2011 June » Tax Research UK

Reflections on Greece – 1 – You can’t put money before a market

Jun 272011

The Greek economic crisis was not an unforeseeable event. It’s happened because of a series of misjudgements.

Those misjudgements all have their origins in the Maastricht Treaty. All originate from the mantra of neoliberalism. And the failure of those ideas has led to the disaster for Greece, the Euro, our banks and our economies. That’s not chance: that was inevitable.

The errors built logically one upon another – which is why to some degree they were not notice. The first was to do with the Euro itself. You cannot impose a currency on a market. A market can support a currency, of course: that’s because a currency is valued by debt created in market places. But there is only one direction of travel, which is from a market to a currency, and not vice versa.

There wasn’t a single European market in 1992. Or a decade ago when the Euro finally got going. And there isn’t a single European market now.

The result is obvious for all to see – the Euro is backed by debt of wildly differing value, created in differing markets and seeking redemption at different rates. And the Euro can’t withstand that. But that was always going to be the case. Debt based money needs a common market to ensure consistent valuation. Europe does not have a common market. The currency was bound to fail.

Asking British banks to take Greek losses is the same as the Treasury bailing out Greece

Banking, Conservatives, Economics 17 Responses »

Jun 252011

The Guardian has reported:

Britain’s banks will be urged by the Treasury to take multimillion pound losses as part of Europe-wide plans to prevent a catastrophic meltdown of the Greek financial system.

Despite the assurance of prime minister David Cameron that the UK taxpayer will not pay towards the latest EU bailout of Greece, Treasury officials are working behind the scenes to persuade British banks holding Greek bonds to take a “haircut” now as the best way to avert a potential global crisis. Britain’s banks hold about £2.5bn of Greek bonds.

This is a ludicrous position to take.

Cameron says the UK will not bail out Greece.

But we’ll offer more tax losses to the banks for their failure to recognise risk instead.

And those tax losses reduce our tax revenue.

Which amounts to much the same thing as bailing out Greece – except we pass the benefit to the banks instead.

Fantastic! Another great Tory cunning plan to help the banks ahead of everyone else they hope no one will notice.

Could the European Savings Tax Directive reforms finally be approved in July?

Uncategorized 1 Response »

Jun 252011

Europolitics had an interesting article yesterday on the European Savings Tax Directive.

Radical reforms of the Directive are being proposed by the European Commission to first of all extend it to all companies and trusts (closing vast numbers of loopholes in the process) and to require the tax havens covered by the Directive (such as the Channel Islands and the Isle of Man) to massively extend the data they will have to exchange with states like the UK because the beneficial ownership of offshore trusts and companies will have to be disclosed by them.

Italy blocked the passing of the reforms last month for reasons no one quite understands.

The good news is rumour reaches me that approval at the July meeting of ECOFIN is now likely. If that is true then the impact on the tax havens affected will be enormous. And that pleases me, a lot, I admit. The opportunities for crooks and cheats to hide their money in these places – which despite all their claims is still far too easy to do – will be largely closed down.

We should all celebrate that.

Bono Pay Up Weekend is upon us

UK Uncut 3 Responses »

Jun 242011

U2 heads the line up at Glastonbury festival this weekend and the stage is set for Art Uncut’s events targeting their tax dodging.

Away from Glastonbury, at the Bull and Gate in Kentish Town, London,Art Uncut in conjunction with Big Society Entertainments is organising an evening of comedy and debate in support of the Fortnum & Mason 145. The comedians will be supported by a line up including TJNs very own stand-up economist, John Christensen, Lord Maurice “Blue Labour” Glasman, plus speakers from Christian Aid and Art Uncut.

What happens when accounts aren’t fit for purpose?

Accounting Comments Off

Jun 242011

I’ve a new blog with the above title on Forbes.

It considers the accounting implications of Nick Clegg’s proposal to give away shares in RBS – and finds accounts wanting.

Do the right want us to fall flat on our faces, or are they reserving that option for themselves?

Conservatives, Economics 1 Response »

Jun 242011

It’s a curious time to be observing politics. Leaving aside for the moment the quite rational fear that Greece will topple over at any moment and trigger a domino effect across Europe, in the process ripping away the veneer that any of our banks are solvent, the behaviour of the right in the UK, Europe and USA is extraordinary to watch.

David Cameron says he won’t bail out Greece, so making insolvency of our banks more likely.

The Republicans in the US refuse to increase the borrowing allowed by their governemtn, so sthreatening the default of their government on its obligations – including in places like Afghanistan.

In Europe centre right governments shove money at a problem – called Greece – but have no clue how to actually solve it.

In the UK the Tories say they’re going to cut spending, so endorsing austerity plans for Greece, but time after time are already failing to deliver - the NHS reform (which is adding whole massive new rafts of bureaucracy on top of that already there) being one such case, the reverse on legal reforms, whilst logical, being another. So their plans to control spending – on which they are pinning all their hopes – are collapsing as I write.

And on, and on.

What’s extraordinary about all this? Three things. First the incoherence: some on the right are bailing out, others are refusing to do so to spite their own faces. Second the incompetence: there’s no underlying logic to these polices, in theory or in practice. They’re just expediency for the sake of media gratification which they hope will deliver them further electoral gains. And thirdly, the fact that so far they’re getting away with it.

How long can that last?

