2011 August » Tax Research UK

The Telegraph realises the mess we’re in – and begins to sing the Keynesian tune

Conservatives, Economics, Uncategorized 20 Responses »

Aug 112011

There was a rather surprising article in the Telegraph this morning that supports my hypothesis that the economic narrative is changing. It was by Jeremy Warner, who has been hard into cuts and the austerity programme and firmly pro-Conservative to date as far as I can recall from what I’ve read by him. Because quoting is necessary for my argument I am going to do so at liberty.

The the tune has changed is obvious from this, stressing that I am not always showing the cuts I have made:

UK government bond yields have fallen to historic lows the depths of which even six months ago would scarcely have been believable – less than 2.5pc on ten year gilts. Those of us who have been calling the top of the bull market in bonds for the best part of the last two years are left with egg on our faces. I’m hardly alone. Step forward Bill Gross, John Paulson, Jim Rogers and a litany of other self styled market “experts”.

And those who got it right? Well I hate to pay him the complement, but among others Paul Krugman, whose religiously preached Keynsian analysis of the crisis has, in this regard at least, been spot on.

You read that right: a “we’ve got to live in fear of the markets” man admits he’s been wrong all along. He continues:

So why is this happening? Why is it that despite ever more mountainous government debt, investors want to keep buying into the non-eurozone version of it? … [T]he single most important factor that underlies all this is that when householders, businesses and the financial sector aren’t spending and investing, a savings surplus accumulates which has to go somewhere. In the search for safe havens, it goes first and foremost into government debt, where it is used to provide the demand which the private sector has decided to remove. When governments attempt to reduce their demand for debt, as is beginning to happen at the moment with fiscal austerity programmes, you get a self feeding pressure of excess demand on limited supply, and yields fall even further.

Note that: first there is a demand for bonds – and no one is going to run away from them. Second, governments should stimulate demand (Keynes all over) and when they don’t, by choice yields fall – which is happening now. Why? Let the man go on:

What these yields are pointing to then, is a depression. In such an environment, corporate profits will suffer and insolvencies will rise. Equity markets suffer accordingly.

Yes, that’s what he’s saying: he’s saying the government is choosing to put us into recession, even though as he noptes the governemtn is paying record lows for his money. And note his cynicism here:.

George Osborne, the Chancellor, likes to see this phenomenon as a vote of confidence in his deficit reduction strategy. Unfortunately, that’s only part of the story. As I say, they’ve had similar yields in Japan for years now, with no sign of a credible deficit reduction strategy in sight and public debt spiralling up towards 250pc of GDP.

Unfortunately, low gilt yields are more indicative of impaired private sector demand than they are of Government resolve. What the economy appears to need, and I really do hesitate to say this, is a good old fashioned bout of inflation, but then we’ve already got that in the UK, and to perpetuate might seem only to replace one problem with another. Yet there are few more effective ways of eroding the doomsday machine of excessive debt.

Oh boy, the man also buys my argument for inflation.

Believe me – on a day which is deeply depressing for the left, after a week I’ve found quite hard, this is sure sign that the right are losing the conomic argument hands down and that we on the elft are winning it.

They’re conceding defeat on the right. And if that happens then two things happen. Either Osborne does the most massive U turn – which will secure Tories power for time to come (heaven forbid, and actually unlikely - U turn governments are rarely forgiven on the economy) or he’ll refuse and be swept from office for good.

But things are changing, I’m sure.

Hat tip: Nick Shaxson

From left or right there’s nothing to shout about today – because neither have delivered a Courageous State, yet

Courageous State, Politics, Uncategorized 9 Responses »

Aug 112011

I’m already a little riot weary.

I’m bored of having to say I condemn rioters: doesn’t everyone?

I’m bored also with those who say that there is a political divide on this issue: that the left are wrong to blame cuts and the right are wrong to say that’s not true.

The reality is that in a small number of communities, and for a small number of people (I suspect we’re talking 5,000 or so rioters at most) the veneer that holds people within social constraints of compliance spectacularly failed at the weekend. That’s the one fact we have: there was a break down in law and order. After that there is speculation. And there should be reasoning about how we go forward, and less of the blame game.

