2011 June » Tax Research UK

Doctors vote for industrial action for first time in 36 years

Jun 302011

Doctors have voted overwhelmingly to ballot the profession on industrial action to protest against the coalition’s plans to overhaul the NHS pension scheme.

Delegates at the British Medical Association’s annual conference in Cardiff voted by 87% to 13% in favour of a motion that will see the union seek the views of its 140,000 members about “all forms of industrial action”.

The vote means the first industrial action by doctors since 1975 is now a very real possibility, given that ministers show no sign of backing down in their determination to push through major changes to NHS staff pensions.

Utterly reasonable people have as a result made clear they do not trust this government or its motives.

Quite right too.

They don’t trust it on NHS reforms.

They don’t trsut it on privatisation.

They don’t trsut it to protect patients and services.

And they don’t trust it on pensions.

I look forward to supporting my wife on the picket line as she’s a GP.

Controlled foreign company reform – a new way for the Tories to pass wealth to the rich

Conservatives, Tax avoidance, Tax Havens 1 Response »

Jun 302011

The Treasury has announced the next stage in the reform of the UK’s controlled foreign company legislation today.

I have said most of what needs to be said about this here, for the TUC.

There are three planks to this policy:

a) Cutting the tax rate of UK companies

b) Cutting the tax base of UK companies i.e. reducing the amount of profit on which they pay tax.

c) Increasing the use of tax havens by UK companies.

The result is that this policy is designed to pass wealth to the richest in our community at cost to the poorest.

What else is there to say? Introducing a policy that gives away £840 million a year to large companies and calling it a measure to cut tax avoidance seems to me the most Orwellian form of double speak I can think of. My three part analysis above tells it as it really is.

A possible ministerial code of conduct to perceptions of prevent conflicts of interest on taxation

Ethics, HMRC, Tax management Comments Off

Jun 302011

I have mentioned the fact that I was in exchange with Conservative MPs at yesterday’s hearing of the Treasury Select Committee.

Such was the time they spent questioning me we did not have time to discuss what might be done about the risk of perception of conflicts of intrest on the part of treasury ministers on tax matters. As a result I sent the following letter to the chair of the Committee in question this afternoon (who I do know, hence the slight note of familiarity):

George Mudie MP

The House of Commons

London

SW1A 0AA

30 June 2011

Dear George

Treasury Sub-Committee inquiry into the administration and effectiveness of HMRC

Follow yesterday’s hearing of the above committee and the evidence I gave I would like to follow up on one point that was discussed.

As you will recall, some members of the Committee appeared surprise at the comments I made about the unfortunate coincidence in timing between the announcement of a settlement of Vodafone’s long running dispute with H M Revenue & Customs, the fact that the settlement was for approximately £1 billion less than the sum provided for such settlement by the company in its accounts, the fact that the settlement appeared unusual in the way it was managed according to reports made by other parties in the media and George Osborne’s subsequent visit, little more than a week later, to India during the course of which according to other third party reports he intervened on Vodafone’s behalf in its tax dispute with the Indian government.

I in turn was surprised to the reaction to my observation, which as I hope I made amply clear, did not imply impropriety on any part but did suggest that communication on this issue had not been as well managed as might have been possible and that as a consequence there was risk that the reputation of the UK’s tax system for impartial, apolitical and equitable treatment of all tax payers had been put at risk, whether correctly or not. I consider that risk to be unfortunate, to say the least.

Due to the intensity and duration of the questioning of me on this issue we did not have time to discuss what might be done to prevent repetition of what I consider to be an unfortunate episode and I am writing now to make the suggestion I might have made if that time had been available.

It seems to me that as a principle of good governance for the tax system of the UK a very clear code of conduct for those who hold ministerial appointment as well as those who might be considered for ministerial office within the Treasury is essential if damage to the reputation of the tax system through repetition of such an incident is to be avoided. I would suggest that the necessary code of conduct might be as follows:

