Banksters are tax-dodgers

The TUC is calling on the govt to make the banks it owns come clean on their tax dodging activities.

(Come clean! What chance the new Met Commissioner floods the City with cops to nab the corporate crooks who have plunged us into recession?)

Richard Murphy, tax expert and blogger, carried out the research…

Lloyds TSB, RBS, HSBC and Barclays have between them well over a thousand subsidiary companies (1,207) incorporated in tax havens. The most popular location is the notorious tax haven of the Cayman Islands with 262 companies, Jersey is second, with 170 companies. HBOS is not included as it has not published a list of its subsidiary companies for 2006, 2007 or 2008 in either its annual report or its Companies House return, in apparent breach of company law.

Not every subsidiary located in a tax haven or financial secrecy jurisdiction will necessarily be used for tax avoidance, says the TUC analysis. Some may be simply providing banking services to the local population and business community of countries such as Ireland – or have particular commercial links to countries such as HSBC’s ties to Hong Kong.

TUC General Secretary Brendan Barber said: ‘The taxpayer is now propping up Britain’s banks, either directly or indirectly. Even those who have not had direct bail-outs now trade with an implicit guarantee from the Government. The irresponsible behaviour of banks here and abroad is the biggest cause of the recession.

‘Yet even those who come cap in hand to the taxpayer and Bank of England, continue to do business in tax havens. This raises questions about whether part of the objective is avoiding paying a fair rate of tax to the UK – a tax gap that has to be made up by the rest of us.

‘We cannot know the extent of these activities. Indeed one of the main attractions of tax havens is their secrecy. There is no suggestion that anyone has broken any tax laws, but now banks have public stakes or trade with the knowledge that the taxpayer stands ready to bail them out, the taxpayer has a right to know the full extent of bank activities and liabilities across the world.

‘We should know where banks undertake their activities, where they record their profits and where they pay their taxes. Country-by-country reporting of their activities is essential if we, the UK taxpayers, are to know the risk we are under-writing.

‘Voters are increasingly angry at the banks, who they rightly think must take a large share of the blame for the jobs and homes that will be lost in this recession. The Government should set up a tough public inquiry into why our financial system came so close to collapse – and it should investigate the full extent of their tax avoidance.’

The bailout has failed – time to nationalise the banks

Word is that the Treasury is thinking of bailing out the banks again.

The Prime Minister denies its a priority, preferring to talk about how he’s going to create jobs to curb rising unemployment.

But it’s clear that the stated aim of the bailout – to increase lending to businesses and to new start-ups and small businesses in particular – has failed.

And without strong action, the recession will deepen – schemes to curb unemployment will have no effect unless they are matched by efforts to stop jobs being lost in the first place.

The only solution to the credit crisis is spelled out in the latest edition of Red Pepper:

Rebuilding banking

Leo Panitch argues that what is needed is for the banks to become a public utility

First, let’s be clear about capitalism – and with it the character of the state under capitalism. There is a conventional assumption, a leftover of the cold war perhaps, that somehow capitalism is essentially about the market and socialism is essentially about the state. In fact, a central historical feature of the state in capitalist societies is the role it plays as guarantor of private property and, most importantly for the smooth running of the financial markets, that it will always honour its bonds – that is, its borrowing from the private banks.

Because of this guarantee – the promise to pay others back from taxation revenue in the future – government bonds, whether issued to finance war or to finance welfare, constitute the least risky form of lending. As such, it forms the foundation of financial markets’ role in sustaining the ability of capitalists generally to accumulate – to continue to invest and make profits. This centrality of the state for capitalist accumulation is most notable with respect to those dominant states, like the USA, whose bonds are the foundation on which all calculations of value in global capitalism are based; states that host and support the main centres of international financial markets, such as New York and the City of London.

Understanding the role of the state in a capitalist society helps us to see why, when a government bails them out with public money, the bankers do not see this as the start of socialism. On the contrary, they see it as the government fulfilling its duty to the financial markets – whose smooth running it both depends on and sustains, by providing the basis of confidence in the credibility of the banking system.

So it is misleading to see government involvement in the banks – whether it be the pure bailout of the original Paulson program in the US, or the subsequent non-controlling equities taken by the US, British and other governments – as per se a move away even from neoliberalism. (It is also misleading to see neoliberalism as being about the withdrawal of the state from the markets – and therefore this current involvement of the state as a defeat of neoliberalism. The state under neoliberalism has been very active in promoting the vast expansion of financial markets and facilitating their volatile growth; and, as this volatility inevitably led to repeated financial crises, in keeping the financial system going from moments of chaos to moments of chaos.)