There’s certainly very good reason for saying blame should not be part of today’s exchanges in parliament. That’s because it would be hard to put a fag paper between the Tories and New Labour if blame were to be levelled. That’s because, if we look for areas of agreement amongst the speculation, most seem to see this rioting as an exercise in mass looting; of materialism out of control, and most seem to recognise that there was in the police response an initial lack of conviction, reflected in no small part by the immediate lack of appreciation of the situation by many in our political leadership.

The reason for the materialism is not hard to find: for thirty years excessive consumption has been promoted as the definition of well being by governments of both left and right. This is the consequence: that people want without entitlement. That may be wrong, but when day in day out people are bombarded with advertising messages whose sole purpose is to make them feel dissatisfied with their current possessions and which say that if only they had what, for many, is unattainable then they would become the human being they aspired to be, that some feel alienated is surely not something we should be surprised by? Isn’t the whole of society stressed by this messaging, and wouldn’t we all (think about it for a moment) be so much better off without it?

Second, the reason for the inadequate response is not hard to find either. For the same thirty years or so we have endured neoliberalism – a social construct that says that whatever politicians do they make people worse off because markets can always do things better, and that they should as a result leave well alone. So they did and we have seen the result. They left the police alone to get on with things – but the police have after years of such uncertainty also lost their confidence. And only with great reluctance where the politicians dragged back into the arena of leadership where they belong, and in which they feel so uncomfortable.

I agree with those who say society has failed. On ethics. On parenting. On schooling. And also on leadership. But that’s because for too long we have really believed there is no such thing as society., And that greed is good. And this is where it, inevitably, leads.

These are big themes in my forthcoming book – the Courageous State. Both are core to the arguments I make in it. As is my blaming neoliberalism as a whole (adopted by left and right alike: let’s not make this personal or particular) for this malaise. Because I think we have the right to do that.

And we have a right to look for something different - for leadership, for courage, for politicians who act on conviction. For politicians who will stand up to the market and say it can get things seriously wrong and it is the job of the state to not just correct for that but to actually stop it doing such things. And for action to bring the excesses of some in society under control so that the differentials which fuel the resentment of those who have no prospect of ever fulfilling the dream that they are told (so inappropriately, and so incorrectly and so unethically) they must have are reduced to levels that are acceptable, because it inequality, not just of outcome but of hope that fuel so much that is wrong in society.

And we have a right to expect the end of looting too: the looting of the feral speculative economy of the real economy in which most of us live and work. Because when we look at looting then the looting of the bankers has to be addressed. As does the looting of the state’s tax revenues by so many who have now captured services the state should supply for private gain and so obviously enrich themselves unjustly at cost to all others in the process. Yes, those are issues I address too.

I’ll never condone rioting, looting or criminality. Ever.

But please don’t ask me to condone neoliberalism either. Because we all deserve something so much better than that. And today if parliament is to do anything useful it should agree that the political consensus in this country has to change; that we now have to agree that we really do need a strong, confident state, and that we do need to tame market excess, but that in the poorcess we can deliver something much more powerful, much more important and much more compelling. That is people who can achieve their potential, communities that are strong, identification with society and a sesne of purpose.

Yes, the Courageous State is about all those things too.

Now I’d better go and finish writing it. It’s due out in late September.

Cameron speaks of responsibility whilst the accountancy profession seeks to evade the tax gap

Accountancy, Uncategorized 9 Responses »

Aug 112011

From Accountancy Age earlier this week, and overlooked at the time due to other issues on the agenda:

The £42bn “tax gap” might be an illusion, accountancy institutes have said.

The figure is supposed to represent the difference between the actual tax collected and what should be collected. But institutes have said that HM Revenue & Customs’ concept of a “tax gap” is not useful.

Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, told the This is Money website: “It is like trying to get hold of smoke. There is no proper idea what that is and then we are trying to close it.”

David Heaton, chairman of the tax faculty at the Institute of Chartered Accountants, said: “I think the tax gap is entirely misleading. The definition of what taxpayers should pay compared with what is actually paid is not very helpful. It is less than helpful because nobody really knows what taxpayers should pay.’

Roy-Chowdhury and Heaton also warned that the tax gap includes tax avoidance, which is legal.