No Treasury minister shall at any time be seen to engage with or be seen to endorse the activities of any company that has a taxation dispute outstanding with H M Revenue & Customs that might with reasonable probability in the opinion of H M Revenue & Customs result in litigation, with that authority having the responsibility of advising the Treasury of the identity of such companies without in any way disclosing the details of the matters under dispute
No person shall be appointed to a ministerial post if they shall within the period of two years before appointment to that office have received funding from any company that has a taxation dispute outstanding with H M Revenue & Customs that might with reasonable probability in the opinion of H M Revenue & Customs result in litigation, with that authority having the responsibility of advising the Treasury of the identity of such companies without in any way disclosing the details of the matters under dispute. Funding for these purposes shall include the payment of a salary or payment for advice as well as the funding of the potential appointees political campaigning, either directly or indirectly through the offices of the Party that they represent, and whether paid directly to them or provided indirectly through the provision of services for his or her office.
Ministers shall not be seen to engage in the taxation affairs of a company in a jurisdiction other than the United Kingdom for fear that it shall be presumed that they might take the same interest in its affairs within the United Kingdom
No person who is engaged by any company that has a taxation dispute outstanding with H M Revenue & Customs that might with reasonable probability in the opinion of H M Revenue & Customs result in litigation, with that authority having the responsibility of advising the Treasury of the identity of such companies without in any way disclosing the details of the matters under dispute, be appointed to advise any treasury minister on any matter relating to any aspect of taxation.

I think that if such a code had been followed some of the unfortunate consequences of this matter, innocent as each individual party might have thought their actions to be, could have been avoided and that would have been to the considerable advantage of the reputation of the UK’s taxation system for even-handed impartiality. As such I hope the committee might give consideration to this suggestion that would enhance, in my opinion, the effectiveness of H M Revenue & Customs.

Yours sincerely

I’m not confident that the matter will be addressed, bit something has to prevent George Osborne making serious errors of judgement again.

Vodafone’s tax bill in India may double

Conservatives, Uncategorized 2 Responses »

Jun 302011

I have no comment to make on this news.

None at all.

Well, except don’t ask George Osborne to be your advocate.

Why are the Tories so keen to protect Osborne?

Conservatives, HMRC, Tax management, Uncategorized 13 Responses »

Jun 302011

I couldn’t have imagined how sensitive the Tories are about George Osborne and how keen they are to protect him.

I made what I thought was a perfectly clear point before the Treasury Select Committee yesterday when I said that the timing of the announcement of the Vodafone tax deal almost a year ago just a week before Osborne went to India, during the course of which visit he both promoted the company and reportedly intervened on its behalf with regard to its Indian tax affairs, was unfortunate when that settlement was £1 billion less than the company had provided in its accounts , especially in the light of questions raised about the way in which the deal was reached raised by others in the media, and not me, and the Tory members on the committee went ballistic.

As I made clear, I was not suggesting impropriety by anyone. I was not suggesting Osborne intervened in this case. I was not suggesting Vodafone got anything but a good deal (and come on, let’s be realistic if you’d been asked to pay about £1 billion less than you expected then I think you might think you’d got a good deal) and I wasn’t suggesting anyone in HMRC had acted incorrectly, although questions about why some of this tax was paid in instalments and without interest apparently being due were again fair questions for the committee to ask – but not to me because I can’t explain them.

What I was saying was that in combination all those facts gave rise to doubt in some people’s minds about whether the UK’s tax system was being managed equitably, and if that had happened then it was bad news for the prospects of upholding the reputation of the Revenue in applying tax law impartially in the UK.

I think that fair: things can all be done properly and still smell wrong – and if there is risk of that then special care is needed to ensure that matters are approrpiately handled. If that wasn’t done in this case that was an error – but a political and a management error (and I was not saying anything else) and candidly it was one that reasonably competent people should have been able to predict and avoid.

And yes, as I said, the whole issue is not helped by the fact that far too much attention is given to the unusual and distinct role of Dave Hartnett in both the management of this deal (if others reports are to be believed) and the Revenue in general and that is because of two things. First there are far too few people on the HMRC board who really know about tax and who have worked in HMRC. That leads to far too much reliance on Hartnett. And second, candidly, the role of the HMRC non-execs is far from clear and their capacity to infleunce for the good is unknown, and that needs to change.

None of that seemed to placate the Tories, although Labour and Lib Dems seemed pretty unflustered by all this.

So why are the Tories so keen to protect their man given the relatively modest nature of the suggestion made – which has certainly made by others before now? Why are they so sensitive? I don’t know.

But I do know that the reaction seemed like overkill.

NB 1 : For the record – when I was asked if I thought Vodafone had paid the right tax I said ‘I don’t know’. That’s because I don’t. Not because I think they did pay the right tax. I don’t know because I was not party to the information that led others to say a higher sum may have been due – although I presume that they said that in good faith. But ‘don’t know’ in this case means ‘I don’t know’ and nothing more. So don’t spin it.

NB 2: Jesse Norman MP (a Tory) suggested that the right interpretation of the series of events was that everything should be seen to be being managed well with nothing to hide. Well, maybe, but no one has ever seemed to see it that way before, but I note it, for the record. All things are possible.

NB 3: I will add a blog on my follow up actions to this session shortly.

Do we need 1 Hyde Park?

