Tony Benn: "What a world we would have created if we had listened to him"

LEAP Chair John McDonnell MP pays tribute to Tony Benn

LEAP chair John McDonnell MP spoke in Parliament yesterday (20/03/14) paying tribute to Tony Benn (click to watch via Youtube).

John, who also chairs the Socialist Campaign Group of Labour MPs (founded by Tony Benn), said:

"I want to go back not to the manifesto of 1983, but to Labour’s programme of 1982, which was the Bennite programme, and virtually all of it was written by Tony Benn. It is worth looking back at what it said. It was absolutely prophetic. It basically said, “We will create a society that is more democratic, more fair, more just and more equal.” How would we do it? Tony’s ideas in that programme were straightforward: we would undertake a fundamental, irreversible shift in the redistribution of wealth and power. How would we do that? Through a fair and just tax system, tackling tax evasion and tax avoidance, taking control of the Bank of England, preventing speculation in the City and the banks because it could be dangerous to our long-term economic health, and creating full employment. That is what he was about. That is what he inspired us to do.

"It is interesting that he said we should invest in housing, health and education; give all young people the opportunity to stay on at school with an education maintenance allowance; and make sure that they had a guarantee of an apprenticeship or training and the opportunity to go to university, not by paying a fee but on a grant. That was his programme in 1982. It was prophetic and years in advance of its time. He said that what we needed to create the wealth was an industrial strategy—a manufacturing base based on new technology and skills. Actually, I remember him talking in one of his speeches about alternative energy sources, well in advance of the debate about climate change.

"He inspired my generation and he inspired generations to come. What a world we would have created if we had listened to him. But more important, what a world we can create now if we listen to him.

"Solidarity and go well, comrade. You made a significant contribution to all of our lives. I hope we will be able to implement the lessons you taught us, when Labour next gets back into power."

The above are extracts from John's speech. Read it in full

IFS is right to back Land Value Tax

Dave Wetzel, President of the Labour Land Campaign congratulates the Institute for Fiscal Studies (IFS) on its conclusion in its Green Budget 2014that a Land Value Tax on all commercial land would be more efficient and better for businesses than the current Business Rates system.

The IFS states that a land value tax “would remove altogether the disincentive to develop and use property that business rates creates”.

The Labour Land Campaign agrees that taxes on buildings act as a disincentive to use commercial sites efficiently but also that taxes on business are not only inefficient but are easily avoided and evaded whereas because land is immobile, an annual tax on the economic rent of each site according to its optimum permitted use cannot be defrauded and acts as an incentive to use valuable land in towns and cities efficiently and discourages the land hoarding and speculation that forces prices up.

Dave Wetzel says "The Institute for Fiscal Studies’ work showing the greater efficiency of Land Value Tax is a huge step forward for the UK to see a fundamental shift in taxation off earned incomes, savings and production and on to land and other natural resource rents. Land is not produced by human endeavour and land wealth is created as a result of public and private investments which we all pay for as tax-payers and consumers and not by the landowners who benefit financially."

The Labour Land Campaign recognises that most current taxes in the UK are unfair and inefficient. Income Tax along with National Insurance Contributions and Corporations Taxes are avoided and evaded by many, leaving the tax bill to be picked up by honest and less devious taxpayers. Everyone pays tax in some form or other directly or indirectly and those taxes pay for our public services that create and add to land value in the UK including transport, health care, good state schools, parks and so on but it is owners of land that reap the unearned income of land wealth through no effort on their part.

By reducing taxes on wages and business and introducing an annual Land Value Tax, land will be used more efficiently, demand for building on green land will greatly reduce and speculation in land prices increasing will disappear. Employment will grow as investors are encouraged to expand current businesses and start up new ones all over the UK and the land wealth which is created by all of us will be collected and used for the public good.

The two faces of Ed Balls

During the Labour leadership election, many people were impressed by Ed Balls' apparent conversion to a social democratic economic settlement as espoused in his Bloomberg speech.

But since then Balls has committed a Labour government in 2015 to sticking with Tory spending plans for at least the first year. He has also said that Labour will not promise to reverse Tory cuts, and that Labour would have to make more in office. He has supported the public sector pay freeze, while Ed Miliband somewhat contradictorily waxes on about the cost of living crisis.

