TaxPayers' Association of Europe - UK

Not Flash Just Gordon Unfortunately

Britain will suffer the deepest recession of all its major European partners. We are avoiding EU sanction over our debt levels solely because we did not join the Euro. However, the Government has no major plans to cut wasteful public expenditure or introduce the tax cuts needed to spur economic growth. Consequently, the European Commission estimate that Britain will not begin to recover until 2010, while our European partners will start to recover in 2009.

For many years Britain has been moving in the wrong direction. It has increased taxes, while our European partners have reduced them and the  competitiveness of Britain as a base for business investment has thus declined. Now Britain faces increasing public debt, increasing unemployment, high taxes, poor public services and low economic growth. Mr Brown's promises that he had abolished boom and bust now seem a little hollow. The question is, will Mr George Osborne actually cut taxes in Government or is he still committed to matching Labours wasteful spending plans.

No Mr Sarkozy we do not need to create a sovereign wealth fund to nationalise more firms

French President Nicholas Sarkozy believes because China, Russia and Arab States have large sovereign wealth funds European nations (or Europe herself) need to create their own fund/s. He wants Europe to buy stakes in stricken European companies. This will prevent foreign companies benefitting from the economic crisis to buy up stricken European companies on the cheap. Europe or European Governments could then sell on the assets when the market improves. This idea sounds sensible but is in fact profoundly misguided. It could prolong our economic difficulties and will be very difficult to undo.

Politicians should not own and run commercial operations. They are not skilled at it. Politician’s task is to secure election and then ensure re-election. Politicians court votes. Corporations exist to create wealth. They seek profits. The priorities are different. Consequently, politicians do not manage companies well.

Companies create wealth by reducing costs or creating new products. Reducing costs often means reducing the number of employees needed to create a product. Employees are also often voters. They do not like being made redundant. If the Government owns the company it is the Government making them redundant. People rarely vote for the boss that fired them. This creates tremendous pressure on politicians to not reduce head count.

Consequently, politicians prefer to cut back on capital expenditure or research and development. If anyone doubts this is true they have not used the British rail service in the last thirty years. The effects of these cuts in capital expenditure are far more severe. Such cuts undermine the long term profitability and viability of a company. However, their effects occur long after a politician has left office. Politicians will usually put short term political advantage above other concerns - we can see this in the case of the banks.

The British Government has effectively nationalised four major banks. The Halifax Bank of Scotland needs to make severe job cuts. It is based in Scotland. Labour faces a strong challenge from the Scottish Nationalist party. Severe Scottish job cuts will damage Labours electoral chances. Labour can ensure the necessary cuts do not occur in Scotland or reduce the number of cuts made there. To expect them not to do so is to believe politicians are more courageous, principled and sacrificial than they have demonstrated in recent years.

The idea that politicians can repair companies and then sell them off in the good times is also wrong. Banks rely on income from their loans to finance their debt, pay interest to their depositors and (in normal times) dividends to their shareholders. Mortgage agreements are loans made by banks to individuals on the condition of an agreement to repay. Non repayment allows the bank to repossess the house in order to recover the debt. This is the commercial agreement.

However, now the Government owns the banks there are political issues to consider. If the government owns the bank that repossesses your house, the Government itself has effectively repossessed your house. Few people vote for a party that kicks them out of their house. Labour’s opponents have been quick to take advantage with the Liberal Democrat party urging the Government to limit repossessions.

The Trade Union Unite has gone further. Unite has urged Labour to ensure the four banks the Government now partially own don’t repossess homes for non payment of the mortgage. Unite provides significant funds to the Labour party (forty per cent of the money Labour raised in the second quarter of 2008). He who pays the piper calls the tune. The Government has responded by asking the banks to do everything possible not to repossess homes.

This creates an interesting situation. If put in place, borrowers will face no sanction if they stop paying their mortgage. We the taxpayer will simply have to pick up the bill. This will not repair banks credit worthiness. It will deepen and extend the current economic crisis. It will also require either an immediate tax increase or even more government borrowing i.e. differed tax increases.

