What Cameron really meant at the last election:
Thanks to False Economy for that one!
Fascinating commentary in the Office for Budget Responsibility Autumn Statement report on the UK- Switzerland tax deal. They say (page 118):
The UK-Switzerland tax deal announced on 24 August … is not included in the central projection as it is subject to ratification by the Swiss Parliament and a possible referendum. HMRC and Ministers have stated that the yield from this policy is in the range of £4 to £7 billion. We have not certified this costing. Our initial discussions with HMRC suggest there are significant uncertainties (in particular over the amount of UK funds in Switzerland that would be subject to the deal and the assumed level of compliance) and we currently judge that the yield is likely to be towards the lower end of the range. We will consider the available evidence further for the final costing.
This deal is, of course, one of ‘Hartnett’s specials’ - referred to on this blog often. It’s a deal that the European Commission says breaks EU law and which is both highly avoidable and quite deliberately designed by the UK to undermine the attempts to end tax havens, no doubt in an attempt the preserve tax abuse from the UK’s own tax havens on behalf of the City of London.
Now the OBR has spoken and in about the politest terms possible they have said they have no confidence at all in the projections for tax to be collected. Why? Because it is not yet proven to be legal and because, as they all too obviously realise, it can be avoided as easily as the average lamp post is missed every day by people on the pavements of the UK.
More than that – they know the funds in Switzerland are currently leaving by the suitcase by the hour for Singapore whilst they’re also saying they have no confidence in Swiss banks’ role as honorary tax collectors for H M Revenue & Customs.
If you’d want a louder message saying Hartnett was either gullible, and that the Swiss saw him coming, or alternatively he’s done a deliberately bad deal it would be harder to find.
Hat tip: Faisal Islam
Nov 302011
Today is a day of national strikes by public sector employees over their pension rights.
The average public sector pensioner gets a pension of £5,600 (median).
The average pension of a woman who worked for local authority is £2,600 pa
Basic old age pension is £102 a week or £5,300.
Pension poverty is defined as having less than £178 a week. £9,256 pa.
So in most cases those retiring on only a state pension from the private sector who have paid nothing get almost £4,000 a year in pension credits and other benefits from the state for which they have not paid a penny in contributuion.
But state employees have to pay all their lives for on average something little better.
And you call that a gold plated deal?
How?
The reality is that public sector employees are paying in very many cases for what they could egt anyway without a pension scheme. Those complaining, please note. The subsidy is to the private sector here – paid for by state sector employees.
That’s the reality of what is happening.
All data from http://www.pcs.org.uk/download.cfm?docid=31F34882-8A2E-4BAB-9CF42FA92DFB02CF
That’s what Polly Toynbee says today:
Class war, generation war, war against women, war between the regions: George Osborne’s autumn statement blatantly declares itself for the few against the many. Gloves are off and gauntlets down, and the nasty party bares its teeth. Here is the re-toxified Tory party, the final curtain on David Cameron’s electoral charade. No more crocodile tears for the poor, no more cant about social mobility or “the most family-friendly government” or “we’re all in this together”. Forget “vote blue go green”, with this mockery of husky-hugging. Let the planet fry.
She’s right.
As I’ve just said on air in Northern Ireland, whatever Osborne could do to make things worse, he has done.
He set out to use the downturn to destroy the public sector and all that most value in society.
And that is exactly what he is doing.
He is saying he doesn’t care about the elderly, the poor, the unemployed, school leavers with no hope, those on low pay, the environment, the green belt anmd so much more.
All he cares about is exploiting labour so that profits grow.
And yes, that is class war. He declared it.
Nov 302011
Eva Joly is an amazing woman who I am proud to call a friend.
As a result of her work in Iceland after its catastrophic crash in 2008 an institute has been established to develop the ideas of which she is such a powerful proponent. I am pleased to be on the Institute’s Advisory Board with Björk, Helena Kennedy, Edgar Morin, Yoko Ono and Ann Pettifor.
The Institute says of its work:
The world is in transition. The ongoing financial crisis has exposed how large-scale corruption has brought the world to the brink of collapse and threatens the social contract.
In her book, JUSTICE UNDER SIEGE, Eva Joly writes ;
“The nature and size of corruption facing us have no equal in the history of democracy. With the financial globalization of the last 20 years, we have shifted to a whole new dimension. The current large-scale corruption is a radically new phenomenon; it is no longer individual, but systemic and is profoundly undermining our political system.”
The challenges our societies are faced with are on an unprecedented scale. New ideas on how to respond to these challenges are being scrutinized and debated.
