A concerted drive to ramp up the share prices by pretending it's all
over now is rampant, and the truth is being forgotten or driven out
of sight.
First we have an excellent look by The Economist at the tax mess
Darling has created and it is a mess that will cause endless trouble
in the future.
Then we turn to what I regard as a scandal . Some in the City agree
with me there but some are pouring buckets of whitewash over an
anodyne report on the future of The City drawn up by a bunch of the
Great and the Good' plus Darling himself. It omits any consideration
of the three key issues - trhe tax structure, hedge funds and
regulatory rules. . "Hamlet without the rince of Denmark" indeed.
Christina
=============================
THE ECONOMIST 30.4.09n UK
Tax - A nasty Brown mess
The politics behind Britain's tax changes are ugly. The economics are
worse
JEAN-BAPTISTE COLBERT, Louis XIV's finance minister, famously said
that the art of taxation was like plucking a goose; the aim was to
get the most feathers with the least hissing. But tax policy should
aim to do more than smother protest: it should also seek to raise the
most money with the least distortion to economic activity.
By this measure, Britain's attempts to fill the fiscal gulf created
by recession are a dismal failure and a lesson to cash-strapped
governments everywhere. Take marginal income tax rates, announced in
the British budget of April 22nd. Once national insurance is added
in, effective marginal rates will climb from 31.5% to 41.5% through
to 61.5% on those earning just over £100,000 ($147,000), thanks to
the withdrawal of the personal tax allowance. After that, the rate
will fall back to 41.5%, before rising again to 51.5% on incomes over
£150,000.
The bizarre incentives of income tax are only the start. High earners
also face the withdrawal of tax relief on their own pension
contributions and a tax charge on the "benefit-in-kind" provided by
employers' payments into their schemes. Depending on how much the
employer contributes, this will push marginal rates well above 50%.
It will also discriminate against employees in defined-contribution,
or money-purchase, schemes where employers match what workers put in.
But the effect is not uniform; the convoluted rules will mean some
high earners will get more tax relief on their contributions than
they did before. What a mess.
As recently as 2006, the government drove through a reform of the
pensions rules that simplified a notoriously complex system.
Employees could, in effect, make pensions contributions when they
felt flush and still get tax relief. Those reforms were a much-needed
incentive for employees to build up their pensions at a time when
many employers were abdicating responsibility for providing a decent
income in retirement. The new rules return pensions to the complexity
of string theory.
The best tax systems combine low rates with minimal exemptions.
Businesses and citizens should be making decisions based on their
economic opportunities, not the advice of their accountants. But
Gordon Brown is too clever by half. He introduced a sliding scale
that made capital-gains tax highly complex, and then reversed
himself, introducing a single rate of 18%. The effect was both to
raise the tax rates for sellers of small businesses and to introduce
a vast discrepancy between the tax rates on capital and income. An
attempt to introduce a levy on foreign workers (known as non-doms)
was botched, and may yet drive many high-earners out of the country.
These wheezes were designed chiefly with politics in mind: all those
nasty plutocrats deserved a hammering. By putting economics second,
Mr Brown has made it harder to balance the books. Waste and lower
growth because of poor tax policy will only make the fiscal hole
harder to fill. The new tax will do little [probably nothing -cs] to
reduce Britain's budget deficit. On the government's own forecasts,
which assume the wealthy will not change their behaviour, the assault
on the rich will raise just £7 billion. With avoidance, the tax will
raise still less.
Brown's goose cooked
Although higher taxes would be a mistake in a recession, they are
inevitable when growth returns. The rich should pay their share, but
governments cannot repair their finances merely by plugging holes or
using stealth taxes. The sums are too great. They will have to raise
money from the majority of citizens and they should do so in a clear
and open fashion.
The aim should be to reform and broaden the tax base. During the
boom, the British government became too dependent on financial
services, raking in money from income taxes on bonuses, capital-gains
taxes on rising share prices or corporation taxes on bank profits.
One reason its deficit has risen so quickly is that those revenues
have evaporated. They may not [WILL Not. I'd say -cs] return again
for some time.
