Tag: economy

Someone tell David Cameron that tax avoidance starts at home

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Cameron’s Davos speech was long overdue. But the very corporate tactics he condemns abroad, he enables in the UK

Richard Murphy
guardian.co.uk, Thursday 24 January 2013 14.40 GMT

After a decade of campaigning for tax justice it was gratifying to hear David Cameron endorse much of what we have called for at Davos this morning. Unfortunately, as just a few examples show, the prime minister has a long way to go before he walks the talk.

Tax avoidance

Cameron’s said “There are some forms of avoidance that have become so aggressive that …. it’s time to call for more responsibility and for governments to act accordingly.”

When delivering the message he added: “Companies need to wake up and smell the coffee, because the customers who buy from them have had enough”. It could not have been more obvious that he has Starbucks in mind. He’s set the bar on this issue at a point where it must be tackled.

And yet Cameron faces a massive domestic credibility problem as a result. The government’s much trumpeted General Anti-Abuse Rule, which will be enacted this year, which Cameron says targets tax avoidance, will deliberately not go near targeting the sorts of tax avoidance undertaken by Starbucks, Google and Amazon. Legislation put forward by Michael Meacher MP and written by me that would let HM Revenue & Customs challenge their sort of tax avoidance has also been rejected by the government.

It’s all very well for Cameron to say that tax avoidance must be tackled internationally. His difficulty is that he could do it at home as well and has chosen not to do so. He’s correctly assessed that there is real political anger on this issue now; he’s got his assessment of what people want seriously wrong if he thinks his government’s proposals will satisfy those demanding reform.

Transparency

Cameron said: “The third big push of our agenda is on transparency, shining a light on company ownership, land ownership and where money flows from and to.” I’m delighted he said this, but I am disappointed he added that “this is critical to developing countries” as if somehow this is a problem for Africa but not for us.

Opacity permits corruption everywhere. Accounts that fail to account meaningfully hinder effective economic decision-making. Limited liability companies, existing in a void with no apparent owners who accept responsibility for their decisions, blight economies and permit massive tax dodging. And nowhere is that more true than in the UK.

At present a multinational company trading in the UK does not have to publish a separate profit and loss account for this country so we can see how much tax it pays in the UK. Nor does it have to do so for all the tax havens in which it operates. If Google, Starbucks and Amazon had been required to do that we’d have seen their tax avoidance a lot earlier. So yes, we need transparency for developing countries, but we need it too in the form of full country-by-country reporting.

Despite that, just a couple of days ago David Gauke, the Conservative exchequer secretary, under Labour questioning showed his continued indifference towards country-by-country reporting.

That’s also true on beneficial ownership. There is no legal requirement to disclose beneficial ownership of a company in the UK at present, and our company registry is a near perfect example of appalling company regulation on this and other issues, striking off hundreds of thousands of companies a year rather than demand that they comply with their legal obligations.

If Cameron wants to show the world the way on beneficial ownership he can begin at home by making Companies House into a regime fit for the 21st century. He should follow up with the land registry – riddled as it is with anonymous offshore companies – and then demand that our tax havens put beneficial ownership on public record just as we should.

Automatic information exchange

Cameron said: “If there are options for more multilateral deals on automatic information exchange to catch tax evaders, we need to explore them.” I agree, wholeheartedly. It’s just a shame he said this the month the UK’s appalling tax agreement with Switzerland comes into force that guarantees tax evaders anonymity, lets them off most of the tax they owe, and preserves Swiss banking secrecy in the process. Germany’s parliament rejected such a deal to hold out for full automatic information exchange with Switzerland. The UK harmed the cause by going ahead alone.

And that’s the problem with this whole speech. The talk is great. I welcome it. As Cameron said: “After years of [tax] abuse, people across the planet are calling for more action and most importantly, there is gathering political will to actually do something about it.” He’s right. But Cameron’s pretending the solution lies outside the UK. It doesn’t. It starts at home. And some of the biggest obstacles to be overcome require some serious rethinking of his own government’s agenda on tax, accountancy, regulation, transparency and tax havens, all of which could change without the need for any outside co-operation. We’ve still got a long way to go to win this debate.

Downgrade our AAA rating? Moody’s has become part of the problem

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It was ideological politicians and fearmongering ratings agencies that launched this damaging austerity experiment

Duncan Weldon, guardian.co.uk, Friday 16 November 2012 11.36 GMT

‘The best thing George Osborne could do is reject the siren voices calling him on to the rocks of more austerity.’ The credit ratings agency Moody’s has announced that it will review the UK’s top AAA credit rating early in the new year. This is the same Moody’s that, back in 2010, was keen to praise the government’s austerity drive as a major factor in preserving the UK’s good credit. So what has changed in the past two years?

Moody’s now appears concerned that, in its words, “the government’s efforts to achieve fiscal consolidation and reduce debt are being hampered by weaker than expected economic prospects”. This is quite obviously correct, if the economy is not growing strongly then tax revenues are weaker and social security spending higher than they otherwise would have been. A country can’t deal with high deficits unless its economy is moving in the right direction. In the past two years, however, the UK has achieved growth of just 0.6% against initial Office for Budget Responsibility projections of 4.6% growth over the same period.

So while it would be wrong to fault Moody’s for correctly pointing out that weak growth means the chancellor, George Osborne, is much less likely to hit his debt targets, it is worth asking exactly why it ever thought such a sharp fiscal contraction was a good idea in the first place?

Moody’s, in common with the government, appears to have seriously underestimated the impact of spending cuts and tax rises on the wider economy. Its warning is an excellent chance for the chancellor to reassess his plans.

Back in October 2010, as the chancellor was putting the finishing touches to his comprehensive spending review, the IMF published some important, but widely ignored, research. IMF staff looked at the likely impact of spending cuts and found that, in normal times, every 1% of GDP of spending cuts reduced the overall size of the economy by 0.5%, a painful but manageable reduction. However, the fund warned that this (relatively) benign outcome depended on interest rates falling and a country’s currency depreciating to boost exports. These two factors would cushion the blow from spending cuts.

In the absence of such factors (and it was always hard to see how UK interest rates could go any lower or sterling could have fallen much further) the IMF found that each 1% of GDP’s worth of spending cuts would reduce GDP by 1% – a one to one ratio. This is more painful and less manageable. Furthermore the fund argued that if countries’ trading partners were also embarking on austerity at the same time, then the impact would be magnified. In this case each 1% of GDP of spending cuts would potentially reduce GDP by 2%. In such cases austerity risks being self defeating, with cuts to government spending simply leading to lower growth, less tax revenue and a bigger benefits bill.

The respected National Institute for Social and Economic Research has now found that this is exactly what is happening across Europe as a whole. Co-ordinated austerity has pushed down GDP and is leading to debt/GDP ratios that are higher than they otherwise would have been. Much of this was foreseeable back in 2010.

The problem for Moody’s is that it was, and is, part of the problem. It was a combination of ideological politicians and fearmongering ratings agencies that launched the great austerity experiment. Two years on the results are clear – lower growth, higher employment and still-high deficits. The extreme cases are Greece, Portugal and Spain where austerity package after austerity package have been met with the same results. Each time the solution appears to be to try the same thing again.

Moody’s has now warned that the government’s “most significant policy challenge is balancing the need for fiscal consolidation against the need for economic stimulus”. The best thing the chancellor could do is reject the siren voices calling him on to the rocks of more austerity and launch the stimulus we need to get the economy moving. This is a U-turn we could all support.