economic justice
Welfare for the wealthy
I posted this video on YouTube this morning:
The transcript is:
I am deeply offended by welfare for wealthy people.
Now I don't particularly like the term welfare because I think that ‘social security’ or ‘benefits’ are much better terms than welfare, but it happens to work quite nicely in the context of making payments to the wealthy that they don't deserve.
What payments am I talking about? Well, since 2021, the Bank of England has increased its base rate of interest from 0.1 per cent to 5.25 per cent. And as a consequence, as we all know, vast amounts of extra interest has been charged in the UK on those who have had to borrow.
Mortgage holders are paying more.
People who pay rent pay more because their landlords, by and large, have mortgages.
And we're also paying more for many products that have interest implicit within them. Car loans, for example.
On the other side of the equation - and there is always another side of the equation in economics - somebody is benefiting hands down. Who's benefiting? Well, the owners of the wealth on which interest is paid are benefiting.
The interest rate went up from 0.1 per cent to 5. 25 per cent. It's unusual for anybody to have earned 5.25 per cent on their deposits, of course, over that period. But real interest rates have risen from well under 1 percent in 2021 to over 4 percent still if you search around. In other words, the wealthy have benefited enormously from the welfare that has been provided to them by the Bank of England's benevolence, which is biased in their favour.
That means they have vastly more income available to them at present, whilst those who have had to borrow to live and those on lower income - those who are younger by and large - have had much less. This has had a serious economic impact. The wealthy are, in effect, of course, able to spend more right now and have still been fueling inflation, despite the Bank of England's efforts to increase interest rates to suppress inflation.
Counterintuitively, they have, in fact, even more cash to spend and, therefore, have the most impact upon inflation - the consequence being that inflation has not gone away as fast as was anticipated.
It's bizarre. We have literally created a system where inflation control doesn't work, interest rates don't achieve the desired outcome, but the rich get richer.
What a great surprise. And what a news story that is. A news story that's not being said on any of the mass media, which is why I thought I'd mention it here.
The Bank of England does not care
This tweet was published by the Equality Trust (whose work I recommend) yesterday:
The overwhelmingly clear message is that the rate of inflation for those on lower incomes - many of whom will be private renters - is much higher than the reported rate of inflation for the UK as a whole.
The reasons are clear. First of all, the rate of inflation on essential items like food remains above CPI as a whole, as Office for National Statistics data makes clear.
Second, and as I noted here this week, rents are currently rising at a rate equivalent to the overall rate of inflation suffered by those living in private accommodation i.e. by in excess of 9 per cent at present.
There is one organisation to blame for this horrid and unjustified as well as unjustifiable resulting increase in inequality in the UK, and that is the Bank of England, whose interest rate policies directly impact rental housing costs and so the increasing poverty of those who live in it.
I am unapologetic for being angry about this. The policymakers of the Bank of England live in considerable comfort and security. Their salaries guarantee that. So does the extraordinarily generous Bank pension scheme. Apparently, they cannot see beyond that enclave of privilege in which they live, let alone care about the impact of what their policy has on those least able to cope. Nothing excuses that.
Tallking to AccountingWEB
AccountingWEB published this podcast interview with me yesterday.
We talk about the Taxing Wealth Report 2024 in the main, but also about my concerns about the failings of the Institute of Chartered Accountants in England and Wales.
It was a lively interview, with quite a lot of animated comment by me, if I am honest.
I have an affection for AccountingWEB. I was a contributing editor for about a decade.
A 10% student tax is unfair
I have just posted this video on YouTube.
Why are we imposing tax rates only designed for those with much higher incomes onto students earning little more than the minimum wage? It makes no sense, at all.
The transcript is:
Why are so many people paying up to 38 per cent tax on quite, well, average levels of earnings in the UK?
As we know, the basic rate of income tax on earnings up to £50,270 a year in the UK in 2024 is supposedly 20%. Supposedly, but not actually, of course.
If you earn your income from work, you also pay National Insurance. And that adds 8 per cent to the bill.
And then if you're a younger person who's been to university, and approximately half of younger people now have, then you'll also be repaying your student loan. If you're earning much over £25, 000, that means that your combined tax rate will now be 38%.
