Tax avoidance – supporting evidence for the Marxist Perspective on Crime

One of they key ideas of Marxist criminologists is that the Law is made by the property owning Capitalist class and  serves their interests.

(NB You might like to review the perspective by reading this long-form post on the Marxist theory of crime more generally before continuing…)

The issue of tax avoidance, which means legally bending the rules to avoid paying tax, is one of the best examples of how the legal system surrounding tax is structured in such a way that allows the wealthy to set up ‘shell companies’ in tax-havens to avoid paying tax on their income and investments….

Such methods can only ever benefit the rich as you need to be quite wealthy to be able to afford the legal and accountancy fees associated with doing this, so these methods are not really available to average, or even moderately high income individuals.

Lewis Hamilton Tax Avoidance.png

To my mind, the most notorious example of a tax avoider from 2017 was Lewis Hamilton, who used the ‘off shore’ method to get a £3 million VAT rebate on his £16 million private jet.

The Lewis Hamilton story was revealed as part of the ‘Paradise Papers’ leak – which consists of 13.4 million documents from offshore legal service providers such as Appleby covering seven decades, from 1950 to 2016. Tax-dodging is a very common practice by the wealthy!

Focussing on Corporate Tax Dodgers rather than individuals…

Corporate Tax Dodgers: the UK’s Worst Offenders – This article lists Google and Gary Barlow (or rather the Corporate entity ‘Take That’ as among the UK’s worst tax-dodgers, although it doesn’t distinguish between tax evasion (which is illegal) and tax avoidance (which isn’t)… I especially love the fact that it was put together (as basically an advert) by an accountancy firm in the North East of England – one of England’s poorest regions and thus the most likely to suffer from lower government revenue to tax dodging.

On a similar theme this Daily Mail article outlines with more clarity the Corporations avoiding Tax – including some very big names such as Café Nero and Vodafone, and LOTS more!

 

 

 

 

 

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How to Improve Work in the United Kingdom

Below is my summary of chapters 6-11 of the Taylor Review of Modern Working Practices, which deals with what needs to be done to make work better for more people in the UK.

Executive summary: we need to deal with the following areas:

  • Legal issues – we need greater clarity in the law pertaining to employment status and employment rights (dealt with in chapter 5) and we need fairer enforcement when people make claims against their employers (dealt with in chapter 8)
  • Flexible worker arrangements – we need to make sure that flexibility isn’t one sided, we need to make sure it benefits all workers, not just a companies and some workers (dealt with in chapter 6)
  • We need to make sure business is responsible – which includes making sure that workers feel more ‘included’ in work, or that work is less ‘alienating’ (chapter7)
  • Taxation – We need to re-jig the taxation system so it’s fairer for the employed and the self-employed (chapters 9 and 10)
  • Education needs to play a role in getting people ready for the future challenges of employment.
  • Worker progression – employers need to provide more opportunities for workers to progress.

Legal issues/ Improving Clarity in the Law (chapters 5 and 8)

The context for this chapter is that the law surrounding work and workers’ rights is becoming more complex given the diversification of types of work.

There are currently three types of ‘worker’ in the UK (according to UK employment law) – employees, self-employed and ‘workers’.

  • Most people in the UK will be ‘employees’, with the full range of employment protections available. This is because the majority of people still work in traditional, full-time roles.
  • For others who are genuinely self-employed, employment protections do not apply. For those who are neither employees nor self-employed,
  • the status of ‘worker’ provides a relative safety net, ensuring that a group of more casual workers are protected by a set of baseline rights – such as the National Minimum Wage

The report basically argues that there is too much confusion in, for example, gig economy work, over whether workers are genuinely self-employed or not – basically, companies such as Uber have tried to defined their workers as self-employed, while at the same time effectively controlling the hours they work, but recently Uber employees managed to win a court judgement that they were in fact ‘workers’ rather than ‘self-employed’, meaning they are now entitled to more protections than they would have been under the ‘self-employed’ label.

However, there is still a lot of work to be done in setting down guidance over how to determine whether an employee is genuinely self-employed or a ‘worker’ for a company such as Uber.

Chapter 8 deals with the problems workers face if they wish to make a legal challenge against their employer through an employment tribunal – the basic problem seems to be that it costs a few hundred quid to bring an employer to a tribunal and workers need to prove their employer is in the wrong, rather than the other way around.

The report recommends that the onus be on the employer to prove they are employing their employees under decent conditions.

Flexible Working/ Tackling One Sided Flexibility (chapter 6)

This chapter starts off by noting certain advantages of flexibility:

  • It can enable business to respond to changing market conditions and has supported record employment rates.
  • Individuals have the opportunity to work in a range of different ways, on hours that fit around other responsibilities, such as studies or caring responsibilities.
  • The Labour Force Survey published in March 2017 found that almost one fifth of people on zero hours contracts are in full-time education, and 68% of those on zero hours contracts do not want more hours.

