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

Foreign pension providers are just the ticket

Read More

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

Road signs o' the times

Read More

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.

Read More

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.

Read More

The "Muppetgate" Goldman Sachs resignation letter

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

Read More

Tax avoidance: crossing an ethical line

Chris's friend defends his decision to massage his taxes

Read More

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

Read More

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.

Read More

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

Read More

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.”

Read More