So we can see the immense problems nationalisation of the banking industry has created. Now imagine if Sarkozy’s plan is embraced. The Government buys huge shares in many UK companies. Does anyone seriously think politicians will not face similiar pressures from steel workers or coal miners or any of our other industries. Pressure to stop the necessary job cuts. Pressure to provide Government subsidy. Pressure to increase staff wages.

Could our politicians be relied upon not to buckle? We all know the answers. So it is time for Mr Sarkozy to think again. He could start by reading the Econ 101 blogs on the UK TaxPayers' Alliance website.

Big Brother Brown eyes opportunity for more Big Government

We have world markets. We must have world regulation. This is the argument of Gordon Brown. It seems, when you only have a hammer, every problem looks like a nail. Gordon Brown was in charge of Britain’s economic policy for the last ten years. In these years he regulated, taxed and spent. Now there is a crisis. He should have been frugal in the good times to pay for this crisis. Now instead of cutting taxes Labour seem likely to raise them. Sadly, Mr Brown seems to have forgotten why Britain became the centre of global finance. Consequently we stand to be much poorer in years to come.

The 1980s market reforms gave Britain a reputation for being slightly less taxed and regulated than our European rivals. This was one of the major reasons why London became one of the world’s three financial centres. Brown did much to destroy Britain’s competitive advantage however; Britain continued to have a slight edge. Clearly there needs to be reform of the existing regulation. Markets need to be regulated. However, we were badly regulated not insufficiently regulated. This is a key distinction. We do not need the implantation of a new level of global harmonised regulation. If this happens Britain will begin to lose one of our key competitive advantages .

Banking is not the most loved profession at the best of times. The image of hot shot bankers in the most luxury cars, with huge bonuses and the most attractive girls is enough to give most people something to dislike about them. However, as I reported earlier last month we should not forget that these workers fifteen hour days have over the last ten years, paid for Labour’s programme of redistribution. Thereby, we need to get through this crisis without killing the goose that has for many years laid the golden eggs.

The UK TaxPayers’ Alliance has suggested a better way to deal with this crisis. Firstly, the UK Government should agree to fulfil its £35,000 deposit guarantee within a short set period. This could reassure the markets that payment will be prompt. The experience with the rural payments agency in particular does not reassure investors that the Governments current deposit guarantee is effective.

Secondly, we should suspend mark to market regulations. These were designed to ensure that valuations of assets were fair and comparable across different countries. However, as Matthew Sinclair notes, because they regulations “rely upon the market to provide a price for an asset, they cannot function when that market ceases to function. As there is effectively no market for many assets and only fire-sales are taking place that produces exceptionally low values.” This is contributing to the current instability, making firms more susceptible to crises in confidence and the possibility of collapse. Thereby these regulations should be abolished.

Thirdly, we need to cut interest rates. They are being kept high because inflation is high. However, the cost of living is set to plummet in the next year. The greater threat at the moment is Britain slipping into recession. Thankfully Britain retains the power to set an interest rate which matches the needs of its own economy i.e. we did not join the EURO. We should now use this power to ensure our economy continues to grow.

We need the Government to act now. The TaxPayers’ Alliance has developed clear practical proposals to deal with this crisis. Gordon Brown should read these policies and adopt them now. He should not use this crisis as an excuse to resort to more poorly drafted regulation which could stifle British economic growth and destroy the main economic advantage our financial services industry enjoys. 

Dump the anti dumping rules now

The European Commission has moved to extend its tariffs on shoes from China and Vietnam. EU policymakers believe the Chinese and Vietnamese dump their cheap shoes on us Europeans pricing our shoe manufacturers out of the market. The tariffs are set to equal 20 per cent of the price of some products. These tariffs are called anti dumping rules and they make all our shoes more expensive. It is time we dumped these anti dumping rules.

