Tax Research UK

I have been looking at the Tax Information Exchange Agreements (TIEAs) that have, in the main, been signed as a result of g20 pressure arising in April this year.

There were 180 of these by 10 November, the cut off for my work. I think there’s one more now.

I have plotted them all. In doing so some interesting trends emerge. Take this table, for example. It shows the TIEAs signed by OECD non-compliant grey and black list states with each other.

I am well aware that this table is small: click on it and the whole thing comes up in a separate window.

I stress: the data relates to all TIEAs signed to 10 November 2009.

What the table shows is that 24 TIEAs are between grey list states (I know the total says 48 – but it does, of course, count each agreement twice). The implication is clear: these ‘non-compliant’ secrecy jurisdictions listed by the OECD in April 2009 have been seeking to become ‘internationally compliant’ by signing TIEAs with each other. Remember when noting this that signing just twelve TIEAs makes a place internationally compliant. No information has ever to be exchanged: having the TIEA is enough.

I predicted this would happen as soon as I heard of this requirement. It was too obvious that this would be what they would do.

If I expand the sample to the jurisdictions covered by the Financial Secrecy Index published by the Tax Justice Network then 66 of the 180 TIEAs are between secrecy jurisdictions (expanded image is here):

Note that in some cases – like Andorra, Anguilla, Liechtenstein, Monaco and more like them the rate of TIEA with other secrecy jurisdictions is very high indeed. As is very clear: these places are seeking to run a  closed shop where they are ‘compliant’ but will never have obligation to ever exchange any information because you can be sure none will be requested.

The rate of 66 out of 180 may not sound worrying, but it is. 67 of the remaining agreements are with Nordic states. Now I’m not chastising those Nordic states, but when 28 of all agreements are with the Faroe Island, Greenland and Iceland the standard is obviously wrong. Such agreements cannot be material to the setting of an international standard but right now they are 15.5% of all agreements.

So what’s left after insider dealing between secrecy jurisdictions and the Nordic states is excluded? Spain has just two agreements, Italy none, Canada 1, Germany 6, France a good (in this context) 11. But surely it is absurd that we aren’t measuring compliance in  terms of the recipients of information and not the suppliers? Why is it Spain gets 2 and is told that secrecy jurisdictions need sign no more as they are compliant? That  has to be wrong.

And so too are the absentees from the list very notable: India, China, Japan, Brazil, most of Africa, almost all developing countries. When will they get a deal from states that are willingly, knowingly and very deliberately abusing this new standard to sign deals with each other so that the people who need information to enforce their tax laws will not receive it?

The OECD standard for TIEAs is not good enough. It needs urgent reform. And very soon.

Richard Murphy OECD, TIEA, Tax justice

I spoke using the above title at a meeting in Parliament last evening, previously noted here.

For those interested, these are my speaking notes set out as a mindmap.

Richard Murphy Secrecy jurisdictions, Tax Havens, Tax justice

Stephanie Flanders, the thinly disguised Tory in the BBC’s economics’ department wrote on her blog today:

We’ll be debating the timing of Britain’s fiscal budget squeeze until at least the next election. But what about the how?

On the Today programme this morning, Richard Murphy, director of Tax Research UK, made the case for raising an extra £47bn in taxes to fill the fiscal hole, almost entirely from the top 10% of earners or corporations. It has a good populist ring to it. But it doesn’t seem likely to win over the public - or most economists.

I was, of course, discussing the Compass report on tax.

Flanders, a pure down the line economist is, of course, not convinced. She knows here bread is buttered by pandering to wealth. But she’s wrong about the electorate. Compass did some polling with YouGov on a sample of more than 1,000 people to support this report, which I co-wrote. The polling was pretty emphatic. There were three questions:

When all taxes are taken into account – income tax, national insurance, VAT, excise duties, council tax etc – the richest households pay a smaller share of their income in tax than the poorest households. The overall tax rate for the richest 10% is 34%; for the poorest 10% it is 46%. In principle, do you agree or disagree with this statement…?:

“The government should change the tax system to ensure that the richest households pay at least the same percentage of tax as the poorest households”

The finding to this one was 78% strongly in favour or agreeing; just 14% disagreed in part or strongly.

The second question was:

Until last year the starting rate of income tax was 10%, paid on the first £2,220 of taxable income. Last year this was abolished to pay for a 2p reduction in the standard rate of income tax. Do you agree or disagree with this statement…?:

“The government should restore the 10p starting rate by increasing taxes on the top 10% of households by income”

Here the finding to this one was 59% strongly in favour or agreeing; just 13% disagreed in part or strongly.

And finally they asked:

Some people say that the tax system should be changed to reduce the income of the richest 10%, and increase take home income for the remaining 90% of people.  Their proposal has 4 key elements:

1. the income tax rate would be 50% for anyone earning more than £100,000 a year;

2. the cap on national insurance would be lifted and also applied to investment income;

1. the income tax rate would be 50% for anyone earning more than £100,000 a year;

2. the cap on national insurance would be lifted and also applied to investment income;

3. and new anti-avoidance rules would be introduced and simplified to ensure that all income, apart from standard personal allowances, is taxed;

4. the 10p starting rate of income tax would be restored.

