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Richard Murphy on tax and economics

Tales of hope are the foundation of reinvention

Wed, 09/10/2014 - 05:25

I am heading to Scotland this morning. Not because of the referendum debate, because the debate I am taking part in is strictly neutral on the subject, although it is bound to come up. And I am most certainly not going because the party leaders are. I am going to discuss Reinventing the Economy, and that is something that is needed north and south of the border and irrespective of what happens next week and yet the referendum debate provides a context for that opinion which is important.

Whatever happens next week Scotland is going to reinvent itself, and so too is the rest of the UK (rUK) whatever happens. I say that in the context of a discussion I had at the ICAEW yesterday where Charham Hiuse rules applied so that comments cannot be attributed, but where quite a lot of quite influential people in UK tax (plus me) were gathered.

During that meeting it was said, that what business craves with regard to tax is certainty and that for all practical purposes what that really means is that however imperfect the existing model of taxation they want nothing to change.

This was a powerful and fascinating insight in a meeting where the tone of discussion was, I think, largely negative. It was problem focussed with very little insight on what solutions might be with a surprising willingness on view to pass the expectation of change to the one politcian – Margaret Hodge – who was present, or to pin that expectation on remoter power, mainly in the form of the OECD, whose work was, however, seen as inevitably doomed in the light of opposition in the US Congress.

Rebecca Benyworth of the ICAEW tax faculty spoke powerfully and insightfully, but as I have now named her I can’t say what she said.

And I offered hope that the thing that was needed was deliverable. I made clear that despite being told on many occassions over the last decade or so that what I wanted from the tax system was completely undeliverable many were now happening. I’m not saying they are all being delivered as I want but I’ve been told that country-by-country reporting, a general anti-avoidance principle, automatic information exchange, registers of beneficial ownership of companies and more were technically and politically impossible to deliver and progress is being made on them all. Of course that’s not all down to me; far from it, but I could argue (and am arguing) that of all the philosophies present in the room yesterday then tax justice was the most successful precisely because we laid out an apparently impossible aim, and have begun to deliver.

What has this to do with Scotland? Quite a lot, actually. The No campaign is based, as I see it on three things. The first is conservatism with a small c: a fear of change. The second is an establishment based desire to maintain power. And the third is a lack of vision of any alternative to what we have, which is precisely how with a week to go the No campaign can suddenly offer all sorts of imprecisely formed reforms with no obvious delivery mechanism or thought through integration processes.

That is, of course, a caricature, but these things matter. Life is not evidence based in the sense that we spend our time rationalising facts. Life is a narrative we weave for ourselves in which we mesh the stories we tell with those of others to seek an understanding that is plausible for the time being.

In that context the No campaign makes little sense. It is offering a story without hope. It is saying ‘we’re in a mess and you know you’re paying the price for it, but stick with it anyway because it’s the best mess we’ve got’. It is, to put it bluntly, not a great sell.

The Yes campaign, on the other hand, can tell a story of a hope for change. Some of those changes, like the SNP’s corporate tax policy, seem to me to be both profoundly unwise and unhelpful, and an issue that will need to be fiercely debated over coming periods by those with a concern about the future of corporate taxation and a race to the bottom, but people have, I think, put such details aside. They are instead saying that these is a hope of change if there is an independent Scotland, and that is why they will take the risk of the unknown.

Precisely for the reason that big business is wedded to there being no real change in taxation – which is that what exists is obviously flawed but very clearly works for big business – people in Scotland (and very obviously, elsewhere too) want change because what we have is flawed and very clearly does not work for them.

I am not convinced that a vote for Yes in Scotland is a vote for the SNP. I would expect a vibrant and pluralistic democracy to emerge in Scotland after a Yes vote, if that were to happen, in which there is no guarantee that the SNP would win. Salmond would be wise to recall that Churchill won a war but lost an election and one of the main reasons for voting SNP may have gone once a referendum is won.

And this is precisely the point I am making, I hope. People are, of course, voting for a wide range of reasons in the Scottish referendum (and I will not be) but when it comes down to it there are, I believe, just two prevailing themes which are being lost in all the noise, and they are the ‘keep the status quo, bad as it is’ campaign and the ‘I think we can do better than this’ campaign.

It’s not a for or against the Union issue.

Or a for or against the SNP issue.

Although it is a for or against Westminster issue, because that is core to the argument.

It is about vision, passion, and a desire to change by rocking a rotten boat that is so comfortable for a few that they’d rather not reform its obvious flaws.

And shockingly, surprisingly, and sufficiently, people are sending a massive message, whatever happens, that they have had enough of ‘some more of the same please’. In England they’re doing this via UKIP with a resigned and rightfully heavy heart. In Scotland they have a better option and they are taking it.