Now, people say, but that's a student loan repayment, that's not a tax.
Of course, it's a tax. It's charged on your income at a fixed rate depending on how much you make. So, it's a tax in anything but name.
And the reality is, that means that a person who is on little more than minimum wage now could be paying 38 per cent marginal tax rates. When somebody earning double that sum - on £60,000 a year, but who did not go to university - might only be paying 42%, and the
There is no sense to this. In fact, the only sense within it is that it is extremely unfair and it must be designed to be so. Why else would we end up with such a bizarre situation? Somebody, I presume, wanted it to happen.
Well, I don't. And I don't think anyone with any sense should. Because this unfairness, first of all between the young, and secondly between those on lower incomes and those who are on higher incomes who had the benefit of going to university free of charge in a great many cases, should not exist inside our tax system.
It's a disincentive to the young, it prevents them saving, it prevents them buying their own homes, it prevents them putting money aside for a pension and it leaves them worse off than those on a much higher level of income with regard to their tax rate.
This should stop. The student loan repayment system does not cover even a tiny proportion of the cost of sending students to university. Let's stop pretending it does. Let's stop charging unfair tax as a result. And let's come up with a better way of funding universal education for everyone, which our society needs.
Jeremy Hunt is a terribly confused man
Jeremy Hunt is a terribly confused man. The FT has a report on comments he has made on Thames Water this morning. At the heart of this is a suggestion that:
The company needed “to sort out their own issues.”
They noted that he added:
“What we’re never going to do for people who invest in the UK is say that the state is going to insure you against bad decisions made by management or shareholders. That’s what markets are about.”
They also report him saying:
It would be “completely wrong” if customers at Britain’s biggest water group had to pick up the tab for bad decisions made by its managers or owners.
Poor old Jeremy. He thinks he knows how all this works, and he either clearly does not, or is in denial of doing so.
First of all, there is no market for water. The consumer has no choice. The price the supplier might charge is set by a regulator. And that same regulator has a great deal to say about how the company might operate and what is required of it. If he thinks this is how markets work, he is seriously deluded.
That said, reading between the lines, what he is saying is that there will be no bailout for Thames Water and no extra charges on consumers to keep it afloat.
That, I stress, is a perfectly acceptable position to take. But it leaves one problem, which is that, however it is looked at, the supply of water within the Thames Water region is not operationally possible with acceptable levels of pollution within the framework that regulators permit, politicians will accept, and private capital will finance right now. That circle cannot be squared. There is literally no solution that reconciles those positions bar one, and that is a state subsidy for the massive investment required, with state ownership being necessary as a result.
Is that where Hunt stands? He does not say. As a result, he comes over as a rather confused, figuratively little man, standing on the sidelines of an issue where he holds all the trump cards and the ultimate decision-making power whilst refusing to do anything.
He looks like a Tory minister in that case.
Or, perhaps more accurately these days, a politician from one of the UK's leading parties.
Decisions are required here. Hunt is pretending that they should be made by anyone but him. Why did he ever seek high office?
The young, the poorest and the most financially vulnerable are bearing the burden of the Bank of England’s folly
Inflation might be lower. But some things are still shooting upward in price, entirely as a result of the reckless interest rate increases that were wholly unnecessary put in place by the Bank of England.
As the FT reports this morning:
The FT does have the decency to apportion blame for this. It is not landlords, per se, who are exploiting their tenants (although those without gearing undoubtedly will be). Many are passing on the extra costs that they have suffered as a result of the Bank of England’s deliberate policy of penalising UK society for inflation that was not of its creation, and which interest rate raises can do nothing to eliminate.
The result is that the young, the poorest and the most financially vulnerable are bearing the burden of the Bank’s folly, that they are set to continue fur as long as possible.
I have said before, and no doubt will say it again, that economic callousness rarely comes more obviously than this. And I have to use that word. Indifference will not do. The Bank is not indifferent. It knows what it is doing, who it is doing it too and the hardship it is causing and it is planning to continue with it knowing all that because this is the outcome that they desire. And that is unforgivable.