Uncategorized 3 Responses »

Jun 302011

The Telegraph (of all the unlikely papers) ran an article on the above theme yesterday.

1 Hyde Park for those who do not know it is the new block of flats located in London that is now the most expensive in the country. One has gone for £136 million.

They quoted me on the subject saying:

“This is conspicuous consumption gone mad,” says Mr Murphy. “Britain is uniquely generous to the ultra-rich of the world, the justification being that these people bring money, entrepreneurial expertise and jobs into the UK. There is absolutely no evidence to support this assertion.

“It makes the UK a tax haven, and it makes the UK a two-tier society based on accident of birth and nationality, which is discriminatory. These people are blatantly rubbing their tax-free status in the noses of British taxpayers, which could lead some people to say, ‘If they can get away with it, what can I get away with?’ This is highly counter-productive for the UK.”

Would he like to live in One Hyde Park? “No. I look out of my window at the beautiful Norfolk countryside. Why on earth would I want to live there?”

I made the same point, by coincidence, when recording with Nick Robinson for the BBC yesterday.

The idea that rich foreigners, using the UK as a tax haven, somehow add to the UK is nonsense: they are breaking down structures in our society through their blatant abuse of wealth accunulated at least in part by non-payment of tax that the UK assists.

It is madness and we are paying dearly for it. They’d be welcome if they paid tax here on their worldwide incomes. Otherwise – thanks, but no thanks: the disruption you cause in society more than outweighs any advantage you bring by spending insignificant aounts of VAT. And as for the idea that jobs are created by this folly: have those who argue this not noticed that no one (bar some of the small scale self employed) lives above the shop these days?

When will Jersey realise that as its finance industry declines its got to look for Plan B?

Jersey, Uncategorized 5 Responses »

Jun 302011

The Jersey Evening Post has noted yesterday that:

Profits in the [Jersey] finance industry last year were at their lowest levels since records began, according to official figures released today.

The level of profits at £605 million fell by 25% last year from £809 million in 2009 and plummeted by 60% compared to 2008 when profits were at £1.5 billion.

They were at their lowest since the survey of financial institutions started being compiled in the mid-1990s.

That is extraordinary, and perhaps even more severe a decline than I might have predicted. Despite it though Jersey Treasury minister Philip Ozouf said:

that the falling figures did not mean that there would be any need to hit Islanders in the pockets with tax increases to make up the difference.

He said that financial forecasts had already been revised downward twice and that actual taxes received for 2010 were not reflective of such a large drop in industry profits.

I think we can safely call that obfuscation in the face of the evidence.

So let’s look at that evidence for a minute. When I was advising a Shadow Scrutiny Committee of the States of Jersey in 2005 it was thought that nearly £200 million (then about 50%) of the total States revenue came from the finance industry at that time – in tax on corporate profits. That was not 20% of those profits because companies could set their own tax rate at that time in jersey (absurd, but true) but it was a substantial sum.

With profits at £600 million now and only 10% taxes, at most, on them that revenue has collapsed by much more than anyone, me included, might have predicted. Revenues now might be £60 million out of a sum of more than £500 million. I suggested the Jersey black hole would be £100 million at that time – it now looks like it might be more.

Now of course GST has come in since then, and been increased once, and that has reduced the impact of this loss of revenue, but at the same time few of the savings that the States would be made in government spending at that time have materialised (a common refrain: governments almost always fail in this objective, as George Osborne will discover in due course if he hasn’t realised it already). The result is obvious – there is a big and growing black hole in Jersey’s fiances that can gave only two consequences.

The first is that the ordinary people of Jersey be asked to pay more, probably though increasing GST (the local form of VAT) again, soon after its recent rise to 5%.

The alternative is the States will go bust – a scenario GST increases can defer for now and until such time as the local electorate declare that they’ve had more than enough of being charged the earth to let the wealthy and the large corporations of the world avoid a great deal of tax altogether – but which may not, on the trend of this ongoing collapse in he finance industry be deferred for long.

I said Jersey might be bust by 2015 when I fist predicted a black hole in its finances. GST increases may put that off for a year or two, but I increasingly believe that the entire Jersey business model is fundamentally flawed: Jersey cannot meet the reaosnble demand of its population for public services on the basis of that model.

I am, of course, the only person to have out forward an alternative business model for Jersey – Plan B as I called it. It has been scoffed at by those in power and by the finance industry in Jersey, but the need for such a plan looks more pressing by the day.

Let’s not beat about the bush: the finance industry in Jersey is failing. Its contribution to the States is falling, rapidly, both as a result of policy failings and as a result of its own financial decline. Change is inevitable. The question is when will Jersey wake up and smell the coffee?

