Summary: Labour needs to articulate its policies on immigration before the Brexit negotiations get set in stone. It cannot keep ignoring real concerns about immigration and the fact that if it is not addressed satisfactorily it will be very difficult for Labour to win a general election. Jeremy Corbyn is resisting reduction in the free movement of people from the EU. He understands that significant restrictions to immigration will simply crash the economy. A carefully thought out Migration Impact Plan could help to persuade voters that immigration is manageable and indeed could be of benefit to areas most affected by migration. However many will be very difficult to persuade.

There is no doubt that Labour is much more relaxed about immigration than the Tories or UKIP. We know that about 1/3rd of the 9 million who voted Labour at the last election backed Leave. Their concerns about immigration must be addressed if Labour is to be seen to respond to the results of the referendum seriously. Labour needs to attack immigration as an issue on several fronts. Firstly it must row back against the continuing negativity about migrants, explaining again and again what everyone knows. For many years Labour has made far too little effort to counter the right-wing anti-immigrant tone of Tory governments and the right-wing media. It has suited recent governments obsessed with austerity and deficit-reduction to blame the consequences of their policies on immigration. Immigrants are blamed for the stresses on the NHS, overcrowding in our schools and the shortage of affordable housing. They are not the benefit scroungers demonised by the right-wing tabloids. Very many are forced to accept poorly paid, unpleasant jobs that the locals are not prepared to countenance. They often live in substandard accommodation with minimal complaint. They are young, ambitious and energetic. They are eager to make success of their lives. Their demands on the NHS are small principally because they are young.

In reality our country simply cannot function without high levels of immigration. Already half of our migrants are not from the EU and come across borders that we control totally. Yet we let them in because our country simply couldn’t function without them. Restricting immigration to under 100,000 as the Government wants will simply crash our economy. The NHS and social care sectors would simply cease to function without migrants. Boosting the living wage as John McDonnell has promised makes many more jobs attractive, and clamping down on zero hours contracts will help to suppress some of the worst labour practices that exploit immigrants. Building very many more affordable houses in high cost areas will also ease these pressures, but these are all well into the future long after Brexit has happened.

At present non-EU immigrants must have the offer of a job, and in certain jobs there are quotas to try and keep numbers under control. Even if we maintain free movement from the EU we need to manage migration much better. We need to know who was coming into the UK, where they will work and what demands on local services they might make. We also have to start tracking who is actually leaving the UK, something that can be done very easily by putting exit passport information on airlines, railways and ships.

However the result of the Referendum means that politically we have to accept restrictions on EU migrants. One of the most straightforward things we could do is simply require that EU migrants are allowed to enter the UK only if they have a formal documented job to go to which has already been advertised within the UK but remain unfilled. Unlike the rules for non-EU migrants, there would be no quota limits. If you have a job offer you can get in to the UK. A symmetrical arrangement could then apply to British workers wishing to take a job in the EU. The restrictions on non-EU migrants would stay as they are which is of course how they were managed under the then Home Secretary, Theresa May. The migration rate would be set by the demands of the UK economy. The best way of reducing that rate is to improve the quality of vocational training at every level given to our own children.

Labour has already identified the need for a Migrant Impact Fund, money used to offset the strain locally imposed by migration. How big might this turn out to be? The amount of money suggested by the Government is quite derisory. Amber Rudd promised £140 million or about £540 per head. Compared with the substantial sums of money distributed from central government to local authorities to pay for schools, the NHS and many other services this is quite inadequate. Money needs to be distributed to the local authorities in proportion to their receipt of immigrants. This must be paid immediately in anticipation of their arrival locally and their starting to pay taxes. All immigrants intending to remain in the UK should complete a form that allows local authorities to plan for their arrival satisfactorily. Specifically we need to know:

• Where is the immigrant family going to live and work? The relevant local authority must be informed.
• How big is the family? Current NHS budget runs at about £1800 per head (official figures).
• How old are the children? Allows schools to plan for space. Per-pupil funding at present is highly variable but averages around £4500 per annum. In addition the pupil premium should be added for immigrant children for three years at £1900 per annum particularly if they will need additional teaching to bring them up to the local standards.
• Can they speak English? Some money must be provided for local authorities to enable English-language lessons to be provided.

This adds up to probably around £5000 per annum for the average migrant or about £1.6 billion per annum for new migrants. It sounds a lot but it is a tiny fraction of current government spending. These costs must translate into proportionate changes in the allocations nationwide made to local government to fund the NHS, education etc.

