Offshore Madness

The 31st of October 2011 is the deadline for submitting your personal tax return on paper, which in the digital age seems rather quaint, a relic of a bygone age where people use fountain pens to write cheques,  denominated in guineas, for life's essentials such as top hats, shooting sticks and steamer trunks (whatever they were).

Nostalgia aside, no one from any era is a fan of paying tax, unless you do in fact work for HM Revenue and Customs when paying tax is more akin to the staff of John Lewis shopping at John Lewis - you genuinely are keeping yourself in a job. Although I suspect tax inspectors do not get a staff discount on their income tax. If they did, they might be more inclined to pick up the phone. That's directed to the Chapel Wharf Area Tax Office, you know who you are.  When I owed you money, I received menacing letters warning that you were going to repossess my left kidney (my favourite one, since you ask) and sell my wife to a sex trafficker. (Strictly speaking the letters they sent me did not actually threaten organ loss or spousal slavery; but they were curt and I know how to read between the lines). Of course when the debt is the other way round mysteriously enough the income tax refund gets stuck, as if the funds were somehow an overweight feline that had outgrown its catflap.

There is, however, one species of cat that has no problems wiggling out of tight spots.  It's a fat one, who receives a special  tax discount not available to the the little people (as the rest of humanity, tall or short, shall now be known). What's more, this type of moggy is well-greased by Her Majesty's servants. You guessed correctly, fat cats are back in the news again: in this case Goldman Sachs for a backroom deal  with the Revenue that avoided a £10 million liability.

Interesting the contrast between the small trader whose VAT receipts are late: he gets the knock and his property seized. But the likes of Goldman have a cozy arrangement that would do an African kleptocracy proud. For those of you that missed this latest banking wheeze, they had set up a Virgin Islands subsidiary to pay bonuses to its UK employees and after a chat with Dave Hartnett, the UK's most senior tax collector, were let off the money they owed. He did a similar deal with Vodafone, who by some accounts owed the Exchequer £6 billion and paid only £1.2 billion.

Scroungers in suits

Judging by the standards of the 25% of FTSE 100 companies who were named and shamed in the Action Aid report this month, the use of offshore companies located in tax havens to avoid UK taxes is widespread. Two prime offenders are Lloyd and RBS; yes state-owned banks have scores of offshore vehicles designed to avoid UK tax. It is beyond parody, beyond politics, beyond belief.

Brand Values 

In a sense, the rampant tax evasion and freeloading by high net worth individuals and corporations, with the supine assistance of accountants and lawyers who betray their own professional codes, would somehow be more acceptable if it were done brazenly, as a colossal 'Fuck You' to civil society. I guess it might not sit so well with their brand values. You would have to ask Barclays, Vodafone and BP what those values are exactly, if they do not include being a decent corporate citizen and paying your dues.

Yet those involved must have some twinge of conscience because they have to couch their immoral behaviour in the veneer of respectability,  so this is not  rampant tax evasion, parasitism and freeloading of the type if displayed by a member of the underclass would provoke The Daily Mail to new heights of indignation.  No, it is tax competition: a form of free enterprise and a bulwark to socialism.

The concept of tax competition

There is little point dealing with the substance of their arguments as there is none. Tax competition means every country must join in a race to the bottom, where you'll find Afghanistan, the country with one of the lowest tax takes in the world. Reform must take place within the context of people and corporations paying tax; evasion by offshore havens undermines the basic contract that a citizen and corporation makes with the state: live here, trade here, pay tax. Those hedge funds based in the Cayman Islands should actually live in the Cayman islands, the Tesco stores located in the UK owned by a Lichtenstein holding company should be relocated there, breeze block by breeze block if necessary.

Growing deficits in developed economies have coincided with an explosion in tax avoidance via offshore activities, with lost revenue accounting for over half the deficit by some calculations. Crack down on benefit scroungers and welfarism if you want, but how else would you describe an individual or multinational who derives all the benefits of UK civil society but avoids paying their dues?