There’s a massive lesson to learn there, which is that people want change. What is more, unless they get it they might eventually impose it. Those seeking the status quo should take note.

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If you’re in Glasgow tomorrow and Thursday, so am I

Tue, 09/09/2014 - 13:26
Reinventing Our Economy for People and the Planet Conference and Wellbeing, Work, Equality and Environment Debate

The Adam Smith Business School in conjunction with Friends of the Earth Scotland and Jubilee Scotland will hold a debate on 10th September and a conference on 11th September 2014, to hear how we can steer our economy in a bold new direction.

A panel of top economic thinkers has been assembled by partnership of civic organisations in Scotland to help us understand the big questions about the economy and to give their answers to them.  The Adam Smith Business School is delighted to invite students to register for the conference and the debate for free.

Owing to generous sponsorship from the Institute for New Economic Thinking, the Adam Smith Business School at the University of Glasgow and the Carnegie Trust, we are pleased to announce that we are now able to lift the requirement for delegate fees.

Debate

Date: Wednesday, 10th September 2014

Time: 7.30pm

Venue: Glasgow University Union, 32 University Avenue, Glasgow, G12 8LX

WELLBEING, EQUALITY AND ENVIRONMENT:  what path for a sustainable economy? 

  • Ann Pettifor (ex Jubilee 2000)
  • Jo Armstrong (CPPR, University of Glasgow)
  • Richard Murphy (Tax Research UK)
  • Professor Richard Werner (Southampton University)
Debate registration

Registration for the Debate is now available through Eventbrite.

Conference

Date: Thursday, 11th September 2014

Time: 9.00am – 5.00pm

Venue: The University of Glasgow Adam Smith Business School, Kelvin Gallery, Main Building, West Quadrangle, Gilbert Scott Building, University Avenue, Glasgow, G12 8QQ

REINVENTING OUR ECONOMY FOR PEOPLE AND THE PLANET:  An enquiry about an alternative sustainable economic policy – re-inventing our economy for people and the planet.

We’ll set out to answer questions like:

  • How do we ensure investment goes where we need it to create jobs, tackle climate change and transform our public infrastructure?
  • How can we extend control over our economy and the financial sector?
  • Can we reverse the trend towards deepening inequalities?
  • What economic pathways can create well-being and sustainability?

Speakers include:

  • Professor Malcolm Sawyer (Leeds University)
  • Ann Pettifor (ex Jubilee 2000)
  • Richard Murphy (Tax Justice Network)
  • Professor Richard Werner (Southampton University)
  • Professor David Bell (Stirling University)
  • Professor Molly Scott-Cato MEP (Roehampton University)
  • Professor Andrew Cumbers (University of Glasgow)
  • Tim Jenkins (New Economics Foundation)
  • Professor Robert McMaster (University of Glasgow)

Workshops on Controlling money and the banks; Latin America’s Economic Alternatives; Democratising pension investments; Beyond carbon pricing; Circular Economy; Runaway Consumption

Conference registration

Registration for the Conference is now available through Eventbrite.

Please read the Wellbeing and Sustainability Flyer for more information.

Enquiries

For any queries on both events please email Tanja.Bozic@glasgow.ac.uk or call 0141 330 4066.

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It’s all about power

Tue, 09/09/2014 - 06:50

I have already written about power this morning and I note that on quite a different tack that so has Aditya Chakrabortty, in the Guardian.

Aditya's concern is with negotiating power on pay. His argument relies on a simple fact, which is that hotel cleaners in New York are paid three times as much as cleaners working for the same chains in London.

The difference comes down to power, or in this case the power of being unionised to achieve collective bargaining, or not.

The absence of unionised collective bargaining in far too many UK sectors is a market failure because markets are only efficient when the participants play on a level playing field. It has always been the job of unions to create that level of playing field which is otherwise absent.

A government that believed in effective markets would encourage effective trade unions. We haven't seen governments do that for many years. The conclusion is obvious: too many in UK politics have for far too long abandoned effective markets in favour of explotation and rent seeking.

That's another thing the Scots have noticed. Short term promises are not going to fix that, north or south of the border, but reform on this issue is vital if current inequality that is at the heart of our economic malaise is to be fixed. And I work with unions for that precisely that reason.

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There’s a revolution happening, whether we like it or not

Tue, 09/09/2014 - 05:10

Come what may, a revolution is happening in the UK. I don’t think history will call it Salmind’s Revolt. I think it may call it The End of the Union, and given the offered devolution of powers to Scotland (that will surely be a precedent for Northern Ireland and Wales and so English regions too) by the No campaign, that does seem to be what is going on.

The forces of the Establishment are, of course, both frightened and fighting back. Their power base – which is, and always has been, their ability to extract rent from others – is under threat. Of course they are throwing their toys (the exchange rate, share prices) around, but not by enough to indicate any real underlying issue and just by enough margin to think they can show they exercise some power still.

