A drop in property prices coupled with the sharp decline in house buying could cut stamp duty tax receipts by more than £6bn, according to an analysis yesterday.

A fall in stamp duty receipts would dent the government's finances and illustrated how dependent the Treasury had become on a booming property market, the Liberal Democrats claimed.

The party's Treasury spokesman, Lord Oakeshott, said most analysts expected residential property values to decline by at least 15% from their peak by the end of the year and transactions to fall by 50%. The sharp decline in prices and transactions would lead to a £5bn fall in tax receipts. A more pessimistic outlook that saw values decline by 20% and transactions by 60% would lead to a £6.3bn shortfall. ...

Guardian 21 June 2008

The Office for National Statistics (ONS) reported public sector net borrowing of £11bn last month, £2.4bn worse than in the same month last year. It was the lowest May figure since monthly records began in 1993 and was the second-worst monthly figure on record.

For the first two months of the 2008/09 financial year, the shortfall was £12.7bn, up from £8.4bn last year. The public finances have moved deeply into the red in recent years, as the government has increased spending faster than tax receipts. Many economists warn the situation is going to get a lot worse as the economy slows.

The breakdown of the data showed that tax receipts in the first two months of the fiscal year were up only 3.6% year on year, a lot worse than the 4.8% pencilled in by Alistair Darling in his March budget. Spending was up 5.4%, broadly in line with the budget forecasts.

The ONS also said that the current budget deficit, which excludes investment spending, slumped to £9.1bn last month, the worst monthly figure since April 1998, from £7.6bn in May last year. ...

Guardian 20 June 2008

Under new pension rules, which took effect in April 2006, wealthy pensioners are able to transfer their retirement pot overseas and after five years they can convert their fund into cash, often tax-free. The Isle of Man, Guernsey and Jersey appear on an approved list of destinations for UK pension transfers, alongside Switzerland, Australia and New Zealand.

Ministers, who have so far resisted calls for extra spending on state pensions, have approved hundreds of applications from financial advisers to take their client's retirement funds offshore under the Qualifying Recognised Overseas Pensions Scheme (QROPS) rules.

Pension experts said that over the next few years thousands of wealthy people would be encouraged to exploit the rules.

The revelation will prove embarrassing for a government that only last week was accused of allowing Britain's poorest pensioners to slip further into poverty after the number living below the poverty line rose by 300,000 to 2.5 million.

Ros Altmann, an independent pensions consultant, said that the pension rule change at first appeared to have limited impact on the exchequer, but it was rapidly becoming widespread and potentially costing millions of pounds in lost taxes.

She said wealthy individuals, who under UK rules benefited from tax-free pension savings, were exploiting a loophole that a llowed them to reduce the amount of tax they pay on their retirement income or not pay it altogether. Other benefits include an opt-out on buying an annuity and escaping inheritance tax. ...

Guardian 16 June 2008

The increasingly global marketplace, with many large companies extending their businesses around the world, has made the taxman's job progressively more difficult.

The government introduced laws designed to prevent businesses from avoiding tax in Britain in the 1980s. The legislation was in response to the growing numbers of people using tax havens.

The controlled foreign companies (CFC) rules have been amended throughout the years as accountants have found loopholes, but the basic tenet, that companies should not be able to take advantage of the substantially lower rates of corporation tax in different states, remains the same. ...

But the biggest reform of the rules since they were first introduced is now on the cards.

After losing a case in Europe against Cadbury Schweppes, which had set up operations in Ireland, where corporation tax is just 12.5% - compared with 28% in Britain - the Treasury issued proposals in June last year to overhaul the rules to make the tax regime more certain.

The headline was that money repatriated to Britain would be exempt from UK tax, and initially the proposals were welcomed by business. But at the same time the government said it intended to tighten the rules on tax avoidance to ensure that the apparently more generous laws were not abused. ...

The result has been an almighty row between big business and the government. Two companies, Shire Pharmaceuticals and United Business Media, have already moved to Ireland, while others, including the advertising group WPP and drug giant GlaxoSmithKline, have threatened to do the same.

The Treasury, which claims that the overhaul is not a tax grab, but an attempt to simplify the system, appears to be buckling and has formed a committee of business leaders to examine the rule changes.

