Tax Research UK

The FT has noted:

Wanted: old banking hand with a halo to take on high pressure role in the political spotlight.

The emergence of Sir Win Bischoff as the frontrunner to become chairman of Lloyds Banking Group has highlighted the short supply of well-qualified candidates for leading roles in the sector.

The 67-year-old former chairman of Citigroup is in a small field of candidates at a time when three banking institutions are searching for new chairmen.

I guarantee you: he’s the wrong man.

But that’s not really the point. The reality is that the shortage of candidates to manage these banks is not caused by a lack of suitable people; the cause is that these banks are unmanageable. Win Bischoff could not manage Citi. He won’t be able to manage Lloyds.

When we create organisations that are ‘too big to fail’ management goes out of the window: it has to survive but the inherent conflicts in that process of survival are too great to reconcile, as recent events have shown. No one can reconcile those claims, so there are non candidates because the job is wrong, and that’s because the organisation is wrong.

The job of UK Financial Investments is not to offer up another failed banking grandee as a sacrificial lamb to Lloyds Bank; it’s job is to split Lloyds into manageable parts. Then appoint people to run it.

Richard Murphy Banking, Economics

The predictable response to the new Banking Code has arrived. Accountancy Age has reported:

Michael Wistow, head of tax at City law firm Berwin Leighton Paisner, said that the code would make the UK ‘a less attractive place to do business, which cannot be helpful in these most difficult times and will further damage the UK as a major financial centre.’

The code stipulates that banks be expected to follow the ’spirit of the law’ as defined by HM Revenue and Customs rather than legal precedent.

‘All taxpayers, including banks, should be able to rely on the courts and Parliament alone,’ he said.

Of course: the law is supreme. But all the Code asks banks to do is comply with it. Now what’s the problem with that?

Richard Murphy Banking, Code of Conduct

From this morning’s Guardian:

Banks benefited from a spate of positive reports yesterday, with Lloyds Banking Group the biggest riser in the leading index after an upgrade from Goldman Sachs.

Goldman raised its rating from neutral to conviction buy and lifted its price target from 61p to 107p. "We see Lloyds as a key beneficiary of increased market share concentration in the UK," it said, "and expect the group to be able to take advantage of its 30% share through market-leading cost efficiency and pricing power."

Lloyds closed up 4.07p at 70.56p, while Royal Bank of Scotland – recommended by Cazenove last week – rose 0.87p to 39p after Goldman upped its target from 36p to 41p. Meanwhile, Barclays added 11.5p to 279.65p after a change of heart at Société Générale. SocGen moved from sell to hold with a 260p price target, up from only 46p, after the recent announcement of the sale of Barclays Global Investors.

So banks went out of their way to tip banks. Now there’s a surprise.

And I know that the state owns some of those banks, but what is inherent in these soaring bank prices is the externalisation of their risk: the state bears that now. Which is exactly why they should be under  much tighter state control, be split into traditional and casino banks, and should be subject to a 10% extra tax to pay the insurance premium for the risk they impose on society.

If we don’t do that what is quite clear from the above is that they’re laughing all the way to the bank.

Richard Murphy Banking, Economics

The good news about the government’s new Tax Code of Conduct is that it exists. It would be churlish not to recognise that.

But, that said, it really does not go far enough. In keeping with the government’s lack of willing to tackle the banking industry it tackles the issue and then fails to address it.

The issue is that:

The Government believes that, in the light of the significant taxpayer support provided to stabilise the banking system, taxpayers are entitled to expect that banks, important taxpayers in their own right, and their customers pay their fair share of tax.

The failure is a simple one: if the government really meant to tackle this issue it should have backed any Code of Conduct with statutory powers to enforce it. In this case that would require a General Anti-Avoidance Principle (GAntiP), an issue I explore in more depth here. In essence a GAntiP says that if a step is added to a transaction with the sole or principal aim of securing a tax advantage (which is defined as a saving in tax) then that step in the transaction is ignored for tax purposes. This is that the new Code of Conduct also seeks to say: why not back it with law?

The omission from the Code is the obligation it should have put on the government to make it easier to determine what the ‘spirit of the law’ and the ‘intention of parliament’ is. Again, I have written extensively on both issues, most accessibly here. The government has a duty to publish purposive legislation, and it must empower courts to interpret the law of tax purposively. If not we will always end up with the courts undermining any Code – a fate that an attempt at a general anti-avoidance rule (note, rule not principle – they are not the same) has suffered in Canada.

And then there are three oversights: the first is that this Code does not extend to the advisers and auditors of banks. That seems a serious error: these parties should be covered with the obligation to ensure their clients comply or to decline to act. Second, it’s not clear if the Code extends outride the UK, when clearly it must if tax haven activity is to be included. Third, there is no requirement on the government to ensure its own activities are also compliant. That would mean it would be banned from using artificial structures such as orphan entities, too commonplace in PFI for example, or from artificially promoting tax competition. Reciprocity is  key to the acceptance of voluntary obligations, and I am not seeing it here.

All of which leaves me grateful that this will be reviewed in twelve months, and worried that it will be the Tories who review it, which gives more than enough reason for going the extra mile now.

Richard Murphy Accounting, Banking, Code of Conduct, Tax avoidance

The government has published its consultation document on the planned Code of Conduct of Banks.

It justifies targeting banks for these reasons:

Tax avoidance is not exclusive to banks, but banks are uniquely placed in that they:

•  can seek to avoid their own tax liabilities, whether this involves increasing the recovery of VAT incurred on their transactions, reducing their profits liable to corporation tax or minimising their and their employees’ income tax and national insurance contributions;
•  provide financial services to customers, many of which services are sensitive to tax and some of which can be used for tax avoidance; and 
•  have access to large amounts of capital which  they can use to facilitate avoidance schemes designed and implemented by others, for example by providing loans of tens of billions of pounds for periods sometimes as short as a few hours. 

The Government believes that, in the light of the significant taxpayer support provided to stabilise the banking system, taxpayers are entitled to expect that banks, important taxpayers in their own right, and their customers pay their fair share of tax.

I’ll have more to say on this late.

Richard Murphy Banking, Code of Conduct

The FT has reported:

In a 66-page report expected to be endorsed by heads of government at next week’s G8 summit in Italy, ministers agree “a re thinking of the framework of the global economic and financial system is critical”.

“A set of common principles and standards governing international economic and financial activity is an essential foundation for stable global growth,” the report says, laying out the proposed Lecce framework, named after the baroque Italian city where the ministers met this month.

The report, seen by the Financial Times, recommends the “global standard” cover such areas as executive pay, corruption, banking, corporate governance, taxation and markets.

The focus is on improved ethics.

And I agree, we need them.

But let’s be clear, such appeals are not enough. I’ve been around long enough to know that the only ethic in the City and in my profession is making money. The only thing that constrains them is fear of being exposed. The only way to alter outcomes is to change available structures.

That is why we have to change the structure of banking.

That is why we have to curtail the likes of Barclays.

That is why we have to split traditional and casino banking.

The case is so obvious that even the Bank of England buy it. So why, oh why, can’t our politicians?

Ethics are good, but ethics aren’t enough right now. I hate to say that, but the case is clear.

Richard Murphy Banking, Economics, Ethics