And power is, of course, what this is all about. It always is, of course. But not power for its own ske, which is ugly, usually entrenched and brutal. It is instead about the power to be. That is, of course, very different from the power to control, which is why those with the power to control both find it very frightening and threatening.

The power to be is about fulfilment of the wish to be the person of which you are capable. It is an idea I explored in The Courageous State. It is where the reconciliation between the individual and the state takes place. It is about using the power of common identity and belief in a purpose to release an energy that supposedly and rationally might not exist but which can, through the synergy of that realised potential, create possibility that either replaces material loss or replaces it in ways which are unmeasurable but more powerful than the blips in GDP with which too many politicians are fixated.

This is the real revolution that is raking place. I mentioned on this blog yesterday the bizarre mind set that thought the failure of the Union was about the Conservatives inability to sell capitalism and non-state welfare to Scottish people. That is, actually, to some degree true, but its bizarreness is in its incomprehension that there has always been an alternative to the patronisation inherent in those ideas, and it is the fact that Scotland (and others) have a belief that they can do better for themselves that is so profoundly worrying the Establishment.

Many in that Establishment have made choice their mantra over the last thirty or so years. But that’s not what they have really offered. What they wanted was people to choose between the options they have been given. The plan was never for them to choose for themselves. That was why the Establishment were happy to offer a referendum. They thought people would choose No because that was what they were really being offered by the powers that be.

But even if they still do choose No the point is that what has convincingly been said by a great many people is that they now realise that they have the power to reject the choice they have been given. And that is the revolution that is taking place right now, all around us.

People are willing to sacrifice to make choice that they think will be better for them even if it might involve material sacrifice. That should not surprise any economist. Nor should it surprise a politician but it has done, both.

The challenges arising from this are threefold. The first is to then show that the far right is not an extension of this choice, but is a reinforcement of oppression, as it very clearly is.

The second is to ensure mechanisms for effective redistribution of income and wealth survive in what remains of the UK after the referendum, because the choice being made is for society and not individualism in my opinion (it really can’t be interpreted as anything else, I think).

And last, we need to rebuild the foundations of power to reflect this new consensus. This is the biggest task ahead because at its core this new awareness challenges not just the whole existing logic of power but its underlying philosophy too. Something little short of the enlightenment logic of rational power based on the achievement of the isolated individual is being challenged here and what comes in its place is a massive question in need of an answer.

But things will never be the same again. And that’s why we’re living through a revolution, come what may.

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My tax justice motion for local authorities

Mon, 09/08/2014 - 07:09

I have published a bog on the need for a motion on tax justice related issues that local councillors can put to the authorities of which they are a member for approval by the members. This is the text of that suggested motion:

Tax Abuse

Motion presented to XYZ Parish / District / County Council

By:   

XX xxxxx 2014

_________________________________________________ 

This Council recognises:

  1. The growing awareness of tax avoidance and tax evasion (together termed tax abuse in this motion) and their impact in recent years; 
  2. The importance of curtailing and eventually elminating tax abuse in the local economy of XYZ if a sound market economy is to be created in which all traders, whether locally or nationally based, can compete on a level playing field to provide the goods and services that our community needs;
  3. The wider impact of tax abuse on our national economy, where the gap between tax income collected by our national government and that which would be due if tax law was complied with as parliament intended is not less than £35 billion a year in the estimate of HM Revenue & Customs and may be substantially higher in the estimate of others and that this tax gap does, inevitably impact upon the level of income available to this authority to undertake its work in our local communities;
  4. The impact of tax abuse internationally and in particular its cost to developing countries (many of which have close relationships with persons living in our communities) who as a result of tax abuse by multinational corporations are estimated to lose sums greater than the total world aid budget to this activity each year with consequent impact on our relationships with those communities;
  5. That the UK government has taken steps to tackle the issue of tax abuse by companies seeking to secure contracts for the supply of goods or services and has issued ‘Procurement policy note 03/14: promoting tax compliance’ about which it says ‘A new policy was announced in the March 2013 Budget on the use of the procurement process to promote tax compliance. This applies with effect from 1 April 2013 to all central government contracts of more than £5 million. Suppliers bidding for these government contracts must self-certify their tax compliance’.