Above all, Labour must hammer home a fundamental number which shows how much the problem is exaggerated. Current immigration is only increasing our population by about one person in 200 per annum. Immigration is not a massive invasion rather a relatively minor perturbation but one that is critical to the functioning of our society. Problems arise when immigration is not spread uniformly across the country and the xenophobic opinions of UKIP and the right-wing media are allowed to go unchallenged. The Migrant Impact Fund when properly funded could substantially change the view of communities about incomers. Without it Labour will have an uphill battle against entrenched right-wing opinions of many otherwise centre-left voters.

Summary: The economics underpinning the drive for austerity and cutting the deficit are fundamentally flawed. Few economists ever really thought it was the right thing to do. Borrowing to invest in the UK, for housing and infrastructure including transport and education is fundamentally economically sound and has been for a long time.

For many years the Tories have projected themselves as the party of fiscal responsibility, cutting the deficit and reducing wasteful spending. Labour never responded satisfactorily to claims that they were the party of high taxation and profligate spending. They are still blamed for allowing the deficit to expand without limit. In fact this choice has never been between left-wing and right-wing philosophies but rather very different understandings of the fundamentals of economics.

The money we use is built on a wonderful confidence trick though it doesn’t stop us all trying to get a bit more! The £20 note carries the statement from the Chief Cashier “I promise to pay the bearer on demand the sum of £20”. Once upon a time when sterling was on the gold standard you could actually swap these notes for gold. However today, if you go into the Bank of England to cash it they will properly give you a nice clean £20 note that says much the same thing. Your £20 note was printed by the Bank of England mainly because the Bank of England thought it would be a good idea at the time. It cannot do this indefinitely because to print too much might make our business partners overseas think it doesn’t represent a consistent value. The crash of 2008 triggered a great deal of money printing to keep the economy running and avoid the collapse of the banking system. This money printing has been given the delicious name of “Quantitative Easing”. Already the Bank of England has printed an additional total of £375 billion to keep the British economy ticking over. Beside that, the current UK deficit of £69 billion which George Osborne was desperately trying to reduce looks relatively minuscule. Apparently the £375 billion printed doesn’t actually count as part of the deficit.

Our capitalist society depends utterly on debt. The Bank of England lends money to the high street banks which in turn lend money to housebuyers and businesses. Businesses invest the money in order to grow the business, employ more people, make bigger profits and eventually repay the loans. The same approach should be true for the government. Money can be borrowed by the UK for 30 years today at very low interest rates. There is no reason why money should not be borrowed by the government or by Local Authorities to invest in infrastructure projects such as housebuilding, road and rail building and refurbishment. The Tory view is that such an approach simply leads to an increasing deficit and all deficits are bad. By cutting expenditure of all sorts George Osborne aimed to cut down this deficit.

Curiously, while all this was going on no one heard of any Tory MPs frantically trying to repay their mortgages or any other loans to reduce what they owe (their individual or family debt). The consequence of the government austerity programme has been to inflict extraordinary damage on our economy and on the structure of our society. Many social programs that help the poor, the elderly, the disadvantaged and the disabled have been cut to the bone if not eliminated in order to save laughably small sums of money. Thousands of small cuts mean the NHS is approaching collapse and the school system is under severe strain. And it’s not just a British problem. Many Eurozone countries have been forced to accept levels of austerity in order to make interest payments on debts they will never repay. They agreed to keep their deficits very low when they joined the Eurozone but with the challenge of the 2008 recession they could not manage it. The damage in several countries has been even more extreme than we have experienced in the UK.

Even the Tories are now talking about ditching the austerity programme, the view that Labour have taken for some time but is now been clearly articulated and argued for by Jeremy Corbyn and many others. The supporters of borrowing to invest in the UK are not just left-wing crazies. Even the Economist newspaper has been arguing that austerity in the UK has gone far too far. Within Europe one of the main proponents of austerity at any cost has been the German finance minister, Wolfgang Schäuble, and his inability to grasp these economic fundamentals has been extraordinarily damaging to the Eurozone. Its current weakness is substantially because of German intransigence about the need for austerity and deficit reductions.

Borrowing money is a good idea if it is for investment in something that will give a reasonable return. At the interest rates the UK pays today even only moderately good ideas justify borrowing. We must welcome the end of austerity as a greatly overdue return to economic sanity.

Reference: There is a lot more to read in Richard Murphy’s book, “The Joy of Tax, How to a Fair Tax System Can Create a Better Society”. It is marvellous, highly readable, entertaining, not too long and strongly to be recommended book.

Summary: Multinational corporations have too many options of avoiding paying corporation tax. So let’s forget about it and introduce an infrastructure charge based on the proportion of audited profits worldwide. This is an updated version of an earlier post (23/09/16) on this site giving estimates of the likely yield of such a charge. Again updated to reference Richard Murphy’s Alternative Minimum Corporation Tax proposals.