Guardian 31 May 2008

Over the past months two stories have dominated the UK financial press – the worldwide liquidity crisis and problems with the UK’s taxation system. The shambles over the status of non-domiciled individuals in the UK, change in rates of capital gains tax, the mess arising from the abolition of the 10p tax rate and debate about UK-resident multinationals moving their tax base overseas all add up to a picture of disarray the economy can ill afford.

The credit crisis is the most imminent threat. In the long term, however, an incoherent and piecemeal approach to the taxation system is also damaging to the economy. We need an informed debate about how tax policy should operate and how changes should occur.

Having seen the taxation system from the inside (in the Inland Revenue), outside (as tax partner at PwC, the accounting and consultancy firm), and latterly as a businessman I have a growing sense of despair about any semblance of purpose in tax policy.

One of the key successes of the past years has been the transfer of control over UK interest rates, allied to target inflation ranges, to the monetary policy committee (MPC). It is generally accepted that the resulting policy has been manifestly better than if it had remained with the government. My proposed solution to the tax problems, therefore, is to create a new taxation policy committee (TPC), which would take responsibility for overseeing the framework for UK taxation.

The TPC could be staffed in a similar manner to the MPC – by independent experts in economics and taxation with the Treasury as a non-voting member.

One of the first functions of this committee would be to determine how a modern taxation system functions best and also what attributes it needs to be internationally competitive.

Crucially, the TPC would assess issues of fairness, which are obviously hard to define but should be examined by a test of reason – is the tax I am paying as an average employee or millionaire reasonable? The system should also be able to identify and deal with people who do not adhere to the rules. The TPC should draw on work on group dynamics in identifying how non-contributors to a group are spotted and then “punished” by the group.

Furthermore, the tax system has to be comprehensible. A reasonably educated individual should have some hope of being able to understand the basics of the taxation system and how it affects his income. The present system is incredibly complex and driven by an almost pathological belief by the Inland Revenue that all taxpayers are potential tax avoiders.

There should be a debate about what level of taxation is appropriate as a percentage of total gross domestic product and a discussion about the relevant levels of individual, corporate and indirect taxes. In my earlier days in the Inland Revenue the rate of tax on investment income could reach 98 per cent. All this achieved was that very wealthy taxpayers had two or three different avoidance schemes for the same piece of income.

The TPC would understand the increasing globalisation of business and its influence on tax considerations. It should also be able to avoid the law of unintended consequences from tax changes. For example, the government’s proposal that it will not tax dividends paid back to UK holding companies was counter-balanced by proposals that would allow the UK to tax corporate profits that had arisen in low-tax jurisdictions. The consequence is that a number of multinationals are considering moving their headquarters from the UK. The tax loss and movement loss of talented individuals is another illustration of a lack of coherent thinking over tax changes.

The problem of non-domiciles, capital gains tax, abolition of the 10 per cent tax rate and potential migration of UK multinationals are all issues which would have had better outcomes if there had been further research and if they had been tested against the fundamental principles of a taxation system. Another debate could be whether it is sensible to have an incredibly complicated tax credit system or to take people out of poverty by increasing tax allowances. It would also be a useful test for any opposition party to put its taxation policies before the TPC to be vetted and publicly assessed.

The key question is this. Is Gordon Brown, the prime minister, willing to make a bold and effective move on tax similar to his action on monetary policy and create an independent tax committee?

The author is a partner in a private equity partnership, West Coast Capital

FT 27 May 2008

Alistair Darling is on a full-scale charm offensive. Fresh from an appearance last night at the CBI's annual dinner, the Chancellor will today meet the board of the Association of British Insurers. His message to both audiences is that ongoing policy reviews, particularly of the charges made on the foreign profits of multinationals, are not intended to widen the tax net or to generate additional revenue for the Treasury. ...

The Treasury has spent the best part of two years working out how to bring the UK's taxation of controlled foreign companies into line with European Union law – hardly a knee-jerk response to the loss of a test case on tax in the European Court of Justice – and still has not issued final proposals. Yet some multinationals now think the Chancellor can be bounced into making a decision that favours them by threatening to move offshore.

Mr Darling must not allow himself to be blackmailed. Having set up an august committee of business bigwigs to review Britain's corporate tax system, he can justifiably argue he is listening to companies' concerns. But the Chancellor also has to be aware of the concerns of other taxpayers, who reasonably resent much higher marginal rates of income tax than hugely profitable large businesses.

