A QUESTION OF STATUS?

When it comes to tax, most of us pay it and most of us probably pay our fair share, and even a proportion of corporations (multi-national or otherwise) end up paying some degree of tax - despite the best efforts of creative accountants. The question of what exactly is a corporation and how much tax it should pay came before the House of Commons Public Accounts Committee (last month) in relation to the Duchy of Cornwall.

The Duchy of Cornwall, the Committee heard, provides the heir to the throne was a private income,  was not a corporation and that the prince voluntarily pays income tax. The Duchy of Cornwall, despite the name, happens to have significant landholdings well to the east of the Tamar which included the Oval Cricket Ground in London and a third of Dartmoor, not to mention pretty extensive property in Cornwall itself.  It is worth noting that the "title and honour" confers legal prerogatives in Cornwall which elsewhere belong to the Crown including for example the right to the property of people who die without heirs and ownership of the foreshore. Interestingly the duchy estate is worth some £762 million pounds.

A Royal aide revealed that the prince's estate does not pay capital gains tax because he "doesn't have access to the capital gains. The capital gains are all reinvested in the duchy for future dukes". MPs were that the profits were used to pay for the prince's public duties, as well as those of his wife the Duchess of Cornwall and those of Prince William, the Duchess of Cambridge and Prince Harry and that if parliament legislated to prevent Prince Charles using his private income in this way it would cost taxpayers more - to pay for his official duties - and he would be free to spend his money "on his other things".

A senior Treasury official told the committee, that the prince's tax arrangements worked this way because he does not pay capital gains tax because he always reinvests any profit from sales, and that "If the duke were to be taxed on the corporate income of the duchy as well as his income, he would be taxed twice."  The Treasury official also stated that the duchy differed to other corporations because the prince "is in the unusual position of getting all the income." The duchy estate of land and property - mostly in the south-west of England - was established by King Edward III in the fourteenth century to provide a private income for his son and heir to the throne.

The last time Prince Charles's representatives came before the Public Accounts Committee they were accused of performing financial "jiggery pokery" and he was said to be the recipient of the "best housing benefit scheme in the world".  The committee was fresh from finding the tax affairs of Google, Starbucks and Amazon wanting. Earlier this month, the prince faced calls from Andrew George, the Liberal Democrat MP for West Cornwall, to "come clean" about the Duchy of Cornwall's tax arrangements. Clarence House has said public funding for the Prince of Wales fell by £1 million to £1.2 million pounds in the last financial year, out of a total income of £20.2 million.

TAX TO GO?

News that Starbucks is planning to change the way it operates so that it pays corporation tax in the UK will be a small crumb of comfort to ordinary tax payers. Starbucks despite having around one-third of the UK coffee shop market, has only paid corporation tax only once in the past 15 years. In its simplest form Corporation tax is paid by foreign companies on profits made in the UK. UK-based companies pay corporation tax on their taxable profits wherever they are made. Starbucks, sold nearly £400 million pounds worth of goods in the UK last year, but paid no corporation tax at all, because it transferred some of the money to a sister company in the Netherlands in the form of royalty payments, it bought its coffee beans from Switzerland and paid high interest rates to borrow money from other parts of the business.

Starbucks is throwing in the towel in relation to paying Corporation tax; this may be timely as the House of Commons Public Accounts Committee has produced a report calling for HM Revenue and Customs (HMRC) to "more aggressive and assertive in confronting corporate tax avoidance". Interestingly enough HMRC revealed that in 2011-12, £474.2 billion pounds worth of total tax revenue accrued to HM Revenue and Customs (the Department) which was £4.5 billion pounds higher than for the period 2010-11. Oddly enough there was a decrease in corporation tax revenue of £6.3 billion pounds.

The House of Commons Public Accounts  Committee also heard evidence from heard evidence from Google and Amazon. Amazon has a reported turnover of £207 million pounds for 2011 for its UK Company (Amazon.co.uk), on which it has shown a tax expense of only £1.8 million pound, yet showed a European-wide turnover of €9.1 billion for its Luxembourg based company (Amazon EU Sarl) and a tax of €8.2 million. Amazon.co.uk is a service company in the UK providing services to Amazon EU Sarl for which it receives payment. That company is owned by a holding company, which is a subsidiary of Amazon's group companies.

