Bakers take the heat out of the VAT rise

Fee and KJ discuss the 'pasty tax' levied on hot takeaway foods

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Cameron and cash for access

Chris seeks access to a David Cameron TV appearance

SOURCE TELEGRAPH: Cash for access: David Cameron's private dinners for donors revealed
David Cameron has been forced to admit that 15 donors who between them gave the Conservative Party £25million enjoyed secret dinners and lunches with him at Chequers and in Downing Street.

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Budget serves up more bad news for older people - how much can they take!

 

By Dr.Ros Altmann, Director General of SAGA 

This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.

There was plenty of bad news for older people in this Budget:

Shock rise in age allowance hits middle-income pensioners - poorest and richest are unaffected:  The big shock in this Budget was the astonishing stealth tax announced for 5 million of Britain's middle class pensioners.  Any pensioner with income between around £10,000 and £24,000 a year will pay more tax in future than they would have done without this change.  The Government says this is a measure to 'simplify' the tax system - and it is true that the age allowance is very complicated - but the reality is that this is really just a revenue-raising exercise.  People reaching age 65 in the next couple of years will be £4 a week worse off as a result of this measure.  If their state pension had been reduced by £4 a week there would be uproar, but abolishing the age allowance has a similar effect - although only for the middle income pensioners.  The very poorest and very wealthiest are not affected, because the age allowance is phased out once older people's incomes reach around £24,000 a year. So it is the decent middle income pensioners, who worked hard and saved hard to have a bit of extra income in later life - the very people that we should be valuing highly - who are hit by this move.  The Office for Tax Simplification report did point to the complexity of the age allowance, but recommended that, if it were removed, other measures could be introduced to offset the income reductions for pensioners.  The Chancellor chose not to listen to this and just removed the allowance.

Nothing for savers:

There was nothing in this Budget to help savers, especially older people trying to live on the income from their savings.  The policy of ultra-low interest rates for the last three years, has hit savers hard and there was still no help from the Chancellor. 

The very least he could have done would have been to relax the restrictions on ISAs that mean older savers cannot put their full annual ISA allowance into cash savings.  At the moment, only half can be in cash, with the rest having to be put into more risky shares or bond investments.  The Chancellor should allow older savers, who may not be able to afford to gamble their lifetime savings on the stock market, more flexibility to decide what type of savings are best for them, rather than being denied a choice and forced to take risk in their ISA.  More flexibility and choice would be far better for older savers, helping to offset some of the damage done by ultra-low interest rates and would have softened the blow of the abolition of the age allowance, allowing people to keep more of their meagre interest income tax free would be far fairer than adding insult to injury by taxing them even more!  There was no announcement about new incentives to help people save for later life care needs either.  It seems that savers simply do not matter to the Government.  The message it is sending to the population is that those who save are valid targets to take money from, while borrowers are baled out.

Nothing to mitigate the damage caused by Quantitative Easing and high inflation - annuities, income drawdown and pension funds all hit with no relief in sight:

There is precious little evidence that Quantitative Easing (the Bank of England's policy of creating billions of pounds of new money to buy up Government bonds) has actually stimulated the economy, but there is plenty of evidence that it has done dreadful damage to pension funds, pensioners and annuities.  By buying so many gilts, the Bank of England has forced long-term interest rates down, but has not kick-started huge amounts of help for the small firms that are the lifeblood of a growing economy.  QE was meant to be a 'temporary' policy to avoid economic meltdown and stimulate the economy.  Unfortunately, the policy is still in place, even though deflation and depression are no longer on the horizon.  In fact, this temporary policy has permanently impoverished over a million pensioners already, with more facing the same fate each week.  Nearly half a million pensioners buy annuities each year, and the lower the interest rates on government bonds, the lower annuity rates fall and the less pension income people will receive for their pension savings.  Since QE started, annuity rates have fallen by 20%, so pensioners face a fall in their lifetime pension by a fifth - and this is a permanent reduction, because once the annuity is bought it can never be changed.  In addition, the annuities being bought are almost all 'level' annuities, which offer no protection against inflation.  The income stays the same for the rest of the person's life.  Therefore, the current high levels of inflation are continuing to whittle away these pensioners' purchasing power.  There has so far been no recognition of this problem and the Chancellor continues to consider very low Government bond yields as an unalloyed benefit for the country.  This is not the case.  Annuity rates have fallen by a fifth, inflation for older people has risen by over a fifth and pension deficits have increased by more than £90bn, largely as a consequence of QE.  Measures to help alleviate these problems are needed urgently before our pension system is further undermined.

