Tax Research UK

If it looks like a duck

Tax Havens, Tax Justice Network No Responses »

Jan 272012

Gibraltar Chief Minister, Fabian Picardo, met with UK Leader of the Opposition Ed Miliband in London on Monday. Mr Picardo was accompanied by his Minister for Financial Services Gilbert Licudi.

The meeting, which was held at Mr Miliband’s offices at Westminster, was the first opportunity for the two men to meet since they met at the Labour Party Conference in Liverpool in late September.

Mr Miliband who is the UK Labour Party leader recently made abrasive remarks about the need to close down secretive UK offshore tax-havens.

A Gibraltar Government spokesman said: “Following Mr Miliband’s recent remarks about “Tax Havens”, the Chief Minister and Mr Licudi briefed Mr Miliband on the latest developments in Gibraltar and in particular on the work of the finance centre as a fully compliant EU financial services hub that operates entirely in keeping with EU directives and regulations, fully compliant with OECD rules also and therefore not by any measure a “Tax Haven”.

If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

And Gibraltar’s a tax haven.

The Lord Mayor of London is visiting a branch office today

City of London, Isle of Man 9 Responses »

Jan 262012

As Energy FM reports:

The Lord Mayor of the City of London is visiting the Isle of Man today to learn more about the Island as an international business and finance centre.

Alderman David Wootton will be given briefings on various sectors of the Island’s economy, and will also deliver the Chief Minister’s International Lecture.

I bet they’ve tidied things up to keep the boss happy. That’s what always happens when the Group CEO drops in.

Clegg, tax, and missing the point

Uncategorized 26 Responses »

Jan 262012

According to the Guardian (and I hope they’ll forgive me for borrowing this summary) Nick Clegg’s proposals on tax can be summarised as:

Nick Clegg wants the government to go “further and faster” in raising the personal tax allowance to £10,000. That was the main message in the speech. The government is committed to raising it to £10,000 by 2015, and it was assumed it would do it in stages over the next three years. The Lib Dems say Clegg is not trailing a policy that has already been agreed, but if George Osborne does decide to move faster on this issue, it will look as if he is bowing to pressure from Clegg. If Osborne ignores Clegg’s appeal, the Lib Dems will be able to argue that “bad” Tories are thwarting “good” tax-cutting Lib Dems. In that sense it was a safe speech to make.

All this was briefed last night. But today we heard a bit more about where Clegg would like to find the money to fund tax cuts for middle-income families. Here are some points of interest.

• Clegg said the current tax system was “unfair and out-of-whack”.

• He seemed to rule out direct income tax increases for high earners.Citing the OECD, he said increasing marginal tax rates on work would “simply drive many of the rich away to other countries”.

• He said the government should be doing more to tackle tax avoidance. The Treasury has already published a report from Graham Aaronson advocating a general anti-abuse rule (GAAR) to restrict tax avoidance and Clegg hinted that the government will adopt this proposal. He also said the government needed to be tougher in other areas too, “not least stamp duty avoidance, particularly on higher end property sales and the transferring of assets and income abroad to avoid UK tax”.

• He called for more green taxes.

• And he called for higher taxes on “serious, unearned wealth”. He renewed his call for a mansion tax, but his call for the government to be “much more ambitious” in taxing “the eyewateringly lucrative assets so often hoarded at the top” implies that he would consider other wealth taxes like, for example, a tax on land.

Interesting stuff, but there are big problems.

The £10,000 personal allowance will cost well over £10 billion a year to deliver. If restricted to basic rate taxpayers maybe the cost is £11 to £12 billion. It’s a useful stimulus – but there’s not a shadow of a doubt that a VAT cut to 17.5% would benefit the poorest more and be substantially fairer. It would also reduce inflation, restore the value of earnings and have much higher political impact. So why has he chosen the wrong tax cut? The one he’s picked is almost certainly regressive.

Will it give him a benefit? I doubt it: people are worried about pay of course, but I think they’re more worried about job security, schools, the NHS, pensions, working till they drop dead, their children’s prospects and much more. If people really believe in the cuts agenda (and we’re told they do) I think they will wonder why Clegg is now suggesting increasing debt. And candidly, I think they will think they’re being bought off. As he’s trying to do.

But let’s move on from this problem that he’s going to make the UK tax system more unfair by pursuing this proposal and look at how he’s going to pay for it.