Tax havens should be shut down by old fashioned gunboat diplomacy, using a boat with guns on it. Even though the British navy has been reduced to a canal barge with canon of Napoleonic vintage and a couple of blokes in outboards with cricket bats, they could still handle these offshore jurisdictions. Seriously, what exactly could Jersey do if we decided to send over some marines and forcibly open its books?  Likewise, the French should storm Monte Carlo, the Spanish march into Andorra, if the Germans can't quite bring themselves to invade Lichtenstein, subcontract the job to the Poles if you to get the job done properly.

The law needs to change: if it looks like duck and quacks like a duck, it's a duck. If it looks like tax evasion, then the burden of proof should be reversed so that companies must prove that setting up numerous shell companies in tropical islands that are notorious for laundering drug money is in  fact a legitimate way to structure a business. Likewise, lawyers and accountants who help offshore tax evasion should be held accountable, with criminal charges if appropriate. If a little person dodges his tax, they can face prison, why should it be any different because miscreant is better dressed?

Let's call time on this offshore party at our collective expense.

Oversize Me

England's Olympic Squad

Britain is officially great, not economically or militarily, but when it comes to waist size we are in the first rank of flab. According to a recent survey, sixty percent of the UK's population are overweight; the other forty percent tried to eat the census taker...with chips and a  bottle of Lambrini.

Never fear though, Andrew Lansley, the health minister, is here to the rescue, proposing that we count the calories and display them in fast food restaurants. Unlike his Great Leap Forward for the health service, focusing our growing guts makes some sense. Although we may live as long as our grandparents, we will be doing so unable to leave the house without a flatbed truck and winch, reminiscing about the time we could see our feet without a remote camera.

Except we know lecturing people won't work. When a cigarette company marketed a brand called 'Death' with a skull and crossbones on the front, their  sales soared; the pack of 200 was even coffin-shaped. Back in the days when Tower Records existed, 'Death' had a display in their Piccadilly branch with skeletons and gravestones. I bought a pack at once and smoked it like cancer was just a star sign.

At American state fairs, stands advertise their high calorie wares such as deep fried butter with a picture of   paddles they use to shock a stopped heart; the public loves it. Humans seem to be hard wired to crave sugar and fat, a relic of our wandering days on the savannah. Unfortunately, what makes sense for hunter-gatherers who rarely if ever encounter sugar or fats is a bad strategy for desk-bound office potatoes whose sole exercise is moving a computer mouse or other mono-hand pursuits. Maybe if you did have to dodge marauding lions on the way to KFC you would burn up the calories, but all it would take is one fatal mauling and the scheme would have to be abandoned. Health and safety gone mad.

There are, however, other ways to fight the obesity crisis that don't involve releasing large carnivores into urban areas or lecturing people like naughty children. Try limiting the number of fast food outlets in the high street. Insist that every outlet be located at the top of a steep hill or fitted with running machines at the entrance, like that Ok Go video except with annoyed customers.

Install this in front of every junk food restaurant.

Do not, repeat do not get the likes of Cadbury's to sponsor some retarded idea of exchanging chocolate bars for sporting equipment, making the direct association in children's minds of junk food with athletics. Oh hang on, that's exactly what the Blair government did.  Learn the lesson of that mistake and do not what ever you do make official sponsors of the 2012 Olympics the likes of Coke or build the largest ever McDonald's in the world at the Stratford site. Oh hang on...

The same government and local authorities lecturing us on calories are busy turning every high street in Britain into one uninterrupted branch of Subway-KFC-Pizza Hut-McDonalds-Burger King-Greggs-Chicken Cottage -Kombo Feeding Warehouse. It's not the calories that need counting. After all, how many branches of Subway does the world need? The answer is any number less than one in case you're interested.

Now, where's that takeaway?

Stimulating Packages

Occasionally you hear a politician say something so breathtakingly stupid and contradictory it makes you want to hurl something across the room in a howl of desperate rage.  This morning as I listened to the Today programme, I  wanted to take my  i-pod and DAB combo radio, get a taxi to Broadcasting House and fling the black cube at George Osborne. Obviously common sense intervened before the armed police did and I calculated by the time the cab had negotiated rush hour traffic, George would probably be heading back to Number 11.  There's always a chance he'll repeat the idiocy this evening, but then I will be watching on TV and getting a large flatscreen off the wall mounting is simply too much like hard work.

