2010 October » Tax Research UK

Why we’re all doomed by Osborne

Oct 242010

The following was commissioned for publication elsewhere today. It missed its intended audience of a couple of million or so, but what the heck? Here it is anyway:

“George Osborne has delivered the biggest single shock to the well-being of this country since the onset of the Second World War.

There’s a big difference though. That war was necessary. We were genuinely all in it together. What Osborne has done is absolutely unnecessary. Worse still, as the Institute for Fiscal Studies has already shown, Osborne has designed his cuts to make sure that those with the narrowest shoulders bear the biggest part of the burden – which is exactly the opposite of what he told the House of Commons.

I’m not surprised by any of this. Osborne is an ideologue. He started his shadow chancellorship flirting with flat taxes. That’s a system designed to eliminate all higher rate taxes – paid by the rich – altogether. And I well remember once being told by his team that Ireland, in attracting companies like Google to its shores – even though they pay little or no tax there, was the example the UK should copy. Well, Ireland is now in complete economic meltdown and it looks to me as if George is trying to copy them after all.

The outcome of his cuts will be like the outcome of the Irish cuts. There won’t be a massive boost to the economy. There won’t be a cut in the deficit. There won’t be easier times ahead. There will just be an economy that heads into terminal decline with companies and people trying to get out as fast as they can.

It’s easy to explain why. No one, whether they are a household, a company or a country can repay their debt by cutting their income. And that is what George Osborne is really doing. By slashing government spending, by making half a million people in the public sector and as many again in the private sector redundant, he might be claiming to cut government cost but what he is actually doing is something much more sinister and dangerous. What he is doing is deliberately sucking demand out of our economy.

Those one million people won’t be spending much any more. And that means other private sector jobs will be lost as well – because businesses won’t be selling as much. And in turn that mean business won’t be investing either because why invest when no one is going to buy what you’ve got to sell? So there will be no investment and so no new jobs. The result is obvious. We’ll not have 490,000 people without work – I estimate we might have 1.6 million people out of work as a result of what George Osborne has done.

That is 1.6 million people won’t be paying tax any more. But they will be claiming benefits. Even if they are the new, reduced ones. So far from saving money, George Osborne’s so-called cuts will actually increase spending whilst massively reducing his tax income. The consequence is obvious. The deficit will go up, not down.

This is the real likely outcome of what Osborne has done. But because he does not understand some pretty basic economics he is slashing the services we all need, and is in doing so denying himself the money he needs to clear the deficit that the banks – not Labour – created. That’s about as close to an economic suicide note as you get.

But the one thing you can be sure of is that George won’t suffer as a result. He is safe and secure, as are his chums in the Cabinet and in the City of London. He knows that. And he wasn’t going to risk changing that comfortable position. That’s why he has instead imposed his cuts on ordinary families, on children, on women – because many more of them will be made redundant within the state sector than men, on the elderly who won’t get the healthcare they require because the NHS won’t have the money it needs for our growing number of old people, on the vulnerable, the disabled, and those who can’t work through no fault of their own.

For these people Osborne is not just delivering an economic disaster – he’s delivering a personal disaster too. For these people depression won’t be just economic – it may well be medical. But as my wife – a GP – says, depression is almost always a sign that something is wrong and that there is a need for change. Depression is caused by anger about that thing that is wrong turned inwards. And it can only be resolved by letting that anger out. In which case now is the time to begin shouting about your disgust, to tell the world you’re angry. The answer it to start protesting about what’s happening – peaceably – now in any way you can. Because otherwise we’re all doomed – unless you’re very rich. “

Vodafone’s tax case leaves a sour taste

Tax gap 7 Responses »

Oct 232010

This was on Comment is Free, by me, late yesterday afternoon:

There’s a flurry of tweets and a petition currently making rounds on the internet asking Vodafone to pay its taxes. That’s the £4.8bn of tax that HM Revenue & Customs boss Dave Hartnett allegedly let Vodafone forgo when settling a longstanding tax dispute with the company. The dispute started in 2000, when Vodafone acquired German engineering company and mobile phone operator Mannesmann, in what was at the time the biggest takeover ever.

The details of this case are complex. Not all, of course, are in the public domain. Whether or not £6bn of tax was in total owed or not will never really be known. But what seems much more likely is that Vodafone had expected to pay much more than the £1.2bn it will finally settle. Reports suggest that they had put aside at least £2.2bn to cover the payment and they must, as a result, be laughing all the way to the bank.

I do, however, have sorry news for those who want Vodafone to pay up: if HMRC have really settled the case then the matter is done and dusted, and the opportunity to charge will have gone. This does not change the fact that this affair leaves a sour taste in the mouth, not least because days after it was announced, George Osborne was promoting Vodafone in India – a visit that must have been agreed before the tax announcement was made on 23 July. Of course, the coincidental timing may just be fortuitous and no one is suggesting Vodafone has done anything wrong, but the impression given is that HMRC rushed a deal through before the Indian visit.

