2010 September » Tax Research UK

Finding a Compass

Sep 212010

I’ve argued, often, that to get out of recession we need a plan. Compass has published one, written by my writing colleagues Howard reed and George Irvin with Zoe Gannon of Compass. Entitled the £100 Billion Gamble the report reveals the extent of the ConDem’s reckless gamble. It is calculated in this new report that the government is making a £100 billion gamble on growing while the public sector is cuts which is supported by "no reputable economic theory".

The report argues that: "Everyone is agreed that growth is the only way out of this economic situation, but the government’s hope is that this will come about by simply creating ‚Äòspace’ for private initiative. It has an agenda for cuts but not for growth."

Chancellor George Osborne argues that the state is the problem, that we must deal with the deficit immediately, that if the state is cut back the private sector will flourish and that cuts can be progressive. On all of these fronts, the report shows that Osborne is fundamentally wrong.

The report contests each of these with economic facts and evidence showing that opposition to the cuts is essential and that there is an alternative involving a renewed fiscal stimulus to encourage growth and a long term fiscal policy designed to reduce the deficit through a fairer tax regime.

Recommended.

Tax Justice and PCS at the LibDems

ConDems, Tax justice 1 Response »

Sep 212010

John Christensen of the Tax Justice Network did yesterday’s PCS fringe meeting at the LibDem conference. The Guardian has given it extensive coverage:

A former adviser to the Thatcher government has warned that official action to tackle tax avoidance and fraud is "a drop in the ocean" in light of the amount of tax revenue lost to the Treasury, which he believes to be almost £120bn a year – almost twice the amount estimated by Revenue and Customs.

John Christensen, former economic adviser to the UK and Jersey governments, who has also worked within the tax haven industry in the past, said government plans announced yesterday at the Lib Dem conference in Liverpool to raise an extra £7bn by 2014-15 by tackling tax avoidance and frauds were "too timid".

He criticised Britain’s "permissive" tax laws, which he said placed Britain in the unenviable position of leading the world on tax evasion, with over half of all tax havens around the world being British, he said.

Christensen, part of the non-partisan Tax Justice Network, said the government needed to reverse the job cuts in HM Revenue & Customs – which unions say have numbered 30,000 over the past five years, to allow tax collectors to claw back the billions of uncollected revenue.

He told a fringe meeting at the Liberal Democrat conference in Liverpool organised by the Public and Commercial Services Union (but not listed in the conference guide), that tax avoidance by the wealthy who pay accountants to identify loopholes had become "too respectable".

Those who shunned paying their dues to the nation’s coffers ought to be named and shamed in the same way as those convicted of benefit fraud, he said.

"HMRC are doing deals and settling out of court with people who have been avoiding tax for many years," he said. "There is a fundamental injustice here."

Christensen said that the government needed to apply an "anti-tax-avoidance principle" and crack down on slack tax laws.

He cited one mechanism that allowed large companies and supermarket chains to avoid VAT on items worth £18.50 or less by shipping products such as DVDs and CDs to Guernsey and Jersey before posting them back to the UK for sale.

Christensen said the "anti-competitive" loophole, put in place as a special arrangement in the 1960s to stop flowers being shipped to the UK perishing during delays at customs, was benefiting the "big players" at the expense of small businesses.

A Lib Dem MP who attended the meeting and backed the coalition’s budget deficit reduction programme described the loophole as "mad".

The rest if worth reading too.

Ireland: closing for business

Ireland 3 Responses »

Sep 212010

As the FT notes:

Ireland’s central bank governor has indicated that Brian Cowen’s government needs to go even further in cutting the forthcoming budget if it wants to restore international confidence in its management of the economy.

Patrick Honohan’s comments, at a conference in Dublin on Monday, reflect mounting market concern at Ireland’s deficit, the largest in the European Union.

Of course Ireland could cut more, but it might as well say it’s going out of business in that case. As Paul Sweeny of the Irish Congress of Trade Unions said in reaction:

We’re already seeing increasing unemployment, reduced government revenues and companies going out of business. “he government is going too far on the cuts. To call for more would push us into a deflationary spiral.

He’s right.