This Council now agrees that:

  1. Both tax avoidance and tax evasion represent a threat to the operations of this Council, the services that it supplies to the communities that it represents, the effective operation of the local economy, our national economy, the economies of other countries and our relationships with them;
  2. As a consequence of the noted threats created by tax abuse within and beyond our communities this Council wishes to take action to tackle tax abuse in all its forms and as a result:
    1. Requires that the Chief Executive of the Council notes ‘Procurement policy note 03/14: promoting tax compliance’ and adapts it for use as part of the procurement procedures of this Council excepting that the resulting policy shall apply to all companies bidding for contracts exceeding £xxx,000 in value, and to report back on this issue not later than Xx xxx 2015; 
    2. Requires that the Chief Executive of the Council notes the ‘Fair Tax Mark’ and consider the ways in which that certification process may be included in the changes to the tendering process noted in paragraph (a) above;
    3. Requires that the Chief Executive of the Council prepare a policy proposal for declaring XYZ a Fair Tax Area and shall detail plans for achieving this objective in cooperation with the local business community and the Fair Tax Mark by no later than xx xxx 2015;
    4. Requires that those who represent this Council when making decisions regarding investments that fund the pensions payable to past and present employees of this authority take tax abuse into consideration when assessing the suitability of those companies in the shares of which such funds might be invested;
    5. Agrees that this Council will actively support campaigns by HM Revenue & Customs and others, including Non-Governmental Organisations, that encourage tax compliance and an end of tax abuse in the area covered by this Council and beyond. 
    6. Authorises the necessary expenditure to implement these proposals. 
    7. Requires a report back on progress made with regard on each of these proposals not less than once quarterly for the next three years.
    8. Requires that the Council actively publicise this policy.

A Word version is available here.

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Towns against tax dodging – a draft motion on tax abuse any council could adopt

Mon, 09/08/2014 - 07:08

Action Aid has developed an interesting new campaign called:

As they say:

Big companies are getting away with dodging billions in taxes, both here and overseas. But, we’ve got a really good opportunity to change that.

Politicians are deciding their priorities right now. In the autumn when they meet for their party conferences they’ll be going public on their priorities for the election. We need to take action now.

Our challenge is to get as many towns as possible to take a stand and become part of the Towns Against Tax Dodging Campaign.

As they add in their campaign pack:

In our communities we depend on vital public services such as schools and hospitals. In poor countries such as Zambia, where two out of three people live in poverty, tax-funded services mean the difference between life and death.

Council cabinets debate and vote on motions to declare support for an issue. If we get councils up and down the UK to pass a motion on tax dodging, it will send a powerful message to our leaders that we demand change.

So, they ask that campaigners get their local authority to support a motion for tax justice.

I think that’s a really good idea, but as I discovered at the Green Party conference on Saturday, there are councillors who would like to do this but are really not sure what Action Aid want because the one thing that is missing from the pack they supply is a draft motion that they might adapt for local use if, as is common place, local council standing orders do not allow an issue to be considered unless it ha particular local application. Nor is there a motion that demands action rather than just support. This is, in my opinion, a pretty big gap in the ask for a number of reasons.

First that means local campaigners and local councillors, who may not be experts on this issue, have to do the hard work of actually drafting the demand. Second, this means some issues may not be covered. Third, there’s a risk that what’s offered may not be acceptable as a motion in many councils since, as I have gathered from just a quick review of the standing orders of some of these councils, motions that do not relate to the local area and issues over which the council has authority to act cannot be accepted for discussion or adoption in many (if not most) authorities and the form in which Action Aid ask for a motion might fall foul of that requirement. The one thing that any local authority tax justice motion can only make reference to, quite obliquely, is the impact of this issue on developing countries.

Now I would stress I am not a local authority expert, and the standing orders of local authorities on how motions may be drafted and presented for consideration will vary from place to place, so it’s not possible, I suspect, to offer a ‘one motion fits all’ option on this issue, but I reckon a starting point on what such a motion might say is important, so I have drafted one that is available as a word download here. It’s also available to read here. I hope it might be capable of adoption by a range of councils, although that might be optimistic in the case of parish councils.

The aim of this motion is broad, but is completely locally focussed, always linking what is asked for to the supply of local services for which the council is responsible or the economic and social interests of the community it serves. It also explicitly notes the action that the government has taken on this issue, which may not be very robust but which provides a clear and obvious precedent for any council to follow, which largely eliminates their legal risk from doing so, and as such overcomes a major obstacle to putting any policy in place.

The motion then goes on to make a specific list of demands with regard to procurement, the use of the Fair Tax Mark in that process, the creation of a Fair Tax Area (which might, I admit, involve promotion of the Fair Tax Mark amongst local businesses), support for HMRC and other bodies, including NGOs who seek to tackle tax abuse, and perhaps, most importantly, a requirement that those considering pension matters on behalf of council employees take tax into consideration in their decision making process.

This, I think, is a deliverable motion of local interest that does, however, link tax in a locality to its wider and international dimensions and is as such a motion that councillors could table at a meeting of the authority of which they are a member and seek publicity for.

I hope it’s of use.

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Are you really surprised the Scots want to quit?