In amongst all the talk of 'packages', 'stimulus' and 'growth spurts', which turns out to be much less fun than you think, was a discussion of Wonderboy George's magic fix for the British economy which as you may have noticed is about as lively as the parrot in the Python sketch. It is an ex-economy. His claim was that freezing council tax would help boost the economy, some £800 million in all, found apparently down the back of the Treasury sofa along with Domino's pizza menu, a leaky biro and an old remote control. But in the same interview, he asserted we must also cut the deficit which would not harm growth prospects, whilst planning to cut corporation tax further. Observe the strange logic here: cutting £40 billion of deficit spending from the government will have no effect on the economy, but £800 million will.  This is not a cake-having and eating scenario, this is having the cake, taking a photo of it, eating the cake, then printing ten colour copies of the cake and trying to pass them off as actual cakes to other people.

Asking for trouble 

Moreover no one has satisfactorily explained how cutting corporation tax is going to have any effect on the collapse in domestic demand and  vast debt burden. Judging by the FTSE 100 companies' behaviour, their principal aim at the moment seems to be shovelling as much cash into their senior executives' pockets, regardless of performance. In a period of deep recession and share price collapse, executive pay rose 32%, which means as a multiple of average earnings it's trebled in ten years. By all means cut corporation tax, but it's a bit like giving Pete Doherty a big bag of crack to look after, you have only yourself to blame.

This is not to say that the Labour party has anything remotely useful to offer in the current situation. Their economic cure all is that no one in the public sector should ever lose their job ever, even if a broken shop dummy would have better productivity.  I am probably making their programme sound more coherent than it actually is. As for the Liberals, they claim a mansion tax is the answer, but as we aren't living in a real life version of Downton Abbey, the lack of actual mansions in the UK seems to undermine their case.

A wise investment 

The Bank of England is about to start another round of quantitive easing, which is money-printing by another name; it is often described as the equivalent of helicopter dropping money onto the economy. Except you never hear anyone suggest doing exactly that: putting money directly in people's hands. I think it is because deep down politicians and economists feel that, for example, granting every single British taxpayer a sizeable cash credit that had to be used in three months would somehow be...cheating. Pouring billions into bankrupt banks, buying your own debt, all of this is acceptable policy. But the final logical step which would immediately kick start demand, the genuine money drop, is off limits. Perhaps there remains some deep seated mistrust about what we would do with the money: some people would no doubt spend it on frivolities like shoes or hats or perhaps just one very expensive hat. The rest of us would spend some, possibly on a wider range of goods and services than millinery, and save the remainder.  The net effect would be to boost domestic demand and help recapitalise the banks.

£200 billion of quantitive easing and the dead-parrot economy is only just about staying upright because someone nailed it to its perch.  Or you could have credited every single taxpayer with £7,692. Who would you trust with the money: yourself or those financial masters of disaster?

Dear Mr Osborne, I'd fire up the chopper if I were you.


(For more stats and numbers see this interesting article: Who eat all the QE pies?)

Euro Trash

The past few weeks have not been happy ones for that rare creature in the UK, the Europhile, a breed that will soon be put on the endangered species list alongside the corncrake and the greater horseshoe bat. If not endangered, anyone expressing pro-European sentiments in most pubs in England will definitely be a threatened species; indeed the Europhile may need police protection like that other type of 'phile' who is not allowed near schools.  In Scotland, Wales and any part of Britain where more people work for the state than private business, together with selected enclaves of London where the doors are all the same shadow of Farrow and Ball (mouse back) and everyone reads The New Statesman,  there are a few pro-Europeans left; but otherwise support for the European Union has collapsed to an all time low. How is it is that the Euro dream has turned to trash?

The Europhile - a rare species

Born of the very reasonable desire to stop Germany trampling over national sovereignty and insisting that everywhere be run like the Reich, the European Project seems to have come full circle to a point where Germany ignores national parliaments and keeps telling everyone what to do, in this instance imposing self-defeating austerity measures.  The Euro, the currency union without a state, has proved to be a catastrophic mistake on a par with the Captain of the Titanic's decision to steer his ship right next to the iceberg to restock his ice-bucket: it's just not worth the grief. Instead of promoting prosperity , shackling the turbo-charged Teutons to the work-allergic Greeks has created an infernal wealth destruction machine about as sensible as burning €100 notes for fuel. Mind you, if the crisis continues much longer, any Euro notes issued in Athens will be being going up in flames.