I am very patriotic. When I see the Union Flag flying I get quite emotional. I am very proud of my countries achievements and would defend her to the last. Two generations of my family were shoe menders and we still have the tools they used. However,  even if there were a massive shoe manufacturing industry in Britain (there is not) we should be assisting these manufacturers to find more productive labours. We should not be taxing European consumers to pay for shoe manufacturers to be insulated from economic reality. Shoe manufacturing is not an industry like say defence where there may be arguments for maintaining a national capability (even there they are very weak). When my grandfather’s shoe mending business was no longer making money he found alternative employment. He did not demand that consumers be pressured to continue purchasing his services.

Like most men and indeed many Briton’s I don’t get emotional about shoes. Shoes should look ok, be sturdy and if possible cheap. Female readers may be shaking their heads at the moment. I should add that cheaper shoes will leave more money in our pockets. If you want to spend this on more shoes good luck to you. Given we all wear shoes it is in everyone’s interest that we all get access to them at the best price available. Free trade is in all our interest so why do we not have free trade?

The simple answer is because European shoe manufacturers rely on the tariffs to survive. The benefits of free trade are dispersed but its losses are concentrated. There is little advantage in me devoting my time and money to lobbying for cheaper shoes. I don't stand to gain much absolutely - perhaps £20 on each pair of £100 shoes I purchase. However, shoe manufacturers have a great interest in lobbying the EU. Without these tariffs their multi million pound businesses would go bankrupt. It is therefore no surprise that the EU has embraced protectionism in shoes.   

In 2005 the EU hired 20 people for nine months to study whether China and Vietnam were dumping shoes. The BBC’s Evan Davies explains this team could not work our whether Chinese shoes were being sold at below the cost to manufacture them. This was not what the team were sent there to do. Evidence the Chinese were cheating needed to be found. Thereby the team estimated what it cost to manufacture shoes in Brazil, saw the Chinese figure was lower. They then assumed this meant the Chinese were selling at below cost price. Mr Davies suggests this price differential could be due to the fact wages are much higher in Brazil hence the cost of shoe production is higher. The EU does not seem to have considered this fact. Clearly the dumping charge carries little weight.

However, let’s say that the EU is correct. The Chinese are selling us shoes for less than it costs to produce them. What fiends. How dare they give us free money. This abuse surely must be stopped. Or must it? The EU cannot explain to me why the Chinese are committing such a great sin. How does this hurt us? Families are struggling to make ends meet. Eighty per cent of British families have cut their household expenditure in response to the credit crunch. Cheap imports are essential in maintaining our standard of life. The cost of essentials such as fuel, heating, lighting, food, and clothing have all increased rapidly in the last year. If the EU removes these tariffs they could ease the pressure on ordinary people.

It would cost the EU nothing to do this. Instead of being protectionist and lampooning the Chinese we should be sending them a thank you note for being so generous. If they want to pay me to buy their shoes then I am happy to oblige. I can then spend more on lifes little essentials... like beer.

European taxpayers asked to pay more to fund EU Space Programme

European taxpayers, currently struggling to make ends meet, will be happy their plight has not affected the EU’s ambitions in space. EU policymakers agreed to provide European taxpayer funding for EU space exploration, from 2013 onwards, at a meeting on 26 September. The exact sum has not yet been finalised but it is likely to be substantial. The Galileo system alone received funding of 2.4 billion EURO in April 2008. It is difficult to think of a more absurd use of taxpayer funds or a greater slap in the face of Europe’s hard pressed taxpayers.

European taxpayers face either tax increases or the maintenance of our already high tax rates to finance the EU space programme. Each of these charges merely serves to fund  a system that flatters the egos of European politicians. These taxes make it harder for taxpayers to maintain their mortgage repayments, pay their bills, save and care for their families. European politicians should cut the taxes of their citizens rather than spend taxpayers money chasing the stars.

Mobile charges: EU embraces command and control economy to cap mobile charges

The price to text/call from mobile to mobile, across national borders, when both phones are on different networks, is by no means cheap.  The EU has resolved to act to change this. The EU has stepped in to cap roaming charges. The average charge will fall by 60 per cent from 23 pence to 8.7 pence per minute. If only it were so simple to reduce the cost to the consumer.

