Monday, June 10, 2013

More “Austerity” please, nobody is paying tax

Thames Water Avoids Paying Corporation Tax

"The UK's biggest water company paid no Corporation Tax and received £5m credit from the Treasury - during a year in which revenues rose to £1.8bn". They follow Vodaphone who haven'y paid a bean for 2 years. They join a raft of others who have turned tax dodging into an art form.... The Coalition are now considering how to cut pensions (House Price supports are safe for now). Changes to disability benefit will "encourage" the disabled back to work, says Cameron as the middle classes are squeezed dry to make up losses on Corporation Taxes (Land Tax can't be worse than this, can it?).

Posted by alan @ 06:18 PM (2264 views)
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16 thoughts on “More “Austerity” please, nobody is paying tax

  • The head of HMRC will no doubt walk into a well paid ‘consultancy’ post with the accountants of these tax dodgers when he leaves the civil service.

    Never mind – Philip had a comfortable 92nd birthday.

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  • mark wadsworth says:

    Alan, what Thames Water owns/controls is primarily land or a monopoly over land usage (the reservoirs and pipes etc) and a completely captive customer base.

    Trying to collect corporation tax from these people is like trying to catch the sunshine in your hands.

    We can collect and redistribute some of their (potential) monopoly profits by simply capping water charges (something that works quite well)

    We can also collect their residual monopoly profits by charging them a fee for their monopoly position – they can’t evade or avoid that, they can’t take their pipes and sewers abroad, they can’t take all their “customers” abroad, they just have to pay it.

    Having done that, we can just forget about corporation tax entirely and completely exempt them from it.

    Remember – when foreigners “own” your utilities, they don’t have you over a barrel – you have them over a barrel.

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  • Alternatively, end the monopoly! The truth is, the MP’s who lobbied for privatisation then got jobs in the companies. It was a total insider scam, let tax payers fund the infrastructure and then sell it to buddies, underwriting losses by the tax payer, supporting profits with tax exemptions. Heads you loose, tails you loose. Its a rigged game guys.

    Just remember, that whenever government funds infrastructure it always screws you over, because it doesn’t work for you.

    The best solution is to scrap all corporation taxes, all sales taxes, etc. for everybody, and then the man on the street can afford to fund infrastructure through private companies as he did during the late Victorian era when private corporations paid little to no tax, funded by consumers who paid little to no tax, building the majority of the rail, water systems, lighting, public transport, etc. we see today.

    In Victorian times government was about 10% of the economy, with government funded primarily via excise taxes, and our industries dominated the global economy. We had no income tax, no VAT, no capital gains taxes, no social security taxes. Go figure. And yes, there was suffering, but if we’d allowed free markets to run their course we would be living like kings now with technology many times more advanced than it is today and wealth unimaginable.

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  • Who owns the £8.4bn debt that Thames Water are paying 5% interest on, so reducing their UK profits. Kemble perhaps?

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  • mark wadsworth says:

    Vin Rouge, that’s the clever bit, TW’s holding company owns the debt itself, so pays interest to itself by a circuitous route that enables it to avoid UK withholding tax.

    Piddly, and of course in those days the govt got half its revenues from land value taxes – Domestic Rates, Agricultural Rates and Business Rates, the rest of your comment is just the usual pack of lies which I can’t be bothered debunking. A monopoly is a monopoly is a monopoly whoever owns it and however it was funded.

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  • MW,
    Is there a roadmap to get to LVT? Just wondered what would happen if the EU stayed on the Corporation/Income Tax model. Benefits of all kinds would need to change, I think…

    Is there a transition method, such as dropping other taxes while introducing a Land Tax? Is there a useful website with FAQ for slow learners (like me)?

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  • A few points on this whole tax avoidance debate…
    Firstly, when MP’s were in the spotlight for dodgy expense claims, how come they felt it perfectly acceptable to say that they acted within the law so it was OK, yet when companies act within the law for their own benefit it’s morally wrong? Especially when companies are in business to make money and politicians are politicians to make the country a better place.
    Secondly, company directors are legally obliged to act in the best interests of the company, not their employees, their customers and definitely not tax payers. So if companies start paying more tax than they are legally obliged to, aren’t Finance Directors being negligent? And couldn’t we then expect a flood of litigation from shareholders trying to get Directors ousted for not doing their jobs properly?
    And also, as company directors are doing what they legally obliged to do by minimising their tax liability, and MP’s are saying they should pay more, aren’t MP’s asking directors to break the law? And isn’t that an offence in itself? Should we all head to Westminster and start making citizen’s arrests?