Does this mean that this present crisis of the financial markets is not an opportunity to debate and press for alternatives? And where do we start?

It is an opportunity because in this crisis it is clear that what has been misleadingly billed as the ‘free market’ has failed and is seen to have failed, and also because it is clear that states have been responsible for promoting what has now failed, and that they now need to come to the rescue of the banks. This concentrates the minds of most people on the problem: their pay cheques are deposited with banks, their pension savings are invested in the stock market, their consumption is reliant on bank credit, and is the roof over the heads, as heavily-mortgaged home owners.

It is notable in this respect that going back over the last century, alongside the various movements that arose to struggle for the vote for working people, there has always been pressure to control the financial system, and even to bring the banks under public ownership, reflecting a certain common sense that the financial system ought to be accountable to or even belong to the people – that money should be become a public resource and banks a public utility. Indeed, this democratic pressure system was not without results: some of the regulations that states did put on the banking system after previous crises were also a response to demands from below that people should not be fleeced by the bankers.

For example, the nationalisation of the Bank of England was meant to bring the government’s agent in the financial markets under democratic control – although in fact the Bank of England now acted inside the state as the voice of the City within the state, representing the power of financial capital.

The lessons began to be learnt in the wake of the rise of the new left and the crisis of the Keynesian welfare state in the 1970s. It was recognised that the only way to overcome the contradictions of the Keynesian welfare state in a positive manner was to take the financial system into public control. (The best popularly written example of this, and still worth reading today, is Richard Minns, Take Over the City: the case for public ownership of financial institutions, Pluto 1982.) The left in the British Labour Party was able to secure the passage of a conference resolution to nationalise the big banks and insurance companies in the City of London, albeit with no effect on a Labour government that embraced one of the IMF’s first structural adjustment programmes. We are still paying for the defeat of these ideas (and the industrial strategies referred to by Stuart Holland on page 22). It is now necessary to build on their proposals and make them relevant at the current juncture.

The scale of the crisis today provides an opening for the renewal of radical politics that advances a systemic alternative to capitalism. It would be a tragedy if a more ambitious goal than making financial capital more prudent was not on the agenda.

It is hard to see how anyone can be serious about converting our economy to green priorities without understanding that we need a democratic means of planning through new sets of public institutions that would enable us to take collective decisions about allocating resources for what we produce and how and where we produce the things we need to sustain our lives and our relationship to our environment. The reasons why trading in carbon offsets as a solution to the climate crisis is a dead end are shown in this financial crisis. It would involve depending on the kinds of derivatives markets that are so volatile and are so inherently open to financial manipulation and to financial crashes. (The recently published Green New Deal begins to address these questions.)

In terms of immediate reforms – in a situation where the only safe debt is public debt – we should start with demands for vast programmes to provide for collective services and infrastructures that not only compensate for those that have atrophied but meet new definitions of basic human needs and come to terms with today’s ecological challenges.

Such reforms would soon come up against the limits posed by the reproduction of capitalism. This is why it is so important to raise not merely the regulation of finance but the transformation and democratisation of the whole financial system. What is in fact needed is to turn the whole banking system into a public utility so that the distribution of credit and capital would be undertaken in conformity with democratically established priorities rather than short term profit. This would have to involve not only capital controls in relation to international finance but also controls over domestic investment, since the point of taking control over finance is to transform the uses to which it is now put. And it would also require much more than this in terms of the democratisation of both the broader economy and the state.

Of course, without new movements and parties that can rebuild popular class forces this will fall on empty ground. Crucial to this rebuilding is to get people to think ambitiously again. However deep the crisis, however confused and demoralised the financial elite inside and outside the state, and however widespread the popular outrage against them, this will require hard and committed work by a great many activists. We will need to put our minds to the hard questions of what the new institutions of democratic public finance would look like – and what kinds of movements would be needed to build them.

Leo Panitch’s book Renewing Socialism is published by Merlin Press. A further article on ‘The Current Crisis and Socialist Politics’ by Leo Panitch and Sam Gindin can be read online at http://www.socialistproject.ca

Tax the rich, says public opinion

The real “silent majority”:

Public wants fairer tax and bonus system says new poll

Eighty percent of the public agree that bonuses should ‘reward long-term success rather than short-term performance’, in a new poll for the Fabian Society as part of a research project exploring public attitudes to inequality.

