I keep hearing calls for Plan B for the UK – that there is a need for an alternative economic strategy.
That is a strategy for growth.
A sgtraegy for jobs.
An energy strategy.
An industrial policy.
A tax policy.
A debt reduction policy.
A plan to get round the stranglehold of banks in our economy on financing new enterprise.
It’s a draft.
I will improve it. But it’s already on the table.
Now would anyone (serious) like to debate it?
No I’m not talking that one – which is heading for the Oscars. I’m talking About the speech that Mervyn King made in Newcastle on Monday, which I have so far not referred to for all sorts of good reasons.
In that speech he made the most extraordinary admission for a Governor of the Bank of England. He said:
The three factors I described – higher import and energy prices and taxes – have squeezed real take-home pay by around 12%. Average real take-home pay normally rises as productivity increases – money wages normally rise faster than prices. But the opposite was true last year, so real wages fell sharply. And given the rise in VAT and other price rises this year, real wages are likely to fall again. As a result, in 2011 real wages are likely to be no higher than they were in 2005. One has to go back to the 1920s to find a time when real wages fell over a period of six years.
And he also said that none of that inflation arose as a consequence of pressure from within the UK economy. It arose because of the necessary deflation in the value of our currency to help manage the banking crisis; it arose because of the increase in raw material prices, exacerbated by the fall in the value of our currency, and it arose because of government policy ( yes, in small part Labour’s, and exacerbated enormously now by the ConDems).
Despite this bank say there is no evidence of any need to their structure to be changed. But let us be totally and completely unambiguous about this. It was the failure of banking that caused this crisis. It was the failure of neoliberal economics that gave rise to that failure. Yes Labour bought into that economic policy, and I hope it has really realised its mistake. At leaast it shows signs of doing so – and that is to its credit. Osborne and cameron show no signs of that – they are still supporting the causes of failure.
And that’s the key difference.
And in the meantime families are paying the price.
And bankers’ don’t care.
And that’s the divide in our society we have to address.
And which will be addressed.
As the FT notes this morning:
Republican lawmakers are studying ways for states to go bankrupt, a move that could enable them to renegotiate their pensions, but one that will be met with fierce opposition in Congress and the financial markets
I have already drawn attention to the fact that a significant number of states and smaller jurisdictions in the US are close to bankruptcy and unable to meet their borrowing obligations within technically balanced budgets which they are, perversely, required to maintain in a pretence that in many ways defies belief.
Here we see the reason why some think this risk worthwhile: they can reduce future taxes and so increase the income and wealth disparities in the US by welching on state employees if they can let states go bust.
This is right wing justice for you.
How long before the same is suggested by someone like the Taxpayers’ Alliance here in the UK for local authority employees, NHS employees and more besides in the UK? Not long, I suspect.
Watch this space, and be prepared for action.
Nick Clegg admits that the threat of deep public spending cuts has had a “chilling psychological effect” on Britain but will insist in Davos on Thursday that the coalition will not abandon its tough fiscal position.
He misses the point of those cuts entirely in that case. Anatole Kaletsky described that purpose very well yesterday in The Times, but it has been conveniently reduced on Left Foot Forward so we can get round the paywall:
[The Government] hopes that people will be impressed by its determination to cut borrowing and therefore to reduce potential pressures on the public purse — so impressed that consumers will spend more, businesses will create more jobs and entrepreneurs will start new businesses, all based on the confidence that their future taxes will be lower than today.
“Why has the Government decided to bet the economy on this untested theory? Apart from the pure party politics of branding Labour’s policies as recklessly irresponsible,there is an interesting intellectual background to Mr Osborne’s faith that the confidence engendered by cuts will offset the depressing effects on demand predicted by Keynesian economics.