Back when the Euro was created, some of us, including yours truly, knew it was a stupid idea to pretend that the Portugese or Greek economy should have the same currency and interest rates as Germany. I arrived at this brilliant insight by not being a massively overpaid bond trader and taking a package deal to Crete. My conclusion was that Greece was a lovely place to take a holiday, but given that its citizens struggled to run a pedalo business on a crowded beach in high season and the country had a political class which made FIFA officials seem models of probity, it was not the wisest call to lend them billions. Or if you did, make sure you charged a sufficient premium for the risk or NBAARGCF rate (not being an anally retentive German control freak). Naturally, those clever bankers and bond traders decided to buy Greek debt at only a small fraction above German bonds. Yes, the more stories you hear like that, the more you feel a Lenin-style banking reform is in order: shoot a few 'pour encourager les autres'.

Unfortunately executing bankers, no matter how much fun it might be (especially if broadcast live as Who Wants to Shoot a Millionaire?) is illegal and against the European Convention on Human Rights. Those bloody Europeans again!  There is, however, much more to the Euro crisis than just money. It is really about who we want in charge and no one, not even the pro-Europeans, voted for the current situation where the European Central Bank is committing vast sums of money on behalf of member states whilst being accountable to no one.

The Hellenic Handshake 

The Greek government has taken huge loans at absurdly low rates, with no prospect of paying back the money, yet its people cannot chose the rational course of default and exiting the Euro. The Germans, were it not for war guilt, would have called time on this madness long ago; they too did not vote to work and save so that the Greek elite pay no tax and its civil servants retire at 55. Regardless if they get all the sun loungers in the Med, another €8 billon bailout is a bridge too far.

UBS has just published a report claiming the break up of the Euro would cost both Germany and Greece 40% of their GDP in the first year and 15% each subsequent year. This is the same bank whose trader just lost them €2billion in unauthorised deals, was fined $780 millon for helping US citizens avoid tax and lost the most of any Euro bank in the subprime debacle, a cool £14.4 billion to be precise. Maybe we can do without this kind of expert advice? The truth is that many countries including Iceland, Argentina, Mexico and Russia have bounced back after default and devaluation. It's the dirty secret that must not get out, sometimes not paying back what you owe works out fine.

Bizarrely even anti-Europeans are now suggesting the only way to save the Euro is full political union, which is an extreme version of the sunk money fallacy. A good example of this faulty logic is paying for expensive theatre tickets and sitting to the end of the show even though you hate it, because...well you want to get your money's worth. This seems to me explain why many of the audience remain to the bitter end of Lloyd-Webber's musical atrocities (and if even they wanted to leave, the coach won't be setting off to Birmingham until 10.30 p.m. anyway).

The truth is the money lent to Greece is gone, as is a percentage of the money lent to Ireland, Spain and Portugal, so why not accept it and move on? With capital controls and tight regulation of the financial markets, breaking up the Euro may end up saving us a fortune.  And forgetting the numbers for a moment, none of us voted for Angela Merkel, not even a majority of the German electorate. We're Brits, let's stick to our own home grown bunch of useless politicians.

Narrow Banking

In recent years, everyone who didn't work in the financial sector  had to learn a bewildering array of new terms such as CDS, CDO to discover why were all FCUKD. Financial armageddon threw up novel buzzwords like toxic debt which is actually a polite way of saying a 'piece of crap'. In fact one Goldman Sachs employee used that very phrase to one of his colleagues when describing a  Goldman's securitised debt product known as Timberwolf. This debt bundle is currently the subject of numerous lawsuits and now a probe by the Serious Fraud Office.  I imagine the buyers of Timberwolf wish they had bought actual wolf shit instead of American subprime mortgages.