Amazon subsequently provided a copy of the unaudited accounts for Amazon Europe Holding Technologies S.C.S for 2011 showing a profit of €301.8 million and no tax payments.  Amazon also provided information showing that for 2011, £3.35 billion pounds worth of sales were from the UK, 25% of all international sales outside the USA.  Yet Amazon has over 15,000 staff in the UK, invoices UK customers from the UK, hires UK staff in the UK, has inventory physically in the UK for UK customers and to all intents and purposes has the majority of its economic activity in the UK, rather than in Luxembourg, but pays virtually no corporation tax in the UK.

The inability of HMRC to properly curb aggressive tax avoidance schemes which are costing the UK billions of pounds was flagged up by the National Audit Office (NAO) The NAO revealed that HMRC was dealing with a backlog of 41,000 cases involving individuals and small companies, with up to £10.2 billion pounds at stake. I am sure that the news that Con Dem Chancellor George Osborne plans to introduce a general anti-avoidance rule and hold talks with other G8 developed countries about clamping down on tax avoidance will make us all sleep soundly in our beds – perhaps not!

ALL IN IT TOGETHER...

The House of Commons Public Accounts Committee has rightly criticised "cosy" deals between HM Revenue and Customs (HMRC) and big businesses over the way they settle their tax bills. Serious concerns have been expressed by MP’s about just exactly how some of the large tax settlements were reached. MPs believe that potentially there may be some £25 billion pounds worth of outstanding tax issues with some of the UK’s largest companies and they want HMRC to be much more open about its dealing with large firms.

Not surprisingly HMRC has said that the MPs had misunderstood the facts. If the MPs are correct and I see no reason why they should not be as whistle-blower from inside HMRC passed them some interesting information (according to Radio 4 on Tuesday morning). Perhaps they should do some digging to find out how many former HMRC employees have moved to potentially lucrative employment in the private sector.

Coincidentally the tax campaign group UK Uncut is taking HMRC to the High Court (today - Thursday 22nd December) to seek a judicial review to try to get them to reclaim millions of pounds in uncollected tax from Goldman Sachs. It's all a little awkward for David (‘Call me Dave’) Cameron as it either touched a raw nerve or at least exposed the lie at the heart of his much trumpeted “We are all in it together” – apparently not!

AN INTERESTING BUSINESS PLAN?

Some two years ago what was then the New Labour Government stepped in to take over a failing private rail franchise (the East Coast Rail Service), when National Express (who also currently run the Stanstead Express, East Anglia and c2c) effectively walked away from running the East Coast Service (which it operated as stand alone company, NXEC) and carried on running those bits of the network that it could squeeze a profit out of at our expense. Here we are some two years down the line MPs have criticised the Department for Transport (DfT) for letting National Express "terminate its East Coast rail franchise in 2009 with next to no penalty.

Apparently the DfT rejected an offer of £150m from the company to quit the loss-making franchise by mutual consent. The DfT then terminated the contract, and received £120m from the company. The House of Commons Public Accounts Committee report noted that the DfT judged giving up the extra cash would reduce the risk of other companies with loss-making franchises seeking similar deals. And also noted that the DfT "undermined its position" by telling National Express any future franchise bids would be unaffected.

This unhappy saga should by now have confirmed in most people minds that rail privasation (something that New Labour publicly stated they would have undertaken if it had not already been done by the Conservatives) has been pretty much an unmitigated disaster. While going back to British Rail may not be an option, now is clearly the time to implement Plaid's idea of rail franchises being run on a not for profit basis, reinvesting their profits in their services and infrastructure rather than merely squeezing profits for the shareholders at our expense.

AN END TO THE GREAT PFI RIPOFF?