And to a certain degree Ciaran O’Hagan, head of rates research at Soci?©t?© G?©n?©rale in Paris was right too when arguing that rather than just slashing spending, Ireland’s government would bolster creditworthiness by announcing structural reforms, such as legislating for increases in the retirement age, introducing a property tax and adopting an independent means of fiscal oversight, such as the Office for Budget Responsibility in the UK.

I’m not sure about all the prescriptions, but he’s right that cutting is irrelevant now – the issue is showing that there is a plan to get out of the mess Ireland’s got into. Unless there’s such a plan nothing will work. And deflation and economic collapse will surely follow.

But I see no sign of that from the current government. No wonder emigration is rising. And that’s sad.

The LibDems: closing soon

ConDems, Politics Comments Off

Sep 212010

This is good analysis by Philip Stephens in the FT:

Many of the party’s supporters have already deserted, charging Mr Clegg as a collaborator in the Tory assault on the state. Others worry the party’s identity is being smothered. More are likely to flee when the spending cuts begin to bite. If the squeeze pushes the economy back towards recession, the flight could become a flood.

Many Lib Dems do not accept their leader’s definition of liberalism. Mr Clegg draws inspiration from John Stuart Mill, marrying social liberalism to limited interference in the economic lives of citizens. Many in his party prefer the party’s 20th century icons John Maynard Keynes and William Beveridge – champions of active government as an architect of progress.

Mill would have applauded Mr Clegg’s strategy of lifting those on low incomes out of the tax net. Keynes would have cautioned against rapid fiscal retrenchment, and Beveridge would have noticed that the poorest gain least from income tax cuts.

In his own terms, Mr Clegg’s legacy may be a more liberal Britain. Whether the Lib Dems survive to enjoy it is another question.

I think the distinction between forms of liberalism is important, and right.

There are many on the left who rightly think themselves liberal and rightly have a desire to ensure government, important as it is, also knows its limits. I’m with Keynes and Beveridge in the latter camp – and proud of it.

This is a mantle Labour has to wear now. The LibDems have closed themselves down for this business. Probably for good.

New report to launch in Bergen

Development, Secrecy jurisdictions Comments Off

Sep 212010

From the blog of the Task Force on Financial Integrity and Economic Development:

The Task Force on Financial Integrity and Economic Development conference in Bergen starting on 28 September also sees a side event on that day when Danish NGO IBIS and a range of its partner launch a new report. That report – entitled ‚ÄòInvestments for Development: Derailed to Tax Havens: A report on the use of tax havens by Development Finance Institutions’ – has been written by UK based chartered accountant Richard Murphy, the director of Tax Research UK, a member organisation of the Co-ordinating Committee.

The report, which is sponsored by IBIS, NCA, CRBM, Eurodad, Forum Syd and the Tax Justice Network, looks at a critical area in the development activities of many European countries – the role of the Development Finance Institutions that they own in funding private sector investment in developing countries.

Development Finance Institutions (DFI) invest their capital in developing countries for the express purpose of advancing development in those places by promoting investment in local business. In this respect their activities can be compared to that of the European Investment Bank (EIB) and International Finance Corporation (IFC) – a part of the World Bank. At the end of 2008 the DFIs that were members of the European Development Finance Institutions network (EDFI) had combined funds invested of about €16.7 billion.

However, the business models of the DFIs has been subject to much criticism. Their investments have moved away from those areas normally associated with poverty relief – such as agriculture – and into areas like finance, hotels and telecoms. The DFIs have in many cases ceased to invest directly but do instead invest through funds over which they appear to have little control. And many of their investments are now routed through tax havens – and issue which attracted international attention when Norway banned their fund from investing, at least temporarily, in this way after the report of their Commission on Capital Flight from Developing Countries attacked this practice in their report “Tax Havens and Development”.

The new IBIS report looks at these issues and suggests a new Code of Conduct for Development Finance Institutions to replace the one they have themselves recently proposed.

The Code is robust, and promotes transparency, accountability and a focus on local management of the investment Development Finance Institutions make. It is meant to be the basis for debate and engagement with the DFIs – who it is hoped will be represented in Bergen.

