Richard Murphy

Austerity isn’t working: progressive alternatives to Tory slash and burn

Economics 4 Responses »

Feb 072012

I’m speaking at:

Portcullis House is, of course, part of the Houses of Parliament.

The speakers are:

Katy Clark MP

Owen Jones, author of Chavs

Anna Bird, Fawcett Society

Richard Murphy, author of The Courageous State

Prof George Irvin, economist

Ellie Mae O’Hagan, writer and UK Uncut activist

Chaired by Cat Smith, Next Generation Labour

*Space is limited so please RSVP to info@nextgenerationlabour.org if you wish to attend.

* You can help publicise by inviting your friends to the facebook event.

Want to know why HMRC bad debt was £10.9 billion? Simple: they sacked the debt collectors

HMRC, Tax gap, Uncategorized 9 Responses »

Feb 072012

It’s been revealed that H M Revenue & Customs’ bad debt in 2009-10 was £10.9 billion.

According to HMRC’s accounts the provision was £10 billion in 2010-11 and £11.5 billion in 2009-10. They did not, as far as I can see (and I’ve searched) disclose a write off figure.

In earlier years write offs of about £4 billion a year were considered normal.

So why the increase? Well that’s easy to explain. If you sack your debt collectors your bad debt goes up, and that’s exactly what HMRC under the direction of Dave Hartnett has been doing. In 2005 HMRC had 100,000 staff. By 2015 it will be 50,000. Many of these were debt collectors.

Total HMRC staff costs in 2010-11 were just over £2.2 billion. Seeking to reduce that has cost many, many times that sum.

No wonder the tax profession, HMRC staff unions and anyone trying to deal with HMRC agree that HMRC is understaffed. Now we know the cost.

When will sanity prevail and more spending on staff at HMRC be sanctioned? It’s the only way to solve the tax gap.

If HMRC bad debt is £10.9 billion their estimate of the tax gap has to be massively wrong

HMRC, Tax gap 8 Responses »

Feb 072012

It’s been revealed that the UK’s national accounts for 2009-10 include tax bad debt of £10.9 billion.

I found this interesting. That’s because, as regular readers will know, I’ve been writing about the ‘tax gap’ since 2006, and pretty much forced this issue onto HMRC’s agenda in 2008, as government papers at the time showed. The tax gap is made up of three parts. The first is tax avoidance (£25 billion in my estimate), the second tax evasion (£70 billion in my estimate) and the third tax paid late (£25 million according to HMRC of which they have said about £4 billion a year has been written off on average in previous years. This definition of the gap is not mine by the way: HMRC agree with it, except they ignore tax paid late and recovered in their numeric calculations despite including it in their definitions.

But if they do include bad debt of £10.9 billion then their latest estimates of the tax gap – supposedly for the same year, 2009-10 are even more wildly inaccurate than we thought, because they claim that in total the tax gap is just £35 billion that year. That would mean there was just £24 billion of tax avoided and evaded, and yet as I have shown using World Bank figures for the UK shadow economy, it’s implausible that we have a tax evasion gap of less than £70 billion (which so happens to agree with my estimate of the same gap based largely on VAT data). If the HMRC claim on the total tax gap were right tax evasion would be little more than £20 billion – and that’s just 3.6% of total overall tax revenues.

No country on earth has a tax evasion rate as low as that. Switzerland is supposedly the cleanest domestic economy on earth and has a shadow economy of 8.5%.

So what this data says is that not only do the national accounts have some surprises in them, but HMRC are lying about the scale of the tax gap. Sorry to use such language, but on this occasion it seems appropriate (and they can always sue me if they wish). But I don’t think they will. What this data reveals is that not only have they not previously told the truth on the scale of bad debts HMRC has been suffering, they’ve also been disguising that data in the figures on the tax gap they have been producing. As I’ve said all along.

The American right wing turn on the old – and it’s a trend we’re bound to see copied

Uncategorized 7 Responses »

Feb 072012

This video shows the new line of thinking from the American right on the cause of our economic problems – blame the old.

To understand some more about the speaker, just click here. This is Koch Industries at work.

But mad – and bad – as this logic is expect it to be followed. The idea that we ‘can’t afford the elderly’ is growing rapidly. It’s the inevitable outcome of the ‘we can’t afford pensions’ argument. And morally it takes us toi places I’d rather not go – but will if I have to, because I sure as heck do not think we consign the old to destitution, even if the right do.