This morning the media was filled with similar tough messages, briefing ahead of Balls' speech at the Fabian Society, including the parliamentary garbage that "Balls will promise to legislate for new fiscal rules within 12 months of the general election, including a commitment to a budget surplus by the end of the parliament". Legislate for it? Really? Will the chancellor be surcharged if the target is not met? Or will a technocrat be installed to make cuts? It really is nonsense. On the upside, it should be noted that Balls is committing to a current account surplus, which allows for borrowing for capital investment - see 'Borrowing for Growth - some advice for Ed'.

Nevertheless, like any wannabe chancellor, Balls knows how to pull a rabbit out of a hat. And so the tough, 'we'll enforce austerity too' message will be overshadowed by a debate about a modestly higher rate of income tax on a few high earners. It is very welcome that Balls has committed to restoring the 50% tax rate on those earning over £150,000. It was probably the most popular policy in Gordon Brown's premiership.

What is also welcome, and will hopefully be widely reported, is that Balls also said:

"The latest figures show that those earning over £150,000 paid almost £10 billion more in tax in the three years when the 50p top rate of tax was in place than when the government conducted its assessment of the tax back in 2012"

This corrects the crap put out by the Treasury in its dodgy dossier of the 2012 Budget. Both the move to pledge to restore the 50% rate and the analysis is welcome, and hints at a return to '
Bloomberg Balls'.

However, before Labour activists start getting weak at the knees about a return to some form of modest social democracy, Balls also told the Fabian conference that Labour supported the benefit cap, the public sector pay freeze, thought public utilities belonged in the open market, and that universal winter fuel payments for pensioners should be means-tested.

We've seen the two faces of Ed Balls today in one day. Capitulating to Osborne, the financial markets and the Murdoch media this morning, while throwing a modest redistributive morsel to the left at lunchtime. Bon appetit!

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.

Help to Buy won't Help, says Labour Land Campaign

 

In his Financial Times article (10 October 2013 “Buyers beware of Britain’s absurd property trap”) Martin Wolf exposes the real reason for the Government’s Help to Buy Scheme – to stimulate land speculation in the UK and give land owners even more unearned income as the next property bubble grows and grows at the expense of the economy. 

Land values are created by our collective demand for public and private services and production; it is our taxes, our investments and our consumption that create land value. Because we have monopoly ownership of land in the UK (70% of land is owned by less than 1% of the population) we have monopoly ownership of land wealth. The poorest taxpaying commercial and residential tenants are subsidising the richest land owners.

Carol Wilcox, Secretary of the Labour Land Campaign, says:

"The mythical housing ladder is unattainable to a growing number of households and the UK’s tax system sustains this economic injustice and actually encourages land speculation. This is now so hideous that blocks of apartments are being built in London that have already been sold to overseas speculators before completion.

"We don’t need a government that fuels land price rises through subsidies which make homes even more unaffordable to a growing number to buy or rent. We need a courageous and imaginative government that tackles our tax system by shifting taxes off earned incomes and on to unearned incomes that the owners of our land and other natural resources take as theirs. By taxing the annual rental value of all land at its optimum permitted use value, the government will capture wealth that the whole of society creates to be reinvested in our public services."

 For more details visit www.labourland.org.

Prince Charles must go public with tax dealings

Prem Sikka

The UK House of Commons Public Accounts Committee is examining some of the financial affairs of Prince Charles, heir to the British throne. The Committee should be concerned that the Duchy of Cornwall, Prince’s business arm, is exempt from corporation and capital gains tax. This means that the Duchy does not make any financial contribution towards the social infrastructure used by it. Its tax exemptions also give it unfair advantage over its rivals.

The Duchy of Cornwall is the remnant of a bygone feudal age. The Duchy’s estate was created in 1337 by Edward III for his son and heir, Prince Edward. It provides income for the Duke of Cornwall, always the male heir to the throne. Today, the Duchy’s estate is no longer confined to land in Cornwall. It is a sprawling conglomerate, the third largest landowner in the UK, owning 53,154 hectares of land in 24 counties, mostly in the South West of England.

The Duchy’s 2013 balance sheet shows net assets of £762 million though the market value is likely to be several billions. Its portfolio of assets includes 3,500 individual lettings, including 700 agricultural agreements, 700 residential agreements, and 1,000 commercial agreements. The Duchy owns Dartmoor Prison, the Oval cricket ground in London, a Waitrose warehouse in Milton Keynes, pubs, shops, hotels and building occupied by King’s College London. The Duchy also jointly owns a biomethane injection plant.