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  • mark wadsworth says:

    Alan, there is no “official” road map, there are lots of different pro-LVT groups, some more radical than others, there are realistic ones and completely hare brained ones etc.

    My own road map is here, which is a halfway house tax system, i.e. assuming constant tax revenues, about half is collected in LVT (and similar taxes) and the other half is a flat 20% income/corporation tax (no higher rate tax, NIC or VAT on top). Which is a lot more radical than the Scottish Greens, the Labour Land Campaign or Lib Dems ALTER are saying, but not as hardcore as the Land Value Taxation Campaign.

    I’ve embedded spreadsheets here so that everybody can do their own back of an envelope better off/worse off calculations. And most people will be a lot better off, of course – the bankers and landowners’ loss is everybody else’s gain.

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  • libertas – our industries dominated the global economy because of the taxes paid by the British to fund the wars of the late 17th (BoE instituted in 1694 to manage war debt) and 18th century to win for Britain the colonies of France, Spain and others and to gain a trading empire based on the profits of slavery. By the 1760s interest payments on government debt, nearly all incurred by wars against other colonial empires, accounted for 60% of the British government budget.

    MW @2. When deciding whether to invest in the UK a company will take into account the totality of caps, fees, taxes and other less tangible factors, such as which politicians and civil servants they know (hence my reference @1 to the case of Dave Hartnett) and how they are likely to apply laws (tax, labour, environmental etc.) and regulations and pave the way to a “good business environment”. E.g. the tax deduction for interest payments when the company is effectively lending to itself is limited but quite complex and open to interpretation by the likes of Hartnett.

    The politicians will tell us that footloose investment needs to be attracted to this country. In this particular case the company likes to invest in monopolies and may not have invested if caps and fees took away their monopoly rents. The question then is: do we need the likes of this company, could a public utility run the water business and capture rent for the government, or some other arrangement that prevents private capture of economic rent? The bigger question is how much power do these ‘footloose’ companies have anyway, given that
    government supplies the legal,institutional and infrastructural background as well as backstops, guarantees and cost+ government contracts, and given that most great wealth depends on factors controlled by governments such as said monopoly rents, backstops, guarantees and contracts. And to what extent do we need to ‘race to the bottom’? It’s expensive to fire anyone in Germany – does that prevent companies investing there?

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  • mark wadsworth says:

    Icarus asks “The bigger question is how much power do these ‘footloose’ companies have anyway, given that
    government supplies the legal,institutional and infrastructural background…”

    As I said above at 2: “Remember – when foreigners “own” your utilities, they don’t have you over a barrel – you have them over a barrel.”

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  • MW – I also said there’s more to it than caps and fees and I left open the question of whether such charges and limits would prevent the company from operating here in the first place and what the implications of that were. A footloose company, in theory at least, would not choose to invest in a country where it was ‘over a barrel’.

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  • mark wadsworth says:

    Icarus, but there are two levels of “investing”.

    In the real world, it means maintaining reservoirs, pipes and sewers, building new ones etc, this is all good stuff (unless you are one of these inner-London NIMBYs).

    In the bizarre parallel world of The City, it means people buying and selling monopoly rights. This is completely of no interest to anybody and of no real benefit to anybody except people in The City.

    I don’t see how LVT discourages real investment, it merely reduces the value of the monopoly rights to be traded back and forth – provided that monopoly right has some small positive value, it is still worth having. So whether the monopoly right is worth £1 billion or £1 million, somebody somewhere will want to own it, i.e. “invest” in it.

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  • MW – agreed. Your distinction parallels Michael Hudson’s distinction between real investment and ‘investment’ in assets already in place. The reduced value of monopoly rights could lead to reduced need for foreign ‘investment’ and reduced power of footloose companies to dictate the terms on which they will ‘invest’ here.

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  • mark wadsworth says:

    Icarus, ta, but being even more nuanced about this, I see no prob’s with people buying “second hand” assets. So if a business has a factory built that’s good stuff, and if somebody else buys it, that is all fair enough – if the original business were somehow prevented from ever selling the factory, then it would be discouraged from building it in the first place.

    The point is that buying monopoly rights (mainly land, but also shares, patents etc) is not investment by any stretch of the imagination.

    Actually, the whole privatisation and sell off of our utilities is quite instructive – the value is pure rent/government protected monopoly and they all seem to be owned by foreigners nowadays.

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  • MW – OK, but as you know MH’s ”investing in assets already in place” is directed at the practice of borrowing to blow asset bubbles for speculative purposes (including buying monopoly rights).

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  • @MW,

    LVT. I’ve bookmarked your sites after a quick review.

    Thank You

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