economic justice
Advertising is designed to make you miserable
I posted this video on YouTube this morning:
In case the link does not work for you, it can be found here.
The transcript is as follows:
Advertising is meant to make you unhappy. That is its single sole objective.
The whole of the advertising industry exists to make you feel inadequate. Isn't that obvious? What it's trying to tell you all the time is that whatever you have, however well off you feel, you could feel better off if only you had whatever it is they're trying to flog to you.
You need the latest iPhone.
You need to go on holiday, wherever they're saying.
You need to buy this financial product.
You will be insecure unless you buy their insurance. Whatever it might be, they are trying to make you feel as though there's a better world over there, which you didn't even know existed until they blasted it in front of your screen, onto your radio, or wherever else you might see it.
And the fact is that most of the time you don't need any of that stuff because you were already feeling okay before this happened. And they have tried to undermine your well-being by creating a sense of dissatisfaction with where you were. Now, that's really important because this process of making you feel inadequate does of course drive our material growth.
When we look at the whole of the fashion industry, it is of course effectively driven by advertising, continually presenting us with different images of how we want to look. But the consequence is we have vast quantities of clothing now being sent to landfill sites, clogging up not just this country but because we export a lot of that waste to many developing countries as well.
We have waste in the form of excess energy because we're trying to buy all these new products and throwing away perfectly workable ones.
And perhaps worst of all, we're all - well, not all of us, but a lot of us - are getting into debt to actually buy these products because there is a form of pernicious agreement between the advertisers, the producers and the finance industry that whenever you buy something, you will be offered credit to make payment for it - keeping you in debt and therefore in hock to the finance companies, the banks, and so on of this country and elsewhere.
You are therefore not only meant to be miserable because you haven't got what you want, but you're also meant to be in debt, forcing you to stay on the treadmill to buy more of the product, the service, whatever it is they're trying to sell.
Is that a wise way to run an economy? Personally, I don't think so. I believe we have to change if we're going to become sustainable. And the quickest and easiest way to achieve that goal is to say that advertising is not a universally good thing. Most of it isn't. In fact, except for the small ads in newspapers, I can't think of anything that is.
So, we should stop tax relief being provided on expenditure by large companies on advertising and we should stop them being able to reclaim VAT on the advertising costs charged to them by those who broadcast these things.
Are there consequences? Yes. It will change the way that we see and consume media. I have no doubt about that. We have to, therefore, rethink that issue.
But the world will be a better place because there'll be less waste, we'll be more sustainable, and, ultimately, we will be happier because we won't be told all the time by everything we see and hear that we are inadequate.
Pragmatic approaches to taxing income from wealth more can always raise more money than a wealth tax
I was asked to comment on Brazil’s proposal for a global 2% annual wealth tax on billionaires by a journalist, yesterday. This is what I write to them:
Everyone who has never been involved in the practicalities of collecting tax loves the idea of a wealth tax. And in principle, I agree with them. It would be great if we could tax the wealth of billionaires. The inequality between them and everyone else is economically destructive.
I, though, have been involved in the practicalities of collecting tax for decades and that is why I cannot get excited by this idea. The problems of imposing a worldwide wealth tax include:
- Finding the wealth.
- Proving that someone owns it
- Agreeing the value of that wealth: what are private companies, works of art, racehorses, esoteric properties and exceptionally rare wines, and so much more, really worth?
- Collecting the money before the billionaire has disappeared to a place that refuses to cooperate with this tax
- Repeating the process, year in and year out.
Any tax authority that tries to undertake this exercise will need access to vast numbers of valuation experts, an armoury of lawyers, and a bottomless pit of funds to take on the legal disputes with the billionaires who they’re trying to tax .
Alternatively, countries could have:
- Seriously progressive income tax rates
- Capital gains tax rates in line with income tax rates
- Progressive inheritance taxes with strictly capped reliefs for business property that only require asset valuations once in a lifetime
- Progressive corporation tax rates, particularly for private companies
- Close company and trust rules that attribute the income of private companies and trusts to beneficiaries annually so that the personal tax rates owing on these sums is not avoided by hiding them in legal entities.
My solution is not perfect. However, it has a lot more chance of success than the 2% wealth tax, and will probably raise considerably more money at a lower cost. If that is the real goal, rather than political posturing being the aim, then pragmatism is to be preferred.
I stick by that.
Which is why I wrote the Taxing Wealth Report, because that is my aim. I am not into posturing. I am into practical solutions. I have suggested what that looks like.
Labour Party? Pull the other one….