The Duchy directly competes with commercial organisations to trade in property, house building, holiday rentals, organic food, jam, marmalades and biscuits. Its profits are boosted by the direct use of social infrastructure funded by taxpayers in the shape of local/central government, transport, security, legal system, and education and healthcare provided to its employees. But the Duchy makes no direct financial contribution towards any of this because it is exempt from the UK corporation and capital gains tax.

The tax privileges of the Duchy are often defended by claims that it is a private estate (is the monarchy private?), or that it is a private trust for the benefit of the Duke of Cornwall, or that somehow the Duchy and the Duke merge into one.

An ongoing freedom of information case has lifted some of the legal murk surrounding the Duchy to reveal its economic substance: it is a legal person in its own right. The evidence provided by Prince Charles’s representatives showed that the Duchy enters into legal contracts in its own name. Its staff are employed by the Duchy rather than the Duke. The Duchy has sued and has been sued in its own name. It is registered for VAT and Pay As You Earn (PAYE). Employees give their consent to the Duchy to process their personal data. The Duchy is notified as the Data Controller under the Data Protection Act 1998. The Duchy has bank accounts in its own name. There have been transactions between the Duchy and Duke, clearly acknowledging that the two are separate.

Parliament has no say in how the profits are to be distributed. The Duchy’s entire income goes to Prince Charles. Between 2008 and 2013, UK workers saw a real terms cut of 6% in their pay. By contrast, Prince Charles’s income rose from to £18.7 million to £20.2 million for the same period. A large part of this came from the Duchy of Cornwall, whose contribution increased from £16.27 million in 2008 to £19.05 million in 2013.
The Duchy of Cornwall’s website states:

As The Prince already pays income tax on the Duchy’s surplus, the Duchy does not pay Corporation Tax. If the Duchy also paid Corporation Tax, The Prince would effectively be taxed twice on the same income. Only companies pay Corporation Tax; many other large organisations which are not companies pay income tax.

Inevitably, the Prince is seeking to endear himself to the people by claiming that he pays income tax, just like anyone else. But how much income tax does he pay? Page 27 of the Prince’s 2013 annual review states:

The Prince of Wales pays income tax voluntarily on the surplus of the Duchy of Cornwall, applying normal income tax rules and at the 50 per cent rate, and pays income tax on all other income and capital gains tax like any private individual. The £4.426 million includes VAT.

It is worth noting that income tax and VAT payments, which are payable by all consumers, have been lumped together to produce a higher amount. Why this obfuscation by combining direct and indirect taxes?

Any comparison of the Prince’s direct (income tax) and indirect (VAT) tax contribution with that of an ordinary citizen is difficult, but statistics provide some food for thought. The most recent government statistics show that for 2011/12, direct and indirect taxes added up to 36.6% of the income of the bottom 20% of the UK households, and averaged at 34.6% of the income of all households. The £4.426 million tax payment by the Prince amounts to 23.2% of his income.

The controversies about Prince Charles’s business dealings are unlikely to go away. The feudal arrangements do not sit easily with contemporary notions of democracy and public accountability. Insetad, we must subject all payments to any part of the monarchy to parliamentary approval and scrutiny.

This article first appeared on The Conversation website

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 ...

A Tale of Two Frauds

In 2009, a Lancashire mother was found guilty of defrauding the state of £45,000. She claimed over £45,000 in housing benefit, council tax benefit and income support by not including her husband’s details on the claim forms.

She pleaded guilty and was jailed for 16 months.


A week ago, two men from Leeds were also found guilty of defrauding the state of £45,000. They made up false invoices and documents in order to make false VAT claims worth £45,000.

They pleaded guilty, but avoided jail. Instead they were given community sentences, and made to pay court costs.


What makes these cases interesting is that they were for exactly the same amount: £45,000 dishonestly defrauded from the state - and all defendants pleaded guilty to the charges. So why is it that benefit fraud is considered so much worse?

Why, when benefit fraud costs us £1.1 billion per year and tax evasion an estimated £70 billion, is so much more effort and opprobrium directed at benefit fraud?

Of course both crimes were wrong. But is someone who commits benefit fraud a danger to society - who needs to be locked away for over a year of their life? I don't think so.

It's the inevitable result of a society where successive governments and the tabloid media (step forward the Sun and Daily Mail) have whipped up hatred against those out of work. That prejudice is reflected in the sentences.

The same economic crime means very different time.

PRESS RELEASE: Questions to answer over Osborne’s dodgy dossier

This press release was issued today, following our post yesterday on the HMRC's publication on the 50p tax rate.

