First, let’s not suppose for a moment that the increased energy costs are not paid to someone, somewhere. We often hear about the incidence argument of corporation tax, which says that all tax burdens are eventually suffered by people. In extremis, I do of course agree (although I also argue that as the tax is used to change the people who pay the burden it remains important that it is charged). The incidence argument also applies completely and utterly to the cost of energy. None of the payment we make is used to fill the holes in the ground from which oil is extracted. All of it is used to pay someone. This means that right now someone, somewhere is obtaining a massive benefit which they had not anticipated from the increased price of energy. It is in that circumstance completely untrue to argue that business is completely dependent upon there being a predictable and certain tax system or it will not invest in additional energy facilities. That industry did not anticipate the price increases they are enjoying. For that reason I entirely reject their argument that an additional tax will impose a disincentive or destroy their capacity to plan for the future by creating conditions of uncertainty. They have not refused the upside of the price increase because it was not predicted; they cannot refuse the additional tax for that reason either. And let’s stress this point: even after the windfall tax they and their owners will be better off than they were before the unexpected price increase. Energy companies will remain the big net winners of what is happening: they just won’t win by as much as they would like.

Second, to claim as downstream operators that their costs have increased upstream is a perfectly acceptable argument, if it is true. But it is wholly inappropriate that profits generated from end consumers on sales of energy in the UK are transferred upstream and outside the UK tax net simply to avoid liability in this country. I suspect that this is happening.

Third, I would buy the argument that companies needed to retain profit and not be taxed upon it if there was no evidence that the excess profit was being paid as a dividend to shareholders. Centrica has however entirely disproved that theory. It increased its profit and substantially increased its dividend, at a rate well above inflation whilst raising prices, and therefore, to follow the theory of incidence, this increased energy price is being used to be reallocate income from those least able to bear the additional energy cost in our society to those most able to bear that energy cost, being the wealthiest segment in society.

Lastly, and noting the argument that the cash needs to be retained by the energy companies for investment purposes, I would accept this point if I believed they were going to invest in alternatives to carbon energy. Carbon energy is, as we all know, threatening the very existence of life on Earth. I have not however seen that evidence. All I hear about is the need for additional carbon energy based extraction, and for the sake of my children that scares me rigid. Long before they are old they will come to curse the generation who used the increase in energy prices to increase the rate of global warming. In other words, and to be unsubtle about it, I do not think energy companies can be trusted with all this money.

For all these reasons I think the windfall tax now is essential for the ordinary people of this country, is essential to correct market imperfection, is essential to rebalance the government’s books, is essential to send an important lesson to the energy companies that it is not within their right to use the resources which they had been allowed to use without consideration of their social consequences, and that they have a duty to minimise carbon emissions both now and in the future, which must be reflected in their investment policies.

• Tax Justice Network: In Africa, pay more attention to tax - IMF - "The average tax-to-GDP ratio in sub-Saharan Africa increased from less than 15 percent of GDP in 1980 to more than 18 percent in 2005. But virtually the entire increase in tax revenue in the region came from natural resource taxes, such as income from production sharing, royalties, and corporate income tax on oil and mining companies. Nonresource-related revenue increased by less than 1 percent of GDP over 25 years. . . . a growing share of current spending is financed by aid."

  But at least the IMF are noticing it is time to change that. Read the whole thing. It's important.

One of the initial significant problems that we have faced is in defining the language that is used to describe what is colloquially called the offshore world, even though no one knows what ‘offshore’ means.

As a result of that effort I tried to offer precise definitions of what I thought the terms tax haven and offshore financial centre might mean in the Tax Justice Network publication, Creating Turmoil, sent to the Treasury Select Committee in July this year. In that report I said:

Tax havens are places that create legislation designed to assist persons - real or legal - to avoid the regulatory obligations imposed upon them in the place where they undertake the substance of their economic transactions.

Offshore financial centres are not the same as tax havens. OFCs are the commercial communities hosted by tax havens which exploit the structures that can be created using the tax haven’s legislation for the benefit of those resident elsewhere.

Given that no one seems able to offer more precise definitions than this, and given that these definitions are distinct and have value in use I remain of the opinion that they are a benefit, but it is apparent from subsequent discussion that almost no one is willing to give up their own view of what a tax haven or OFC is. In addition, the IMF has also, since I wrote Creating Turmoil, decided to drop the term offshore because of the ambiguity inherent in the term.