There are also certain disadvantages:

  • There is an issue of flexibility not being reciprocated, with a requirement to be available for work at very short notice, without any guarantee that work will actually be available.
  • Flexible work makes it very difficult for a person to manage their financial obligations, or for example secure a mortgage, which can feel unfair, especially when the reality of the working arrangement is that the individual regularly works 40 hours a week.
  • While in theory individuals in these working arrangements have the right to turn down work, many are afraid to do so because of fear of unfair dismissal.

The report notes that ‘too many employers and businesses are relying on zero hours, short-hours or agency contracts, when they could be more forward thinking in their scheduling. Workers need to be able to make informed decisions about the work that they do, to plan around it, and to be compensated if arrangements change at short notice’.

It also notes the following, specific problems and recommendations

  • There are problems with the 26 week period before a lot of ‘workers’ rights kick in.
  • Some agency workers aren’t clear how much of their wages is going to be deducted in tax/ NI – this needs to be made clearer by agencies.
  • It’s unclear how holiday rights can be worked out for casual workers whose hours of work vary from week to week.
  • Workers who have been on temporary/ Zero Hours contracts for 12 months should have the right to request permanent/ guaranteed hours contracts.

The report cites two examples of companies which have got it right with their flexible employment policies – For example the Brewery Adnams and (surprisingly?) McDonalds:

Brewing company Adnams used zero-hour contracts to accommodate the seasonal nature of the business. However, through involvement in the Beyond Pay inquiry, they recognised how this contributed to employees experiencing in-work poverty. They moved all their existing staff onto contracts that guaranteed a minimum number of hours a week. To tackle low pay, they reduced and redistributed bonuses paid to their senior team.”

‘In April 2017, McDonald’s offered 115,000 UK workers on zero-hours contracts the option of moving to fixed contracts with a minimum number of guaranteed hours every week. The fast-food chain offered fixed-hours contracts after staff in its restaurants complained they were struggling to get loans, mortgages and mobile phone contracts because they were not guaranteed employment each week.

The company found that about 80% of workers in the trial chose to remain on flexible contracts and it reported an increase in levels of employee and customer satisfaction after the offer. Staff were offered contracts in line with the average hours per week they worked. This included contracts of four, eight,16, 30 or 35 hours a week

Responsible Work

This chapter is about two things – worker voice and transparency.

Worker Voice

The report recognises that worker voice (having a say in the way the business is run) is an important part of workplace satisfaction.

Those in routine jobs report the lowest levels of satisfaction (57%), while GIG economy workers (maybe surprisingly) report high levels of satisfaction. It’s recognised that worker voice isn’t really a problem in SMEs.

There is legislation in place to make sure that management consult workers over management decisions (especially on restructuring issues) but this only covers large employers with over 50 employees.

Transparency

This simply says companies should report on how many workers on zero hours contracts have requested guaranteed hours, and how many of those on temporary contracts have requested permanent contracts.

The recommendations for this section are pretty wishy-washy – reviewing legislation etc.

Taxation (chapter 9)

Currently, the different rates of National Insurance in particular mean that the UK system of taxing labour is not neutral – a self-employed person doing the same work as an employed person can pay a different amount of tax or National Insurance despite receiving similar contributory benefit entitlements in return.

The self-employed no longer pay any of the employer NICs contribution and their own rate is now lower than the employee rate: an employee pays NICs on their earnings at a rate of 12%, and their employer pays 13.8% on top of this.

For example, someone earning an average UK salary (around £28,000) would pay £2,095 in National Insurance if they were employed. But they would pay £159 less if they were self-employed.

In addition, the employed person’s employer would have to pay £2,409 in National Insurance on top of this. But the self-employed person does not face this charge. This means that for both the individual and their employer, they will pay less in tax/NICs if they are self-employed rather than employed.

These differences in tax are even larger for people working through their own company.

The Review considers that this situation is not justified, or sustainable, nor is it conducive to the goal of a good work economy, mainly because self-employed people generally enjoy the same protections as employed people, yet pay less tax.

Chapter 10 deals with the issue of self-employment, making the following recommendations:

  • Making it easier for self-employed people to take up traditional employment alongside their self-employed work.
  • Encourage flexible benefit platforms tied to individuals, not companies.
  • Encourage the self-employed to save more.
  • Move towards non-cash transactions to avoid ‘cash in hand work.

Chapter 11 – the relationship between education, training and work

The government’s main strategy for boosting work related training in the last decade has been increasing the number of apprenticeships – and it is now committed to providing 3 million of them (I assume running concurrently).

Apprenticeships are now partially funded through an ‘apprenticeship levy’ which is now placed on large employers (with a pay bill of over £3 million) in order to encourage them to take on apprenticeships (the arguing being if they’re paying for it, they may as well benefit from it!). However the report argues that a blanket level this isn’t fair as some large organisations simply don’t use apprentices, while some smaller firms (who don’t pay the levy) might.