Perpetual and 100-year gilts not good for pension funds, try longevity gilts instead:

The Chancellor's announcement of a consultation on issuing 100-year gilts seems more of a gimmick than a useful tool for pension funds to consider investing in.  One has to wonder why pension funds would want to buy 100-year gilts at all, but especially not at current yield levels.  Today's pension fund and annuity liabilities do not have a 100-year time horizon and, after the Bank of England has just been buying up a third of the outstanding stock of gilts, artificially depressing long-term interest rates - pension investors would be reluctant to lock into current rates for so long.  It would be far more helpful to pension funds if the Government were to issue longevity gilts, rather than 'century' bonds.  Longevity gilts would pay an interest rate dependent on rises in life expectancy, which would allow pension schemes and annuity providers to better match their liabilities.

So that's the bad news, but there were actually some pieces of better news:

Radical state pension reform at last:

A long overdue and very welcome announcement was that there will be radical Sate Pension reform.  This is great news and there will be a Consultation later 'this Spring' on a flat rate state pension of around £140pw, above the means-testing level.  This would merge the Basic State Pension with the State Second Pension in future and this new state pension will still be based on contributions paid in, finally moving us towards a system without mass means-testing for pensioners.  Of course, we need to see the details when the consultation comes out, but if introduced correctly, this measure could end the penalty suffered by those lower income pensioners who save for retirement or try to keep working in old age and find they lose much or all their extra income in the means-test.

No changes to pensions tax relief - great news for the pensions industry:

There was great news for top rate taxpayers, as the Chancellor announced he was not changing pension tax relief rules. The pensions industry will welcome this and it is a great chance for 50 per cent taxpayers to pile into pensions and contribute as much as they can this year - before the 50% rate is cut to 45% next year.  50% relief means anyone contributing £3 to a pension will get another £3 from taxpayers.  Those on 40% tax will only get another £2 for every £3 they contribute, while basic rate taxpayers get about 80p extra for every £3 they contribute.  By not changing pensions tax relief, the Chancellor has avoided more negative headlines about pensions.  2012 is a very important year for pensions, as all workers will start to be automatically enrolled into a workplace pension scheme, to which they and their employers will have to contribute unless the employee opts out.  This would not, therefore, have been a good time for negative news on pensions.  In fact, pensions confidence has collapsed, particularly in the private sector in the past few years.  Official figures, released today, show that less than one third (only 32%) of private sector workers are in a workplace pension scheme.  So any measures that would further reduce the attractiveness of pensions would be unwelcome, if the Government is really serious about encouraging pension provision.

Good to see pension funds assets being harnessed to stimulate the economy:

Another welcome announcement is that the Chancellor will be using pension fund assets for major national investments, with a Pension Infrastructure Platform providing investment in long-term projects to modernise our outdated infrastructure. Harnessing the power of pension fund money to help stimulate the economy is a very sensible move.  I would hope that many pension funds, not just the twelve already working with the Treasury on this, will be able to join in.  Investing in infrastructure is a good way to stimulate the economy but is also potentially attractive asset for pension funds.  Infrastructure projects, if successful, can offer inflation-linked returns and some capital appreciation for investors, which is an ideal return profile for pension funds.

Finally…We are very fortunate that we have so much money in pension funds, which is the result of people saving for retirement in the past.  We must recognise the value that these assets bring to our economy and not take for granted the value of long-term saving.  Policymakers please take note.  Borrowing will not provide sustainable long-term growth - we also need to encourage saving and investment.

Dr. Ros Altmann

21 March 2012

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Liebrary: Does the UK have to keep reducing corporation tax to tempt businesses to come here?

"Stopping the lies is an impossible task. But spreading the truth just takes a re-tweet."


With the Chancellor's Budget announcing a drop in Corporation Tax down to 22% in 2014, her Majesty's Treasurers got their crayons out and came up with this super poster.


It Demonstrates very effectively how low Britain has dropped its Corporation Tax. 


With only Turkey, Saudi Arabia and the Russian Federation offering lower corporate tax rates, how much lower can the Chancellor get?