Graham Aaranson’s GAAR is very weak – it tackles only the most abusive schemes and few will come in that category. It is a step in the right direction – but it will raise peanuts as drafted and is a gift to the Coalition, but the profession knows it will d little, which is why they have accepted it. So do not expect any real change in behaviour there.

Stamp duty avoidance measures will not raise a billion – and probably less. It’s important, but it’s no panacea. Tax haven attacks could do much more. I await to see what he proposes. Whatever it is, he’s trailing Ed Miliband here now. And that’s a gift to Labour, however important it may be as an issue. I could raise that much – but nothing the Coalition would accept will. Clegg is on difficult ground here – but if he wants to call I can tell him how to find the money – no problem at all.

Green taxes are regressive. I’m green and I don’t buy green taxes. Green is delivered by grants, legislation and direct market intervention. There is no room for regressive nudges.

And as for taxes on wealth – yes I but that. But is he really going to get a serious inheritance tax in place when Osborne is Chancellor. There’s not a hope.

So this is a poorly thought out, regressive tax package that’s little more than a bribe that won’t boost the economy or relieve the stress of those with profound concerns in the squeezed middle.

Not a good day’s work Nick. Sorry, but it’s no more than a 2 out of 10.

Time for Plan B

Economics 3 Responses »

Jan 262012

It seems to be a day to share stuff from Compass – but this is good too.

Links are here.

I contributed to Plan B.

The reason for Labour’s economic woes

Economics 2 Responses »

Jan 262012

I agree with this by Howard Reed in White Flag Labour?

At the time of writing, all Labour has to show for eighteen months of opposition in terms of publicly announced economic policy – other than a continued commitment to the Darling plan on fiscal consolidation – is a five-point short-term fiscal stimulus plan, more transparency on executive pay along the lines suggested by the High Pay Commission, and some useful but limited commitments on taxation and utilities pricing.

At a time when there has arguably never been a greater need for a powerful broad-brush narrative on how Britain would be transformed, economically, under the next Labour Government, these measures are no more than promising dabs at the canvas. And it is this policy vacuum –rather than any failure to commit to closing the “structural deficit‟ – which is driving the current distrust of Labour on economic policy.

The need for that big narrative has never been greater.

The left has such narratives – the tax gap narrative is widely understood by many. S is the Green New Deal. Green Quantitative Easing is rapidly attracting attention more than a year after being first written. There is collective consensus on the need for a national investment bank. I have shown how to fund it using tax subsidised pension contributions. There are other narratives too, as Howard suggests on high ay and responsible capitalism.

It’s time for Labour to embrace them.

But there are some within it who want Labour to lose – most linked around the Policy Network pressure group, a neoliberal group that seems to have forgotten all Labour’s core concerns of tackling inequality and helping working people in its desire to huddle up to the City. And Howard and Compass are right to take them on because they need to be exposed as the cause of Labour’s current downturn in the polls.

White Flag Labour

Economics, Labour 2 Responses »

Jan 262012

In response to the ongoing economic crisis and in particular the debate around what Labour’s response to the budget deficit should Compass has published a briefing entitled ‘White Flag’ Labour? Fiscal policy for the UK’s next progressive Government.

‘White Flag’ Labour? has been written by Howard Reed and warns that if Labour accepts, in full and seemingly without question, the economic fallacies of “Osbornomics” it risks gifting the Tories an easy win at the 2015 election by allowing them completely to dictate the terms of the economic debate.

Furthermore, given the trouble that the Coalition’s deficit reduction programme has run into and the recent economic figures that confirm both jobs and economic activity are down it argues that it would seem ludicrous for Labour to jump on board the austerity bandwagon at just the point it seems to be coming off the rails.

In response to announcements made by the Labour Party in the media last week the briefing states that:

“ Ed Balls’ new strategy of accepting Coalition spending cuts as a fait accompli risks making it look like Labour has wholly accepted George Osborne’s fiscal strategy – demoralising Labour Party supporters who are fighting against them while allowing the Conservatives to dictate the terms of the economic debate ”

The briefing maintains that Labour’s ‘credibility gap’ on the economy comes not from its stance on the deficit but the fact that Labour were in Government during the economic crisis and that Labour have hardly given voters any reason to believe that they would manage the economy differently next time.

Looking beyond this Parliament the briefing reaffirms that an alternative progressive government – either a majority Labour government or Labour in coalition with the Lib Dems and/or other smaller parties – should deliver a clear ‘Plan B’ alternative to Coalition economic failure through a short-term fiscal stimulus to prevent a double-dip recession coupled with comprehensive reforms to the financial system, industrial policy, tax and benefit systems, and public spending.

Howard Reed is Director of Landman Economics and co-author of Plan B:a good economy for a good society. I contributed to that Plan B and rate Howard’s work highly. Plan B is available for download at http://compassonline.org.uk/publications/

Download the briefing here (PDF)

UK state debt is not £1 trillion – it is only £725 billion

Economics, Uncategorized 7 Responses »

Jan 252012

Stories abound on the fact that the UK supposedly has state debt of £1 trillion for the first time. This however is not true.

Over the last few years the UK has issued debt as shown below totalling about £560 billion. I have based all my data on the national accounts for the third quarter of 2011 unless otherwise noted. It’s the borrowing since 2008 that has supposedly given rise to the debt of £1 trillion.

UK net borrowings

Annually per UK government accounts, table A51


Year	Net borrowing	QE		Net
	£bn	£bn		£bn
2005	35,736	-		35,736
2006	35,543	-		35,543
2007	37,182	-		37,182
2008	66,368	-		66,368
2009	147,878	200,000		-52,122
2010	147,686	-		147,686
2011 (to Q3)	89,571	75,000		14,571

			Average (6.75 yrs)	42,216

Average borrowing as a proprtion of current GDP				2.91%

However, it should be noted that the government has done something else at least as significant. Through the quantitative easing programme the Bank of England has repurchased or will be soon repurchasing near enough £275 billion of that debt (I’ve shown the last £75 billion as happening in Q3 of 2011 as that’s near enough when it was authorised).

Now the Bank of England is owned by the UK government so if, in accounting terms, a consolidated set of accounts were to be prepared the £275bn owed by the Treasury to the Bank of England would simply be crossed out, or ignored. The actual debt would only be £725 billion.

And in this case that would be absolutely the right point of view. There is no hope at all that this debt will ever be sold back into the markets: there’s enough new debt to sell to meet all market demand for UK debt without ever re-selling this stuff. So it’s absolutely right to say this debt does not exist and should not therefore be in the statistics at all because for all practical purposes it has already been written off. And as important, the interest paid on that £275 billion should not be considered government spending justifying cuts either: that interest is paid straight back to the government.

Then note what this does to the narrative on average borrowing. OK, this data misses quarter 4 of 2011 as the information is not yet available, but over 6.75 years the average borrowing is near enough just over £42 billion and that’s a remarkably consistent sum over time and is only 3% or so of current GDP; and that’s within the Maastricht limits, let it be noted.

Nor is there any hint now of this QE causing inflation, all of which can safely be said to have had other causes, not least because as Government accounts also show, the M3 measure of money supply has fallen steadily since 2009, meaning there is no prospect of inflation in the future either as a consequence of this process.

So we have no debt crisis. We just have misinformation about how big the debt is and about how much we’re borrowing. Tell the truth, as I have here, and you get a very different picture indeed. And that would also lead to very different economic policies too. Because tell this story and the focus need not be on cuts that we do not need but on growth that we do need. False accounting is forcing the national political agenda in a direction in which it need not go.

It’s all a matter of getting the story right and on this occasion it takes an accountant to do that.

So shall we stop all the other nonsense, now and get on with the real issue, which is we have low net borrowing that we can afford, lower interest costs than the government claims and the basis for sustainable recovery already in place. All we need to do is grab the opportunity.

Would Romney’s tax haven activity be an issue of some of us hadn’t made it so?

Tax Havens, USA No Responses »

Jan 252012

Mitt Romney’s tax affairs are making headlines. And rightly so.

For the second presidential election in a row tax havens are an issue – and Cayman is in particular. Obama made it so last time.

I wonder whether that would have happened but for the small group of dedicated tax haven campaigners around the world. There was no such campaign pre 2003. Things have changed. No enough. But a lot none the less.

And this will continue to hit Romney hard – and feed the Occupy movement.

In the interests of full disclosure

Blogging, Richard Murphy 3 Responses »

Jan 242012

I make a point of trying to disclose conflicts of interest, sources of funding, potential bias and so on on this blog since you can hardly argue for transparency and not do so.

So in that spirit I should disclose that I learned today that my application to formally rejoin the Quakers has been accepted. It’s material to me, so I disclose it in case it is material to anyone else’s understanding of what I write.