But so too are the politicians who are letting this happen.
Scotonomics on the Taxing Wealth Report
I was on Scotonomics last night, discussing the Taxing Wealth Report, and right at the end its relevance for Scotland.
For reasons I can’t explain the YouTube link will not embed here, but you can watch the video by clicking here.
The rich won’t quit
This YouTube is a further discussion of 'Colin' and his threat to quit as a result of tax increases, already discussed in a different way, here this morning:
The transcript is:
I put out a TikTok yesterday in which I suggested that the wealthy should lose some of their pension tax relief.
On average, the wealthiest people in the UK - those who pay higher rate tax, and whether they like it or not, they are the wealthiest people in the UK because they are at least in the top 15 per cent of income earners and many of them much higher than that - those people get on average £8,000 a year or more of tax relief on the pension contributions that they make to their own savings. That figure is as big, near enough, as the state pension that most people over the age of 75 get. It's much bigger than most people on universal credit get. It is a system designed to subsidise the rich with benefits that I don't think they need.
But the reaction has been entirely predictable. Someone called Colin turned up on my blog. I am absolutely sure that's not his real name, by the way. But let's call him Colin because he wanted us to think that was his name. And he said,
“I think you need to split the difference between wealth and income. I'm a higher rate taxpayer who started with nothing and then worked up my way up the corporate ladder to a point where I'm comfortable, but not by any means wealthy.”
And then he goes on to say that if I take away this tax relief, he'll work less. It won't be worth his while to bother, and everything under the sun.
So he says I should be taxing wealth and not income.
Colin. is talking a load of nonsense. Colin is wealthy enough to decide that if his income falls, he'll let it fall even further by choice. In other words, he has all the money that he needs to literally provide for everything that he, and maybe his family, require to be able to live.
Now, if that isn't a definition of wealth, I don't know what is. Because he can actually afford to give up working.
People who are really in need, when their income falls, work harder. They get a second job. They get a third job. They do everything they can to put food on the table.
But Colin says, I'm being very unfair, so unfair he'll have to work less.
This is ridiculous.
It's just as ridiculous to claim that half of all income tax is paid by the top 5 percent of earners in the UK and therefore they'll leave. Look, who cares if they pay half of all income tax? That's because they're overpaid. Let's be blunt about it. They probably don't earn the money that they're paid. They've managed to secure it, maybe unfairly at cost to the rest of society.
We'd be better off if we had a more equal society.
But worse than that, Colin then goes on to say, “I will work much less, and if you don't like that, I'll leave the country.”
There's absolutely no evidence that people leave the country because of taxation. Their families don't want them to. Their in-laws don't want them to. Their parents don't want them to. Their children don't want them to. Their dogs don't want them to. They don't want to leave the golf club or whatever else it is that they spend their money on. They don't go. So, this claim is absolute nonsense.
All I've suggested is that Colin shouldn't get as much subsidy for his savings as he has. He'd still get, on average, more subsidy per year than the average Universal Credit claimant gets. And he thinks that's unfair.
Heaven help us when people like this are managing the companies, the organizations, and the government, even, of this country. Because that logic is so, so spitefully selfish.
Frankly, it staggers belief.
Rarely has a troll-like comment produced so much reaction from me, but that is why I share them on occasion.
The UK’s missing companies
I posted this video on YouTube and elsewhere this morning:
In case the video does not show, the link is here.
The transcript is:
We do not know what at least half the companies in the UK are doing, which is absolutely staggering when those companies may exist to undertake fraud and abuse us.
Why is this possible? Well, because it is so easy to form companies in the UK. You don't even have to physically sign a form to pay £12, get Companies House to incorporate your company, and then you have what is in effect licensed identity theft, which you can hide behind to undertake fraudulent activity, collect money, trade without ever having any intention of telling the Revenue that you are, not pay your taxes, then throw your company away at the end of a year or so, and form a new one.