So why mention all of this now? The ICB, the Independent Commission on Banking, is proposing that we split retail and investment or casino banking. To compare investment banking to casinos is a slur on casinos who are a lot more ethical and do a lot less damage to our collective wallets. Splitting regular retail or consumer deposit taking banking from exotic trades involving derivates is what is called 'narrow banking'  or 'common sense'. The banks don't like it, so David Cameron wants to water down the proposals. I'm probably being unfair in suggesting there is a relationship between the Tory party's funding coming almost exclusively from financial services firms and David Cameron's desire to neuter banking reform even after the worst financial catastrophe in British history. There's no link at all. I'm sure George Osborne is similarly independent. When he leaves government, I doubt that there will be any connection between his taking a  lucrative directorship in a bank and his opposition to structural reform whilst in government.

Banks don't like the split between retail and investment, because it reduces profits. It reduces profits in the same that forcing a ferry company to provide lifejackets reduces profits or putting fire exits into commercial properties hits the developers' margins. Sometimes you have to take a bit of small short term pain to avoid long term catastrophe.

If you think about this way, banking reform is a like a vaccination: putting up with one little prick, the BCG jab, to avoid a much bigger prick later on. In case of BCG, then it's tuberculosis, in the example of banking, the bigger pricks would be Bob Diamond, Lloyd Blankfein  and friends. Now I realise that comparing bankers who oppose reform to lethal pathogens such as TB is a little unfair. The TB bacterium is just doing what comes naturally. On its CV, its skills are just 'being a TB bacterium' and even if  it went down the job centre, not even Currys Digital would hire it as Saturday staff.

Bankers on the other hand have choices. Bob Diamond of Barclays, to pick someone entirely at random who said last year that banking bashing had got out of hand and also recently hoped the coalition didn't lose its nerve on cuts, whilst pocketing a £13 million pay cheque for moving other people's money around, that Bob could do other things, he has choices. I'm sure his CV includes a range of skills. He could - and this is just friendly advice - go for a really long walk and not bother coming back. (This is the same Bob who runs a bank that managed to pay only £113 million in UK tax on £4.6 billion profit, in 2009. So I guess he's good with numbers if nothing else).

Sadly she dies of anthrax in the next scene. 

Narrow banking matters if we want to vaccinate ourselves against financial epidemics. The new blockbuster Contagion takes as its premise a disease for which there is no known cure. It is a terrifying, depressing vision of future apocalypse with the only light relief being Gwyneth Paltrow's sudden death at the beginning of the film.  I predict a box office smash and suggest that producers introduce this plot twist into all of Gwyneth Paltrow's films; it's hard to think of one which would not have been vastly improved by her character's death within the first ten minutes. Same holds true for Keira Knightley.

But I  digress, the important difference between the fictional contagion and our affliction is a known cure exists: narrow banking.  Mr Cameron, please for once, try to do the right thing. Spike Lee seemed to think it was throwing a bin through a pizza parlour window, unless I missed the moral of that film. Don't throw anything through shop windows, we've only just got them fixed after the riots. Just let the Independent Commission on Banking be independent and do what they suggest.

British Rail

Rail fares are going up again, in some cases by up to 13% and the government still has to chuck £3.7  billion at the rail franchise companies, more in real terms than under the bad old days of British Rail. If you want to travel the London to Bristol route at peak time, it costs £169 for a return. For the same price, you can fly to Rome. But when in Rome, you'll find that if you do as the Romans do, you'll pay 50% less for train tickets.

In Britain, unlike those stupid Continentals with their high speed rail links and affordably priced fares, we have decided that the purpose of the railway network is to provide good retail units for branches of Marks and Spencers Simply Food and the West Cornwall Pasty Company. The trains and stations themselves are an expensive inconvenience, perhaps we should just do away with them altogether and fill the space with more branches of Clinton Cards and WH Smiths. Now anyone who remembers the catering options of British Rail will agree that a beef and stilton pasty is a huge improvement on the state run burger chain Casey Jones, a franchise found only at stations for good reason. The burgers were marginally more edible than a fried newspaper and the chips were actually made from wood pulp.  Casey Jones' unique offering was an ultra thick milkshake, which doubled as a soft drink and a heavy-duty industrial lubricant.

Yes, the food was terrible, and yes British Rail had questionable advertising such as the posters of Gary Glitter in tight trousers. Another odd BR campaign was for Motorail, a bizarre concept where instead of driving to your destination, you put your car on a train to get there which is sort of the point of owning a car in the first place. Based on the advert, Motorail's appeal was that you could get thoroughly plastered in the buffet carriage and then drive your Rover into a tree the moment you disembarked.