And 70% thought that ordinary employees should be represented on the compensation committees which decide how much city executives get paid, the poll by YouGov found.

While 56% were even in favour of a more radical proposal, to make executives of failed companies ‘pay back their bonuses from the last two years’. The government appears to have captured this popular mood by introducing a new higher top rate of tax of 45% for people earning over £150,000 – a move supported by 76% of the public (including strong support from almost half, at 46%). There is some evidence that the government could have gone further, with almost seven in ten respondents (69%) expressing support for a new top rate of 50% for people earning over £250,000. Poll data also gives some clues as to people’s reasons for thinking the rich should contribute more, with 70% of respondents agreeing that ‘Those at the top are failing to pay their fair share towards investment in public services’.

Only 19% of respondents agreed that taxes on high earners should be kept low so that ‘British companies can attract the talent they need to succeed’.

The public were asked who they felt deserved the salaries they currently received:

* 87% of respondents thought that City bankers were overpaid, second only to premier league footballers at 96%.

Bankers were seen as more overpaid than lawyers, MPs and estate agents: 77% think that lawyers were overpaid; 71% thought that MPs were overpaid, and 55% thought that estate agents are overpaid.

At the other end of the income spectrum, office cleaners and nurses were seen as most under-paid (72% and 77% respectively).

Social workers and doctors are in the middle of the league table. More people saw social workers as underpaid (38%), than overpaid (17%), while 34% thought they were ‘paid about right’. By contrast, more people thought doctors were overpaid (34%) than underpaid (13%), but the most common view was that they are ‘paid about right’ (47%).

These findings are part of an eight month research project exploring public attitudes to inequality and related policy responses, and are based on initial analysis of research conducted by the Fabian Society, consisting of an opinion poll of 2,044 people conducted by YouGov from 28 November to 1 December 2008 and qualitative research.

The research is funded by the Joseph Rowntree Foundation and is part of the JRF’s Public Interest in Poverty Issues programme.

TUC calls for a worker-friendly new year

TUC new year message

In his new year message to trade union members published today (Tuesday), TUC General Secretary Brendan Barber said:

‘2009 has to mark a decisive turning point, away from the neo-liberal market-always-knows-best conventional wisdom that brought our economy to the brink of a catastrophic collapse, towards a fairer, more balanced economy delivering sustainable prosperity.

‘This is going to be a grim year. Unemployment will increase every month. Some predict it will hit three million, but in truth no-one knows.

‘First because we have little experience of a recession driven by a financial collapse, and secondly because we do not know how bold our Government – and as importantly, other governments meeting together as the G20 in April in London – will be.

‘Government therefore has three priorities in the year ahead:

* it must take every action necessary to make the recession as short and as shallow as possible;
* it must develop the proper policy response to mass unemployment;
* it must use these and other policies not just to ensure that we do not repeat the mistakes that led to the financial collapse, but also to ensure that we emerge from recession as a fairer, greener and more sustainable economy.

Action to tackle the recession

‘The Government must be prepared to take further bold action to counter the recession and to save jobs.

‘The roots of this recession lie in the failure of the finance and banking sectors, and while the Government deserves praise for setting the international pace on the bail-out of banks, we do not yet have a banking system that is truly serving the interests of business or household borrowers. Banks are putting building up their own balance sheets and paying back government loans as their top priorities. But they also still hold high levels of ‘toxic’ debts which prevent them from dealing with other banks in a normal way. The Government and the Bank of England must therefore consider injecting even more support into the financial system to get credit flowing again.

‘The Government cannot be expected to come to the aid of every company that faces difficulties but it must be prepared to look at providing short term assistance to strategic companies in sectors vital to the future of Britain.

‘The Government should consider a further stimulus package in the Budget. Barack Obama’s team are already talking of a big package to boost the US economy. The UK should follow suit – and also use the April G20 summit in London to create a coalition of the willing to wage war on unemployment, poverty and recession.

‘As well as bringing forward planned infrastructure projects, ministers should be fast tracking new projects to ensure that further work can start when these finish. The UK is still suffering from a lack of investment in the key infrastructure a modern low-carbon economy requires.