This was not a headline I would have expected to be in the Daily telegraph:

PFI: £70m bill for schools that had to close

The Daily Telegraph has rather belatedly discovered that PFI (in England) costs a fortune and brings little medium of long term benefits to users who continue to pay through the nose for maintenance. What seems to have wound up the Daily Telegraph is the fact that at the very least three PFI schools which have been closed due to falling pupil numbers are still being paid for by education authorities (in England) who continue to pay the contractors millions of pounds each year for them until 2035. Additionally, and this must come as something of a shock to the Daily Telegraph, that dozens of other PFI schools which have been built and operated by the private sector, which rented back to the taxpayer regularly face high costs and “incredibly frustrating” restrictions which “hamstring” how they are able to use their school buildings.

Oddly enough the House of Commons’ Committee on Public Accounts which has backed Plaid Cymru’s stance on Private Finance Initiatives (PFI) on housing and hospitals. PFI was developed by the last New Labour government which involves private companies developing projects and paid back by the government over a long contract. Plaid has consistently criticised PFI projects for being costly to the taxpayer and poor in delivery. Right from the start Plaid said that Private Finance Initiatives were a New Labour trick which would eventually cost the taxpayer much more than if they were government-funded upfront. The Public Accounts Committee report has slammed PFI housing projects which have cost considerably more than originally planned and have been, on average, two and a half years late, and says that poor administration, rising costs and the well-known cunning of the financial services sector mean that taxpayers have not benefited from using this method of funding.

It's worth noting that the Plaid-driven One Wales Government confirmed back in 2007 that it would end PFI in the Welsh NHS as part of our goals of keeping the markets out of the health service. Previous reports have shown that PFI has failed when used in the defence sector and this Public Accounts Committee report says that there have been serious problems using it for building housing and hospitals in the NHS. Yet, despite this the UK Government persists in continuing blindly down this road, it's time to draw a line, its time to reconsider the best and most appropriate ways of funding new projects, especially as the Westminster Government is hell-bent on slashing the capital spending which was their core funding.

Further Telegraph revelations have revealed that existing PFI agreements, taxpayers are having to pay more than £200 billion for schools, hospitals and other projects whose capital value was little more than £50 billion. The is the price we are all having to pay (and pay again) for Blair and Brown's premierships – one questions I would like answered is where exactly was the Daily Telegraph when the rush to PFI was under-way? perhaps now that the Daily Telegraph has woken up to the expensive mess that excessive use of PFI has created then perhaps the Conservative part of the Con Dem Government will stop using PFI - perhaps not as it is rather popular with their friends in the City?

LETTING THE PASSENGERS TAKE THE STRAIN

News that overcrowding on trains in England and Wales will get substantially worse over the next four years despite rises in ticket prices should come as no surprise to passengers. The House of Commons's Public Accounts Committee (PAC) has noted that the Department for Transports own plans for suggested targets for increasing passenger places would be missed.

The PAC blames the failure on the absence of any requirement to improve capacity within train operators' contracts. The Con Dem government has said plans to improve the situation would be unveiled soon. However, consider that the Conservatives privatised the railways in the first place, it might be best not to have any great expectations on any firm hand being taken with the privatised rail companies. It's also worth remembering that New Labour actually said when they came to office that if the railways had not been privatised then they would have privatised them themselves.

Westminster MPs have expressed their concern about that the "already unacceptable levels of overcrowding will simply get worse and ever more intolerable". Public Accounts Committee - Fifth Report - Increasing Passenger Rail Capacity - makes interesting reading notes that the fundamental problem was a lack of any real incentive for the industry to supply extra capacity without additional taxpayer support.

Basically the current franchise agreements, train operators are required to make "reasonable endeavours" to give peak passengers "a reasonable expectation of a seat within 20 minutes of boarding", but there is no legal burden upon them to expand fleets or improve stations to achieve this.

So what this means is that it has fallen to the taxpayer to provide funds to Network Rail to carry out any upgrade work And that the franchise agreements are merely allow the privatised rail companies to milk their franchises for all they are worth at our expense. This is somewhat ironic because as a result of the economic downturn, the Association of Train Operating Companies actually expects demand for rail travel to grow by around a quarter over the next five years. So the long suffering rail passengers will get a double whammy - having to pay more to be less comfortable.

