2010 November » Tax Research UK

Why Lord Young had to go – he was telling the truth

Nov 222010

I like this take on Lord Young’s resignation:

Lord Young of Graffham had no choice but to stand down as David Cameron’s ‘enterprise tsar’ having seriously embarrassed the Tory party by claiming that most people in Britain had "never had it so good" since the "so-called recession" began.

But while I’m no great fan of Young’s politics, I must admit to feeling a little sorry for the bow-tied, multi-millionaire Thatcherite politician. After all, from his perspective, he was telling the truth.

The reality is that there is a chunk of British society that has never had it so good.

Cameron’s enterprise tsar exposed the inconvenient truth that a huge divide ahs opened up in Britain.

That divide has been deliberately created. And Cameron wants the lid kept on it.

If you want proof that comparative advantage does not work

Economics 10 Responses »

Nov 222010

In 1819 David Ricardo promoted the idea of comparative advantage in trade.

He used this example (which I have borrowed from Wikipedia in this form):

In Portugal it is possible to produce both wine and cloth with less labour than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other.

But, as ever there were implicit assumptions that led to this conclusion, most of which have been ignored ever since. One was that labour was immobile, and by and large that is still true. The second was that capital was immobile. Continue reading »

More evidence that Channel Islands’ tax abuse undermines UK business

Guernsey, Jersey, VAT 13 Responses »

Nov 222010

Yet more evidence that the Channel Islands’ VAT abuse is having serious impact on UK small business has turned up on this blog:

I think the abuse from companies trading from the channel islands is a much larger problem than the general population realise.

With e-commerce competing with every high street within the UK, ignorance to resolve this problem is drastically effecting the economy on a large scale. Not only are the govt losing millions in tax revenue, but it prevents a barrier for entrepreneurship. New small businesses can’t compete with a 20% difference in price to stores just a click away from the same customer pool. Even the larger businesses with deep pockets have had to set up on the channel islands such as Sainsbury’s to compete, which will only broaden the gap.

Unless this problem is addressed sooner rather than later, small retailers based in mainland UK will close at an alarming rate, or new businesses will seek to open from abroad. Either way the UK will continue to lose tax revenue and as a result increase taxes will occur elsewhere as well as further cuts. I hope that something is done about this sooner rather than later.

Quite so.

Yet more evidence that those opposing this abuse are the true friends of fair trade.

Why aren’t the Taxpayer’s Alliance interested in activity that undermines competition?

Economics, Guernsey, Jersey, Tax avoidance, Tax Payers Alliance, VAT 1 Response »

Nov 222010

The Tax Justice Network has a blog highlighting the abuse caused by the Channel Island’s VAT abuse. As they say:

Today, bang on cue, TJN was contacted by a retailer in England’s west country. She opened her business twenty years ago. It thrived for the first 15 years. Now she will be closing the shop in February 2011 and laying off her three staff. She places the blame for this closure entirely on the VAT loopholes, saying that "the imminent rise in the VAT rate from 17.5 to 20 percent was the straw that broke the camel’s back. Her shop was in a town which suffers from high unemployment and few amenities for young and old. Its closure will be another step towards Clone Town Britain.

This is the reality of unfair tax competition. And as they note:

As a postscript its worth noting that the west country retailer who approached Tax Justice Network this weekend told us she had originally contacted the Tax Payer’s Alliance, but quickly realised they aren’t interested in tax avoidance and market distorting practices. This VAT scam is costing the UK exchequer hundreds of millions of lost revenue, but that doesn’t seem to be a matter of concern to the TPA. We can’t help wondering why not…

I can explain that. Just as Jersey Finance has no interest in competition, real business, entrepreneurial activity, investment in jobs or the making of real profits, nor has the Taxpayer’s Alliance. They, Jersey and Guernsey are all after one thing: a quick, exploited buck.

The truth is that, as I wrote not long ago, tax justice is the best friend free markets have.

The Irish opportunity for country-by-country reporting

Country-by-country, Ireland 1 Response »

Nov 222010

Ireland has, in all but name, gone bust.

Contagion – to UK and German banks and through the capital markets to Portugal, Spain and even Italy – may be contained as a result. The price is high. 80 billion Euros is no small sum, and there’s no guarantee it will be recovered. But is contagion is prevented that is a price worth paying.

Contagion though was not the sole issue of concern, and nor should it be if the problem is now contained. It’s fair to say that there are at least three others, and maybe more.

