2011 June » Tax Research UK

Balles gets it: cuts don’t work

Economics, Uncategorized Comments Off

Jun 162011

George Osborne’s logic is that if Greece, Ireland and Portugal had adopted the same approach that he is taking, they would not be facing such severe and deepening crises.

The problem for him – and for them – is that they did.

In fact, the Portuguese Chancellor went one better by introducing two VAT rises in the past year.

And what they, Ireland and Greece have all discovered – just like Argentina, Brazil and Turkey before them – is that it doesn’t matter how much they cut spending or how much they raise taxes; if they can’t create jobs and growth, their debt and deficit problems get even worse and market confidence falls further still.

My concern is that we are starting to see the same thing happen here in Britain.

He’s right.

Now he has to say what his growth plan is.

But he’s bang on to say that whatever else Osborne will deliver it’s not growth. And that as a result the deficit will increase in due course. Like night follow day.

New on Forbes: Has the International Financial Reporting Standard Foundation pressed the self destruct button?

Accountancy, Accounting Comments Off

Jun 162011

I’ve got a new blog on Forbes that looks at the proposed reform of the IFRS constitution.

The reform is wholly negative. as I say in the Forbes column about these reforms, which narrow the defined usage of financial statements to speculators in financial markets alone:

The only people who now, apparently, have an interest in the accounts of companies are investors and other market participants who are seeking to make decisions on resource allocation within capital markets. Other users of financial statements have disappeared from view. Unquoted companies are no longer of concern. Anyone seeking information for any purpose other than investment is now ignored. Any concept of stewardship on the part of the directors gone: the only issue of concern now is dealing for investment gain.

And yet this leaves massive question marks at the heart of the whole International Financial Reporting Standard process. In the space available I can raise only a few, but each in itself is enough to suggest this approach is wrong. If, as the IFRS Foundation are now suggesting accounts are only for speculators, where is the long-term investor get the information that they need? And if accounts are only for markets, where do the regulators, tax authorities, creditors, civil society, and others get their information on the activities of a company? And what about companies that will be never traded on financial markets? Are the IFRS foundation now saying that their standards are of no relevance to companies that are not quoted on markets? Or that they have no relevance in countries where financial markets have not reached that stage of development? And Why, very importantly, if IFRS are to be solely about provision of information for speculators should the resulting standards be applied to the accounts of not-for-profit organisations, and even governments themselves (who are now using them)?

What will happen?

I suggest that here.

Osborne – the new Brown? Or are we seeing the birth of Brownbornism?

Banking, Conservatives, Labour, Uncategorized 2 Responses »

Jun 162011

There is an extraordinary feeling of déjà vu when reading about George Osborne’s Mansion house speech last night. Is Osborne really Gordon Brown reincarnated?

Osborne says he wants the UK to remain as the number one world financial centre. So did Brown.

Osborne says he wants the rest of the economy to be strong despite this. So did Brown, although he proved it was not possible.

Osborne is committed to the privatisation of banks. So was Brown: even when Brown had the option of nationalising banks for the good of this country he refused to take it.

Osborne says he wants to regulate the banks but his proposals are so light touch that no one will notice them. That’s the same as Brown.

I suppose the question is whether this is surprising from a Chancellor who committed himself to follow in Brown’s spending footsteps until 2008?

Or is it simply yet more evidence that the higher echelons of the British political class now quake in fear of bankers so much that we have in place the Butskellism of the 1950s and 1960s a new form of political consensus – Brownbornism – in which whatever the banker wants the banker shall get?

I fear that is the case.

And the ramifications are horrid to contemplate.

Greece could be the tipping point – because it poses the question who is to rule: is it democracy or banks?

Banking, Ethics, Europe, Uncategorized 29 Responses »

Jun 162011

Greece is descending into chaos. It should hardly be news to anyone: but it has not happened before is the greatest surprise.

Of course Greece is partly responsible for its own economic malaise. It was overly generous with some aspects of spending, and far too lax about the collection of tax. But the fact is that it was allowed to be a member of the euro, and was even encouraged to be a member of the eurozone. But now when it is apparent that the whole basis on which the euro was constructed was erroneous because you cannot have monetary union without fiscal and political union (and there is even an argument that you might not want monetary union when you have the latter precisely so that areas with differing rates of growth can continue to price themselves into work) the people of Greece are being forced to take the consequence of that error made by economists from elsewhere.

The result is that the people of Greece are now also being forced to suffer so that German banks do not.

This is no minor crisis. Greece is being forced to the point where its economy cannot function, whether legitimately or illegitimately. Its currency is being denied to it ( because that will be the effect of it being forced from the euro, as seems possible), and with it the means of exchange that underpins its economy might be removed. No one, after all, knows if an alternative currency will be credible, acceptable, or will simply be worthless paper.

In this situation matters develop rapidly. Fear spreads, violence is likely, political breakdown is easy to imagine, containment is difficult, the end of democracy is foreseeable in a country which has been subject to military rule in my lifetime, extremism spreads rapidly and the threat to the stability of the region, and beyond, is enormous.

This is what happens when economists translate ill-conceived ideas into the real world.

And in all this, it remains the bankers, and their economists, who demand that Greece suffer so that banks are spared. But as we have seen before, what happens in Greece today will happen in Portugal, and Ireland, and maybe Spain next.

It sounds a little simplistic to say that we have a choice between the euro, the banks, and the maintenance of the European ideal of free, democratic states trading with each other in an open market environment for the good of each of them. That is, however, how it feels, and I have a gut instinct that this is the challenge that we now face.

There is, of course, no doubt about who should win: it is the people and the democracies of Europe that should win. We can suffer an organised breakup of the euro. We can suffer the inflation that recapitalisation of the banks will require ( although note that quantitative easing in the USA and UK has so far not raised interest rates, and nor has it had an impact on inflation–the inflation we are suffering coming from quite different sources). We can endure egg on the faces of the central bankers, and the economists who advise them. We cannot endure the suffering of whole countries, a threat to democracy, the destruction of well-being and massive political instability.

There is no real choice: if the bankers try to win this one everyone else loses. It’s not just the people of Greece versus the banks this time, it’s the people of Europe versus the banks. This time it’s not just the people of Greece who should be on the streets about it: very soon it should be people across Europe who should be on the streets about it. We are being threatened to the very core of our democratic existence by the banking institutions of Europe. This is not the peripheral issue that an epicentre in Greece might suggest. This goes to the core of Westminster in opposition to the City of London as much as it goes to dispute between Brussels and Frankfurt.

In each case there is a question that has to be answered: who is to rule?

The answer is obvious to every democrat, but not to every banker.

But there is only one answer for those who value freedom and that means Greece has to be a point of show down with banks.

Jersey has exchanged just 36 pieces of tax data in more than 4 years – which is a long way from being transparent

Jersey 31 Responses »

Jun 152011

A leak of the OECD’s peer review on tax information exchange agreements for Jersey has been leaked on this blog – and not by me, for a change.

What it makes clear is that:

Since January 2007, Jersey has received 36 EOI requests, made by 7 different EOI partners.

As is now known to be true, this report is currently stalled because of objections raised by Norway ( and maybe other countries as well), but I’m quite sure that this factual information is correct.

Jersey likes to claim:

The Island decided early on in its development that the long term future lay in being recognised as being cooperative, transparent and well regulated with a strict adherence to international standards.

If anyone – Philip Ozouf included – thinks that exchanging 36 pieces of tax data in more than four years makes a place transparent then they need help with their understanding of the meaning of the English language.

The reality is that it is a secrecy jurisdiction with £367 bn hidden away in it in December 2010.

And as is also true, it’s a place that has signed tax information exchange agreements knowing them to be almost entirely ineffective. I explain why in detail here, where I note:

TIEAs incorporate an inherent problem. A request for information under a TIEA must provide or state:

(a) the identity of the person under examination or investigation;

(b) what information is sought;

(c) the tax purpose for which it is sought;

(d) the grounds for believing that the information requested is held within the jurisdiction of which request is made;

(e) to the extent known, the name and address of any person believed to be in possession of the requested information.

The reason for the low number of information requests becomes obvious immediately. There is considerable secrecy within tax havens. This is either created by law e.g. those that establish banking secrecy, or through the combination of legal entities and professional services designed to ensure that the activities of those availing themselves of those facilities are opaque. As a consequence it is, for example, exceptionally difficult to link bank accounts operated by a company in turn controlled by a trust with a particular taxpayer in another jurisdiction who may or may not be settler and / or beneficiary of that arrangement. In consequence the existence of TIEAs is immaterial: the reality is that they have little or no practical value in very many cases because the ‘smoking gun’ required to trigger the information request either does not exist or cannot be created to the standard required by the Tax Information Exchange Agreement process.

I said this in 2009 when there was a rush to sign these deals: I will say it again now. Tax information exchange agreements are hardly owrth the paper they’re written on without the smoking gun to ensure that orher countries are aware that their taxpayers have interests in the location that signs them. This latest evidence from Jersey proves that.

And it surely ends the claim of transparency for good - because that is shown to be straightforward nonsense.

To my 3,000 Twitter follower….thank you!

Blogging 2 Responses »

Jun 152011

When this blog was redesigned not long ago I said I would also be putting more effort into Twitter.

I have – and have enjoyed doing so.

As a result my Twitter following has risen rapidly.

Today it hit 3,000.

Thanks to all.

How well is Ed Miliband doing? Pretty well, actually

Labour 3 Responses »

Jun 152011

The following was posted by Howard Reed on this blog yesterday as a comment, but it seemed worth reblogging it to me as it addresses yet another of the popular misconceptions the right wing press like to put out about Labor, so I do so, with his permission:

I’ve been having a look at the ICM polling data since 1984 (available here) and the headway that the main opposition party has made in the opinion polls one year since the previous general election. Results as follows:

June 1984: Labour polling 38% (up 10% since 1983 general election)
June 1988: Labour polling 42% (up 10% since 1987 general election)
April 1993: Labour polling 39% (up 4% since 1992 general election)
May 1998: Tories polling 29% (down 2% since 1997 general election)
June 2002: Tories polling 32% (down 1% since 2001 general election)
May 2006: Tories polling 38% (up 5% since 2005 general election)

If Labour is currently polling 41%, then it’s up 12% since the general election – and on that measure, Labour under Ed Miliband is the best performing opposition party since regular records began. He’s had a much better start than the Tories did under Hague, IDS or even Cameron. And polling methods were changed after the pollsters got it so wrong in 1992, so arguably Labour’s lead in 1984 and 1988 was significantly exaggerated – so Ed’s also probably doing a lot better than Neil Kinnock did back then.

Now of course, one could argue that there are special factors at work at the moment which mean circumstances aren’t comparable with earlier electoral cycles – the cuts programme should be making the govt more unpopular than it is, the collapse of the Lib Dems is helping Labour. But even so, on the face of it the headline numbers suggest Ed is actually doing much BETTER than people give him credit for.

H M Revenue & Customs is failing to collect tax penalties owing on a staggering scale

HMRC 20 Responses »

Jun 152011

There’s a story this morning in the press about H M Revenue & Customs’ failure to collect tax due from those with whom it agreed deferred payment plans. The tax gap has increased by £650 million as a result. This was, of course, inevitable.

However, the failure to collect tax and other sums due at HMRC is routine. It happens everyday because there are simply far too few people employed to collect the money owing. Take an example I researched recently relating to companies.

This table shows the number of corporation tax returns requested by HMRC each year:

There is an abysmal, and declining rate of requests for and submission of tax returns. In 2009-10 just 64.7% of companies had submitted the returns due in that year by November 2010.

There are penalties due for late submissions of returns. Parliamentary questions showed how abysmal is the Revenue’s record in handling these:

As is very clear when the unpaid sum due at the end of the year is compared with the net sum due (calculated after massive waivers) is that well over two years of penalties are due at all times.

This makes a mockery of the whole system of HMRC penalties: they might be imposed bu they simply are not being paid.

This is a sure sign of a tax system that is out of control: out of control because the government will not gave HMRC the resources needed to manage it.

This is a choice by this, and previous, governments. It’s an appalling choice; the wrong choice; a choice that means the rule of law is not being upheld, public services are being cut, our society is being undermined and hone3st business is acting at a disadvantage to those who cheat.

It’s time HMRC was told to manage our tax system, to enforce our law and to collect what is owing to ensure that there is a level playing field in this country, so that the honest can be sure they are being treated better than the dishonest, to make sure we are all in this together. And as importantly, to protect our services whilst repaying our deficit – something this government is clearly not intent on doing.

Now why is that?