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Don’t ask me?

November 23, 2012

I had a very kind note from a reader which said:

Hi Wendy

I suspect that the Government is getting fed up with your repeated responses to consultations – they are not used to people actually responding. The reason I suspect this is that they appear to have changed the rules on time allowed for responses, to give you much less time to get your thoughts together.

Much as I would like to think that I had some power over the government’s actions, I don’t think it’s just me!  As I mentioned in an earlier post, the Cabinet Office has already quietly posted some revised consultation guidelines onto its website.

And on 14th November BIS responded to a Freedom of Information Act request I made by saying amongst other things that

You asked for agendas and minutes from the last four meetings of the consultation co-ordinators. Our records indicate that the consultation co-ordinators have not met for over 18 months, and prior to that we have no agendas or minutes held on file. We believe some Departmental Better Regulation Units might still run their own consultation discussions, but the Better Regulation Executive has not been advised of any such meetings.

I deduce from those two pieces of information that there hasn’t been a Whitehall wide discussion that has led to the restriction on consultation deadlines but that someone else, someone central, is driving this change.

My guess would be that the person in the driving seat is Oliver Letwin, if only because he is the Minister of State in the Cabinet Office in charge of Getting Things Done (or, at least, ensuring that the government carries out its programme)

And, interestingly, he is appearing before the Merits Committee, or, as they are now called, the House of Lords Secondary Legislation Scrutiny Committee on 11 December to give evidence on exactly this point, the new approach to consultation.

There was a Guardian Public Leaders Network discussion of this issue last week which is worth a read (if only because it was the first time I’d come across the charmingly-named outfit “Guerilla Policy” – see here for their thought-provoking piece on the class element in consultation) and there is a call to arms from the institute of Employment Rights.

The message from all of these is: you have another week.  If you have thoughts (and, more particularly, evidence!) about how consultations work and whether the twelve week expectation is a Good Thing or not, well, you should put your evidence in to the Lords to inform their discussions with the Minister.

Yes, I shall be responding.  But the Secondary Legislation Scrutiny Committee takes ownership of submissions and may publish them in due course:

Submissions become the property of the Committee which will decide whether to accept them as evidence. Evidence may be published by the Committee at any stage. It will normally appear on the Committee’s website and will be deposited in the Parliamentary Archives. Once you have received acknowledgement that your submission has been accepted as evidence, you may publicise or publish it yourself, but in doing so you must indicate that it was prepared for the Committee. If you publish your evidence separately, you should be aware that you will be legally responsible for its content.

so I think it only polite to wait and see what response I get.  But please note that this is a call for evidence and the Committee specifically asks for signal boost:

This is a public call for evidence. Please bring it to the attention of other groups and individuals who may not have received a copy direct.

In other words: tell your friends!

Posted in Bit of politics, Consultation, Reference | Tagged , | 2 Comments »

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Consultation on vulnerable beneficiary trusts

November 9, 2012

Trying to catch up with the flurry of October/November consultations, I see I missed one that closed yesterday.  I’m hoping that, closing on Thursday, they’ll still be able to consider responses that they receive on, erm, Friday!  Anyway, this is what I sent.  I’m not sure whether there’s anything in the changes to tax treatment of trusts for people who are unable to manage their own financial affairs that is, by and of itself, offensive – I’m aware that it’s the changes to the benefits themselves (replacing DLA with PIP) which are considered offensive by people with disabilities.  But there are two things that jump out at me about this consultation.  One is the governmental, or rather departmental, muddle.  If you have different definitions of disability or vulnerability in different departments and for different purposes, should you – in the twenty first century, for goodness’ sake – expect a government to be able to get its act together and define what it means for ALL its purposes, not just for some?  Or, if that gives too much of a cliff edge between categories, shouldn’t you at least let the tax treatment follow the definitions used for other purposes rather than making people faff about considering a whole new set of tax requirements for something that isn’t really anything to do with tax at all?  And, second… the consideration of equality seems to be rubbish.  I say “seems to be” because, to be charitable, it’s possible they’ve done a ton of great work behind the scenes but just written it up really badly.  But to me it  reads as if they’ve gone “Oh, the DWP did all that.  Just stick in an “it’s all right, isn’t it?” question and leave it at that.”  Tell me I’m wrong.

Anyway, this is the response I sent.