The report also expresses concerns (almost as if Apprenticeships are a bit of a red-herring) about the radical decline of in-work training – only an extreme minority of those currently in-work have any kind of updating or progression training in recent years.

There is also concern about the growing difference between the type of education/ skills people have and the kind of skills required for work. At the top end, there are too many graduates and not enough graduate jobs, and at the bottom end there are too many very low-skilled people.

Another thread in this chapter is the need to equip workers with the skills that enable them to transition from job to job, because most people will switch job several times in their careers, and so learning how to reskill is crucial. A related point here is that the government needs to commit more to ‘lifelong learning’.

Finally, schools and colleges need to do more to teach ‘soft skills’ through courses and provide work experience, to get pupils ready for the real world of work.

Very finally, the report recommends banning unpaid internships because these are so damaging to social mobility.

Chapter 12: Opportunity to Progress

This chapter firstly deals with atypical workers – those most likely to be in low paid, temporary, part-time or gig work – namely women and younger people, arguing that there are sufficient legal instruments already in place to protect these workers, and the only recommendation it makes is to change the regulation on statuary sick pay to make sure that the very lowest paid workers have a right to it.

In terms of progressing (in one’s career) the report doesn’t really say very much here – other than it is possible to ‘progress’ while doing flexible work, and that self-employment might be an important element here.

Final chapters

The report rounds of with going over its seven recommendations for making work fairer, which I summarised in this post.

Overall summary: how to make work ‘work’ for more people

The overall message seems to be that work is fine for most people, and that in general there’s sufficient regulation in place to protect most people.

Some of the ‘stand out’ specific recommendations the report makes are:

  • To give ‘temporary and flexible workers’ more rights and protections:
    • To reduce the period (currently 26 weeks) of time before ‘temporary workers’ get the same protections as permanent workers
    • To give temporary workers the right to request a permanent contract after a certain period.
  • To clarify the difference between ‘worker’ and ‘self-employed’ so that employers can’t exploit people.
  • To force companies to be more explicit and transparent about their terms of employment for temporary and flexible workers.
  • To make the self-employed pay more tax.
  • To get schools and colleges to better prepare pupils for a life as a ‘portfolio worker’.

 

Philip Green, the Collapse of BHS and the Continued Relevance of Marxist Theory

This is a useful documentary on the role of billionaire Philip Green in the  collapse of British Home Stores, which demonstrates the relevance of some key concepts within Marxism.

British Home Stores was one of the best known high street retail stores in Britain for many decades, employing thousands of people, but in 2016 it went bankrupt, with a massive £550 million deficit in its pensions fund, and it seems Philip Green has a lot to do with this.

Philip Green bought British Home Stores in the year 2000, for £2 million. At the time, the store was failing, mainly due to its inability to keep up with the retail competition. Philip Green (in fairness to him) did turn the store around from being a failing company to a profitable enterprise in the early years of his ownership, but then he went to extract more money out the company than it was actually making, causing its ultimate collapse a decade later.

In total, over the next 15 years, Philip Green and his family extracted almost £600 million from the store in dividends, rental payments and interests on loans, £100 million of which went to fund their new super yacht named ‘Lion Heart’.

Green was very clever about the way he extracted money – it was technically his wife’s companies which owned most of BHS, and so it was his wife who received the millions of pounds in dividends payments , and because his wife was based in Monaco, a tax haven, she (and thus he) effectively paid no tax on those dividends. Between 2002 and 2004, shareholders extracted just over £422m in dividends, most of which went to Green’s wife.

Another strategy Green used was to sell off all the freeholds on which the BHS stores stood – to another of his wife’s companies, which were based in Jersey, another tax haven. This company then charged BHS rent for being on the land that BHS had previously owned. This amounted to several millions of pounds over the years, and again, all of this was tax free because Jersey was another tax haven. In total, the Green family collected £151.4m in rent using this strategy.

Things started to go pear shaped after the financial crash of 2008,, following which the pension fund had a £140 million deficit, which had grown to £225 million by 2015.

It was at this point that Green sold British Home Stores to a little known investment company for £1 – he agreed to pay in £40 million to the pension fund and gave then tens of millions in other sweeteners, knowing that he was effectively saving himself at least £150 million by passing on the pension-debt to this new company.

Retail Acquisitions failed to keep the company afloat, resulting in the eventual bankruptcy of the company, the closure of every single BHS store in the UK, thousands of job losses and, after a further year of no-profit, a massive £551 million deficit in the pension fund, which 20 000 people are members of.

Meanwhile, Philippe Green continues to enjoy the benefits of the nearly £600 million he extracted from the company during his time in charge, and it’s estimated that his wife’s property company is still currently earning about £20 million a year in rentals from the old BHS freeholds.

Sources 

The Guardian