Ethics
The IMF really needs to work out in whose interests the world economy should be run
The IMF has been sending out some very confused signals from its spring meeting, being held in Brazil this week. If I have read the bulletins that I have received correctly, and appropriately interpreted them within the context of the UK, which some of them specifically address, then the messages appear to be at least fourfold.
Firstly, they are not convinced that the risk of inflation in the UK is over as yet, and so are demanding caution.
Second, they have downgraded UK growth expectations for the year to well under one percent. That appears realistic, especially if in response the their demands on inflation interest rates stay above any reasonably required level.
Third, they suggest that there is no room for tax cuts, which is a political rather than an economic choice on their part, although it is one that I would support.
Fourth, they do, instead of tax cuts, demand investment in public services.
However, and fifth, they also expect that government debt be constrained.
In principle, these various claims are reconcilable. However, they do require a very particular political economic perspective to be taken, which embraces the idea that the capacity of the state is limited, that the creation of money is exogenous to it, and that priority must always be given to private sector activity, even if the basic needs of many are not met.
It really is time that the IMF worked out what the economic priorities of the 21st-century are. In particular, they should appreciate the promoting an environment in which the interests of rent-extracting global monopolies are prioritised is never going to meet the needs of most people. When they have got over serving the interests of that lobby group, we might get more coherent policy from them.
Badenoch’s spinning a totally fabricated yarn about the origins of the UK’s wealth
Kemi Badenoch was reported by the Guardian yesterday to have said:
It worries me when I hear people talk about wealth and success in the UK as being down to colonialism or imperialism or white privilege or whatever.
They added:
Instead, she said the Glorious Revolution of 1688 – which led to the development of the UK constitution and solidified the role of parliament – should be credited for providing the kind of economic certainty that paved the way for the Industrial Revolution.
As I said in the tweet that I issued in response:
There is nonsense, bullshit, fabrication and then whatever it is that Kemi Badenoch has to say on any subject.
If I failed to hide my contempt, I do not apologise.
I almost felt like asking on Twitter “Whatever did the Glorious Revolution do for you?“ Apart from the suppression of Catholicism, the creation of the Bank of England, the institution of the national debt, the imposition of a monarch who believed in the importance of the navy, largely as a weapon for imperialist, colonialist inspired territorial expansion, and who paved the way for the subjection of Scotland to the whim of the English, what did the Glorious Revolution do for you, after all?
The one thing I think we can say with confidence is that it did not deliver the industrial revolution.
It did however fuel demand for income to fund royal fantasies and foibles that most definitely required the exploitation of colonies in the USA, the Caribbean, West Africa and elsewhere.
So is Badenoch wrong? In my opinion, she is not just wrong, but is actively misrepresenting the truth.
Why would she do that? Partly because she does, for her own reasons, wish to deny Britain’s racist past, and present, because her denial of that racism is itself racist, in my opinion.
As significantly, she also wants to deny the role of monopoly-based rentier capitalism and exploitation as the common foundations of the wealth of this country.
She is, instead, pretending that entrepreneurial activity did deliver that wealth. But that is largely untrue. For example, those canal and coal pioneers who, if anyone did, started the industrial revolution later in the 18th century were able to do so on the basis of land ownership, wealth and property, all of which was supported by extraction of profits resulting from privilege, patronage, expropriation, rents and exploitation. Some of that undoubtedly would have been derived from colonial activity.
In that case Badenoch’s commentary does not just fail; it stinks because she is denying the truth and presenting a wholly false, politically inspired narrative that is unsupportable by evidence. But when did someone like her worry about things like that?
The FT view: let those least able to pay bear the burden of tax
The FT editorial this morning says:
I agree with all that. But then the FT reveals its spots. Having implied that changes to rules on non-domiciled people and on private equity might not be justified, it says:
But politicians need to factor in the cumulative burdens of doing business in Britain, and the wider signals they are sending. Wealthy individuals are footloose, and other countries — with more generous tax offers — are ready to take them. Push too far, and the tax base will also fall.