I appreciate that the closing date for this consultation was in fact yesterday but I hope you will nevertheless be able to include it in your considerations. This is an individual’s response and will also be published, with commentary, on my blog at http://tiintax.com. Please note there are some questions where either I consider I do not have sufficient expertise to contribute to the discussion or else I have covered the question separately in narrative and I have therefore excluded those questions (so the numbering below doesn’t follow, but IS the numbering taken from your consultation document)

Q2: Do respondents have suggestions for defining a ‘vulnerable person’ for tax purposes other than by reference to orphaned minors and those with a severe physical or mental disability? (Responses may include approaches and concepts found elsewhere that could be included into the tax code either in combination or in isolation.)

It seems quite plain to me that tax is the least of the matters which a vulnerable person ought to be concerned with, and that therefore the best way of implementing the objective of this consultation is for the tax treatment to “follow” – in other words, that the legislation defining people to whom these tax exemptions should apply should follow the other defining legislation.

In other words, government should get its act together and define vulnerability for all purposes, or at least work under the presumption that meeting a definition for one purpose would also meet it for all other government (or at the very least for tax!) purposes.

In drafting terms, you might say something like “A vulnerable person for these purposes is someone in the Vulnerable Persons list,” and then have a separate command paper or other statutory instrument kept up to date with the definitions found elsewhere in the law. So the first “vulnerable persons list” might read
– persons in receipt of enhanced rate PIP
– persons [defined as in the enhanced criminal record certificates legislation]
– persons listed in the [relevant provisions of the] Safeguarding Vulnerable Groups Act 2006

Q3: In relation to those suggestions, what practical issues do respondents envisage applying them in the context of a self-assessed tax; and how could they be overcome?

In practical terms, there are three things government should do

1. not require self assessment from a vulnerable person but from their trustees
2. not require self assessment from the trustees of a vulnerable person except at (say) five yearly intervals or when there is a material change in circumstances, and
3. set up and resource fully an assistance unit within HMRC devoted to providing vulnerable persons and their trustees with direct assistance in self assessment, including but not limited to a dedicated mailing address and the provision of the telephone number, email address and other contact details of a named person in HMRC who will provide them with assistance

Q4: Do respondents agree that including recipients of the enhanced rate daily living component of PIP within the vulnerable person definition would achieve certainty in the same way the existing reference to DLA does?

Yes, but would restrict the number of people included in the vulnerable persons group as that is one of the design objectives of moving to PIP. This should NOT be one of the design objectives of this legislation, so the definition needs to be broader, and therefore to “follow” other definitions of vulnerability.

Q6: What are respondents’ views on whether the proposal for PIP might lead to a suitable test, or part of a test, for assessing whether someone should be able to benefit from access to the tax treatment for vulnerable persons’ trusts? (Responses should have regard to the characteristics that distinguish a vulnerable person.)

PIP is intended to apply to fewer people than the current benefits regime and therefore the definition of a vulnerable person would be unreasonably restricted if this were the ONLY qualification for treatment as a vulnerable person. See response to 2, above – in my view the definition should follow any other definition in current legislation, so that a person defined as “vulnerable” for ANY government purpose should also be defined as vulnerable for tax purposes.

Q7: Is the existing ‘mental incapacity’ test suitably targeted? If not, why not?

No opinion, but didn’t you consult on this very recently, in the consultation on removing the offensive language (“lunatic”) from the Taxes Acts? Is it necessary to revisit at this point, and if so I strongly suggest you re-examine the responses to the previous consultation.

Q8: What alternative approach would respondents propose and why? (Responses need not be limited to suggestions that make use of MCA05.)

See above. Follow the definitions in other legislation so that there is no separate “hurdle” for tax.

Q10: Do respondents see any reason why the ‘application of capital’ conditions should not require the vulnerable beneficiary to benefit from every application of the capital during the lifetime (or other relevant period) of the vulnerable beneficiary (with consequent changes to the provisions disregarding trustees’ general statutory powers of advancement)?

As a lay person, I’m surprised this question needs to be asked. But, for the avoidance of doubt, no!

Q11: Do respondents see any reason why the ‘application of income’ conditions should not be harmonised so that trustees are prevented from paying income to non-vulnerable beneficiaries during the lifetime (or relevant period) of the vulnerable beneficiary?

As for Q10!

Further comments

I am surprised that the consultation has reached this stage – where you are publishing draft legislation – without the equality impact assessment being at a more developed stage. The statutory requirement is for departments to give “due regard” to equality while making changes and the phrasing of the EQIA suggests work to examine the potential equality impacts has not yet been conducted. Presumably this is merely unfortunate phrasing of the consultation and you have already given regard to equality in putting forward these proposals for consultation? In particular I am aware from the press that there is considerable controversy over the changes to benefits which have led to these proposals – surely in order to give due regard to equality YOU would need to consider the equality impact of THESE changes and not merely rely on the EQIA published by DWP and referenced at 8.8?

