2009 June » Tax Research UK

Three years on it’s time for another blog

Jun 292009

This blog is more than three years old now. There have been 3,437 posts (3.08 per day, to save you working it out) and 7,456 published comments. And over a million words, I estimate. When things change, as they are, I’m happy to think the (unpaid) effort has been worthwhile. And I have to accept that blogging has become a part of my life.

So much so that it’s time for me to launch another blog. This is called ‚ÄòEnough Economics’.

I have had enough of economics as it is. But the title implies more than that. As I say on that blog:

This blog is about something different. It’s about economics: a new type of economics, and in particular a new economic theory. They audience may not be the same. And in any event, since this blog is about the production of a single idea, longitudinally over time, it needs to have space dedicated to it, and it alone.

The idea I want to explore is a simple one. It is that we humans need to give up the idea that we maximise our happiness, wealth or income, all of which ideas are implicit in the economics which governs behaviour in our society. I suggest that we need to practice the concept of having enough instead, but that in the process we will in fact be better off. If I could explain why in a sentence or two I would; it would save me a lot of time. The fact is that, at least as yet, I can’t. Hence this blog.

Why now though, especially because I’ve been working on some of these ideas since I was in my twenties. Again, I’ll quote myself:

[B]ecause I’m 51. Half a life time thinking about this is long enough. Now it is time to give this stuff an airing.

But there’s more to it than that: it’s also because it is very obvious that there is a need for a new theory of economics. As Tim Jackson said in his introduction to his report published in March 2009 for the Sustainable Development Commission :

What we still miss from this is a viable macroeconomic model in which these conditions can be achieved. There is no clear model for achieving economic stability without consumption growth. Nor do any of the existing models account fully for the dependency of the macro-economy on ecological variables such as resources and emissions. In short there is no macro-economics for sustainability and there is an urgent need for one.

I do not suggest that what I offer will be that model. Given that the model I will offer is by no means complete as yet I cannot have that confidence. But what I do know is that it is time for different thinking. That’s what the new blog is about.

However, I should make an important point. In most blogs you can pick up the thread whenever you like, dip in and out, and still get something of value. And you very often start reading with the latest entry and then, if so inclined, search the archive. That will not work on this new blog. It is about exploring an idea. You could try dipping in and out and get something, I hope. But if I’m honest this is a blog where starting at the very beginning might be best. So, I suggest you go here to start reading, and work on from there. But to make it easier I will publish blog compendiums as PDFs to make this whole process easier every now and again.

The entries on the Enough Economics blog will not be repeated here at Tax Research, but because they will be much less frequent I will draw attention to them. And as usual comments will be welcome, but abuse is not.

The Swiss are fighting a losing battle

Switzerland Comments Off

Jun 292009

The FT has noted:

An economic war has broken out between Switzerland and the rest of the world after the crackdown on Swiss banking secrecy, according to one of Geneva’s leading private bankers.

Yves Mirabaud, a managing partner at Swiss private bank Mirabaud, told the Financial Times that nothing was easier than dodging tax in the US and UK.

In rare public comments, the Swiss private banker said: “There is a feeling in the banking community, and also in the population . . . that we are in an economic war.

There is nothing easier than doing tax evasion in the US. Look at Delaware companies or trusts in the Channel Islands.”

That’s true. But it’s not chance that such a high proportion of the world’s dirty money is in Switzerland. So, to be candid, tax evasion is pretty easy there too: indeed their own bankers have estimated half their cash is dirty money. Which is precisely why we need automatic information exchange on who has bank accounts, foundations, corporations and other structures based or managed there. But according to the FT:

Swiss private banks and politicians are adamant that “fishing expeditions” from foreign countries to find out customers’ names – known as the automatic exchange of information – will not be allowed.

If this is where the battle line is drawn Switzerland will lose. Justifying tax abuse because others tax abuse is like justifying a murder because others have murdered. It just won’t do. The Swiss really need to understand that.

BP backing off Green

Green New Deal Comments Off

Jun 292009

BP shuts alternative energy HQ | Business | guardian.co.uk .

BP has shut down its alternative energy headquarters in London, accepted the resignation of its clean energy boss and imposed budget cuts in moves likely to be seen by environmental critics as further signs of the oil group moving “back to petroleum”.

Which in view of global warming is pretty depressing.

