Cuts to Welfare, Subsidies to Corporations – The hidden welfare state

The Black Triangle Campaign was founded to support the human rights of disabled people and to oppose the Government’s “Work Capability Assessments”, which re-classify sick and disabled people as “fit for work”.

 

The hidden welfare state that the U.K. government dares not speak of

The UK has two welfare states. There is one that is reported and endlessly discussed, and another, which is rarely mentioned. Whilst the first is suffering enormous cuts under the Tory/LD coalition, the other just keeps expanding.

Governments on the left and the right can always justify welfare cuts by pitting, for example, mobility scooters against needle exchanges, or the soft-play area in children’s playgrounds against an old people’s home. Who deserves it most, they say, students or cleaners? Old or young? But when we’re running not one, but two welfare states, that’s a totally fake scenario. The real choice is between playgrounds or gas rigs; between Meals on Wheels or The City of London Currency Speculators’ Maintenance Allowance.

There’s a connection – never mentioned – between, let’s say, Britain’s eight new deep-water gas rigs and its new food banks. The connection is that the $4.5 billion subsidy package being doled out to transnational gas corporations is a very big slice of the welfare pie. And to keep the gas transnationals on the benefits to which they are addicted, hungry humans have to queue for tinned food that is too close to its sell-by date to be kept on the shelves of supermarkets, many of which are themselves massive recipients of corporate welfare.

Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30 yrs. Tory Ideology is all about Handouts to the Wealthy paid for by the Poor.George Osborne has cut £18bn from benefits plus a further £81bn from public services in the name of unavoidable austerity, whilst at the same time providing huge subsidies, tax cuts and removing regulation for the hidden ‘welfare’ system that benefits the private sector.

No goods or services are directly returned to the government in exchange for these expenditures, although of course, politicians will argue that they’re stimulating the economy, helping struggling industries, creating jobs or funding important research but actually this is just a corporate welfare system.

The Cato Institute, for example, estimated that in the US, $93 billion were devoted to corporate welfare in 2002. This was about 5% of the federal budget, and nearly twice the amount spent on social welfare ie. feeding people, housing the homeless, raising children out of poverty etc.

There is no reason to think the situation is different in the UK. However, overall statistics for the UK corporate welfare budget are hard to discover, and the variety of different subsidies are staggering. Needless to say, the Tories focus their attention on fraud and waste in the social welfare budget.

Welfare fraud and waste is never far from the top of the UK’s news agenda – but the real figures often bear almost no resemblance to popular belief. The British public, for example, think around 27% of the welfare budget is lost of fraud, according to TUC research.

The Department for Work and Pensions’ latest data on fraud and error in the benefit system shows a very different reality: fraud exists, but at a far lower level than the public believes – and is outweighed by errors from claimants and officials alike. The DWP estimates £3.5bn has been overpaid due to errors and fraud in the system; 2.1 per cent of the overall benefit expenditure.

The corporate welfare budget arises from four main sources: Paying little or no tax – Tax havens; tax breaks; enjoying huge subsidies and the removal of employment and environmental protection regulations.

Tax Havens
 The UK’s 100 biggest public companies are running more than 8,000 subsidiaries or joint ventures in onshore and offshore tax havens, according to research. The figures, published by the charity Action Aid, show that only two of the companies listed on the UK’s FTSE 100 have no subsidiaries in tax havens – while companies such as Barclays and Tesco own hundreds. http://www.guardian.co.uk. The UK Crown Dependencies and Overseas Territories constitute half of the world’s most frequently used tax havens.

Tax Breaks
Almost one in four of Britain’s biggest listed companies paid no corporation tax in this country last year – and almost half fail to disclose their tax payments to the UK at all, according to research by The Mail on Sunday.  According to the annual reports and accounts of all the companies in the FTSE 100, 47 companies gave no obvious figures for tax paid in Britain.  Of the 53 who did, 12 showed they paid no tax at all and, six actually received a tax credit.Tax Avoidance
 Treasury minister, David Gauke, admitted in reply to a parliamentary written question that only four employees of HMRC are working to capture 124 tax fugitives. The amount of uncollected tax rose again last year. A Labour MP pointed out that the four officials dedicated to the tax fugitives compares with the 450 HMRC staff involved in administering the withdrawal of child benefit from higher-rate taxpayers.

Subsidies
Currently, it is estimated that the government has already provided £43.5bn in various subsidies including the National Infrastructure Plan, the Equity Loan and Help to Buy schemes, the Enterprise Finance Guarantee and the Regional Growth Fund, with nothing to show for it. Far greater sums are in the pipeline, up to £310bn.

Meanwhile supermarkets get an enormous subsidy to help with one of their major overheads, staffing costs. This is because many employees in these large and successful companies are paid only the minimum wage. And because the current minimum wage is not a living wage, nearly everyone on it has to claim tax credits to be able to make ends meet. Those tax credits are funded by the taxpayer. The supermarkets are effectively state subsidised industries.