PRESS NOTICE:

FOR IMMEDIATE RELEASE:

Questions need to be answered over Osborne’s Budget Day dodgy dossier

LEAP has raised several serious questions about the dossier used by Chancellor George Osborne to justify cutting the 50% tax rate at the Budget last week. The dossier, published by HM Revenue & Customs (HMRC) ‘The Exchequer effect of the 50 per cent additional rate of income tax’ was published on Budget Day, and makes the case for the 50% tax rate to be scrapped and replaced with the 45% rate.

Today (26 March) is the last day of the post-Budget debate, culminating in a vote on the Budget. LEAP Chair John McDonnell will be raising this issue in Parliament, which has led to a tax cut for the highest 1% of earners at a time of austerity.

LEAP’s analysis raises questions about a numbers of issues, including: political interference in drafting the dossier; the efforts made by HMRC in maximising compliance with the 50% rate; and why HMRC based its assumptions on different Taxable Income Elasticity measures in 2009 when the tax was announced.

John McDonnell MP, LEAP Chair, said:

"There are serious questions to be answered by George Osborne about the political impartiality of this document, in light of the analysis by LEAP – which raises massive doubts about the conclusion that the 50% rate will raise only an additional £100m.

"I will be raising this issue in Parliament because it is of deep significance to the both the justice of our taxation system, and to the integrity of the civil service."

Andrew Fisher, LEAP Director, said:

"This dodgy dossier is deeply flawed in its analysis of the tax avoidance associated with the 50p rate. Its politically convenient and economically dubious conclusions seem more like the work of political placemen than politically neutral civil servants. There are several questions that need to be answered if taxpayers are to have any faith in the tax system.

"Osborne claimed that the 50% tax was bad for Britain’s competitiveness, yet in the Budget debate he justified cutting it by claiming other measures would raise five times as much from the same group. The Chancellor is spinning both ways, but we need to get to the truth."

-Ends-

The LEAP analysis can be read in below on the blog

The coalition's dodgy dossier - Questions that need to be answered

Waking up this morning, Cameron's government has more immediate concerns than the fall-out from the Budget. Cash for access is nothing new (Greg Palast exposed LLM and New Labour ministers in 1998), but it will further batter Tory poll ratings ahead of the May elections.

However, I think there's another scandal about to emerge, which also has echoes of another New Labour previous: a dodgy dossier.


The document is the publication by HM Revenue & Customs (HMRC) used to underpin Osborne's case for reducing the 50% tax rate to 45% in the Budget. (Richard Murphy has also raised questions about the dossier and its conclusions)

Now we know the HMRC has form (e.g. tax deals with Vodafone, Goldman Sachs, and numerous other multinationals and wealthy individuals). But it is still an executive agency of HM Treasury and staffed by politically neutral civil servants.

There are echoes again of HMRC's lax attitude to tax avoidance in this statement, which bears deeper analysis:

"there was a considerable behavioural response to the rate change, including a substantial amount of forestalling: between £16 billion and £18 billion of income is estimated to have been brought forward to 2009-10 to avoid the additional rate of tax. This behavioural response is entirely legitimate, and difficult to prevent using anti-avoidance legislation."

The first issue with this statement is the value judgement that avoidance activity is "entirely legitimate". It's true to say that New Labour was stupid in signposting with a year's notice a tax rise to the super-rich, but what does it tell us about the culture of HMRC at the highest levels, that they believe rich people avoiding tax is "entirely legitimate"?

The second issue with this statement is what it - and the dossier throughout largely - doesn't say: that this was a single year effect. It is obvious that high earners would bring forward bonuses, dividends etc by a year to avoid paying so much the following year when the 50% tax rate came in. But that cannot be repeated, so the £16-18bn in years two and subsequent would give us an extra £1.6-£1.8bn in revenue.

Although the document is largely carefully couched and liberally littered with pharses like "the estimates above are subject to a wide range of uncertainty" that is not reflected in either a) what Osborne said the Budget; and b) it's own ridiculous conclusion.

Cunningly, the dossier's conclusion is not to be found in Chapter 6: Conclusions. Instead, the real conclusion is to be found in the extra-dodgy Annex A - Table A2 of which contains Osborne's highly dubious claim that reducing the rate to 45% will only cost the Exchequer £100m (allowing him to claim his stamp duty changes will raise five times as much).