That does not mean the problem that these terms seek to describe has gone away. Far from it: we know that if anything it is becoming more significant, not least because the efforts to close it down are becoming more proactive.

In that case I have begun to develop a new language for the ‘offshore’ world. And I’m off to Montréal today to lecture on the subject, and will be repeating the performance at a conference in London in two weeks time. The paper I am presenting is here, and the slides here.

The point is not just about language though. It’s about appreciating that the existing language that has been used has severely restricted the way in which regulation has taken place. That regulation has focused upon the activities that take place within a secrecy jurisdiction (our new preferred term for taxation, and which is also used by the likes of Carl Levin in the USA). The important point about it is that secrecy jurisdictions deliberately create law for use outside their domain and the secrecy providers (that is, the accountants, lawyers and bankers who work within secrecy jurisdictions) use that law to provide secret structures for the use of people resident elsewhere which become wholly unaccountable as a result, and for which they deny any responsibility. These structures do, therefore, operate in what we call the secrecy space, which some might in the past have called offshore, although inappropriately.

This secrecy space is not in the secrecy jurisdiction. In fact, that is the last place to look for it because it is very definitely, and deliberately not intended to be there. But the secrecy jurisdiction also, and deliberately, does not ask where the structures that it creates actually are. As far as they’re concerned they are simply “elsewhere”. The secrecy space is the ” elsewhere” they ignore.

This means that the focus of regulation with in the secrecy world (the combined term for secrecy jurisdictions, secrecy providers and the secrecy space) has to change. It is entirely true that the secrecy jurisdictions are now reasonably well regulated. This however is completely irrelevant if we are seeking to tackle money-laundering, terrorist financing, tax evasion and financial instability. Those activities are all undertaken ‘elsewhere’ but no one knows where, except the secrecy providers, and as such it is the secrecy providers and not secrecy jurisdiction who now have to be the focus of attention (without in any way reducing the pressure on the jurisdictions themselves).

Read the paper I think you’ll get the argument. It is one I will be returning to the time and again. I will also put up a glossary of this language is since I have time available.

Jersey went for a form of executive government that clearly is not working. Nor does it have a general election in the true sense of the word. It has a series of elections for officials, Deputies and Senators.

Guernsey has a system which gives the people government from the bottom up, not the top down, and the real control over policy remains firmly on the floor of the assembly - not, as in Jersey, behind closed doors by a handful of ministers.

To be blunt, the Jersey system is little more than an elected dictatorship.

It is very hard to argue with that.

Now the private sector (let’s be specific: the Royal Bank of Scotland and associates) has lost data on about a million people. This includes signatures, account names and passwords and other such useful stuff that could have left vast numbers of people seriously exposed. It could have wiped the bank out if it had got into the wrong hands.

People said they could no longer trust HMRC as a result of its much less serious error. They said tax should be simplified to make sure this could never happen again. They wanted child benefit payments abolished. There was no limit to the hue and cry. The HM Revenue & Customs chairman quit.

And what will happen because of RBS’s mistake (because be sure, it is their mistake: their contractor did it just as surely as HMRC’s contractor actually lost the disk)?

Nothing, I suspect. No one will quit. No one will say we should ban the use of credit cards, or go back to manual ledgers, or stop the use of computers in banking.

And let’s be clear why that is. No one was really that bothered by HMRC’s mistake. No one lost anything as a result of it. There was little chance they could have done. But a lot of people did want to make political capital out of it to undermine the tax system and HMRC in particular.

Now their deceit is exposed can we ignore their cries of anguish next time something like this happens?

• Swiss shelve money laundering probe into Bhutto, widower - Yahoo! News - Surely no political motive is in play here, is it?
• FT.com / Comment & analysis / Editorial comment - The Fed and the credit crunch - The FT calls for nationalisation.
• FT.com / Companies / Financial services - Challenger chief joins departure list - In contrast to the UK where failure seems a recipe for further reward
• FT.com / World - Danes save bank to secure financial stability - Their Northern Rock. But curious too to note that the Danish economy is in worse shape than most in Europe: is it because it has an overdeveloped and quite abusive financial sector?