In addition to the recent unprecedented public support for the financial sector The NEF (New Economics Foundation) identified at least three significant hidden subsidies:

* The ‘Too Big to Fail’ subsidy: The government now provides a public guarantee, effectively insurance against banks going bust. This gives banks a huge commercial advantage over other firms in a market system. It means banks are able to borrow money much more cheaply than if they were not ultimately underwritten by the public. Exchanges with leading auditors in front of the House of Lords Select Committee on Economic Affairs in January 2011 confirm this. A conservative analysis reveals that this hidden subsidy could be worth £30 billion annually. It means that bonuses to senior staff for ‘performance’ and dividends to institutional investors are at least in part a straight transfer from the taxpayer.
* The quantitative easing windfall subsidy: When it was decided that the economy needed more liquidity, the Bank of England pumped money in using the technique called ‘quantitative easing’. To meet various, and sometimes self-imposed, requirements, it did by purchasing government bonds through investment banks. Merely for being passive conduits for this ‘risk free’ arrangement the banks took a cut of every trade. Here nef analysts found that banks enjoyed a significant windfall, but that lack of transparency keeps the likely amount hidden.
* The ‘make the customer pay’ subsidy: Since the baking crisis of 2008, the banks have been increased the gap between what they have to pay to borrow money, and what they charge people to borrow from them. This is the so-called interest rate ‘spread’. This is because they can borow money from the Bank of England at virtually 0%. As it is, the taxpayer is subsidising the banks twice over: once through taxpayer funded public support to the banks, and secondly through paying much higher interest to borrow than the banks do. This hidden subsidy amounts to at least another £2.5 billion each year.

To us, it’s an obscure shift of tax law. To the City, it’s the heist of the century

In David Cameron we have a leader whose job is to quietly legitimise a semi-criminal, money-laundering economy

‘I would love to see tax reductions,” David Cameron told the Sunday Telegraph at the weekend, “but when you’re borrowing 11% of your GDP, it’s not possible to make significant net tax cuts. It just isn’t.” Oh no? Then how come he’s planning the biggest and crudest corporate tax cut in living memory?

If you’ve heard nothing of it, you’re in good company. The obscure adjustments the government is planning to the tax acts of 1988 and 2009 have been missed by almost everyone – and are, anyway, almost impossible to understand without expert help. But as soon as you grasp the implications, you realise that a kind of corporate coup d’etat is taking place.

Like the dismantling of the NHS and the sale of public forests, no one voted for this measure, as it wasn’t in the manifestos. While Cameron insists that he occupies the centre ground of British politics, that he shares our burdens and feels our pain, he has quietly been plotting with banks and businesses to engineer the greatest transfer of wealth from the poor and middle to the ultra-rich that this country has seen in a century. The latest heist has been explained to me by the former tax inspector, now a Private Eye journalist, Richard Brooks and current senior tax staff who can’t be named. Here’s how it works.

At the moment tax law ensures that companies based here, with branches in other countries, don’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.

Foreign means anywhere. If these proposals go ahead, the UK will be only the second country in the world to allow money that has passed through tax havens to remain untaxed when it gets here. The other is Switzerland. The exemption applies solely to “large and medium companies”: it is not available for smaller firms. The government says it expects “large financial services companies to make the greatest use of the exemption regime”. The main beneficiaries, in other words, will be the banks.

But that’s not the end of it. While big business will be exempt from tax on its foreign branch earnings, it will, amazingly, still be able to claim the expense of funding its foreign branches against tax it pays in the UK. No other country does this. The new measures will, as we already know, accompany a rapid reduction in the official rate of corporation tax: from 28% to 24% by 2014. This, a Treasury minister has boasted, will be the lowest rate “of any major western economy”. By the time this government is done, we’ll be lucky if the banks and corporations pay anything at all. In the Sunday Telegraph, David Cameron said: “What I want is tax revenue from the banks into the exchequer, so we can help rebuild this economy.” He’s doing just the opposite.

These measures will drain not only wealth but also jobs from the UK. The new legislation will create a powerful incentive to shift business out of this country and into nations with lower corporate tax rates. Any UK business that doesn’t outsource its staff or funnel its earnings through a tax haven will find itself with an extra competitive disadvantage. The new rules also threaten to degrade the tax base everywhere, as companies with headquarters in other countries will demand similar measures from their own governments.

So how did this happen? You don’t have to look far to find out. Almost all the members of the seven committees the government set up “to provide strategic oversight of the development of corporate tax policy” are corporate executives. Among them are representatives of Vodafone, Tesco, BP, British American Tobacco and several of the major banks: HSBC, Santander, Standard Chartered, Citigroup, Schroders, RBS and Barclays.

