History may mark this as the moment when financiers passed beyond democracy, thumbing their nose while rubbing our nose in it. How puny the G20 deal looks, delaying bonuses for three years when everyone wanted them banned.
Everyone wanted them banned? Shall we amend that slightly to \”everyone I know\” wanted them banned? For clearly, the fact that they were not banned showed that at least some people wished to keep them.
Inside Revenue & Customs there is growing concern at the billions that could be lost from banks avoiding taxes for decades to come. Tax gatherers are eager for the Treasury to take urgent action in November\’s pre-budget report on two vital issues. As banks move into profit, you might expect them to pay tax. You\’d be wrong. They can spread their colossal losses forward forever, offsetting them against tax they owe. All the banks have billions to offset, including those we own. Merrill Lynch put £16bn of its sub-prime losses through Britain, so it may pay no corporation tax in the UK for 60 years. No wonder Revenue & Customs is fuming.
What could be done? There should be a cap on the sum that banks can offset against tax: other EU countries only allow losses to be spread over three years. Tax law says a major change of ownership means a company forfeits its old tax losses. Surely that is the case with Lloyds, RBS, Northern Rock and all the smaller banks eaten up by Santander? No, there\’s a loophole if losses were in their subsidiaries. But, says Richard Murphy, director of Tax Research UK, a small change in the law could fix it. It would be worth, he says, a minimum of £10bn – or much more. So let\’s see if Alistair Darling has the nerve to challenge bank profits in November.
And that is hilarious. For we\’ve got the same old Ritchie on show there. The law is not what the law is, the law is whatever is convenient to the Government at the time. And if it isn\’t, then let\’s change it, retrospectively, to make it so. Thus moving us from being a country under the rule of law to a country under the rule of government: something really very different indeed and not entirely to be welcomed.
I\’ve no problem (in theory at least, it would of course depend upon the details of specific laws) with changes in tax law going forward. What is absolutely not negotiable is the idea that the law should be changed for things that people have already done.
The Treasury is drawing up a new code of conduct for bank tax affairs. It will oblige any bank operating in the UK to obey not just the letter but the spirit of the law.
Again, that\’s a gross and violent change to the way the law works. You\’re not allowed to do what the law, specifically and in detail, says you\’re not allowed to do. Fine: move it to \”the spirit of the law\” and you\’re opening a very different can of worms. Imagine being tried for murder: well, actually your honour, the autopsy shows that the deceased died of natural causes. Yes, but you wanted to murder her and she is dead so you\’ve violated the spirit of the law. Life!
The solution to people doing what you the law makers don\’t want them to do is to write laws which specifically and in detail prevent them from doing what you don\’t want them to do: or allow you to punish them if they do. If you\’re not competent to write laws in this manner then what claim do you have to being a lawmaker? Or if you cannot get your fellow lawmakers to support those laws then again, what right do you have to try and enforce or pass them?
Instead banks have called in lawyers who cite the 1936 Duke of Westminster\’s judgment that gives anyone the right to minimise their tax.
That\’s the one \”every man has the right to minimise his tax bills\”? That Common Law right?And again we see where Polly and Ritchie are coming from. You don\’t have that right to organise your affairs so as to minimise the exactions of the State. Or at least you shouldn\’t. This is a gross and near violent overturning of the basic English constitutional settlement.
In between 1600 or so and 1700 we had this debate.
Roughly speaking, are we subjects who must petition the State for everything we might wish to do? Or are we free men and women who might do anything except those things specifically prohibited? And we\’ll decide, collectively, what those things to be prohibited are, thank you very much. Quite emphatically, not the State deciding for us.
It was the latter vision that won and we\’re the better for it. It led to the very invention of civil society for example: anyone could and anyone did get together (yes, tedious point that has to be made: sadly unions were not part of this freedom of association until a century or more later) to do whatever it was that they wanted. Cricket clubs, friendly societies, mutuals, you didn\’t have to petition for the licence to do such things. You had a right to do such things and so you just were able to get on with doing such things.
Quite simply, we are not people who borrow our rights from a benevolent State. We are people who possess inalienable rights parts of which we lend to the State. To deal with that societally necessary scut work that has to be done both collectively and with the monopoly on compulsion that the State possesses.
To argue that we must organise our financial affairs so as to maximise the State\’s take is a refutation of this very point.
What else could stop bank profiteering? Adair Turner\’s suggested Tobin tax would reach right into the wicked heart of the matter by taxing every transaction at the point where they skim the cream off everything, mostly people\’s pension funds.
Well, no, not really. For we already have a tax on the sorts of transactions that most pension funds get into: stamp duty. Doesn\’t seem to stop banks from making profits but it does very much reduce final pensions. So we can see that a Tobin Tax would, erm, fall on investors as the Tobin Tax that we do have already falls on investors.
….the market doesn\’t operate as there is no competitive pricing.
A pretty bold statement there. If you were to say that in the absence of competition markets don\’t work as well as they do in the presence of competition then yes: but to say that with not enough competition \”the market doesn\’t operate\” is absurd. It\’s like saying that in the absence of a V8 engine a car doesn\’t work: not true, a 4 cylinder engine can make a car work, just not as well.
Small-staters seize on popular disgust at bonuses to suggest the perfect market will correct itself if only regulators and Keynesians stand clear. That theory was tested to destruction in 1929 but those nostalgic for President Hoover think we should have tried it again, with double the soup kitchens…………………..
If ever there was a time for an emergency super-tax it\’s now when jobs are lost, homes repossessed and pain needs to be fairly shared. Even Peter Mandelson this week said we must not \”return to the bonus culture that led banks astray in the past\”. We shall see in the pre-budget report if the government dares use the instruments it has. In tax, that means a cap on offsetting previous losses and the power to force banks to sign an anti-tax avoidance code. Otherwise, the only lesson seems to be that lessons are never learned.
And that is most, most amusing. For what was it that Hoover did? Yes, he raised both spending and taxes. What is being recommended here? More taxation, thus reducing the fiscal stimulus. Which is really a rather *not Keynesian* approach to the public finances in a recession.
As you can see Polly has drunk deeply from the Richard Murphy school of macroeconomics here. And as Richard Murphy does\’t appear to know much macroeconomics and that which he does pretend to know he\’s got wrong this isn\’t perhaps the best way of running a nation.
Seriously, raise tax in a recession? Retrospective changes in tax law? When we\’re desperate for the banks to bolster their capital levels we should tax their profits more highly? When we\’re pumping out hundreds of billions to increase liquidity we\’re going to impose a tax on liquidity?
No, no, this is nonsense upon stilts.
(Bonus Richard Murphy point. He\’s said in the past (\”People\’s Pensions\”) that really people should be investing in nice new infrastructure bonds for their retirement. They would pay 3%. A couple of days ago he said that we need a few years of 5%-6% inflation to get us out of this mess. Oh, well done there sir, for who is it that loses from inflation? Yup, those pension plans on a fixed rate 3% return. And he shouts about the City swallowing investment returns?)