Multinational corporations have an extraordinary range of options for moving profits away from where they are actually made to where they can be taxed minimally. An OECD report today said five countries reduced their tax rates for corporate profits in 2015 and another four announce planned reductions for the future. There is widespread anger about the unbelievably low rates of taxation for some of the largest companies in the world such as Apple, Vodafone, Starbucks and Google. These low rates keep profits high and benefit the wealthy. At the same time VAT rates throughout the OECD are gradually rising, from 17.6% in 2008 to a record high of 19.2% in 2015. VAT rates disproportionately hit the poor.

The capacity of corporations to manipulate their accounts so that they pay essentially no tax is limitless. They employ accountants and lawyers of great skill who are always several steps ahead of governments. Governments are extraordinarily slow at agreeing anything so little happens and profits continue to accumulate. What is needed is a completely different system that is relatively immune to corporate fiddles, is fair and returns the proper amount to each nation.

Every company no matter how big has to produce reliable accounts. They all have shareholders and the legal penalties in most jurisdictions for falsifying these accounts are very serious indeed. We can start with these accounts as being something reliable and dependable and relatively honest. The second piece of information that we can get fairly easily is what fraction of each company’s turnover takes place in the UK (or indeed any other country). If Apple sells 5% of its output in one year into the UK then we are looking at 5% of the total profit of Apple worldwide as the base to talk about. We must forget entirely about corporation tax but instead make an “Infrastructure Charge” which might coincidently be levied at what is deemed to be an appropriate UK corporation tax level, currently 20 %. The usual concern about high tax levels is that it discourages investment in a country. That it is claimed is why Apple is now resident in Ireland. However the Infrastructure Charge is independent of where anything is located, it simply is a crude but reliable method of coming to a fair charge. Of course each company paying the Infrastructure Charge can deduct that from their overall tax bills in their accounts as usual. However it does not require any agreement between governments in other countries. The only way that a multinational can avoid paying the Infrastructure Charge is by withdrawing from that market and foregoing the profits it already makes in that area.

How much money is involved? It is quite difficult to put this all together but a recent report by McKinsey & Co suggested that global corporate after-tax operating profits were in the region of US$8 trillion. The UK has approximately 1% of the world’s population and 2.4% of the worlds GDP (2015 figure). The UK proportion of those profits is therefore in the region of $200 billion. Let’s be generous and suppose that half of that has already been properly taxed and the other half has magically vanished to some more favourable tax haven. In that case 20% of $100 billion is about £20 billion. It is difficult to exaggerate how much difference that would make to the British NHS! To think this is been going on for many years could easily make someone quite angry. Indeed, this may underestimate the total amount that could be recouped. The companies that are most successful at transferring profits offshore are the ones that have the biggest amounts tp transfer. They are often high-tech with a substantial exposure in the UK. It was recently revealed that the receipts from advertising of Google were over 9% of their total within the UK.

The Infrastructure Charge as described above is fair and reasonable and will produce a very substantial income stream for the Treasury at a time when the great majority of the British people want to see much greater fairness in the way our society operates and the way that each of us pays our dues as we should and as we can afford.

Readers may be interested in the post from Richard Murphy on 30 September 2016 with a link to his article on Bloomberg dated 29 September 2016 entitled “Time for an Alternative Minimum Corporation Tax?” Which you can find at: http://www.bna.com/time-alternative-minimum-n57982077695/ .

Summary: The gross inequalities in British wealth distribution needs to be substantially rebalanced by combining strategies to make the poor richer and to make the rich poorer. A great deal of the wealth held in the UK is in the form of assets and in particular property. Making the investment in property much less attractive is key to reducing inequality. A number of approaches are outlined that could lead to a substantial reduction in house price inflation. In particular, a radically new tax is proposed on the continuing growth in property valuations. By reducing house price inflation rates it would benefit millions of young people hoping to get on to the housing ladder.

Since the financial crisis in 2008 there have been rapid divergences in the fortunes of the rich and the poor. The availability of cheap money has allowed investors to make fortunes while the recent government obsession with austerity has made the majority of the population significantly worse off in real terms. The UK is already one of the least equal countries in the Western world. Reversing this trend must be a combination of making the poor richer (for example by increasing the minimum wage, reigning in some restrictive employment strategies such as zero hours contracts, improving benefit baseline levels, increasing the basic income tax threshold etc.) and by making the rich poorer. It is very important to address how the rich should be made poorer since it is the overt and visible extravagance of many lifestyles that underpins the perception of gross unfairness in the way things are today in the UK. We should expect this to be unpopular with the right-wing media!