Tax Impact Assessment. Again, the equality impact assessment seems nugatory, no consideration is given to any HMRC changes (such as the possibility of providing more or better assistance to affected persons and trusts in dealing with self assessment) and the consideration for monitoring and evaluation does not seem to allow for the possibility of effective *review* of any changes to see whether they are effective.

Regards

Posted in Consultation, Equality, HMRC | Tagged , | Leave a Comment »

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Spam, spam spam spam, luverly spam, wonderful spam!

November 7, 2012

(And hands up if you were singing along)

No, just amused to notice that, even when I’m not posting because of PhD pressures, I’m still getting about the same number of readers, and the same number of spam comments.  That warm glow that you get from someone posting a comment about how helpful they found your information… till you see it’s attached to a link for counterfeit handbags.  And then there was the comment saying some of my posts were so well-written they sounded like poetry, which would have been a lovely thought if it hadn’t been attached to an ad for viagra.  Most persistent spammer, however, is something called lista de emails, which sends me two or three messages a day with randomised sentences that almost, but don’t quite, make sense; plus of course a lists of links.  Give it up, people!  I’m never going to hit any of the links.  And I’m never going to allow the comments to be posted on my blog where someone else might be fooled into clicking on the links.  Although I do kind of appreciate the randomness.  Sometimes it’s almost like haiku poetry.

And then I press “delete all” and we’re back to work.

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Twins

October 22, 2012

Twin proposals today, sharing one consultation document, the attribution of gains to members of closely controlled non-resident companies.  Apparently the EU has, in its wisdom, decided that some of our anti-avoidance legislation is a bit TOO effective, so we have to level the playing field.  It’s an overworked metaphor, I know, but personally I always like to think of that playing field being levelled UP… if you level it down you’re going to get bogged down.  I don’t insist on the metaphor but you know what I mean – let’s not (and oh goodness it’s so hard to find a way of saying this that isn’t a cliche!) race to the bottom!

Anyway.

The thing about this one is that it seems to involve two different teams (as two different lead contacts are named) and it looks as if they have come to slightly different conclusions.  Now both may well be valid conclusions, and I don’t know enough about the intricacies of the particular bits of anti avoidance legislation to know whether there were any other sensible alternatives, but essentially it looks as if the first provision includes a motive test where there wasn’t one before, and the second provision introduces an objective test where there was only previously a motive test – in other words each provision started with either a belt OR some braces, but finished up with both!  (I really MUST stop mangling my metaphors)

So here’s what I sent the team.  In my haste to hit the consultation deadline I made a mistake in the first paragraph and misread the consultation as if it said that they were removing the motive test in the case of transfers of assets abroad where in fact of course the proposal is to back it up with an alternative, more objective test – but that doesn’t quite undermine my point about whether this is a simplifying or a complexifying measure!

You are consulting on two different anti-avoidance provisions and, as there are two lead officials named in the consultation, I deduce there are two different teams working on them. The thing that jumps out at me about your consultation document, then, is that you appear to be reforming gains attributed to members of non-resident closely controlled companies by introducing a new motive test… and to be reforming transfer of assets abroad by, er, removing the motive test. While I’m sure each of you has thought through his or her own proposals, is there the possibility that these changes will cumulatively make the tax code more, rather than less, complex?

In particular, both changes seem to use similar concepts of “genuine establishment” which read, from the consultation document, as though they are capable of objective verification. It is only in the context of non-resident closely controlled companies that you are introducing a “motive test”. You say this is “designed to give an immediate and convenient exclusion for any taxpayer who can show there is no tax avoidance motive at all…” Forgive me, but aren’t you suggesting your “convenient” way for a taxpayer to exclude themselves from this legislation is to prove a negative? I’d strongly suggest dropping this suggestion and using the same “genuine establishment” test for each provision.

I also see that your consultation does not seem to set out any alternatives to the proposals you have put forward in the draft legislation: have you considered and tested what alternatives there are? Your tax impact assessment does not “anticipate” any equality impacts and I would be interested to know on what evidence you have reached this conclusion. You also consider that the changes will make “operations slightly easier for a small number of businesses”. However the government has committed itself not to introduce any new regulation on small businesses in the life of this parliament – will there be any small businesses in the small number of businesses caught by these changes and, if so, will the slight ease you anticipate be greater than the deadweight cost of researching and understanding the changes you propose?