As an added temptation, the Chancellor has offered the 'patentbox' scheme offering a 10% corporate tax rate. This is available for profits made on intellectual property and patent licencing income. Not much job creation there. No factories needed, just a couple of guys counting the money as it rolls in. But the chancellor has worked out that if someone is going to get their tax, it may as well be him. Should I have said "it may as well be Britain"? Not really. Politicians collect the sugar to distribute to whom they will, in return for what they want. For example, tax cuts for millionaires paid for with tax hikes for pensioners.



So why, inspite of all these temptations, are all those companies still incorporated in the US, Japan, Germany, France and other countries who charge oodles more corporation tax? 


Could it be that British Chancellors, from Gordon Brown through Alastair Darling over to George Osborne have not yet learned the lesson of the nightclub slapper? A short skirt only guarantees you a drafty backside! 


 


And yet, the message from a succession of Chancellors - Britannia is ready to drop everything to get your business.


Improving infrastructure, investing in training and education, they would make Britain more competitive and attractive to business. But investing in Britain and in Britons costs money. Much easier to cut the rate of tax.


Britain becomes ever more like a tax haven for companies and foreign oligarchs. But not if you are an ordinary domiciled ripped-off Briton.

*************************************************************

Budget 2013 Update: Corporation tax to drop to 20% in 2015, equaling the lowest rates of the G20.  And way way below corporation tax rates of G7 countries who are supposed to be our main competitors as shown in this graphic by our HMRC doodlers:

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Don't be fooled. It was bank borrowing that caused the debt crisis, not consumer borrowing.

So who was the "irrational" borrower that brought down the economy? And was the culprit actually "irrational"?


If you weren't sure why the banks got themselves, and everyone else, into such a pickle with the Credit Crisis, the 2012 Budget Document is the source of some nice nuggets of information. Civil servants, competent and on the whole moderately paid, have little incentive to avoid the truth and will often slip it in if they can.

The financial sector, having burned down the economy, tried to plant the box of used matches in the hands of the public. Ordinary Britons were fingered as a major cause of the crisis due to accepting a rush of cheap credit they couldn't afford. 


They glossed over the fact that the banks and building societies were the pushers of the cheap credit. And they also omitted to point out that actually it was overwhelmingly the banks - not the consumers nor the non-financial businesses - that went on a borrowing frenzy.

Why did the banks borrow so much? "Casino banking" is intended to be derogatory, but bankers probably don't realise they are supposed to feel insulted - as it couldn't be closer to the truth. Idiot sons for hundreds of years have been gambling away their family fortunes - relying on indulgent parents to bail them out. Cunning bankers have been gambling the nations money in the same way - knowing that indulgent politicians would bail them out using the taxpayer's money.

Here is how borrowing boosted bankers bonuses in the good times, and crushed the economy when their bets went wrong:

Idiot Son: I have £50. 

• I bet it on a "six line" (odds 5:1) spin of a roulette wheel.
• If I win. I pocket £300 (my original £50 plus 5 x £50). 
• A 500% return on my original money! 
• If I lose.
• There goes my £50. Back to daddy for some more cash.

Cunning Banker: I have £50 million. I borrow another £250 million.

• I bet it all on bonds, equities, derivatives (odds 5:1) not unlike the spin of a roulette wheel. 
  
• If I win. I get £1,800 million (my original £50+£250 million,  plus 5 x £50 million plus 5 x £250 million)
• I pay back the £250 million. I pocket £1,550 million.
• A 3,100% return on my money!
• If I lose. 
• The taxpayer bails me out. The taxpayer loses his job, has his benefits cut, has his pension reduced and deferred, the nation is protected by an aircraft carrier with no aircraft.

*** MORE DATA FROM McKINSEY report "Debt and deleveraging: The global credit bubble and its economic consequences" added to this post in December 2012***

"The United Kingdom and Spain stand out for having the biggest increases in financial sector debt relative to GDP. These figures reflect the rapid growth of the financial sectors in those countries as well as a gradual shift by their banks away from relying on deposits to fund lending towards raising money by borrowing in the wholesale markets."

OUR RELATED STORIES:

In numbers (+ a cool animation): Global tax evasion and money laundering

US Federal Reserve study says high reward actually results in worse performance

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Government does us a favour by taking away our money because it is all to complicated for us.

At last, we know why governments in recent decades, both “left” and right and right-ish, have thrust more money at the wealthy and snatched more from the less well provided for. 


It is because it is all too complicated for us, having all that money. Which is why the recent Budget included a 'major simplification' for pensioners.