And this after 13 years of New Labour Government - what a mess!

ON ARMED FORCES DAY...

It's armed forces day today - with it's primary focus being on Cardiff and many other cities and towns across the UK. On Armed Forces Day, it's worth remembering that of late our Armed Forces and their families have long had much more lasting and meaningful support from the public than they have from their Governments, perhaps things will change under this Con Dem Government, I hope things will change for the better, but suspect that little will change save for the rhetoric. 

Much needs to change though for our serving service personnel, for service families accommodation, who have suffered from years of ongoing mismanagement of the MoD housing stock and a lack of investment in the welfare of troops and ex-servicemen who should rate far higher when it comes to Government thinking and Government policy.

Every now and again you can honestly sit here and think that little has changed over the years; once again our heroes and heroines are doing battle in a distant land and their families are living quietly in sub-standard accommodation at home. They (My grandfather amongst them) were promised many years ago 'Homes fit for heroes' – which were never delivered, too expensive in peacetime, when UK Governments have little need for heroes or honouring their wartime promises.  The House of Commons Public Accounts Committee (in October last year) found not surprisingly that successive Governments at least; don't appreciate our soldiers one bit; as they proceed to hack the defence budget to save money here and there.

Sadly this should come as no real surprise, as there is a long tradition of successive Governments (with ironically the exception being the 1945 Labour Government) of betraying it's service personnel admittedly usually after a wars conclusion rather than while it is still going on. It is deeply ironic that with the ninety first anniversary of a UK Government betraying its promise to our soldiers to ensure that they had homes fit for heroes after the 1914 – 1918 war; that we find ourselves in a situation where soldiers families are continuing to live in sub-standard accommodation.

It is absolutely unacceptable that a third of forces families are living in poor accommodation and is equally amazing that such a large number of MoD properties remain empty at huge expense to the tax payer. It is clear that there has clearly been a long term underinvestment in service housing stock which is unacceptable.

It was and still is a grave insult to our forces that UK Government's - since the early 1990's  - regularly sent UK troops to fight in Iraq, Kosovo, Afghanistan and Iraq (again) to mention but a few of Thatcher / Major and Blair's Wars when repeated questions about the provision of their equipment, the welfare and accommodation for their families at home were being  repeatedly raised and repeatedly ignored. 

Our service personnel and their families deserve much better than they are getting from the Government and they deserve far more than what is effectively one Government sponsored day per year...

Perhaps the last word should rightly go to Kipling...

Oh, it's Tommy this, an' Tommy that, an' 'Tommy, go away':
But it's 'Thank you, Mister Atkins,' when the band begins to play -
The band begins to play, my boys, the band begins to play,
Oh, it's 'Thank you, Mister Atkins,' when the band begins to play.

Yes, makin' mock o' uniforms that guard you while you sleep
Is cheaper than them uniforms, an' they're starvation cheap;
An' hustlin' drunken soldiers when they're goin' large a bit
Is five times better business than paradin' in full kit.

Then it's Tommy this, an' Tommy that, an' 'Tommy, 'ow's yer soul?'
But it's 'Thin red line of 'eroes' when the drums begin to roll -
The drums begin to roll, my boys, the drums begin to roll,
Oh, it's 'Thin red line of 'eroes when the drums begin to roll.

You talk o' better food for us, an' schools, an' fires, an' all:
We'll wait for extry rations if you treat us rational.
Don't mess about the cook-room slops, but prove it to our face
The Widow's Uniform is not the soldier-man's disgrace.

For it's Tommy this, an' Tommy that, an' 'Chuck him out, the brute!'
But it's 'Saviour of 'is country' when the guns begin to shoot;
An' it's Tommy this, an' Tommy that, an' anything you please;

An' Tommy ain't a bloomin' fool - you bet that Tommy sees!

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There is more than a degree of bitter sweet irony that Kipling's Tommy remains as relevant today as when it was written... so much for progress