Tax justice undermined by cuts

As Margaret Hodge MP, chair of the Commons Public Accounts Committee, recently pointed out, the UK is at bottom of OECD league table when it comes to tax take.

Hodge specifically took aim at the government: describing the tax system for corporations and the super-rich as "increasingly voluntary".

She said there was a "growing gap between rhetoric and reality" from this government (we've pointed out there are several reasons why you shouldn't take this government seriously on tax justice).

And the HMRC's own half-year report should give further cause for concern - highlighting the impact of staff cuts. Their target is to 'clear' 80% of post within 15 working days. They achieved only 77%. This may not seem like much of a failure until you find the reason: "the deployment of teams from post to phone lines during peak periods of customer demand".

So how did call handling get on? They answered only 72.7% of calls, far short of their 90% target. If self-employed people, small and medium sized businesses don't get their inquiries, requests and queries answered - and answered satisfactorily - are they more or less likely to comply correctly with their tax obligations? And if the message is sent that the department is under-resourced, will wealthy individuals and big business be more or less likely to attempt to dodge their taxes?

It's not just the HMRC's call and post handling that is struggling. Last week it was announced that 1,500 staff in personal taxes and compliance and 480 in debt management are being targeted for a voluntary exit scheme to cut staff costs. These are the staff who collectively bring in billions of pounds of taxes - which fund public services.

As the PCS graphic shows, HMRC is suffering massive staffing cuts - with the latest tranche announced just this week with 3,000 staff brought in to cover short-staffing in the firing line. Since 2005, 34,000 jobs have gone from HMRC and another 10,000 are planned by 2015 under the government's spending cuts.

What's clear is that if we are serious about tax justice, then a big part of that campaign must be to ensure that HMRC has the staff required to take on the £75 billion of tax evasion, £25 billion of tax avoidance and over £20 billion in uncollected taxes.

The tax dodging of Amazon, Starbucks, Google, Boots and others has rightly come unders scrutiny. But there also needs to be rigorous scrutiny about the political undermining of our tax revenue collection system.

The problem of the buy-to-let parasites

There was a good report out yesterday by the Intergenerational Foundation (IF), which found that 'UK taxpayers provide £5bn annual subsidy for buy-to-let landlords', as the FT headlined its piece.

One of the key thrusts of the report is that buy-to-let properties are treated as businesses for tax purposes, although the IF believes they are more comparable to investments.

In tax terms, this means buy-to-let landlords can deduct interest on the mortgage of their rented property from taxable rent income. In addition, property owners can deduct 10% from rent received to account for repair and depreciation expenses - without having to provide any evidence of spending on the property.

It also found a number of 'loopholes' exploited by landlords, including that if the landlord occupies the property for as little as six months in the 36 months before it is sold, any gains accrued on the property in that period will not be subject to capital gains tax.

Having said all that, the framing of this by the IF is appalling. Ashley Seager, co-founder of the Intergenerational Foundation gave this quote to the media to coincide with the report's release:

"It is clear that most of these tax write-offs go to older landlords keen to take advantage of both the lack of housing supply and the demand for properties to rent by the under-35s"

As if the prime issue here is the old exploiting the young! No, no, no. This is an issue of a few wealthy individuals (the report says 4% of the population are landlords, which seems high) exploiting the mass of people who can't afford to buy.

The issue is the structures that allow the accumulation of wealth, and further allow those with accumulated wealth to live parasitically from the work of others. This is about wealth, not age (income inequality has a cumulative effect so of course those with wealth are likely to be older).

And it's not only an issue for those tenants (young and old) paying ever increasing rents, and increasingly unaffordable rents (especially in London as this website shows). It's an issue for us all as an increasing proportion of tenants are having to be bailed out by housing benefit - as wages have fallen relative to rental prices - and so the welfare state is helping to fund landlords too. In the last two years, 93% of new housing benefit claimants have been from households in which at least one person works.

To try to fit this good analysis and report within the IF's intergenerational divide narrative is mistaken and misses the point. (This is not the first time we've taken issue with IF analysis and the National Pensioners' Convention's Dot Gibson responds well to intergenerational divide framing in the Guardian letters page today).