I used to think of such processes as regulatory capture: government agencies being taken over by the companies they were supposed to restrain. But I’ve just read Nicholas Shaxson’s Treasure Islands <http://www.guardian.co.uk/books/2011/jan/22/treasure-islands-tax-havens-shaxson-review> – perhaps the most important book published in the UK so far this year – and now I’m not so sure. Shaxson shows how the world’s tax havens have not, as the OECD claims, been eliminated, but legitimised; how the City of London is itself a giant tax haven, which passes much of its business through its subsidiary havens in British dependencies, overseas territories and former colonies; how its operations mesh with and are often indistinguishable from the laundering of the proceeds of crime; and how the Corporation of the City of London in effect dictates to the government, while remaining exempt from democratic control. If Hosni Mubarak has passed his alleged $70bn through British banks, the Egyptians won’t see a piastre <http://en.wikipedia.org/wiki/Egyptian_piastre>  of it.

Reading Treasure Islands, I have realised that injustice of the kind described in this column is no perversion of the system; it is the system. Tony Blair came to power after assuring the City of his benign intentions. He then deregulated it and cut its taxes. Cameron didn’t have to assure it of anything: his party exists to turn its demands into public policy. Our ministers are not public servants. They work for the people who fund their parties, run the banks and own the newspapers, shielding them from their obligations to society, insulating them from democratic challenge.

Our political system protects and enriches a fantastically wealthy elite, much of whose money is, as a result of their interesting tax and transfer arrangements, in effect stolen from poorer countries, and poorer citizens of their own countries. Ours is a semi-criminal money-laundering economy, legitimised by the pomp of the lord mayor’s show and multiple layers of defence in government. Politically irrelevant, economically invisible, the rest of us inhabit the margins of the system. Governments ensure that we are thrown enough scraps to keep us quiet, while the ultra-rich get on with the serious business of looting the global economy and crushing attempts to hold them to account.

And this government? It has learned the lesson that Thatcher never grasped. If you want to turn this country into another Mexico, where the ruling elite wallows in unimaginable, state-facilitated wealth while the rest can go to hell, you don’t declare war on society, you don’t lambast single mothers or refuse to apologise for Bloody Sunday. You assuage, reassure, conciliate, emote. Then you shaft us.

Tax Breaks For The Banks – Cuts For The Rest Of Us!

I can’t quite believe what I’ve just read. Robin Hood just got shot with his own arrow and no-one even noticed. He’s laying there now, bleeding on the floor, but we’re all going to step over him on the way to work. The Sheriff of Osborne-ham finally cooked up a plan so cunning there’ll be no more robbing from the rich to give to the poor Ever.

You’ll probably hear a lot today about the banker’s levy being made permanent. Osborne has announced (ahead of the budget) that an extra 800 million will be taken from the banks, making a total of £2.5 billion over the year. The bank levy will stay in place, making it a permanent feature.

Not a Robin Hood tax, not nearly enough, but a step in the right direction eh? Well, erm…no.  George Monbiot in the Guardian outlines a change to corporation tax that he calls the “heist of the century” a “kind of corporate coup d’etat” and “the biggest and crudest corporate tax cut in living memory”. What’s more, he points out that yet again, no-one knew about it, it wasn’t in any manifesto and it’s so complicated, that most people would never understand it anyway without expert guidance.

Effectively, £6 billion from Vodafone or a few quid from Wayne Rooney has just turned into small-fry. In fact fry so tiddly, it’s barely visible to the naked eye. This move will save big business endless, eye-watering, startling billions.

“At the moment tax law ensures that companies based here, with branches in other countries, don’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.”

“Foreign means anywhere. If these proposals go ahead, the UK will be only the second country in the world to allow money that has passed through tax havens to remain untaxed when it gets here. The other is Switzerland. The exemption applies solely to “large and medium companies”: it is not available for smaller firms. The government says it expects “large financial services companies to make the greatest use of the exemption regime”. The main beneficiaries, in other words, will be the banks.”

Monbiot goes on to ask: “So how did this happen? You don’t have to look far to find out. Almost all the members of the seven committees the government set up “to provide strategic oversight of the development of corporate tax policy” are corporate executives. Among them are representatives of Vodafone, Tesco, BP, British American Tobacco and several of the major banks: HSBC, Santander, Standard Chartered, Citigroup, Schroders, RBS and Barclays.”  Well, surprise surprise.

It’s not good enough to say “Oh well, it’s the Tories, you expect this kind of thing from them”. On the same day that even Warren Buffet is saying that we need to raise inheritance tax to tackle a growing “entrenched” plutocracy, Little-Lord-Osborne has decided that we need to do quite the opposite.

In case you’d forgotten, David Cameron told the Sunday Telegraph at the weekend that he: “would love to see tax reductions, but when you’re borrowing 11% of your GDP, it’s not possible to make significant net tax cuts. It just isn’t.”

He really is breathtakingly dishonest isn’t he? As Monbiot concludes, this government has decided on a course of PR that, as with so many of their other policies, treats us like complete and utter fools.

STOP THEM before they make the rich staggeringly richer on the quiet, dismantle and privatise the NHS, bring back a two tier education system under the guise of “free schools” and cut budgets faster and deeper than has ever been attempted before.
Demonstrate, Protest, Occupy – March 26^th.

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