2011 August » Tax Research UK

PWC – not up to scratch, yet again – with no hint of reform in sight

Accountancy, Auditing, PWC 7 Responses »

Aug 162011

It’s depressing to note the ongoing incompetence of my own profession. As the Guardian reports:

Auditor PricewaterhouseCoopers admitted to years of mistakes relating to the failure of investment bank JP Morgan to ensure that billions of pounds of its clients’ assets had been properly ring-fenced.

PwC is now expected to face a heavy fine over its role in the client asset scandal which could have wrought unnecessary mayhem had the bank collapsed at the height of the financial crisis in October 2008. At that point, JP Morgan’s futures and options desk held $23bn (£14bn) of client money, largely belonging to hedge funds, which was not segregated from the bank’s own funds.

This is basic stuff. It’s not, as PWC implies, a small slip. It’s an absolutely fundamental failure to audit. It’s incompetence on a gross scale. And incredibly easy to spot.

But PWC did not do it.

So threee questions:

1) Why not?

2) Why are they allowed to continue in operation in that cae?

3) When will auditing be totally reformed?

The answer is, in all cases ‘conflicts of interest’ do in differing ways explain a) why it happened b) why it will continue to happen c) why reform is blocked.

And if ministers won’t tackle this then you can be sure they won’t tackle other deep problems in society either.

About being pro-business

Economics, Ethics 4 Responses »

Aug 162011

It looks like we’re coming out on the other side of a turbulent period. In a little over a week or so confidence was gutted, property was trashed, hope seemed to evaporate, despair prevailed and then almost as quickly as it began a recovery was underway, things went quiet, a modest clean up occurred and people dared to believe that the worst was over.

I’m talking about the stock markets of course. But is it chance that I could have also been talking about the absolutely coincidental (in a literal sense) rioting in London? Why was it that mayhem prevailed in both financial markets and on the streets of London at the same time? No one will, of course, ever know for sure, but the coincidence of the resulting dialogues that have emerged from these parallel crises is worthy of note.

There is a crisis of confidence about jobs.

Extraordinarily looters were filmed saying they resented paying tax on their incomes, when they had one. The markets fear governments cannot balance their budgets with tax revenues.

Looters, it’s fairly widely agreed, wanted to consume. Markets feared no one will be.

Again the coincidences seem to be more than just chance. And some of the tentative explanations now being put forward for market crisis and looting also seem to have a ring of more than just happenstance.

It’s agreed that looters were criminal. It’s agreed that the banking may not have been, literally, but were in an ethical sense.

There appears to be consensus that greed motivated both, but something a little more than that: there was on both parts a desire to acquire without accepting the responsibilities associated with either acquisition or ownership.

So what? Is it that we’ve just discovered two ‘feral’ communities, both out of touch with reality just as, not long ago, we discovered MPs and the news media in that same boat, or is there more to this? Are these communities not ‘feral’ but mainstream in their desires and just aberrant in their capacity to fulfill them; one with an excess of resources and the other (given that the vast majority of those now prosecuted for looting were unemployed) without the means to fulfill their desires?

Surely the truth has to be something more than that? Is it that these communities actually reflect mainstream culture? The culture of shopping? The culture of excess? The culture of the quick fix to secure all our dreams (which it doesn’t, but then there’s always next Saturday to try again)? And if so, aren’t we all, more than a little, responsible for the change that is needed because we all (well, almost all) recognise something has gone wrong?

I think that’s true, but of course a lead is needed. And since no one is going to follow the lead of looters (I hope) there is no doubt that the lead has to come from the top. That means reform in particular of business thinking, for in a world dominated, as it is at present, by the market it is business that sets the tone for society at large. So we need a culture of responsibility from our business leaders now, indicated by an acceptance that they and their companies must like the rest of us pay their taxes, accept pay restraint, be responsible in what they say and how they say it, especially in their advertising and in the media messages so many of them sell. There should be an acceptance too that they are truly accountable for what they do – and that they tell us what it is. None of which sounds unreasonable except that they have strongly resisted all these things and more over the last few years, saying any such measures would be ‘anti-business’.

I disagree. Being pro-business does not mean you have to be irresponsible. Being pro-business does not mean you have to be anti-tax or anti-regulation. Nor does it mean we should allow a free for all for some on pay, whilst constraining that of others. And being pro-business does not mean that anything goes, especially when it comes to the messaging it delivers about the society we live in and the values that hold it together.

No, being pro-business means being pro-business in the community. It means making money responsibly. It means being concerned about the impact of business on others – who might all too possibly also be its customers. It means accepting that having the right to trade means that there’s a matching obligation to pay back what is demanded in tax and other fees in return.

And being pro-business means accepting accountability as a part of responsibility, for business works best when there is as much information as possible available about the risks undertaking any business entails.