In any case, there's a question mark over how concerned we should be about the loss of Shire, WPP, United Business Media et al to foreign parts. In fact, the government of Ireland, the location of choice for many of these companies, is not as cock-a-hoop as one might expect about winning their favour.

That's because, in most cases, these companies' relocation is an administrative exercise that won't result in the transfer of any significant number of jobs. And the loss of corporation tax to the UK is marginal, since most will not make substantial savings.

Free market economics makes the case for the trickle-down effect. Leaving wealth-makers unburdened by unpleasantness such as tax and regulation enables them to create more wealth for the rest of us. There's some merit to this argument, but, in applying this principle over the past 30 years, successive governments have also engendered ever greater income inequality. Living standards have risen across the board, but the gap between rich and poor has also widened. ...

... the Chancellor has another problem – the world has changed since the days in which governments could set out tax regulation and simply expect businesses to get out their cheque books. In a global economy, every country has to compete to be the home of businesses and industries that generate jobs and tax receipts. If you don't offer large corporates the sort of taxation and regulatory environments in which they feel comfortable, there's very little to stop them going to a country that does.

The best way to meet this challenge would be to make Britain's workforce indispensable to large multinationals. If larger companies felt they couldn't find the level of skills and productivity on offer from British staff anywhere else, they would feel compelled to stay in this country almost whatever it cost.

And herein lies a failure of government policy much larger than its vacillation on tax issues: more than a decade since Labour was elected on a policy of education, education, education, Britain's employers have never been more dissatisfied with the skills of school-leavers and graduates.

Independent 21 May 2008

The Government employs many thousands of people to administer and enforce the tax system, and businesses and individuals spend a great deal on avoiding and complying with the Government's demands. These costs are considerable: about two pence for every pound of tax raised. But they are negligible compared with the less familiar, deadweight costs of taxation ...

The Times 21 May 2008

People may have to pay into a compulsory social insurance scheme to contribute towards the costs of care in old age under proposals floated by the government yesterday.

The health secretary, Alan Johnson, said he would produce a green paper early next year on dealing with the long-term problem of providing adequate non-medical care for a growing number of vulnerable older people.

Over the next 20 years the number of people over 85 in England will double and the number over 100 will quadruple. Nearly 2 million more people will need social care support including help with dressing, washing, shopping and eating ...

Guardian 13 May 2008

Businesses and the wealthy should pay more in tax, Labour's powerful trade union donors are to tell Gordon Brown.

The GMB, which has given the party £1.4 million in the past year, wants the cap on National Insurance lifted so that higher-salaried workers pay more.

Unite, the biggest union, which donated £3.5 million last year, is demanding a review of taxes to increase the revenue from businesses.

It is also demanding less private sector involvement in public services. ...

Telegraph 10 May 2008

Sir: Your leading article "A competitive edge that Britain needs to preserve" (6 May) makes an overwhelming case for EU tax harmonisation, which I am sure was not your intention. The piece was a locus classicus of liberal economic theory: the UK should lower tax rates on business or else these itinerant gentlemen will go to a country which offers a lower rate of taxation.
The logical outcome of such a policy is a race to the bottom in terms of corporation tax, wage levels, working conditions and social services (this is generally referred to as "flexibility"). I suppose the final goal would be zero taxation and/or slavery. Maybe we should even pay multinational companies to set up in the UK.
That is always the problem with this argument. For every low-tax, low-wage regime, there is an even lower tax, lower wage regime waiting to undercut it. Tax harmonisation directives are the only solution to this problem.
It doesn't surprise me that neo-liberal economists – those high priests of monied interests – put forward such arguments; it does come as a surprise, however, that an otherwise putatively progressive publication such as The Independent gives them houseroom.

Frank Lee, Wallington Surrey

Independent 07 May 2008

It would be easy to dismiss Sir Martin Sorrell's warning as no more than a predictable piece of self-interested brinkmanship. And there may be an element of that. But his threat to move the headquarters of WPP, the world's second-largest advertising company, out of the United Kingdom for tax reasons needs to be taken seriously. For Sir Martin is not alone in talking about relocation.

In recent weeks, similar noises have been made by other major companies. And two of them – the pharmaceuticals giant Shire, and the publisher United Business Media – have already announced moves to Ireland. There they will pay a rate of 12.5 per cent, compared with 28 per cent in the UK, which is, by any standards, a substantial difference. Shire – which stands to cut its tax bill by more than half – is the first FTSE-100 company to be leaving the UK purely for tax reasons.