An HMRC spokesman said: ‘The tax gap is an important strategic tool, but we also set targets for the additional revenue generated through our compliance activity.’

I admit I find these claims from two representatives of the accountancy profession staggering. These people, representing professional bodies that are supposedly based on codes of ethical conduct, are effectively denying two things. The first is that tax evasion - blatant criminal behaviour – need be measured or targeted and secondly that tax avoidance – getting round the law – should be addressed in any way.

The language used – and I am sure the journalists quote correctly – is also telling. In hoping to sow doubt about the tax gap and by deliberately obfuscating on meaning the profession is asking that a blind eye be turned to what might collectively be termed tax cheating – much of it in the grey area where avoidance merges into evasion. That dividing line – so often relied upon by the profession, who happily trot out the line that avoidance is legal (even if of highly dubious morality) and that evasion is not as if they always know precisely where the line between the two might be – is shattered by their own suggestion that they do not know what the proper amount of tax a person should pay is. They cannot, in other words, tell the difference between evasion and avoidance because too often it is not clear.

But that does not then mean that the tax gap (which is clearly and unambiguously defined in exactly the same terms by both me and H M Revenue & Customs) is not an issue. It actually means that it is a very real issue – and that tackling and stopping the two key components within it – both tax avoidance and tax evasion – should be at the heart of the ethical responsibility of the accountancy profession.

In other words – the line glibly trotted out here that tax avoidance is legal – should be barred from the excuse book of the UK’s accountacy profession if they want to retain the privileges that go with that status. They must say that tax avoidance - the deliberate act of getting round the requirements of the law, rather than complying with them – is wrong. And they must instead make clear that the duty of the taxpayer, and the tax professional, is to promote tax compliance, which is seeking to pay the right amount of tax (but no more) 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. I assure you, that’s possible.

More than though – if the professions are to offer ethical leadership they have no choice but do this. In which context I’d remind the accountancy profession of the words of the prime minister, spoken yesterday. He said:

“For me the root cause of this mindless selfishness is the same thing I have spoken about for years: it is a complete lack of responsibility in parts of our society.

“People allowed to feel that the world owes them something, that their rights outweigh their responsibilities and that their actions do not have consequences. Well they do have consequences.

“We need to have a clearer code of values and standards that we expect people to live by and stronger penalties if they cross the line.

“Restoring a stronger sense of responsibility across our society in every town in every street in ever estate is something I am determined to do.”

He could have been speaking of those who promote tax avoidance whilst ignoring their duty to society and who in the process ignore their responsibility to society. He could have been referring to a profession that fails to weed out those who cross the line.

Evading the issue of the tax gap suggests the accountancy profession is moving in the wrong direction. It’s supporting those cheating the state of its revenues.

It’s time for accountancy to embrace responsibility. And it has to do it now. It could do it by embracing a proper Code of Conduct for its members. Start here.

I agree with all of this – and David Cameron said it

Politics 9 Responses »

Aug 102011

David Cameron said this today:

“For me the root cause of this mindless selfishness is the same thing I have spoken about for years: it is a complete lack of responsibility in parts of our society.

“People allowed to feel that the world owes them something, that their rights outweigh their responsibilities and that their actions do not have consequences. Well they do have consequences.

“We need to have a clearer code of values and standards that we expect people to live by and stronger penalties if they cross the line.

“Restoring a stronger sense of responsibility across our society in every town in every street in ever estate is something I am determined to do.”

But he has to mean it of banking.

And of some media companies.

And of politicians too.

Because only then is it meaningful.

I utterly condemn the rioting.

But I condemn the excesses of banking, or media companies that broke the law and MPs who did the same thing too.

Unless those with power act responsibly how can we expect the powerless to do so? There has to be leadership. Then we get the right actions from those who we expect to follow.

Can we have that leadership, please?

It’s what I’ve been asking for here for a long time.

Tony Evans from the Times on why he did – and other people do – riot

Politics 10 Responses »

Aug 102011

This comes from here, and I don’t think he’ll mind (read from bottom up, of course):

The price you’re paying for the government’s decision to abandon the economy – £100bn wiped off the value of pension funds

Economics, Pensions 2 Responses »

Aug 102011

As the FT notes:

Turbulent markets have played havoc with the finances of the UK’s corporate pension schemes. One key official measure has shown that the shortfall in underfunded schemes increased by roughly 50 per cent in July. Another has shown that asset values have fallen by more than £100bn since then.

