Postman Pat’s present for Gordon

[Friday]

“Come on Jess, I’ve got a parcel here for Gordon Brown – but I’m not going to put it through his letterbox!”

“Meow!”

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The Americanisation of healthcare in England?

[Friday]

Ah, healthcare. In the US, President Bush vetoes a bill increasing funds for sick kids. Over here, we have the seemingly-harmless review of the NHS in England (note well, not Scotland or Wales) by Lord Darzi, which on the surface, might suggest we will never end up like America.

The review isn’t really finished yet, of course, and Darzi’s recent announcements have more to do with Brown’s election plans than actual healthcare policy. The devil will be in the details – hence, we’ve been given no details. Though we know that PCTs will be “permitted” – if that’s the right word – to work with US “healthcare” companies…

As I have written before, the CBI is pushing the government to part-privatise more of the health service, and this is a good sign that the Darzi review is really about selling off the NHS in England, rather than improving patient care.

I dare say that if England had a devolved government, this wouldn’t be happening. Oh yes, with a fair voting system, recallability, and citizen-initiated referenda, an English parliament would make it harder for the capitalist class to smash our public services.

In case you ain’t already seen it, here’s today’s comment from The Morning Star:

Caring for profits
(Friday 05 October 2007)
EITHER Gordon Brown has already rejected the idea of calling an early snap election or he has worked out that he can dispense with the votes of hundreds of thousands of NHS staff.

His government’s announcement that will contract out to the private sector the commissioning of primary care services is nothing less than a deliberate snub to health service professionals.

He and Health Secretary Alan Johnson have ignored the submissions of the health unions and signified once more their allegiance to big business.

Health Minister Ivan Lewis says that primary care trusts will be able to “work with organisations that are already known and trusted,” which just happen to include the giants of the US health-care system that shames the richest country in the world.

Why should the British government seek to ape a health-care model that fails so many people, especially those from working-class families?

Last year’s study by the Commonwealth Fund’s Commission on a High Performance Health System compared the US system with dozen other industrialised countries.

It found that the US has the highest infant mortality rate and the lowest life expectancy for people who have reached 60 years of age.

As of two years ago, nearly 47 million US citizens, just under 16 per cent, had no health insurance and the figures have been increasing.

Because medical costs are rising at about three times the rate of wages, many employers who previously offered collective health-care schemes are trying to wriggle out of these arrangements and pass on responsibility to their staff.

No doubt Messrs Brown, Johnson and Lewis will insist that they are not proposing a carbon copy of the US system, but they are moving in that direction by allowing private medicine to dictate the course of events.

New Labour has ditched its previous dissembling rhetoric of being non-dogmatic and backing what works.

It is now utterly open about its conviction that anything the public sector can do, the private sector can do better.

It hands over massive public contracts to US health insurance companies, as well as consultancy companies, claiming that economies of scale make these firms very efficient.

What could give greater economies of scale than an integrated national enterprise such as the NHS?

The NHS does not need to privatise data analysis, purchasing policy or elective treatment to the private sector.

It has the levels of expertise necessary within its own staff, who not only have the experience to carry out these tasks but are also committed to the NHS ethos of public service rather than profit motives.

Private-sector involvement in the NHS has been an unmitigated disaster, which has sucked billions of pounds from the public purse, depressed cleaning and catering standards in hospitals and led to redundancies among dedicated professional staff.

Gordon Brown’s beloved private finance initiative schemes have laden the NHS with debt, while privateers have continued to laugh all the way to the bank.

NHS staff do not want this rehashed Tory policy. Neither the TUC nor the Labour Party conference has voted for it. So, if the government wants a future in office, it too should abandon it.

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Private rail industry profits from £1.3 billion in unpaid tax

[Friday]

Companies using deferred-tax loophole to fund leap in dividends

THE PRIVATE rail industry is profiteering on £1.3 billion in unpaid tax and is using a deferred-tax loophole intended to encourage investment to fund massive increases in dividend payouts to shareholders, Britain’s biggest rail union reveals today.

Nearly half of the £1.5 billion in dividends paid out in the last five years by nine private train operators and rolling-stock companies has been funded by unpaid tax, according to a detailed analysis for RMT by tax expert Richard Murphy of Tax Research.

Almost £1.3 billion of deferred tax is owed by the biggest six train-operating companies (Tocs) and the three rolling-stock leasing companies (Roscos) – but this is tax that will most likely never be paid, and is effectively a hidden subsidy that dramatically increases cash profit levels.

The report shows that the nine companies’ declared profits almost doubled from £435 million in 2002 to £810 million in 2006, but their declared tax charges remained almost constant at about £190 million a year throughout the period. The declared percentage rate fell from 43 per cent in 2002 to 24 per cent in 2006.

This though hides the real story. Tax is not paid on accounting profits. The accounts charge for goodwill is not, for example, allowed for tax. And the charge for tax in accounts includes ‘deferred tax’ – which this survey shows is never likely to be paid, as well as the current tax bill the company expects to settle in cash.