Much of the document is based on an academic concept: Taxable Income Elasticity (TIE) which in simple terms looks at the responsiveness of taxable incomes and tax revenues to different tax rates. Again in simple terms, the lower the TIE score the lower the opportunities for avoidance.

For the purposes of the document, HMRC uses a TIE of 0.48 (see Chapter 5), yet the calculations used in 2009 (when the 50% rate was announced) were based on a TIE of 0.35.

But HMRC is not a neutral academic observer of TIE. Its role - surely (at least in theory) - is to maximise tax revenues, a large part of which is to mitigate against tax avoidance. Even Osborne in his Budget statement said "I regard tax evasion and – indeed – aggressive tax avoidance – as morally repugnant".

So if HMRC identifies a higher TIE, it should not be simply reporting it, or worse suggesting tax rates should fall in response, but producing a practical strategy to minimise avoidance.

So the questions that need to be asked are these:

1. Was there an earlier draft (or drafts) that was less conclusive?
2. What input was there from ministers or their special advisers?
3. Who signed off the final document?
   
4. Why was the HMRC commissioned to do this analysis and not the 'independent' OBR?
5. Why was a TIE of 0.35 used (presumably by HMRC) in 2009, but a TIE of 0.48 used in 2012?
6. Why did HMRC not suggest practical steps for reducing this avoidance?
7. Will HMRC and HM Treasury publish all correspondence relating to the commissioning and drafting of this dossier?
8. What behavioural analysis has HMRC or HM Treasury completed or commissioned on the effects of the new changes to stamp duty?
   

Still the unacceptable face of financial capitalism

Barclays Bank’s grim reputation for a predatory approach to business is undiminished, says Prem Sikka

The banks have got it made. They have ripped off people with exorbitant charges and measly returns on savings. They have picked people’s pockets with the mis-selling of payment protection insurance, endowment mortgages, personal pensions, precipice bonds and split capital investment trusts – to name just a few.

Banks have driven up the price of food and commodities through speculation, a major cause of commodity inflation. The state has guaranteed their profits through the Private Finance Initiative and the channelling of pensions and benefit payments through bank accounts. The taxpayer has bailed out banks through loans, subsidies and guarantees that add up to more than £1 trillion. Yet, in return, the banks cannot be relied on to pay democratically agreed taxes.

Barclays Bank is the latest example of the unacceptable entrepreneurial culture where bending the rules to avoid taxes and boost corporate profits is considered to be a skill. In 2009, Barclays paid £113 million in corporation tax to the United Kingdom – about 2.4 per cent of its £4.6 billion global annual profit.

Now the British Government has announced that Barclays tried to avoid £500 million of tax through two novel schemes. The first was designed to ensure that the profit arising to the bank from a buy-back of its own debt is not subject to corporation tax.

The second bit of alchemy was a scheme to convert non-taxable income into an amount carrying a repayable tax credit in an attempt to secure “repayment” from the Exchequer of tax that has not actually been paid. The £500 million that Barclays sought to avoid is equivalent to the cost of 100 new primary schools, or employing 16,000 nurses. Yet Barclays and its tax advisors were not bothered about the social consequences. The bank’s defence was that other corporations are also doing the same and it has not broken any laws.

Each year, Barclays publishes what it calls a Citizenship Report and claims that it is a socially responsible organisation. In 2008, soon after the banking crash, Barclays’ chief executive Bob Diamond publicly said that, in future, banks would be good citizens. In November 2010, major banks, including Barclays, signed the Government’s Code of Practice on Taxation and promised that “that banking groups, their subsidiaries, and their branches operating in the UK, will comply with the spirit, as well as the letter, of tax law” and “not undertake tax planning that aims to achieve a tax result that is contrary to the intentions of Parliament”.

All the promises have been broken and show the folly of relying on voluntary codes. The Government will collect the £500 million in tax, but there are no penalties for violating the Code of Practice, which was lauded by Prime Minister David Cameron as a step towards “responsible capitalism”.

Barclays is no stranger to controversy. Last year, the World Development Movement estimated that Barclays generates a profit of around £340 million a year through food speculative activities, a major cause of hunger around the world. Barclays and 15 other banks are being investigated by the European Commission to ascertain whether they have colluded and/or may hold and abuse a dominant position in order to control the financial information relating to credit default swaps, which are complex financial instruments used to manage risks.

