Tax Freedom Day is an import from the US right which nominates a day in the tax year when they argue people stop working for the government and start working for themselves. The concept is bollocks because it doesn’t take into account what public services you gain for the taxes you pay but that shouldn’t stop us using it for progressive ends by pointing out the extraordinary treatment that some people and companies manage to wangle.

As Richard Murphy over at the Tax Research UK blog points out the 54 billionaires who pay an average of 0.14% tax will have discharged their responsibilities to the Exchequar by 12:15 this afternoon and the third of Britain’s 700 largest companies who pay no tax will have had more reason to share in joyous arrival of the new year than the rest of us.

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To give or not to give

22 December, 2008

Big companies after your wallet

Big companies after your wallet

Via Old Holborn

I’m not generally in favour of bail outs as I don’t think they work in the long term. A company that needs a bail out generally needs it because they don’t produce anything that people want to buy. But as you’re all well aware we are living in exceptional economic times. Still I agree  the government shouldn’t bail out companies like Woolworths because they failed because it was poorly managed and another shop will take their place on the high street hopefully providing a better service to the public.

Things are not so simple when it comes to major manufactorers. I know Jaguar has been banded about as a possible recipitent of government aid but lets take the example of Airbus and Boeing. If one of these companies went bust this would result in higher prices and less choice for the consumer because the capital and skills costs needed to enter the market are so high you would be left with just one manufacturer. Government intervention can help the market function effectively in this kind of situation.

There should however be a very clear bargain between the company and government. Government will help but you will have to pay a price generally in term of a government stake which can be resold when the market gets back to normal hopefully for a whopping great big profit for the tax payer.

This is the best solution for a bad situation. If we let large strategic companies go under then we will erode our economic base. If we bail them out no questions asked, here’s the cash, come back when you need some more we will create a moral hazard and inefficient businesses that make products no one wants simply because the know they can always turn to the taxpayer. Company pain and government gain represents the best course of action to rescue companies vital to our economic competitiveness.

Prescott on the warpath

20 December, 2008

John Prescott wants to hear from you

John Prescott is not a happy guy this morning. A firm Atlas Caravans in his Hull East constituency has gone bust after Barclays withdrew a credit facility of thirty years standing overnight when they had a full order book. Now 340 jobs are gone. All the while the Chief Exec of Barclays is still getting a whopping bonus.

He wants to hear about other stories of the banks restricting lending whether that’s for a overdraft, mortgage or loan. You can contact him on his facebook profile. Yes that’s right JP is on facebook. We shouldn’t forget that this recession is going to hit the workers hardest. It always does but it’s worth checking out David Ottewell’s handy little recession impact map and Dermot Finch is the man with the stats.

UPDATE: JP hits Labourhome’s frontpage

Almost 1 in a 1,000,000

10 December, 2008

That is about the likelyhood of being prosecuted for tax evasion in the UK. The good news is that most people pay their taxes but there will always be some who try to wriggle out of their responsibility. So what happens to them? Richard Murphy at the Tax Research UK  blog has uncovered figures which show an entire 69 people have been prosecuted for tax evasion in the last year. Ummm poor people cheating on benefits are evil scroungers yet rich people avoiding tax aren’t. Shurely shome mishtake. So where are the tax evasion tv ads and lie detectors HMRC?

In a surprise development David Cameron’s leadership of the Tory party was rocked last night after his secret plan to save the British economy was leaked to the Austrailian media by a senior shadow cabinet member. The embarrased shadow chancellor who didn’t want to be named said “Since this credit crunch Brown has staged the biggest recovery in the polls in 30 years” and then went on to comment about his agricultural interests “I think we’re ducked, I think I’m ducked, I think Dave’s ducked, I think the whole Conservative Party is really really ducked and if he thinks spiders are going to save the British economy Dave’s more off his head than when I saw him at the last Bullingdon reunion ducking every duck in sight.”

