5 reasons why you can't take this government seriously on tax justice

At the G8, the Prime Minister, David Cameron, sought to make clamping down on tax havens the centrepiece of the summit. As Prem Sikka explains, the post-summit communique was 'high on vague promises, low on delivery'.

But even before the inevitable puncturing of Cameron's hubris, there were several reasons why this government cannot be taken seriously on tax justice* ...

1. Government minister says he wants the UK to be a tax haven

Last year, Cabinet Office minister Francis Maude said it was "a compliment" for the UK to be described as a tax haven, and added: "That is exactly what we are trying to do."

2. George Osborne slashing taxes for big business and the rich

If there's one hallmark of a tax haven, it's low or minimal tax rates. Corporation tax was slashed from 52% in 1979 to 33% by 1997. New Labour cut it further, to 28%, and Osborne has already driven it down to 23% - and aims to get it down to 20% by 2015. This is how he described it at the last Budget:

"A headline rate that is not just lower than our competitors, but dramatically lower.
18% lower than the US.
16% lower than Japan.
12% below France and 8% below Germany.
An advertisement for investment and jobs in Britain." 

Actually, it's an advertisement to for big business to pay less tax - undercutting both other nation's tax rates and shifting the tax burden onto the working poor (as we have previously shown). Of course, cutting the top rate of tax from 50% to 45%, also facilitated avoidance.

3. Many government ministers' wealth is based on tax avoidance and evasion

As Guardian investigations have proven in the case of Cameron's family fortune, and as Channel 4 Dispatches showed in the case of George Osborne, Andrew 'plebgate' Mitchell, and Phillip Hammond.

4. You can't collect taxes without the resources to do it - and this government is cutting resources

HM Revenue & Customs is the body tasked with collecting taxes owed, tackling evasion and clamping down on contrived avoidance schemes. Combined the tax gap (uncollected, evaded and avoided) is estimated at £120 billion ... every year.

Yet the government is slashing the resources available to HMRC - as this PCS infographic shows:

5. Treasury minister in charge of tackling avoidance and evasion is in denial

Treasury minister David Gauke seems to be in a constant state of denial and cover-up

• When MPs investigated and found senior HMRC bosses to close to business, Gauke described the claims as 'absurd'. The same committee also found HMRC was "too poorly resourced" (see above).
• He approved a plan to persecute an HMRC whistleblower who exposed the 'sweetheart deal' with Goldman Sachs
• He claims the UK tax gap is 'only £35 billion' (still substantial) when all serious estimates put it at £120 billion (see Richard Murphy's analysis here)

Of course Gauke did used to work for a legal firm that specialised in tax avoidance.

There's five reasons why this government cannot be taken seriously on tax justice. Please use the comments to add more!!

* For a serious look at tax justice, see the Tax Justice Network

G8 summit: High on vague promises, low on delivery

Prem Sikka

The G8 summit in Lough Erne was preceded by much hype and promises  about action on tax avoidance and corporate secrecy, but it has  delivered little. The leaders' communiqué commits governments to nothing more than vague promises.

The most welcome development is that the ten-point communiqué  endorses automatic exchange of information in matters relating to tax evasion, assuming that something is always classified as “tax evasion”  rather than its greyer cousin “tax avoidance”. Thus if a resident of the UK has stashed cash in a tax haven, then that jurisdiction would be obliged to inform the UK tax authorities.

The Organisation for Economic Co-operation and Development (OECD) has published its proposals,  but the G8 has made no mention of any time scale for implementation. Neither does the communiqué say anything about how this information exchange is to be co-ordinated or enforced.

More importantly, how the UK is going to persuade its secretive Crown Dependencies to sign the exchange? How will places such as the Cayman Islands comply with this protocol when they do not levy income or corporate taxes, and thus do not have the infrastructure for collecting  data about taxes or tax avoidance vehicles?

The promise to reveal beneficial ownership of companies looks  attractive, as anonymous companies facilitate tax avoidance/evasion, money laundering and flight of capital. The communiqué states that this

"could be achieved through central registries of company beneficial ownership and basic information at national or state level. Countries should consider measures to facilitate access to company  beneficial ownership information by financial institutions and other regulated businesses. Some basic company information should be publicly accessible."

A number of things are noticeable. There is no intention to let the public know the details about ownership of companies. There is no mention of any timescale within which any reforms are to be implemented.  Maybe this absence of detail is indicative of oppositions that some  governments are likely to encounter from their local economic elites.