The Pension Protection Fund’s 7800 Index, which measures the aggregate assets and liabilities of the schemes whose benefits it insures, said that by the end of July the shortfall of schemes in deficit had risen from £77.6bn to £116.7bn.

This is the price people are paying for the government’s decision to walk away from the economy. This government – and other governments – could decide to tackle the recession head on.

They could use the low interest rates they’re enjoying to invest in the things we need: hospitals, schools, vital repairs, coastal defences, sustainable energy, new communications infrastructure on which to build an economy, insulated homes and so, so much more. All would create jobs, here, now. Those jobs would result in tax paid, benefits saved and a massive boost to the private sector. We’d turn the corner. The investment would pay for itself now and in the long term. We could enjoy a double whammy from cheap funding for short and long term gain.

But no. The government has walked away from the economy, its responsibility and the people of this country. It says it won’t interfere.

And the price we pay is £100 billion wiped off pension funds.

So you don’t get the gain. But you suffer the pain.

Remember that when it’s election time. Please.

Jon Stewart Reacts to Isle of Man Having a Better Credit Rating Than USA

Isle of Man, USA 2 Responses »

Aug 102011

And although not embeddable (don’t know why) look at this too.

And then realise how ludicrous credit ratings are.

The case is altered – the economic narrative has changed

Economics, Uncategorized 5 Responses »

Aug 102011

It’s been a fascinating few days (in between the continually depressing news) to monitor the language being used about the economy.

I have an impression for the first time – and I stress, it’s an impression and I’m not saying anything more than - that the narrative used by some business commentators with regard to the economy is changing.

last night on the BBC News there was a UBS banker saying that we had to now think about the period of inflation (an idea I have expressed for some time, to the almost universal horror on the part of commentators). More than that though, he expressed the view that the only criteria for assessment of government economic policy was now whether or not it would create employment.

The on Radio 4 this morning a business commentator (and I did not catch his name) said that there now had to be a frank recognition that the government’s economic policy was inevitably leading towards low or no growth. What he also made implicitly clear was this was a choice, which is, of course, true.

Now, two swallows do not make a summer; far from it in fact. But, these are not narratives that we have heard from these sources before. It has been heretical, the preserve of people like me, to make such observation on the radio or television and yet here were two business commentators making it clear that the government has opted for low or no growth, that this is a choice, that there are alternatives, and that those alternatives must now be considered.

To date many on the left have been, unsurprisingly, perturbed by the difficulty of progressing an alternative narrative on the economy. The cuts narrative has prevailed for eighteen months or more now ( it seems so much longer). There is no doubt that it has been successful in persuading people of virtue of the government’s policies, which anyone who opposes them can tell you has been mighty frustrating when it was always so glaringly obvious that they would lead to an economic catastrophe.

Well maybe, just maybe that narrative is changing now and it is business and bankers realising that the sheer cowardice of governments that want to simply say they’re walking away from the problem, shutting up shop and letting the world get on with things by themselves - which is the right wing agenda – is not good enough.

Government is an economic agent. Democratic governments are elected to effect change. And perhaps, just perhaps, the realisation that business expects them to deliver that change – albeit for the benefit of business but incidentally for the population at large on whom business is dependent - is beginning to dawn.

If it does the case is altered – the economic narrative will have changed. It’s overdue to happen, as recent events make more than clear.

John Kay: PFI’s claim on the UK’s assets is a myth

Economics Comments Off

Aug 102011

Fascinating article from John Kay in the FT this morning in which he says:

The considerable assets of governments are generally not available to their creditors. Some arrangements pretend to bypass this principle – the UK Treasury building is the subject of a complex securitisation and the Athens metro might be privatised. But anyone who imagines that such security could be enforced is living a dream.

Fascinating idea – and almost certainly true when you think about. Can you really see the offshore owner of 100 Parliament Street ever turfing the Treasury out? No, nor can I. In which case what is PFI about?