Mon, 09/08/2014 - 05:54

The Scottish referendum is dominating debate right now, but it is wise to recall why that is the case.

Take this from Frances O’Grady, TUC General Secretary, writing on its blog yesterday to mark the launch of the TUC Congress:

The TUC’s Congress starts in Liverpool today, and a issue at the top of many minds will be the threat posed by the Conservative Party’s new proposals on strike ballots.

These are not just a few bureaucratic obstacles that will make life a bit more difficult for trade unions. Rather they work together to make official strikes close to impossible and will open up trade union activists to increased surveillance by the state.

The new rules should be considered either draconian or absurd. First there has to be a 50% turnout for a strike ballot when many elections to parliament don’t achieve that. Second, they have to be postal ballots when the post is moving into history. Third, the admin rules are tightened to give more legal opportunity to challenge any strike. And last those on strike will be subject to considerably more monitoring as if each picket were an enemy of the state.

As Frances says:

The Conservative proposals are …. an attack on our fundamental civil liberties, but it will also act to lower living standards for the many – whether or not they are union members. With these new proposals, the Conservatives seem to found have a simple slogan for the next election – “Keeping wages down for ever”.

And you wonder why some north of the border reject the idea of wanting to be linked to a country where such abuses of freedom are not only proposed but have government backing?

I’m not.

Disclosure: I have undertaken work for the TUC since 2007

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My talk at the Green Party last night

Sun, 09/07/2014 - 06:39

I spoke at a fringe meeting at the Green Party last night. This is roughly what I said (as I never stick to my script):

Thank you for inviting me to speak this evening.

I admit the theme of tonight’s event is familiar to me. I have now dedicated more than a decade of my life to asking what we can do about tax dodging. That would, I think you would agree, have been a bit of a waste of time if the answer was “not a lot”. Thankfully, it isn’t.

Right here, right now in the UK there is an enormous amount that we can do to tackle tax dodging. What I’m pleased to note is that again, right here, right now in the UK, you in the Green Party are amongst the few who are taking those options seriously.

Before, however, I explain what we can do about tax dodging, let me make it clear why tax is so important.

Most people think tax is just about raising revenue to pay for government services. And of course, to some extent that’s true.

But, tax is about many more things than that.

Tax is about redistributing wealth and income to those who need it, to relieve poverty and to create opportunity in our society.

Tax is also about repricing market failure. It makes the polluter pay. It puts a price on the finite resources of the world. It imposes a cost on harmful activity.

As importantly, in the way that tax raises money and in the way that it is spent, and in the balance of the two, tax lets government intervene in the economy to build the society we want.

As a result of all these things tax is the way in which democracy is put into action.

But what that means is that having a fair, honest, and robust tax system is an essential foundation for a vibrant society where everyone’s voice is heard and respected.

I regret to say that this is why I also think that right now we aren’t getting the tax system we need. Neoliberal politicians know that if tax dodging was brought to a close in the UK then there would be no deficit and so there would be no austerity and they would not have an excuse for cutting the size of the state or the role it plays in creating the future that we all want, but they don’t. Tax dodging does, as a result, suit their purpose.

That is why, I suggest, that our domestic tax authority – HM Revenue & Customs – so drastically understates the tax gap in this country. They say that the tax gap is about £35 billion a year. I think it is more than £100 billion a year. I am candid: I accuse them of deliberately miscounting. They ignore abuse by the likes of Google, Amazon, Apple and others and wilfully go on from there.

So, the first thing that we have to do in this country if we are to tackle tax dodging is to correctly estimate how much tax is lost to our government each year. It’s absurd that there are only two such estimates at present, one by HMRC and the other by me. Isn’t it time we got some others, properly funded and definitely independent of HMRC and representing a range of political and economic outlooks to look at this issue? I don’t care if they think I’m wrong: I know for certain they would prove HMRC are.

And then we need to learn the lessons from such a study. It will show, I promise you, that tax avoidance is important. But, maybe, not nearly as important as you think. I now think inroads have been made into tax avoidance. Big companies no longer want attention from UK Uncut, Christian Aid and me. They’re changing their ways. And no one wants to be a Jimmy Carr or Gary Barlow. The price of becoming a tax avoider has been increased. We know that campaigning works.

But that does not mean that the mechanisms we have to tackle tax avoidance can’t be improved. We need to sweep away the fig leaf of a General Anti-Abuse Rule this government introduced and deliver a proper general anti-avoidance principle that says if you try to cheat on your taxes we can stop you.

And we definitely need to force all multinational corporations to put on public record exactly where they trade and pay their tax. That is of course country-by-country reporting, which I first created more than a decade ago.

We could also demand that anyone bidding for a public contract get the Fair Tax Mark. One FTSE company has done it. More will follow, I can assure you, because I am the creator and a director of this scheme. It is possible for companies to do it. It should become the norm.