In April 2011, Liberal peer Lord Oakshott urged the government to investigate Barclays over the $12.3 billion (£7.4 billion) sale of toxic assets to a Cayman Islands company. The company was called Protium and was founded with a $12.6 billion loan from the bank. The deal had the potential to enable Barclays to avoid millions in taxes and a headline in the Daily Telegraph screamed ”Barclays’ Protium deal is all that’s wrong in the City”. Barclays is thought to have 174 subsidiaries and ventures registered in the Caymans, a place that does not levy any corporation tax and is known for lax regulation. The extent of speculative and tax avoidance activity routed through tax havens is not known.

Barclays and other multinational corporations indulge in tax avoidance for two main reasons. First, stock markets exert incessant pressures on corporations to report higher profits. Rather than competition, innovation, investment, better services to customers and communities, many companies find it easier to boost profits through tax avoidance. Second, this suits executives as their remuneration is linked to profits. Barclays’ chief executive Bob Diamond has been receiving mega-bucks in salary and bonuses, but there is silence on the extent to which they are financed by tax avoidance.

Tax avoidance enriches few and impoverishes many, but banks do not publish any meaningful information about their indulgence in tax avoidance. The annual accounts do not provide any indication of the profits boosted by tax avoidance schemes. Neither do they provide any information about the sales, profits, employees and taxes for each country of their operations.

Such information would show that subsidiaries in tax havens do little trading, have skeletal staff but somehow report huge profits, or that large amounts of revenues are generated in the Britain, but corporate taxes are avoided. This information would help to focus attention on the artificial shifting of profits, but successive governments have done nothing to create this transparency.

Organised tax avoidance affects us all. Democracy, responsibility and accountability should be mobilised to check it. All corporate tax returns and related correspondence should be publicly available so that we can all check corporate claims of social responsibility and good citizenship. The threat of public sunlight has the potential to check selfish impulses.

At the moment, there are no personal consequences for directors indulging in complex tax avoidance schemes or for accountants crafting complex avoidance schemes.

Many of the avoidance schemes have been declared to be abusive by the courts, but still there is no retribution against directors and accountants. The lack of penalties has created a gaming culture which drains the public purse. Legislation should be enacted to make directors and designers of abusive avoidance schemes personally liable for up to 10 times the amount of tax involved. The prospect of personal costs would provide some food for thought.

This article first appeared in Tribune

A Mansion Tax misses the spot!

Press release from the Labour Land Campaign

One of the aims of a Mansion Tax is to collect a share of the untaxed wealth the rich currently enjoy. However, its advocates fail to recognise why very expensive properties are so expensive: it is the location of a building that creates high property prices not the building itself.

Advocates of a Mansion Tax also fail to realise that many of the owners it aims to tax in this way will avoid paying it once introduced. It doesn’t take much nous to predict that overnight a £2.3million home would suddenly only be priced at £1.9million but with the contents priced at £.4million.

Vince Cable apparently fails to recognise what gives a property its value – the building value and the location value. The building value will always deteriorate as happens with all second-hand goods. However, the location value of any property (commercial or residential) is due to society’s overall demand to be located in that area. That demand is determined by a site’s accessibility to public transport, roads, schools, hospitals, other health care, leisure facilities, natural beauty, shops, employment/workforce etc.

Eleanor Firman, Chair of the Labour Land Campaign (www.labourland.org) says “It is society’s combined public and private investment that generates land values – not the owners of land who can - and do - leave land idle and still see it rise in value without lifting a finger.

Much better for the Government to abolish property taxes, increase the personal allowance on income tax, reduce VAT and introduce an Annual Land Value Tax on all land according to its optimum permitted use. This would immediately bring idle sites that blight our towns and cities into full use and reduce the demand for urban sprawl. The wealth that our taxes create would be returned to the public purse to maintain and develop our public services.”

ENDS

The Morning Star also covers this issues and covers the publication of the TUC's new report Is 50/50 fair? which looks at the 50p tax rate.

Here's a short excerpt:

According to the TUC the Treasury could raise more than the £3 billion it originally forecast from the 50p rate if it tackled tax avoidance.

Mr Barber added that calls to scrap the 50p tax are about the richest 1 per cent trying to dodge paying their fair share of tax and making everyone else pay more instead.

Left Economics Advisory Panel co-ordinator Andrew Fisher stated that lowering the 50p tax to earners on £100,000 and putting a 60p rate on those on £150,000 would be fairer.

He said: "We now need a real debate throughout the labour movement on fair taxation, to include new wealth and land value taxes, as well as reducing regressive taxation like VAT."