How do I know this is happening? Well, because, the data from Companies House shows it. There are 5.3 million companies in the UK at the time that I'm recording this. Of those, half a million are being got rid of at the moment – meaning nearly 10 per cent of all companies in the UK are currently in the course of being dissolved - many of them by Companies House because they've lost touch with the companies in question. Many more will be because they paid £10 to say they don't trade any more, and could they please be struck off? and please don't ask any questions because that's, in effect, what happens. We are literally letting these companies trade without telling HM Revenue and Customs.
How do I know that? Well, in the last year for which we've got data, HMRC only got corporation tax returns from three million companies of whom one quarter weren't trading. So that leaves only 2. 2 million or so companies which were actually declaring that they had positive income, of which only 1.5 million said they were actually making profits. About 160,000 said they were making losses, and the rest said they were getting other income like interest, rents, or dividends, for example as companies within groups. But what we do, therefore, know is that the majority of the companies in the UK aren't actually paying any tax at all, and you have to ask why they exist.
I know the answer to some extent. I've been a director of a company that never traded because it existed to protect the name of a website. So, yes, that's possible. But those companies should be filing tax returns. They should also be filing full accounts, which I admit Companies House is now beginning to address.
But they're not getting the data to HM Revenue and Customs. There are two ways to get around this. One is to make directors of companies that don't declare their tax liabilities personally responsible for the taxes they evade. It would be simple, straightforward, and fair to do that. After all, they're the people who are cheating.
Secondly, get our banks to tell HM Revenue and Customs every year which companies in this country they supply services to, who runs them, and tell HM Revenue and Customs how much they bank for that company and what the bank balance was at the end of the year. Then we'd know which companies who are not declaring their income need to be chased and who might be liable for the money that's owed.
We could do that.
If we did, we'd have fair competition, we'd have fairer taxation, and we'd stop this criminogenic environment existing which is undermining the fair trading of honest people in the UK. And we'd have a more vibrant economy as a result.
So why aren't we doing it? I just don't know because it would pay for a better society in every way that I can imagine.
There is much more on this in the Taxing Wealth Report 2024.
The ICAEW is still not explaining what it’s going to do with more than £150 million of funds it has earned as a result of fines and related costs paid by its members
The ICAEW published its accounts for the year ended 31 December 2023, yesterday. As readers of this blog might recall, I have taken that Institute, of which I was a member until very recently, to task over its failure to spend the sum exceeding £140 million by which it has been enriched since 2015 as a result of fines paid by its members as a consequence of their failure (in the main) to undertake proper audits. I did, as a result, undertake an initial scrutiny of these accounts with particular interest.
Disappointingly, the ICAEW has still completely failed to address the issue of what it is going to do with this bizarrely sourced income from which I think it should never have benefited.
Admittedly, the net benefit from fines and other costs recovered during the year did fall significantly to only just over £1 million. However, investment income on the sums that it holds on its balance sheet as a consequence of that income having been enjoyed by it exceeded £10 million in the year. In that case, the ICAEW’s failure to spend the sums it has been enriched by in the public interest, as it is required to do by its Royal Charter, continues.
That said, and interestingly, the ICAEW no longer refers to the fact that it has a strategic reserve as a consequence of this issue. It does, however, have a strategy, which it lists under five separate headings, which are as follows:
- Strengthen trust In ICAEW Chartered Accountants and the wider profession
- Help to achieve the Sustainable Development Goals (SDGs)
- Support the transformation of trade and the economy
- Master technology and data
- Strengthen the profession by attracting talent and building diversity
Note that the above list uses their own words, not my summary of them.
To be candid, if I were an officer of the Institute, I would be profoundly embarrassed by this list. Reading the PR hype in the annual report on what they mean, and then debunking it, they can be summarised in plain English as follows, using the same order:
- We’ll try to stop our members from messing up so badly by supposedly reforming audit and corporate governance in the UK, neither of which are within the ICAEW’s remit to change.
- We’ll try to work out what accounting for climate change might mean.
- We’ll lobby for reform of the public finances, mainly by asking for tax cuts.
- We will really try to get our heads around accounting, which we’ve supposedly been looking at for well over a century, but which we now refer to as data processed by technology.
- We will try to be less of an establishment club than has been apparent to date.