But that does not avoid the fact that tax evasion is a problem at least four times bigger than tax avoidance is now, in my estimate. And that means we have to turn on the cheats in our communities, and maybe even in this room. Yes, this is uncomfortable stuff.

But dealing with this is essential if we are to build an honest economy where those who pay can compete on a level playing field with those who don’t. This is the foundation for a sound small business economy. In that case I always wonder why the free marketeers don’t want it. What does that say?

So we need to invest, heavily in HMRC. Not just to enforce the living wage, which they regulate and  on which I applaud your new commitment, but to collect the tax that is due in this country.

And we need to invest in proper company regulation so that the 400,000 companies that go missing in this country each year without paying their tax are brought to account. This licenced identity theft is made possible by our state because it is obsessed with deregulation and reducing the so called burdens on business.  But its light touch has now reached the point where paying tax has become optional for many businesses. This has to be stopped, and I’d like to thank Caroline Lucas for her support for my work in exposing this issue.

So we have to change our attitude to tax. Tax is not a burden. Tax is something that can liberate us to make the choices that can transform our lives, our economy, our future, and our sustainability. We can have these choices but only if we embrace the fact that this means we must collect the tax we need to put those options on our agenda. It’s precisely for this reason that I’m writing a book called the Joy of Tax, out next March, that will set out how this could work.

Instead we have the neoliberal option right now, of talk of deficits, of cuts, of tax being our oppressor and that we have no choice but keep grinding our economy into the ground to meet the needs of the markets – who despite the rhetoric are actually buying all the debt the government can offer them because it is, as any wise investor knows, the best place to invest right now.

So beating tax dodging involves practical action. But it also means we must rebuild our political narrative on tax. And that’s precisely where you come in.

You are the change we need. You can help deliver this. Tax is high on your agenda and I welcome that. But what you need to do is change the headlines. We’re not hear to simply beat tax dodgers. That just makes them look like petty criminals.

No, we should be saying that it is tax that gives us choice and the future we need and that the cheats are denying us that. They’re stealing our future. And that’s large scale crime.

It’s when the world realises that this is the case that we’ll really get change. I’m hoping you can do that, starting tonight.

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New Radicals 2014: The Fair Tax Mark

Sun, 09/07/2014 - 06:22

For the third year running, in 2014 the Observer and Nesta launched a competition to find the top 50 people, projects and organisations offering innovative ways to tackle social challenges.

There were apparently at least 1,000 ideas suggested. I’m pleased that in this large and exciting crowd the Fair Tax Mark apparently stood out and has been named as one of the New Radicals 2014. The citation says:

The Fair Tax Mark is a system of certified accreditation for “working out who the good guys are” when it comes to businesses paying the correct amount of tax.

Launched in February 2013 by Richard Murphy of the Tax Justice Network, it began by working with three ‘pioneer’ companies and is now advancing into the mainstream through discussions with FTSE 100 companies.

The Mark is designed to become a symbol of pride for accredited businesses, demonstrating to competitors and the public that the organisation believes in transparency and the ethical and societal value of paying tax.

The process of accreditation is focused on three areas – a business’ policies towards tax, the transparency of its tax affairs and how close it is to paying an amount that is appropriate. If an organisation is considered to be responsible by these criteria, the Mark is awarded.

The Fair Tax Mark has gained cross-party political support, and has ambitious plans for the future. With a multinational standard launching in the next month, the aim is for the Mark to emulate FairTrade branding to become a broadly recognised symbol of ethical industry.

That rather overstates my role I think and very definitely understates the initial role of the Tax Justice Network, the work of Meesha Nehru who has done amazing things on this project, Paul Monaghan who has been instrumental in building our links with Coops and the team at Ethical Consumer with whom we’ve been working since October 2013 and without whom this would not have happened.

Thanks everyone.

We’re here to stay. And I have a feeling tax reporting will eventually look very different as a result.

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Making Scottish corporation tax work

Fri, 09/05/2014 - 08:09

Whatever happens on September 18 I am quite sure that Scotland is going to flex its tax muscles sometime in the near future. In our out of the union the Scottish parliament is going to want to use its power to use tax to intervene in its own economy for the sake of the people it governs. That is one of the basic functions of tax and it is one of the basic functions of democracy, with the two being pretty intimately linked in our combined national histories.

There are problems with this idea though. If Scotland sets its own tax rates there is a first problem. How is it decided which part of the profit that is earned across the UK as a whole is to be taxed in which country? And if Scotland then sets its own tax rules that are distinctly different from the Rest of the UK (rUK), as seems likely given that it has already established its own GAAR, how is the interface between the two tax systems to be managed?