“This faith is based on a theory traced back to the works of David Ricardo, perhaps the most respected economic thinker of all time. In a paper written in 1820, Ricardo examined whether a government that went to war would be better off collecting £20 million in taxes or borrowing the same amount at an interest rate of 5 per cent or £1 million a year. “In point of economy, there is no real difference,” he concluded. “For £20 million in one payment and £1 million per annum for ever ‚Ķ are precisely of the same value.”
“This was seized on by conservative anti-Keynesian economists as Ricardo’s endorsement of their view that government borrowing was indistinguishable from taxation ‚Äî and therefore that cuts in borrowing would automatically boost private spending.
“This came to be known as Ricardian equivalence, but conservative economists failed to mention that Ricardo himself poured scorn on this simplistic idea, pointing out that it was based on unrealistic assumptions about human nature. Just after the passage about the theoretical equivalence of public borrowing and taxation, he added: “But the people who paid the taxes never so estimate them, and therefore do not manage their private affairs accordingly ‚Ķ It would be difficult to convince a man possessed of £20,000, or any other sum, that a perpetual payment of £50 per annum was equally burdensome with a single tax of £1,000.” In other words, Ricardo himself doubted the Ricardian equivalence on which the coalition’s entire economic policy depends. After yesterday’s figures Mr Osborne had better take note.”
In other words, Osborne thinks people are so excited by cuts because they think they are the equivalent if a decrease in tax, which means that they are the foundation of a future of greater personal prosperity (because, of course, personal prosperity is reduced by the actions of the satiate, always, in his book), that they will all be so happy (despite having no work, reduced income, and no benefits for those they know) that they will all go out and spend and drive the economy upwards. They’ll max out the credit card to day in anticipation of that future prosperity in other words. Even though the banks won’t lend to them, which is a minor side issue.
And Clegg on the other hand thinks the cuts have a chilling psychological impact that, I presume, means he thinks they are perceived as immensely burdensome.
Now one of them is right, and the other not.
Anyone with an ounce of common sense knows which it is – and for once it is Clegg.
But if he’s right he has to see that Osborne’s policy is wrong. Except his wit does not seem to stretch that far. In which case he’s as culpable, and as incompetent, as Osborne.
And as ITN’s economics editor said last night – “the world is watching this experiment with interest, glad they’re not those subjected to it”.
Well, I am a subject of that experiment. And I’ll tell you – the hypothesis was wrong and the outcome will be disastrous. Stop it now. Because the psychological impact on millions will be untold, and harmful. And for knowing that and doing nothing you’re doubly culpable Nick Clegg.
The FT reveals the complete hypocrisy of the UK’s banks a revealed in their submissions to the Banking Commission. As they note:
Britain’s biggest banks have hit back at threats to break them up, saying there is no evidence that a sweeping overhaul would make the financial system safer.
In lengthy submissions to the government-appointed Independent Commission on Banking, published on Wednesday, they set out their strongest arguments yet for keeping retail and investment banking operations under one roof.
I wonder, what evidence do we need of failure before action is needed?
They answer that themselves. They say the evidence is failure is evidenced by state act. As the FT notes:
Their ripostes were, however, met with equally firm calls from senior industry figures to split up Lloyds Banking Group and Royal Bank of Scotland.
Sir George Mathewson, former head of RBS, said the commission should think seriously about breaking up the partly nationalised bank by unwinding its takeover of NatWest – a deal he led in 2000.
In a personal response to Sir John Vickers, chairman of the commission, he also recommended reversing Lloyds’ purchase of HBOS. The combined group now provides a third of UK bank accounts and a quarter of small business loans.
“I believe that in the interests of competition the merger of HBOS and Lloyds was misconceived,” Sir George said.
Of course: all that went wrong, including the fact that they were bailed out at enormous cost to all in circumstances where if the bail out had not occurred we would, quite literally , have seen the failure of money in our economy and decent into social chaos; all that was the fault of the government who must now ensure that the banks that did not fall into state control must have their competitors reduced in size do that their monopoly profits might be increased.
Of course that’s the right course of action now. How silly of me not to realise.