We have to thank the Chancellor, George Osborne who made this clear in his 2012 Budget speech:

“We should also simplify the age related allowances - which the Office of Tax Simplification have recently highlighted as a particularly complicated feature of the tax system.

The National Audit Office points out that many pensioners don't understand them.

These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded away.

So over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6th April 2013 and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance.

This will protect the existing level of allowance pensioners have, while introducing a single personal allowance for all.

It is a major simplification.”

In summary:

• Age related allowances are complicated.
• The National Audit Office says many pensioners don’t understand them.
• Pensioners have to fill out self-assessment forms.
• Conclusion: to simply things, we will take these allowances away.
• “It is a major simplification”, says Osborne.

In the words of Ros Altmann, the Director General of SAGA:

“This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”

Could it be it isn’t just the government? Could it be all companies – banks, electricity, rail etc. – are doing us a favour by ripping off our money? Because having money is just too complicated for us? Well thank you so much!

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Fee is dismayed by the 50% fees banks levy on pension pots

Foreign pension providers are just the ticket

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The gang debate David Cameron's plans to privatise the roads

Road signs o' the times

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Why a 50% top rate for income tax is too low. And how the government provides a sneaky unlimited 32.5% avoidance route for the über-wealthy already

As the 2012 Budget approaches, Tory ministers and their cohorts argue for the abolition of the 50% income tax rate. They claim it fails to achieve the objective of raising more tax, and acts as a disincentive to wealth creating businessmen.

The falsity of these claims is easily demonstrated:

a) Should the 50% rate of tax result in significant extra tax collection?

Yes it should. According to HMRC figures for 2010-11 £23.3 billion was expected to be collected at the 50% rate. This means £46.6 billion of taxable income at this top rate. Reducing the top rate from 50% to 40% would mean £4.66 billion of taxes would be lost, handed back to Britain's wealthiest. Except the wealthy know how to dodge the tax. Cutting the tax would be a reward for bad behaviour!

b) Does the 50% rate of tax discourage creative dynamic entrepreneurs?

No it doesn’t. Nearly 60% of employment in this country is provided by small and medium businesses. The directors of these firms earn on average £90,000 – well below the 50% tax band. Creative dynamic entrepreneurs rarely sit on the boards of FTSE100 companies, or in the banking halls of the City. Creative dynamic entrepreneurs tend to reinvest their profits in their companies, rather than extract them as 'remuneration'. They do the extraction once their creativity and dynamism has faded.

In any case, the government provides the wealthy with many loopholes to circumnavigate this tax. The 50% rate only applies to employment income and interest on savings - the only sources of income most Britons have. Tax on dividend income, while not exactly an enigma wrapped in a puzzle, is just obscure enough to escape general notice. According to the HMRC figures for 2010-11, those earning over £150,000 slipped more than £14 billion of dividends through this particular diversion, taxed at 32.5%.

Although the top rate on dividend income is published by HMRC at 42.5%, dividends are paid with a 10% ‘tax credit’. Rather like the rip-off permanent sales found at some furniture warehouses – everything is permanently “reduced” - the pretence of the 42.5% plus 10% tax credit results in an actual 32.5% tax rate. There is no limit on the amount of money that can be pushed through this route. Similarly, the 28% top rate of Capital Gains Tax provides yet another little escape route for the asset trading classes, including company executives cashing in their share options.

Making the tax on dividend income equal to that on salary and savings income would have raised an extra £5.2 billion in 2010-11. The argument that corporation tax has already been paid on the dividends, so income tax is a double tax is itself another smokescreen. When I buy a hamburger the burger joint doesn’t claim that my money has already been taxed, so why should they pay tax. Far from reducing the 50% rate on salary and savings income, it should be extended to all income including dividends. That would pull in a worthwhile additional chunk of revenue.

In any case, is the prime reason for high top-rate tax to collect more tax? Even if it was bad at doing that, there are important collateral benefits. Sometimes things that work very inefficiently can be very effective. 


A good example is the Child Maintenance and Enforcement Commission, which took over from the Child Support Agency. It aims to ensure that absent parents contribute to the financial costs of bringing up their children. The Commission, like its predecessor the Agency, is often criticised because it costs far more money to run the Commission than the amount of child support it extracts from reluctant parents. According to its press release in December 2011

“Almost £2.5 million has been secured for deduction from parents’ bank accounts since new powers were introduced in 2009.”

