Author: johnredwood

We can be sure of just one thing about the voting intentions of Cabinet members on June 23rd. The six ( now 5 after resignation) brave enough to declare for Brexit will vote for it. It is not easy for a serving Cabinet Minister to disagree so fundamentally with the Prime Minister, so if they do so they will see it through.

But can Mr Cameron rely on the votes of all the other 16 in the privacy of the polling booth? There are some very unlikely converts to the joys of the EU amongst the Cabinet. They will live through some very uncomfortable interviews, problems with explaining their positions to their Conservative Associations and no doubt a good few constituent emails and letters. In the end their own inner beliefs may come through in what after all is a secret ballot.

Those who come out and speak about the topic are often quick to criticise aspects of the present EU. None of them want us to join its two central features, the common frontiers and the single currency. It’s as if we had joined a football club, only to state we have no intention of either playing or watching any football, and then demanding a lower subscription to the club because we don’t join in its main purposes.

Listening to the Prime Minister himself who will vote to stay in I am struck by how much of what he says about the EU is negative. He stresses all the things we are out of thanks to past opt outs, or things he wants us to be out of but probably are not owing to the weak deal. The Remain side  wants to win based on describing unappealing versions of Out which we do not have to choose, whilst stressing Eurosceptic negatives on the organisation they are  in practice recommending to us!

So who is the genuine EU enthusiast in the Cabinet? The curious thing is there isn’t one. Mrs May is as close as you get to someone who can see some good in the organisation and wants to expand its power a bit. You need to go to the next layer down to find a believer like Anna Soubry. Never has a Cabinet risked so much to argue such an unpopular case when so few of them believe in it.
The face of the EU is the face that has launched a thousand whips. Most of those whips have been as unpalatable as the EU’s face is unattractive to many Conservative MPs.

The news background for the beleaguered Euro area has remained poor. It has not received so much prominence against the competition of the migration crisis, but it remains serious.
The latest easing from the European Central Bank has not resolved the difficulties of credit creation in a zone with too many weak banks. The Bank of Portugal is now being sued over bond changes applied to Novo Banco in Portugal. The Head of the IMF has been undertaking an acrimonious correspondence with the Greek authorities about the lack of progress in their implementation of austerity policies as a prelude to extending further credit to them. The Italian authorities are said to be looking at ways of getting more capital into their weaker banks and relieving them of some of the problem loans that enfeeble them.

The Euro area economy remains mired in unemployment in much of the zone. The Spanish economy has improved a bit but one in five are still out of work. The Greeks are living with one in four out of work. In Greece one in two young people are out of a job and youth unemployment is still at 45% in Spain. Greece needs to borrow more to keep going. The European authorities and the IMF want Greece to make further cuts to pensions, and to press on with privatisations that many Greeks oppose.

The ECB has now set negative interest rates and is offering more cheap money to the commercial banks. All the time it also needs them to raise more cash and capital, which acts as brake on credit expansion. The Greek banks received extra capital in the last bail out package, but were damaged by the last Greek euro crisis.

The Greek crisis has not gone away. The recent flare up with the IMF is over the need for a longer term solution. The IMF appears to think Greece will need debt restructuring, a polite way of saying some of Greece’s large outstanding state debt has to be written off or put onto easier terms. The IMF also argues that there need to be more cuts all the time Greece is struggling with the present interest burden on her debts. It takes more reductions in public spending, more sales of public assets and more tax revenue, given the magnitude of interest charges and the future debt repayment burden.

We may be about to see a re-run of well rehearsed arguments and tensions. Germany is reluctant to give Greece more money, German electors are not in a giving mood. Any write off of debt burdens means in effect that money advanced to Greece by Germany and others ceases to be a loan and becomes a grant. Meanwhile Greece has a new argument to deploy in opposing austerity. The arrival of large numbers of migrants in Greece coupled with closing of borders to the north leaves Greece with substantial financial obligations to cater for the refugees and migrants. If Greece is to house and feed these people on behalf of the Schengen area and the wider EU, shouldn’t she be allowed some relaxation of the financial constraints?