It is, of course, May Day. Or Workers Day. And so, the FT reports this morning that:
Sir Keir Starmer’s Labour party is set to unveil a weakened package of workers’ rights in the coming weeks in its latest softening of radical policies ahead of the upcoming general election, the Financial Times has learnt.
They added:
The package, first outlined in 2021, has been billed by Starmer as the biggest increase in workers’ rights for decades, with the Labour leader warning business chiefs in February it would “not please everyone in the room”.
But behind the scenes shadow ministers have been discussing how to tone down some of the pledges to ease employer misgivings as the party tries to boost its pro-business credentials.
So, there goes another one of the very few identifiably left of centre policies Labour was promoting, and all to appease the business community.
Labour Party? Pull the other one....
Real wages have fallen since 2008 in most areas of the country
The TUC has reported this morning that:
- Real wages still below 2008 level in 212 out of 340 UK local authorities
- TUC says longest pay squeeze in modern era is a “damning indictment” of the Conservatives’ economic record
- Wage performance in every corner of Britain is well below historic trends, analysis shows
- Average UK worker would be £200 a week better off if real wages had grown at pre-crisis rate
This table shows the distribution of local authority areas where real wages have not grown:
As they note, this data can be compared with that for the Organisation for Economic Cooperation and Development, covering 34 countries:
OECD data on wages is based on national accounts rather than the type of earnings survey conducted by the Office for National Statistics that is used in this analysis. It is not as accurate as the ONS survey, but it allows for comparisons between countries, as some nations do not conduct earnings surveys in the same way as the ONS. Under this approach, the UK shows a very small improvement in real wages from pre-financial crisis peak in 2007 to 2022 (the most recent year for which data for international comparisons is available). And it shows that the UK is in 27th place out of 34 OECD nations for wage growth across this period.
So, we are lagging behind in wage terms. Any growth is going to the richest and is not being shared, which is how the views are reconciled. That means that the elite are getting it all their own way. And it is very clear that it is that same elite that Labour now intends to serve.
But the TUC is not saying that. Why not, I wonder?
Tax does not pay for government spending
I posted this video on YouTube this morning.
As I wrote in the explanatory note that accompanied it, probably the biggest challenge to understanding how the economics of governments really works comes from the need to understand that governments of the sort we have in the UK are not funded by taxes. They are funded by central bank money creation. Tax exists to control inflation (and tackle inequality, market failure and other things). Until it's appreciated that spending creates taxation and not that tax funds spending, nothing else about how the government works makes sense.
The transcript is as follows:
Taxes do not pay for government spending. It is one of the hardest things that anyone has to get their head around when they really come to understand economics. that taxes really do not pay for government spending. I promise you it's true.
Every single penny that the government spends is created by the government. Let's be totally honest, you do know that. If you pick up a five-pound note, it says, ‘I promise to pay the bearer on demand the sum of five pounds’.
They haven't paid the bearer on demand five pounds. They promise to pay the bearer on demand five pounds.
Why? Because money is debt and the government has created a debt to you.
So where does tax come into all that? Tax comes into all that because when you pay your taxes, the promise the government has made that it will accept your money in payment is fulfilled. They'll take your money back. in payment of your debt.
Let me be clear what happens then in the real financial world that we actually live in. Whenever the government spends it simply extends its overdraft with the Bank of England. Day in, day out, that's what happens. And then it asks us to pay tax because if it allowed all that money to float around the economy, of course we would get inflation remarkably quickly.
So, it asks us to pay tax to cancel the impact of the new money that it has created. And that cancellation is by taxation, and it's there to control inflation.
The spend comes first. It's paid for by money created by the Bank of England.
The tax comes second. It's there to control inflation, to ensure that the value of the money that we have in circulation remains broadly steady over time. That's the goal.
But it's never the case that the tax pays for the spending. The spending has to come first, or the money doesn't exist with which the tax can be paid. It's really that straightforward.
It takes a lot of effort to reverse what you've always thought, that tax pays for spending, to realise that spending actually pays for tax.
But it is literally true that without government spending, there could be no tax paid. There could be nothing, in fact, because there'd be no money at all.
So we have to get our heads around that fact because then we truly understand how the government functions and then we can talk about what it can do with this extraordinary power it has to create money at will, whenever it wishes, if it wants to, to deliver the outcomes that we as a society want, balanced by the taxation that we pay to control the inflationary consequences of doing so.
The biggest threat to the UK’s borders comes from climate change
Rishi Sunak was interviewed by Trevor Phillips on Sky News this morning. He was petulant, pedantic, defensive of his record and simultaneously aggressive towards Phillips, whilst also being inappropriate and evasive. Apart from that, the interview went well.