There is another consideration, too, which is the one that preoccupies Sir Martin. Under new rules to be introduced by the Treasury, UK-based companies will have to pay tax in the UK on dividends earned abroad. Any arrangements they might have had to minimise their tax liability in Britain by, for instance, shifting income between subsidiaries, will thus be rendered null and void – which, of course, is part of the rationale. And although ministers insist that other tax changes will offset the losses, WPP is one of many to complain that the new regime would threaten profitability.

Tax rates are not the only consideration in a company's decision about whether to stay or move. For many companies there is a certain cachet attached to being based in Britain. There is a sense of solidity here, as well as confidence that rules are respected and courts are fair. International transport links are comprehensive, communications are good and London is one of the most cosmopolitan cities in the world.

There may come a point, however, where the sums do not add up, and the trickle of companies now openly considering an alternative suggests that Britain may be losing its competitive edge. This would be a serious blow – among so many others – to the former chancellor and now Prime Minister, Gordon Brown. When the New Labour government came to power 11 years ago, Britain's reputation as a good and profitable place to do business was something it was intent on keeping. Hence the repeated pledges to keep taxes low; hence the pledges on upholding the free market; hence independence for the Bank of England.

Over the past few years, however, many high-tax countries – especially in Europe – have quietly reduced rates to make themselves competitive and slashed red tape for business. Increasingly, too, perceptions about quality of life have entered the equation. Internationally, the sense has grown that Britain is an expensive place to live and work; that its infrastructure leaves much to be desired; and that it has some catching up to do on the environment. Recent troubles at Heathrow airport have done the UK's standing no favours.

It is in response to the concerns of company chief executives that Gordon Brown has set up a tax review – a delaying tactic if ever there was one. But difficult decisions may lie ahead – at a time when the overall economic climate makes it particularly difficult to make them. Britain's international competitiveness has been the reason why, the Government insists, we have nothing to fear from globalisation. If, however, it turns out that big corporations are not crying wolf and Britain really is lagging behind, then our corporate tax regime may need another look. That would be far preferable to a retreat into protectionism. Then indeed that trickle of threatened departures could become a flood.

Independent 06 May 2008

The decision to abolish the lowest income tax band penalises childless low-paid people, MPs have said. ...

In its report on the Budget, the treasury select committee concluded: "The group of main losers from the abolition of the 10p rate of income tax - those below the age of 65 with an income under £18,500 who are in childless households - seem an unreasonable target for raising additional tax revenues to fund the benefits of tax simplification and meeting the needs of children in poverty."

It said those not entitled to tax credits or those who failed to claim them could lose up to £232 a year.

Labour MP Mr McFall added: "While tax simplification is a laudable aim, it seems strange that the abolition of the 10p starting rate of income tax disadvantages mainly low-income households."

He said "appropriate help" must be given to ensure they get the right benefits.

... Business Secretary John Hutton told the BBC he did not think it possible to go back on the decision, which he said had to be

He said the package had cut the main rate of income tax and which left families with children "significantly better off" while those who were left worse off would lose only "about 0.5% of net income" ...

BBC NEWS 07 April 2008

Lord Sainsbury, the former minister and Labour's biggest financial backer, transferred £340 million worth of shares last night in a move that experts claim will save him more than £27 million in tax.

The supermarket heir moved his shares in the company on the eve of the Government's controversial changes to the capital gains tax (CGT) regime.

The shares were transferred to a firm he controls, which will allow him to pay CGT at the lower rate of 10 per cent before it rises to 18 per cent this week, tax advisers believe.

They said Lord Sainsbury may pay only £34 million in tax on his profit - rather than £61.2 million if he sold next week.

The Labour peer is the most high-profile person to take action to avoid the impact of Gordon Brown's CGT changes. They will land business owners with an 80 per cent tax rise and have met with unprecedented fury ...

The Telegraph has established that yesterday Lord Sainsbury transferred 92 million shares he owned personally to Innotech Advisers - a company he controls which has traditionally donated its profits to good causes.

Tax advisers say the transfer means he avoids paying tax at the new rate on the profit from his stake in the retailer, which he inherited following the death of his father. A spokesman for the peer said: "This will maintain the status quo and allow Lord Sainsbury to continue the current pace of his grant giving to charity." ...

Telegraph.co.uk 01 April 2008