The aim of the Eva Joly institute is to help improve and strengthen this debate with an emphasis on:
- a better understanding of how widespread and systemic corruption has eroded the social contract
- raising awareness of the role of secrecy jurisdictions in facilitating corruption and tax evasion
- ways to strengthen openness and transparency in government and in society in general
- new ideas in economic thinking that support equality and sustainability
- raising awareness of the importance of the role of the individual as an active citizen
According to the French philosopher Henri-Louis Bergson, “great political mistakes almost always come from the fact that men forget that reality shifts, that it is in continual movement. Out of ten political mistakes, there are nine which consist of simply believing to be true that which has ceased to be”.
We are at a time where it is more important than ever that we all, as individuals and citizens face “that which has ceased to be” and actively seek new solutions. By her example Eva Joly has shown that we all have, each in our own way, the potential to render the world a little better.
The aim of the institute is to support efforts by individuals, organizations and learning institutions who want to promote these ideas and make them accessible to the general public.
I wish the Institute well. It’s a powerful beacon for good in a country that needs to recover its moral compass and in a world where the principles Eva embodies need to return to mainstream normality.
Nov 302011
I feel a comment on yesterday’s fiasco from Osborne is essential, and yet wonder what there is to add.
His plan is failing and what can I say but “I told you so”?
The reality as as Robert Skidelsky has said in the Guardian this morning:
The intellectual debate between George Osborne and his critics hinges on this single point: what is it that makes a deficit-reduction programme “credible”?
Let’s start with the theory of the matter. “Look after unemployment,”JM Keynes said, “and the budget will look after itself.” This was a neat way of saying that a credible deficit reduction plan depends on growth.
There are four engines for growth, and no more. They are:
1) Consumer spending, and that’s going down due to falling incomes, lack of confidence, rising unemployment and demands for more pension contributions from public sector workers, plus VAT rises.
2) Business investment, and that’s falling because consumers are spending less.
3) Exports, and the Eurozone is now killing those.
4) Government spending.
That’s it. That’s all you need to know about where growth can come from.
And the first three are all in decline, although business is increasingly profitable, perversely (and are lending their profits to government rather than investing it – that and quantitative easing are how the deficit are being paid for).
So, given these facts (for these are facts at present) then there’s only one way to go forward, and that is for the government to spend more. If it doesn’t then the cycle of decline continues. That is inevitable.
And as Keynes said, it spends for a reason: it spends to create jobs. That’s why the spending has to be on the Green New Deal (not the government’s watered down Green Deal) or infrastructure spending paid for by the government - because that’s far and away the cheapest way to fund it (and so getting pension funds to pay for infrastructure directly or subsidising banks to lend to small business makes no sense - the government has to act as organisers, funders, guarantors and so managers of such schemes since this way we get the benefit at lowest cost).
Cutting now, as Osborne plans, simply adds to the recessionary instinct; it adds to the lack of consumer confidence. It ensures there will be even less business investment. And it guarantees that we will be less able to export if ever the chance arises. In other words it guarantees we move to recession from the downturn we’re now in.
That’s why what Osborne is planning is disastrous. We’ve already seen all his forecasts collapse as the basis on which they were prepared were fundamentally wrong. But it will get much, much worse than that as time goes on. And that won’t be the Eurozone’s fault. That will be Osborne’s fault.
It’s so depressing when what is so obvious is ignored at cost to us all.
It’s a day when people are going to try to claim a vision for small business.
According to the Guardian Osborne has a vision for small business. He’s going to:
1) Give small companies an extended holiday on business rates extended at an estimated cost to the Treasury of £210m.
2) Unveil a seed enterprise investment scheme for business start-ups. ‘Business angels’ – individuals who support start-ups – will be offered the carrot of 50% income tax relief on investments of up to £100,000 in new enterprises, with each company eligible for £150,000 of investment in total.
3) Help for slightly larger businesses operating in those regions of the UK particularly hard hit by government spending cuts will also be earmarked for assistance through a business angel co-investment fund. Small and medium-sized companies with turnovers of between £200,000 and £2m a year and seen as having high growth potential will be eligible for help using £50m from the regional growth fund.
4) Assist the cash flow of construction companies working on government projects by the setting up of bank account arrangements to pay companies within five days or less of the due date. At present some companies have to wait up to 100 days for payment.
It’s a dismal package, bar the business rates relief, which is a useful short term relief.
Why? Because in the last case business should be paid on time anyway: doing what you should be doing and claiming it a new benefit is miserable policy making. And as for the middle two policies: sorry to say but the number of business who will benefit will be tiny, the sums involved are minuscule, and my experience of such schemes (and they have come and gone like yo-yos over my thirty plus years as an accountant) is that they’re nightmarishly expensive for small business to use, provide incredibly costly capital, tend to have far too many strings attached and are anyway simply really another mechanism for the highest paid not to pay their tax.
