2009 December » Tax Research UK

Paul Samuelson dies – an economist with an outstanding debt to society

Dec 142009

FT.com / Comment / Obituaries – Nobel laureate who turned economics into a science dies.

Paul Samuelson has died. A Nobel laureate economist he has a lot to answer for, and his legacy (eulogised in the FT by the BBC’s Stephanie Flanders) is pretty dire.

He, more than most mathematised economics. Which means he had to assume people were rational. In the process he broke the link between economics and reality.

Then he assumed the existence of stable equilibria in an economy – which is contrary to all known evidence. So once more he remeoved economics from the realms of usefulness.

And he wrote a textbook that has created more bad economists dedicated to harming the society in which they live than almost any other.

So what he got a Nobel prize? His legacy is dire.

What is meant by the spirit of the law?

Tax compliance 2 Responses »

Dec 142009

http://taxadvicenetwork.blogspot.com/2009/12/what-is-meant-by-spirit-of-law.html.

Mark Lee throws in his pennyworth – which is worth reading.

From my perspective this has rarely been difficuklt to determine – but there are none so blind as those who do n0t want to see.

That’s most accountants when it comes to this issue.

Who cares about the Tax Gap?

Tax gap, TUC Comments Off

Dec 142009

FT.com / UK / Economy & Trade – Tax system flaws cost UK £40bn a year .

Again, reasoned analysis from the FT this morning, this time on HMRC’s new report on the Tax Gap. The FT says:

Loopholes, evasion and other flaws in the tax system are costing the country about £40bn in revenue a year, according to an official estimate likely to inflame arguments over how to repair Britain’s biggest ever peacetime deficit.

HM Revenue & Customs’ first ever estimate of the overall “tax gap” reveals that 8 per cent of the expected tax due goes uncollected for a variety of reasons ranging from simple errors to criminal attacks.

The reactions are interesting:

Advisers expressed scepticism about the tax gap calculations, however. Francesca Lagerberg of Grant Thornton, a professional services firm, said the Revenue risked chasing after “mythical amounts”. Bill Dodwell of Deloitte, another professional services firm, said: “It really is finger in the air stuff.”

Mythical? Respectfully, these are responses of those in denial about the reality of the scale of tax loss in the UK, loss that their firms help create through tax avoidance – which Deloittes denies forms part of the tax gap, suggesting it is officially endorsed.

Thankfully alternative comment is available:

But Richard Murphy, a campaigner and TUC adviser, accused the Revenue of seriously underestimating the scale of the tax gap, which he believed was likely to total about £100bn. “People should be angry about it,” he said.

The TUC recently called for a fairer tax system that “made it harder for people to avoid or evade paying the proper amount of tax”, which it said was an alternative to making big cuts in services or making ordinary people pay more tax.

Quite so.

It’s a good job some of us care about the tax gap.

Misinformation on the ‘exodus’ from the Torygraph

Economics 1 Response »

Dec 142009

Taxing the rich is causing exodus – Telegraph.

Heaven knows how the Telegraph came to publish this drivel:

The number of directors of British companies who have registered in the Channel Island tax havens of Jersey and Guernsey, along with the Isle of Man has risen by almost 500 in the past 12 months.

The British Virgin Islands, a popular tax haven in the Caribbean, has seen an 18 per cent rise on a year ago.

Those who are leaving what they see as the mainland’s punitive tax rates include highly paid bankers and hedge fund mangers along with entrepreneurs running luxury travel companies, healthcare, property firms and call centres.

The three Crown Dependencies now boast 6,729 company directors and the British Virgin Islands, a British overseas territory, 615.

Some PR agency paid for by some City body clearly thought this “proof” that people are leaving. This shows a) the depths they are reaching and b) how little they know about offshore but the last thing it proves is c) that this story is based wholly on misinformation.

Bonus tax could net a windfall of £2.5bn

Banking 12 Responses »

Dec 142009

Bonus tax could net a windfall of £2.5bn | Mail Online.

The Treasury could reap a multi-billion pound bonus tax windfall as banks vow to press ahead with payouts rather than lose high-flying staff to foreign countries.