Action to help the unemployed

‘Too much government policy towards the unemployed still tends to be trapped in the idea that there are enough jobs to go round, and that the unemployed either lack the skills or the motivation to get work. While of course with rights come responsibilities, the thousands of people losing their jobs every week throughout 2009 should not be treated as potential scroungers but victims of economic forces well beyond their control. They will need help through benefits and support through training and job search.

‘Despite its tough presentation and some objectionable policies such as workfare, there were some good proposals in the welfare reform Green Paper to make Job Centre Plus services better tailored to individual needs. Mass unemployment will make it even harder for those who normally find it more difficult to get work such as disabled people and those juggling child care and work. There needs to be specific help for such groups – such as an increase in child care, which in turn creates jobs.

‘The TUC has already called for better benefits, higher statutory redundancy pay and a bigger tax allowance for redundancy pay to provide more help for the newly unemployed. We now look for action in the Budget on these issues.

Action to create a fairer, greener and more sustainable economy

‘2009 is going to be tough, but it can still be made positive if it becomes a turning point – the year in which we set out to build a deliberately different kind of economy.

‘That first means recognising the mistakes of the past – made not just by this Government, but by governments and the economic and political establishment almost everywhere.

‘We have given far too much weight to the interests of the finance sector, and began to believe it could create wealth simply by moving it around, rather than through long-term investment in the goods and services that people want and need.

‘The challenges we face are clear. Even before the recession we were scarred by poverty, particularly child poverty. Our society was coming under increasing strain from growing inequality as a new class of the super-rich escaped their responsibilities to pay a fair share of tax. We had neglected important sectors of the economy as we gave preference to financial services. We have failed to do enough to meet the environmental imperative.

‘This challenges us all to put the measures we will need to beat the recession to a longer term purpose of building a better greener and fairer economy that can emerge the other side of the downturn.

‘This will require:

* a new kind of industrial strategy – not a return to picking winners and easy hand-outs, but strategic support to the sectors where we are already strong but could do better. Some will be in manufacturing, but others will be in services and parts of the economy often neglected in such discussions such as the creative sectors.
* A green industrial revolution that recognises that many industries will have to adapt to survive, but that also that the environmental challenge can generate thousands of productive worthwhile jobs, and build on the strength of our science base.
* An intensification of efforts to make society fairer – the recession should encourage the government to speed up efforts to eliminate child poverty.
* A fairer tax system. The government is right to increase borrowing to maintain the strength of the economy. But this borrowing and decent public services will have to be paid for, and 2009 must see a real debate on how to make the tax system fairer. There is a real demand for the super-rich to pay a fairer share. President Elect Obama has been a long-time supporter of a crack down on the tax havens used by multi-nationals and the mobile super-rich to avoid tax.
* A new kind of banking system that no longer threatens international economic stability and instead serves the rest of the economy and society. Britain’s banks already look very different. Some are now state-owned, some have large public stakes and all have received substantial help from the Bank of England and the taxpayer. At the very least we will need new regulatory structures to enforce stability but also to protect the consumer in a sector with less competition.

‘2009 will not be easy year, but it could be the turning point that will make 2010 not just the start of recovery, but the first steps in building a new economy.’

Miserly moneybags – how to get the super-rich to be more charitable?

From the FT:

The Treasury is looking at a scheme to persuade Britain’s wealthy to donate an extra £5bn a year to help relieve world poverty, at no cost to the exchequer.

Although the richest 20 per cent give most to good causes in absolute terms, they donate on average 0.8 per cent of their income to charity, compared with the 3 per cent donated by the poorest fifth.

The scheme was devised by Nobel Prize-winning economist Sir James Mirrlees and drawn up with Renu Mehta, founder of the Fortune Forum networking organisation for the super-rich.

Dubbed the MM (Mehta/Mirrlees) proposal, the scheme advocates a 50 per cent tax relief on donations towards the UN’s millennium development goals, which would effectively match pound for pound what wealthy donors give.

The cost of the tax relief would be met from the government’s overseas aid budget, effectively doubling the amount diverted to encourage donations and helping the UK meet its goal of contributing 0.7 per cent of national income to development.

Sir James, who is chairing a review of the UK tax system for the Institute for Fiscal Studies, believes the current incentives for charitable giving, with a maximum of 40 per cent tax relief through gift aid, are poorly understood.