This real pro-business agenda has been forgotten. It’s been lost in a narrative of greed. The responsibility of running a company has been forgotten in the drive for unaccountable power. The obligation that comes with that power has been laid aside; the accumulation of personal wealth in the narrow window of opportunity that most senior managers have to exploit their positions for this purpose has replaced the culture of duty which is the foremost responsibility of any company director.

Of course business should reward success, and well. I have no objection to that. But success is more something much more than the bottom line, or the realisation of the goals attached to the executive share bonus scheme. Success is about co-existing sustainably in communities in the long term. We all recognise that this was forgotten by those who were looting. But far too many have forgotten it in business too. And both were wrong to do so.

It will be hard to demand change of the looters as yet because they are powerless. Business leaders are not: theirs is the power. That’s why we must turn to them to demand change now. And to our politicians as well, who ape them too often. Without change on their part then change elsewhere in society is unlikely.

That’s our challenge.

That’s our goal.

Can they deliver? That’s the question that needs an answer.

Troll alert

Blogging 1 Response »

Aug 152011

Trolls seem to be taking their summer holidays on this blog.

Might I remind them of the comments policy?

Since I’m bored by their typical holiday making behaviour I will be applying it.

Please take note before wasting your time.

Most people in Isle of Man want a referendum on VAT deal with UK

Isle of Man, VAT 2 Responses »

Aug 152011

Isle of Man Today reports:

A LARGE majority of the Isle of Man’s voters would like to see a referendum on any future proposals the government might put to the UK over VAT, according to an election survey.

As Energy FM puts it:

Four out of five feel the Isle of Man has been treated unfairly.

The majority are in favour of a referendum before accepting the new deal with the UK, and this feeling is strongest amongst the 16 to 24 age bracket.

What’s vaguely interesting about this is that they actually think the Isle of Man has a negotiating position. The truth is they’ve been told ‘take it or leave it’. And rightly so.

I’m not quite sure what they don’t get about that. At least they’re not being asked to repay past over-payments.

You want morality in the boardroom David Cameron? Try these five ideas for starters

Conservatives, Ethics, Uncategorized 12 Responses »

Aug 152011

David Cameron has said this morning:

In the highest offices, the plushest boardrooms, the most influential jobs, we need to think about the example we are setting.

Moral decline and bad behaviour is not limited to a few of the poorest parts of our society.

OK, start with these five ideas:

1. Sign a tax code of conduct

I’ve designed one – but let’s keep it simple, shall we? Let’s say companies should agree to seek to pay the right amount of tax in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. As a result they’d agree to

i) not use any artificial structures not explicitly encouraged by law

ii) not use tax havens

iii) always err on the side of caution when in doubt about the ethics of an arrangement.

2. Publish their accounts on a country-by-country reporting basis

This is so we can see exactly how much they make in the UK and elsewhere, how much they record in tax havens, and how much tax they pay where. Being honest is a key part of being ethical and country-by-country reporting is about being honest to the societies where you work.

3. Agreed to pay top to bottom pay ratios.

It’s fundamentally unethical that the pay differentials we now see in this country exist. A top to bottom pay ratio of more than 20 is hard to justify in any company: 30 and we’re moving into the realms of obscenity but this is small bear in many companies. Reform is essential.

4. Stop lobbying for tax reductions.

Vast numbers of companies – and almost all the FTSE 100 do this, all the time. Well stop it. You’ve got the best deal in the country. Now shut up and let society heal itself.

5. Advertise responsibly

Don’t promote consumerism. Don’t promote a lack of respect to the family. Don’t sell violence. Don’t sell abuse. All too many do, far too much. And that’s the cause of the moral malaise.

At least I’m not the only one who senses the magnitude of what we’re facing: Larry Elliott does too

Economics Comments Off

Aug 152011

I have this vague feeling that far too few people have a sense of the crisis we’re facing in our economy and society. Cameron et al unbelievably blame absent fathers and a lack of school discipline. Miliband is better, but solutions are not being offered, yet. The same could have been said of Will Hutton and the Observer’s commentary yesterday. Will wants a new form of capitalism – but what?

Thankfully Larry Elliott has got it this morning. As he concludes in his regular Monday column:

A crisis that has been four decades in the making will not be solved overnight. It will be difficult to recast the global monetary system to ensure that the next few years see gradual recovery rather than depression. Wall Street and the City will resist all attempts at clipping their wings. There is strong ideological resistance to the policies that make decent wages in a full employment economy feasible: capital controls, allowing strong trade unions, wage subsidies, and protectionism.

But this is a fork in the road. History suggests there is no iron law of progress and there have been periods when things have got worse not better. Together, the global imbalances, the manic-depressive behaviour of stock markets, the venality of the financial sector, the growing gulf between rich and poor, the high levels of unemployment, the naked consumerism and the riots are telling us something.