Alternatively, Sky Sports has shown that there is an appropriate course of action to take towards those who make asinine comment: you dismiss them.
The same approach should be adopted towards these banks.
They, like sexist sports commentators, think they can utter whatever they wish because they have become so far removed from reality by the power they think they wield. And it is that perception of power on their part that represents the danger to others that they represent, and in itself it is the foundation of their undoing.
There is one answer for these banks – and it is to break them all up – with investment banking sent back where it belongs – to the market, without support from the state, underpinned by a demand from regulators for massive capital to prevent failure. Meanwhile plain vanilla banking needs to be just that. And the state will have to underpin it – I know – which is why it will be heavily regulated and taxed.
This is what we had until the dogmatic folly of Thatcher et al began to undermine society. We must have it agin.
The Jersey Evening Post has published the following article, and since it is an invitation to debate based on an interview I had with Andrew Sibcy on Tuesday I think it fair to repost it here:
The founder of the Tax Justice Network, Richard Murphy, is one of this Island’s harshest critics – or, to be more accurate, a regular, vociferous and dogged critic of the Island’s principal economic activity of offshore finance services.
Earlier this week he addressed Islanders at a meeting organised by the Jersey Democratic Alliance and the pressure group Time4Change. He did not, however, come here to harangue anyone or to launch a tirade of abuse. Unlike some who attack Jersey, he appears to be interested in genuine debate about the nature of offshore centres, though it is clear that the starting point of his argument is that such centres exercise a malign influence.
As a figure fuelling debate, Mr Murphy can, in fact, be seen as a counterweight to those who brook absolutely no criticism of the financial services sector. If the idea that all is rotten in the state of Jersey fails to stand up to scrutiny, the same can be said of the idea that every facet of finance activity is utterly beyond reproach.
To his credit, Mr Murphy came here with a template for change which he believes would not only remedy the deficiencies that he detects in our finance industry, but would also secure our economic future. In short, he has a ‚ÄòPlan B’ for Jersey.
The trouble is – at least from the point of view of those who insist that the Island is playing a tainted game – that there is a great deal of common ground between Mr Murphy’s Plan B and the Plan A that our industry and its regulators are already following.
The Murphy line is that Jersey can become a beacon of probity by encouraging honesty, accountability and transparency. On the understanding that reputation is everything, the political and regulatory drive of recent years has been in the direction of openness and the exchange of tax information with other jurisdictions.
The Tax Justice Network still judges the Island harshly, but time and again external authorities have examined what our industry and its regulators do and how they do it, only to conclude that we are, to use an expression much loved by finance specialists, ‚Äòbest of breed’.
Mr Murphy might argue that best is still not good enough and that the very basics of offshore business are fatally flawed, but does he really believe that the ideal, pristine conditions that he envisages will ever be a practical possibility in this imperfect world?
There are some minor issues in the article: I am, for example, one of the founders of the Tax Justice Network; there is collective responsibility for that shared amongst a small group of us.
And I would argue that there is less common ground at present than the artucle implies.
But it is quite true I cam to offer the chance of debate. And of evolution, and not revolution, becasue the latter is noit and will never be ny style.
And yes, I am offering debate. I do so having a vision of where I think a market opportunity exists, when I think there is little real prospect for much longer for what Jersey has to offer – at least when sold from Jersey.
I made clear, this is a plan. Plans take time to implement. Reform will be in stages. But it can only begin when there is recognition of an issue needing to be addressed.
I am quite sure that this exists. How about taking that as the starting point for discussion?
What’s the agenda:
a) How will Jersey raise revenue?
b) How will it tax corporations?
c) Why is it holding out on zero / ten?
d) When will Jersey cooperate on the European Union Savings Tax Directive as the Isle of Man and Guernsey are? And when will Jersey endorse the new European Union Savings Tax Directive – which is solely designed to keep away the tax evaded funds it says it does not want but for which, by refusing to endorse the Directive, it provides facility?
e) The Foot review demanded greater transparency on corporations and trusts from the British territories. When is that going to happen? When will, for example, accounts be on public record?