Until you can answer these questions I would suggest that the case for change is not made.

I also notice that the nice straightforward explanation of the impacts in the form of answers to seven questions that we saw earlier this month hasn’t carried through to this consultation document – and nor has the commitment to post-implementation review!

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Starbux redux

October 19, 2012

So the original Reuters investigation into Starbucks’ tax position reported that

There is no suggestion Starbucks has broken any laws. Indeed, the group’s overall tax rate – including deferred taxes which may or may not be paid in the future – was 31 percent last year, much higher than the 18.5 percent average rate that campaign group Citizens for Tax Justice says large U.S. corporations paid in recent years.

But on overseas income, Starbucks paid an average tax rate of 13 percent, one of the lowest in the consumer goods sector.

After the press furore earlier in the week there was also, as you would expect these days, a bit of a twitter flurry about the circumstances around the whole position.  The point I hadn’t picked up on earlier was that the 31% tax figure in the US consolidated accounts may not represent tax actually paid.  It might simply be a provision for the tax that they would have to pay if they eventually distributed the profits back to the US.

Which is the same as paying it, right?  Just paying it next year rather than this?

Well no, actually, or at least not necessarily.

In 2004 there was a weaselly-named piece of US legislation called the the American Jobs Creation Act of 2004.  The premise was that, if US-based multinationals repatriated the profits they were keeping offshore they would use the money to create jobs, no, honest, guv.  So wouldn’t it be a good idea to offer them a tax break to do so?  Instead of charging them, say, 35% tax, just charge them 5 and a quarter per cent.  Because, you know, half a loaf is better than none, so 5.25% of a squillion is a lot better than 35% of nothing, and look at the jobs that would follow!

Yes, look.  Apparently – and I’m shocked, shocked! to read it – the companies took the money AND cut jobs at the same time.  Stellar!  As the Congressional Research Service politely puts it,

While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment.

I don’t know much about US politics except what I see on the news or read online, but I gather that there is lobbying afoot to introduce a similar tax break again…

But I stress, this isn’t about Starbucks or any other multinational.  It’s about regulatory capture of nation states by multinationals, so that tax arbitrage – finding the jurisdiction with the lowest effective tax rate and putting your profitable operations there – becomes a legitimate way of structuring your business.  And for governments it becomes routine to be offering a ludicrously low tax rate in the hope that multinationals who relocate will at least let you have crumbs from their table in sales taxes (VAT)  and the personal taxes you can levy on their employees (PAYE).

But as Richard Murphy points out, this is privileging large multinationals over indigenous small businesses.

Hmm… has anyone else noticed the disappearance of the Small Firms Impact Test from the BIS website since Michael Fallon took over from Mark Prisk?  (Was it something I said?)  I put in an FoI request a while ago to see the minutes of the cross Whitehall Better Regulation, consultation and economist networks’ meetings and am being fobbed off that they need time to think about it, because it may be exempt under the “formulation of government policy” exclusion, apparently.

What policy could they possibly be formulating?

Well, the coalition have already thrown away the rules about consultation, quietly slipping a new set of guidelines onto the Cabinet Office website.  And, if you look very, very closely at the last line (item 9) of this very boring and obscure document about Changes to Impact Assessment and Regulatory Policy Scrutiny, you’ll see that

A full update to the IA Guidance will be issued in the autumn, following the conclusions from the Better Regulation Framework Review.

Google “Better Regulation Framework Review” and you’ll find one hit, the link above (actually you may now get two, one being this blog)   But my point is you won’t find a public announcement of any such review.  Who’s conducting it?  What external input are they having into it?  And who will lay me a tenner on the Small Firms Impact Test making it into the next version?  Interesting times!

Posted in Bit of politics, Consultation, Regulation, SFIT | Leave a Comment »

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Cable cars. Seriously.

October 17, 2012

There’s a consultation closing today on whether it’s a good idea to apply a reduced rate of VAT to cable cars.  This is because, under the arcane VAT rules (and why do we never talk about setting up a European Tax Simplification Office to simplify THOSE, eh??) cable cars might “count” as public transport – which is zero rated – but the individual cars “count” as the unit of measure and, typically, hold fewer than ten passengers, so “count” as individual vehicles rather than public transport.  And, because the EU won’t let countries introduce new zero rated categories for VAT, the best the government can offer by way of untangling this anomaly is to introduce a new 5% rate of VAT on cable car traffic.

Got that?