The truth is that the privatisation of the railways has benefited no one apart from consultants, lawyers and certain chief executives of rolling stock companies. Pound for pound, Network Rail's capital investment delivers one third of what British Rail achieved.  All the Major government did was transfer a public monopoly to a private one, leaving us with the most expensive rail network in the world. On the plus side though, the sandwiches are better.

Sky high prices and ticket options which would baffle a maths professor, have put people off rail travel.  This is a  real shame as there numerous social benefits of railways versus private cars: less pollution, less congestion and less unbelievably tedious conversations between Jeremy Clarkson book reading males about the  relative merits of luxury diesel saloons.

Let's get retro, do a Life on Mars and bring back British Rail. Many privatisations have been highly successful but this was always going to be disaster. It also spurred the growth of The Sock Shop, now mercifully defunct, where busy commuters could buy hideous novelty socks for their loved ones. This partly explains Britain's rising divorce rate during that that era.

The railways were originally private, but they were dogged by safety concerns, funding crises, lack of capital investment and were chronically unable to make money. Does that sound familiar and ever wonder why they were nationalised in the first place?  The free market does many things very well, like providing a wide range of snack options, magazines and books, but it's no way to run a railway.

Debt Monster

Every week that sails by, the Western economies sink deeper and deeper into debt, with one exception, Germany, who foolishly based its economic growth on high-end manufacturing rather than house prices and hedge funds.  American superpower is revealed to be less stable than a house of cards in an epileptic's house in an earthquake zone.  The USA's political journey is from super state  to supergimp; its recent political paralysis much like Superman neutralised by kryptonite, a toxic, alien substance, in this case known as the Tea Party. And remember when Superman loses his powers thanks to kryptonite; then he's a just a strange man wearing his underpants on the outside of a lyrca bodysuit. Next thing you know he's chaining himself to railings outside the Family Court, howling that the bitch won't let him see the kids.

We are all collectively drowning in debt, most of it owed to the Chinese. They have such vast foreign reserves that they could buy Italy; or alternatively Portugal and Spain with Ireland thrown in as a three for two deal. I'm not sure exactly what the Chinese would do with Italy, but if they start installing a monorail into the hollowed out base of Mount Vesuvius we should be worried.

Individually Britons are in saddled with debt. Our corporations are loaded down with debt, the public sector is infested with PFI contracts (which is just another way of saying debt, plus loan shark mark-ups for the consultants involved), not forgetting the Treasury which is borrowing so much that I think our grandchildren will have to work until they are 85 to collect a state pension. It will still be £5000, but thanks to compound interest only buys half a Curly Wurly.

Now there's no point asking most economists for help, they failed to spot the last recession and still cannot explain how it's possible that the UK has undergone the longest ever boom in its economic history and everyone is flat broke. Perhaps you have to do a Masters to figure that one out. But one very smart economist, Nouriel Roubini, one of the very few who predicted the 2008 crash and the current second round of calamities has a heretical idea: debt default.

Without debt default or to use the acceptable term 'restructuring', how are going to slay the debt monster? St George Osborne's brilliant plan for recovery is that we should all take a huge hit in the standard of living so that no one in the banking industry takes a loss on their crappy loans. I think the debt dragon is going to win this encounter with our noble knight Osborne, because quite frankly, what is the point of us working hard, setting up new enterprises so that we can bail out some moronic, borderline criminal investment that RBS made on Irish property or American subprime mortgages. Seriously, what is the point? I would rather bang my head against a brick wall, ideally a wall made of bricks baked with the blood of dead bankers.

If the UK were a person, we would go bankrupt, renegotiate our terms and bounce back. It's worked for Donald Trump and countless other enterpreneurs.  In Trump's case that is in spite of a hairpiece that defies both the laws of fashion and physics.  I don't know about you lot, but the idea of working for the next 30 years so Bob Diamond and his peers don't suffer a loss on their loan books and their precious bonuses, isn't like being on a treadmill:  it's a treadmill that's going backwards down a hill whilst you're being pickpocketed.