Hat tip: TJN

The EU makes clear it is at war with Swiss banking secrecy, whatever Dave Hartnett thinks

Banking, Switzerland, Tax evasion 2 Responses »

Feb 062012

Bloomberg has reported this morning that:

Switzerland must eliminate banking secrecy and renegotiate tax accords with the U.K. and Germany that clash with regional initiatives, according to European Union Tax Commissioner Algirdas Semeta.

While Switzerland agreed in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development, bilateral agreements signed in September with Germany and the U.K. allow client identities to remain secret.

“Banking secrecy that allows companies or individuals to hide taxes has no future,” Semeta said in an interview in Brussels.

I wonder which bit of that Dave Hartnett and george Osborne, with their appalling tax deal with Switzerland don’t understand?

Nor come to that, which buit those from Switzerland who defend such deals in comments on this blog don’t understand.

Swiss banking secrecy has to die because it exists to facilitate tax and other crimes. Now let’s move in to kill it.

We won’t be selling QE’d gilts back into the economy – it just won’t be possible

Economics 21 Responses »

Feb 062012

Larry Elliott is writing about gilts this morning as he (like me) is sure there will be more quantitative easing announced this week.

Let me say straight away, that like Larry, I question the need for this: we should be stimulating the economy instead, but having made that point I also then disagree with Larry.

As he notes:

The fact that the Bank is even considering a further easing of policy is testimony to the profound weakness of the UK economy. For the past three years, bank rate has been 0.5% – comfortably the lowest level on record – and despite the pain being felt by savers there is no sign of it going up any time soon. The Bank has bought up some 20% of the gilts market already in an attempt to boost the money supply. Meanwhile, the Treasury has borrowed £500bn since the economy went into recession in early 2008.

In other words, net borrowing is not £500bn, it’s £500bn less QE which may well be £350bn by the end of this week, as I have argued. So we have not got the debt crisis the government argues we have. We do have a deficit: we don’t have a debt crisis.

And that’s why Larry is wrong to say:

at some stage the Bank will need to unwind the monetary easing of the past three and a half years, selling gilts back into the financial markets. This is going to be tricky to achieve without leading to a collapse in the price of government bonds, and the more bonds the Bank has to sell the trickier it is going to be. This matters because the price of gilts goes in inverse proportion to the yield or interest rate payable on them. When the price of gilts goes down, long-term interest rates go up, so the challenge for the Bank is to unwind QE without triggering a run on gilts that would push the economy back into recession.

We’ll never sell those gilts back. The IFS says we have £280bn of new gilts to sell over the next three years to fund the deficit. There is not a hope we’ll add £350 billion of resale of gilts on top of that. The only likelihood is in fact of more QE: over that period there is no way the market can absorb £280 billion of new debt.

That means that the reality is that QE will lead to cancelled debt. Every single penny of the gilts repurchased will, I am sure, be cancelled. Nothing else is possible. It’s just a matter of time before the lightbulb gets universally switched on to that fact that the debt repurchased under QE is no longer debt at all. There’s just new cash, and given that the economy needs that cash we’re not going to cancel it now, or in five years time. So let’s get real about it.

And let’s also remember there’s nothing odd about cancelling gilts: it happens all the time. They’re time limited loans. All we’d be doing by cancelling them is declaring time early. Let’s not overstate the fact that this is completely possible, and more than that, it’s desirable, and bar being early, totally normal. Then we can have a real economic debate.

This Thursday in Norwich

Development, Tax avoidance, Tax Havens No Responses »

Feb 062012

‘U STOP Poverty – How Many Multinationals are Keeping the Poor, Poor’ on Thursday 9 February, 7.30 pm – 9.00 pm is part of a series of events in the city organised by Christian Aid to inspire and inform those working to relieve poverty, and to begin a process of networking which will lead to ongoing mutual support.

Richard Murphy (pictured), who is an anti-poverty campaigner, tax expert and the author of‘The Courageous State: Rethinking Economics, Society and the Role of Government’, will explore how the current economic situation can be changed so that developing countries no longer lose out in aid from companies avoiding the payment of tax.

Julian Bryant, of Christian Aid, explains: “£101 billion a year could fund the UNs’ Millennium Development Goals several times over, eradicate malaria or make significant differences in relation to solving major issues of poverty in developing countries. Yet, it has been estimated that £101 billion is being denied to developing countries by various multinational corporations that use tax haven secrecy to avoid paying taxes.