The first of these is profoundly undermined by the ICAEW's own failure of corporate governance with regard to the funds it has been unjustly enriched by, about which it can apparently as yet make no decisions, even though the matter has been ongoing for nine years now.
However, of them all, the fourth is, perhaps, the most bizarre. For the ICAEW to now admit that they think the time has come for them to get their heads around the processing of data with technology is quite extraordinary. The real world has been doing this for many decades, and maybe rather longer. So where have the ICAEW been during all that time if it has only now noticed that this is an issue requiring attention?
Even more importantly, in this context, why do they think that this requires an investment of funds arising from outside the normal scope of their operations when dealing with this issue would seem to be an entirely normal matter for them to address? No clue about this is given in the financial statements.
That said, the Institute does say in those financial statements that it is reviewing its reserve policy, which is a fact hidden in some pretty small print where it is noted that:
The ICAEW Board has issued direction on the principles to be adopted and applied in respect of how ICAEW’s reserves are used in the public interest and to support the strategy. In September 2023, the Board considered a set of possible strategic level investments (including a major review to future-proof the ACA, the Centre for Public Interest Audit, the Centre for Sustainability Management, a review of the role of the profession in AI governance and a modernisation of the Royal Charter) and approved these proposals for further development and discussion at Board.
In other words, they think that they might undertake some PR to improve accountants' damaged reputations, and they will also invest some funds into a couple of minor research centres, which expenses will still be insignificant in the overall scheme of things, suggesting that this exercise is another one intended by the ICAEW to entirely miss the point.
In slightly larger print elsewhere in the accounts, they refer to their current reserve policy, which they state to be:
Set at a level sufficient to cover both short-term requirements and longer-term investment needs:
- reserves should be set at a level equivalent to at least six months of expenditure through the income statement; and
- cash and investment balances should be sufficient to cover at least six months of annual budgeted/forecast gross cash expenditure.
In a slightly embarrassed tone, they add:
Reserves are in excess of the minimum required level under the policy at the end of the year.
Try as I might, I can think of no reason why the ICAEW needs reserves to cover six months of operating costs. The sum in question would be about £60 million. Of this sum, I note that in addition to their accumulated reserves on their balance sheet of £146 million, they were also holding at 31 December 2023 almost £44 million of income received in advance, which sum is in itself almost enough to meet this reserve requirement. The need for additional funds to be retained over and above that £44 million is almost impossible to work out given the solid and entirely stable nature of the ICAEW's income stream, in contrast to the situation of leading charities where this rule of thumb is commonplace.
As a result, the ICAEW has given absolutely no indication as yet on how these funds by which they have been enriched as a consequence of the failure of their own membership to undertake the professional activities that the ICAEW licensed them to undertake to a proper professional standard might be spent for public benefit, as is required by their Royal Charter.
As readers here might recall, I suggested last year that some of this money might be spent to enhance the undergraduate accounting syllabus in UK universities. At present, this is seriously constrained by the ICAEW exam requirements, meaning that students do not enjoy the experience that they should when studying this subject. The ICAEW declined to fund this idea in any meaningful way.
They also rejected my suggestion that they might invest £100 million of these funds in a financial education programme to be run in the UK's schools, even though the need for this is overwhelming, as the FT reported only yesterday. Their claim was that this matter was already being addressed by others, which it clearly is not.
So, what are they going to do with this money so that the public might properly benefit from the fines paid by chartered accountants who failed in their duty to act in the public interest? I hear a rumour that they have appointed someone to look into this matter, who is consulting widely - although not with anyone I know, let alone me. But in the meantime, it seems likely that they are simply going to sit on this money for as long as possible, making an already rich Institute even richer.
Meanwhile, if their aim is really to 'strengthen the profession by attracting talent and building diversity', what is glaringly apparent is that their actions do not align with their words. I am not interested in what they say. I am interested in what they do. Their inaction speaks volumes about their failure to commit to good corporate governance standards, transparent accounting, the promotion of a better understanding of accounting in society and to broader inclusion.
Hypocrisy on this scale is staggering to witness and is happening right now at One Moorgate Place, the ICAEW HQ.