The schemes fail utterly to do the three things small business needs. The first is to increase demand for what they make. The second is to provide them with reliable sources of low cost capital (that was once called banking) and third provide the proper structure in which they can really operate without the constraints that the 19th century designed limited company imposes on far too many of them in terms of red tape and tax obligations.
So what does Blairite think tank Labour Business suggest instead? It published a paper yesterday. I can only comment in the space available on its small business proposal here, any other comment on a generally disappointing document will have to wait. The fact that the small business section was written by a member of City Livery Company The Worshipful Company of Tax Advisers is not encouraging. Nick Shaxson investigated them and their dedication to promotion of free market economics here. It’s a relationship that sits uncomfortably with my view of Labour, but let’s look at what’s said in chapter on small business and tax reform. They suggested this:
- Free accounting for small business paid for by the state (a practicing accountant wrote this and said firms such as hers should supply this service)
- Tax simplification to the point where one person in HMRC could answer all the questions any small business person had on tax
and:
- better tax incentives for investments which remain constant, instead of changing each year;
- policies that allow for businesses under one year old to be exempted from HMRC late fines;
- reducing the present penalties on small businesses, which at up to £3,000 for incorrect records is onerous and prohibitive;
- a new system of tax credits for small businesses with fewer than six employees on a PAYE system;
- an extension of the flat rate VAT to firms with turnover of up to £250,000.
Or to out it another way:
1) scrap most taxes;
2) make compliance with what remains voluntary;
3) even then create special rules applying solely to the employees of small business;
4) give big handouts to accountants on the way.
Truly, you couldn’t make up somehting as naive as that if it had not been published. It so lacks credibility it fundamentally undermines any claim to authentic understanding of the needs of small business Labour, if it was so unwise to adopt such thinking (that comes straight from the Taxpayer’s Alliance of handy tips for undermining government by destroying its tax revenue) might ever have had.
So let me offer a real alternative, from someone who has been an entrepreneur. That’s me.
First, small business needs there to be an economic stimulus put in place, now. Without demand there is no business. Demand is falling. It follows businesses will fail right now. You can’t have a pro-small business policy without stimulating demand. It follows like night does day.
Second, let’s get real: most small businesses employ just one person – and that’s the owner. there’s nothing wrong with that. But candidly it only suits some people, those not inclined to it should not try it, and those who are naturally tend to do it anyway. We don’t need to encourage entrepreneurship. A minority in society have that skill. Let’s not pretend it suits all: it does not and it’s a gross mis-service to people who need employment and are suited to employment to suggest they are somehow second rate as a result.
Third, self employment is about creating a job for the owner and then for others. Let’s not pretend it has some magical status. But jobs need to be taxed, fairly and properly so let’s not ask for tax favours for small business. Indeed, far from that – I note Osborne’s not choosing to tackle those who are abusing tax law and Labour Business want to make it easier to do so. I find that simply astonishing. Honest business is undermined and even destroyed by tax cheats. A government not committed to tax collection from small bsuiness fails honest small business, badly.
Fourth, let’s move on from tinkering as these policies do. Minor supply side tweaks will solve nothing. Let’s instead recognise that the limited company is a massive impediment to small business progress in this country. We have long ago agreed limited liability is a perverse thing that pays as it encourages risk. But in that case let’s not make it so hard to use. We need to sweep away the limited company for small business and reserve it for medium sized entities and replace it with a modified limited liability partnership. That instantly says the owner is the controller of the business, they’re not liable for loss unless they’re fraudulent, and they pay tax on what they earn. There’s no separate tax return for company and director, no PAYE, no dividend planning tricks to get round NIC, no benefit in kind rules on using a car you’re paying for, no paranoia about when you can take money out: that’s the real reform needed to cut the red tape out of small business and let it enjoy limited liability.
But the quid pro quo is full accounts on public record would have to be enforced.
And capital could come in then as a flexible profit and equity sharing arrangement with lenders – as is really needed, with much less complexity than now. Oddly, that’s sharia compliant – and that’s a mark of the credibility of the relationship in this case because both parties are then mutual risk takers.
And let’s not pretend that banks and business angels are going to supply this new capital – a new state invetsment bank needs to do that – funded using 25% of all pension contributions paid in this country as a condition of the tax releif given on them. This would transform small buisiness capuital. We wouldn’t be making a few million avaiulable as Osborne wants: we’d make all the capital needed available.
What next? A reduction in employer’s NIC for now to make it easier to take people on.