With a nod and a wink the FT is promoting the idea that the so-called 'wealth creators' will leave if taxes are imposed on them.
Except, that is not true. They do not leave.
So what the FT is really saying is to keep the balance of taxation as it is, and not increase it on the wealthy. Let those worse off pay more, in other words. What a surprise.
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.
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 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.
Why does the average higher rate tax payer get more subsidy for their pension savings each year than anyone on Universal Credit is paid?
I published this video on TikTok this morning.
As I noted on Twitter:
Why does the average higher rate tax payer get more subsidy for their pension savings each year than anyone on Universal Credit is paid and many old age pensioners get per annum? What is the sense in that? And where is the fairness?
The transcript is as follows:
People who are wealthy in the UK get benefits of, on average, at least £8, 000 a year. Why is that? And why is that fair?
Now let's be clear what I'm talking about. The benefits that the wealthiest people in the UK get on average, and I stress that ‘on average’ point, relate to the pension contributions that they make to their pension funds every year.
The total cost of the tax subsidy to those who are wealthy in terms of the pension contributions that they make amounts to at least £38 billion a year. At the time that I was doing the data and in the year that that information relates to, there were around 4. 4 million higher rate taxpayers - there are more now, but the data on tax relief costs will have gone up as well - that's an average of over £8,000 pounds a year for each and every one of them.
Now, of course, some of them don't pay anything into a pension and some of them pay a great deal more than average into a pension. But we're still in the situation that they get benefits of more than £8,000 a year each on average.
Compare that to a person who's on the old estate pension scheme. This year, they're going to get around £8,800 a year in pension.
Compare that to a person who's on the new state pension scheme, which applies to younger state pensioners. They get £11, 500 a year.
Compare it also to a person who's on Universal Credit. A single person who's on Universal Credit and is over the age of 25; they get around £4,800 a year.
So why are we giving such an enormous amount of money to the wealthy to subsidise their pensions when there are people who are living in poverty in the UK who have such small amounts to live on?
It makes literally no sense at all. So, I've made a straightforward recommendation in the Taxing Wealth Report, and that is that the tax relief on the contributions that the wealthy make to their pensions should be reduced to the basic rate of tax. At present, they get that tax relief at either the 40 percent tax rate or even the 45 percent tax rate if they are earning over £125,000 a year.
If we reduce that to the 20 percent tax rate, which the 85 plus percent people in the UK pay in terms of income tax, then we would save £12. 5 billion a year of the cost of subsidising the savings of the wealthy. And that will be enough to give every single old age pensioner in this country an extra £1,000 of income a year.
Now, which is better? That we subsidise the wealthy, or we give those who are in need a bigger pension? I think the answer is glaringly obvious. It's even obvious for the economy as a whole. Because those pensioners would spend that money and give a massive boost to the economy, literally lift growth, and deliver a better outcome for everybody in society, including the wealthy, because we'd all be better off because of their spending.
This current structure of giving subsidies, benefits if you like, to the wealthy for their pensions does not make sense. We have to create a fairer, better and more honest and accountable system where people know just how skewed our society's system of benefits is towards those with wealth. It's unfair. It has to end. And I'm suggesting to you that you should be asking your politicians about how they will deliver better outcomes for us all.
There is more on this in the Taxing Wealth Report 2024, here.
Financial education of young people is failing. The Institute of Chartered Accountants in England and Wales has the funds available to address this issue, but is refusing to do so.
As the FT reports this morning:
Last summer I asked the Institute of Chartered Accountants in England and Wales to invest in financial education for young people. The suggestion was that:
Around £100 million to be spent over ten years to provide education for young people in the financial skills that they will need when they either leave home or enter the world of work, including:
- The basics of tax and how it impacts them.
- Types of employment and self-employment
- How banking works.