I happen to agree with Martin Wolf this morning that Scotland really does need to take a risk on monetary union if it wins independence. I also happen to think that it would, whatever it does with the currency, be wise to take less risk when it comes to tax.

I am not saying it should not set its own tax rate. That’s not my job, although I happen to think it should not start a race to the bottom. What I instead think is that it does need to be wary of putting companies off trading in both the rUK and Scotland and that it has to make it as easy as possible for that to happen, especially when it is so commonplace at present.

By this I mean that I believe that when there are companies in the future who trade in both Scotland and rUK, whether Scotland is independent or not, then the simplest possible system of allocating profits between the two places must be adopted to minimise the tax cost of trading in both territories (you can’t use the word countries anymore: it’s not yet clear if it applies to rUK). If that is not done there will be the nightmare of, for example, transfer pricing rules applying across this border and issues relating to the allocation of finance, intellectual property, and so many other areas long exploited for tax abuse purposes that will have to be tightly regulated at some costs unless alternative thinking is applied.

That alternative thinking is available.  I believe that there will be an urgent need for Scotland and rUK to enter into a corporation tax agreement that will embrace unitary principles. I can see no other way to make the arrangements for separate taxation of profits viable.

Unitary tax apportions profits between places. In the case of the UK we do, of course, already have arrangements in place to determine profits for the existing country as a whole. For individual companies these are clear: they are taxed on a worldwide basis excepting the fact that tax is not due on overseas dividends received. Controlled foreign company rules do not change this: they define which companies are within the scope of the tax charge. The point of mentioning these facts is that these rules do not undermine the logic of sharing a current UK tax base between Scotland and rUK.

How does the sharing take place? It would simply be the case that if a company had a taxable presence in both countries then profits before allowances for things like R & D and capital spending (which may differ between the territories) would be apportioned between the two on the basis of a formula. The formula would, I suggest, be based in the first instance on where customers are, or if they are not in either territory (because they are export sales) from where they are serviced and secondly on the number of employees in each territory. This second part of the formula relating to employees could be weighted by either the number of employees, or their gross pay, or both elements given equal weighting. I do not suggest including assets in any formula: they’re just too nebulous to value under current accounting rules and too hard to identify in too many cases.

So, if a company makes, say, £1 billion in the UK as a whole and has 80% of its sales in rUK and 20% in Scotland then half its profits would be allocated on this basis: £400 million would go to rUK and £100 million to Scotland. If staff were in a different ratio, say 60% rUK and 40% Scotland then the split of the remaining half of profit would be £300 million rUK and £200 million to Scotland. Overall rUK would have £700 million of profit and Scotland have £300 million.

There is no more cost effective and regulation light method of achieving a break in the tax union than this. The alternative is massive accounting reform, the parting of the ways for accounting purposes for many groups and very real barriers to trade as a result, which worries me for both parts of the arrangement and whether or not there is to be independence or not.

Of course these formulas are not perfect. I accept that, but then accounting is at least as imperfect in the first instance, and maybe more so. But crucially the arrangement does respect fiscal sovereignty. Note that it is profit that is apportioned. That could be accounting profit. It may, more likely, be profit after disallowances and before tax relief, but this is all subject to negotiation, and if one party wished to allow something the other does not the relevant proportion could be adjusted after the apportionment had taken place. The granting of capital allowances would, I suggest, always be a post apportionment issue, which is why I suggest assets are kept out of the formula or the risk of trade off and double counting becomes significant. The importance point to make is that profit apportionment does not require a consistent tax base: that is simply not true.

Why do this? Several reasons. First, it’s simple and would provide certainty when there will be enough other issues to deal with.

Second, it is cost effective for business and tax authorities when the alternatives look very costly.

Third, the data will exist. It will have to for OECD international taxation rules in the future.

Fourth, and I stress it, this creates sovereignty in ways that totally separate  taxation that might be more easily gamed cannot.

I suspect that this is not high on anyone’s agenda right now. But it needs to be, and soon.

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It’s not the knitting we’re worried about; it’s the fabric of society

Thu, 09/04/2014 - 07:40

New minister for civil society Brooks Newmark put his foot in it yesterday when making his very first speech when, according to the Guardian he told charities that they should ”stick to their knitting” and keep out of politics.

The minister entirely misses the point, of course. First, I am quite sure that people do give to charities like Oxfam, Action Aid and Christian Aid (full disclosure: I have worked with them all) because they ask awkward questions about why people are in need, as well as trying to help them.

Second, our concern is not with knitting, it’s with the fact that the fabric of society is collapsing. And if it is not charitable to ask why that is happening when it is charities who pick up and have to deal with so many of the consequences I am not sure what he thinks charitable activity might be.

