Category Archives: Economic

Britain, Economic, G8, Government, Politics

G8 Summit: Making taxation fair…

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People are often curious and sceptical of global summits. A view often expressed is that they are grand talking shops that produce little in the way of real change.

But in the case of the G8 Summit being held in Loch Erne, Northern Ireland, this might not necessarily be a bad thing. It might even prove to be the best possible outcome.

David Cameron has listed three priorities of the summit: to advance trade, ensuring tax compliance and promoting greater transparency.

The subject of corporation tax, despite seeming staid and dry, is likely to feature at the top of this list. The issue of whether multinational businesses in particular should pay more has turned into a highly-emotive issue.

There is widespread indignation at companies’ minimal corporation tax contributions on multi-billion pound sales in the UK, but the issue is not as simple and straightforward as has been portrayed.

It may appear there is an open-and-shut-case for forcing multinationals to pay more but, as any company executive will know, turnover does not automatically convert into profit.

Sadly, taxes are ultimately borne by shareholders, business owners, employees and customers; some are merely collected by businesses.

It is good in many respects to hear the prime minister professing himself ‘proud to be a low-tax, free-enterprise politician’ and he is right when he says that ‘low taxes are only sustainable if what is owed is actually paid.’

Mr Cameron is on shakier ground, though, when he differentiates between the compliance of small firms and multinational conglomerates, painting the later as simply abusive.

Tax experts will acknowledge that there is no real difference in attitude between large global corporations, small business owners and individuals towards paying tax. They all want to pay as little as possible within the confines of the law, if this maintains an acceptable relationship with Her Majesty’s Customs & Revenue (HMRC).

Global businesses may have more opportunities to manage the system, by channelling payments and receipts to the most tax friendly countries.

Equally, large firms have to contend with a great deal of bureaucracy due to the complexities of operating in different regimes.

It probably would be best if the leaders at the G8 Summit resist the temptation to announce anything but the vaguest form of agreement and focus, instead, on three areas of concern. The first should be to introduce additional measures to prevent tax evasion. Secondly, measures should also be introduced to increase the exchange of information between countries to improve cross-border transparency. And, thirdly, an agreement should be aimed for that sets out a common vocabulary that recognises the public desire to prevent abusive tax practices. Such an agreement should also discourage individual countries from labelling routine and accepted tax planning as avoidance.

The problem, however, is that there is no prospect of an event such as the G8 Summit defining even in the broadest terms, what might be meant by tax avoidance or, indeed ‘aggressive tax avoidance’, because the meaning of these concepts is highly subjective. For example, the coalition government has rightly introduced a number of tax reliefs to promote the UK as an attractive country for business investment. The Patent Box tax regime, introduced to boost research and development in the UK, is seen here as a worthwhile tax incentive, but other countries may believe it promotes tax avoidance. Clearly, then, what one country’s perception of what is a valid and desirable tax break may often be regarded by other countries as an incentive to avoid tax.

The worst outcome of the G8 Summit would be an ill-conceived proposal to change the global approach to taxing businesses, focusing solely on where turnover is generated rather than where profits are earned.

There are plenty of valid reasons to resist a proposal such as this, including the damage this would inflict upon UK companies whose primary sources of revenue lie in overseas markets.

We should hope the prime minister and other G8 leaders resist the urge to make global tax policy on the hoof to provide some popular but transient sound-bites.

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Britain, Economic, Government, Politics

Labour’s vision for welfare reform…

Ed Miliband, the Labour leader, has outlined his vision for the future of welfare reform and aims to give councils a role to play in getting people back into work.

He also pledged to give councils power to negotiate rents for housing benefit tenants – giving them cash back on the savings to put into house building.

Other proposals included scraping winter fuel allowance for pensioners, maintaining the current Government’s cap on child benefit for families on more than £50,000, and a three-year structural pay cap on social security spending to keep the welfare bill in check.

Mr Miliband made his welfare reform speech in Newham, where he paid tribute to the local Mayor, Sir Robin Wales, for his plans to tackle worklessness locally. Mr Miliband acknowledged the current system would need to be reformed in a bid to cut costs.