What an effective and welcome measure you might say. We all like lower prices. But wait there is a catch. It seems that mobile operators still need to make a profit. It also seems that companies still need to pay their workers and invest in product development. In short, the mobile companies will need to make up the money lost from these cuts in call charges elsewhere. Consequently industry experts predict that this regulation’s main effect is actually to end the provision of free handsets to customers. Consumers will stay pay but in a different way.

The EU does not seem to recognise that they cannot legislate lower prices. Sustainable lower charges will only come about as the result of more competition in the mobile phone market and clear publication of the differential charges on offer. Consumers have already reacted to the high costs of international calls. They have begun to turn to Skype and Sms messaging to cut the cost of making calls and sending texts in response. The EU could simply require mobile phone companies to reveal the call cost per minute to the consumer prior to them agreeing to make it. Consumers could then make an informed choice as to whether to call and for how long. Instead, the EU has decided to set the prices mobile phone companies can charge. This is both unnecessary and detrimental.

These measures are unnecessary because consumers are already revealing their preferences to companies in the choices they make. They are best placed to judge whether they prioritise having a free handset or lower international call charges. Everyday they judge which company offers the best call costs and choose appropriately. Each day many of them change between operators to companies which offer packages more suited to their needs. The weight of their combined decisions forces companies to provide extra value or charge lower prices. This is why it is unnecessary for the EU to regulate prices and I will now explain why the efforts to do so are detrimental. 

Mandated cuts in charges do not cut the costs of operating mobile phone networks. Therefore mobile operators have to make up these losses elsewhere. Many are already suggesting charging for the provision of handsets for those on contracts. Companies could also reduce investment in their mobile phone network reducing service provision to Europeans in outlying areas. Such measures could also result in cuts in the dividends paid to shareholders. This at a time when the stock market is weak and companies do not need further burdens imposed on them. In short the EU is engaging in a populist measure which will yield few benefits to the consumer and imposes great costs on the companies concerned and their customers. The British Government and OFCOM the UK telecoms regulator both oppose this measure. They are right to do so.

For the 14th consecutive year we don't have a reliable record of how much taxpayers money' the EU spends and on what

The EU Comptroller General has revealed that the 2007 EU Accounts will not be signed off for the fourteenth consecutive year. This means the EU has never complied with its 1994 requirement to have its Court of Auditors provide a “declaration of assurance” that the accounts are reliable. What does mean to you the taxpayer?

In short, it means European taxpayers cannot be sure what their EU contributions are being spent on and taxpayer groups across Europe cannot appropriately hold the EU to account for this expenditure. Siim Kallas, the EU Commissioner for audit is set to inform his fellow commissioners on 23 September, before the Court of Auditors publishes its annual report on the EU budget on 10 November that the EU’s Accounts will not be signed off as accurate and reliable.

Siim Kallas has revealed that there are 17 areas of the EU budget where there are “real and unquestioned” weaknesses in accounting standards and that there has been little change in the errors in member states budget remuneration between 2006 and 2007 i.e. little improvement has been made on this. We find this lack of progress unacceptable.

The EU spent 126.5 billion EUROs in 2007 without implementing appropriate checks and balances to ensure the European taxpayer got value for money. As the European Commission recognised in their public consultation paper on the 2008/09 budget review the EU “must give citizens confidence” that EU public spending “is focused on their priorities and that the funds entrusted to the EU are well spent”. The EU is still failing to provide it's citizens with adequate reassurance that their money is not being wasted or taken through fraud.

EU citizens cannot ensure their money is well spent until the EU produce a reliable certifiable set of accounts so European taxpayers can see how much of their money is spent and on what. The EU Commision's President , José Manuel Barroso should ensure the EU accounts are signed off as accurate before he requests any more European taxpayers money.

Tax cuts back on the political agenda as the Liberal Democrats move onto Conservative turf

A new report has revealed that 35 out of the Liberal Democrats 53 English seats could be lost to the Conservatives unless they promise tax cuts. Coincidentally Lib Dem Leader Nick Clegg has promised £20 billion in tax cuts condemning the Conservatives tax and spend plans as “unimaginative” and promising the Lib Dems will be “more creative”. The question is will the two main parties match the Lib Dems new pledge of tax cuts?

