2009 October » Tax Research UK

1945, government debt, bond markets, sterling – and all that.

Oct 282009

Debtonation ¬ª Blog Archive ¬ª 1945, government debt, bond markets, sterling – and all that. .

My Green New Deal colleague Ann Pettifor is on fine form on government debt and the nonsense spoken about it by Her Majesty’s opposition, of whom she ways:

I consider the scaremongering around government debt to be nothing more than an over-egged and salted buttermilk pudding dished up by the economic quackery of the Her Majesty’s Opposition. Not unlike that ancient remedy for (verbal) diarrhoea, it is intended to induce intellectual constipation – in those that absorb it in spoonfuls at the Institute of Fiscal Studies, the Treasury and City of London. We should have nothing to do with such childish prescriptions.

Note this too – her final of three rebuttals dealing with the nonsense put forward about the dangers of government debt in our current situation:

[A] final rebuttal: ‚Äòthe bond markets will not buy government debt – government debt will ‚Äòcrowd out’ private sector debt – and will force up interest rates. The government will be held to ransom by the bond markets.’

It is tiresome to have to rebut such arguments, but rebut we must.

The bond markets are not the King of England. They are servants to a sovereign state, begging to make a quick, safe, but effortless capital gain. (And since the financial crisis, many of these investors (like my old mother) would not dream of putting their money anywhere else except into safe UK government bonds.) Keynes’ advice to the British government way back then was to ignore the bond markets. Instead – back in 1940 – he persuaded the Treasury to oblige (perhaps the word is force) the banks – some of which are today already in public ownership or part-public ownership – to lend to the Treasury at very low rates of interest. The bankers were not given a choice. Their loans were given a fancy name: “Treasury Deposit Receipts” or TDRs – and they helped to finance the war, as well as post-war economic recovery. (I am grateful to Prof Vicky Chick and Dr. Geoff Tily for these historical references.)

As the economy recovered on the back of affordable interest rates, so the banks thrived.

And a final piece of advice to the Labour government should it consider following Keynes’s remedies: if the banks prove difficult – remove all taxpayer-backed guarantees and subsidies – and embark on a heavy programme of regulation.

After all, forget not: you are the government – and they owe you.

The reality is not just we can afford debt now, we cannot afford anything else. Osborne’s prescription is a recipe for disaster the only merit of which will be the return of a true left of centre government after a remarkably short period if the Tories win office.

Foot tomorrow?

Cayman, Guernsey, Isle of Man, Jersey 5 Responses »

Oct 282009

Rumour reaches me the Foot Report will be out tomorrow.

It’s interesting to speculate on what this report can now add to the issues the Crown Dependencies and British Overseas Territories now face. Since it was announced almost a year ago the Turks & Caicos Islands have passed into British control, Cayman has seen its economic wings clipped and has been ordered to tax, all three Crown Dependencies have been told their system of corporate taxation is unacceptable and must be reformed and the Isle of Man has had £140 million of its VAT subsidy withdrawn leaving it in economic turmoil – but definitely delivering a clear message to those in the place who responded rather aggressively to Alastair Darling’s comment that it was a tax haven.

And yet, there is much still to be done. Regulation in these places has a long, long way to go. They remain secrecy jurisdictions – places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction. They do in addition create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. If they are to be sustainable that needs to be tackled.

For details of what needs to change read the individual jurisdiction reports here.

Let’s hope Foot does something to shine light into these very dark places, because that’s very necessary.

What if four become three?

Accountancy 3 Responses »

Oct 282009

Nick Mathiason in the Guardian notes that:

Britain’s financial reporting regulator warns that one of the big four firms dominating the accountancy profession could exit audit work in a move that would cause chaos to businesses throughout the world.

The Financial Reporting Council’s chief executive, Paul Boyle said it was conceivable that litigation linked to the banking crisis could force one of KPMG, PricewaterhouseCoopers, Ernst & Young or Deloitte & Touche out of business.

Francine McKenna, Dennis Howlett, Prem Sikka (of course) and I have been saying so for some time. The article notes Prem’s comments, which are astute as ever.

But what is really worrying is that there seems to be no contingency planning for this. The best they can come up with is a relaxation on partnership rules as if this would allow Tescos (or the like) to raise the capital to enter the audit market and all would be well.

This is the ultimate farce of a solution. It has been proven time and again markets cannot self regulator – at least in the absence of strong ethics. Accountancy – at least at the level we are talking about is now an ethics free zone – the firms in question blatantly setting the rules to suiot their own purposes and having strong political agendas – in which case they are wholly unsuited to the task entrusted to them.

Prem is right – we have to look for radically different solutions to his problem. And their nexus exists. Regulators of all sorts rank these companies. HMRC, for example, rank their risk aversion. Financial regulators should be crawling oall over banks.

Like it or not – regulation is the preserve of government and audit is a regulatory function. It is to the public sector that we must look for an audit solution – and the plans need to be in hand now. We really do not have a lot of time before, as even the insiders now seem to agree, one of the Big 4 goes bust – with no guarantee it would not release a domino effect.

But who is doing the contingency planning? No one that I can see – and that’s the really scarey bit.

Anyone want to fund a research project on this?