The obvious approach of increasing taxation for the rich has merit, reintroducing the 50% tax rate abandoned by George Osborne and perhaps setting the threshold at a lower level of £100,000 taxable income. National insurance payments on taxable income above £43,000 could also be increased from their present level of 1/6th the level paid below that threshold. Public opinion will probably demand substantial penalties for companies that pay grotesque levels of salary and/or bonuses but it is important to appreciate that the wealth underpinning the rich is principally that they hold very substantial assets, and that the increase in wealth derived from asset appreciation is usually much greater than that actually earned in the form of salaries. Unless the growth in asset value is contained then the inequality we already find unacceptable and unfair will simply continue to increase.

Stamp duty is already charged at a very low level on the buying and selling of equities and bonds (typically 0.5%) and this could be increased. However it is easy to move bond and equity trading offshore so an increase may not be very productive without a lot of complicated safeguards. The main asset class that is easy to access is property since it cannot be moved overseas and is relatively easy to value.

The shortage of housing in the UK has, for many years, been quite scandalous. A major overhaul of our housebuilding strategy is long overdue and some radical ideas about how this might be addressed are analysed in an accompanying post on Outsidethebubble.net entitled “Solving the Housing Crisis”. By building many more houses and in particular affordable houses, the upward pressure on house prices from the extreme shortage in many parts of the country should be eased. However the very rapid growth in property prices must be counterbalanced by taxing the above inflation growth in those property prices. Proportional Council tax levels must be extended to much more valuable properties than at present. Many of the exceptions made for unoccupied property and second (holiday) homes must be removed.

However many of these changes are still not addressing the key underlying problem which is that property in the UK is an extraordinarily good investment, growing way above the rate of inflation and making it almost impossible for young people to ever get on the housing ladder. At present property is essentially taxed (apart from your main residence) when properties are sold or inherited. Buy to let properties owned by a small landlord are therefore taxed but properties of any sort that are sold by a business are not taxed explicitly. Taxation of those profits comes from dividend income tax or corporation tax. The income from a commercial sale may be reinvested in another property and the existing appreciation in the value of the property is preserved in full. This contributes to property price inflation.

Introducing a property sales tax would create a mechanism to return significant amount of property appreciation values to the Exchequer, throttling back property appreciation rates and making property a significantly poorer investment. This in turn would actively push down property prices.

In this section I want to layout a radical new framework to be used to tax continually but fairly property price increases. We start by recognising that average figures for the typical prices of different kinds of property are published regularly by organisations such as the Nationwide and Zoopla. We may think conveniently of residential accommodation but the tax described here is intended to apply to all kinds of real estate including commercial property and land.

For each property above a certain threshold the typical price increase in a year is determined from published data. If that price increase was, say, 6% and we had a tax rate of one third then the tax due would be 2% of the current price of the property. The owner of the property does not have to pay that tax but the following year the owner only owns 98% of the property and the state owns 2%. If again the following year a similar price increase of 6% applied then the value of the property would be reduced by 2% of 98% or 1.96% so that the owner only had 96.04% of the property and the state 3.96%. This would continue each and every year. Effectively the state takes a charge on the property that increases each year. The actual numbers do not matter because they are only realised when the property is eventually sold. We are only accumulating percentages and not absolute amounts. If the tax rate was one third then simply the difference between the purchase and sale price is what is actually taxed at one third not the accumulation of all these above calculations. However an individual should have the opportunity of paying for example two thirds of the tax due in one year so that he or she can then keep 100% of the property. In this case the owner needs to establish the value of the property before and after the year in question. The valuations can be provided centrally again by using typical price increase rates for that type of property over the period in question. Should the owner disagree with those valuations then he or she would be entitled to use independent valuations instead. In this way money flows from property price appreciation directly to the Treasury. This reduces the amount of capital being created in property by inflation and returns that to the Treasury. It can be shown that the maximum tax payable on a property owned for a very long time and bought for a very small amount of money is never more than the tax rate, such as the value of one third used in these calculations.

In the case of the sale of someone’s main residence the tax due is established using the above formulae. Should the individual wish to purchase another property and not pay any of the accumulated tax then the new property will end up by being partly owned by the state who will have invested the tax due in this new property. Any other sales or transfers would necessitate payment of the tax due in full at the time of sale. For owner occupiers this taxation approach will make very little difference compared with the present situation until the property is sold for the last time. The critical difference here is that all other property will then be taxed whenever it is sold with the owner having the ability to preserve value by paying two thirds of the tax as it arises on a year-to-year basis.

This form of taxation might appear to be a very complicated way of deriving much the same taxes that are taken today. With a constant tax rate (the one third used above) that may be true but it does allow rather different way of taxing that reigns in very large rates of property price inflation. Rather than use the one third mentioned above, the rate could be for example 2/3 of the rate of inflation above the consumer price index (CPI). A relatively high tax rate of that sort would have a much greater effect on the overall rate of price inflation.