The event promises to be thought provoking and the start of an enhanced dialogue across Europe on what the role of DFIs is in a new era for aid as the world struggles to come to terms wit financial crisis.

You are welcome to join the discussion at the Radisson Blu Hotel Norge, Bergen on 28th of September, 5.15pm- 6.15pm

More crass Cleggisms

ConDems 5 Responses »

Sep 202010

More crassness from Nick Clegg’s LibDem conference speech:

We could have decided to go more slowly but it would have worsened not eased the pain. Because every day you ignore a deficit, it gets harder to fix. The debts mount up and you have to pay interest on them. Already we are spending £44bn a year on interest alone. Under Labour’s plans, that would have risen to nearly £70bn. A criminal waste of money that shouldn’t be lining the pockets of bond traders. It should be paying for police, care workers, hospitals and schools.

The man really should not be let near his own pension, let alone the state’s finances because if he knew anything at all he’d know that most of UK gilts are owned in this country. The profile looks like this:

Most think that overseas bit overstated: a lot think 90% of UK debt is domestically owned.

But the reality is that the biggest holders are pension funds. Gilts underpin private sector pensions, repay them and the pension system will collapse. And banks must hold gilts as part of their required capital funding. Repay them and the banking system will collapse. And so on, and on. And the demand for gilts is rising. Because banks need more capital. That’s what new regulations are saying. But Clegg wants to deny them the assets they need.

And the real rate of interest on government gilts right now? Under 1%. A lot of it being taxed on receipt in the UK (not all, I admit – but a lot).

So this is not money paid to bond traders. this is interest paid at incredibly low cost to institutions that underpin our economy and pensions. And Clegg does not understand that. Heaven help us.

Clegg proves himself staggeringly economically inept

ConDems 5 Responses »

Sep 202010

Nick Clegg proved just how staggeringly economically inept he and the Conservatives are in his LibDem conference speech today. He said:

So how did this debt crisis happen? Put simply, over the course of the recession, 6% of our economy disappeared. The shock was so profound that even now the economy is growing, we are poorer today than we thought we would be. All the old predictions about our future economy – predictions on which spending plans had been based – have turned out to be wrong. We can’t keep spending money as if nothing had changed.

The problems are there. They are real. And we have to solve them. It’s the same as a family with earnings of £26,000 a year who are spending £32,000 a year. Even though they’re already £40,000 in debt. Imagine if that was you. You’d be crippled by the interest payments. You’d set yourself a budget. And you’d try to spend less. That is what this government is doing.

It’s very hard to believe anyone in his position could be inept enough to believe this.

The simple fact is that the UK is not a household as Clegg suggests, nor is it a company. It’s a country. A country that issues its own currency, in which it demands to be paid. No household can do that. So unlike a household it can’t go bust.

But more seriously, although a household can jettison costs and ignore the consequences to help it manage its debt because it does have fixed income in a currency over which it has no control, a country cannot do the same. Indeed, it must do the opposite.

A country, if it jettisons costs by sacking people still has to feed the people it has jettisoned. They don’t go away, like a child thrown out of home to cut the household bills does. People the state jettisons are still in the country, and without an industrial strategy and economic policy to provide them with work – something the LibDems won’t offer because they don’t believe in market interference – they still have to be fed by the state after they’ve been thrown out of its employ because there is no one else to take them on when the economy is operating at way below full employment levels, as now. Worse, because they aren’t working now they aren’t adding to national income or paying tax either now – so far from jettisoning the cost as Clegg suggest we can by making cuts we actually save nothing and cut our income at the same time, making things doubly worse.

His analogy utterly misses this point.

Put bluntly, it’s wrong.

And he’s either stupid to think it’s true. Or a blatant charlatan for suggesting he thinks it’s true when it isn’t.

Either way he’s not fit for office.

The top 10% income share in USA, 1917 – 2008

Economics 4 Responses »

Sep 202010

From the Real World World Economics review blog:

Sometimes a picture is very powerful.

The LibDems have form

ConDems, Politics 2 Responses »

Sep 202010

From Larry Elliott, today:

The fact that Clegg et al were so spectacularly wrong about the euro does not, of course, mean that they are necessarily wrong about the need to impose the deepest spending cuts since the 1920s. But they do have form.