bonuses. These are focussed on short term profits. And what’s the easiest way to boost short term after tax profits? Getting a tax break is the easiest way, of course.

It’s cheaper to lobby on tax than innovate. The outcome is also more likely to succeed when politicians are so easy to bully into concessions than it is to push sales, let alone invest some of the corporate cash pile into doing something really new and worthwhile.

So the so called idea of adding shareholder value by linking director rewards to profits is actually all about a few people extracting massive value from society through corporate tax breaks that are given at cost to all the rest of us.

The answer? Well, let’s start by saying director’s get a salary and a bonus of no more than 10% of that – and that it has to be on pre-tax profit. That’s simple, straightforward and easy to deliver.

But will it be in any manifesto in 2015? I somehow doubt it. The lobbying would be intense to stop it.

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Ireland ends one era of abuse – and opens another one

Wed, 10/15/2014 - 06:16

Ireland is to close the ‘double Irish‘ tax arrangement that has facilitated so much international tax abuse. The reality is that this will mean it will prevent Irish companies being non-resident in Ireland which will in turn prevent those non-resident companies sheltering income in tax havens.

This is good news: such a move may prevent some of the tax abuse that has become commonplace amongst US corporations and is most familiar in the case of Google.

But, the loophole will not close for four years – which means massive losses will still accrue to other countries in the meantime – and during the intervening period you can be sure that there will be many attempts made to find a new abuse to replace the one that is being abolished.

The Irish government has already, in fact, suggested it will offer such an opportunity itself by highlighting the fact that it wants to offer a new ‘knowledge development box’ arrangement. I think we can safely assume that this will be closely based on the UK’s patent box. There is, however, just one problem with the UK patent box, which is that the EU thinks it is harmful tax competition under the EU Code of Conduct for Business Taxation. The IFS explained why in 2013:

The Code of Conduct group [has raised] concerns that the Patent Box may not be sufficiently related to the real activities that the policy aims to promote. They have challenged the specific design of the UK regime based on their assessment that it breaches two provisions.

First, the Patent Box may grant tax advantages without requiring any real economic activity in the UK. This may arise if, for example, a firm owns the intellectual property in the UK but conducts research and commercialisation in other countries.

Second, the rules for determining eligible profits are deemed to depart from internationally accepted principles. In contrast to other countries, the UK Patent Box does not require profits to be associated with individual patents. This potentially allows for a broad scope of income to be included in the provision.

In both cases the Code of Conduct group have raised concerns that the UK rules are not sufficiently transparent and may lead to multiple interpretations, some of which allow abuse of the regime.

Now, the Irish may follow other EU precedents that are deemed to be Code of Conduct compliant, but it is al too easy to see the appeal of the UK precedent to them: going down the UK route might mean that the flows currently moving through Ireland – all of which are ultimately linked to royalties on the exploitation of intellectual property -might stay right where they are in Ireland, even though they may have little or nothing to do with the development of new ideas there.

This, like the UK patent box, will be a situation to watch, but the chance that we are simply seeing Ireland shift from one abuse to another looks very high indeed. The Celtic Tiger may not have changed its tax abuse stripes at all.

Postscript:

Also read this excellent explanation of the abusive nature of the UK Patent Box by tax barrister David Quentin

 

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The Church of England should hang its head in shame in London

Tue, 10/14/2014 - 07:58

I liked this letter from veteran tax and poverty campaigner Rev Paul Nicolson in the Guardian this morning:

Owen Jones’s tale of woe about rootless, soulless political parties (Opinion, 13 October) needs a comment about a national institution that should be providing roots and soul to political thinking: the Church of England, which, despite all its faults, I love. We are both part of the problem and could be part of the solution by our input to a debate about a political system that is not serving the needs of all UK citizens. We are locked into and are beneficiaries of the extreme free-market politics and economics that have infected a rootless and soulless parliament. It has required low- and middle-income households to carry the burden of austerity.

As a church we tinker with staffing food banks and credit unions when what is needed is noisy, sustained and effective lobbying, drawing the attention of comfortable households to the innocent suffering of a substantial minority of the UK population in hunger, substandard housing, unmanageable debts, rent and council tax arrears. Nowhere is that noisy lobbying more absent than in London, where the bishops and archdeacons of the diocese of London are all but silent in the face of the oppression of the poorest tenants by the state.

Rev Paul Nicolson
Taxpayers Against Poverty

So true.