The Commission’s budgeted operating cost for 2010/11 was £577 million. One might say a huge disparity in cost over benefit. But such a criticism would entirely miss the point. The success of this organisation is measured not in the amounts it collects, but in the amounts it doesn’t have to collect. Many absent parents willingly and sometimes generously support their children. However, the Commission should take credit for the financial support from those absent parents who fear the consequences of not paying up. And perhaps should also take the credit for the contraceptive precautions taken by people who would otherwise casually produce children were there no long term liabilities for themselves.

As another example, the cost of running the police force is vastly greater than the loot they recover from arrested villains. The true value of the police is not measured in the crimes they solve, but the crimes that don’t happen because the criminally inclined fear the consequences.

We hear a lot about ‘unintended consequences’ – the indirect results of policing and child support are examples of ‘intended consequences’. The reason to do a particular thing is not only to get that particular thing done – the reason is also the intended indirect consequence.

Hence the purpose of the 50% tax rate is not merely to increase the nation's tax revenue. It is also to decrease the amount the overpaid get to keep. An intended consequence is to decrease their incentive to rip us off. While a tasty bonus may incentivise many an energy company executive to push up prices, leaving 22,000 pensioners to freeze to death - perhaps the thought of paying 50% in tax would ignite his humanity, and let them live.

The frenzied ripping-off that goes on in certain sectors – exemplified by the “muppet-gate” resignation letter of Greg Smith, an executive director of Goldman Sachs, claiming a culture of “ripping the eye-balls” out of clients – is fuelled by excessive pay. The leaders of companies have declined to cut pay, including their own. The surest alternative is to tax it away - to raise revenue, but also to reduce the incentive to rip-off.

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Will The Big Switch shake up the energy market? Join the Which? campaign to get a better deal!

 

 

By Richard Lloyd, Executive Director at Which?

Until now, hard-pressed consumers have had to go it alone when they want to negotiate a better tariff with the energy giants. That is why Which? and online campaigners 38 Degrees launched The Big Switch, a completely new way to buy energy using the power of thousands of consumers to negotiate a market leading deal with suppliers.

There has been an incredible response with more than 200,000 people joining together to get a better deal in less than a month. This unstoppable tide of public opinion shows the public demand for fairer, more affordable energy.

People can sign up until the 31^st March, and once we know how many are interested in switching, we will hold a ‘reverse auction’ where energy companies are invited to put forward their lowest price per kilowatt of electricity and cubic meter of gas.

This is the first time this type of initiative on such a scale has ever been tried in the UK, but last year in the Netherlands the consumer organisation Consumentenbond successfully negotiated an energy deal for 20,000 consumers using this method which resulted an average saving of around €300 per person.

It is no surprise that people are at the end of their tether with the energy market. Household bills continue to rise despite some energy suppliers announcing increased profits. And it’s no wonder that the level of consumer trust in energy companies is so low when people find it almost impossible to understand different tariffs and end up paying more than they need. 

Against a backdrop of poor complaints handling, bamboozling bills and tariffs that even energy sales staff struggle to understand, the suppliers now say they want to re-engage with their customers. The Big Switch is an opportunity for the companies to do just that when we ask them to take part.

While it remains to be seen how well the suppliers will respond, our aim is to make sure that tens of thousands of consumers will save money from the resulting best bid. We’re asking people to give us more information about their current usage so that we can provide everyone with personalised savings estimates, and people can choose whether or not to switch.

Thousands of people are joining in because they want to do more to influence the energy market than they can do alone. This new way of joining together to cut energy bills has clearly captured people's imagination. But with millions of people in the UK worried about paying their energy bills, we need more people to get involved. We are urging more people to get their family, friends and communities to sign up before the end of March. The more people that join together, the stronger our power when we are bargaining with the energy companies.

Richard Lloyd, executive director at Which?

People can register their interest using the The Big Switch website until the end of March. All they'll need to do this is to provide us with their name and email address.

Once they've registered we'll contact them to find out more about their gas and electricity tariffs, so we can negotiate the best deal with suppliers.