He said:

… We must change our economy, so that welfare is not a substitute for good employment and decent jobs.

He outlined four key cornerstones of Labour plans for reform including:

  •  overcoming worklessness
  • rewarding work and tackling low pay
  • investing in the future
  • recognising contribution

Outlining his plans for the future of welfare reform under Labour, Mr Miliband said: ‘For every young man and woman who has been out of work for more than a year, we would say to every business in the country, we will pay the wages for 25 hours a week, on at least the minimum wage.

‘Fully funded by a tax on bankers’ bonuses. The business would provide the training of at least 10 hours a week. And because it is a compulsory jobs guarantee, young people will have an obligation to take a job after a year or lose their benefits.

’And we will do the same for everyone over 25 unemployed for more than two years.’

The Labour leader also outlined his plans to make this happen through ‘local action’, with the kind of work he had seen in Newham.

‘Devolving power and resources to local communities so there can be advice and support suitable for the individual who is looking for work and tailored to the particular needs of businesses in the area.’

He added:

… And we will do everything in our power to promote the living wage. If local councils can say if you want a contract with the council then you need to pay the living wage, then central government should look at doing that too.

He also outlined plans to tackle the housing benefit bill which continues to rise because ‘we have built too few homes in this country’.

Mr Miliband said: ‘Any attempt to control housing benefit costs which fails to build more homes is destined to fail.’ He pledged to put house building as a key priority for the next labour government and added: ‘We will need every local authority in Britain to be part of this effort.’

Under Labour plans, local authorities would be given the ability to negotiate rents on behalf of tenants on housing benefit to get a better deal for taxpayers in a ‘radical devolution’ of power.

In return, they would be able to keep some of the savings to invest in building new homes. ‘This is the way we can start to bring about the shift from benefits to building. Bringing the housing benefit bill down for the long-term too.’

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Economic, Technology

Technology and the erosion of labour…

Over the past few decades income inequality in America has exploded, but there is considerable disagreement about the cause of the shift. Are impersonal forces like globalisation and technological development to blame, or is it to do with policies designed to disproportionately benefit the rich?

A recently published study by Tali Kristal, an Israeli sociologist, says that the overall share of income by the labour workforce is declining because workers are losing the power to fight for their own interests.

Ms Kristal found that the biggest inequality spikes have occurred within industries where unions have traditionally held a lot of influence – within manufacturing, transportation, and, to a lesser extent, construction. That’s partly due to the labour movement as a whole witnessing its power sharply declining since the mid-twentieth century, but Kristal has also identified another factor which she calls ‘class-biased technological change.’

Technological development is not apolitical or self-directed, she says. New tools are always made by human beings, and those humans have their own political influences and agendas. Institutions that fund technological development also tend to have a particular motive, whether it’s winning a war, curing a disease, or increasing corporate profits. Class-biased technological change simply means the sort of development which “favours capitalists and high-skilled workers while eroding most rank-and-file workers’ bargaining power”, according to Ms Kristal.

A good example of class-biased technological change is various kinds of factory automation, which can render some manufacturing jobs obsolete. But Kristal also highlights new workplace monitoring tools and increasingly sophisticated workplace control strategies, which have given managers unprecedented levels of power to use more legal and illegal anti-union tactics, such as the illegal discharge of union activists, surveillance of union leaders, captive-audience meetings with top management, and an entrenched refusal to negotiate collective agreements.

Tali Kristal does not mention Frederick Winslow Taylor in her paper, but his ghost haunts the margins. At the turn of the twentieth century, Taylor became one of history’s first professional management consultants, explicitly advising factory owners on how they could break the power of their employees’ craft unions. Nowadays, Americans tend to regard Taylor’s most influential innovations – such as the assembly line and the role of the middle manager – as benign improvements to efficiency. The assembly line, though, was designed in part to take control over the speed of production out of the hands of workers and into the hands of management.

If Kristal’s study is to be believed, Taylorism is alive and well in the United States. Fittingly, America is now experiencing levels of inequality last seen during the lifetime of its inventor.

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