Overall this new package would raise enough tax to allow government borrowing to be reduced sharply without major cuts in public spending and many economists believe the economy would be less likely to slip back into recession.

Which of these views comes closer to your own?

“This package is a good idea: it would make Britain fairer, it would assist the recovery by giving more money to 90% of all households, and ensure that our public services don’t suffer”

“This package is a bad idea: many high-paid people and international companies would move to other countries, and Britain’s economy would suffer”

Don’t know

And the finding to this one was 62% favoured the first statement, 25% the second and 13% did not know.

As such Stephanie Flanders is wrong: there is support for this package, it’s just not being offered to the public.The reality is that if it was it would be very popular indeed because people have an innate sense of justice that so far, and with regret, politicians will not respond to because economists say it does not exist. But it’s the economists (and especially economists like Flanders – ex the Institute for Fiscal Studies, I note) and not the people who are wrong.

And let’s ask the simple question that Stephanie Flanders seems to have ignored, but to which I drew attention in the interview. Why would a tax proposal that makes 90% of people significantly better off be unpopular? Come on Stephanie – you believe in rational people – so why would they  vote against their self interest?

Richard Murphy Economics, Tax justice

There has been an interesting response to the Compass tax report. One has been to challenge why my co-authors and I did say that:

Of course the right will argue that higher taxes will just lead to higher rates of avoidance or the flight of talent. Research by the Work Foundation busts the latter myth. Our view on avoidance is that if the top rate is increased while at the same time reforms are made to the tax system, minimising avoidance and evasion, the taxable income elasticity is likely to be small, if not zero.

Tax is a life issue, not just an economic one. As an accountant I know that. Of course it is. But, as is so often the case, those who claim that the well off will reduce their effort in the face of tax rises entirely miss the point. Those who think this adopt the assumptions of conventional micro-economics, with all its flaws. These assumptions are wrong: for a start this assumes people can respond to changes in tax. This may not always be true. And this model assumes that people conform to the model of homo economicus: that people are wholly rational but only with regard to matters relating to cash reward and that nothing else matters.

First, our target is people in the top decile of income earners. These people earn on average £94,000 a year – but many earn much more. A significant majority of these people (also representing the majority of tax paid) earn less than £150,000. I could, no doubt, work out what proportion of them is in employment: the reality is it is a significant number. Most of these people will not be rewarded by the hour; most of them with variable earnings will receive that variable pay in accordance with criteria quite unrelated to labour effort expended. A great many will work hours way above contract demand and do so for reasons quite unrelated to money. In other words, they have no reason to change their work effort depending on tax rate. And some will have no measurable opportunity to do so.

More important though, most in this large group will, based on my experience, spend a great deal of their income. Savings where they exist will be in institutionally run pensions in this income grouping. Remaining cash will be committed to excess consumption, over-sized housing, school fees, ponies and more. This is the reality for those who earn (as opposed to those who live on unearned income, who byu definition will not be changing their effort) in this group: they are committed beyond their means despite those means being amongst the highest in society.

As such for many their option to withdraw effort and reduce earnings in response to a tax increase does not exist. Rather, many, if not most in this group behave in exactly the same way as economists assume the low paid do in response to a tax increase: they are price takers and respond against their fixed budget commitments by seeking to increase effort, putting in more work to maximise reward to maintain what is by far the most important social goal of this group (and others), which is keeping up relative reward and appearing to out-perform others, usually indicated by conspicuous consumption. For this socio-economic reason the impact you suggest might exist is highly unlikely to do so.

And as I note, those with investment income will not be sweating harder. So their behaviour does not affect this issue.

And there is another factor to take into account. By eliminating tax avoidance for this group by setting minimum tax rates we do two things. First, we make net return have a direct relationship with gross earnings – so the incentive to work harder in the face of increased tax is enhanced because the incentive to avoid tax has been removed. And second, this removes the harmful and wholly destructive game of comparative tax deduction competition that many will play to seek to outperform the perceived tax avoidance of others in their peer group.

Finally, there are some other realities: the first is there is little demand for Brits abroad. The second is few can work abroad in places where it is easy to go because they can’t speak the required language. The third is a lot of self employed are not in this earnings bracket, and those that are will not tax evade any more to get out of tax at this level than they do now. Fourth, really successful self employed people are not driven by money – or if they are it is as a gross and net a net measure.

I could go on, but the point is clear: the model on which claims that people with high earnings will reduce their effort in the face of tax increases ignore the realities of life.

Which means they really are not a safe basis for predicting outcomes. Which is why I ignore them – especially when, as is the case proposed, the change is hard to avoid and reasonable.