Comparing pre-goodwill profits and current tax charges that will actually be paid shows that these companies’ profits rose from £584 million in 2002 to £894 million in 2006, and that the tax they actually paid plummeted to £109 million in 2002 and just £71 million in 2006, at a rate of just 7.9 per cent in that year.

The study also reveals that by 2006 one pound in every three used to fund the private-sector rail operators was represented by deferred tax – which is in effect a tax-free loan from the government, with no repayment date.

“Deferred tax is supposed to be an allowance against investment and amounts to a hidden subsidy for rail firms, but it is being exploited to increase dividends to shareholders,” said report author Richard Murphy.

“Rail companies are hiding behind accounting rules when presenting their figures that let them suggest they’re paying more tax than they are, and that means the massive hidden subsidy the tax system gives them is not apparent. It should be,” Richard Murphy said.

“It might be legal but it shouldn’t be,” RMT general secretary Bob Crow said.

“Passengers are facing a future of massive fare increases and the government is cutting direct subsidy to the rail industry by £1.5 billion over the next six years, yet these private companies are sitting on a tax-break nest-egg worth £1.3 billion.

“This is money that should be funding railway engineering, but it is being used instead for financial engineering and turning hidden subsidies into pure profits for shareholders.

“At the very least the government should tell these companies to stump up the £1.3 billion they owe in tax and use the money to reverse the planned funding cuts.

“Better still they should face the fact that the private sector’s involvement in the railways is a barrier that stands in the way of delivering the growing, affordable people’s railway that our economy and environment desperately need,” Bob Crow said.

[…]

The companies whose accounts are analysed in the report are: First Group PLC; Go-Ahead Group PLC; Stagecoach Group PLC; Arriva PLC; National Express Group PLC; Virgin Rail Group PLC; Porterbrook Leasing Company Limited; HSBC Rail (UK) Limited, and Angel Trains Limited.

[…]

This report is based on detailed analysis of the accounts of six railway operating companies and three railway leasing companies operating in the UK. In each case their last five available sets of accounts were reviewed, meaning that the survey concentrates on the period 2002 to 2006.

In this period the declared profits of the companies in question increased from £435 million in 2002 to £810 million in 2006. Their sales income curiously varied little over the period, moving about an average of about £11.6 billion a year throughout the period.

The tax they paid did, however, fall dramatically over the period. According to their profit and loss accounts their tax charges fell from £188 million or 51.4% of reported profit in 2002 to £169 million in 2004, when the declared tax rate was 22.1%, a rate that was also seen in 2006.

But this is not the whole story. The profits these companies declare are not the profit figures on which they pay tax. Most of the railway operating companies (but not the rail leasing companies) have significant goodwill charges in their accounts which are highly unlikely to be tax deductible. This increases their taxable profits by this amount.

At the same time, all the companies include in their accounts charges for ‘deferred tax’, which can best be described as estimated amounts of tax that might be payable at some time in the future as a consequence of transactions that have already occurred, but with there being no certainty as to when, if, or ever that tax might be due. Overall the amount of deferred tax owed by these companies increased from £948 million to £1,297 million over the period. The increase was less than the total deferred tax charged against their profit by all the companies in the period, which totalled £527 million because of changes in the rules on the way the balances had to be accounted arising as a result of the introduction of International Financial Reporting Standards in 2005.

Two points are however clear: first that these balances seem unlikely to be paid and second that deferred tax charges can therefore be ignored as real tax charges. They should instead be considered to be interest free loans to the railway industry for which there is no repayment date. By 2006 one third of all the finance required by the industry was being provided by the government in this way without it taking any credit for the benefit it was providing.

Taking these two adjustments to the profit and tax charge into account a very different picture of tax paid is revealed. Profits now increased from £584 million before tax to £894 million before tax over the period. Taxes due fell from £109 million to £71 million. The tax rate fell from 18.7% to 7.9% (and just 3.8% in 2005).

If tax had been paid on these profits at the 30% headline UK corporation tax rate the sums due would have been £66 million in 2002 and £198 million in 2006. Over the period £731 million of tax was not paid as a result of the low tax rates the industry enjoyed.

Of this sum £527 million is explained by the deferred tax charges. According to the accounts of the companies themselves the second biggest reason is ‘prior year adjustments’. What this means is that they have not had to pay tax that they had declared they might. Almost certainly this means that tax planning arrangements the companies had presented to HM Revenue & Customs but were too cautious to assume would work were accepted as valid by that authority, or at least were not challenged.

The resulting impression is of an industry that has saved itself over £700 million in tax in five years and is sitting with £1.3 billion of unpaid tax on its balance sheet: tax that might never be paid but which is being used to provide one third of the funding required to keep this sector going.

Who benefits from this tax lost? Certainly not the government. And there’s no indication that it is the consumer. It must be the companies themselves. Profits of the companies surveyed almost doubled during this period. Their tax paid tumbled. And they paid almost £1.5 billion in dividends to shareholders in this five year period. Half of this sum was financed by tax not paid.

There is an obvious question. What better use could have been made of that tax not paid, in the railway industry or in society at large? And why have we allowed the railway industry become a mechanism for financial planning, one of whose primary purposes is to turn unpaid tax into an income stream for shareholders?

It’s certainly no way to run a railway.

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