A 50 per cent tax relief would prove much more attractive, as it did with a scheme to raise money for universities in Hong Kong where the Nobel laureate is now based. If adopted in all G8 nations, it could raise more than $78bn, he believes.

Ms Mehta said her aim was to raise the level of charitable giving in the UK, currently 0.9 per cent of gross domestic product, to US levels of 1.9 per cent.

Donors would be able to specify to which development sector their money was allocated – clean water or disease prevention, for example. Money raised would be kept separate from the government’s aid programme to reassure donors it was spent efficiently and not wasted on excessive administration.

The scheme is under consideration by the Treasury at a time when the financial crisis is expected to lead to a sharp drop in charitable legacies on which many good causes rely.

“The MM proposal sets out to boost voluntary donations for these issues whilst simultaneously freeing general government revenues to concentrate on addressing issues of high domestic priority,” Sir James said. [Emphasis added]

Okay, sounds good but…

Wouldn’t it be better just to increase taxes paid by the super-rich and thus increase the aid budget?

Why is it that so many go without the basic necessities of life – food, housing, clean water, healthcare, education, and so on. Because the global economy is geared towards increasing the wealth of the super-rich, not meeting the needs of working people around the world.

Charity, as Oscar Wilde said, creates a multitude of sins. If we are to “make poverty history” (remember that one, from 2005?) then we must get tough with the big business elite, not pander to their pathetic attempts at self-reform.

Democracy in Sark: Barclay twins make a sixth of the island unemployed

Yes, the step forward made by the islanders of Sark, from feudal rule to representative democracy, wasn’t to the pleasing of the billionaire brothers.

The candidates they favoured were rejected by the voters of Sark.

So now a sixth of the island’s population will face unemployment – with no welfare state, that’s some hardship coming a few weeks before Christmas.

The Barclay brother’s defenders on Sark published a list of candidates that islanders should not vote for. Some of the grounds for this are curious: tax reform, specifically an income tax directed at the wealthy; changes to the land ownership system; and employment legislation. One successful candidate, Jan Guy is described thusly:

There is a socialist streak to this candidate’s politics which is completely at odds with Sark’s best interests. Another would-be tax reformer, she wants to “provide the maximum tax income from those who benefit most from the island’s tax situation” according to her manifesto.

Let’s hope those enterprises abandoned by their billionaire owners are nationalised under workers’ control, then!

The Times reports:

Sir David and Sir Frederick Barclay, owners of the Telegraph newspapers and the Ritz, responded by announcing the closure of their hotels, shops, a restaurant and other businesses. Building work was suspended.

The brothers did not stand in the election, but even as a recount was continuing it appeared that not one of their favoured candidates had secured a seat on Chief Pleas, the island’s parliament, which is presided over by the hereditary Seigneur.

They had brought the end of nearly 450 years of feudalism when they challenged the island’s law of primogeniture – the right of the firstborn to inherit an estate – prompting the island to review its constitution. A majority favoured a fully elected parliament but there was strong opposition to the Barclays, who wanted to make the Seigneur a ceremonial position, to have tractors replaced by electric vehicles and to build a helipad.

On an island without cars, street lights or tarmac roads such proposals were regarded as alarmingly modern. Many accused the brothers of trying to take control. Their representatives strongly denied this.

Sir David had said before the election that they would “reconsider our investment programme” if the island Establishment was reelected, and he proved as good as his word.

Talks were held between Kevin Delaney, who runs their operations on Sark, and senior members of the Chief Pleas in an attempt to find a way in which he could be involved in the decision-making process, perhaps with a coopted place on committees. But with no offer made by 5pm a decision was made to shut down.

“There’s no point, as they see it, to continue spending £5 million per an-num investing in the economy when the electorate have plainly said that they neither want nor are interested in that investment being made,” Gordon Dawes, the Barclays’ lawyer, said.

“They have devoted a lot of time, energy, effort and money to Sark, for not only no thanks but positive insult and rebuff. Nobody in their right mind would carry on spending money on such a community.”

Mr Dawes added that if the community made a serious approach to involve the brothers’ representatives they would reconsider. “The door is open. They are not unreasonable people, but they cannot be expected to carry on doing business on an island that is so against them. Sark needs Brecqhou more than Brecqhou needs Sark.”