Tax 'em til the pips squeak

A letter from the Morning Star 16/02/12

There is a very simple way to deal with the bankers' "bonus culture" that nobody seems to be talking about. Tax it!

In the 1970s, for taxable incomes over £20,000 (equivalent to around £170,000 now) we had a tax rate of 83 per cent. On "investment" income (that is from gambling on the capital markets) it was 98 per cent.

If employers really think their executives are worth it, let them pay these obscene bonuses, but let us at least tax them so that the rest of us, upon whom their businesses depend, will get a cut in the form of more money for public services.

Of course, there is no way that this government will take such a step, but that does not mean we should not talk about it.

Of course, if we had a government that took such a measure there would be the usual cry that all these fantastic "experts" will migrate.

Good riddance, I say. Nobody is indispensible. There will be always be people who can grow into the jobs that need to be done, who will not demand bonuses for the jobs that they are already being paid to do.

Jerry Jones
London SW19

Update 17/02/12: YouGov poll shows how popular more redistributive tax would be:

• 62% feel that taxes on the wealthiest people in the UK should be increased ... only 5% feel they should decreased
• 68% say that George Osborne should not abolish the 50p rate of income tax for people earning over £150,000, 19% say he should abolish it
• 66% of Britons would support a new tax upon people with houses worth more than £2 million, while 19% are opposed to this 'Mansion Tax'

Having a Laffer

Earlier this week Mehdi Hasan wrote a Guardian column entitled 'Why are deficit-cutters so afraid to talk about tax?' - a well-argued piece that said taxation should form a bigger part of deficit reduction than it presently does relative to the massive cuts.

It also quoted US judge Wendell Holmes "I like paying taxes, with them I buy civilisation" to make the pertinent point that taxes are what fund everything around us - the pavements we walk on, the schools our children use, the hospitals, the roads, the street lights, etc. A similar point has been made by Tony Benn who argued that suffrage (i.e. democracy) transfers power from the wallet to the ballot - what people couldn't afford themselves they could now vote for at the ballot box. Likewise Richard Murphy makes the case for tax very strongly in his new book 'The Courageous State' (which will be reviewed on this blog shortly).

Like Murphy, Mehdi Hasan wants courageous politicians - ones who will make the case for taxation - and more of it if necessary. As he righty says, "'deficit reduction' has become a convenient euphemism for cutting public expenditure" and "senior politicians of all stripes daren't refer to the T-word in public" as they are decried by the vocal right.

As if to prove that, when Mehdi tweeted* a link to his article it got a near instant response from the right. Toby Young replied "Two words Medhi [sic]: Laffer Curve". This is the argument that increasing taxation rates doesn't necessarily raise revenues, since it might provoke avoidance or damage the economy.

However, the Laffer Curve is not a tool solely of the right. Toby Young - a man whose knowledge and arrogance seem to have an inverse relationship - obviously hasn't read much about the Laffer Curve. If he had he might not be advocating a 70% taxation rate. That according to Mathias Trabandt & Harald Uhlig in 'How far are we from the slippery slope: The Laffer Curve revisited' is the income tax rate after which revenues start declining.

So the left should embrace the Laffer Curve and argue that income tax rates for the richest should rise from 50% - why not make that rate 60%, throw a 50% rate in at £100,000 and let's hit £200,000+ earners with 65%?

If Trabandt & Uhlig are right and revenues do slip off above 70%, then is that a reason not to have them? That might sound like a silly question, but that judgement is based on the assumption that the sole purpose of taxation is to raise revenue. It's not.

The London congestion charge does raise revenue, but its main function is to deter some traffic from central London and achieve what transport planners call 'modal shift' - getting people to use the bus to you and me. And using the bus becomes more attractive when there are bus lanes and clear roads: post-congestion charge and bus lane investment, journey times reduced. Taxation achieved that. Better for the environment, for the economy, and for you and I sitting on the 159.

Likewise the Tobin Tax (aka financial transaction tax or re-branded Robin Hood Tax) was designed to shift behaviour: to deter financiers from speculating on markets (which can have highly volatile and disruptive effects on the real economy) and to instead invest in something productive, like businesses or infrastructure.

So is there a deterrent effect (with a potentially beneficial outcome) reason to go over the peak of the Laffer Curve? Possibly. Let's consider an 80% tax rate on all incomes over £300,000 (about double what the Prime Minister receives or about 1/15th of the average FTSE 100 CEO's salary). Would a company set a salary at £4.5m knowing their employee was receiving less than £1m of it and the rest was going straight to the Treasury?