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The "Muppetgate" Goldman Sachs resignation letter

The gang discuss Greg Smith's open letter in the New York Times offerring his resignation

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Tax avoidance: crossing an ethical line

Chris's friend defends his decision to massage his taxes

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Liebrary: Do income tax cuts for the rich make us all richer? See the dismal evidence to the contrary

There is a predictable perversity in government policy claiming to encourage Britons to work harder. Like so much past policy the government claims that for the good of the nation it must give the rich more and give everyone else less. A carrot and stick policy that hands all the carrots to the wealthy and only swings sticks at the rest. Two current ideas being pursued by the current government's Tory dog, with its Liberal tail noticeably not wagging, are characteristic of this philosophy:

• Give the rich more money, by cutting the 50% tax rate, in case they become disincentivised slacking tax-dodgers.
  
  
• Give everyone else less money, by cutting tax credits and benefits, freezing wages, and pruning pensions, in case they are incentivised to become slacking scroungers.

The argument that giving the moneyed elite more money will make everyone wealthier manages to ignore the roaring evidence of the past.

Over the last few decades Britain has given the rich a rapidly increasing share of national wealth and national income. In the same period, the lower 90% of the nation has seen no increase in its income at all.  The data from the Paris School of Economics shows how over the 20 years up to 2010 the income of the top 1% has doubled while the income of the bottom 90% stagnated. High rewards for the top brought nothing to the majority.

Since the mid 1980s Britain has doggedly followed the USA with the top 1%’s share of national income racing away from that in other similar nations. In stark contrast to what happened in other industrialised nations the UK and USA allows the wealthiest to swill to their fill. A cash grab led by bankers and eagerly followed by top executives of other industries. A cash grab funded by rip-offs, such as Payment Protection Insurance and many others in many industries, perpetrated on ordinary people.

Even though other nations did not lose their grip on their own wealthiest 1% they were not insulated from irresponsible and rip-off commercial behaviour. The dash for the cash by the bankers of New York and the City of London brought the whole world into economic crisis. Far from ensuring national wealth, giving the rich more brought global ruin.

This grotesque cash-grab can be seen in the change in pay of Britain’s top bosses. The table, from the High Pay Commission, shows that in 1979-80 the directors of top British firms earned around 15 times average pay. By 2009-11 their pay had soared to 75 times average pay. Were the old bosses a bunch of slackers? Do the current bunch deserve a pay multiple five times greater? 

High Pay Commission Report

The focus on the 50% income tax rate as a drag on business is in any case entirely bogus. Most employment in this country is provided by small and medium enterprises (SMEs), in which the average salary of a director is below £100,000 per annum - nowhere near the £150,000 that would incur the 50% rate. The 50% rate doesn’t affect most of those who innovate and build the economy. It mainly affects those who have caused the crash, and those who make their money ripping off Britons: the bosses of FTSE100 companies, the bankers and businessmen prepared to do anything for their next bonus fix, ably supported by their well paid spokesmen in the Confederation of British Industry (CBI).

Thus we see the claim that higher income taxes on the wealthiest are bad for business is bogus.

On the other hand, there are several reasons why higher taxes on the wealthiest would be excellent for business and national prosperity. The excesses of excessively paid bankers have been made painfully evident to the world. The biggest companies have shown they are unwilling to bring the pay of their bosses to sensible levels. And yet less pay would make them better executives. Higher top-rate tax would bring this about:

-         Turn the pursuit of money into the pursuit of excellence. Top executives have long since learned that one of the easiest way to make profit is by scamming their customers. Payment Protection Insurance, in which the banks were forced to return scammed billions to their customers is an example. If you wondered why UK rail fares are so expensive, don’t forget that one person’s grotesque waste is another person’s grotesque profit. And remember that the pitiless profiteering of energy companies causes an additional 2,700 deaths each winter due to people being unable to afford their heating bills. These are the consequences and actions of money-driven executives.

-         We will find more people doing the job for the love of the job, rather than for the love of the money. There are no ‘vocational jobs’, there are only ‘vocational people’. It is an attitude. Thousands of executives in law, banking and other professions curse the work they do but suffer it for the pay. Better we have thousands who practice law to see justice, teach to see their students succeed, and go into banking to see their customers prosper. People will be free to seek their vocation if they are not chained to their pay packet.

-         An excessively paid individual will cling like a limpet to his job. Bosses are much less likely to move on if just one more million pound bonus will buy them just one more super car for the idiot son, or one more apartment in Paris for the supplementary squeeze.

-         If people slack because they aren't paid enough then other people will move up to fill the gap.  Unique individuals, such as Steve Jobs and John Lennon, make up a tiny fraction of the high paid. And even when these unique individuals are gone the world still carries on undiminished, having blinked away a tear or two. Most of the high paid – senior managers, lawyers, doctors, computer programmers, entertainers, et cetera – are easily replaceable and quickly forgotten. If they slack, someone else will take over. And there is no greater incentive to work hard than the opportunity to move to a better role.