Governments will need new sources of revenue, just as value-added
tax, introduced in Britain in the 1970s, became a counterpart to
income tax. Carbon taxes are one possibility. The lingering tax
privileges of residential property could also go. The need is for
decisive action, rather than fiddling. Meanwhile, the Treasury says
that it is still "consulting" on the new pension rules. It should
consult the book of common sense.
Surfing the web just got more rewarding.
===========================
TELEGRAPH 8.5.09
Roadmap fails to chart key tax points
Last Monday a group of City grandees and senior officials from the
Treasury eye-balled each other over a table. Between them lay the
final draft of high-profile report 'UK International Financial
Services - the Future' whose progress to the printers was being
delayed by a nasty stand-off.
By Louise Armitstead
The group was co-chaired by Sir Win Bischoff, the former Citigroup
chairman, and Alistair Darling, the Chancellor. Its heavy-hitting
membership included Dame Clara Furse, the outgoing chief executive of
the London Stock Exchange, Lord Levene, chairman of Lloyd's of
London, and David Blizter, of private equity group Blackstone.
Together they were tasked with producing a roadmap for the future of
London's financial services over the next 15 years.
Some members felt the report should address the Budget's
controversial "50p tax" that has been the focus of a debate over
London's future competitiveness. As one said: "Some people said we'd
all look ridiculous and the point of the report would be negated if
we didn't include it." In the end the outcome of the stand-off was
inevitable. It was impossible for the Chancellor to put his name to a
report that condemned his flagship policy.
When the report was finally unveiled yesterday it became clear it was
not the only omission. Other key issues - from an expected defence of
London's hedge fund and private equity industries to whether the City
would be hurt by a "super-regulator" - had been also been dodged.
The City was dismayed. Peter Viponds, of the Association of British
Insurers, said: "The fact that the paper was signed off by the
Chancellor as well as Sir Win suggests this is a consensus position.
The ABI is not happy with the Budget announcements on the taxation of
pension contributions and the higher rate of personal tax, and that
these have been left out."
Shadow Chancellor George Osborne led the criticism: "I am a little
disappointed [that all? -cs] that it has not gone further in
addressing some of the big issues we will need to get right if
financial services are going to recover and prosper. It is
increasingly clear that the Labour government won't provide answers."
But members of the committee warned that seeing the report as bland
and vacuous was simplistic. One said: "This must be seen in context
of serious pressures. The City is under fire for causing the crisis.
The report had to be sensitive to this. The ideas are watered down
but there are vital points on tax, labour and innovation."
The report was hampered by a radical change of remit. Commissioned in
the summer of 2008, the original task was to look at London's
competitiveness as a global financial centre. The fiasco of Northern
Rock, the row over non-domicile taxation and the rise of new
financial centres had led to a survey by the Confederation of British
Industry and KPMG that warned of a "need for urgent action to tackle
the weaknesses compromising London's reputation as a place to do
business''.
Sir Win was widely admired for assembling such a diverse and
experienced committee to produce the report. However, the ferocity of
the unfolding financial crisis forced them to refocus.
One member said: "Comparisons to New York were irrelevant when the
whole point of financial services was under attack. The report is now
designed to admit there have been big problems but that financial
services are a vital part to the UK economy both now and in the
future. This must be protected."
The report details the importance of financial services not just to
London but to the rest of the UK, from Edinburgh's asset management
industry to Norwich's insurance sector. It lays out a vision for
developing the City "in partnership" domestically and with other
financial centres.
A key victory, said the authors, was the report's commitment to a
principle of innovation. "This is radical when seen in the light of
the Turner Report which said it was innovation that got us into this
mess." Similarly they point to recommendations for a "flexible labour
market" and a "competitive corporate tax regime."
Others appreciated the subtle points. Mr Viponds said: "We were
pleased by the pledge to distinguish between the different areas of
financial services. We were concerned that restrictions might be
applied across the City not just the banks. It's good news that this
isn't the case."
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