Lets start there, shall we?
As part of a newly announced government plan to tackle corruption, crime, and illicit capital flight, the government of India has joined the Task Force on Financial Integrity and Economic Development’s Partnership Panel. Task Force Partnership Panel members also include the governments of Chile, Denmark, France, Germany, Greece, the Netherlands, Norway, and Spain, the Canadian International Development Agency, and the Ford Foundation.
Tax Research LLP is a full member of the Task Force on Financial Integrity and Economic Development along with Christian Aid, Global Financial Integrity, Tax Justice Network, Global Witness, EuroDad, Transparency International and Secretariat of the Leading Group on Innovative Financing for Development.
In a recent report, “Illicit Financial Flows from Developing Countries: 2000-2009,” lead Task Force member Global Financial Integrity (GFI) ranked India’s illicit outflows as the 15th largest among developing countries: approximately $104 billion, cumulative, from 2000-2008. Another report from GFI, “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008,” estimated that India lost a total of $462 billion from 1948 to 2008.
A press release issued Tuesday morning by India’s Ministry of Finance stated:
The Government has formulated a five pronged strategy which consists of joining the global crusade against ‚Äòblack money’; creating an appropriate legislative framework; setting up institutions for dealing with illicit funds; developing systems for implementation and imparting skills to the manpower for effective action‚Ķ
India has joined the Task Force on Financial Integrity and Economic Development in order to bring greater transparency and accountability in the financial system.
The Task Force advocates five recommendations for addressing the current global financial crisis, each one focusing on transparency and extending initiatives that have already begun to be put into place:
I’m delighted that India has recognised the importance of our work and the impact it might have on development by securing for that country the resources it needs to deliver the services its people need – services they are currently denied by tax avoidance and tax evasion through tax haven locations.
I’ve supported the campaign to put an end to legal loan sharking – where door step lenders give small cash loans at rates of interest in the hundreds and sometimes thousands of percent calculated in apr terms – for a long time.
It’s good to note in that case that on 3 February, the House of Commons will vote on whether to support the introduction of a series of caps on the amount that payday and home credit lenders can charge for credit.
The motion has gained widespread cross-party support from MPs who recognise that the Government has a duty to intervene in the high-cost credit market, which is uncompetitive and often exploitative.
If enough MPs turn up on 3 February and vote for the motion, it will send a clear message to the Government that they need to act. You can take action ti support this. Pleas do so by clicking here and help stop this shady end of the banking world.
From the Indian Business Standard:
Liechtenstein has declined help in India’s quest to trace suspected black money stashed in the small but rich European country bordering Switzerland, citing absence of a bilateral treaty for such information exchange.
The Indian government is facing intense pressure from the Opposition parties as well as the Supreme Court to take action against those who have stashed illicit wealth in foreign banks, mainly in Switzerland and other countries like Liechtenstein and Cayman Islands.
A Liechtenstein government spokesperson confirmed that India had sought administrative assistance and details of some Indian clients of LGT Bank located there.
“At the moment, we cannot reply to the content of the request (from India) since there is no legal basis, that is, no bilateral agreement for this,” the spokesperson said.
The spokesperson, however, said the Liechtenstein government had offered to negotiate a tax treaty with India, which would facilitate information exchange in future about suspected tax evaders and offenders of other financial crimes.
This issue has risen to prominence in India because of the extraordinary work of my friends at Task Force on Financial Integrity and Economic Development, who are fellow members of the Task Force on Financial Integrity and Economic Development.
But note what happens: there is a refusal to co-operate, and when and if an agreement is reached the impact will, of course, not be backdated.
Tax havens don’t change their spots. They’re there to help tax evaders. And that’s what they’re still doing. All from behind the veil of secrecy that they deliberately create for the purpose.
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