Isle fo Man Customs deal still a secret

Isle of Man 5 Responses »

Oct 272009

Customs deal still a secret – Isle of Man Today .

From Isle of Man Today:

DETAILS of the Island’s revenue sharing arrangements within the Customs agreement with the UK have never been made public.

It is perhaps the secret nature of the deal that has fuelled claims by the Island’s most ardent critics, most notably Richard Murphy of the Tax Justice Network, that it effectively provides us with a £230 million subsidy from the UK.

Mr Murphy, jubilant that we are to lose £140 million, nevertheless believes that a subsidy remains.

The Manx authorities vigorously deny that the revenue sharing arrangement ever constituted a subsidy.

Chief Minister Tony Brown said: ‘It’s never been a subsidy but it has been a very important agreement to the Isle of Man.’

‘We’ve had no payments over and above what’s agreed in the sharing mechanism,’ Treasury Minister Allan Bell told a press conference 10 days ago.

Whether a subsidy or not, the sharing mechanism has proved a major revenue stream, contributing about £339 million each year ‚Äî that’s nearly 60 per cent of the government’s annual income of £572 million.

Yes, a long quote – but if they can print my picture without permission I can borrow their text.

And I’m not jubilant: I am saying I have been proven right.

And I am saying three other things:

1) There was a subisidy – any argument otherwise is nicely called poppycock

2) Manx politicians did their island a great disservice by denying this

3) This problem is soluable – it just requires tax to be paid at reasonable rates by Manx people on their incomes – which are higher than those in the UK

So smell the coffee is my message – vote your politicians who misled you out of office – and come to terms with tax. That’s not a jubilant message to the Isle of Man – it’s a realistic one.

And the £140 million has a better use in the UK – by far. That’s also a realistic message as well.

Auditors called to account

Accounting, Auditing, KPMG, PWC 1 Response »

Oct 262009

Auditors face being called to account for their role in the global financial crisis | Business | The Observer .

For decades, auditors have enjoyed self-regulation. This has led to senior accountants, mainly from PricewaterhouseCoopers and KPMG, assuming rule-making status. Many argue that this apparent conflict of interest has led to auditors skilfully deflecting blame for failing to spot glaring black holes or fraud at a range of institutions from Enron to Madoff and the failed banks.

UK forensic accountant Richard Murphy says: “The fundamental question is how accountants got away with changing rules of accountancy, which state they don’t have to assess the valuation of assets underlying the assets on a balance sheet. How did they get away with changing the audit rules?”

The Observer begins to ask the over due question – why have the auditors had a ‘good recession’ when they so obviously contributed so seriously to the misinformation and opacity that helped cause it.

It’s time they were called to account – and made to both pay and reform.

Saving capitalism

Economics 1 Response »

Oct 262009

There are moment when even an attentive father can read a book. I am reading Roger Bootle’s ‚ÄòThe Trouble with Markets’. I have only read a couple of chapters but already warmly recommend it. Readers of this blog will find a great deal of similarity within it to many of the arguments I have presented on economics. Take this:

The trouble with the efficient markets theory is that it provides an incentive and an excuse for investors (and regulators) to do no serious analysis, thought, or due diligence, because they all believe it will have been done already by “the market” – which consists, by the way of other investors who have been similarly reduced to incapacity by the same theory.

Indeed, for the efficient markets theory to work, there must be many powerful players operating in the market who do not believe in it and, what is more, put their money at risk in the belief that it is wrong. Incredibly, this is the theory that has dominated the actions and, more importantly, the inactions of both market people and policymakers for three decades.

Note, he buys neither strong nor weak version of the hypothesis – unless the latter is stated so weakly that it is reduced to what I’d cal a platitude.

I have said the same, often, and taken a lot of criticism from those who think they understand economics – but are actually as deluded as those market participants Bootle describes. Glad to find someone like him is on side – resoundingly criticising Chicago.

No surprise he subtitles the book "’Saving capitalism from itself’. I think ‚Äòsaving capitalism from modern economists’ and ‚Äòsaving capitalism from the Right’ might have worked as well.

Banker bonuses minute, says duke

Banking, Ethics 2 Responses »

Oct 242009

BBC NEWS | UK | Banker bonuses minute, says duke.

The BBC reports:

The Duke of York has defended bankers’ bonuses, saying they are “minute” in the scheme of things.

and

Prince Andrew said closing tax loopholes for Britain’s 112,000 non-domiciles could have a detrimental effect on the UK.

Three things to say:

1) This is a man who sold his house to a tax haven company for more than market price. They then left it vacant. Why was that?

2) This is a man who was born to privilege and clealrly wants to preserve it for him and his friends

3) He is a civil servant and should now be sacked.

There’a another way of putting this: he’s a dunderhead.

Half term

Blogging Comments Off

Oct 232009

It’s half term next week

And I’ve promised my sons I will be a dutiful child minder for the week

Which will make it hard to do much blogging

And that will mean I will have even less time for managing comments

So, can I suggest that next week is the not the week to comment – as it might 1) take ages to come up and 2) if I don’t have time to reply, as is my usual habit, it might just not appear at all?

With no apologies – sometimes there are definitely more important things in my life than this blog, however much I enjoy it.