I found this snippet of an article in The Economist’s World in 2007 by Anatole Kaletsky which goes some way to explain the economic rationale behind globalisation, outsourcing and increased personal indebtedness. It doesn’t go into the political and social effects of the loss of industrial jobs but I think there is a huge role for government to invest in human capital. If we are going to compete economically during the rest of this century then I think we really have to improve the skills base and vocational education not just through higher education but for the 50% of people who on even the governments best estimates wont go to university.Globalisation undoubtedly has many winners but the benefits are not evenly spread throughout the population. Simply letting The City make billion after billion while letting the rest of the country fall behind is neither sensible economics or politics. If we let inequality run riot then we only have ourselves to blame for the resulting increased unhappiness, violence, crime, lack of trust and other problems such as increased support for extremist groups that we have inflicted on ourselves.Anyway here is the extract:

Platform companies are globally ubiquitous businesses which sell every where but produce nowhere: firms such as Nokia, Dell, IKEA, Apple or LVMH. They have discovered that many traditional businesses can be broken into three distinct components – design, production and marketing – and that the middle phase, production, tends to be the most volatile and the least profitable of the three. The platform companies have responded my outsourcing most of their production to emerging markets, while keeping for themselves the profitable design and marketing ends of the value chain. As a result, they have become less capital-intensive, more profitable and less unstable than traditional firms.

This company led analysis is familiar to any MBA student, but the macro impact of outsourcing on the stability is the advanced economies has only recently started to be understood. When America or European companies outsource to Mexico or China, it is usually the most volatile part of their business that is being outsourced – capital spending, inventories and industrial jobs. In effect a lot of cyclical volatility is transferred from Europe and America to the emerging markets along with the jobs outsourced. That this is not just a hypothetical speculation can be seen in the declining voilatility if many OECD economies since the early 1990s and especially in the remarkable stability in the financial markets in the face of the huge shocks and financial imbalances in the past decade.

An overlooked result of this greater stability is that workers in America and Euroep are mich less exposed to cyclical unemployment and can therefore afford to borrow more, Moreover, this credit is far more readily available and less costly to service because of the next benign change in the global economy: the low inflation which is another by-product of intensified global competition. Low and stable inflation has kept interest rates very low, which in turn has reinforced a third great structural change – financial deregulation.

Deregulated financial markets, combined with low interest rates have transformed the availability of credit and other financial products. Small businesses and individuals can now manage their liabilities, as well as their assets, in ways that were available only to multinationals a decade ago. Many illiquid assets, especially houses, have become highly liquid. This attractive new feature of property (“my home is now an ATM machine”) has naturally pushed house prices much higher than in past decades and has unlocked a vast store to invest in other financial assets.

Robert Reich has served in 3 US administrations, most recently as Labor Secretart under President Clinton. Now he is Professor of Public Policy at UC Berkeley and has brought out a book called Supercapitalism.

Now I don’t want to steal the guys thunder as he expounds his case in the video below in a much more elegant manner than this humble blogger can but he’s going on about how we now live in global economy and as result the nature of capitalism has changed and become more intense, couple this with a decline in civil society such as the trade unions and you begin to have real problems in the democratic process as ordinary people feel disempowered for the levers of political power.

Anyway, enough, sit back and go learn …

Hattip Social Europe

New Europe?

26 September, 2007

It has been an axiom of recent political times that the United Kingdom has a more successful economy than that of continental Europe and is probably the central argument against British membership of the Euro. In particular our flexible labour market is held up as an example to the rest of Europe despite its greater inequality. With the ability of employers to hire and fire at will, it is argued creates a more dynamic economy and increases employment overall.Chatham house international economics programme has brought out an interesting report called Unlocking the Eurozone’s Potential which paints a different and more well informed picture of economic conditions across Europe.The real negative economic effects of unemployment can be felt across the wider economy as it hits the confidence of consumers who then restrict the amount of spending they are prepared to undertake. This could be why consumer spending is only two thirds of the rate of the US and why the savings rate is much higher in Europe.Europe also has a problem with its lower level of productivity as the report notes “Encouraging a trend towards more job switching to higher value added sectors and companies could boost productivity by perhaps 10–20% over the next decade, with growth at higher rates of around 2% or more over the medium to long run.”

Part of the problem is with how employees view rising productivity, namely that it is more work for the same pay. This is a perfectly fair criticism in many cases but on a wider level in the economy the effect of slave driving bosses is much less significant than the structural elements that make up an industry’s productivity. As the report says: “Productivity growth at the macro level is driven by improvements in the structure of the economy as well as by individuals working harder. A better quality environment and more prosperous companies will help boost the quality of the workforce and the chances of the Eurozone sustaining productivity and GDP growth over the longer run.”

So the message is. If we want to have a successful economy we need to go higher up the added value chain. More skills, more research and development, more investment in technology. So the government is right to have the 50% target for 18-30’s going through higher education but universities have a duty to provide courses that will seriously add value to the employability of their students.