- Saving, borrowing, interest rates and related issues.
- Renting and mortgages.
- How to avoid being conned and online security.
- How and when to ask for help, and who from.
Issues like budgeting would have been part of this at a more basic level because none of the rest makes sense without it.
The ICAEW said there was no demand for this; others were doing it, and they did not have the resources. All those claims were obviously wrong.
They still have £148 million of revenues from fines paid by firms that failed the public over the last decade sitting on their balance sheet, and as far as we currently know, they are all available to use for this purpose, which would advance the reputation of accounting considerably and, therefore, be within the scope of its public purpose as defined by its Royal Charter.
They did not, however, want to undertake that public role or accept that responsibility to society.
Now do you see why I wanted to quit? How can you want to be a member of an organisation whose business model is to enrich itself and its members at cost to society at large because of the failure of some of those members to undertake their work to a proper professional standard that meets public need?
The Israeli / Iranian war is between two governments undeserving of support. Unless we support a higher good, why are we intervening?
Since I have commented quite extensively on the Israeli action in Gaza I think I should do so on the Iranian / Israeli conflict.
There are a number of things to point out. The first is that theocracy is not a sound basis for government anywhere. Nor does it produce stability.
I do, of course, have major concerns about the direction of politics in Iran. As it moves increasingly to the right the risk of conflict is growing.
The same is true, though, in Israel where increasingly powerful right-wing theocratic groups have also helped destabilise the country and good government, resulting in the current regime that is as worrying as that in Tehran.
I make the point for the obvious reason that there are no governments worthy of support in this conflict.
Intervention has then to be to preserve a greater good, which is the existential right of states to be. I presume that this is the justification for UK and US intervention on behalf of Israel, although I do not hear that being said. If it is, there is a logic to it. Israel has a right to be.
However, the right to preserve this greater good is not restricted to Israel. Palestine also has a right to be. Israel appears to be denying that by its actions in both Gaza and the West Bank.
In that case I think support for Israel has to be conditional to match the condemnation of the actions of Iran. If it is to be supported Israel’s government must respect boundaries determined in law and international agreements. The US and UK have the necessary obligation to make that clear.
This conflict has been created by the actions of two governments that have few redeeming characteristics. I support neither, but respect the rights of the nations and peoples they represent. The role of the international community is to find a higher good. David Cameron ‘s ‘Top gun’ language this morning does not suggest we are in anything like that position as yet. That’s as depressing as is the persistence of these theocratic governments that are promoting fear and terror.
Just wait: politicians will be shaking the magic money tree very soon
The situation in the Middle East looks to be very volatile. Israel’s attack on an Iranian embassy has given rise to an almost inevitable counter attack. No one’s actions are justified, let alone proportionate. I condemn the aggression on all sides: there are always better ways to solve disputes. No one knows what will happen next, barring one thing that is.
What I can guarantee is that whatever the cost of military action might be, the money to pay for it will be found.
The magic money tree at the Bank of England will be shaken in the short term, as it can always be.
In the longer term, more bonds will be issued.
So-called government debt will increase.
And all because payment will have been made for military action undertaken at ministerial behest for which Parliament will never be asked to give sanction.
In the short term, no taxes will rise and no other spending commitments will change.
Later, that might alter because the increased debt will be used as yet another excuse to impose austerity by those always looking to find one, even though the cost will already have been paid for and the debt need never be repaid.
So why note all this? Simply because what it proves are three things.
First, spending not only can, but always does precede taxation.
Second, spending capacity can always be found whenever it suits a politician to find it.
Third, there is no reason why such costs need suppress other spending. They are exceptional, but also affordable: if there were not the capacity to actually undertake the military activity then the cost could not have been incurred.
So what’s the point of saying all this? It is simply to point out that the scale of government spending, and what it is spent on, is always a matter of political choice, but that the capacity to fund the choices made can always be created if the ability to undertake the chosen activity it is to be spent on actually exists.