The IF rightly argues that landlords' housing is comparable to an investment (and should be taxed as such), but housing is a basic human need. It is not comparable, morally, with other investments like stamp collections, fine art, wine collections, shares or savings accounts.

Housing is a human right. Amassing wealth is not. Yet, this government is prepared to cap benefits, not rents. Even if it means homelessness for some - and the indignity of temporary or overcrowded accommodation for many more - in the Tory mind, nothing must interfere with landlords' inalienable right to own as many properties as they like and leech off of the hard-working tenants and taxpayers.

The IF's policy proposals are good (p.37 of the report) but could go further: why not limit the number of homes an individual can own? Why not restore the right of councils to control rents (which they had until 1989) to protect tenants? Why not introduce a Land Value Tax so that disused property is brought into use, and to fund new council build? Or why not introduce a Wealth Tax (as advocated here by Greg Philo here) or greater inheritance tax? And why not, perhaps least radically of all, ensure a much more progressive system of general taxation to restrict the accumulation of excess wealth in the first place?

Until we challenge the right of a few to accumulate excessive wealth, we will never end exploitation in either the housing market or the labour market.

Should Osborne be praying for the economy to stall?

After three quarters of economic growth, George Osborne has already transitioned from cautious optimism to full-on self congratulation. "The UK has been singled out as an example of the improvement and there is recognition that we have stuck to our economic plan", he said last month.

Let's leave aside that he hasn't stuck to his plan at all (the deficit was forecast in 2010 to be far lower today than it is, and as a result of two flatlining years he is borrowing over £200 billion more than planned). Let's even underplay that even today's public debt figures £8.1 billion this October, down from £8.2 billion for October last year, are hardly impressive.

Nevertheless the level of UK economic growth in the last three quarters (nine months) has surprised and exceeded most independent forecasts. The Bank of England declared earlier this week that
the UK is in "sustained recovery".

Three consecutive quarters of reasonable growth (by historical standards) is fairly hard to dismiss. What economists now disagree about is not whether recovery has been sustained, but whether it  is sustainable.

There's a good analysis of this question by the Independent's Ben Chu here. The key point is that the recovery is driven (largely) by debt, which has been both encouraged (through schemes like Help to Buy) and enforced (through declining real wages, benefits and high unemployment). As the chart below, personal debt remains at crisis-era highs

The question therefore is can growth continue with debt at high levels and real incomes declining?  The unstable retail sales figures - with October registering a fall that confounded predictions - are a warning sign to the optimists.

So the question is whether the recovery will stall - due to people reining in their spending without any compensating surge in government or corporate investment - or will it continue to grow as people take on ever greater debts?

If the latter is the case, then the ultimate result may be a sharp crash, caused by unsustainable levels of debt. That scenario should make George Osborne pray for the economy to stall (while he devises a sustainable growth strategy - something some of his opponents have been advocating and outlining since 2010).

Once more on the great disappearing unemployment mystery ...

Last week we reported on the great unemployment disappearing act, focusing on growing divergence between the claimant count and the ILO measure of unemployment (see graph).

But this growing disparity isn't uniform across the UK. As the chart below shows, there is a massive regional disparity between the claimant count and ILO unemployment in some UK regions, but a close correlation in others.

To make matters clearer the table below shows, for each region or nation of the UK the claimant count as a percentage of ILO unemployment:

Our 13 November analysis highlighted the growing divergence between the two unemployment measures (showing that in 1993 the claimant count was 96% of ILO unemployment, but today is only 53%.

Health warning: the figures used are from the latest ONS Labour Market Survey stats, which for claimant count are October figures and for ILO measure are July-September. However, this difference in monthly accounting does not explain the sharp differences either within or between regions.

However, across the UK there are massive disparities. So why is it that in London and the South if you're unemployed you are far less likely to claim jobseeker's allowance than if you're in the North East or Northern Ireland? And why does jobseeker's allowance reach so many more of the unemployed than everywhere else in the UK?

What explains the differences? I honestly don't know, but I've posited some options below - please leave your views in the comments ...