Pay expert Jon Terry, of PricewaterhouseCoopers, said the government may rake in far more than previously expected – as much as £2.5billion – as firms decide to take a one-off hit rather than slash their bonus pots.

Which would dispel a lot of myths – one being that tax will drive people away.

But it also asks a much harder question – which is why sharehodlers are not saying no.

That is what I really want to know – because if this tax is used to reduce shareholder return it will be really revealing.

Bankers: will they go?

Banking 1 Response »

Dec 142009

FT.com / Comment / Analysis – Banking: City limits.

Something close to sensible analysis from the FT, noting this:

Headhunters say that as the recovery picks up and banks look to boost headcount in busy sectors, they are also now far more likely to base those positions outside London. An analyst hired to cover European industrial companies or financial institutions, or a mergers and acquisitions banker, for example, could just as easily be based in Zurich, commuting into London only when necessary.

These warnings have been made before, however, and the City has not only survived but thrived. Banks are still working out how they will respond to the bonus tax; early indications are that many will decide to take the financial hit and pay out at or near the level they previously intended to, rather than risk losing top performers. The people leaving London may therefore still be limited to the industry’s most mobile workers – hedge fund managers, partners in private equity firms and junior bankers and traders.

Quite so. And candidly they a) do not create massive value in the UK b) try to avoid tax here already – usually rather successfully and c) reduce risk for the UK if they go.

So, shall we move on, as we already have on the ratings question?

Tax accountants cost the earth

Accounting, Economics, Ethics, Tax avoidance 49 Responses »

Dec 142009

The New Economics Foundation challenges one of the most fundamental tenets of conventional economics today – that the price of something can be equated to its worth. It does so by l;lloking at the worth of various jobs, and compares that worth with what people are paid to do these jobs. As it says:

Pay matters.

How much you earn can determine your lifestyle, where you can afford to live, and your aspirations and status. But to what extent does what we get paid confer ‚Äòworth’? Beyond a narrow notion of productivity, what impact does our work have on the rest of society, and do the financial rewards we receive correspond to this? Do those that get more contribute more to society?

Our report tells the story of six different jobs. We have chosen jobs from across the private and public sectors and deliberately chosen ones that illustrate the problem. Three are low paid – a hospital cleaner, a recycling plant worker and a childcare worker. The others are highly paid – a City banker, an advertising executive and a tax accountant. We examined the contributions they make to society, and found that, in this case, it was the lower paid jobs which involved more valuable work.

The report goes on to challenge ten of the most enduring myths surrounding pay and work. People who earn more don’t necessarily work harder than those who earn less. The private sector is not necessarily more efficient than the public sector. And high salaries don’t necessarily reflect talent.

The report offers a series of policy recommendations that would reduce the inequality between different incomes and reconnect salaries with the value of work.

And for the record:

Determining the right amount of tax payable is a specialist skill and often requires professional support. However, some highly paid tax accountants’ sole purpose is to help rich individuals and companies to pay less tax. We found that the positive benefits to society of these activities are negligible. However, every pound that is ‚Äòavoided’ in tax is a pound that would otherwise have gone to HM Revenue. In our model we looked at how this lost revenue could have been better spent. For a salary of between £75,000 and £200,000 tax accountants destroy £47 of value for every pound in value they generate.

I think that sums things up rather well. Now how do we price that abuse out of the market?

Disclosure: I work with NEF but had no involvement in this project

Bankers ‘whacked’ in arcade game

Banking Comments Off

Dec 142009

BBC News – Bankers ‘whacked’ in arcade game.

An arcade game that allows people to vent their anger at bankers has proved so popular the owner keeps having to replace worn out mallets.

Inventor Tim Hunkin introduced “Whack a Banker”, which is based on the older “Whack a Mole” game, at his arcade on Southwold pier in Suffolk.

Instead of players hitting pop-up moles with a mallet, within a set time, the target is pop-up bald figures.

I confess to appreciating the therapeutic quality of this game – I holidayed in Southwold earlier this year.