And using LLPs it would also of course be easier – much easier – to promote people into ownership which can be massively difficult now – and which those in Tory and Labour Business ranks seem to ignore entirely as an issue, but which I think incredibly important.
After that? Three things: Make it an offence to not pay on time. Second, promote standard terms of trading and employment by default: what’s the problem? Nudge people into them unless they opt out and that way admin is dealt with by default. And lastly as a matter of course make sure tax offices are open in all population centres of more than 30,000 people so people can go for HMRC advice whenever they need it – but not necessarily all from one person, because that’s just daft.
Is all that possible? Yes it is. It will deliver a modern framework for small business and its regualtion. It would really cut red tape. It would make dealing with tax vastly easier. It would open real avenues for promotion into ownership. It would make capital available in genuine partnership deals. It would create demand. It would make employment cheaper.
That’s a deal for business.
The right wing aren’t offering that.
Why not?
NB There’s more on this in the Courageous State
If Osborne was right markets should be pushing UK interest rates upo strongly today – but they won’t
Nov 292011
George Osborne has said since before coming into office that beating the deficit and curtailing debt is vital.
Today he will admit he’s going to fail to do that in this parliament.
He’ll say he’ll overshoot by £30 billion. Others by much more. Since all Osborne’s forecasts so far have been far too optimistic I’ll go for the ‘much more’.
And what Osborne has always said is that if he fails to deliver that cut in the deficit then the markets will panic, the interest rates we pay will sky rocket and the economy will spin out of control as money pours out of London.
Instead we have rates lower than Germany.
And they won’t change today.
That’s not because Osborne’s getting a vote of confidence.
It’s becasue Osborbe was wrong.
The markets never demanded that the deficit be cleared with undue haste. The markets never demanded 20% youth unemployment, a crash in demand, a threat to well-being that is the harbinger of real instability and a massive increase in benefit payments because the government wantonly cut services people needed. All it needed was confidence that the government can pay. That’s all that matters to it. And Labour had, before the crisis, left the UK with very low debt at less than 40% of GDP, and very long repayment terms at 14 years on average. And Brown had refused to let us join the Euro. As a result the markets had all they needed in April 2010. And as a result of that sound foundation they still have.
All that’s happened since is that Osborne has trashed the domestic economy for no good reason and certainly not because the markets demanded it.
Beware market fanatsist: they’re very dangerous people.
John Harris, writing in the Guardian, has reviewed George Osborne’s infrastructure plan for the UK and found it wanting.
He did find an alternative. As he wrote:
This week I spoke to Richard Murphy, the economist and tax expert, whose new book has the self-explanatory title The Courageous State and brims with imaginative thinking. Using pension funds for national investment, he told me, could be done much more efficiently than the Osborne plan. In exchange for the vast sums granted in pension tax relief – £38bn at the last count – we could be compelling funds to put money into the very infrastructure projects the government is so keen on – and with no need for a mouthwatering rate of return to draw them in. The same logic, he says, applies to credit easing, the roundabout method Osborne is using to persuade banks to supply businesses with money. Again, were we to insist on a quid pro quo for pension tax relief we could channel funds into a national investment bank and send credit directly to those businesses. But that’s all surely too ambitious for Whitehall, and far too dirigiste for the free-marketeers at the top of government. In its present state, Britain needs big push after big push; their approach remains limited to nudge economics.
When private sector financial services have so obviously failed and when the private sector is sitting on tens, if not, hundreds of billions of cash it has not a clue what to do with it is very obvious that paying the private sector to manage the projects we need to fund our economy, to allocate the investments that small business needs and to set long term economic priorities, on which subject they have no expertise or experience since all have been reduced to the decision making ability of the market trader, would be economic madness.
That’s why I argue we need to ensure that some of the wall of money sent into pension funds each year – just a quarter of it – be diverted instead into making real investment for the benefit of the future of this country so that those for whom those funds are supposedly invested have the prospect of a job until retirement. Second, they need to see that they’ve invested in something that their children can use and therefore pay them for – because that’s the basis for the fundamental economic contract which almost all private sector pension fund arrangements now quite explicitly ignore.
There is at the core of our economy a void right now. It’s a void because there is no demand. It’s a void because there are no new jobs. It’s a void because there’s no real investment. And there’s a void because there’s no real thinking on how to solve all three problems at once without breaking the bank.
Well, that’s what I’m offering. A simple, effective and obvious solution to all those problems, at once, that can work, is allowed in EU law, will deliver and still lets pension fund managers waste three quarters of all money paid to them in exchange for the exorbitant fees they charge, as has, unfortunately been their habit for far too long.
And it’s all in The Courageous State.