If they did, that seems consistent with what many see as the "business friendly" and even "tax-haven friendly" attitude that seems to pervade our tax authority, especially faced with companies who openly admit they seek to minimise tax in any way they can – as Vodafone does when it says: "The maximisation of shareholder value will generally involve the minimisation of taxation."

But is that something HMRC and our treasury should accept? I have estimated UK companies avoid at least £12bn in tax a year – in no small part, I am quite sure, by the use of tax haven operations, which is widespread. When I and others surveyed the FTSE 100 companies last year, we found that only 33 published a list of where all their subsidiary companies are – although it is a legal requirement for all of them to do so. And without exception, those who did report had tax haven subsidiaries – using the definition established by the Tax Justice Network – with an average of 79 each.

This suggests something worrying. There seems to be a widespread dedication to using these places – so many of which are, after all, UK crown dependencies or overseas territories – for massive economic advantage. And we’re losing as a result. Is that appropriate at a time when we’re all supposed to be "in this together"? And is this honest, at a time when large companies are currently the only part of the UK economy enjoying the prospect of tax cuts?

These big companies’ tax rate will fall from 28% to 24% over the next four years – a move that seems generous, but quickly becomes ludicrous when it is appreciated that the effective tax rate of the largest companies in the UK is now 21%. This means that over the next four years, it is likely that their effective tax rate (that is, the rate they really pay) will fall to 17%. That’s a lower tax rate than small companies will pay. It’s lower than our VAT rate will be. It’s also lower than our basic rate of income tax.

Is this tax justice? Is this "fairness"? Angry people, upset by the prospect of cuts for the poor and vulnerable in society, are rightly asking this question of what seems like a bastion of corporate privilege – the right not to pay the tax that the state should expect seems to be just that. If Osborne and his colleagues are to be credible, and if they are to persuade us the burden of tax is being shared fairly, then they have to tackle tax avoidance. This must be evidenced by scrapping all cuts at HMRC so the missing money is collected. And they must show us that they aren’t giving favours to big business while denying the same ones to small UK companies and the rest of us alike.

As of right now, they’re failing miserably to send out those messages. No wonder people are angry. They’ve got a right to be so.

For links see the original article.

Jersey delivers on our promise

Jersey Comments Off

Oct 222010

Several years ago when Jersey introduced it’s Goods and Services Tax John Christensen of the Tax Justice Network and I speculated on the rate that the tax would rise to over the following 10 years or so.

We were, of course, told that the 3% rate at which it was introduced would be fixed for good. And we, very politely, did not believe those who told us that.

We were right, of course. The rate has been increased to 5% today.

And Jersey has also claimed that it can cut its budget by more than 10% in the coming year. There is not a hope that it will deliver on that promise. In which case, expect GST to rise steadily. I think my forecast was 12%. But John may correct me if I’m wrong.

Either way, as usual, Jersey is delivering on our promise

Half term

Blogging 7 Responses »

Oct 222010

Next week is half term.

And my turn to be principle child carer.

So activity will be below par here next week.

And comments will not be moderated that often. So please don’t start shouting, as some do.

In addition my tolerance of the comments that add little or nothing to debate (and that’s rather a lot of those that seek to oppose my views, I suggest) will be even lower than usual. take note therefore, unless you’ve got something to add, please don’t bother to comment because you’re likely to be deleted. And saying you disagree is not adding to debate, it’s just the creation of noise.

This is the man

Accounting, Country-by-country, Development, PWC 1 Response »

Oct 222010

The International Development Committee of the House of Commons is holding a meeting next week. On its agenda is, as they note in a press release that I cannot find on the web:

a pre-appointment hearing on Tuesday 26 October, examining the professional competence and personal independence of the Government’s preferred candidate for the post of Chief Commissioner of the Independent Commission for Aid Impact (ICAI), Graham Ward.

Graham Ward is a former World Utilities Leader of the PricewaterhouseCoopers (PwC) network of firms, a former President of the Institute of Chartered Accountants in England and Wales (ICAEW) and a former President of the International Federation of Accountants (IFAC). He retired from the PwC partnership on 31 January 2010.

Graham Ward’s cv in Debretts is here. Note he is a member of “Soc of Cons Accountants” which I think we can safely assume is the society of Conservative accountants, which seems to blow apart his personal independence,but this is the least of my concerns about this appointment.

This is a man who has gone out of his way to promote International Financial Reporting Standards, which are widely acknowledged to have helped precipitate the current financial crisis.

This is a man who helped promote new international auditing standards which debased the audit so that it no longer represented the expression of opinion on the true and fair view shown by a set of accounts ,but became a simple checklist on compliance with the disclosure requirements of IFRS.

This is a man whose firm audited Northern Rock.

This is a man whose firm audited Granite, the shadow bank of Northern Rock; a shadow that was owned by a trust set up for the benefit of a children’s charity in the north-east of England that had no knowledge of the abuse of its name for that purpose.