And so typical of the Church Of England’s attitude to Occupy as well.

Shame on it.

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The race to the bottom is off

Tue, 10/14/2014 - 06:40

I was pleased to note from the FT this morning that in debate on devolution of tax powers to Scotland “all three parties agree that corporation tax should not be devolved to avoid a “race to the bottom” and other tax distortions.”

This is not  change of my view on whether or not Scotland should have been independent. It is a position within the status Scotland now has.

Given that Scotland is not independent, and given the real risk of a corporation tax race to the bottom, and the massive problems with the EU that any shift in Scottish corporation tax rates would have given rise to (explained here) this decision has to actually be good news for Scotland, who would otherwise have been harshly economically punished for lowering its corporation tax rate, and good news for the rest of the UK, which will saved further hardship by the exploitation of any difference in the corporation tax rate increasing the shift inn the tax burden from capital to labour

Common sense prevailed, for once.

 

 

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It’s more likely that George Osborne is the next Dr Who than he will balance the government’s books

Tue, 10/14/2014 - 06:18

I have warned, successively, that the Budget forecasts on tax revenue growth were ludicrously high both for this year and for several to come. I also suggested that the OBR was discredited by endorsing them. As the table below shows, I did the maths to show why that had to be the case (it wasn’t hard to do). And now, as the FT reports:

Britain’s economic recovery has generated far less tax revenue than forecast, raising the prospect of even deeper spending cuts after the general election to balance the budget.

The latest blow to the public finances was an admission from the Office of Budget Responsibility on Monday that income tax receipts – the biggest single source of government revenue – are likely to fall short of government targets this year, despite record levels of employment.

I could just declare that as 1 to me and 0 to Robert Chote at the office for Budget Responsibility, but that would be petty when the issue is so important.

Three immediate issues follow from this. The first is that the quality of Treasury forecasting is dire. No one in their right minds could have believed the levels of growth forecast in March 2014 as shown in this table, the data for which is taken straight from the March 2014 budget with my extrapolation of growth rates added:

It wasn’t just growth in tax revenues that was forecast, it was growth way beyond any underlying level of economic increase in activity that was suggested was going to happen this year, and that was always utterly implausible.

Second, we have to consider the possibility that the Treasury just lied when putting forward these growth projections. They are so ridiculous that has to be the best possible explanation for them.

And we have to the consider that the OBR may have been complicit in this – because if it was truly independent it should have been flagging up how unlikely this revenue growth was in March, and not now.

And what does it all mean? This list can be almost as long as you like. I’ll keep it shortish.

First, the budget deficit this year will be bigger than forecast.

Second, as the rate of income tax growth forecast for this year continues virtually unabated according to this schedule for years to come, all future years are also wildly overstated so that likely budget deficits in those years are also wildly understated by George Osborne.

Third, that means that all Osborne’s economic claims are shot to pieces.

Fourthly, that means that claim that there will be a balanced budget on this basis in the next parliament is not just ridiculous; it’s as likely as George Osborne being the next Dr Who.

And that means, fifthly, that David Cameron’s promises of tax cuts are just pure propaganda as the chance they will occur is s close to zero given that a budget surplus is their supposed pre-condition . That means that they should be completely dismissed as the daydreams of a pure fantasist.

Sixth, one has to speculate on why the OBR said this after Tory party conference when the issue was apparent before it. Again, OBR independence and / or competence are in question.

Seventh, why Labour is committing to these numbers is open to very real question.

Eighth, the need for a real alternative economic policy and not just a bundle of lies is now even more obviously necessary. But what chance of that, from any of the mainstream parties?

No wonder people are disenchanted with politicians.

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Current UK earnings crisis is without precedent and all we are promised is it will get worse

Mon, 10/13/2014 - 07:01

I am shamelessly taking this from a TUC press release issued this weekend as I think it needs to be known:

UK workers are suffering the longest and most severe decline in real earnings since records began in Victorian times, according to a new analysis published today (Sunday) by the TUC.

This year, workers across the UK face the seventh consecutive year of falling real earnings – a situation that has no historical precedent, says the TUC. Even the pay squeeze of the long depression of the 1920s was shorter. The total decline in earnings since 2007 is over eight per cent, according to the TUC analysis.

The TUC study compares the current situation with four major earnings crises in UK history – 1865-67, 1874-78, 1921-23, 1976-77.

The real wages drops during each of these crises lasted only two years, apart from 1874-78 when there were four consecutive years of falling real earnings. After the initial drops, earnings growth resumed, but now the UK is in the seventh year of financial earnings pain and there has yet to be any let up, says the TUC.

Seven years after the start of the slumps of the 1860s and 1970s, earnings were above their pre-crisis peak. Although after the downturns of the 1870s and 1920s earnings still had not got back to where they had been before the economy went into freefall, the TUC analysis shows that the current pay squeeze is twice as deep as the worst of these episodes (eight per cent compared to four per cent in the 1920s.)

TUC General Secretary Frances O’Grady said: “It’s shocking that even the most infamous periods of pay depression in the last 150 years pale into comparison when looking at the current seven-year collapse in earnings.

“The government says the economy is growing again, but there’s no evidence of any recovery in ordinary workers’ pay packets. Across the country people are struggling to make ends meet, as their pay lags behind prices and there seems to be no end in sight to their financial misery.

“Vast swathes of Britain are long overdue a pay rise. That’s why we expect to see tens of thousands join our march next weekend, calling on politicians and employers to help them share in the recovery and start spending again without fear of falling into debt.”

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Never in the history of humankind have so many suffered so much for the greed of a few

Mon, 10/13/2014 - 06:57

What’s the difference between an increase of 21% in a year and a loss of 8% over seven years? The answer is that it depends on where you are on the pay scale.

As the FT notes in an article this morning:

FTSE 100 directors’ pay soared 21 per cent in the past year while average wages in the UK have failed even to keep up with inflation, highlighting the widening gulf between what executives and their employees earn.

Chief executives at some of Britain’s biggest companies earned 120 times more than a full-time employee – when shares as well as cash were included – compared with 47 times more in 2000, according to Incomes Data Services, a research group that extracted the data from companies’ annual reports.

And it’s not as if the totals aren’t eye-watering either. The median FTSE 100 director’s total earnings were £2,433,000 while the median chief executive earned £3,344,000.

In the meantime, the TUC reported over the weekend that there has been an 8 per cent drop in real earnings in the past seven years.

And this matters, a lot. People who are paid less do of course also pay less tax, and claim more benefits. But they do also push up corporate profits because the wage subsidy from the state does not appear on a company’s profit and loss account and so a director’s bonus is triggered by shifting wage costs from the company payroll onto the state.

And do not doubt that these issues are linked, because they undoubtedly are. The majority of the pay increase for corporate directors came from share options and other bonus linked arrangement, all of which will have largely resulted from success in cost cutting in stagnant markets. But that cost cut hurts real people very hard, and the UK recovery and our national finances just as much.

Never in the history of humankind have so many suffered so much for the greed of a few. It’s massively unpopular to say that high pay needs to be regulated, but there is no doubt it has to be.

What is wrong with having a director on a fixed salary and firing them if they fail? Is it really so hard to work out that this is what in everyone’s best interests? It’s not rocket science, but it is exactly what needs to happen.

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The face of tax evasion? It’s time to prosecute

Mon, 10/13/2014 - 06:40

I was amused by the presentation of this Guardian article this morning:

I did wonder if there was an implication that I was now the face of tax evasion and that I am, perhaps, on one of those HMRC ‘most wanted’ lists, but actually the reference was, of course, to my work on the tax gap, and my latest report for PCS.

The more important dimension of the story is yet another HMRC failure. Despite a supposedly increased budget for beating tax abuse there has been a failure to deliver. I am not surprised  by that: the integrity of the work of HMRC  is dependent upon funding for the whole organisation, not just a part of it. The logic of providing increased funds for one small aspect of its work is, therefore, bound to be mistaken.  This is an organisation that has to work from top to bottom and it is failing, especially at the top, because of a culture failure, and at the bottom, because of a lack of funds.

But there is another aspect  to this not mentioned in the Guardian article, which is that so many of the prosecutions that are reported by HMRC  appear to be targeted at small traders.  Now I am not, for one minute, arguing that there is not a problem with small traders evading tax: there undoubtedly is.  Nor  am I arguing that they should not be prosecuted: there is a good case for them being so.  What is notable, however, is the absence of substantial prosecutions, many relating to offshore,  where we are well aware that there are more significant funds involved in many of the cases addressed but which do not, however,  seem to end in court action.  There is a very good question  to be answered as to why that is the case.