• Unemployed people in London and southern England are more likely to be ineligible for JSA due to household circumstances or personal savings
• Bad data - the regional data for ILO unemployment is dodgy (the claimant count won't be as it's simply the number of people claiming JSA)
• Sanctions are being unevenly imposed across different regions - disproportionately reducing the claimant count in some regions
• The stigma of claiming benefits is stronger in some regions than others
• Something else? Let us know in the comments ...

UPDATE (21/11/13): As was pointed out by Labour market stats wonk, Paul Bivand, Northern Ireland has some devolved powers over social security - and the UK sanctions data (analysed here) doesn't include Northern Ireland. So is that the answer - is it due to a less stringent sanctions regime there?

Ralph Miliband and the Politics of Class Today

Wednesday 27 November
7pm-8.30pm
Parliament, Committee Room 9

With speakers including:

John McDonnell MP (Chair), Colin Leys, Andrew Murray and Hilary Wainwright

Reserve your free place here.


The Socialist Register was founded by Ralph Miliband and John Saville in 1964 as ‘an annual survey of movements and ideas’ from the standpoint of the independent new left. It is currently edited by Leo Panitch, Greg Albo and Vivek Chibber, assisted by an editorial collective of eminent scholars in Africa, Asia, Europe and the Americas. Each volume is focused on a topical theme and characterized by the inclusion of relatively long, sustained analyses which cut across intellectual disciplines and geographical boundaries.

The 50th volume of the Socialist Register is dedicated to the theme of 'registering class' in light of the spread and deepening of capitalist social relations around the globe.

Today's economic crisis has been deployed to extend the class struggle from above while many resistances have been explicitly cast in terms of class struggles from below.

This volume addresses how capitalist classes are reorganizing as well as the structure and composition of working classes in the 21st century.

Tax Justice - Are you serious?

An event jointly organised by Action Aid, Christian Aid, Oxfam, Tax Justice Network, War on Want. 

Monday, 25 November 2013 from 10:30 to 17:00 
London, United Kingdom
Get tickets / register online

With a great line up of speakers and panellists this promises to be a day that will make you think seriously about tax justice.

Speakers and panellists include:

Margaret Hodge MP - Chair of the UK Public Accounts Committee
Richard Brooks - Private Eye,
Andrew Masiye - Activista Zambia,
John Christensen - Tax Justice Network,
Alex Cobham - Centre for Global Development,
Rosa Curling - Leigh Day,
Tim Dixon - Purpose,
Martin Drewry - Health Poverty Action,
Rich Hawkins - PIRC,
John Hilary - War on Want,
David Hillman - Robin Hood Tax Campaign,
Polly Jones - World Development Movement,
Government of Jersey representative,
David McNair - Save the Children,
Richard Murphy - Tax Research UK,
Louise Rouse - Share Action,
Professor Prem Sikka - University of Essex,
Michelle Stanistreet - National Union of Journalists


This past year has seen a momentous shift in public and political perception of the issue of tax fairness.

Tax, who pays it and who doesn’t, has come to be the social and economic issue of the moment. And with good reason. Tax dodging is now a scandal in the minds of the public and politicians alike:

"Individuals and businesses must pay their fair share" David Cameron in his speech to the World Economic Forum in Davos in January this year.

Having already had huge tranches of public money shifted from public goods and services to bail out banks guilty of reckless lending; people have witnessed exposé after exposé of large multinationals and wealthy individuals refusing to pay back into the common weal and scorning their basic civic duty to pay a fair share of tax. People across the globe find themselves trapped in poverty while rich multinationals and individuals get away with not paying what they owe.

People are angry - it’s time to build on this anger. 

In the past month a number of organisations and individuals have been discussing how we can convert the peaks of media and public outrage at tax avoidance into a strong, grassroots and citizen-led movement call for tax justice that this and future Governments cannot ignore.

This event is an opportunity to join with other organisations, activists and thinkers, to hear from tax justice pioneers and critics, and to ask the hard questions and debate the tough issues.
Join us for the Tax dodging ‘Tax Justice – Are you serious?’ forum.

If you intend to join us for the UK Gold screening & panel discussion at 6.30 please do confirm your tickets for the film here.


