The EU Parliament has voted by 283 votes to 278 votes for a resolution on development issues that called for:
a new binding, global financial agreement which forces transnational corporations, including their various subsidiaries, to automatically disclose the profits made and the taxes paid on a country-by-country basis, so as to ensure transparency about sales, profits and taxes.
Good news.
The IFS have spoken about the budget. As they say:
The government expects public spending in total to be broadly flat in real terms over the four years beyond 2010-11. Making plausible assumptions … Whitehall spending on public services and administration would need to fall by an average of 3.1 per cent a year over those four years, a cumulative decline of 11.9 per cent or £46bn in real terms by 2014-15. This implies cuts averaging between 5.3 per cent a year and 7.1 per cent in the areas that the government is not planning to ‚Äòprotect’ in 2011-12 and 2012-13
As the Guardian leader notes:
The bad news in the IFS analysis was all about the fiscal tightening to come – and, unfortunately for Mr Osborne, it applies to politicians of all ideological hues. The bald truth is that the political argument over how and when to bring down the debt is largely about shades of grey rather than black and white. All three major parties agree on the need to reduce borrowing: they differ only on the whens and hows – and even then not by much.
And as the Guardian poignantly adds:
Yet, as the IFS suggested, the proposed spending cuts all parties are promising remain unfeasibly large.
"Tougher and deeper" than Margaret Thatcher was Mr Darling’s promise last night. The efficiency savings Labour promised this week are wishful thinking – with NHS and schools both likely to plough any savings straight back into services. This is no bad thing, especially for the public using those services, but it does undercut the machismo over cuts.
Or to put it another way, there’s not a hope in hell that these cuts can be delivered.
Martin Wolf at the FT says much the same thing As he notes:
If the crisis has struck at the foundations of Thatcherism, it has struck as hard at those of Blairism.
To put it bluntly – both (and they are only variations on a theme) are discredited. But Wolf goes on to ask:
So what are the narratives that the big political parties now offer?
The shared answer is clear: since you, the voters, do not want to hear the truth, we will not force you to do so.
But that’s not policy – that’s evasion of the issue.
And that summarises the real crisis at the core of the current financial problem. So far no political party has shown it understands it. No one has told the truth that cuts of the scale suggested are completely undeliverable without massive social cost and disruption, from unemployment onwards, and across the whole spectrum of society. Wolf summarises this:
The crisis marks the end of an epoch, economically and politically. The big parties are at a loss over how to respond. But – apart from recognising and reacting to the crisis, which could, under plausible assumptions about future economic growth, require still more radical decisions on the public finances than anybody wants to contemplate – their leaders have to find something more inspiring than an offer of years of austerity and disillusion.
The party that deserves to win must craft a narrative and policy that creates opportunity out of disappointment. Competence is required, as is toughness. But the UK needs more than these qualities. It needs the “vision thing”, as well. I plan to discuss these challenges as this pivotal election draws nearer.
That vision is vital.
And at it’s core is one thing: the prize will go to the party that can offer freedom from fear. Freedom from the fear that children will be trapped in poverty, won’t be properly educated, won’t be able to afford university or to buy a house. Freedom from enslavement by a mortgage that destroys relationships and children’s lives. Freedom from fear of ill health when cuts attack the health service. Freedom from fear of unemployment. Freedom of fear of retirement and poverty in old age. Freedom from fear that there won’t be a country for our children. Freedom from the fear of helplessness in the face of a tiny elite who abuse all as they appropriate others wealth. Freedom from fear of the end of democracy. Freedom from fear of oppression in other words.
That oppression has been caused by finance.
The reform of finance will be at the core of reform to relieve that fear.
And instinctively people won’t accept cuts to appease finance. they know it’s the wrong thing to do – to throw away our real prosperity to pander to Moody’s and S & P.
Which is why it won’t happen.
And which is why there’s an urgent need for the vision to fill the void that’s opening in the political debate.
Everyone is focussing on the Institute for Fiscal Studies comments on the budget this morning. So will I in due course.
Now let’s note what they have said on Labour’s tax policy:
An increase in taxes on the wealthiest households has been matched by an increase in benefits for the poorest, the Institute for Fiscal Studies said today following a long-term study of Labour’s impact on incomes since 1997.