Richard Murphy Economics, Tax avoidance, Tax evasion, Tax justice

I was on the Today programme this morning discussing the new Compass report on the need for a fairer tax system for the UK. You can hear it here for the next seven days – start at 2 hours 55 minutes – just move the slider to very near the end of the programme.

I was opposed by Michael Fallon MP – the Tory who wants to chair the Treasury Select Committee if they win the next election. And what did he have to say? That if the tax changes we propose came in the rich would flee and we’d all suffer as a consequence.

Remember the context in which he said this: I’d made clear, and he knew, that our proposals are to make 90% of British households better off after tax, and 10% – the richest, worse off.

And now let’s unpack what he really meant. First he was saying that these people should be paying proportionately less tax because in cash terms they already pay more. This is a wholly spurious argument not far removed from promoting a poll tax. Second, he clearly implied as a result that they should pay less because they are worth more to the UK economy. This is, I think clear indication of what the Tories think of most who live in the UK. Third, he has such regard for this group that he thinks they can, will and should hold the country to ransom to advance their own self-interest. In what low regard he holds those who earn higher incomes – or maybe he knows them too well. Either way, it’s a damning indictment of him, those he knows, or both.

As an argument it really is a very poor one. It gets worse. The only place where most people have a right to go is the EU. 10% of the UK is not going to the EU. they tax more, at least in those places where there is work to be had. Latvia is few people’s destination of choice right now. And Sir Michael really ought to face a reality: there aren’t high paid jobs for millions of British people in the EU for one very good reason. They might be able to speak English and come here with ease but it’s a sad fact that the vast majority of us can do little better than read a menu, ask directions and hold a very basic conversation in one, at most, other EU language – the most likely being French where tax is not an incentive to move.

So the reality is Michael Fallon’s argument does not stack at any level at all.

And there’s good reason for that: there is no good argument against tax justice.

Richard Murphy Conservatives, Economics, Tax Havens, Tax avoidance, Tax justice

I am speaking at the following meeting on 25 November:

The source of my comment is here. We need this revenue here in the UK, now.

Richard Murphy Secrecy jurisdictions, Tax Havens, Tax justice

Action Aid, in action!

Richard Murphy Country-by-country, Tax justice

I’ve been having a bit of a ding-dong with Tom Worstall on the Liberal Conspiracy site. As a result of a comment I made he said:

A rough guide to a reasonable taxation system would be one that taxes capital less than incomes and incomes less than consumption. Meaning low capital gains taxation, low corporate taxation, higher income taxation and higher consumption taxation. (Please note, I do not mean lower or higher than rates currently extant in the UK, I mean relative to each other.)

I’m not going to say Worstall is the voice of the Right: he’s clearly not, at least alone. But he’s one of the voices of the Right. And this is his perception of tax.

And it takes moment to realise that what he prescribes is regressive taxation – a system in which as a person’s income from all sources increases the amount of tax they pay reduces in proportion to their income decreases even if it increases in absolute amount .

It’s obvious why: they poorest don’t save: they consume all their earnings, so their income is subject to the highest rate of tax. The best off save: no tax on that.

The poorest enjoy little investment income: they work for a living: so more of their income will be proportionately subject to higher tax rates.

And the savings of the richer members of the community will be subsidised by low taxes on capital.

The result? Guaranteed increases in the gap between richest and poorest with regard to earnings and guaranteed increases in wealth disparity. The result? More social tension, great inequality, less stable societies and all the outcomes predicted by Richard Wilkinson and Kate Pickett in The Spirit Level.

But at least he admits he wishes for injustice.

It’s safe to assume he’s not alone.

Richard Murphy Conservatives, Tax justice

As the Guardian notes:

Half the world’s reserves of lithium, the metallic element used to make batteries in electric cars, are believed to be in the Bolivian salt desert, Salar de Uyuni.

And as they go on to note:

But there is a problem. Bolivia’s socialist government has a habit of clashing with foreign multinationals in other sectors and has not clinched a deal – and, according to some, may never seal one – with the investors needed to extract significant quantities of lithium.

I’m wholly on Bolivia’s side on this: there’s massive evidence that time and again multinational corporations abuse their relationships with such countries and people like the World Bank utterly fail to protect them.

But there is a team that have the experience to advise on this, who have read more mineral extraction reports than any care to recall, and who have a proven record of success.

Bolivia should not do a deal without consulting Global Witness. Their team (which included me) who advised in the Mittal Steel / Liberia deal in the report ‘Heavy Mittal’ did, for example, suggest changes which meant the first deal was scrapped, rewritten and was massively improved.

It’s time for the NGOs and CSOs to use the expertise they have developed in criticising these reports to deliver a better world. I think we can do it.

Richard Murphy Development, Tax justice

I spoke at the Compass ‘‘No turning back’ event on Saturday.

I recorded this before I went just to test timing, but I have been encouraged to put it up, with apologies for quality:

And yes, I really do believe tax is a good thing.

And I really do believe a lot of people want to pay it.

And that we have a duty to say so.

But I’d stress: the opinions stated are my own.

Richard Murphy Tax justice