The game is over when an announcement says:

You win. We retire. Thank you very much to the taxpayer for paying our pensions.

Which well summarises the situation.

Why be awkward?

Blogging, Ethics 4 Responses »

Dec 142009

I get people who tell me “if only you weren’t so awkward Richard we could deal with you”.

Others tell me “we don’t understand why you are so angry”.

John Christensen recently told me someone had said to him “we don’t understand your language”. Neither of us could work out what was hard to understand about “secrecy facilitates crime”.

The appeal is always that I or we moderate our view; that we take a less hostile line, offer more amenability.

I was interested therefore to read Robert McCrum in the Observer today. He notes, talking of art that:

Something has happened to Britain’s creative community and there’s no better way to understand this than to go back to a speech that Graham Greene, one of the most admired novelists of his day, gave in Germany in 1969 "on the virtue of disloyalty".

Responding to being awarded the distinguished Shakespeare prize, Greene used the occasion to extol the writers and artists for whom he had the most respect, those who by their calling were "troublers of the poor world’s peace".

The writer’s duty, said Greene, was to be "a piece of grit in the state machinery".

I make no claim to be an artist. But I have complete sympathy with McCrum’s conclusion:

the dreadful cultural cost of complicity is simply stated. If disloyalty encourages the writer to roam at will through human hearts and minds, and gives the novelist a fourth dimension of sympathy and intuition, then complicity just narrows the creative arteries. It propagates a me-too-ism in the community that works against originality and promotes a wannabe mentality that has nothing to do with Ezra Pound’s famous injunction to "make it new".

Such lowered standards extend to the media, too: journalists following other journalists, like sheep; reviewers schmoozed by PRs; the newspaper commentariat looking over its shoulder, as it did in the run-up to the Iraq war. The complicity of all artists makes them fearful of risk, vulnerable to propaganda, and the prisoners of conventional wisdom. Disloyalty liberates, complicity enslaves.

I don’t seek to be awkward. I am because, like George Orwell “I write it because there is some lie I want to expose.”

There are such lies.

I think neo-liberal economics is a lie. It does not seek to maximise well being. It seeks to shift resources from many to a few.

I think much right wing and libertarian philosophy is a lie seeking subjugation for a majority.

I think accountancy lies when it says it is based on ethics, when much of what it does abuses all ethical principles.

I think the way we present public company accounts is a lie that hides the truth from the user.

I think our pension system is a lie that lets the City benefit now at cost to our future.

I think many say we can live without limits now, and that is a lie: we live in a finite world.

I think those who promote tax avoidance lie: they seek to destroy the nature of society whilst free-loading on its back.

I think tax havens are a lie: they claim to be well regulated when we know they wilfully turn a blind eye to what they facilitate beyond their shores.

I could keep listing the lies that make me angry.

And those who do not agree with me ask me to be “nice” to them? To be less disagreeable on this blog? To be complicit in their story?

No thank you: complicity enslaves. We need grit in the system. I, for some reason, seem to be made of grit.

The job of those who have, for too long, been used to a lack of opposition, to complicit acceptance of their narrative is to accept that there are alternative narratives, that they are valid, and they need to be not just accommodated but adopted. If not we will sink under the conventional wisdom that brought us the credit crisis, global warming, the enslavement of billions in poverty, a lack of real democratic representation, a world too divided to be sustainable.

Don’t ask me to be nice and accept those things. I won’t.

I will hold discussion with anyone in private and unblogged if it helps progress ideas about which I have concern: that makes complete sense, and happens far more often than most readers of this blog will, inevitably, ever know. That is, I think, an acceptable condition for some discussions. But to ask me to “be reasonable”, which means “see it my way” as a pre-condition for discussion is not possible when the problem being addressed is that the world is seeing and doing it “your way”.

As McCrum says, we have reached an awful state of complicity. For a great many – in the professions, business, the professions – even politics, there is an expectation that all will be complicit in the consensus of the current leadership. For those who have grown used to that it is time to get used to something unfamiliar: reasoned opposition. Progress is dependent upon its existence.

That’s why is it necessary to be awkward.