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Go-Ahead’s tax innovation

Thu, 09/04/2014 - 06:54

So far every company that has been awarded the Fair Tax Mark has had to make some change to its financial reporting to achieve the ranking needed to be awarded the Mark. It’s been interesting to work with all the companies in question on these disclosure issues.

Go-Ahead Group plc has innovated in its tax notes, published this morning, by including a note almost never seen in statutory accounts. This reconciles the various ways in which tax is presented in the accounts, whether in the balance sheet, income statement, the statement of changes in equity or the cash flow. This is as follows:

This appears to be a simple statement but in the vast majority of published accounts it is nigh on impossible to reproduce this reconciliation based on the available published data and yet it is a basic test of the credibility for the tax data presented by a company.

I am delighted that Go-Ahead have offered this statement in their accounts. I hope a great many companies copy their example. It may be a small change, but it’s of great importance to those wanting to know that companies really are willing to be accountable for the taxes that they pay.

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Go-Ahead’s commitment to Fair Tax

Thu, 09/04/2014 - 06:38

The following statement was included in the Go-Ahead Group plc accounts, published this morning:

The Groups commitment to the Fair Tax Mark is very welcome.

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The Go-Ahead Group plc the first FTSE 350 company awarded the Fair Tax Mark

Thu, 09/04/2014 - 06:32

The Fair Tax Mark issued this press release this morning:

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The Go-Ahead Group plc, one of the UK’s largest transport providers, has announced today that it has been awarded the Fair Tax Mark. It is the first FTSE 350 company to be awarded the Fair Tax Mark, which was launched in February 2014.

Over one billion passenger journeys are made possible by Newcastle based Go-Ahead every year and now their customers have the reassurance that they are travelling with a company that’s part of a growing network of organisations who are proud to publicly declare that they are committed to fair tax.

Go-Ahead Chief Executive Officer, David Brown, said:

As a socially responsible organisation, transparency and openness are important to us, so we are pleased to be recognised by being the first in the FTSE 350 to be awarded the Fair Tax Mark.

Meesha Nehru from the Fair Tax Mark said:

 Were delighted to have worked with Go-Ahead Group plc on the award of their Fair Tax Mark. The team at Go-Ahead showed real commitment to this exercise, adopted a new group tax policy that best reflected their current practice and revised the way they present tax data in their accounts to provide information that met the Fair Tax Mark criteria. As a result theyve committed to not use tax havens or tax avoidance arrangements, to have good relationships with HM Revenue & Customs and to disclose how they get to the tax figures in their accounts. This has put them way ahead of the pack, and were delighted to recognise that fact.

The Fair Tax Mark is an independent accreditation process that enables companies to make a public declaration regarding their corporation tax position. The Fair Tax Mark empowers consumers who want to identify organisations that are taking a responsible approach to tax and making a fair contribution to society. The Mark is awarded following a review of the company’s accounts and web site and focuses both on corporation tax paid and on the content and clarity of the taxation statements in the publicly available accounts.

Fair Tax Mark Limited is a community benefit society  (reg no 32308R) and was established in February 2014 thanks to the founding supporters, The Unity Trust Bank, Midcounties Co-operative and The Phone Co-op.

—-

I am a director of the Fair Tax Mark. I am delighted that Go-Ahead applied for the Fair Tax Mark. As with all companies that have been awarded the Fair Tax Mark to date this has required changes to some of the Group’s accounting disclosures to deliver greater clarity on tax and clarification on the Group’s tax policy, including making a public commitment to avoid the use of tax havens and tax avoidance schemes. The result is more information on tax due and paid in the Group’s financial statements and a clear commitment to the public that they can rely on this company not taking part in the types of tax activity that have caused concern to so many people in recent years. This is, of course, exactly the reason why the Mark was created in the first place.

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Could Gary Barlow have said more? Like ‘Never again’?

Wed, 09/03/2014 - 10:28

Gary Barlow has apologised for using what many have considered to be aggressive tax avoidance schemes. According to the Guardian Barlow has said on Twitter:

“I want to apologise to anyone who was offended by the tax stories earlier this year.”

And

“With a new team of accountants, we are working to settle things with all parties involved ASAP.”

I think the appropriate question is whether that apology is enough. He apparently said no more.

Firstly, let me be clear, I accept apologies. They usually cost the person offering them quite a lot, and I therefore treat them as being significant. We all make mistakes. We all have to say sorry. Barlow has, and in as far as it goes the apology is clear.

But that still leaves me wondering if more could have been said? Like ‘never again’? Why didn’t he say that he and his companies would not in future use tax havens and tax avoidance mechanisms? Why didn’t he even say he has committed to paying all the taxes he owes in the right place, at the right time and at the right rate in the future?

There was a win waiting for him. All he had to do was grab the initiative and set a trend by signing a tax pledge – to do the right thing from now on. Why hasn’t he taken it?

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