This was a reference to the rock islet off the coast of Sark where the Barclays live in the huge castle that they built. They own six of the forty tenements on Sark, the parcels of land into which the island was divided in Elizabethan times. The brothers have four of the island’s seven hotels, as well as a pub, shops and other businesses. They employ dozens of people out of a population of 600.

Mr Delaney, who formerly oversaw the refurbishment of the Ritz, was among the 57 candidates – 12 per cent of the electorate of 474 – but did not win one of the 28 seats in Chief Pleas. The Sark News, a pithy pamphlet published by a company owned by the Barclays, savaged those who opposed their goals and issued a list of candidates it believed could not be entrusted with the future of the island. This so enraged islanders that it appeared to have achieved the opposite of the desired effect. The Barclays were left with even less of a voice than they had under the feudal system.

Before the shut-down the Seigneur, Michael Beaumont, 80, who had faced losing his influence and possibly his annual stipend of £28,000 if the Chief Pleas had been controlled by supporters of the brothers, said he was delighted that 87 per cent of the electorate had voted, leaving “no doubt as to which way the electorate wish the island to go”.

He said: “Now that we have a fully elected, fully democratic Chief Pleas and the constitutional issues are all but settled, we can concentrate on domestic issues.”

Diana Beaumont, his wife, said: “They were the ones that started all this democracy business, now they don’t like it because they haven’t won.” She said that that the Barclays’ attempt to negotiate for a seat on committees was “like saying, ‘We’ve lost the race and we want the cup’.”

She added: “It’s very sad. Some people are going to lose their jobs. But maybe somebody else can come and run their hotels without threatening to close them.”

Road to democracy

1993 Barclay brothers purchase Brecqhou, a tiny island adjacent to Sark, for £2.33 million. They pay £179,230 tax to the Lord of Sark

1996 They send a writ to Sark’s Seigneur challenging his authority over Brecqhou

1999 Sark changes inheritance laws after threats from Barclay brothers to take the Government to the European Court of Human Rights. Previously, only the eldest son could inherit property. Now landowner decides who inherits

2000 Brothers recognise Sark’s authority over Brecqhou

2005 Legal challenge against changes that could threaten Barclay’s “tax-haven” status

2006 Islanders vote by 234 to 184 to abolish Sark’s 450-year-old feudal system of government

21 February, 2008 Chief Pleas approve a law that introduces a 30-member chamber, with 28 elected members and two unelected members

December 2008 Democratic elections held on Sark

Is progressive taxation is back on the agenda?

The Compass group has welcomed the Pre-Budget Report with as much optimism as the Chancellor’s asessment of the depth of the recession:

Neal Lawson chair of Compass said: “Today’s Pre-Budget Report marks a move away from the Neo-Liberal/free market economic consensus pursued by both Labour and Conservative governments of the past 30 years – but this should not just be a blip before normal service, in the shape of speculative consumer capitalism, is resumed – the government needs to make this a turning point that leads to the moral transformation of our society”.

Jon Cruddas MP said: “This is exactly the kind of measure that we’ve been advocating for a while now and it’s good news for people like my constituents in Dagenham. This should be the first stage in re-balancing the tax system so it’s fairer for middle and low income earners, as well as kick-starting the economy in the short term. When the new US administration takes office then we have the chance to move in to another phase – an international crackdown on corporate tax evasion. Meanwhile, Cameron is now retreating from New Conservatism into orthodox Thatcherite economics and we have to expose that.”

Gavin Hayes General Secretary of Compass said: “A financial crisis that was in part caused by the excesses and risky behaviour of those at the top should not be allowed to unnecessarily hurt the rest of us, so today’s announcement on reducing VAT, whilst at the same time announcing plans to increase the tax burden on the super-rich should both be welcomed, it is absolutely right for government to limit the impact of the recession by using pragmatic and sensible measures such as these.”

As Richard Murphy points out, cutting VAT by such a small amount isn’t likely to impact upon retail prices for consumers:

On an item costing £4.99 the VAT saving will be under 11p. Can you see anyone shifting that price to £4.89?

On £500 (VAT inclusive price) the saving is £10.60. That’s neither here or there: if you are going to spend £500 then £10.60 or so will not change the decision. Other influences are much stronger.

So at low price points this is a boost for the retailer who will take much of the gain. I really do not expect them to pass this on. At high price points I doubt the impact.

Either way the saving goes to marginal jobs in the UK, and Woolworths won’t be saved by this, whilst cheap imports are the only likely sector to see a boost. The business to business sector will see none at all: VAT does not impact them.