The first is that the risk to a nation state from hosting corporations that trade well beyond their means is now readily apparent. And Ireland is not alone in this regard. The UK remains at significant risk in this respect. The case for country-by-country reporting is made stronger by the day a a result. The International Accounting Standards Board argument that the only people with interest in the accounts of commercial entities are the direct providers of capital is wholly untenable when it is clear that the supplies of contingent capital are whole populations of countries and they have no data whatsoever provided for their use on the country specific risks they face. Continue reading »

Channel Islands’ VAT abuse could be stopped – and sport could be saved

ConDems, Guernsey, Jersey, Tax avoidance, VAT 17 Responses »

Nov 222010

The VAT abuse promoted by the Channel Islands and undertaken by the likes of Tesco, HMV, ASDA and Sainsburys is costing the UK more than the entire UK school sport budget.

We know school sport is now under threat.

But it should be the VAT abuse that is threatened. And it could be. Note this letter from the FT on Saturday:

From Mr Alan Mackie.

Sir, I recently had occasion to buy a set of CDs from the US. The total value of the order was £38.13. When I received notice of their arrival I was told there was £14.80 to pay for value added tax and handling charges.

I subsequently discovered that while HM Revenue & Customs allows in orders of £18 or less free of tax, anything more is charged the full VAT and, for good measure, the Post Office slaps on an £8 handling fee.

This creates an extraordinary anomaly where an order worth £18.50 ends up attracting a charge of £11.30 (charges it seems are rounded up) and costing nearly two-thirds more than if it had been 50p less.

Alan Mackie,

London SW8, UK

£11.30 in charges on every packet from the Channel Islands would stop this abuse overnight. The VAT would be paid. School sport would be saved.

Bono – where are you now?

Ireland Comments Off

Nov 222010

As I have mentioned here, more than once, over the last few years, somewhat I gather to his chagrin, Bono famously fled Ireland’s corporate tax regime in 2006 when the 12.5% rate proved too high for him and he shifted to the 5% regime of the Netherlands.

Now Ireland is being bailed out.

Will Bono play his part?

Will one of Ireland’s biggest exports choose to support his home state, or continue to tax avoid – however legally? Isn’t this a time when he has to ask the big questions, like whether it’s time to share the pain?

Come on Bono – tell us what you’re going to do. Issue a statement, today.

NB having written this I noticed this here on the TJN site

What has caused this Irish miracle, and how can we in Britain emulate it?

Conservatives, Ireland 11 Responses »

Nov 222010

Who said that?

Why, George Osborne, in 2006.

He was wrong then.

And it looks like he’s learned nothing since.

There is an easy way to finance sport in UK schools

Uncategorized 6 Responses »

Nov 212010

Michael Gove is planning, for all practical purposes,to end sport in UK schools. As the Observer notes:

A battle is raging at the heart of government over a decision by the education secretary, Michael Gove, to slash £162m of sports funding in English schools as the country prepares for the 2012 Olympics and bids for the 2018 World Cup.

So for the sake of £162 million all but the richest children in the UK are to be denied access to competitive sport. But let’s ignore the political incompetence in Gove’s plan and instead ponder the alternatives he might have considered.

Take for example the blog I have just posted about the VAT abuse that the Channel Islands of Jersey and Guernsey promote. When this loss to the UK from this abuse was last estimated it amounted to £110 million a year. Those with any degree of familiarity with this issue think this a massive underestimate. As the Observer noted today:

Two years ago the Treasury said lost VAT receipts from this trade were costing the taxpayer £110m a year and rising, though industry insiders suspect the figure is much larger. With VAT set to rise from 17.5% to 20% in the new year, the Channel Islands tax dodge is expected to balloon further.

In the three months to Christmas last year, one in three CDs were bought over the internet, according to market research firm Kantar. Almost all were bought for £18 or less.

Given this abusive market now extends to most computer memory sales, many car parts and a great many other products I am sure the loss far exceeds that outdated estimate. I have little doubt that the loss with regard to DVD sales alone exceeds the £162 million that is needed to maintain sport in UK schools.

Over recent years we have seen so many supermarket campaigns supposedly supporting schools. Now those who really want to maintain a core part of our curriculum know who to complain to – those very same supermarkets. If they stopped their VAT avoidance through the Channel Islands the funds to pay for school sport would be available.

If people want to take action to preserve sport in school they know who to complain to. They’re named in the Observer. Start with Tesco, Asda and Sainsbury. Start letter writing, ask to speak to the manager, or whatever you think appropriate. But please do it now.