See also:

• Tax justice - exposing the multi-billion fraud 
• Tax justice becomes a movement
• Mervyn King backs the tax justice campaign?
• 5 reasons why you can't take the government seriously on tax justice 

Read a report of the conference here (via In particular order)

Ripped-off UK looks for radical solutions

At the 2011 Budget, LEAP called for "a Windfall Tax on recession profiteers": UK banks, energy companies and supermarkets - to fund job creation and capital expenditure programmes (full report here).

John McDonnell MP, said in the 2011 Budget debate, "I think that a windfall tax on energy is appropriate. The current profits of British Gas average 24%, and Ofgem has reported an average profit margin of 38% per customer since last November. That is profiteering during a recession."

There are indications the British public agree - and may want to go further. A YouGov opinion poll commissioned by the Class thinktank found that 68% want the energy companies renationalised, while 35% believe the government should have the power to regulate grocery prices (rising to 44% among Labour voters - and 40% of UKIP voters!).

The poll coincided with Russell Brand's thought-provoking essay in which he wrote, "Profit is the most profane word we have". Indeed it is.

In the last few days Sainsbury's results showed like-for-like sales were up 1.4%, yet their profits were up 9.1% - which shows profit margins keep increasing.

And the energy companies are ripping off UK consumers with further price hikes - adding to inflationary pressures. The claim that this is a reflection of wholesale prices is refuted by this graph comparing causes of inflation between the UK and the Eurozone. The gross disparity between the Eurozone (where energy prices have fallen sharply) and the UK where prices have risen (and are bout to rise more sharply) clearly tells the story of the UK energy cartel ripping off consumers. No wonder 68% want energy renationalised.

Even John Major (the Prime Minister who privatised the railways, which 66% want renationalised) now supports a windfall tax on the energy companies.

And it's little better with the banks - as our European neighbours again show us up. The chart below shows the difference between the interest banks give to savers and the rates they charge borrowers. While UK banks have lower margins than US banks, they are far wider than Eurozone banks.

It would be interesting to work out the economic stimulus to consumers if UK banks reduced their margins to Eurozone levels (nearly half that of UK banks) ...

It is clear that rampant profiteering has, if anything, got worse since our March 2011 report - and it's no surprise that the public supports more radical solutions to address it. The vacuum remains the political movement to reflect those radical solutions ...

The great unemployment disappearing act

Today's unemployment figures revealed that the internationally recognised measure of UK unemployment fell by 48,000 and the claimant count (i.e. the number of people claiming jobseeker's allowance) fell by 41,700.

These two figures were remarkably close. To the uninitiated naively logical this might seem to corroborate that there are roughly 40-50,000 fewer unemployed people in the last 3 months.

However, with those subtractions ILO unemployment stood at 2.47 million, while the claimant count was only 1.31 million. So in relative terms the fall in the claimant count was nearly twice as sharp.

As the graph below shows - this is not a one-off occurence but part of a 20-year trend that has seen the ILO unemployment measure part company with claimant count.

Whereas the claimant count accounted for 96.6% of ILO unemployment 20 years ago in 1993, three years later the claimant count was only 83.2%. Five years on again - or twelve years ago - in 2001, the claimant count was just 64.5%.

Today, the claimant count was just under 53% of the ILO measure.

It is not entirely clear why this has happened. Certainly a part of the reason is the increased conditionality, and reduced eligibility that has applied to claiming unemployment benefit since the 1995 Jobseekers Act - and toughened by successive welfare reform acts under successive governments.

The recent sharp downturn in the claimant count - and sharp relative to ILO unemployment - is no doubt partially explained by the increase in sanctions (see LEAP analysis 6 November 2013).

But the rut set in slightly earlier. Under the Major government the claimant count averaged 93.3% of the ILO measure. In the Blair/Brown New Labour years, the claimant count averaged just 63.1%, and under Cameron's coalition government to date that has already dropped again to 59.9% (and was 53% in today's figures).

It means that the claimant count is becoming a less reliable indicator of true unemployment. With an increased sanctions regime, and extra conditionality generally (including workfare), and the demonisation of claimants as 'scroungers' and 'skivers', jobseeker's allowance has become a daunting benefit to claim.