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Memo to Bono: being anti-tax abuse is not the same as being anti-business

Sun, 10/12/2014 - 16:52

I note Bono has stuck his our into tax debate again, saying, according to the Observer that Ireland’s tax policies have:

brought our country the only prosperity we’ve known.

and

We are a tiny little country, we don’t have scale, and our version of scale is to be innovative and to be clever, and tax competitiveness has brought our country the only prosperity we’ve known.

That’s how we got these companies here … We don’t have natural resources, we have to be able to attract people.

Let’s start with facts for a moment and note that Ireland’s low tax rates did not work from 1957 to 1994. When they apparently did work it was tax payer funds from the EU that actually made the difference. I’ve explained the history of this here so I won’t do so again now, but the reality is that it was not low tax rates that created Irish prosperity, it was subsidies from taxpayers in other countries that did that.

But what really annoys me about the Bono interview is his implication that to be opposed to Ireland’s tax position is to be opposed to development. He’s quote as saying:

As a person who’s spent nearly 30 years fighting to get people out of poverty, it was somewhat humbling to realise that commerce played a bigger job than development. I’d say that’s my biggest transformation in 10 years: understanding the power of commerce to make or break lives, and that it cannot be given into as the dominating force in our lives.

All I can say is it took him a long time to realise, and when he did he got it fundamentally wrong, because if he really thought business was that transformational then he’s utterly oppose tax competition and the sort of abuse that Ireland permits.

That’s because for business to be effective everyone has to play on a level playing field, and Ireland crates a deliberately unlevel one, not least by letting some businesses apparently not even comply with the law.

In addition, every business has to have its cards face up on the table, and many businesses in Ireland do not publish accounts.

And no country can seek to undermine another (as Ireland does day in, day out) or the vulnerable suffer, as Ireland undoubtedly permits.

That’s why Bono is actually supporting action that positively harms development and that directly reduces the well-being of millions if not billions in the world by standing up for an international tax architecture that encourages the flow of wealth from the poorest to the rich but never the other way. And in the process it destroys fair competition and honest business as well.

This is what we have been saying in the tax justice movement for years and that is why we are probably the most pro-business lobby there is right now, possibly in the world.

This is why we argue that business and those who invest in it should have all the information they need to make decisions. That’s called country-by-country reporting. Information and transparency are good for business. We’re doing more than anyone to support the supply of that information.

And we argue that small business should not be disadvantaged by big business. So we say big business should not be able to use tax havens, transfer mispricing, copyright, patent and royalty abuses to shift profits and more besides which reduce their taxes when small business can do no such things. That’s unfair competition by big business. You can even call it the abuse of monopoly power. We’re going out of our way to prevent it. Bono’s supporting it.

And we’re arguing tax cheats should not have an advantage over honest business. So we’re arguing for more tax inspectors to catch the cheats and so create a level playing field for all honest business. No one else is doing that.

And we’re also demanding that all businesses must be required to comply with their requirements to file their accounts on public record, say who they are, tell us who runs them and be accountable for what they do. That massively reduces the risk of bad debts that are crippling for many businesses, especially in a downturn. No one else is more vociferous than us in demanding this – which would be of enormous benefit to business.

And we demand the same worldwide – including in tax havens, like Ireland – so exporting is easier and less risky. Lower risk reduces the cost of business and increases well being. No one else is doing that either.

We’re even demanding more efficient capital markets – by demanding that we understand better through country-by-country reporting just what risks there are inherent within multinational corporations, which is information simply unavailable at present. No one else is doing that.

I could go on, but with respect to Bono, his problem is not that people like the tax justice movement who oppose his views are anti-business, because we’re not. We’re anti-business abuse, and that’s very different. Being in favour of a level playing field – which is what we want – is not anti-business. It’s decidedly pro-business. But it sure as heck scares those who make profit from abusing their positions of power in the market, which is real anti-business activity.

Bono needs to retract, now.

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You can’t run a tax system on the cheap

Fri, 10/10/2014 - 10:56

HMRC has sent out thousands of incorrect tax statements, and made refunds of tax that are wrong.

Time and again I have said you cannot run a tax system on the cheap and that such a system does need plenty of highly trained people who have a very accurate sense of what might, can and does go wrong.

HMRC is being denied those resources. Don’t blame them for the current mistake.

The blame lies fairly and squarely at George Osborne’s door.

 

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