The US has a particular problem in that its own tax havens Delaware, Nevada and New Jersey need to be persuaded to embrace openness, something they have so far resisted. The UK will also have to do much to  get anywhere near the promise. At present foreign companies, including  those registered in secretive tax havens, can be directors of the companies registered in the UK. Shares in UK companies can be held by nominees, who may not be resident in the UK. Yet there is no commitment to introduce any legislation. The  failure of the UK to lead by example may also embolden the UK Crown Dependencies and Overseas Territories to resist some of the changes.

Trusts are a key vehicle for providing secrecy and avoiding taxes. The communiqué advocates more information about them too, but not for the general public. It says that the information about them should be  accessible by law enforcement, tax administrations and other relevant authorities including, as appropriate, financial intelligence units. So the public bears the cost of tax avoidance perpetrated through trusts but will not be permitted to know the beneficiaries. Again, there is no  mention of any time scale. Once again, the UK will have much to do because there is no public record of the number of trusts, or their beneficiaries.

With tax revenues, developing countries can lift their population out of poverty. So it is welcome to note that the communiqué states that “Developing countries should have the information and capacity to collect the taxes owed them … Other countries have a duty to help them”. But, once again, there is no firm commitment to deliver any policy changes in the G8 countries.

With a daily diet of revelations about tax avoidance by giant corporations, such as Google, Microsoft, Apple, Amazon, Starbucks and eBay, there was a feeling that the G8 would start a dialogue about changing the system for taxing corporate profits. The communiqué states that “Countries should change rules that let companies shift their profits across borders to avoid taxes”, but change to what? There is no commitment and no foundations have been laid for taking the matters forwards at the next G20 or the G8 meeting even though alternative models exist.

The kindest thing that one could say about the G8 communiqué is that as a result of public anger, issues such as tax avoidance and corporate secrecy are on the political agenda. However, the summit has not delivered.

Perhaps, the expectations were too high. After all, most G8 leaders are facing declining popularity at home. The UK Prime Minister is facing dissent within the Conservative Party, the policy disagreements with  coalition partners Liberal Democrats are becoming more vocal (e.g. over benefit and tax cuts), and his popularity ratings are down. Similarly,  with intransigence by the Republican Party US President Obama can’t push through his preferred policies through the legislature. So they all  need some trophies to take home, which look and sound good but will not commit them to any firm legislative action.

Another thought is that with no representations from Africa, India, China and Brazil, the G8’s terms for ending tax avoidance or corporate secrecy may not be acceptable to the emerging economic powerhouses. So the action will move to next year’s G20 summit. As always, corporate elites will be operating behind the scenes and colonising the political  agenda. Any progress on eroding secrecy and tax avoidance is going to be slow, and that is a good reason for civil society to continue to campaign for change.

This article first appeared on The Conversation website

Price rises pile pain on struggling workers

Will Stone

Workers struggling with wage freezes and below-inflation rises were hit by higher prices for basics last month - and worse is set to come, the Office for National Statistics said.

The consumer prices index rise 0.3 points to 2.7 per cent in May.

Officials predict it will top 3 per cent over the summer.

But average earnings increased just 1.3 per cent in the year to April, meaning millions of workers have had a real-terms pay cut.

The retail price index, which includes housing costs, rose 0.2 points to 3.1 per cent.

A 22 per cent rise in air fares, the fastest increase since records began in 2001, helped push up CPI.
Overall transport prices rose by 0.4 per cent between April and May, and the cost of clothing and footwear also rose 1.2 per cent.

Furniture, carpets and garden tools also became more expensive.

Politicians, unions and economists issued a stark warning that plummeting wages are dragging Britain downwards.

Shadow Treasury minister: Catherine McKinnell MP

TUC general secretary Frances O'Grady warned: "Forty consecutive months of real wage falls means people have less to spend on the high street," leaving the economy stuck in the gutter.

Shadow Treasury minister Catherine McKinnell said that "the cost-of-living crisis is deepening," noting that because of inflation and low pay people's spending power is now £1,300 a year less on average than when the coalition came to power.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: "Today's rise in inflation exacerbates the squeeze on wages being felt by workers - sending ever more into poverty and reliance on food banks.

"To tackle low pay, we need stronger trade union rights, a significant rise in the minimum wage and a credible plan to create jobs."