The poorest 10% of households gained by 13% while at the same time the richest 10% saw their incomes cut by almost 9%. When households earning more than £100,000 were treated as a separate category, the figures showed they faced tax rises that cut their incomes by 15%.
That’s great news.
But there’s bad to follow:
Only Singapore, the US and Portugal have more income inequality, according to UN figures. It says the richest 20% in the UK are seven times better off than the poorest 20%, while in Japan the richest 20% are only 3.5 times richer.
Overall that means we have a massively unequal society.
As Richard Wilkinson and Kate Pickett have shown, unequal societies always do badly.
The answer is we need a High Pay Commission, increases in taxes on the best off, and more support for those living in poverty to ensure they can break out of its grip.
Sticking plasters won’t do. Real reform is needed. And that means a change in the structure of the UK economy and society. Back to 2005 won’t do: banking created this inequity. We have to replace it as the core of our policy and we have to esnure that the jobs, wealth and opportunity we generate are better spread.
Nothing else will do.
And if that means state provided capital for change, so be it. the rewards will be high.
Budget 2010: Offshore tax haven crackdown ‘to raise £1.5bn’ | Business | guardian.co.uk .
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said the government had latched on to tax avoidance as a crowd-pleaser, but it would raise only limited amounts of cash. “Tax havens are always going to take a bashing from the chancellor, but it’s something of a sideshow.
“With so many more pressing problems for the nation’s finances, it really is frustrating that the chancellor is overly focusing on an area with so little impact on the economy.
“The UK receives a significant level of business from offshore jurisdictions, but changes by the chancellor regarding tax avoidance could threaten this. Tax havens do not have a significant part to play in any current financial problems.”
Chas – answer m a question. Where do you think the money offshore comes from if it is not from us in the first place? And if it is from us in the first place why is it there if not for tax abuse?
The words “ethics” and “Association of Chartered Certified Accountants” have always been hard to associate. Chas goes out of his way to prove why.
FT.com / Columnists / John Kay – How to make money without trying.
Read what John Kay has to say and weep for the damage shareholder value and unbridled capitalism has caused to British industry.
The new UK penalties for offshore tax evasion give a massive boost to automatic information exchange, a Tax Justice Network demand. As the budget note says:
The mechanics of the penalty frameworks will remain the same, but the absolute level of the percentage used to determine the tax-geared penalty will be determined by the jurisdiction in which the non-compliance arises.
Where the non-compliance occurs in a jurisdiction which has provision to exchange information on savings income automatically with the UK, the penalty percentages will be the same as those in the current Schedules (i.e. the same as for non-compliance arising in the UK).
Where the non-compliance arises in a jurisdiction which has agreed to exchange information with the UK, but does not automatically share that information, the penalty percentages will be 1.5 times those set out in the existing Schedules.
Where the non-compliance arises in a jurisdiction which has not agreed to exchange information with the UK, the penalty percentages will be double those set out in the existing Schedules.
The new penalty frameworks for offshore non-compliance will apply to income tax and capital gains tax.
So the UK is implicitly giving a boost to automatic information exchange. Good for us!
There’s a great paper under the above title in the Romanian Journal of Economic Forecasting by Liviu Voinea and Flaviu Mihaescu.
As they report:
In this paper we focused on the flat tax impact on inequality in Romania. We compared 2005 against 2004, when we were able to isolate the flat tax impact from other factors. We found that the higher the gross wage is, the higher the flat tax gains are. The inequality indicators we calculated (the Gini index, the relative mean deviation, the coeficient of variation, the standard deviation of logarithms, the Mehran index and the Piesch index) show an increase in inequality determined by the flat tax.
The Lorenz curve is illustrative, as only the last quintile of the population (richest 20%) appears as the clear winner of the flat tax. The results also indicate that the higher the income level, the higher the income elasticity of consumption.
We conclude that the flat tax led to increased income inequality and it stimulated households consumption particularly among the wealthiest households.
This was the outcome I forecast in my own paper on flat taxes, which these authors reference.
It’s not a surprising finding – but it’s good to have it confirmed that flat taxes are unambiguously regressive.
It’s worth noting George Osborne has been a big fan of them.
But Britain has never been short of innovative companies, neither has it lacked world-class companies, such as GlaxoSmithKline and Rolls-Royce. The problem, exposed brutally over the past 13 years, has been that there are few sectors where the UK is truly internationally competitive and there is not much beneath the cadre of top performers.
