2010 September » Tax Research UK

Jersey – heading for failure

Sep 302010

The problems for the Jersey economy just grow and grow – or rather shrink and shrink.

Data on Jersey’s income for 2009 has just been published. The summary says:

The main economic indicators which measure the value or size of the whole Jersey economy are GVA (Gross Value Added) and GNI (Gross National Income). The GVA and GNI 2009 report shows that:

Jersey’s economy, as measured by GVA, declined in real terms by -6%

this fall represents the largest annual decline in measured GVA for at least a decade

Jersey’s total GVA was £3.6 billion; GNI was estimated at £3.7 billion

the latest measure of GVA, and the historical time series, incorporate a significant revision from those previously published due to the reclassification of some Finance sector profits as off-Island economic activity; the estimates of GNI are not affected by this reclassification

the Financial services sector accounted for 43% of Jersey’s total GVA, the lowest proportion this sector has represented of this measure for at least a decade

financial services recorded the largest real-term fall in GVA (-12%) of the sectors comprising Jersey’s economy

the Agriculture sector recorded real term growth of 5% and has now seen 5 consecutive years of real term growth in GVA.

The collapse in the financial services sector is staggering. It’s not long ago that it contributed somewhat over 50% of income. And of course income has fallen in the meantime too.

I have said often since 2005 that Jersey’s economy is sinking and that it is only a matter of time before the changes in its tax system will lead it to jurisdiction bankruptcy. I did not factor the economic collapse and the rapidly developing collapse of its financial services sector into those equations. But it simply means that Jersey will fail so much sooner.

And so far all they can say they’ll do is declare independence.

An independent state is as bankrupt as one that has the UK as its economic bail out fund. Except that it will then have no bail out fund. The desire within Jersey for self destruction appears to be unlimited – and the victims will be local people.

If banks undermine states they must account on a country-by-country basis

Accountancy, Banking, Big 4, Country-by-country, IASB, Ireland 2 Responses »

Sep 302010

The FT reports:

The failure of Anglo Irish bank, the lender at the centre of the country’s financial crisis, would “bring down” Ireland, the country’s finance minister said, as he vowed the government would stand behind the institution as it winds down.

As Ireland’s Finance Minister said:

Any Anglo failure would bring down the sovereign. It is systemically important not because of any intrinsic merit in the bank. But because of its size relative to the national balance sheet. No country could contemplate the failure of such an institution.

Then note the FT reports:

Lloyd Blankfein, chief executive of Goldman Sachs, has issued a clear warning that the bank could shift its operations around the world if regulatory crackdown on the industry becomes too tough in certain jurisdictions.

The conflict between these positions is obvious. A bank can bring down a state. And banks don’t want to be regulated by the state.

There can only be one winner on this: it must be states.

And because it is very obvious that each and every person in every state is a stakeholder and supplier of capital to banks it is vital that banks be required to account on a country-by-country reporting basis. The argument that only the formal suppliers of capital through financial markets need have financial statements prepared for their benefit is so very obviously nonsense now that the claims by the International Accounting Standards Board, the Big 4, the largest multinational corporations that this is the case must be challenged, not least by all governments.

I look forward to the Irish government joining the demand for country-by-country reporting.

Denmark shows how to go fishing, and get a good catch

Secrecy jurisdictions, Tax evasion, Tax Havens 4 Responses »

Sep 302010

Denmark has set a new precedent in tackling secrecy jurisdiction abuse. It’s been reported that:

The Tax Ministry of Denmark has released new data and launched an investigation into the vast amounts of transactions Danish entities and tax havens. The investigation is part of the Ministry’s Project Money Transfer, which began with request to national banks to provide extensive information on customers’ money transfers to countries considered to be tax havens by the Tax Ministry.

The requests were met with immediate opposition from banks, a move which raised public interest and built up awareness of a situation that could becomes the country’s biggest tax scandal ever. Initial investigations into the transfer data revealed evidence of at least 450 companies whose sole and purpose is to pipe capital from one jurisdiction into another, sometimes low tax, jurisdictions. Between the years 2007 and 2009, 85 of the 450 companies had recorded transactions exceeding DKK 100 million (approx. USD 18.2 million).

There’s no doubt some of the money reported is legitimate.

And I am equally sure some will not prove to be so.