Are we really just going to throw life on earth away because the short term finances don’t make sense?

This is the greatest folly of all.

UBS to pay 3-5 bln Sfr to close US tax probe

Switzerland, Tax evasion, USA 3 Responses »

Jun 292009

UBS to pay 3-5 bln Sfr to close US tax probe-paper | Deals | Regulatory News | Reuters .

Switzerland’s UBS is to pay 3 to 5 billion Swiss francs ($2.77 billion to $4.62 billion) in the next two weeks to settle a U.S. tax probe into the bank, Swiss newspaper Sonntag reported on Sunday.

The U.S. government is suing UBS to get the names of 52,000 Americans who allegedly hid nearly $15 billion in assets from the taxman.

Sonntag, which said the figure of 3 to 5 billion francs had been confirmed by three independent sources, reported a deal could be signed between July 1 and July 13.

Earlier this week, the U.S. Justice Department said it was still willing to consider a settlement, but denied it was planning to drop the case and said it would file a brief seeking an enforcement of the summons on June 30.

Which is good for revenue raising and putting a price on systemic risk for those engaging in this market but bad for letting individuals off the hook.

G8 want ethical business

Banking, Economics, Ethics Comments Off

Jun 292009

The FT has reported:

In a 66-page report expected to be endorsed by heads of government at next week’s G8 summit in Italy, ministers agree “a re thinking of the framework of the global economic and financial system is critical”.

“A set of common principles and standards governing international economic and financial activity is an essential foundation for stable global growth,” the report says, laying out the proposed Lecce framework, named after the baroque Italian city where the ministers met this month.

The report, seen by the Financial Times, recommends the “global standard” cover such areas as executive pay, corruption, banking, corporate governance, taxation and markets.

The focus is on improved ethics.

And I agree, we need them.

But let’s be clear, such appeals are not enough. I’ve been around long enough to know that the only ethic in the City and in my profession is making money. The only thing that constrains them is fear of being exposed. The only way to alter outcomes is to change available structures.

That is why we have to change the structure of banking.

That is why we have to curtail the likes of Barclays.

That is why we have to split traditional and casino banking.

The case is so obvious that even the Bank of England buy it. So why, oh why, can’t our politicians?

Ethics are good, but ethics aren’t enough right now. I hate to say that, but the case is clear.

Barclays cannot become the world’s biggest investment bank

Banking, Barclays, Economics Comments Off

Jun 292009

A couple of weeks ago Bob Diamond of Barclays said:

Our aim is clear – it’s to be the premier global investment bank over the next couple of years

He wants that for personal advantage.

He can only do it with our cash.

And as Vince Cable has said:

it is madness for the British taxpayer to be a last-resort guarantor for this kind of business.

And yet that is exactly what we are doing.

This is madness. We have to regulate. Barclays cannot free-ride on the back of the UK taxpayer. It is. It mustn’t. And it really is time the government realised this. Or, and I’m quite convinced of this, the next crisis may arrive much sooner than anyone is predicting because there is no substance to current increases in bank activity, and another crash could in that case happen sooner rather than later.

It’s not a pretty prospect. Curtailing Barclays’ ambitions will be a small price to pay for preventing it.

The bank code of conduct: another win

Banking, Barclays, Code of Conduct, Ethics, Tax avoidance Comments Off

Jun 282009

I drafted the Tax Justice Network / Association for Accountancy and Business Affairs code of conduct for tax in 2007 ( summary here). It attracted some attention at the time at selected addresses in Paris and London SW1, but there was not a lot of strong positive feedback right then. Being nice to banks was in vogue.

Not ant more.

In another indication that the world is moving (albeit not as fast, and not as far as I’d like, but moving nonetheless) in the direction of tax justice the Guardian has noted:

Banks which help their customers to avoid paying tax will be targeted by intensive surveillance from HM Revenue & Customs under a new "name and shame" regime to be announced by Alistair Darling next week.

The chancellor is understood to have a hit list of UK and international banks which he will invite to sign his new code of conduct on tax which is designed to save the taxpayer billions of pounds lost through legal and complex avoidance schemes.

Banks that refuse to sign the code of conduct or act against the "spirit" of the current tax laws will be subjected to heavier scrutiny from the tax authorities. Darling will also make it clear that chief executives of non-compliant banks will be forced to appear before MPs sitting on the Treasury select committee. Banks are under no obligation to sign up but will be expected to answer requests from the public about whether they have signed up.