As PCS research has found (see infographic here) the real value of unemployment benefit has fallen from 18% of average wages in 1990 to just 13% today.

With increasingly greater sanctions, more conditionality, less eligibility, more stigma and less value - is it any wonder the claimant count now represents barely half the true level of unemployment.

Help to Buy 'will fail if housebuilding slows'

Sharpest house prices increase since June 2002 sparks housing bubble fear

by Luke James

The thatcherite Help-to-Buy scheme will explode into another housing crisis if "soaring" demand is not matched by building, surveyors told the government yesterday.

Home sales are at their highest in over five years, according to monthly research by the the Royal Institution of Chartered Surveyors (RICS).

But its members also reported the sharpest increase in house prices since June 2002 - sparking fears over a new housing bubble.

Help to Buy's first phase offered a 15 per cent mortgage guarantee on new-build homes when it was launched in April.

That was extended to existing housing stock last month and over 2,000 people have since taken advantage.

Some were used as props at a Downing Street press conference yesterday as David Cameron hailed the scheme's success. He boasted: "This is all about helping hardworking people get on the first rung of the property ladder - and helping them get on in life."

But RICS chief economist Simon Rubinsohn called for the government to "urgently" address the imbalance between supply and demand.

"Housebuilding starts have picked up recently but we are still well behind in terms of the amount of properties needed," he reminded Mr Cameron.

Part-nationalised banks RBS and Lloyds, along with HSBC, have signed up to offer 95 per cent mortgages as a result of the scheme.

The Left Economics Advisory Panel pointed out that it was a huge gamble to increase personal debt when wages are stagnant and jobs are at risk.

Co-ordinator Andrew Fisher said: "If the dangers of rising house prices, greater borrowing and suppressed incomes sound familiar, then that is because it was this combination that in large part contributed to the 2008 crash.

"Unless accompanied by a massive programme of housebuilding, Help to Buy will continue inflate house prices - making home ownership even more unaffordable for most families - and lead to another crash."

Mr Fisher added that the scheme could land taxpayers with huge liabilities if people default on loans as a result of austerity.

This article first appeared in the Morning Star

Robbing from the poor ... £328,000 taken from unemployed daily

IDS...thieving from the poor

DWP sanctions data published today revealed benefit sanctions are robbing £328,767 from unemployed people every day - based on the new sanctions regime imposed since October 2012.

If you're thinking well, that's fair enough, they can't have been looking for work then I can only point you in the direction of the excellent report by Manchester Citizens Advice Bureau on people's real experience of being sanctioned.

If you don't have the time to read that report, then I'll appeal to your logic. The data shows that sanctions have increased by 137% compared with figures for between 2000-2010. Have claimants suddenly become so much worse? In the last two and a half years, the number of unemployed people sanctioned has averaged 64,307 a month, compared with 27,108 a month between 2000 and 2010.

N.B. And even the above may be a severe underestimate, due to sanctions decisions being deferred in 120,000 cases due to the 'Poundland case'.

In cash terms, the figures are even more stark: in 2009/10, £11 million of jobseeker's allowance (JSA) benefits were sanctioned, but in first six months of 2012/13 alone it was £60 million. This is because not only are more people being sanctioned, but more of their benefits are being removed - and for a longer period. The stats since October 2012 (when the new sanctions regime was introduced) show over 52,000 people have lost their benefits for 3 months or more.

This is about a far more brutal regime, not claimant behaviour. As the PCS union's Mark Serwotka said:

"The new sanctions regime damages the relationship between Jobcentre advisers and claimants, and is entirely counterproductive in helping people to find work

"The government’s perverse and punitive approach is a collective punishment on the unemployed and the disabled for its own failure to create sufficient jobs."

Over 4,300 lone parents have been sanctioned every month under new sanctions regime - and 230 a month have received high level sanctions involving loss of benefits for 3 months or more. The effect of this on children will be appalling - and surely constitutes cruel and unusual punishment, by reducing to abject poverty the children of those who have (supposedly) breached the rules.

In nearly a third of cases (31%) under the new rules, the sanction was directly related to failure to participate in the Work Programme, mandatory work activity or some other scheme. Given international research and Work Programme figures show the abject uselessness of these schemes in assisting in securing paid work, this is being sanctioned for avoiding doing something counterproductive.