To many in the rest of the EU the UK referendum is an unwelcome distraction from these big problems that swirl around the single currency. Wouldn’t the UK’s exit help the rest concentrate on the problems their currency scheme has created?

The latest debate about investing and tax has an added salaciousness because some of the investments concerned are abroad or “offshore”. The first thing to grasp is most overseas investments by UK savers are nothing to do with tax planning, but are undertaken to diversify the person’s investments and obtain income and gains from the success of foreign companies and countries.

Again let’s start with the MPs. The MP Pension Plan has substantial investments in foreign assets, like most company and government funded pension plans. These assets are not bought to save tax. The beneficiaries of the MP Pension Plan are enjoying complete tax relief on all the income and gains whilst the money stays in the fund anyway, so it makes no difference where the holdings are invested. For taxpayers saving money and investing abroad, again there is no tax advantage as long as they declare things honestly. If you buy a foreign investment from UK money outside a Pension Plan or ISA you have to pay full income tax and capital gains in the normal way on income and gains made.

Many UK people own unit trusts or Exchange Traded funds that provide them with ready made portfolios of shares. Many of these are based abroad. Under EU UCITs rules providing a legal framework for such funds most are set up in either Ireland or Luxembourg, two of the EU’s “tax havens”. All this is legal under EU and UK rules. UK holders of units or shares in these funds pay full UK tax on income as they earn it and gains when they take them. It is an interesting sidelight on how good the EU single market is for the City that most of these funds are resident outside the UK.

A minority of overseas arrangements are designed to allow rich people or companies to change tax jurisdictions. These could be tax evasion. The people involved need to take good advice and to declare what they are doing to the relevant authorities. The UK now has a requirement for people to register schemes prior to entering them. Any UK citizen and resident who withdraws a load of cash, takes it out of the country, and then invests it elsewehere without declaring the income and gains to the UK authorities is committing an offence and should traced and prosecuted. There are sophisticated electronic versions of the same thing which are also against the law.

Like most people I think rich individuals and companies should obey the tax laws in the places where they earn and spend. They should be pursued and prosecuted where they knowingly falsify their declarations, deliberately conceal income and assets that should be taxed or set up complex arrangements with the express purpose of changing jurisdictions in ways which are unlawful. Tax evasion is against the law and has to be tackled, as governments seek to do. If the Panama papers do reveal tax evasion rather than avoidance their leaking should help speed prosecutions of those concerned.

Practically all the MPs currently in full cry against tax avoidance, the legal reduction of tax bills whilst declaring your affairs honestly, avoid tax themselves. They are members of the MPs pension plan, a legal scheme to avoid tax and defer tax on a part of their income. The 25 % tax free lump sum they can draw on retirement means complete tax avoidance on those contributions and subsequent gains and income in the fund. The money drawn out as pension may be taxed at a lower rate than the tax relief they got on saving the money in the first place. All income and capital gains on their savings in the fund are accumulated tax free.

I suspect many of those MPs quick to condemn also have savings in an ISA. The sole purpose of an ISA is to avoid tax on interest, dividends and capita gains on your savings. Anyone who holds an Isa is not in a strong position to condemn tax avoidance or tax planning.

Labour and Lib Dem MPs helped set up complex financial and tax regulation in the UK between 1997 and 2015 which included new rules to train and regulate financial advisers. Under their system Financial Advisers are trained to include tax planning as part of good advice. An Ifa who did not tell a saver of the tax advantages of holding savings through an Isa would not be meeting normal professional standards. An IFA should also ask clients about future pension provision and see if they should be using their tax free allowances for pension savings.

Are these critics of tax avoidance now saying all this is wrong? If so do they now support the abolition of these common tax saving schemes? Tomorrow I will look at the vexed issue of overseas investments.

I am tempted to think that whatever the Remain side do now it will help us Leavers. The government “impartial” pamphlet has angered many more people. Most think it quite wrong that taxpayers are being asked to pay for one sided propaganda close to an important ballot. No-one believes a Labour or Conservative government should send out a document written by the civil service recommending general government policy and its benefits ten weeks before a General Election, and no past government has tried to do that. This is similar to such a decision.

