I think it would be hard for any reader of this blog to have missed my concerns about Brexit. Anyone with any degree of political nous, some experience of the complexity of the fine print of law and an awareness of just how stressed relationships about EU membership are, not just in this country but right across Europe, must recognise the enormous challenges that the reality of Brexit - Brexality as I might call it - really are. It is, of course, the right of Brexit enthusiasts to dismiss such concerns but with all due respect to them, doing so must either betray their own desire to get Brexit right or it is indication that they really do have no clue what they are walking into as yet. In the circumstances it's impossible to look forward to 2017 without some considerable degree of concern. The state of the economy and the parlous well-being of too many within the UK would be enough to ensure that. The rise of a new populist politics across Europe and the USA only adds to that concern.
But, as I suggested in the essay I published yesterday, such concerns leave a choice. It is possible to succumb or it is possible to find silver-linings. Without in any way reducing my concern about the Brexit process it would be absurd to say that there are no silver linings in amongst the manifold difficulties we will face if that process is to succeed. It's important to be aware of these so that the opportunities they represent can be grabbed when they arise. I will concentrate on just three.
The first is that leaving the EU ends the obligation for the UK to partake in the free movement of capital. It's not just free movement of labour that is guaranteed by the EU: so too is free movement of capital and there has always been a fundamental problem in linking to the two. Because capital can move vastly more quickly and easily than people (it has no family ties or school arrangements to worry about, for a start) having freedom for both capital and always meant that reward was going to shift from labour to capital because capital has the greater agility. The time has come then to make clear that it is restriction on the free movement of capital that will be needed if the return to labour is to improve in the UK.
So, we need not permit companies incorporated anywhere to trade in the UK: we can demand that they be truly accountable in this country.
And we can say that if a state provides a regime that is very obviously aggressively unfair to the UK we can impose sanctions on it by way of deliberate penal tax charges. So, for example, we could refuse to permit payment to certain tax havens without tax being deducted first of all in the UK.
We could, in addition, build protective barriers around the takeover of UK companies to protect UK workers.
And we could certainly stop our tax system being used to subsidise those takeovers, as has all too often happened in the past.
Let's not understate the importance of each of these issues: they might really matter in a world where tax wars are ongoing. I am not saying the UK should become an aggressor. I am saying many of the regulations that prevented us mounting a defence against abuse will disappear after Brexit. We should be willing to use the opportunities that provides.
Second, QE was only required in the UK because the EU barred direct lending from a central bank to its own treasury. As a result the absurd mechanism called QE, where the treasury had to issue bonds for the central bank to then buy them back in open markets, with commercial banks always earning a margin in the process, can be ended after Brexit. The sham can be ended: the right of the Central Bank to create money on demand can be recognised, at last. This will not only save cost, it restores credibility as well as recognising an economic reality that should be an essential feature of all sound macroeconomic policy. I am not saying as a result that QE must continue in its existing form; I have long suggested otherwise. What I am saying is that the absurd situation where the government cannot deal directly with its own central bank to manage monetary and fiscal policy will be brought to an end and that must be of value.
Third, as I also made clear yesterday, a new form of capitalism will have to be built on the basis of transparency. The reality is that much of the EU is way behind in thinking on this issue and has sought to impede progress on issues ranging from beneficial ownership disclosure, to the filing of appropriate accounts for smaller companies on public record to country-by-country reporting. Freed from those problems the UK could pioneer the new era of transparency that will help ensure that capital is appropriately allocated to those best able to use it; that will ensure tax is paid at the right time and it will also ensure that creditors - including employees and pension funds - get all the data that they need to manage their risks. Again, we should embrace this.
I stress, I would rather we did not face Brexit and the enormous waste of time, effort and national income that it represents. But if we are going to do Brexit then we have to make the best of it. Identifying the opprtunities it provides is part of that process. It's the duty of those who want the best possible Brecit outcome for the people of this country to put them forward. I will try to do so.
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Regretably the only time your prefered state of affairs ia likely to happen is when the political will is to look after all of the Queens subjects and not just the wealthy. Cant see that happening this side of Armageddon. I suspect another tax haven is in the mix.
“Regretably the only time your prefered state of affairs ia likely to happen is when the political will is to look after all of the Queens subjects and not just the wealthy. Cant see that happening this side of Armageddon. I suspect another tax haven is in the mix.”
With the Queen being a member of the socioeconomic elite declaring yourself one of the Queen’s subjects isn’t really a cracking start!
I like the idea of the UK automatically imposing withholding taxes on any transactions with tax havens, which some countries (e.g. in Latin America) seem to do already. i.e. You want to put your money in a tax haven? OK, go ahead, but you’re going to pay us our tax on the way out.
How would it work in practice? I guess two potential obstacles would be the need to come up with a robust list of tax havens and to renegotiate the relevant tax treaties, both of which could be overcome with sufficient political will.
What other technical (as opposed to political) obstacles might there be? For example, how might such a WHT regime distinguish between flows of corporate and personal income which are taxed at different headline rates in the UK and therefore might appropriately face different WHT rates on exit from the UK?
And would such a WHT regime have to require UK taxpayers to report to HMRC the effective tax rate on a financial outflow in the country that receives it, in order to distinguish between transfers to tax havens and “normal” investment in countries which also have non-tax haven sectors of their economies (into the Netherlands)?
Happy New Year!
Diarmid
Diarmid
The tax haven list is relatively easy: TJN provides much of it
WHT is applied in a number of ways. First by default payment for goods is allowed without WHT so long as the recipient can provide basic data required for automatic information exchange: who is the recipient, where based, who owned by and where taxable?