For disabled people on employment and support allowance, sanctions have increased by 156% in the last year. These sharp increases highlight how the use of sanctions has been cranked up as part of the coalition's drive to reduce the deficit on the backs of the poor, while slashing corporation tax and the top rate of tax for the richest 1%.

The JSA data also shows non-white claimants are slightly more likely to get an adverse decision than white claimants. For all three categories of sanctions, non-white claimants got a higher proportion of adverse decisions: for low level, white claimants 56%, but for non-white 60%; for intermediate level white claimants 81% compared with 83% for non-white; and for high level sanctions (losing benefits for 3 months or more) white claimants referred for sanctions had adverse decisions 33% of the time, compared with 38% for non-white claimants. Although the differences are marginal, they are consistent across all three sanction levels.

Likewise for young people, while 16-17 year olds were sanctioned 64% of the time (after being referred for sanctions), for those over 55 it was 48%, and there was a direct correlation through the age brackets: the younger the claimant the more likely to be sanctioned. This is even worse given that young people inexplicably receive a lower rate of JSA (£56 per week compared with £71).

These data beg the question about whether the policy was subject to equality impact assessment - and if so whether this was predicted? (any insights welcome).

Remember, "It wouldn't be happening without the Liberal Democrats"

The two strongest periods of growth for three years, 0.7% followed by 0.8% and the Tories and Lib Dems hangers-on are jubilant. Chief among the examples of this heady growth jubilation is Financial Secretary to HM Treasury Danny Alexander, who wrote in the Telegraph:

"Britain is on its way back. We need to stick to our plans to make sure this is a recovery that is built to last. That is the only way to improve living standards.

"Our economy is growing because of the hard work of people and businesses throughout Britain. But the coalition's economic plan is the rock on which our recovery is being built - so it wouldn't be happening without the Liberal Democrats."

On almost every count, he is wrong. This 'recovery' is doing nothing for living standards, which continue to fall. Wages are rising at just 0.7%, while inflation is four times that at 3.2% (RPI, 2.7% CPI).

For people on out of work benefits (and indeed those on low pay whose incomes are topped up by tax credits) benefit increases were capped by this government at 1%.

Put that alongside rents rising way above wage increases, energy prices rising at 8-9%, and the forthcoming 6% rail fare increase in January - and you can see the problem isn't being resolved soon. Figures show that workers have collectively lost £50 billion a year in real terms cuts in pay.

For many of the lowest paid - and those on out of work benefits - the impact has been devastating:

• an extra million people are, by the government's own figures, living in poverty since the coalition was elected;
• half a million people have had to use food banks in the last year;
• homelessness is rising, and the number of families housed in B&B accommodation now stands at a ten year high, and the number of households in rent arrears is increasing sharply;
• unemployment remains stubbornly high at around 2.5 million - with long-term unemployment and youth unemployment unaffected by failing privatised government schemes

So when Danny Alexander says that this 'recovery' is the only way to improve living standards, it is an evidence-free assertion, a delusion and, since he probably knows this, a flat-out lie. Of course living standards are improving for some people: the 1000 richest Britons increased their wealth by £35 billion last year (if you wanted to know where your missing pay rise ended up).

So where has the recovery come from? Mostly, debt. Consumer and mortgage debt to be precise. Yes, exactly what caused the crash, an unsustainable credit bubble. George Osborne (Danny Alexander's boss at HM Treasury) is huffing and puffing into that bubble with his Help to Buy scheme - re-introducing 95% mortgages at a time of rising house prices and falling wages ... what could possibly go wrong?

The "rock on which our recovery [sic] is being built" is that least rock-like of entities, a bubble. The question for the government is whether that bubble will burst before or after the 2015 election ... they may hope after, but the longer it inflates, the worse it will burst.

Alexander is right about one thing: "it wouldn't be happening without the Liberal Democrats", it's just that the "it" he refers to is rising poverty, homelessness, inequality, and a credit bubble that could spell further disaster for the UK economy and his government.

Remember, "it wouldn't be happening without the Liberal Democrats."