The proponents of top-rate tax cuts will claim this is all about envious targeting of the deserving rich. Many of the opponents will claim tax cuts should be aimed at the poor.


They both miss a crucial point. Taxing the excessively paid is also about reducing the rewards for rip-offs. By reducing the rewards we reduce the massive bite they take out of all us Ripped-off Britons.

High Pay Commission Report

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Government asks for your opinions on rail fares. Make sure you don't disappoint them - use Campaign for Better Transport's simplified form

Sophie Allain, Campaign for Better Transport's public transport campaigner

The Government launched its rail fares review today with the potential to be the biggest shake-up of our fares system for decades. With rail fares a hot topic across the country affecting the pockets of hundreds of thousands of people, the chance to have a say on fares will be irresistible for many. The Government has said it wants to hear from passengers and has allowed an extended period of time for the consultation.

 

To help people respond easily we’ve produced a simplified form on our website which people can use to take part in the review and send their views to the Government. We’re also encouraging people on twitter to tweet their views using #farefail.

They are several things up for discussion in the review, but the main issues for passengers are likely to be surrounding tickets and staffing. It’s no secret that rail fares have become hugely expensive having soared by up to 200 per cent since 1995. As part of the review, the Government will look at allowing train companies to increase some peak fares, in order to reduce demand for the busiest trains. A poll we conducted showed this is deeply unpopular with passengers with 63 per cent believing that raising fares on the busiest trains at a higher rate than other services is unfair for all passengers, even if it meant lower fares on some less busy services.

With fare rises of inflation plus 3 per cent for the next two years, fares will already be 24 per cent higher in 2015 than they were in 2011. Proposals for ‘peak peak’ tickets would mean some passengers seeing even steeper increases. Whilst the Government has committed to ending inflation-busting fare increases “at the earliest opportunity”, no one seems to want to put a date on that.

So after many months of waiting to have our say, we need to make sure that this opportunity to improve the fares system is not wasted. Please do take part in the review and have your voice heard. If you need inspiration, here’s a list of ideas we think would improve train fares and tickets:

•          The cost of train tickets in the UK is soaring year on year and fares must start coming down.
•          Instead of hitting commuters at the busiest times with an additional fare hike to manage demand we need more capacity and more flexible working patterns.
•          Stop making people feel like criminals when they catch the wrong train, let them top up their fare instead.
•          Introduce a part-time season ticket for part-time workers.
•          Put a cap on walk-on fares so we don't end up with a discount airline ticketing system where you have to book in advance and fare prices change by the minute.

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Savings and loans: banks make £20bn a year the easy way

Chris and his wife are incensed by the interest rates banks are offering on their current accounts

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Excessive pay is at the root of all rip-offs: The new Ripped-Off Britons’ "Rip-Off Triangle" explains why companies rip us off

The “Fraud Triangle” is an established method for sniffing out fraudulent activity, particularly in companies. The three sides of the triangle are:

• Opportunity
• Incentive/Motive
• Rationalisation. 

According to the KPMG report “Profile of a fraudster 2007”

"Opportunity generally occurs through weaknesses in the internal controls and creates an atmosphere where fraudsters believe they are likely to be successful and undetected.. .. Trust, however, though important in business often becomes the door opener for fraudsters.

Motive often develops from financial pressure resulting from a fraudster’s excessive life style  …. or the superiority complexes of the individual or basic greed.

Rationalization is the fraudster’s internal dialogue that provides the self justification for his actions. The fraudster convinces himself/ herself that he/she is owed this remuneration by the employer."

The report also states:

“Greed and opportunity (when taken together account for 73 percent of profiles) are indicated to be the overriding motivations for fraud.”

“Members of senior management (including board members) represent 60 percent of all fraudsters. An additional 26 percent of profiles involve management level persons bringing the total to 86 percent of profiles involving management.”

With the management of companies being the core cadre of fraudsters, our own Rip-Off Triangle demonstrates why companies rip off their customers. 


After all, why would a senior manager rip off his employer and risk the shame of sacking and jail, when he can rip off his employer’s clients and look forward to a bigger bonus and promotion?