Well yes, it’ll go some way to ending an anomaly and will cost nothing, will do some good to Scottish ski lifts and tourists heading up the Great Orme, won’t do anyone any harm, so yes, let’s get on with it, right?

Hmmm.

Well first of all, the government’s ambition is to simplify tax, not make it more complicated, right?  And adding another exception rate band category to VAT will complicate, rather than simplify, the system as a whole.

Secondly, the government is committed (well, at least it was the last time I looked) to using better regulation tools in order to achieve better tax policy.  One of those tools is the tax impact assessment.

Yes.

Let’s look at that one for a bit, shall we?

Exchequer impact – negligible

Economic impact – negligible

Impact on individuals – depends whether the operators choose to pass on the VAT reduction or not.  (Are we taking bets???)

Equalities impact: “no equality groups have been identified as being impacted by this change”.  Uhuh.  Where, exactly, did we look?  I’m sorely tempted to put in a Freedom Of Information Act request for the data underlying this assertion, because I strongly suspect that there was a thought experiment that went something like:

  • “It won’t have an equality impact, will it?”
  • “Nah!”

But I may be being unnecessarily cynical – after all, how could you tell the difference between a bland statement based on real solid research and one based on airy nothing?  Let’s assume that this statement is factually based and simply flag up that maybe there’s something of a flaw in the system there, then, shall we?

Impact on businesses – Now this is the bit that interests me.

There are cable-suspended lifts within the five Scottish ski resorts, and in a further three skiing areas in England. In addition, there are cable-suspended lifts located elsewhere in England and Wales. The reduced rate will only apply to the small number of such systems where they are not subject to the exclusions mentioned in section 2, or covered by the existing zero rate.

Now I’m sorry, but wouldn’t you expect at some point there to be some mention of this?  And by “this” I mean the extraordinary Emirates Airline cable car linking Greenwich peninsula and the Royal Docks Olympics sites.

I mean, am I being just an old cynic in wondering whether this high profile high risk investment was the prime mover behind this “tweak” to the VAT rules?  I have no idea, genuinely – but then I’ve just read the consultation, and I really ought to, don’t you think?

Next there’s the impact on HMRC – negligible, right.

Finally other impacts.  Now, if you read this blog regularly you’ll know I have a bit of a Thing about small business and the government’s warm words about how they’ll “think small first” and how often that is simply ignored in practice.

Well here we say:

Small firms are likely to be affected by this change, and again, we would welcome feedback on the potential impact.

Aw, isn’t that nice?  Warm words again, welcoming our input.

Well, no it isn’t, actually!  This change was announced in the Budget, the legislation is attached to the consultation document, and it’s to become law in, presumably, next Spring.  As the condoc itself says

This consultation is being conducted in line with the Tax Consultation Framework. There are 5 stages to tax policy development:

Stage 1 Setting out objectives and identifying options.

Stage 2 Determining the best option and developing a framework for implementation including detailed policy design.

Stage 3 Drafting legislation to effect the proposed change.

Stage 4 Implementing and monitoring the change.

Stage 5 Reviewing and evaluating the change.

This consultation is taking place during stage 3 of the process.

So this isn’t an early-days “here’s a problem, let’s think how we can solve it” kind of consultation.  It’s a “this is the legislation: does it work in the way we think it does” final stage of policy development, the last stage before the thing goes live.

So at this point HMRC ought to bloody well know what the likely impact on small firms will be, and it shouldn’t have got this far without doing the work of finding out.

Similarly the impact assessment says:

Any policy change will also be tested against the list of possible impacts used in regulatory impact assessments. The full list of these “other impacts” is set out in Annex A of Overview of Tax Legislation and Rates available from http://www.hmrc.gov.uk/budget2012/ootlar.htm

The policy change “will be” tested?  When?  And what earthly use will it be when the change is a fait accompli?  Will the change encourage more people to use cable cars?  Will that encourage people to build more cable cars?  Are cable cars a sustainable form of transport?  So will changing the VAT rate that applies to them have some impact on carbon emissions?

I give up.

I do notice, however, that there’s a more than usually thorough section on evaluation and how and when the change will be evaluated.  Goodness.

I am cynical enough to think that there’s been some shift in the Whitehall Better Regulation methodology that has put a new emphasis on evaluation, at the same time as taking the foot off the pedal with respect to small firms.  I’ll be having a look at the next batch of tax impact assessments with more than usual interest to see if the evidence bears this out.