This is a man whose firm promotes deregulation whenever it can.

This is a man whose firm promotes indirect rather than direct taxation in developing countries, so the poor pay most.

This is a man whose firm is present in every single major tax haven in the world,even though it has been shown that tax havensare fundamental in undermining development.

This is a man whose firm sells vast quantities of tax avoidance advice – advice designed to undermine the income stream of governmentswhen that income is essential to the delivery of effective international development support and the delivery of healthcare, education and other services in developing countries.

This is a man whose firm promotes what they call the “total tax contribution” – a bogus accounting concept that adds up all the payments that a company makes to a tax authority,whether on its own behalf or on behalf of others when acting as agent, and then uses the utterly meaningless resulting number as the basis for a demand for the reduction of its corporate tax burden.

This is a man whose firm opposes country by country reporting even though the vast majority of the major development agencies in the world now supported because they believe it good help monitor transfer pricing abuse,illicit financial flows,and could help developing countries collect the taxes that they are owed.

And for all these reasons,I’m sorry to say that I do not think that this is a man who is due to hold the position for which is being considered.

Know your enemy

Accounting, Tax gap 8 Responses »

Oct 222010

The Daily Telegraph is among the papers reporting doubts in the accounting profession about the attack on tax evasion being promoted by HM Revenue and Customs as their counterbalance to cuts. As they note:

Stephen Herring, senior tax partner at accountants BDO, said: “Every Chancellor says they will clamp down on tax evasion, but they always find it more difficult than they thought.

“Everyone wants to stop people from hiding their income in offshore accounts and it is right and proper that they devote resources to that and there has been some success.

“But the revenue is sometimes using the word avoidance to apply to any tax planning that is not in writing. This cannot be the case and the revenue needs to be very careful. It cannot stop businesses and individuals planning their tax affairs or they will move their investments to other countries.”

Similar comments are reported from KPMG and Baker Tilly.

I deeply resent being a member of a profession that says this sort of thing: that implies that of course tax evaders should be pursued but if we push them too hard people will leave the country. And anyway, they imply, it is the Revenue’s job to leave smart accountants alone.

I would remind a profession that the National audit office recently noted that the tax returns of those who used accountants were more likely to include mistakes than the tax returns of those who did not.

And I would remind the profession that whenthe biggest firms of accountants are be found in every tax haven in the world it is entirely appropriate that scrutiny be turned on them. They are only there to sell tax avoidance services. They can claim for ever that they are legitimate,but that is only proven when a tax authority has had the opportunity to appraisethe schemes that are being put in place.As a consequence of the secrecy in many of these jurisdictions that is not always possible.

I’m sorry to say it, but the profession has a long way to go before it can criticise the activities of the Revenue in chasing tax evasion. When, and if, the profession is seen to be promoting tax compliance then they can criticise the actions of the Revenue. Until thenthe Revenue should rightly consider the profession to be the enemy, because to put it bluntly, in far too many cases they are.

What a surprise: we’re not all in this together

ConDems Comments Off

Oct 212010

The Guardian has just reported:

George Osborne’s claims that his spending cuts are fair have begun to unravel after the country’s leading tax and spend thinktank revealed the poorest will be hit harder than the better off.

In its analysis of the chancellor’s spending review, the Institute for Fiscal Studies described the public spending cuts as the deepest since the second world war and said welfare benefits would suffer the biggest squeeze since the 1970s.

As some of us have said consistently.

So much for “we’re all in this together”.

That’s not true. George Osborne never intended it to be true. Nick Clegg never intended it to be true. It is not true. And that’s exactly what they wanted to happen.

As the IFS said:

"The tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures announced yesterday this is, unsurprisingly, reinforced.

"Our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way."

"Overall families with children seem to be the biggest losers."

And they added:

While the Treasury had claimed the overall package was "progressive" – as a result of measures previously announced by former chancellor Alistair Darling – it had ignored a third of the welfare changes.

I suspect you can guess the words that come to mind: it would not be parliamentary to use them.

The bank levy: surely this is targeting the wrong thing?

Banking, Transaction Taxes 21 Responses »

Oct 212010

The government has published legislation for the new thank you levy.

They say it will raise £2.5 billion a year – curiously, a figure lower than that raised by the bank bonus tax that Labour charged, although George Osborne said to the contrary in the House of Commons yesterday.

But of all,this is a pathetically small sum to levy upon the banks when they have £19 billion of tax losses to offset against their future tax bills, as I’ve shown.

Secondly, I am worried that this is an inappropriate tax. I know it is only targeted on certain parts of the balance sheet, but surely the risk is not within the balance sheet, it is within the trades that take place during the course of the year. Tackling the balance sheet will simply reduce a bank’s capacity to pay, how ever we look at it. Charging a tax on inappropriate trades discourages the specific trades. That has to be the right course of action. In that case we clearly need a financial transaction tax – or a Tobin tax or Robin Hood tax, whichever name you wish to apply to it.

As usual,this government has got things wrong.