This is not a pension reform – it’s simply a 3% pay cut

Economics, Pensions, TUC 29 Responses »

Jun 302011

I support those on strike today.

I think they are right to protest about the plans the government is making to reduce pension rights. They are arbitrary. Worse, as Nigel Stanley of the TUC pointed out yesterday when writing for the False Economy blog, all they really amount to is a pay cut. His argument is so well put that rather than seek to create my own I reproduce it here, I hope with his permission since (for the sake of disclosure) I make it clear he and I occasionally work together on TUC matters:

“Few people understand how pensions work. The government is relying on this in their attacks on public sector pensions. Ministers claim that they are gold-plated, unreformed and unsustainable. The right-wing press join in by saying that it is unfair that private sector workers’ tax should pay for public sector pensions.

Yet what the government is doing is simple. It is asking public sector workers – already facing a two-year pay freeze, job losses and inflation running higher than it has for more than a decade – to make a further, and even more unfair, contribution to reducing the deficit.

They are doing this by trying to impose an arbitrary extra pension contribution of three per cent of pay on the public sector. This is not a pension reform – it is simply a pay cut.

This comes on top of significant reductions in the value of public sector pensions that blow away the claims that they are unreformed or unsustainable.

Changes negotiated with the previous government reduced the value of public sector pensions by 10 per cent through a range of changes. In particular, under so-called “cap and share”, members agreed to first share – and then fully bear – the costs of any unexpected increase in longevity. This is due to add a billion pounds of extra member contributions.

The National Audit Office closely examined this package and concluded:

“In addition to saving significant sums of money, the changes are projected to stabilise costs in the long-term around their current level as a proportion of GDP.”

So even before anything done by the coalition government or recommended in the Hutton Report, public sector pensions had been both reformed and made sustainable. This is not union assertion, but the hard-headed view of the National Audit Office.

On top of these negotiated changes, the coalition has made a further attack on the value of public service pensions by replacing the Retail Prices Index that has always been used to uprate pensions with the lower Consumer Prices Index. This will further reduce the value of public service pensions by 15 per cent – so we have a cut of 25p in the pound if you combine this with the negotiated changes.

Changing indexation breached the commitments of both coalition parties to protect accrued rights. This is pensions jargon for the pension you have built up in the past. Scheme members made contributions to what they thought was an RPI-linked pension; now they have had its value reduced by 15p in the pound at a stroke.

Yet ministers persist in saying that public sector pensions are unaffordable. The Prime Minister said on Tuesday that the system was in danger of going broke. But this chart in the Hutton Report shows that public service pensions payments will decline as a share of GDP – even before any of the changes proposed in Hutton bite.

Public sector pensions as proportion of GDP

Treasury Minister Justine Greening was completely unable to argue that pensions were unaffordable when this was put to her on the Today programme.

No doubt this is exactly the kind of assertion that the Public Accounts Committee had in mind when it said: “Officials appeared to define affordability on the basis of public perception rather than judgement on the cost in relation to either GDP or total public spending.”

So public sector pensions are sustainable. They have changed.

That leaves the assertion that they are gold-plated. John Hutton was clear that this is untrue:

“The Commission firmly rejected the claim that current public service pensions are ‘gold plated’.”

The figures bear him out. In the big four national schemes the majority of pensions paid are less than £5,600 a year. In the Local Government Scheme half get less than £3,000.

Of course a few very well-paid public servants get considerably more than this. But there are not many of them. And unlike the private sector, wheretop boardroom pensions are solid gold, not just gold-plated, top public servants are in the same scheme as their staff.

Here is the distribution of civil service pensions. As can be seen the vast majority are well-short of even being modest.

Distribution of public sector pensions

What is true is that many in the private sector get a raw deal – the private sector is now a pensions disaster area. Two out of three private sector workers get no employer help in building up a pension. Even the better employers have not only closed salary related pensions, but significantly cut their contributions to the riskier replacements.

But the answer is not to level down by removing pensions altogether from two-thirds of nurses; it is to improve pensions in the private sector. And it is telling that those so keen on attacking this unfairness never talk about the costs of pension tax relief, currently running at £35 billion a year – more than the cost of public sector pensions and heavily skewed towards the rich.

It is no wonder that public sector workers are angry. One union on strike has never taken such action in its history before. Unions know that pensions are long-term arrangements that do change over time. Negotiations are common in private and public sector. But the government’s agenda seems to have little to do with pension reform. This is simply making public sector workers – most of whom are modestly paid – take on an ever greater part of the burden of closing a deficit they did not cause.”

Nigel Stanley is Head of Campaigns and Communications at the TUC.