Posted in Consultation, SFIT | Tagged | 1 Comment »

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Company time

October 16, 2012

HMRC have issued a spectacularly ill-timed briefing on Taxing the profits of multinational businesses which purports to explain – to MPs and other stakeholders, in a glossy leaflet paid for our of your and my taxes – how the tax system applies to companies based in more than one country.

Like, oh, Starbucks, for example? In a fine piece of investigative reporting, Reuters reports that Starbucks reduced its UK corporation tax to nil for the past three years by, amongst other things,

  • roasting its beans in an Amsterdam subsidiary instead of in the UK
  • paying interest on loans to other group companies outside the UK
  • paying a royalty for “intellectual property” for the use of its brand name and business processes

Let’s see what guidance the HMRC leaflet gives to our MPs and other policy makers on how this might have come to be and what we can expect them to do about it, shall we?

HMRC is alive to the risk that multinationals may try to structure their affairs so that profits from economic activity carried on in the UK are not taxed here.

Oh, well that’s good, isn’t it?  HMRC is “alive to the risk”?

What are the government doing to counteract that risk, then?

Because HMRC are nice to business, honest.

HMRC seeks to develop open and co-operative relationships with multinational businesses. In the vast majority of cases, we can reach agreement about what the right amount of tax is. Where we cannot reach agreement, we take a robust approach and take large businesses to court, where necessary, to secure the right amount of tax.

Taking large businesses to court?  Well the number of prosecutions is about the number of hens’ teeth – around 50-100 a year it seems, most of which will be clear-cut small-fry tax credit fraud cases and the like – obvious cases, where the offence is easy to understand, the guilt is easy to prove, and the numbers are peanuts but useful to discourage others.  The HMRC prosecutions policy is here, but the bit to notice is that it’s NOT the policy to prosecute in most cases.  The Civil Investigation of Fraud is the more likely process if you’re a multi-national:

It is HMRC’s policy to deal with fraud by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate

Wait a minute, though!  No-one is suggesting Starbucks have done anything criminal, nor anything fraudulent-but-not-quite-criminal!  In fact from the newspaper reports Starbucks seem to have reduced their UK tax take to nil by using entirely legal means, means which are sitting right there in the face of the UK tax code.  They’re not legally or morally bound to pay anything else!  So what does the government mean when it says it will take large businesses to court where necessary?

Well, here’s HMRC’s Litigation and Settlement Strategy.  Most tax disputes are settled by the accountant and the tax inspector arguing the point across correspondence and meetings until either they reach a meeting of minds, a compromise, or, yes, have to go to actions set out in the Litigation and Settlement Strategy.  Assuming there’s some sort of appeal in place that can be litigated, the two sides go to the Courts and Tribunal Service and argue their point in front of the Tax Tribunal

HMRC obviously can’t comment on an individual business’ affairs so can’t really tell us whether they think Starbucks’ tax bill is correct or not, or whether it’s under investigation or not, or even whether there’s any litigation in prospect or not.  Does Starbucks avoid UK tax or not? Let’s give the HMRC leaflet the last word.  My emphasis, though!

Globalisation means that multinationals have the opportunity to structure their business to take advantage of beneficial tax rules in different countries. Provided that this results in profits being taxed in line with where genuine economic activity is carried on, this does not amount to tax avoidance.

Posted in Bit of politics, HMRC | Leave a Comment »

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For some values of “interesting”. Part the third.

October 9, 2012

Here’s what I actually sent in response to the Financial Policy Committe: Macro Prudential Tools consultation

1 Do you agree that the FPC should be responsible for setting the level of the CCB in the UK?
What are you asking here? Do you want to know whether we think there should be a Financial Policy Committee or a “Counter Cyclical Buffer” at all? Because if the existence of the authority and the mechanism are taken as read, then it’s obvious that the one ought to be in charge of the other. However as evidenced in the IA, you don’t seem to have considered (or at least to have shared in this document) any other option except creating the FPC or not. In short, the answer has to be “yes” because of the way you’ve framed the question, but the case for change is not made because you haven’t given any evidence of having considered any alternatives.

2 Do you have any views on the Government’s proposal to give the FPC control over the CCB buffer rate for the UK before 2016?
As for 1: it seems we’re taking part in a macro-prudential experiment whether we will or no.

3 Do you agree that sectoral capital requirements will be an effective macro-prudential tool for the FPC?
Were you a Latin scholar? I seem to remember that there is a Latin formulation for “a question expecting the answer, yes”. It sounds like a reasonable idea, but I would like to see a reasoned consideration of some alternative proposals before agreeing. It may be “effective”: will it be the most effective alternative we could reasonably adopt? I can’t tell from this.