Payment for services requires WHT: the rate depends on the service supplied. The data already exists from VAT systems. The reverse input system requires that this be maintained. I can think of few services that would not require a WHT but some (management services, interest payments, royalties, reinsurance that might r3quire higher rates.
Our capital flows are harder but not difficult. You reqire funds to be transferred to a designated location to be paid through small number of paying agents. They must be Responsibloe for verifying the source of funds and AIE compliance. And re-routing to use a third location would be considered tax evasion with the new penalty regime for offshore evasion applying.
It could be done. Happy to develop it if you’re interested – could be a useful publication.
Best for 2017
Richard
Both free movement of labour and capital will be of benefit to a Labour government. As will abolition of CAP and VAT.
I am not sure what you mean by the first part
Or the abolition of VAT – which I could not support
Sorry to harp on again Richard but we do need a universal low rate sales/services tax to replace and greatly enhance corporation tax and achieve the same as you suggest on taxing the movement of payments. If done correctly we could abolish income tax and introduce a basic income – and I’m a capitalist! But not in its current form which is as incompatible with a consumer economy as are skint consumers!
Sorry Peter but that just would not work, as I have explained before
I don’t see why we need a tax on services, which we did not have before VAT. What we do need is a proper consumption (of raw materials) tax – an extension of the carbon tax concept. For that we will need the ability to in effect apply tariffs.
“restriction on the free movement of capital that will be needed”
Are you wanting to keep capital from moving into the UK or from moving out of it?
Potentially both – depending on the situation
Financial capital cannot be assumed to be benign
Surely a monetarily sovereign government like the U.K can create all the capital it needs to fund anything. This being so, how is the flight of foreign capital a risk in any sense?
Control
Tax
Equality
Richard, I am interested to see the points you have made where benefits can be achieved following Brexit. For those of us who study these matters, there were many good reasons for both remaining and opting out. I believe many of my MBA colleagues voted to remain but in the end I was persuaded to vote for Brexit by the detailed financial and historical arguments presented by Prof Richard Werner.
It is now important to plan to use the advantages you have outlined above for our future financial resilience.
With best wishes for a prosperous and successful New Year and thanks for all your thought provoking ideas.
Thanks
We need to start considering tax simply as a method of adding brakes to the economy, by draining it of cash.
If the economy is in the doldrums, then tax should be reduced. If it overheats (too high inflation), tax should be increased. its as easy as that.
Instead, what is taught is that tax is there to pay for public services,….and we just cant afford it, and we will be like Greece if we are not careful. Every party says this, labour, tory, etc. It is, The Noble lie. Its reflected by the EU’s stability and growth pact (even though we have no legal requirement to keep within it), and (lie mentioned in my previous comment), told us by the likes of the Mail/Express/BBC. All the time.
I don’t think, however, that leaving the EU is going to make a blind bit of difference to this myth they tell us.
Might I suggest you read The Joy of Tax?
Reading it now. Summarising the reasons for Tax (page 66), you put
“1) Reclaiming money the government has spent into the economy, for re-use’.
Why re-use? If the government has the magical power to spend what it likes into the economy, then it really does not need to re-use anything…. it may as well just deduct the received tax from the ‘national debt clock’, and be done.
The crucial point I am trying to make is that the moment some politician says that tax received is used (or re-used) to pay for a public service…..then it doesn’t take much of a leap to claim ‘we cant afford X, because there we don’t have enough in the re-use kitty, followed by ‘Labour spent it all’). The public very much believe that the public spending is constrained to some degree by tax revenues…. and, even yourself claiming that tax revenues are ‘reused’, clouds the issue. EVEN if the current government finance IT systems scrape some of the income from tax, and channel it to public funding, then this is an implementation choice to design the computer systems this way…. it doesn’t have to be like this at all….. and maybe it was done this way so the government really can claim there isn’t enough revenue to provide funding for X, because it designed the system.
It doesn’t have to be this way, and hasn’t needed to be this way since we left the gold standard. Its a political choice to re-use money collected.
Instead, what should be advocated is:
1) All money received by tax revenue is destroyed, after marking down the national debt by the same amount.
2) All money for public funding is created afresh, possibly by selling gilts, or QE, or whatever
And really bringing the message home to the public that the two processes are separate and independent of each other.
Then, when Andrew Neil starts going on about ‘How will you pay for it’….then, he would simply appear an idiot….. but, it will take a change of public perception of what tax is for to get to this point.
My logic is that there is a limited capacity for money if inflation is to be reused
Cancelling money creates new capacity for creation
In short, we’ve got the job of making a silk purse out of a sow’s ear.
Our bankers can make a serviceablw wallet out of it, were they so motivated; and our adverising industry should be incentivised to reddem tgeir inadequate performance in the referendum – neither side presented a case well – that it is not only a purse and the very finest silk, but it is gilded and endlessly refilling.
There remains the task of salvaging something useful from this pig’s ear of a problem; and, while a one-way ticket to the sausage factory for the perpetrators is attractive, it’s not a practical proposal.
You’re not doing badly. I would like to think that several competing ideas had, by now, emerged; but you are currently the only game in town.
Unless, of course, we count the default position of doing nothing – as if nothing was happening – while the Conservative Party lead the Gadarene rush into a deregulated economy of starvation wages for the many and wealth for the few, funded by flogging off everything for rent and laundering the world’s dirty money.
So the choice is the sow’s ear – your game, if you will – or gammon in the pigsty and, eventually, the sausage factory for a failed political class.
I doubt I’m the only game in town
I still find it astonishing how few there are
There are few games in town because none of them appear (including yours, although I don’t say this to criticise) as electorally plausible. There are no majorities for a massive reworking of our way of life – and yet it’s very hard to see how a silk purse is made out of Brexit without such a huge undertaking.