Excellent. Quite right too. make them justify their anti-social behaviour.

Predictably the tax profession is not happy:

Ever since Darling announced his intention to publish the code, there has been criticism from some tax experts about how the "spirit" of the law should be interpreted. However, a Treasury source disputed this: "It is quite clear to market professionals what the spirit of the law actually means".

I agree, wholeheartedly. The person who cannot spot that should not be in practice.

And as indication of where this will go:

The Treasury source said: "We will start with the big banks and work through the system."

"We have some confidence that Barclays will sign up to it," the source added.

The source said: "There will a lot of embarrassment and public pressure and trips to the Treasury select committee to be humiliated by a lot of MPs. This is a name and shame policy".

Just what I wanted.

And excellent news for the ordinary taxpayers of the UK, because this is going to swing the pendulum of obligation to pay back towards the banks. And that’s the right thing for our economy. They have abused for far too long. And now the game is up.

The IOM: scheming, deceitful, contemptuous and hypocritical

Banking, Isle of Man 29 Responses »

Jun 282009

An occasional commentator on this blog called Jim for Justice had a letter under the above title in the Manx herald. It said:

The more we learn about the Isle of Man the more we come to discover that it has a financial services industry that is built of smoke & mirrors on quicksand foundations.

The banks & other financial institutions use the IoM as a cheap back street lockup that just take money & pass it on. A UK bank chooses to go off-shore for no other reason than it can operate with lower costs in order to make higher profits. The way the Manx finance houses advertise themselves is all smoke & mirrors designed to give the appearance of offering low risk security coupled with high returns on money placed there. The minute the benefits outweigh the cost these banks leave the island not on the next ferry (that’s too slow) but on the next plane.

The simple fact is that once you deposit money in the Isle of Man it ceases to be yours! It becomes the property of the bank. You are nothing more than an unsecured creditor, a liability to the bank because it owes you money. The question of trust does not come into it, so if the bank goes bust you can only fall back on a discredited depositors compensation scheme that will not pay out ‘on demand’.

If you have more than £50,000 on deposit you discover that there are secured creditors in front of you in the queue who will take what was once your money before you see a penny of it. Then you also discover that there’s also those guys in wigs in front of you, & if the government can take a cut as well, it will. By the time you get to the cashier there’s a huge chunk of your money gone!

The banks’ information to potential clients is composed of ‘smoke & mirror’ advertising. The blurb is written to entice you to part with your money in their favour. You are a ‘somebody’ until you have parted with your money, then you become a ‘nobody’. Unless you live on the IoM you are faceless – just a bank account number, a potential source of more money for them to make big money before you get your bit of interest. Then if it all goes wrong – tough! The bank’s interest in you vaporizes instantly.

When KSFIOM shut its doors denying depositors access to their savings, did they get a letter of profuse apology from the bank directors explaining what had happened and assuring them that they would be living on bread & water until they had done everything in their power to see that they got your money back? No! Did they take a salary cut? No! Did they claim a bonus? YES! So now KSFIOM depositors have learnt at great personal cost & suffering that the IoM – its finance houses, its government & its failed Financial Supervision Commission – is scheming, deceitful, contemptuous & hypocritical.

There will be a day of reckoning.

Jim for Justice

It seems to me that Jim is remarkably perceptive about the broader impacts of the micro decision depositors in the Isle of Man take.

Gn – going the right way

Economics, Secrecy jurisdictions, Tax Havens 1 Response »

Jun 272009

Joseph Stiglitz. amongst others, has contributed to a series of economic recommendations to the G8 called the Shadow Gn. High on the list of recommendations:

To reverse the trend in distribution, and hence to contribute to sustaining aggregate demand in the medium-to-long term, it is proposed as follows.

1- To increase the progressivity of the tax system, in particular for high and very high incomes. This should happen in a coordinated way to avoid excessive movement of highly-skilled workers.

2- Fight against tax heavens – in distinguishing between low tax cooperative jurisdictions and others – and, in general, increase the resources devoted to fighting tax evasion and lack of information sharing.

3- Introduce some sort of cooperation among countries to avoid tax competition, wage deflation and social dumping, the modern versions of beggar-thy-neighbour policies which were common in the 1930s.

Compromise language is apparent.

But the sentiment is good.