I’m All Right Jack

I’m not surprised to find 98 of the top 100 UK listed companies dealing in tax havens.  You can find a bit of analysis at – http://www.golemxiv.co.uk/2011/10/the-places-and-people-who-help-barclays-minimize-its-taxes/

The standard right-wing view of such stuff is that companies need such facilities to make the money for investment in global conditions.  The implication is business is a dirty business and we’d soon lose all business if we took these tools away.  Over the years I listened to many arguments on strategic success without ever hearing about smuggling and tax avoidance.  One competes on quality, customer satisfaction, international sourcing, splendid human resourcing, wage control, driving costs down, technology and whatever can be made into a management fad.  Meanwhile your company pays corporation tax at 18% over many years when the rate is above 30% or directs your cigarettes through Cyprus or Turks and Caicos, hire private detectives to ‘analyse likely takeover victims and so on.

The eventual end-place for such real strategy is a police force of cheap Laotians paid for by drugs’ trafficking.

The argument that convinces many is that it’s a dirty world and we have to compete under the real rules.  Since I played, foul play in both codes of rugby has become much more costly.  England’s rugby union team now can’t win because its forwards can’t keep to the rules.  Very few rugby league teams can survive an adverse penalty count.  Soccer teams can’t level things up by kicking people in the air (sadly).  No doubt cheating still goes on, but the rules are now enforced very strictly and  video review works well.

We lack any democratic control over business.  This is surely obvious (we even cheated on the gold standard when there was one).  The question is what attitudes prevent us from international fair play in business.  One is that we believe the current system suits us and it’s in our interests to keep the blind eye turned.  I’m all right Jack.

Honesty is not the best policy unless foul play is more costly and refs are good.  Are we so feeble-minded we can’t get this on an international basis?  I believe most of us can think this far and then realise it’s hopeless and this is what happens to our politicians before,like Blair, they are bribed with the glittering prizes.  Transparency is the answer, but the first to do it is effectively building a glass house and undressing with the lights on.

 

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2 thoughts on “I’m All Right Jack

  1. You are making the fundamental error here of assuming intelligence and sensible restraint on the part of Government, without proposing a mechanism by which this might be achieved. In the current scenario, tax havens are actually an essential good which absolutely must exist to keep Governments more or less honest.

    There is a theoretical concept called the Laffer Curve, which proposes that there is a rate of taxation which achieves the best gross return for any government; reducing or increasing tax rates away from this sweet spot will both result in reduced gross returns. This theory was partly proven by the reductions in top-rate tax under Thatcher’s government; both reductions in rate saw gross increases in tax take. The problem here is that it is easy for a government to overshoot the sweet spot in the Laffer Curve, and difficult to backtrack back to this sweet spot without looking silly. Tax havens here serve a very useful social good.

    When a company is overtaxed such that it is working flat out and achieving little useful return, it has only a few options. Sitting there and hoping that conditions improve is the easiest way, and most try this. If conditions fail to improve, some companies simply shut up shop entirely, sell everything off and retire; here the infrastructure and workers get a raw deal as both the infrastructure and the skills base are lost.

    Moving the company’s financial base so that it operates in a tax haven, by contrast, is actually a very good outcome. The company survives, the infrastructure and skills-base are retained and keep growing to meet local conditions, and the Government sees its tax-take reduced markedly. This is another public good; Governments are quite incredibly stupid beasts by nature, and need a damn good kick in the goolies to make them sit up and take notice. Choking off the tax-take is a very good way of doing this.

    After all, what actual right does a government have to help its self to your money?

  2. I’m aware of these arguments – well put. I’m no fan of government myself, but something has to give for a return to (admittedly flawed) honesty and a system that can be policed (again sadly). I don’t even trust much to democracy myself, so the ‘how’ is very difficult. My argument would start elsewhere in other potential ‘goody-two-shoes’ territory – we are now productive enough to get rid of poverty – another minefield of gullible nonsense in general ignorance, let alone what politicians might do. Population control would have to come with this, along with very different notions of consuming and open society control of governance – whether by governments or not.

    If my ‘castle-in-the-air’ could fly, we’d have to do a lot of work on control systems – I feel we may now have the technology and should try.

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