He urged the Labour Party to ditch support for pay freezes for low-paid public-sector workers.

Soaring inflation is also hitting people with savings hard, with none of Britain's 820 standard accounts paying enough interest to outpace tax and inflation, according to Moneyfacts.co.uk.

This article first appeared in the Morning Star

Don't be distracted by an exaggerated 'intergenerational divide' ...

There has been some quite silly spinning in recent days about an 'intergenerational divide'. It reached its apogee on twitter (where else?) with this tweet:

For once the UK's economic differences are not so much between rich and poor...they are between old and young http://t.co/uKjcuVQprd
— Shiv Malik (@shivmalik1) June 14, 2013

The tweet links to an article by Paul Johnson - the director of the Institute of Fiscal Studies. What he says is somewhat different to what Malik tweeted. Johnson says of distrubutional changes in income since the recession, "the differences are not so much between rich and poor" - and points out that "pensioner incomes have continued to rise on average, albeit very modestly".

But when Johnson uses terms like 'rich' and 'poor' he is talking about quintiles (20%) or deciles (10%) at best. The real rich are the top 1% or even less - whose grotesque incomes and wealth continue to grow unhindered (for example FTSE director pay grew by 34% in 2010 and by 49% in 2011). The Sunday Times Rich List also shows that in the last year, the richest 1,000 Britons saw their wealth expand by £35 billion - that's more than all the welfare cuts announced, in total!

In the last five years, since the start of the recession, unemployment has increased by a staggering 49% for 18-24 year olds, but the same is also true for 35-49 year olds. More staggering is that the number of 50 to 64 year olds unemployed has risen by 82% in that same period. So actually the hardest hit by the recession (remember youth unemployment was high and rising before the recession) are older workers.


And pensioners are not having it easy - as DWP poverty figures released yesterday showed. The pensioner poverty rate is 18%, compared with 17% for working age adults (see Guardian article). The UK still lags behind the rest of Europe on what it spends (public and private) on pensions: with our spending just 5.4% of GDP, compared to 6.0% in the US, 8.8% in Japan, 10.7% in Germany and 12.5% in France.

The reality is that we need intergenerational solidarity to defeat the cuts that are hitting both young and old. Whether one section of society is being hit slightly harder is only of secondary importance to us all uniting to stop the bastards that are hitting us!

Osborne's 45% tax rate has already cost us billions

When George Osborne announced he would slash the top rate of tax from 50% to 45% - he made some ridiculous claims about how the 50% tax rate (in effect for only one year) had not raised much money (see point 2 of this post).

It was clear that £16 billion of tax had been brought forward (mostly in high earners' bonuses) to avoid falling under the 50% rate.

Today it became clear that same thing seems to have happened in reverse: to avoid the 50% tax rate the bonuses of the highest earners have been deferred to fall under the 45% rate.

The Morning Star reports:

"Britain has been conned out of billions of pounds by scheming bosses who put off their bumper bonuses until after bankers' mate George Osborne slashed the top rate of tax"

Indeed. The evidence is clear from table in the ONS Labour Market Statistics released today which shows that compared with a year ago finance sector bonuses were up 75%, in construction up 63%, and in the service sector up 52%.

Given any pick up in the economy is only marginal - and in some sectors non-existent - then it is patently obvious that businesses have deferred bonuses (largely the preserve of the top earners) to collectively avoid billions in tax.

As I told the Morning Star:

"Just as bonuses were brought forward to avoid the 50 per cent rate when it came in, so now bonuses from last year were deferred to avoid paying it again."

"At a time when the coalition is failing to reduce the deficit and has jacked up VAT on all of us, this tax cut for the highest 1 per cent of earners is a disgrace.

"These figures show that Labour would be right to restore the 50 per cent rate and to do so without notice to prevent avoidance through income-shifting."

And indeed to his credit, one of the few sensible things that Ed Balls said last week was that Labour favoured "keeping the 50p tax rate" - and let's hope he meant 'restoring' too should Labour get back in office in 2015.

Laughably the Treasury "dodged the evidence", the Morning Star reports - and instead commented that the 50p tax rate was "not effective at raising revenue" - which is a spurious claim given the billions of income shifted forward and then back to avoid it ... something that would not have been possible had the tax been in place for consecutive years, without the announced reduction.