Liberal Democrat conferences are not usually the place where important new debates occur. Previous conferences have debated the issue of whether goldfish could be won at local fairs, how to protect the earth from asteroids and whether 16 year olds should have access to internet pornography. All weighty subjects no doubt but not priority issues for the average British citizen.

In short, Lib Dem conferences are usually snooze fests where barmy socialists and ultra libertarians battle it out for the right to control a party which has not seen power in eighty years. However, at this conference, a serious debate about the balance between funding essential services and relieving the burden on struggling families is beginning to occur. The Liberal Democrats have actually begun to talk about reducing the size of the Government and cutting tax and this is to be welcomed.

The two main parties should take note and respond. The Labour party is facing an electoral wipe-out with Conservative poll leads averaging 20 per cent. If the party does not take decisive action to respond to the needs of Britain’s struggling families they will be punished at the polls. Meanwhile, the Conservatives are eager to preserve their momentum in the face of this bold Lib Dem move onto Conservative turf. The Conservatives have been timid in their approach to tax cuts because they fear a repeat of the 2001 and 2005 elections when Labour successfully portrayed any attempt to reduce the tax burden as a secret Tory plan to sack thousands of Nurses, Doctors and Teachers. However, it seems the mood has changed.

The majority of people now recognise the amount of government waste and believe they can spend their money better than the Government. More than two-thirds of the population believe that the Government wastes one-sixth of the money it spends and over half think that figure is one fifth of the money it spends. Tax is now third on the list of concerns of British voters. This is a very different Britain to the one that massively endorsed Brown's 2002 national insurance tax increases to fund the NHS.

Taxpayers will reward any party that recognises the call for lower taxes and responds accordingly. The Liberal Democrat plan is not perfect. There are many flaws in it. The pledge to soak the rich by closing tax loopholes could cost this country dear by driving away wealth creators. However, a debate about significant  tax reduction has begun and for this the Lib Dems are to be congratulated.

Europe slashes growth target as recession looms

The European Commission (EC) has slashed its economic growth target. The EC now predict that the Euro Zone (15 EU states) will grow by only 1.3 per cent rather than 1.7 per cent. The non EURO EU (12 EU states) will grow by 1.4 per cent rather than the previously predicted 2 per cent. This follows the news that the EURO economy actually shrank in the April-June quarter 2008 - the first ever quarter of negative growth in the Eurozone. Meanwhile, inflation is rising across the Eurozone. Inflation is set to increase to 3.8 per cent from 3.6 per cent. This is far in excess of the EC target of 2 per cent or below. Across Europe the state of the economy is deteriorating but politicians refuse to act.

Here in Britain the economy is now predicted to contract by 0.2 per cent in each of the last two quarters of 2008. However, the current government are unwilling to stimulate the economy through tax cuts. It seems British taxpayers will suffer many more months of hardship before our Government finally understands the simple truth that ordinary Brits know how to spend their money than their supposed betters in Whitehall.

Three FTSE 250 companies flee UK PLC in a week

In the past week three companies have abandoned Britain to relocate to lower tax countries such as Luxembourg, Ireland and Switzerland. The reasons they cite for this are as follows: Regus, Henderson and Charter. Each of the companies cited the high rate of corporate tax in the UK which stands at 28 per cent compared to the EU average of 24.5 per cent. They join Shire and United Business Media who  have already announced they are to relocate for tax reasons. More companies seem set to follow unless decisive action is taken now.

The Conservative opposition have called on the Government to reduce corporate tax from 28 per cent to 25 per cent and simplify business taxes to reduce the costs of compliance see here. This is a welcome step but the opposition can and should go further. The European Union average corporate tax rate is 24.5 per cent so even with the Conservatives planned reductions the British rate would be high. Ireland’s rate of 12.5 per cent would remain half that of the Conservatives proposed reductions. The message is clear - Britain needs significant reduction in its levels of Corporate tax otherwise its status as a premier league world economy will be in doubt.