It is true that in 1975 the Labour government sent a pamphlet to all households arguing the case to stay in. Subsequent changes to election law have tightened provisions for elections and referendums to ensure greater fairness between the two sides. That can no longer be regarded as acceptable practice.

It is interesting to look back at the lies we were told then by the government. The biggest was our sovereignty was not at risk. They told us that “The Minister representing Britain can veto any proposal for a new law or a new tax if he considers it to be against British interests. … Remember: All the other countries in the market (note not EEC, its true name) enjoy, like us, democratically elected governments answerable to their own Parliaments and their own voters. They do not want to weaken their Parliaments any more than we would”

The pamphlet denied the idea that the Commission has important independent power, and did not mention the binding nature of European court judgements. It was before a directly European Parliament had some say. Ever since we have seen the constant erosion of that veto by Treaty change, and erosion of power away from Ministers to the Commission, Court, European Parliament and other EU institutions.

So why would anyone believe the modern version of this pamphlet? That says “The UK has secured a special status in a reformed EU”. Where are the reforms of the EU? Where are the legal guarantees for the UK and restoration of our rights to make our own laws and levy our own taxes? It says “The UK will not be part of further European political integration” That is clearly wrong. Every new Regulation, Directive and court judgement will drive us into more dependence on the EU and its laws.

It implies we could lose our right to travel and spend money on the continent, which is absurd. It is silent on how we can control numbers of EU migrants properly within the EU, just referring to some changes to benefit rules.

Many will send their pamphlet back to Downing Street, and will want their taxpayers money back from this ill thought through venture. We warned the government not to do this in Parliament before the event, and thought Ministers had assured us it would not happen.

Mr Juncker, the President of the Commission, made clear in an interview just before the Netherlands referendum on the EU/Ukraine Association Agreement that a vote against the EU plan would “open the doors to a continental crisis”. As I presume he is an honest man who knows his EU, I await his measures to deal with this crisis that he has helped create. The results rejected the Agreement roundly, by 64% to 36%.

The vote was called on a petition by Netherlands voters. Though it is advisory, the Netherlands government has rightly said they cannot ignore this strong expression of public opinion. The proposition was rejected despite a vigorous and hard hitting campaign to persuade people to vote for the EU scheme. Voters were told in no uncertain terms that a vote against was a vote for Mr Putin. One poster showed Mr Putin embracing the leading opposition politician in favour of voting down the Agreement.

So why didn’t voters believe the EU and their government? The first thing to realise is the EU/Ukraine Association Agreement is not just about trade, as some sloppy people in the media have claimed. To the government in Kiev the most important parts of its are probably the opening sections about political, foreign policy and defence collaboration. The Agreement sets up “regular meetings both at the level of high officials and of experts of the military institutions of the parties”. It establishes a Political and Security Committee. Article 7 promises to “intensify the dialogue and co-operation and promote gradual convergence in the area of foreign and security policy including the common security and defence policy”. Whilst I have no time for illegal military actions by Russia, I can understand why Russia thought this Agreement provocative. Some Netherlands voters were clearly concerned that the EU is over reaching itself in making financial and military commitments to Ukraine, and saw that this very Agreement is part of the important background to the civil war in Ukraine between pro Russian Ukrainians and pro EU Ukrainians.

The sad deterioration in the Ukraine and the split of the country with Russia taking Crimea has come about against the backdrop of the EU making overtures to Kiev to strengthen ties between Ukraine and the EU. Maybe voters thought this a bad idea. They also had doubts about regulation of standards in Ukraine in areas like keeping chickens, and worried about any possible future relaxation of border controls between the Ukraine and the EU.

Mr Juncker now needs to tell us how he will handle the “crisis” he forecast. In the meantime apparently the Netherlands government has been asked to suggest a way forward.I would have thought the answer was obvious. The Netherlands cannot have its name on the Agreement. The people have spoken.