“Developing countries are losing more from companies avoiding the payment of tax than they receive in aid. Imagine what a difference it would make to a developing country to actually receive the tax they are due?”

The event is free and open to all with no booking necessary. For more information contact Julian Bryant, Christian Aid on 07940 848829 or email jbryant@christian-aid.org.

Kings Centre (Kings Church), Kings Street, Norwich, NR1 1PH

Nigel Lawson – an exercise in wantonness

Economics, Uncategorized 12 Responses »

Feb 062012

I often think Nigel Lawson lives on a different planet to the rest of us. He wrote this in the FT this morning:

Capitalism works – and works far better than any other system – because the discipline of the marketplace keeps greed, folly and incompetence in check. When this is lacking, when businesses are considered too big, too important, or too interconnected to fail, this crucial discipline disappears, and disaster is almost inevitable.

Maybe he hasn’t noticed that what happens on the theoretical black board of capitalism, which is what he describes, is not the same as the capitalism we inevitably get in practice, which is a very different beast altogether. But to argue for the blackboard version of capitalism as if it would solve the problem it inevitably creates is indicative of one of two things and they’re either wanton inability to understand the real world or wanton deception to support the abuse that happens in the real world of capitalism. It’s one or the other and since I’ll assume Lawson is honourable it’s inability I have to go for.

Either way, lawson is a long way past his usefulness, if he ever had any.

Stop corporation tax relief on high pay

Economics, TUC 16 Responses »

Feb 062012

The TUC has published a new report this morning called Bonus Season. The summary says:

Ending corporation tax relief for pay and bonuses worth more than 10 times average annual earnings (£26,200) could raise around £1.7bn a year if applied to the banking and financial services sector, according to a new TUC report published today (Monday).

The TUC report Bonus Season uses data from the Labour Force Survey to show that over a third (36 per cent) of employees earning more than £250,000 a year in the UK work in banking and finance.

The report then uses HMRC data to estimate that around 81,000 people have incomes of over £262,000 (10 times average annual earnings) that come primarily from employment, including 29,000 people in banking and finance.

The report finds that total pay on earnings above £262,000 in the finance sector – which the TUC believes should be disallowed as a deductible expense for corporation tax purposes – is around £6.8bn a year.

Ending corporation tax relief on earnings over £262,000 in the banking and finance sector would raise £1.7bn a year – vital revenues towards paying back the deficit created by the financial crash, says the TUC.

The report also estimates that extending the scrapping of corporation tax relief for top pay and bonuses over 10 times average earnings to all UK companies would raise around £5bn a year.

With the government effectively cancelling out its own levy on bank balance sheets by cutting the rate of corporation tax from 28 per cent to 23 per cent by 2014, the banking and finance sector is no longer making a proper contribution towards paying off the deficit it played a key role in creating, says the TUC.

A previous TUC report The Corporate Tax Gap showed that banks already pay well below the headline rate of corporation tax and that that the scale of bank losses at the height of the crash has allowed them to knock £19bn off their future tax bills, despite an £850bn bailout from taxpayers and the Bank of England.

The fact that banks are back recording big profits and handing out billions of pounds in bonuses proves they can easily afford a new tax on big bonuses, says the TUC.

The TUC believes that making earnings more than 10 times average annual earnings liable for corporation tax would not only raise revenue but also tackle growing pay inequality by encouraging companies to spread pay across the workforce, rather concentrating it on those at the very top.

As well as calling for top pay to be liable for corporation tax, the TUC believes the following changes would help tackle the growing pay divide between top executives and the rest of the workforce:

Bring a much-needed dose of economic reality to executive pay decisions by introducing worker representation on to remuneration committees.
Make executive pay more transparent by publishing the ratio between top pay and both median company workforce pay and the lowest paid members of staff.
Tackle the closed shop of non-executive directorships (NEDs) by forcing companies to advertise positions externally.
Make rates of pay increase for directors reflect those of other employees, with an explanation given in the remuneration report should this not be the case.

I think such a policy would be a valuable constraint on high pay. But I should add that I advise the TUC on such issues so my agreement is unsurprising.

The message though is a simple one: if all politicians agree high pay is a problem we should simply stop subsidising it. What’s the problem with that?