So, if we could effectively cap salaries at £300,000 (and therefore also reduce the ridiculous pension pots to the super-rich) that money could then be spent more productively - on research and development, or improving the wages or working conditions of general employees. Then the right would cry that British business could not compete. But the German Commerzbank caps its top pay at 500,000 euros or £416,000 - about one-third of what Stephen Hester will receive as his basic salary, even without his now defunct bonus.

*LEAP tweets @LEAPeconomics - follow us on twitter

Prem Sikka: I want the right to see Bob Diamond's tax return

Anti-capitalist protests are essentially demands for social justice, democracy and greater public accountability of corporations and their rich controllers. The issues are not hard to see. Major corporations dodge taxes through dubious schemes which create nothing of social value, but yield huge profit-related financial rewards for executives. Fearful of upsetting corporations and wealthy elites, successive governments have shifted taxes to less mobile capital, labour, consumption and savings, and attacked pensions, education, healthcare and other hard-won social rights. No policy to restrain executive remuneration has been developed.

So the protests need to be turned into a programme of reforms to enhance the accountability of corporations and their wealthy controllers.

First, the impulse of wealthy elites and large corporations to opt out of the tax-paying obligation needs to be checked by public scrutiny. As part of this, the tax returns of individuals with above-average annual income should be made publicly available. The tax returns of all UK registered corporations, together with details of tax avoidance schemes, should also be public.

Tax is the price that we pay for democracy, social rights and a civilised society. Our contribution towards that should be a matter of public record. The public availability of tax returns would enable citizens to alert, analyse and inform regulators of dubious practices and demand action.

There are already moves towards greater transparency and public accountability in other countries. Every year, around October/November, the Norwegian tax authority publishes the skattelister or "tax list" for almost all citizens. Finland also publishes the taxable income of citizens who earn more than €10,000. Through public disclosures, Norwegians and Finns are able to learn how much tax is paid by everyone from actor/director Liv Ullmann to the CEOs of Nokia.

Armed with the same standard of transparency, UK citizens could also ask searching questions about the taxes paid by MPs, political party funders, hedge-fund and private-equity entrepreneurs, speculators, wheelers and dealers of Private Finance Initiative schemes; banking fat cats, architects of tax-dodging schemes, and opinion formers.

Globalisation, meanwhile, has turned corporations into footloose multinational entities, but their accountability has hardly changed. Company accounts primarily publish one global figure for how much corporation tax a company pays even though it may be trading all over the world. How much corporation tax specifically is paid in the UK is not easy to ascertain.

This should be modernised by what is called country-by-country reporting. Corporations would be required to publish a table showing their sales, profits, costs, employees and tax paid in each geographical jurisdiction of their operations. This would immediately highlight anomalies of companies having a large volume of sales in one country but with revenues and profits booked at another place with relatively few employees.

Consider Google, which uses perfectly legal techniques to channel sales through offshore havens to shave its tax bills. The 2010 accounts for Google Ireland Limited show that an operation with around 1,500 staff generated a turnover of €10.9bn. Either the company has the most productive staff in the world, or there is more to it. The company reported pre-tax profits of only €18.5m and paid €5.6m in corporation tax. A key to reduction of taxable profits is the royalties paid to offshore subsidiaries, which count as deductible expense in one place, but tax-free income elsewhere.

Democracy can also be used to curb fat cat remuneration. Many front-line staff at banks earn under £17,000 a year. Banks pay measly interest on savings and have a history of abuses relating to mis-selling of pensions, endowment mortgages, loans, payment protection insurance and much more. Most of the banking risks, as evidenced by the banking crash, are borne by taxpayers rather than shareholders. So employees, savers, borrowers and shareholders should act as a proxy for taxpayers. If they think that Barclays chief executive Bob Diamond deserves £30m, then that is fine. But I think it would take some persuasion to convince poorly paid employees or victims of mis-selling to sanction mega-bonuses for executives.

With better information about organised tax avoidance, citizens can decide whether to support or boycott corporations. If the tax authorities reach secret agreements with say, Vodafone or Goldman Sachs, then that will be visible, too. And executives wanting mega-bonuses will need to ensure that employees and customers are also rewarded. Democracy and public accountability are the best antidotes for abuses.

Prem Sikka is Professor of Accounting at the University of Essex

This article first appeared in the Independent