What’s wrong with the economy in 2 minutes

Economics 5 Responses »

Jun 242011

This is quite good: It’s US and I’d place the emphasis slightly differently, but it’s well worth watching:

Real answer: we need more tax.

We only get that when most people proper.

The current system means most people don’t prosper.

So we need to build strength of economy, have real and sustainable growth (not financial growth) and need to redistribute as trickle down does not work.

Hat tip: Touchstone blog

Plutonomy – the Citigroup plan for the mega-rich – at cost to everyone else

Banking, Economics, Ethics 6 Responses »

Jun 242011

In September 2006 Citigroup published a report which they have been trying to suppress ever since. It was on what they called plutonomy – an idea they’d been hawking around for a while and which was summarised in the Wall Street Journal in 2007 as follows:

Ajay Kapur, global strategist at Citigroup, and his research team came up with the term “Plutonomy” in 2005 to describe a country that is defined by massive income and wealth inequality. According to their definition, the U.S. is a Plutonomy, along with the U.K., Canada and Australia.

In a series of research notes over the past year, Kapur and his team explained that Plutonomies have three basic characteristics.

1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.

The first page of the report – now pretty much only available via the Real World Economic Review as the original has been hidden from view – looked like this:

The Global Investigator

The Plutonomy Symposium — Rising Tides Lifting Yachts

➤ Time to re-commit to plutonomy stocks – Binge on Bling.

Equity multiples appear too low, the profit share of GDP is high and likely going higher, stocks look likely to beat housing, and we are bullish on equities. The Uber-rich, the plutonomists, are likely to see net worth-income ratios surge, driving luxury consumption.

Buy plutonomy stocks (list inside).

➤ Plutonomy stocks at a premium, but relative pricing power is key.

➤ Our Plutonomy Symposium take-aways.

The key challenge for corporates in this space is to maintain the mystique of prestige while trying to grow revenue and hit the mass-affluent market. Finding pure-plays on the plutonomy theme, however, is tricky.

➤ Plutonomy and the Great Conundrums of our age.

We think the balance sheets of the rich are in great shape, and are likely to continue to improve. Don’t be shocked if the savings rate worsens as equities do well.

➤ What could go wrong?

Beyond war, inflation, the end of the technology/productivity wave, and financial collapse, we think the most potent and short-term threat would be societies demanding a more ‘equitable’ share of wealth.

It’s almopst laughable but for three things.

It’s true.

It’s what these people think.

Their wealth has recovered even if no one else’s has.

So the opprtunity for the game to start again already exists.

And note that last paragraph – there’s knowing game of suppression of others in this strategy. This is class warfare. Make no mistake about it.

Big business disputes £25bn in tax – equivalent to a year’s spending cuts

HMRC, Tax avoidance, Tax evasion, Tax gap, Uncategorized 15 Responses »

Jun 232011

As the Guardian reports:

Britain’s largest companies are in dispute with HM Revenue & Customs over paying £25bn worth of tax, according to the latest official figures.

The money, if collected, would go a long way to helping the government’s parlous financial state and is, for example, roughly equivalent to the size of a year’s cuts to public spending.

The new figures have been disclosed as the Whitehall watchdog, the National Audit Office, is scrutinising controversial tax deals struck by HMRC with multi-nationals following the row over Vodafone‘s £ 1.2bn settlement with the taxman.

The Revenue is involved in 2,721 disputes with the country’s biggest businesses, according to the figures disclosed under the freedom of information legislation. They cover all taxes ranging from corporation tax to specific taxes such as the petroleum revenue tax and insurance premium tax. The oldest dispute goes back to 1990, although most are recent, according to the Revenue.

I have two reactions to this news.

The first is that it supports the claim that I have long made that tax avoidance by large UK multinational companies amounts to at least £12 billion a year. This estimate was made in The Missing Billions, which I wrote for the TUC.

Now of course the figures are not the same. The Revenue statistic is, I presume, the total tax in dispute now, and as is noted some goes back a long time. My estimate was the annual loss. But the Revenue figure misses out vast amounts of tax avoidance. For example, the arrangements with Google which cost the UK hundreds of millions in lost tax a year are obviously tax avoidance, but seem acceptable to HMRC. Many multinationals do the same sort of thing. These aren’t in the HMRC total and are in mine.

And the Revenue data assumes, of course, that they’ve identified all avoidance and have challenged all they have identified. That’s very unlikely, indeed.

Take these factors into account and I think the HMRC estimate does three further things. The first is that it suggests my estimate remains a reasonable, if not cautious estimate, of this loss. Second, it suggests that HMRC’s own estimate for the total annual cost of this activity at £2.9 billion is ludicrously low and third it says there is a need for a radical review of what HMRC is recording and doing in this area.

But ultimately, and this is my obvious second reaction to this news, the issue is that this loss, which is at most only 10% of my estimate of total tax gap, is serious, and has the potential to radically transform the government’s fiances and the need for cuts.

And yet despite that the government is cutting the number of staff dedicated to this task.

And it is therefore reducing the prospects of recovering this money.

It’s sending out as a result an unambiguous message that it does not want to collect tax due from the tax avoiders and tax criminals in this country.

Why don’t the government want that money?

Why do they want to cut pensions, the health service, education, benefits, the police, fire service, welfare services, care provision for the elderly and so much else instead?

Why do the government believe that the cheats and crooks of this country are so much more important, and so much more deserving of money than those in real need?

Why, George Osborne? Please tell us.