This is a system in deep trouble and it is waiting to blow.

That’s about it.

And Larry is right: we can make progress. That’s very clear. But right wing ideology is opposed to it.

Can we win against it? That’s the question. If we fail, we will blow. That’s the alternative. It’s not appealing.

Osborne – tax benefits for the rich, no benefits at all for others

Conservatives, Economics, Ethics 57 Responses »

Aug 152011

The sickness in our society could not be better illustrated by two contrasting headlines. From the Mail:

George Osborne confirms intent to end 50p tax because it is ‘uncompetitive’

From the FT:

Ministers plan removal of rioters’ benefits

There is no evidence that the 50p tax rate is uncompetitive: companies are coming to the UK, no one seems to be leaving – as I’ve pointed out, often.

More than that – without sufficient tax data as yet to decide what the yield from the tax is any decision is clearly premature. Which means that there is no economic basis whatsoever for abolishing this important tax rate.

But there is enormous symbolism to it: it says the rich matter, a lot. Especially to this government. Even though the evidence is that it is many of the rich – and the businesses that have made them rich - that are the cause of a considerable part of our economic malaise. Banking, the promotion of excess consumption, the privatisation of social services: all these things are breaking down essential trust in society and making a tiny number very rich indeed – and Osborne wants to reward them for the harm they do.

I have no problem with those who have committed criminal acts being punished. But the other headline makes clear that those who looted – who believed what they are told that they are what they consume, even when they’re being denied any chance to take pat in that currently (and wrongly) accepted definition of society – have no worth. In fact, what dignity they had as human beings is now to be denied to them. They are condemned.

I have to say that a government that can create such headlines on the same day is corrupt at its very core. But they cannot see that, I’m sure.

I’d presumed that humanity had advanced beyond this pre-Dickensian view of right and wrong as rich = right = good and poor = wrong = bad. I’d thought that One Nation Tories’ legacy was strong enough to ensure we’d never have a party offering such views again.

But I was wrong.

And yes, I am depressed by them. Quite physically so. And I’m frightened of its consequences. Because all hard right agendas require the creation of ‘an other’ group to hate. The Tories seem intent on creating such a grouping – and have begun the process of separating them from society. The risk inherent in this is terrifyingly high. And what’s really scary is I think they know that, and are doing it anyway.

The Isle of Man’s VAT agreement – getting close to reality at last

Isle of Man, Uncategorized, VAT 3 Responses »

Aug 152011

This issue still rumbles on.

Whilst issue was focused elsewhere last week the detailed reasons for the new arrangements between the UK and the Isle of Man crept out. As I suggested a long time ago (back in 2007) the likelihood is that the Isle of Man has a very different VAT output structure to the UK - because so many of its sales relate to financial services which are VAT exempt and which therefore have no VAT due on them. In that case to simply pro rata VAT receipts on the basis of total turnover of the two places was always going to be wrong: if the turnover of one party was heavily dependent on VAT exempt outputs it would in that case recover too much VAT if that was done. The party benefitting was, of course, the Isle of Man

The UK has now realised this (at last) and has used this as the basis for, correctly, renegotiating the arrangement with the Isle of Man.

There is still opposition in the Island to the new deal which will, I am sure justifiably, take another £75 million from the Island each year, bringing the total adjustment now in line with my original estimate of the annual subsidy the UK was giving the Isle of Man each year.

But it’s time for the Isle of Man to shut up – asking for a subsidy to be a tax haven is not going to win them any friends right now, and the sheer hypocrisy of the critics who want to use UK taxpayer’s funds to subsidise the abuse they permit is extraordinary.

When will the Isle of Man realise it is time for plan B?

A look at the world’s new corporate tax havens

Conservatives, Corporation Tax, Ethics, Tax Havens, USA 4 Responses »

Aug 152011

CBS broadcast a programme with the above title this weekend.

As they point out the US loses $60bn a year to tax havens from its big corporate sector alone.

And it’s all just a game – using places like Zug, in Switzerland.

Except the game has consequences; real consequences for real lives blighted by cuts in the USA.

And the same is true here in the UK where I estimate the total loss to tax havens to be up to £18 billion a year.

Corporations say they have to do this. That’s not true. No one under any law obliges anyone to play such abusive games – except to trigger the bonus schemes of company directors – which are a prime cause for this activity.

The US can’t afford this abuse.

We can’t afford this abuse.

But are we hearing from David Cameron and US politicians that this abuse is high on their priority list? No, we’re not.

Because our politicians are frightened of these corporations. And they’re not frightened of imposing cuts.

It’s a sad sign of their moral malaise that this is the case.

The rot in the UK starts at the top.

It looks the same in the US too.

And until the rot at the top is cut out nothing will get better.