4 Do you agree that the FPC should have the ability to apply granular requirements e.g. differentiated by LTV or LTI for residential property related assets?

As for 3. I would, however, like to point out that it appears that you are proposing a “fine tuning” mechanism which might well impose prohibitive costs or entirely prevent access to some forms of financing for particular kinds of customer with no consideration being given at the time of adjustment to any question of equality – for example it looks as if you could cut off the housing market entirely to dampen market “exuberance” without needing to consider the consequences for the people denied housing. I strongly suggest the FPC needs to be covered by the Equalities Act and to have a statutory requirement to give “due consideration” to equality issues as they might affect the end user of the banks’ or other financial institutions’ services before taking any action.

5 Do you have views on how macro-prudential sectoral capital requirements should be integrated with the existing micro-prudential framework?
None at all, sorry.

6 Do you agree that the FPC should have a direction-making power for a time-varying leverage ratio once international standards are in place?
Well again, it would be a pretty pointless institution if it didn’t, but what alternatives have you considered? Is there a need (for example) for the UK’s institutions to have a different mechanism from the EU’s or do you envisage the FPC acting as the UK arm of the ESRB? I also dislike the idea of giving the FPC carte blanche at this stage but would like to look at this again in 2018 or whenever the envisaged “international standards” are being put in place.

7 Do you believe that there is a case for the scope of the FPC’s directive tools to be applied to firms that are currently outside the purview of CRR/CRD IV?
No opinion, except again to point out the dearth of options offered.

8 Do you have any views on the best definition for exempting small investment firms from the FPC’s directive tools?
First use the SFIT definition (fewer than 20 employees) and then, because that doesn’t necessarily map to risk for a finance company, have a turnover and/or capital test. Around a million, probably.

9 Do you have any views on whether procedural requirements under FSMA 2000 should be modified or waived when the regulators implement FPC directions?
Either there’s a reason to have “procedural requirements” or there isn’t. If there’s a reason to have them, in that you’re trying to used evidence-based policy to make the best decisions, then that might be overriden in an immediate need, where someone (the FPC) has to make the decision urgently on evidence that might not necessarily be immediately available or shareable. But the procedural rules should still apply post hoc to justify the *retention* of the direction, or the direction should fall. In particular there should be no margin for equality issues to be overlooked or overruled.

10 Do you believe that liquidity requirements could be a useful tool for the FPC to have a direction power over once international standards have been developed?
As for 3

11 Do you believe that margining requirements could be a useful tool for the FPC to have a direction power over once international standards have been developed?
As for 3

12 What is your assessment of the advantages and disadvantages of granting the FPC a power to set and vary maximum LTV and/or LTI ratios?
No opinion, except to reiterate that there must be other options than do it/don’t do it. What are they?

13 Do you agree with the Government that recommendation powers will be sufficient to implement disclosure policies?
As for 3.

14 Do you have any comments regarding the Statutory Instrument?
Yes: I am surprised that you are asking for comments on the SI and not on the accompanying IA which is of poor quality (I see it has an amber rating). I have commented further on this in my blog entry.

Regards

Wendy Bradley
http://tiintax.com

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For some values of “interesting”: part the second

October 8, 2012

OK then, let’s all turn to page 48 of the Financial Policy Committe: Macro Prudential Tools consultation where the 13-page Impact Assessment for the proposal is published.

First of all, note the RPC Opinion, which is that this is an “amber” IA, on a three category “traffic light” scale of Red-Amber-Green.  Now, I don’t know about your driving skills, but I know that when I took the test, Amber meant stop, provided it’s safe to do so.  However the Regulatory Policy Committee, the panel of independent experts who assess the quality of the evidence underlying impact assessments before they’re published, obviously work to a different set of traffic lights.  Because their amber means “fit for purpose” but with issues that ought to be put right:

Under the RPC’s traffic light system, if it is ‘Fit for Purpose,’ it is classified as either ‘Amber’ or ‘Green’. ‘Amber’ is used to denote an IA with areas of concern that should be corrected but which is still ‘Fit for Purpose’. If an IA is classified ‘Red’ it is ‘Not Fit for Purpose’ – the RPC has major concerns over the quality of evidence and analysis.

So this IA has areas of concern that should be corrected.  Hmmm.

Well for me the first one is the cost of the preferred option, where the total net present value of the proposal is given as £68,600m.  No, you read it right. Sixty-eight point six billion.