But it’s more than that: this might fuel deflation, which we can ill afford. So it’s a mistake.

VAT is regressive, but not as badly as some taxes (e.g. council tax) so the poorest who need help will not benefit most.

John McDonnell MP, chair of the Left Economics Advisory Panel said of the tax changes:

“The introduction of a higher rate of tax for high earners is long overdue but the Government’s proposals are hardly a revolution, and delaying them until after the next election is pointless. The higher rate should be the start of creating a fair tax reform agenda, redistributing wealth from the super rich in order to take the low paid out of taxation altogether.

“The Government should also move immediately to tackle the large scale tax avoidance by the corporate sector, introducing legislation to outlaw tax havens, mirroring the Obama bill in Congress. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. Government must seize the moment.”

The Public and Commercial Services Union warns of the impact of so-called “efficiency savings” and points out that billions of pounds in taxes go uncollected:

Commenting, Mark Serwotka, PCS general secretary, said: “Further efficiency savings of £5 billion should not be a prelude to yet more job cuts, office closures and privatisation.

“Key public services, such as justice, welfare and tax are already struggling to cope against a backdrop of massive job cuts and office closures.

“Whilst the promise of additional funds for jobcentres is welcome, the government needs to reverse its job cuts programme across civil and public services to safeguard their delivery.

“Whilst the promise of additional funds for jobcentres is welcome, the government needs to reverse its job cuts programme across civil and public services to safeguard their delivery.

“For example the government should be looking at tackling the £21.5 billion worth of uncollected tax and £25 billion lost through tax evasion, by putting more resources into HMRC to claw back the billions in lost revenue, which could be ploughed into public services and stimulate the economy.”

The Morning Star‘s editorial is critical of the direction of travel signalled by the Pre-Budget Report, not so much a return to Real Labour but a continuation of Blue Labour:

Out of his own mouth
(Monday 24 November 2008)

CHANCELLOR Alistair Darling condemned himself out of his own mouth when he said that the central objective of his unambitious pre-budget report was to support firms and businesses going through difficult times.

That is why he opted for a cut of two-and-a-half percentage points on VAT, which will be absorbed into business income rather than find its way into lower prices.

Working people, especially those wondering how long they will be in a job, are unlikely to run out on a spending spree on the basis of a VAT cut.

And, if Mr Darling really wished to spark economic activity, he should have helped those on the lowest incomes whose extra cash would certainly have increased demand.

Those robbed when Gordon Brown abolished the 10 per cent tax rate should be compensated by being lifted out of income tax liability entirely.

State pensioners, whose living standards have been eroded every year since the Tories abolished the link with wages, those working for a totally inadequate minimum wage and others forced to exist on the jobseeker’s allowance pittance should receive a boost in their income.

It is pathetic that the Chancellor should be posing the possibility of no more than a 5 per cent increase to 45 per cent for tax on annual incomes over £150,000 and then only on condition that Labour wins the next general election.

This proposal will not bring any additional income to the Treasury in the life of this government. It’s not even of sufficient scale to encourage the electorate to vote Labour in the hope that it will switch the burden of taxation from working people to the rich.

Government failure to tackle the spiriting away of potential tax revenues of at least £25 billion a year through overseas tax avoidance centres, mainly in British crown territories, emphasises once more its priorities.

The bulk of taxation should fall on the shoulders of those able to pay rather than those too poor to afford avoidance schemes.

And the government should also lift the cap on National Insurance contributions, which is a hidden tax benefit for the better-paid, and introduce a wealth tax.

But the government must not restrict itself simply to measures calculated to increase demand.

It has a responsibility to intervene actively in the economy, especially since the banks have been quick to accept cheaper Bank of England lending and government investment but have not passed benefits on to small businesses seeking to weather the recession.

The government must put substance behind its much-vaunted commitments to environmental issues and to higher employment levels.

Financing at least 100,000 new council homes a year and a nationwide programme of renovating and insulating existing local authority properties could begin to tackle the housing crisis, improve energy efficiency and cut fuel bills.

Similarly, a crash programme of expanding the railways would not only improve the transportation network but increase demand for steel, concrete etc, safeguarding jobs in these industries as well as construction.

Unless the government adopts an economic programme with social justice at its heart, its cosmetic measures will simply prop up big business and ensure that costs of the recession will be paid for by workers.

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