What is welcome is that this opens up whole new areas for enquiry – indeed (as was discussed here in Bergen yesterday) this type of enquiry does allow for what has quite incorrectly been called fishing trips and which should instead be called the pursuit of hot money.

I hope authorities rapidly follow suit in making such enquiries, and where conduit arrangements are found that information is shared.

Stop yappin’

Economics 3 Responses »

Sep 302010

This says much of what I think about the right wing blogosphere:

They seem to be the ultimate definition of negativity – talk, and obstruction to all action for the common good.

I wonder if they ever actually created anything?

Cartoon credit here.

Cuts, the Tax Gap and Government Priorities

Tax gap Comments Off

Sep 292010

Chartered accountant Richard Lupson-Darnell has written to his MP about the proposed cuts at HMRC and their impact on the tax gap.

I commend his approach.

And suggest it’s worth replicating – and his text is a good starting point.

I paid a bribe

Corruption, Tax evasion 1 Response »

Sep 292010

That got your attention.

And it isn’t true. I am in fact referring to a website with the above name.

The web site has been set up in Bangalore wit the aim of highlighting the range of corruption that is taking place inside India right now.

I admire the courage of those who have set it up.

I admire the courage of those posting their stories even more.

And I admire this innovative use of the web to tackle a problem that undermines society at large.

I gather the site got 30,000 hits in its first few days. Which is great. May it deliver real change.

The Vatican needs to get its act together

OECD, Secrecy jurisdictions 1 Response »

Sep 292010

Bloomberg note:

The Vatican has yet to formally commit to financial transparency, the Organization for Economic Cooperation and Development said one week after Italian magistrates opened a probe into its bank for alleged violations of money-laundering laws.

While the Holy See said last week that it’s in talks with the OECD about getting on the Paris-based group’s so-called White List of nations that comply with global norms, it has not taken the first step toward transparency, said Jeffrey Owens, head of the OECD’s Center for Tax Policy and Administration.

This is a failure to even reach the first rung of regulation.

And that’s just not good enough.

Come on guys‚Ä¶.walk the talk. Or live the prayer, if you like.

Isn’t it amazing how accountants just love regulation when it suits them

Uncategorized 1 Response »

Sep 292010

You know what accountants are like.

“Free markets work.”

“Stop government interference.”

“Cut regulation.”

“Leave the market to get on with it.”

Blah, blah, blah.

Until, that is, it suits them to argue otherwise. Take this from the FT this morning:

A cap on the market share of UK auditors needs to be introduced to reduce the systemic threat posed by the dominance of the four biggest firms, Grant Thornton has urged.

The country’s fifth-largest auditor claims that financial markets would be thrown into chaos if one of PwC, KPMG, Deloitte or Ernst & Young – which collectively audit the majority of FTSE 100 companies – were to collapse.

Exasperated by previous attempts to dilute the power of the Big Four, Grant Thornton’s UK arm is now pushing for radical intervention by regulators and investors.

Hang on a minute. This is the fifth biggest firm of accountants in the UK saying:

- Markets don’t work

- There is an externality at play here which requires regulation

- Competition has not provided an optimal solution

- Only government action can change that sub-optimal situation

- Regulation to constrain market choice would be a good thing

Amazing, isn’t it?

But are Grant Thornton right? Yes, is my answer. Their analysis is spot on. But their solution is massively wide of the mark. First, auditors are really no good at what they claim to do. Second, they are conflicted: they sell other services. Third, why should they demand access to what is in effect a monopoly right? Fourth – isn’t this a simple statement that to rely on the Big 4 is a massive error of judgement – and yet that’s the whole basis of the policy the government is proposing in abolishing the Audit Commission?

The truth is regulation should not be used to extend a monopoly abuse which has failed to deliver what the market or society needs.

Regulation should be used to reform the supply of the service (the state is the best supplier of natural monopoly services); for demanding reform of the quality of the service (yes, auditors should audit – it’s not an unreasonable demand) and should be used to integrate audit with other social objectives on behalf of the wider stakeholder group to whom auditors should have obligation – such as tax authorities to whom there should be liability to ensure that accounts are a suitable basis for tax reporting.

That’s the reform we need.

And Grant Thornton are as a consequence, I hope, whistling in the wind.

Herod in charge of a creche

ConDems 1 Response »

Sep 292010

Frances O’Grady, deputy general secretary of the TUC and a person for whom I have a lot of admiration was on form at the Labour party conference yesterday where it’s reported she said that: