2011 July » Tax Research UK

With the greatest of respect to the police – you really need to properly identify the threats to the state

Big 4, Conservatives, Ethics, Politics, Tax Havens, Uncategorized 14 Responses »

Jul 312011

As Sunny Hundal notes on Liberal Conspiracy:

A weekly briefing by the City of Westminster’s ‘Counter Terrorist [sic] Focus Desk’ (see here– PDF file) calls for al anarchist activities and events to be reported to the police.

Next to an anarchist symbol, the briefing states:

Anarchism is a political philosophy which considers the state undesirable, unnecessary, and harmful, and instead promotes a stateless society, or anarchy. Any information relating to anarchists should be reported to your local Police.

As Sunny then notes on Twitter:

I’ll only accept this if they arrest Tory libertarians first. They believe about the same and present a far bigger danger to society.

I’m a long, long way from being an anarchist and have no sympathy with the underlying logic of their philosophy. Given that I’m at the computer today working on my new book, ‘The Courageous State’, I think that’s pretty obvious. But Sunny is right: those left-wing anarchists who the police are focusing upon are not a major threat to society. Again, let’s be clear – I do not condone any violence, and some anarchists have undertaken it in the last year, but a shop window or two, whilst reprehensible and worthy of punishment is behaviour about equivalent to that of many yobs on a Saturday night, and cannot be considered a serious threat to the state.

On the other hand, on the Tory right there are many organisations that are actively going out of their way to suggest the state is a bad thing. As I noted recently, I spoke at a supposed All Party Parliamentary Group meeting in the House of Commons last month sponsored by three organisations that seem to have outright opposition to the state at the core of their purpose. They are the Institute of Economic Affairs, the Adam Smith Institute and the Cobden Society. At that meeting the audience, drawn very largely from those organisations and certainly not representing All Parties or even Parliament (which is unsurprising, this Group – which is new – appears to be yet another right wing Tory front) lapped up the comments by one speaker – Mark Pennington – who argued that the state does not have the legitimacy to create law and only the market does. Now that I call a serious challenge to the state – but it was readily apparent that it was popular with some Tories present, including sitting MPs.

And if we are talking about threats to democracy I have long argued that the four largest organisations that pose a serious, coordinated, threat to democracy are the Big 4 firms of accountants. They are, after all, largely responsible for legitimising the activities of tax havens or secrecy jurisdictions as I prefer to call them*, and use them in coordinated fashion (detailed here) to ensure that their clients pay less tax than the democratically elected governments of major states think is due to them as a result of their activities. Is there any better way to undermine democracy than to deny a government the tax revenue stream it requires to fulfil the mandate it has been given by its electorate? I can’t think of one that’s likely to be more subtly effective.

We do face threats to democracy, our way of government and our way of life right now: very serious threats indeed. But it seems the police aren’t able to identify them. And perhaps that is one of the most worrying things of all.

* Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

American democracy, dying after the Party

Politics, Uncategorized, USA 2 Responses »

Jul 312011

The USA is about to commit one of the biggest, if not the biggest, frauds in history. It is giving notice of its intention to default ion its creditors, not because it can’t pay, but because it won’t pay.

Or rather, a group of far-right wing, Christian fundamentalist politicians, rightly called ‘dangerous charlatans‘ by the Guardian this morning are seeking to force it to default on its debt even though it could pay.

Worse though, even if they agree to pay the debts, they’ll do so at a price that will devastate their country. Whilst they will grant the richest in their community lower taxes they will deny to the poorest many of the services, and indeed the incomes, on which they are utterly dependent.

These people, for the so-called ‘Tea Party’, claiming to be driven by God, are going to willingly unleash economic mayhem on their country and gross poverty on many people already desperately poor whilst they will, without doubt, drive millions out of work, hundreds of thousands of businesses into ruin and the world economy into deep recession, all they claim because of their love of the markets they seem so intent on destroying.

There is no rational reason for this act of wanton vandalism: it is motivated by dogma and nothing else. But that is a dogma of greed, that says ‘what is mine is mine’. And it’s a dogma of wealth – that says a few shall inherit the earth. It’s also a dogma of hate – that treats those without great wealth as contemptible. It’s based on a dogma that applauds ignorance – the ignorance that says that the way to reduce debt is to cut the very income income that is your only source of repayment of that debt. Of curse, it’s also a dogma of complete irresponsibility - because millions, if not billions of people will suffer and many will die as a result of the wanton acts of this group.

And in the process they will seek to destroy democracy itself, and the so-called American dream. Nye Bevan wrote in his classic book ‘In Place of Fear’:

The issue therefore in a capitalist democracy resolves itself into this: either poverty will use democracy to win the struggle against property, or property, in fear of poverty, will destroy democracy. Of course, the issue never appears in such simple terms. Different flags will be waived in the battle in different countries and at different times. And it may not be catastrophic unemployment. There may be a slow attrition as there was in Britain before the war, but poverty, great wealth and democracy are ultimately incompatible elements in any society.

He was right. Yet what we have in the USA is a group promoting massive increases in wealth for those already wealthy, massive unemployment for those already poor, an indifference to the rule of law by refusing to accept obligation for debts already incurred and the outcome will, undoubtedly, be a threat to democracy itself.

That’s what makes it so worrying that Barack Obama is not standing up to this mob (for a mob they are).

And if he fails to do so, then we all need worry. For not only is recession highly likely, it’s democracy that’s also under threat, and not just in the USA, but in all places where this logic prevails – as it undoubtedly does now in the right wing of the UK’s Conservative Party.

These are dangerous times.

HMRC at breaking point – Treasury Select Committee says – and as foretold

HMRC, Tax gap 43 Responses »

Jul 302011

According to the Guardian:

The Treasury select committee sees HM Revenue & Customs barely able to function, as a result of real-terms cuts to its budget every year since its formation.

I trust you will forgive me for saying “I told you so”, many times over. Start here.

Working with the TUC and PCS I have warned this would happen. As I wrote in March 2010, for example, referring to a then new report on this issue:

I’ve written a new report under the above title on behalf of PCS – the union that represents more than 80% of HM Revenue & Customs’ staff. As the executive summary says:

The UK has been in recession, and may well be in recession again soon. Through no fault of its own, the income of our government has collapsed whilst its obligations have increased. A gap between government income and expenditure of up to £175 billion a year has emerged as a result. This though is not a spending crisis: this is an income crisis.

This report argues that the scale of that income crisis is being increased as a result of policies being pursued by HMRC. Those policies were created before the onset of recession. They have two aims. The first is to cut over time the number of staff engaged by HMRC by 25,000 – 17,000 have already left. The second policy is to close many of the local tax offices from which HMRC used to undertake its work in local communities. Over 200 offices have either closed already, are about to close, or are under threat of closure. It is fair to say that all offices are under scrutiny. When the programme is complete some people in the UK will live more than 50 miles from their nearest tax office, making it impossible for many of them to turn to this natural source of help and advice when seeking to fulfil their obligation to pay tax. In addition, HMRC are about to press ahead with the closure or severe reduction of its drop-in enquiry centre facility, which has previously provided a local and immediate tax advice service for both members of the public and tax professionals.

As this report also notes, too many people do not pay the tax due by them in the UK. HMRC have estimated the ‚Äòtax gap’ in the UK – the difference between the tax they think is owed and the tax they actually assess – to be about £40 billion a year. We argue that this dramatically underestimates the total tax gap, particularly with regard to tax evasion.

To data previously published by the TUC which estimated total UK tax avoidance at £25 billion we now add an estimate of £70 billion for tax evaded within the UK. We can provide detailed and precise workings for this sum and also outline why the estimates of this sum produced by HMRC and the National Fraud Authority inevitably understate this figure.

When the total outstanding debts now owing to HMRC are added to these two sums, which when last estimated was £28 billion, we suggest the total tax gap in the UK is now likely to exceed £120 billion.

It is very obvious that the UK cannot afford this tax gap. It is equally obvious that if investment were made in additional resources for HMRC then this tax gap could and would be substantially reduced.

In arguing this we make the following points:

Recommendation 1: The basis for estimating tax avoidance should be revised to use a definition widely recognised in society and which correctly reflects areas of continuing policy concern as well as those abuses making use solely of artificial arrangements.

Recommendation 2: HM Revenue & Customs should be required to prepare estimates of evasion of direct taxes on a “top down” basis, as they do for indirect taxes.

Recommendation 3: H M Revenue & Customs should recognise that their existing bottom up methodology for calculating the tax gap for direct taxes will inevitably seriously under-estimate the size of that estimate.

Recommendation 4: HM Revenue & Customs should recommence publication of the many statistics on taxation produced by the former Inland Revenue which have ceased to be available since its demise, the lack of which make objective appraisal of the performance of the tax system hard to achieve.

Recommendation 5: HM Revenue & Customs should engage more staff to tackle tax avoidance and tax evasion.

Recommendation 6: HM Revenue & Customs must on occasion select cases for investigation without consideration of potential tax yield, and make clear that this happens to protect revenues from those on lower levels of earnings.

Recommendation 7: More staff should be engaged to scrutinise tax repayments before they take place.

Recommendation 8: More staff should be engaged to recover tax debt owing, and limits on sums to be pursued for collection should be lowered considerably.

Recommendation 9: The local office closure programme being pursued by HM Revenue & Customs should not just be stopped, it should be reversed. Tax must be seen to be collected in the community.

It is our firm believe that adopting these policies would highlight the true extent of the UK Tax Gap, provide the data needed to appraise progress in tackling it, and be cost effective methods of achieving that goal for al the reasons this report outlines.

I’ll be featuring more of what I say in this report over the next day or so.

The key issue is a simple one though: why, at a time when we need every penny of tax revenue we can get are HM Revenue & Customs doing everything possible to increase inefficiency in the tax system.

That seems now to be true, but still the cuts at HMRC go on, still the warnings are ignored, and no doubt at all, the tax gap keeps increasing.

Why doesn’t this government want to collect tax?

Why not spend a bit more on the NHS – then GPs would make fewer mistakes?

NHS 2 Responses »

Jul 302011

The attck on the NHS took a subtle new turn today – in the Guardian, of all places.

First the was the suggestion that GPs are making more mistakes. They are. I suyspect that’s true.

The reason why is easy to explain. Average GP consulting rate per patient has risen in the UK from a little under 4 visits a year about a decade ago to about 5 now. I can search out a source – I read it recently; for now look on the web.

GP productivity has increased massively to meet this demand – which is not acknowledged in critics productivity data fore the NHS but one way of doing that has been to reduce patient contact time – something has to give.

The result? More mistakes. I don’t pardon them. I’m explaining them.

We can have the NHS we want in the UK. We just have to decide to pay for it.

We can do that too.

It’s called choice. But who is offering the choice of more spending? Because it is what is needed. Nothing else will work.

Supply side madness from the Tories – the last way to reflate the economy

Conservatives, Economics, Uncategorized 8 Responses »

Jul 282011

The FT reported today that David Cameron’s strategy chief, Steve Hilton, wants to abolish maternity rights and all consumer protection legislation.

The ideas are barking mad. I always find it amazing that a party where many obsess about the unborn child shows so much contempt for the ones that are born and their mothers.

As for consumer protection legislation – if Hilton does not realise that consumer protection legislation is vital to confidence and so to current levels of consumption then he is barking mad (or maybe, just bad).

Let me explain this. Consumer protection legislation has two consequences. One is it enforces standards, so better products are offered to the consumer. And because the consumer knows if things go wrong they can get a remedy their confidence increases – so they buy more because they know that their risk is lower than it would be without that legisaltion.

Remove that confidence and consumers will have reduced confidence. So they will have to set more aside to cover their risk if the products they buy are faulty and they have no remedy. Which means they will be forced to save more and buy less.

That’s the impact of supply side reform proposed by the people in this government – outcomes that are exactly the opposite of what the economy needs and exactly the opposite of what the people of this country want and deserve.

Supply side reforms will deliver recession. But the ideologues in the Tories want a vast range of such reforms. The cost of the harm that such reform would cause is inestimable, but enormous.

I’d like to say this was Tory madness but that’s too kind: this is a story of Tory badness. That’s because I think they do understand this – and they want the increased wealth disparity that would result from it. I’ve ceased giving them the benefit of the doubt – malevolent policy does not deserve it.

HMRC, ignoring tax avoidance, being uncharitable on error

Ethics, HMRC 1 Response »

Jul 282011

From Private Eye:

Good to see that HM Revenue & Customs (HMRC) knows who the real tax-dodging villains are in Britain. Having let Vodafone and Goldman Sachs off millions in tax, it’s been commendably ruthless with… a small charity for disabled children. …

The charity has been whacked with a £16,000 tax bill, dating from an accounting error made in the early 1990s when the centre was run by completely different people. The charity has been given a year to find the cash, which will eat up the proceeds of dozens of the raffles, sponsored walks and coffee mornings that usually keep the service afloat.

We can’t comment on their particular tax bill, but we do wonder if the Big Boys would have faced the same treatment. Private Eye observes:

“Meanwhile, why does accountancy firm Deloitte remain such a favourite of HM Revenue and Customs’ tax boss when it is arguably the biggest tax avoidance drain on the British economy? A parliamentary question from Tory MP David Davis reveals that HMRC’s business-friendly tax boss Dave Hartnett has met Deloitte UK chairman David Cruickshank no fewer than 48 times since 2006.
. . .
Under Cruickshank the firm’s tax division, a tribunal recently exposed, also ran a £140m scheme for bankers from Deutsche Bank to dodge tax on their bonuses via a Cayman Islands share scheme. . . . this exploits tax laws that industry specifically asked for to help investment, even a member of the tax industry told the Eye: “It really is taking the piss.”

Read the rest here.

One set of rules for the elites, another for the rest of us.

Note: reposted from Tax Justice Network Blog, with permission

Insight: Microsoft use of low-tax havens drives down tax bill

Development, Ethics, Tax avoidance, Tax Havens 4 Responses »

Jul 282011

Great article from Reuters on this issue, here.

I admit I contributed.

As Lynnley Browning, who has just shifted to Reuters from the NYT noted:

Things were rosy in the giant software company’s just-ended fiscal fourth quarter, which produced record sales of nearly $17.4 billion, a 30 percent increase in after-tax profit, and a 35 percent gain in earnings per share.

But for the Internal Revenue Service and foreign tax authorities, things weren’t so rosy. Microsoft reported only $445 million in taxes in the U.S. and other foreign countries, just 7 percent of its $6.32 billion in pre-tax profit.

No wonder the US is in a mess.

No wonder the world is.

And until companies like Microsoft pay tax it will be.

So much for BillGates’ philanthropy: it’s easy to be generous when you don’t pay much tax on your source of wealth.

As Browning noted:

Critics such as Richard Murphy of Tax Research LLP, an anti-poverty and tax research firm based in Britain, argue the U.S. system allows companies to park profits in places where the tax obligation largely disappears. He called Microsoft “a giant tax-planning exercise.”

It sure looks that way to me.

Stand Gates along side Bono, I say.

GSK – welcome, but country-by-country reporting would prove you’re delivering

Country-by-country 15 Responses »

Jul 262011

As the Guardian has reported:

GlaxoSmithKline lent its support to the UK economy on Tuesday by pledging to hire more staff and pay more taxes – in stark contrast to its US rival Pfizer, which is shutting a key centre in southern England.

Glaxo’s chief executive, Andrew Witty, reiterated that the government’s patent box – which will offer lower rates of corporation tax on profits generated from the fruits of UK research and development from 2013 – had made the UK more attractive. He has previously attacked British companies that relocate in search of lower taxes, lambasting businesses that turn themselves into “mid-Atlantic floating entities” with no connection to society.

Of course I welcome this, but only cautiously.

GSK has a long history of tax avoiding, on transfer pricing and of usingof tax havens.

So this change is welcome – but I’ll be convinced when I see the evidence. So my challenge to GSK is a simple one. Adopt country-by-country reporting and then we’ll know if you are delivering the tax we expect. Doing so would make you a real world leader.

Bite the bullet: walk the talk and show us you pay your tax to build the type of society – the democratic society that supports health for all paid for from tax – that is the only sustainable base for your business.

If you don’t this is welcome – but only as a gesture.

The choice is yours: gestures, or the real thing?

The alternative economic policy we need

Economics 7 Responses »

Jul 262011

What follows is not new: I wrote it late last year, in the main. But it remains wholly relevant, as George Osborne’s pathetic economic performance today showed. So I repeat it without apology.

——–

People want an alternative economic policy.

People deserve an alternative economic policy.

And they want it now.

What follows is an alternative economic policy for the UK. It is costed. It is viable. It could be delivered.

Let’s start with some facts:

The current economic crisis was created by banks.

It was not created by Labour: they did not borrow consistently throughout their period in office; when they did it was almost entirely to fund investment. And it was not created by lax regulation: Labour could have been better on the issue, but they were fighting against a world dominated by neoliberal thinking, wholly endorsed by the Conservatives, that said all regulation was harmful. And it was not caused by low interest rates: let’s be unambiguous about the fact that low interest rates are good and no excuse for irresponsible lending by banks who were (and are) recklessly indifferent to the outcome of their actions so long as bonuses are paid. Which just leaves those bankers and their irresponsibility, supported by the beguiling conceit of neoliberal economists as the sole cause of this current crisis.

This crisis is real

At least 1.6 million people will eventually be put out of work as a result of the cuts the ConDems have announced. I said that some time ago. The Chartered Institute of Personnel and Development agree. If the figure is avoided it will be only because he living standards of millions more will be crushed. Translated into real lives that’s a tale of personal tragedy in each and every case – and in the lives of millions more who are dependent on those people either by being members of their families or by losing the benefit of the products and services they supply.

This is a national disaster

The wealth of this country is built on the back of the labour of those who live and work here: with declining oil resources the truth is it is only by our own efforts that we do at the end of the day keep ourselves. And very many fewer of us are going to be working. Which means that we’re all going to be much worse off. Another recession looks virtually inevitable as Labour’s fiscal stimulus begins to run out and ConDem cuts ratchet up the pain.

We know:

– That according to HMRC tax avoidance and tax evasion combined come to at least £42 billion a year

– My research shows that they have massively underestimated these figures – which are really £70 billion a year for tax evasion and maybe £25 billion a year for tax avoidance

– At any time there is unpaid tax of £120 billion in the UK economy

– Up to £38 billion a year has been given in the form of subsidies to the private pension industry each year despite which the value of many if not most pension funds has gone down over the last decade and the industry is, despite the subsidy, only paying out pensions of £35 billion a year, which is less than he subsidy they receive.

– The policy of quantitative easing promoted by Labour, and now being considered once more by the Bank of England is supposed to have cost £200 billion. Actually, that’s not true. What actually happened was that it gave maybe £40 or £50 billion to the UK’s main banks (no one can be quite sure of the exact amount) to bail out their ailing balance sheets but as they recorded it as profit they used it to pay bonuses, to inflate the stock market and to push up commodity prices such as wheat, coffee and other foodstuffs – the impact of which will flow through into real inflation for households in the UK. Perhaps as important though was the other £150 billion or so – which (not by coincidence, I suggest) happens to be almost the exact amount that the UK government borrowed in 2009-10. To put it another way, quantitative easing was, in effect the Bank of England granting the Treasury an overdraft to subsidise the deficit. And that means there is no threat at all to the UK from the bond vigilantes George Osborne lives in fear of – because we are not dependent upon them, at all.

Those are facts. But facts remain facts unless there is a solution to the problem they explain. So we must have a plan or there is no alternative to the cuts agenda that the ConDems are promoting.

What’s the plan?

The plan is simple.

First, we must tackle the tax gap.