So there we have it, the rich dodge their taxes thanks to Osborne's forewarned tax cut, the Treasury dodges questions and denies the evidence that contradicts Osborne ...

Health tourism - the true 'cost' of foreign nationals to the NHS

A new phenomenon has emerged in recent months in the long British history of scapegoating. We've had migrants stealing our jobs, migrants taking our housing, scroungers taking benefits, migrant scroungers taking benefits (I thought they were taking our jobs?!)

Now in a new malicious and factually dubious piece of divisive scapegoating we have David Cameron and Health Secretary Jeremy 'cockney rhyming slang' Hunt accusing foreign nationals of stealing our NHS. They have a catchy phrase for it too - 'health tourism'.

However, the scaremongering immediately ran into trouble when Cameron and Hunt couldn't agree on a figure with Cameron suggesting there was between £10m and £20m that the NHS should be recouping, while Hunt suggested the NHS was losing £200m. In April a Conservative MP found through Freedom of Information requests that the figure might be £40m.

Even though Conservative Party ministers and MPs can't agree on a figure - possibly because the data isn't fully available - they have problematised foreign nationals using the NHS. And this scaremongering has worked: at a recent Benefit Justice meeting I spoke at, a contributor from the floor - after rightly bemoaning NHS cuts - went on to blame the cost an open door policy through which anyone in the world can use the NHS ... apparently.

But since we have three estimates of the gross costs of foreign nationals to the NHS, let's try to get a net figure by looking at the savings to the NHS by foreign nationals, and by British nationals using foreign health services.

Foreign nationals saving the NHS

Firstly, the NHS makes a huge saving by importing foreign nationals to run the NHS. The cost of training a doctor is estimated by the BMA to be a minimum of £269,527, up to £564,112 for consultants - the cost of which is shared between trainees and the state. According to a 2008 study by the OECD (cited in WHO research), the UK had the highest share of foreign trained doctors in Europe - with 37.5%. The same research states that the UK had 243,770 doctors in 2008, so 91,414 were foreign trained.

If the UK had borne the full cost of training those doctors that would have been £24.6 billion - and that is using the lowest end of foundation training cited by the BMA (£269,527). Given we import far more doctors than we export - and that we import more doctors than any other European country - then it's safe to say the UK is saving several billion pounds.

And that's without calculating similar costs for nurses, midwives, etc. According to research by the National Nursing Research Unit, before 2005 10,000-16,000 nurses were emigrating to the UK each year, but following the changes in 2005 the numbers decreased to 2,000-2,500 foreign nurses arriving in the UK each year*.

This is without costing in the UK lives that would be lost were these foreign nationals not there to staff our NHS. How do you think your hospital would cope with losing over one-third of its doctors? The financial, social and human cost to the UK would be immense.


The cost of UK citizens on other health services?

According to parliamentary research, in 2007/08 the average value of NHS services for retired households was £5,200 (compared with £2,800 for non-retired). Now given there are about 220,000 pensioner households living abroad that's just over £1 billion. Even if just 1% of that cost was not recouped from the UK by foreign healthcare systems, that would be over £10 million. If 5% went unrecouped that would be £51 million.

Of course these figures should be treated with a health warning: firstly, they assume health costs have stayed the same as five years ago; secondly, there are no reliable consolidated estimates for what foreign health systems fail to reclaim; and thirdly the figures exclude non-pensioner households living abroad.

Conclusion

Despite whipped up fears by the Conservatives, UKIP and their daily print editions the Mail, Sun and Express, the figures for 'health tourism' cited by the government (which range from £10 to £200m) are relatively trivial in government spending terms.

In 2012, NHS spending was £104 billion. So even at the highest end of the government's dubious estimates, health tourism accounts for just 0.19% of total NHS expenditure.

That gross figure does not take account of the savings made by the NHS by importing already trained medical staff or for UK nationals who receive unrecouped treatment abroad.