Turning round decades of decline is likely to be long and difficult. Businesses complain that graduates and school leavers are inadequately skilled and that the banks have starved them of cash.Alistair Darling sought to address this in yesterday’s budget; the Capital Growth Fund is designed to help the 32,000 small and medium-sized businesses struggling to attract finance.
I’ve already given my reaction to the budget. Two, at least of my fellow Green New Dealers have done the same.
[Darling] got off on the right foot by pointing to the £11bn fall in borrowing that is a direct result of the mini fiscal stimulus of last year. The improvement has come from tax receipts and the stimulus measures adopted, including the cut in VAT and not from employment taxes. This demonstrates that taxes are the key to the deficit, and that stimulus works in reducing it. The remainder of the £11bn improvement has come from lower-than-anticipated gilt yields. So much for the theory that cuts are needed to reassure financial markets.
With those numbers, Darling has seen off the deficit hawks in the Conservative party, the Institute of Fiscal Studies, the City and the BBC. He has been proved right: a little fiscal stimulus staved off even higher unemployment and bankruptcies and helped stabilise the economy. Above all, he has proved, unequivocally, that government spending pays for itself.
So far, so good then, but Ann moved on:
But instead of using these numbers, and this proof, as a springboard for an even greater stimulus, the chancellor came over all optimistic. He promised economic growth and began the process of fiercely turning down the public spending screw, and with it real wages.
Public sector net investment will fall from £50bn in the current year to £39.5bn in 2010/11. At a time when total investment in the economy has fallen by £46bn, and private sector investment fell again in Q4, this will serve to increase the spin on the downward deflationary spiral. Furthermore, given Britain’s balance of payments challenge, this collapse of investment will damage our ability to pay for imports, and lead to further currency crises.
To tackle the threat of energy and climate insecurity we are offered the promise of a new bank – a “green investment bank” – with taxpayers providing £1bn of equity and the City of London promising to match that sum. In other words, the City is offered a sweetener to participate in yet another subsidised bank, where it will no doubt be free to offer loans at unpayable rates of interest to budding entrepreneurs keen to manufacture wind turbines.
But Darling’s budget fails to stall the deflationary spiral. It could come back to haunt him.
Larry Elliott in the Guardian is more optimistic:
Britain has never been short of innovative companies, neither has it lacked world-class companies, such as GlaxoSmithKline and Rolls-Royce. The problem, exposed brutally over the past 13 years, has been that there are few sectors where the UK is truly internationally competitive and there is not much beneath the cadre of top performers.
Turning round decades of decline is likely to be long and difficult. Businesses complain that graduates and school leavers are inadequately skilled and that the banks have starved them of cash.Alistair Darling sought to address this in yesterday’s budget; the Capital Growth Fund is designed to help the 32,000 small and medium-sized businesses struggling to attract finance.
It’s long overdue.
Perhaps Polly Toynbee – not a Green New Dealer – but clearly in sympathy – can have the final word:
Quite a triumph for a chancellor to confess his treasury is £167bn overspent, with more debt than ever before outside wartime, and yet be able to sit down as the more credible custodian of the nation’s finances.
The man who called the worst recession in 60 years when all about him were in denial had his day of vindication. The nation’s modest bank manager doesn’t do the hubris, hyperbole and vainglory of his predecessor, but he allowed himself a quiet preen.
Honesty back then has earned him credibility now: disaster was averted, the worst damage mitigated by prompt state action. The fiscal stimulus worked and, defying expectations, unemployment is lower, debt less, inflation down, home repossessions fewer and frail growth on track. So far the social calamities of the recessions of the early 1980s and 1990s have been lessened. Why? Because this is a Labour recession, unlike the laissez-faire, “It’s not working if its not hurting” Tory recessions. “Government should not stand aside”, Darling said.
Exactly.
Public costs, private gain | Chris Edwards | Comment is free | guardian.co.uk .
Chris Edwards is one of the foremost experts on the harm caused by PFI in the UK. He wrote on Comment is Free last week when I was in the US, so I missed it then and correct it now. As he noted:
Earlier this week, the economic affairs committee of the House of Lordspublished a report on “Private finance projects and off-balance sheet debt”. An outcome of an inquiry initiated in July last year, the report will be of interest to the non-specialist. To the specialist, it is woefully inadequate.