I do, however, wish to ignore all those points and pick up an issue which he did not, of course highlight. Nor did Phillips.
Sunak’s claim was that we have to increase defence spending in the UK as part of our programme of defending our borders. It’s all very Trumpian.
Simultaneously, he was adamant that we have to ‘stop the boats’, and that those words should be interpreted in accordance with their plain meaning. In other words, he was saying that there should be no more of what he describes as illegal immigration, even though the vast majority of people crossing the Channel do so legally, meaning he entirely misdescribes the problem.
In all this Sunak downgrades the significance of any measures to tackle climate change. He has no interest in doing that. Trump does not believe climate change is real, so nor can Rishi. In doing so he does, however, miss the glaringly obvious point, which is that the biggest threat to our borders comes from climate change.
We face the threat of serious inundation of large parts of the country from floodwater, whilst anyone who pretends that climate change will not create refugees in record numbers is straightforwardly in denial of a glaringly obvious truth that is staring us in the face.
That is what Sunak is now doing.
Unfortunately, it seems to be what Labour is doing as well.
We have a particular problem there seem to be no grown-up thinkers in UK politics right now who can look at the underlying long-term causes of the issues that we face and base policy upon addressing those issues so that we might anticipate and even prevent problems arising. They prefer short-term posturing instead.
It would really help if we could have politicians who could think beyond their need for instant gratification right now, but Labour and the Tories (at least) do not seem capable of providing them.
Large company accounts are works of fiction
I have this morning posted this video on YouTube, addressing an issue of accounting and transparency that matters to me.
I think the format for accounting used by large companies might provide data of use to financial markets. However, the impression that these accounts give to the world is also seriously misleading, not least because they suggest that a company undertakes transactions that it has never had legal responsibility for.
Most people need different data from that which large companies provide about themselves. They need detailed information about the individual trading entities that those large companies own, wherever they might be in the world, and a great deal of that data is still too often hidden from view by the accounts that large companies present. It’s time that these largest companies were a great deal more transparent about themselves.
The transcript is here:
The accounts of large companies in the UK are complete works of fiction. Now, I don't make that claim lightly. I make it because that's, well, completely true.
If you pick up the accounts of any large company - the bank that you probably save with, or an energy company like BP or Shell, or the companies who are going to supply you with your water if you live in some parts of the country, or the energy suppliers, or a retailer - the accounts that you'll pick up are really big.
If you've got a physical copy, hundreds of pages - and they are literally a work of fiction. Why? Because those accounts are presented as if they are the financial performance of the parent company. Call it Marks and Spencer PLC, call it Tesco PLC, or Barclays PLC, whoever it might be. It literally makes no difference. Those accounts pretend that they are the trading of that particular parent company. But, every single one of those companies operates through very large numbers of subsidiary companies.
In other words, if you go into a supermarket, you don't buy from Tesco PLC. You'll buy from Tesco Stores or something like that.
If you go into a bank in the UK, you will probably not trade with the parent company but with its banking subsidiary.
If you deal with a manufacturing company, you won't deal with the parent company. You'll deal with the company that operates the particular site where you are buying from or selling to.
Now this really matters because, first of all, there is literally no company that undertakes the transactions that are reflected in those accounts, which is why I call them a work of fiction. They are simply created by adding together in a very particular way the accounts of all those subsidiary companies.
And I say in a very particular way because in accounting we call it consolidation, and that means we take out of view all the transactions between the subsidiary companies - which is where vast amounts of tax abuse takes place, by the way - and exactly how tax abuse in tax havens always occurred.
So first of all, we don't see the true picture about what's going on with regard to the true level of trading within the group and between group companies.
And secondly, if we're trading with a particular subsidiary, or if you're employed by a subsidiary, the fact that the group as a whole might claim to have great performance doesn't mean to say that the part of the group that you're interested in - who might owe you money, who might employ you, who might be polluting your environment, or whatever else it might be - you don't know how they're doing.
Nor do you know if they're paying tax.
And you also don't know if you look at the group as a whole, how much of its activity is hidden in tax havens or anywhere else. Where in the world is it operating?
Large companies might want to present this particular view to the world as if they are a single entity, which makes their shareholders very happy. But the rest of us who deal with that group need to know, who are you?
What companies do you own?
Where are you?
Where are you trading in the world?
What do you do? Because no group does just one thing.
How many people do you employ?
How much profit you make in that activity?
So, will that particular activity survive?
Do you pay your tax?
How much is invested in this? Because if that money is withdrawn from your community, it might have a real impact.