There is £120 billion of missing tax in the UK economy. Of course we can’t get it all back. It’s realistic to assume that the crooks will always be with us. But if we spent £1 billion a year on extra staff at H M Revenue & Customs we could have 20,000 staff working to collect tax in the UK. And we know that at present each of those who work at HMRC collect more than 30 times their cost in tax. Well, there are economies of scale and diminishing marginal returns, but I still estimate that we could collect another £20 billion of tax a year. That’s £5 billion of the late tax, £8 billion of the tax avoidance and £7 billion of the tax evaded. Of course, to achieve that will also require additional legislative measures, such as a General Anti-avoidance Provision, the abolition of the domicile rule, revised rules on tax residence for individuals and companies, where country-by-country reporting is required, where automatic information exchange with tax havens is compulsory, where increased transparency ensures that the information needed to raise tax is available, and increased tax penalties for those who contravene legislation are available, but the point is, all this is possible. It’s a choice that we’re not collecting this tax right now in other words: a choice that says the government would rather it was left in the hands of the cheats, the crooks, large companies and the banks rather than collect it to support the essential public services that are the bedrock of our society. And that’s the wrong choice and one we must correct.

Second, we need to kick start an industrial strategy

This country has not got an industrial strategy and we need one if we are to restore widespread prosperity and wellbeing without increasing employment in our economy. That means we have to invest now, and keep up that investment for some considerable time to come so that we build employment opportunities based on new products and services in the private sector and provide the essential infrastructure that the state must build, whether it be transport systems, or energy, or housing, or schools or hospitals that is essential if those employment opportunities are to be created – and all of them free of the curse of PFI.

This means that the next round of quantitative easing must not support the banks. It must support investment in all these things – and since the private sector seems at present quite extraordinarily reluctant to invest it must support this investment in the infrastructure the state must build most of all. This though is not quantitative easing as we’ve known it – it is green quantitative easing, the name I’m giving to the process where the Bank of England lends money to a genuine national infrastructure bank that invest in rebuilding our economy – both through the public and private sector to ensure we create the employment we need. This will, in turn, create the liquidity we need in the economy to ensure that the banking system can continue to operate.

Third, pension reform to deliver real investment

And then, thirdly, this process has to be continued into the future. We have to ensure that there is ongoing real investment, not in financial “innovation” but in real wealth creation and real infrastructure that underpins that wealth creation by the people of the UK. That can come from the type of reform of the UIK pension system I have recommended in ‚ ‘Making Pensions Work’. We must require that at least 25% of all the pension contributions made in the UK be invested – not saved – but invested in wealth creation opportunities in this country. If that is through that same national infrastructure bank, that’s fine with me. If it is direct in new share issues by UK companies seeking to create new employment opportunities – and can prove that this is the case – then that’s fine too. But in this way I am convinced a further £20 billion can be released for investment in the UK economy.

Adding it up

Add that to the £20 billion from tackling the tax gap and add it ion to the funds green quantitative easing would inject into the economy and a substantial source of long term funding for the UK economy has been found. In all I have shown we can find £20 billion for revenue spending and £40 billion for investment, at least, a year from within the UK economy – enough to close much of the so called fiscal deficit and enough to kick start the UK economy. It won’t of course ,meet all need. It won’t singlehandedly reverse all the problems we’re suffering, and have been suffering for some time due to our over-dependence on financial services, but don’t ignore the impact that such a sum of money could have. It would transform the direction of flows in the economy. Away from saving to investment. From banking to wealth creation. From cutting to creating. From downturn to recovery. From apologising from our failure to create wealth to doing something about recreating that wealth generating capacity.

And in the meantime it can deliver the Green New Deal.

It can deliver jobs.

It can deliver hope.

It can be the stimulus that starts the multiplier of sustainable regeneration of our economy.

It is the industrial plan our country needs.

A plan for sustainable well being based on ensuring that the people of the UK are able to work to determine their own well being.

What better goal is there than that?

This is what the demand for tax justice – using public funds for public benefit – is all about.

That’s what people who are protesting want.

It’s what they deserve.

And it’s what I think, in due course, they’ll get.