In its abstract, the committee contrasts two views of PFPs: one favourable, the second distinctly unfavourable. The committee is generally favourable to PFPs, but concludes that “the dearth of hard data ‚Ķ encourages assertion rather than analysis,” and that “this needs to be remedied”.
Surely after more than five months of work, the committee should have substantially begun to provide the remedy and fill in the data gaps? There is a shortage of data, but the main report fails to draw on the data painstakingly collected by a raft of researchers – such as the Cuthberts, Pam Edwards (no relation), George Monbiot, Allyson Pollock, Jean Shaoul and myself. A little of the hard data is in the 326 pages of evidence in volume II, but much of it has not been used for analysis in the 41 pages of the main report (volume I)
This is disappointing for two reasons. First because this is the first parliamentary inquiry on the topic since 2000. Second, because PFPs are important. As the committee points out: “There are now about 800 [PFPs] in being in the UK with a capital value of about £64bn”, with PFPs being particularly important in health (delivering 70% of hospital schemes) and schools (about 60% of new schools having been delivered as PFPs). It is worth noting that this capital value understates the burden imposed on the public purse by PFPs, since the annual future repayment stream on these 800 projects is at least £200bn.
Amazing then that there has not been a report for a decade. And as Chris notes:
Could these projects have been financed by the public sector more cheaply? The committee does not answer this question, instead misleadingly stating that “PFPs enjoy a generally good reputation for delivering projects on time and within budget”. However, PFPs are bound to have a better chance of completing within a budget if the price is high, and experience shows that PFPs have been significantly more expensive than state-financed projects.
The reason for this is that, over the past ten years, the private sector’s cost of capital has been between 2 and 5 percentage points above the average annual interest rate on government bonds of 4.8%. The evidence for this is given on page 156 of volume II, and yet the main report quotes David Metter of the Public-Private Partnerships Forum as saying that the difference is only 1.5 to 2 percentage points (paragraph 28, volume I).
Metter is wrong because he ignores the very high percentage profit accruing to equity shareholders on PFPs. This mistake is somewhat surprising since he is the founder and chief executive of Innisfree, one of the largest of the PFP investors. According to its website, Innisfree has invested £923m in 53 projects with a total capital value of £10.9bn, £5.3bn of which is in hospitals. Between 1998 and 2008, the annual rate of profit (with directors’ remuneration included in the profits) for the Innisfree Limited shareholders between 1998 and 2008 was more than 200%.
This high rate of profit on PFP equity is sufficient, in general, to push the overall cost of capital to between 2 and 5 percentage points above that of the public sector.
And then, for me, Chris gets close to home:
What is the effect of the private sector’s much higher cost of capital? As an example, look at the Norfolk and Norwich University Hospital, one of the earliest and largest of the PFI hospitals. As a result of the PFI contract, the rent paid to the company involved (Octagon Healthcare) is two and half times as much as the rent under a publicly financed procurement. This higher rent is payable to the end of the contract (in 2037).
But this higher cost of capital is not the end of the story. There are other costs ignored by the committee in its report but itemised on page 157 of the evidence.
In conclusion?
There is, then, little doubt from the hard data that PFPs are poor value for money. Yet, this is not the conclusion of the committee’s report. Unfortunately the PFP contracts have generally been drawn up with the inclusion of such high cancellation payments that it is uneconomical for the government to buy back the contracts. This means that if hospitals have to be closed as patterns of treatment or population distributions change, the ones most likely to be closed will be the state-financed ones, since the rent of the PFPs will have to be paid – whether or not they continue to be used.
The attraction of PFPs for Gordon Brown and the Labour government since 1997 has been that PFI investment has not generally appeared in the total of public sector debt. Brown’s upper target for public sector debt to national income was 40%, ridiculously low by international standards. PFPs enabled the government to hide much of the repayment liabilities and, until the crisis, get under the 40% target.
We have already seen that the future annual payments due on PFPs amount to more than £200bn. At a conservative estimate, at least half of this is an excess cost attributable to private finance. But, again, you will not find this hard data in the committee’s main report.
My emphasis added.
But this is an appalling New Labour legacy. Out with the New, bring in the old I say.
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