The three sides of the Rip-Off Triangle are constructed thus:


1) The base is built by people, for people, and with people who are all highly incentivised by money. Exorbitant bonuses in banking, energy, transport and other industries have seen a proliferation of rip-offs. A big enough bonus will salve the conscience of any bonus-driven executive as they perpetrate their sharp practices:

• Bank customers tricked into poverty due to mis-selling, excessive charges and other scams.
• Pensioners exposed to the risk and the reality of freezing to death in the winter due to gouging electricity and gas bills.
• Rail travellers condemned to delays, over-crowding, and fatal accidents due to cost cutting on maintenance and staffing.
• Customers of phone, cable/satellite television and other services ambushed as they get surprise stonking bills hidden by complex charging.

2) The right side of the triangle is provided by cowardly and complicit British consumer protection law, and equally cowardly and complicit regulators. As we saw in an earlier post, consumer protection law only requires companies not to bamboozle and swindle the ‘average’ customer. 

The “Consumer Protection from Unfair Trading Regulations” states:

• A commercial practice is unfair if…..it materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product. 
• A commercial practice is a misleading action if…. it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise. 
• A commercial practice is a misleading omission if, in its factual context…. it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise. 

Mathematically speaking, half the population is "less than average", and so is fair game. (Before mathematical pedants get picky, we assume a Normal Distribution here).

3) The left side of the triangle is tragically made up of us Ripped-off Britons. The 2011 Skills for Life report reveals that nearly half of adults in England have the numeracy level of junior school children, between 5 and 11 years of age.
National           Approximate School

Standard          Level Equivalent

Entry 1             Key stage 1 (ability expected of a student age 5-7)

Entry 2             Key stage 2 (ability expected of a student age 7-9)

Entry 3             Key stage 2 (ability expected of a student age 9-11)

Level 1             GCSE D-G (ability expected of a student age 11-14)

Level 2             GCSE A*-C (ability expected of a student age 14-16)

Of the three sides of the rip-off triangle, the hardest one to break is innumeracy. This is a battle that will take generations to win. Make no mistake, companies will fight back to ensure that as numeracy increases, the complexity of their deals will also increase to maintain the bamboozle margin. But it is a battle well worth fighting.


Organisations like "National Numeracy", which launched in March 2012, demonstrated a rare insight by recognising the difference between school maths and functional numeracy. Many Britons made to suffer at school by constructing isosceles triangles and rotating a parallelogram 90 degrees anticlockwise about the origin, maths that is useless even to most professional mathematicians, develop an aversion to all numbers. Associating academic maths with personal nightmares, they shy away from the really important functional maths, as described by the National Numeracy guys:

• being able to critically assess statistics used by advertisers or politicians
• being able to manage family budgets – credit cards, offers at supermarkets and so on
• being able to estimate – in all kinds of situations, e.g. journey speed, time and distance, roughly how much a bill will be or your expected bank balance at the end of the month...

While numeracy is a problem for the long term, the other two sides of the Rip-Off Triangle, excessive pay and weak regulation, can be broken by the stroke of the legislative pen:

Excessive pay              
Nobody deserves multimillion pound salaries for their work. Don't leave the overpaid bastards enough of their excessive gains to make it worth selling their souls. Companies have already shown they are unwilling to bring down pay. Solution: tax them.

Weak regulation
The law currently protects the 'average' consumer, but doesn't define what that average is. Strengthen the law to protect people with the numeracy of an eleven year old. If a contract cannot be understood by an average junior school child then it should be un-enforceable. This is an extremely easy, quick, and low cost test - just send the contract to a junior school and see what the students make of it. Also, strengthen enforcement. Don’t let the perpetrators walk away “neither admitting nor denying wrongdoing”. Make the punishment hurt the perpetrator – community service or jail time - as a fine simply makes no difference.

We currently have the ridiculous situation where functional numeracy in the form of financial education of children is left to the banks, who have well funded programmes sending their staff into classrooms! Rather like giving the Big Bad Wolf the contract to build houses for the little pigs.

Wolf:                “Wolves in general are fine. It’s the Big Bad ones that you have to watch out for”

Little Pig:          “How do we know if a wolf is a Big Bad wolf?”

Wolf:                “You’ll know when he has you by the throat, snatching your savings, extorting ridiculous interest from your borrowings, and pillaging your pensions with high charges.”

Little Pig:          “When would we know that?”

Wolf:                “Well, you will know about five years after you come to our branch and sign on the dotted line.”

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