She rebuts the claim that George Osborne made last week that it is the Tories who will take forward the fairness agenda:

[I]f “aspirations” for fairness are not backed by hard cash then no amount of good intentions will prevent the disaster that saw child poverty rise from one in seven in 1979 to one in three under the Tories last time. Trying to turn back that tide has been very heavy lifting indeed for Labour. Osborne’s Unfair Britain document, published last week, lists glaring social injustices but offers no useful remedies. If Britain is broken, who broke it - and who has tried hardest to fix it?

And she chastises Labour for its failure to respond:

But Labour responds bloodlessly with press releases complaining that Tory “sums don’t add up”, hopelessly missing the point.

As she adds:

The government is forever on the back foot, apologetic about the tax “burden”. A Labour government should be the strong voice of the ordinary citizen, reminding people why cheating and avoidance by the undertaxed rich is despicable and why all those people who, like the late Leona Helmsley, think it’s OK for their cleaners to pay more tax than they do, are a disgrace.

Her conclusion?

Where are the voices to make that case? It’s time for a fair tax campaign to fight off this dangerous anti-tax assault.

Undoubtedly true. This blog is part of that campaign. That campaign will grow.

As the Jersey Evening Post has said:

The Council of Ministers meet on Thursday to discuss their response to huge rises in food and fuel costs.

It is widely expected that their response will be to drop GST on food and to freeze duty on petrol in the coming Budget.

But be clear: the die-hards of the Right, backed in no small part by Oxford economists were adamant during the debate about introducing GST / VAT in Jersey that it was essential that there be only one VAT rate because of the burden on business of having to differentiate products between different rates of VAT. And yet within three months of its introduction we are seeing that decision reversed because of the sheer political impossibility of imposing a tax on people who cannot afford to feed their families.

What works on the blackboard does not work in reality. The Institute for Fiscal Studies should take note.

• Tax Justice Network: Stiglitz calls for tax havens to be closed down - Stiglitz calls for coordinated worldwide action against tax havens because single actions against jurisdictions such as Liechtenstein or Monaco may simply make money move to other havens.
• Tax Justice Network: Fireworks at Jackson Hole - The Fed needs to be able to explain why what is good for Wall Street is also good for the economy as a whole.
• www.kansascity.com | 08/24/2008 | Average taxpayers subsidize executive pay, report says - Looks like good, solid stuff to me, based on reasoned argument that almost no reasonable person could disagree with.
• Catching up with Corruption - Raymond Baker, John Christensen & Nicholas Shaxson - The American Interest Magazine - A full version of an article reflecting TJN's latest thinking on corruption

Switzerland asked the U.S. not to pressure UBS for client data located in the Alpine country as investigators look into whether the world’s largest wealth manager helped American clients evade taxes.

Swiss State Secretary Michael Ambuehl, who met last month with U.S. officials including Undersecretary of State William Burns and Treasury Undersecretary Stuart Levey, told his U.S. counterparts that any request for client data must be decided by the government, as UBS would breach Swiss bank secrecy law by handing out the records, he said in an interview.

According to Bloomberg:

The Swiss Finance Ministry is examining whether to allow UBS to identify U.S. customers who may have committed fraud while using accounts at the bank to evade taxes, after the bank received a summons from the Internal Revenue Service. Switzerland’s largest bank, which may have hidden as much as $17.9 billion for 19,000 Americans, according to a Senate subcommittee report, said July 17 it will stop servicing accounts for American clients at units that aren’t licensed in the U.S.

The Swiss Finance Ministry hasn’t yet replied to the U.S. request for assistance, spokesman Dieter Leutwyler said. He declined to comment on which action his ministry would take should UBS disclose client data, saying he doesn’t answer “hypothetical questions.”

Don’t underestimate the significance of what is happening here: what is developing is a real test of whether a country has the right to impose its taxation law on its own citizens despite the pro-active and deliberate intervention of a financial services institution that has knowingly assisted those persons to break the law within its domain and did so because it knew it could hide behind the laws of a secrecy jurisdiction like Switzerland in which it was ultimately incorporated.

If Switzerland refuses to co-operate we have a breakdown in international law and order. More than that, we have one OECD member states effectively declaring economic warfare on another. Do not expect the international market to survive in its existing format if Switzerland does that. It won’t. Protectionism will increase. Taxation at source will increase. The withholding of tax on payments to tax havens will become normal.

Places like Switzerland have a choice: they must comply with international norms of expected behaviour where criminality is to be condemned and cooperation in dealing with it is expected or and they can suffer the economic cost of being outside accepted society. They can’t have it both ways.