Something called country-by-country reporting, an idea that I created in 2003, and which was endorsed by OECD - the Organisation for Economic Cooperation and Development, based in Paris, in 2015 - would deliver that information for us, but as yet, it's not on public record in the UK.
We need it because we need to end the fiction that one set of accounts will tell us everything that a large company is doing and we need to find out what it is doing in every single one of its subsidiaries as well. And we can never do that at present because they aren't required to even put the full list of their company names in their accounts.
And they aren't required to put a copy of the subsidiary accounts for every company that they own on their website.
Those last two things will make a big difference. Talking about what is going on in all their subsidiaries in clear, unambiguous language to everybody they engage with is critical if they're to have the license to operate that we as a society give them. And we aren't, as yet, getting a fair bargain in that process.
Why Kemi Badenoch was wrong about the Glorious Revolution
It is a week or so ago now that Kemi Badenoch claimed that it was wrong to suggest that the wealth of the UK was founded on the basis of its slave-owning and imperial past. She did, instead, suggest that the foundations of modern British wealth could be found in the relationships embedded in the Glorious Revolution that ended the rule of the Stuarts and brought William and Mary to the throne in 1688.
In a post I published here I expressed my considerable doubt about this claim, with reasons given.
In response a commentator named Steve Cushion offered a much more detailed analysis. He has, since then, explained that this comes from academic research that he has been undertaking on behalf of Caribbean Labour Solidarity, who have published his work here.
I did, however, feel it worth promoting both that paper and his original comment as a weekend read on the blog, just to show how utterly unfounded is the claim made by people like Badenoch.
This is the comment that he posted:
A different explanation of the “Glorious Revolution”
The Royal African Company, which had a monopoly on the trafficking of enslaved Africans, acted as a means for the Stuart royal family, Charles II and James II, to finance their dictatorial rule without Parliamentary sanction, while personally enriching themselves and their associates and backers from the City of London. However, denying other City of London businessmen, as well as traders based in other cities, access to this profitable trade was one of the reasons the increasingly powerful capitalist class in England turned against Catholic King James II. It led to their support for the 1688 invasion from the Netherlands, led by Protestant William of Orange and James’s daughter Mary Stuart, resulting in the coup d’état known as the Glorious Revolution. Opposition to the monopoly of the Royal African Company also came from the owners of the slave plantations in the West Indies, whose increased wealth enabled them to buy growing influence in the British Parliament. The Royal African Company could not supply enough enslaved labourers to meet the West Indian landowners’ requirements for the growing slave-based economy. At the same time, restricting the numbers shipped by the Company enabled it to exploit its monopoly to force up the price of enslaved Africans.
Pressure from those businessmen excluded from the trade, as well as the demands of the West Indian plantation owners for ever increasing supplies of enslaved labour, forced Parliament to pass the Trade with Africa Act 1697. This opened the slave trade to all English merchants who paid a ten per cent levy to the Company.
Colonial commerce, including the business of slavery, was one of the driving forces of the capitalist economy from its earliest manifestation, encouraging the expansion of a manufacturing economy. Exports from Britain accounted for around half of all industrial production in the 18th century. Inikori tells us that, in 1770, the slave trade and the plantation economy furnished as much as fifty-five percent of gross fixed capital formation investment in Great Britain.
The increased rate of industrial growth based on exports depended on purchasing power generated by the British West Indies. Demand stemming from Africa, the Caribbean and North America based on the sugar industry was responsible for more than half of the growth of English exports in the third quarter of the eighteenth century. The business of slavery greatly contributed to increasing investment in the British Empire, particularly the construction of the infrastructure that such trade required. Additionally the re-export of sugar to the Europe brought enormous profits. Half of the non-agricultural workforce in England and Wales was employed in production for export, accounting for much of the growth in manufacturing output.
Based on: Patrick K. O’Brien and Stanley L. Engerman, “Exports and the growth of the British economy from the Glorious Revolution to the Peace of Amiens in Barbara Solow (ed.), Slavery and the Rise of the Atlantic System (Cambridge: Cambridge University Press, 1994) and Joseph E. Inikori, Africans and the Industrial Revolution in England (Cambridge: Cambridge University Press, 2002)
Penalties on carers make clear that we are being governed by people who do not care
As the Guardian has noted:
New figures show more than 150,000 unpaid carers are now facing huge fines for minor rule breaches, as MPs, charities and campaigners demanded an immediate amnesty.
They added:
The Guardian can reveal 156,000 unpaid carers are repaying severe penalties – in some cases tens of thousands of pounds – for often unwittingly overstepping the £151-a-week earnings limit while caring for a loved one.