Now I’m baffled by this.  I know I’m easily baffled, particularly by government gobbledegook, but what on earth is the Financial Policy Committee’s macro-prudential toolkit going to involve that will cost sixty-eight point six billion?  How much are these people going to be paid, for heaven’s sake!

I suspect the answer is that the figure doesn’t represent the cost of setting up and operating the committee, duh.  It’s suspiciously close to the figure we’ve (where “we” means “British citizens”) been compelled to “invest” in the two failed banks, RBS and Lloyds but that can’t be it, surely?  I’m hoping the Treasury analysts who put the figures up are going to be allowed to respond to this blog and I’m not going to have to put in an FoI request to explain what they’re talking about <waves to the Treasury>

Theoretically, the IA should show the cost to businesses – that’s the basic theology of IA anyway, that the government shouldn’t make regulatory decisions that are going to cost businesses money without working out the costs and benefits first.

All right, let’s just assume I’m having a Deeply Stupid moment and the reason we’re spending sixty-eight point six billion quid is transparently obvious to everyone except me and move along.

Next look at “what policy options have been considered”.

“Two policy options have been considered”.  I call bullshit.  Basically the document has been prepared on a take it or leave it basis – do this, or do nothing – when actually the whole point of using “better regulation” mechanisms like impact assessment and consultation is to generate and consider the evidence in favour of a range of options.  You could (off the top of my head)

  • set up a separate body, not part of the Bank of England at all
  • let the Treasury operate macro-prudential policy
  • make it (once more?) part of the Chancellor’s job
  • set up a kind of “Cobra” committee of MPs to do the job
  • form a citizen’s jury
  • submit ourselves to the EU or US mechanisms
  • set up another Bretton Woods type conference with a view to merging the EU and US mechanisms and forming some kind of world macro-prudential finance organisation

Hey, I didn’t say they were GOOD options, I said they were OPTIONS, and the point of the exercise is, surely, to think of all the possibilities and then decide between them.  Evidence based policy – look at the research, the evidence, that’s out there, and then form a judgement.  Not, you know, policy based evidence, where you decide what you want to do and then consult on evidence to support it!

(Part three will be the consultation response I actually sent)

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For some values of “interesting”

October 8, 2012

Ooh, this is interesting.  Well, for some values of “interesting”, obviously!

It’s not an HMRC consultation but a Treasury one, on the Financial Services Bill: the Financial Policy Committee’s macro-prudential tools.  And the good news is, it’s open till December, so you have plenty of time to read and respond…

Yes, well.

Assuming you ARE interested, it’s about the bank crisis and how the “tripartite” regulatory system didn’t actually have anyone whose responsibility was to look at the way the system itself worked – so all the bits could function reasonably well and meet all their regulatory requirements, but the whole thing fall apart.  As if we’d checked the wheels were turning and the tyres at the right pressure, the brakes fully operational and the driver sober, but no-one was in charge of spotting there was no steering wheel and isn’t that a cliff up ahead???  “Macro-prudential” seems to be a poncey way of saying “in charge of the system as a whole”, as well as signalling “don’t bother your pretty little heads about it, plebs: we only want to hear from, you know, People Like Us.”

Also, let’s be clear, there’s already a “macro-prudential” regulatory body in the US (The Financial Stability Oversight Council aka the FSOC) and the EU has set up the European Systemic Risk Board (ESRB) to identify macro-prudential risk in the EU and then to warn the individual member states who are responsible for, er, doing something about the warnings.

With me so far?  Right, then – what are we going to do over here? Well, it seems, we’re going to have a subsidiary of the Bank of England with power to look at the financial system as a whole and ensure financial stability in the light of the government’s economic objectives (at present, for “growth and employment”)

Incidentally I was a bit gobsmacked by 3.12 of the document:

3.12 In addition to the new secondary objective, the Financial Services Bill already prohibits the FPC from taking any action that it believes would be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term.

Wait just a cotton-picking minute: you can’t save the economy if it would have an adverse effect on the banks’ position in society?  Can we not envisage financial circumstances so dire that the best thing for the country – yes, the country; it’s a nation state made up of citizens, not a plc – would be for the banks to play a less prominent role.  For some of them to go to the wall and finance to be provided direct by government or by some other structure like cooperatives or credit unions or something brilliant that no-one’s invented yet.  Do we really want to hard-wire the banks into primacy?  Like I said, a bit gobsmacking!  When did that one slide on through?

My response is a bit long, and my response to the impact assessment is even longer, so I’ve split it between three posts.  Watch this space for parts two and three!  (Well, somebody must find it interesting.  Somewhere.  Anyone?  Bueller??)

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