* 2002 research by the Royal College of Nursing found in just one London NHS trust nurses and midwives from the following 68 countries: Algeria, Angola, Australia,  Austria, Barbados, Belgium, Benin (Dahomey),  Brazil, Cameroon, Canada, Central African Republic, China, Congo, Denmark, Dominica, Finland, France, Gambia, Germany, Ghana, Greece, Grenada, Guyana(British Guyana), Hong Kong, Hungary, India, Ireland, Isle of Man, Italy, Ivory Coast, Jamaica & Cayman Islands, Japan, Kenya, Korea (South), Malawi, Malaysia, Malta, Mauritius & Reunion, Mauritania, Moldavia, Nepal, Netherlands, Netherlands Antilles, New Zealand, Niger, Nigeria, Norway, Philippines, Poland, Romania, Russia, Sierra Leone, Singapore, South Africa, Spain (inc Canary Islands), Sri Lanka, St Lucia, St Vincent (Grenadines), Swaziland, Sweden, Tanzania, Trinidad & Tobago, Turkey, Uganda, United Kingdom, United States of America, West Indies, Zambia, Zimbabwe

Country-by-country reporting is a victory for citizens over companies

Prem Sikka

The Twitter age is about to chalk up its first success in the grey world of corporate accounting. It has been reported that the European Union will seek to make large companies disclose the taxes they pay and profits they make on a country-by-country basis.

This is part of the crackdown on corporations avoiding their obligations. The concerns are driven by tax avoidance, as companies have sales, employees and assets in one place, but end up booking them in jurisdictions with comparatively few employees, sales and assets. The idea behind country by country (CbC) reporting is to enable citizens to scrutinise corporate practices and ask critical questions.

The EU proposals mark the beginning, but CbC is a much broader idea. It supplements the traditional model of publishing profit and loss account, balance sheet and a cash flow statement. These statements relate to the company as a single economic entity and do not provide any disaggregated information. So these statements do not reveal the taxes a company may have paid in each country, or the profits and losses made there.

The traditional approach in accounting circles has been to require companies to publish “segmental reports”, in which company directors offer a commentary on major operating segments, products and services, the geographical areas in which they operate and their major customers. Such reports are too general and do not focus on each country.

In contrast, CbC requires companies to publish a table showing sales, costs, profits, losses, taxes, loans, subsidies and employees for each country of its operations. It could even be used to demand information about carbon emissions and other corporate footprints in each country. Such a table would show that a location has relatively few employees but is reporting very high profits, or that a country has a high proportion of a company’s sales and employees, but pays little or no tax. Armed with this information, citizens may be able to construct shadow accounts and question conventional accounts offered by corporations – the ones that say, “we are good citizens, we pay taxes and really care for the community”.

CbC is the culmination of a decade-long campaign by civil society organisations. When fully enacted, it will be the first accounting standard formulated and developed by civil society rather than the traditional accounting standard setters. It represents the first time activists have demanded and secured an accounting standard that the establishment was not keen on in the social media age.


In 2003, in my capacity as director of the Association for Accountancy and Business Affairs (AABA), I encouraged Richard Murphy, a chartered accountant, to draft a proposal that could highlight flight of capital, profits and the mismatch between profits, employees, assets and tax.

The first draft was published in 2003 and has continued to be refined. Initially, meetings were sought with the more traditional accounting standard setters, such as the International Accounting Standards Board (IASB) and the Financial Reporting Council (FRC), but they showed no interest.

There was considerable opposition from the professional accountancy bodies. For example, the Institute of Chartered Accountants in England and Wales was vehemently opposed to it. Major accounting firms and corporations were also opposed to CbC.

For example, Deloitte said “we do not believe that imposing incremental country by country disclosure in financial statements prepared under IFRSs is warranted”. A survey in 2010 did not show much enthusiasm for CbC among FTSE 100 directors. The usual arguments were that disclosure would be costly, even though companies should already have the information about the performance of their subsidiaries in each country of their operation. The cost of publishing this internally held information is negligible.

The main turning point was the support given by NGOs, such as Christian-Aid, Publish What You Pay (PWYP), War on Want, Tax Justice Network, Oxfam and many others, not only in the UK and the EU, but also in developing countries and the US. The credit for this must go to Richard Murphy. This campaign was joined by some Members of the European Parliament (MEPs) and also Labour MPs.

Much to the dismay of the accounting establishment, their pressure persuaded the EU to launch a consultation exercise in 2010 and has now resulted in partial implementation of CbC. No doubt, there is more to come.

The story of the country by country reporting is that in the digital era, it may well be possible to mobilise alternative centres of power, at least in crafting new accounting disclosure rules. This announcement has been a victory for those of us who campaign for greater transparency on tax. Let’s hope it’s the first of many.

Prem Sikka is senior adviser to Tax Justice Network.

This article first appeared on The Conversation website