11,600 carers hit by the penalties are paying back sums of more than £5,000. About one in five unpaid carers in work breached the strict weekly earnings limit last year, an illustration, campaigners say, of a broken system.
The last point is the key one. Of course, benefits have to be limited as to who can claim them. But benefits also have to recognise the realities of life - where rigid control of everything that happens within chaotic real-world situations - as the lives of carers usually are - cannot be controlled. That is most especially true when care-giving is the absolute and necessary priority of those providing it.
A system that does not provide for that is callous.
A penalty system that imposes costs way in excess of the loss suffered by the government, as this one does, is beyond callous.
Creating the capacity to pursue claims that impose poverty when the object of this benefit was to relieve it is indicative of a mindset that has lost touch with reality.
Of course, if there is fraud, chase it, but I very much doubt that many of these claims involve fraud. They refer to simple human error. In that case, there should be forgiveness in most cases, coupled (perhaps) with repayment, at most, of a part of the sum overpaid, representing a fair tax rate (ten per cent?) on the excess earnings not declared.
But so long as this persecution continues, we are living in a country governed by a political party that shows it just does not care.
Scotland’s political problem
The SNP government in Scotland is in trouble. The coalition agreement with the Greens in Scotland (who are a different party to the Greens in England and Wales) has collapsed over the admission that the Scottish government cannot meet its 2030 climate targets.
The SNP is a minority government now.
Former SNP MSP, Ash Regan, now with Alba, is setting out her terms for supporting the SNP.
And there is a real risk that Humza Yasouf might lose a confidence motion shortly before a general election, which can hardly help the SNP’s electoral prospects in Westminster polling. None of this is good news for the independence movement.
I am not in the business of defending the SNP. I do not do party politics. Nor am I supporting any other pro-independence group, even if my overall bias in favour of the cause they promote is clear. What I am in the business of is spotting political problems, and Scotland has a massive one right now.
Leave aside the fact that it suffers the general problem of attracting seriously competent people into the political arena. Instead note that in Scotland this problem is exacerbated by the fact that the Holyrood parliament might grant titles like first minister, and allow parties to form cabinets, and posture as if they really are governing the country, but they are not.
This is not to say that the Scottish parliament is without powers. It clearly has some. In general, it has used them to Scotland’s advantage. Even in areas like education, where both Scotland and Wales have been criticised for allegedly poor performance it can be argued that is because neither country prioritises the meaningless rote learning that Tories - and Michael Gove in particular - have long been obsessed with. In other words, they have exercised their right to choose.
But - and that is a massive but - that right to choose is quite extraordinarily constrained. Some issues are not devolved to Scotland to decide upon. Others that are cannot be delivered upon because the devolution of financial powers to Scotland is far too limited.
Most taxes in Scotland are subject to decision making by Westminster alone. Corporation tax, VAT, national insurance, capital gains tax, inheritance tax and income tax on anything but work, plus most income tax allowances, are all subject to Westminster control. Almost the only tax levers Holyrood has are over income tax rates, local taxes and some specific charges that raise little.
Since, as I gave long argued, tax is not primarily about revenue raising but is instead a tool for controlling inflation, with massive opportunities for influencing the delivery of all other policy built in, then what is clear is that in the situation in which Holyrood finds itself, there is only a limited chance of ever effecting significant change. That is because the most fundamental range of tools for doing so - called taxes - are beyond Holyrood’s control.
This is why the green agenda of the Scottish government failed, above all else.
And that is why the Bute House agreement between the Greens and SNP has failed.
And this is why any government in Holyrood is destined not to deliver. It can’t, because London created a system that was bound to fail as a way of securing continuous control whilst ensuring that blame would be directed inward in Scotland itself, as might well happen now.
How does the SNP address that? The answer is straightforward. After many years in supposed power the SNP has to say that is not the case. It has to drop its own pretence that it is in charge, when it isn’t. It has to say that there is nothing that can be done about some problems in Scotland because Westminster will not let it act on them. It has to call the Unionist’s bluff, because there is nothing they could do to make things better in the system that they created. And they have to say time and again that if Scotland wants to be different it has to totally reject the failed Westminster agenda.
Bizarrely, Wales’ Labour government will have to do the same thing, even if Labour is in office in London.
The pretence of devolution has to end. It’s time for power to leave London. Unless it does the gross injustice of institutionalised regional inequality in the UK is bound to continue. And to prevent devolved governments taking the blame for that they have to make clear none of that failure is their fault. Only then can things change.