Author: johnredwood

A tired Mrs Merkel this week had to fly beyond the eastern borders of the Union she leads to deal with the revolt of Ukraine, and then fly back to the heart of her Europe to deal with the revolt of the Greeks. In a way they are the same problem. In Ukraine the people of Donbas do not wish their country to join the European Union and have rebelled against the pro EU government in Kiev. In Greece the electorate have rejected the usual parties that accept EU control and leadership, and have chosen a new challenger party which rejects the authority of the troika and wishes to renounce EU monetary and economic policy. The European Union looks overstretched.

It is true that the Ukraine problem is exacerbated by Russia. I will repeat again I in agreement with most western commentators condemn any arming of rebels or military intervention by the European Union’s neighbour to the east. The European Union is deluding itself, however, if it thinks the entire Ukrainian revolt is a put up job by Russia. There are many local people in the east of Ukraine who so dislike their government they will take up arms against it. The European Union, as Mrs Merkel showed this week, has to find a way of living with Russia to the east, as Russia will stay there as a geographical certainty and a well armed power that could be friend but might become a worse foe.

Mrs Merkel has rightly decided that a peaceful settlement in Ukraine is the best option. I wish her peace initiative well. The trouble is that for whatever reason the Ukrainian government finds itself in the position where a significant minority of its people will not accept its authority and have taken up arms against it. Now that the Kiev regime in its turn has shelled and bombed those it wishes to be its obedient citizens in the east it will find it very difficult to reassure and resettle the country. Without control of its borders it cannot be sure there are no military personnel and equipment coming in from outside. Without offering guarantees and home rule to its eastern citizens, it will be difficult to control its eastern borders. Meanwhile the European Union has to answer critics who ask why has it given so much support to the Kiev government, without condemning its excessive use of violence?

The Greek financial problems are but the most extreme of a set of problems that have emerged in much of the Eurozone. Ignoring those of us who warned that a single currency could not work well without first creating a single state to back it, Germany with her inner circle of supporting countries rushed into an arrangement which was bound to break. There has to be a transfer union, an agreed system of sending money from rich to poor, from more successful to less successful, in any flourishing currency union. There has to be a banking union where all stand behind the banks of all. Places in deficit have to be easily financed by places in surplus. We do not have cities or counties in England unable to finance their public deficits or their balance of payments deficits with the rest of the country. Nor should they have such problems in Greece or Spain or Ireland.

Could this be mended? Yes it could. The European Union could call a halt to expansion beyond its current borders. It could let the odd country leave as it moves towards political union, with trade and association agreements replacing membership. A smaller Union would have more chance of success. For the core in the currency has to embark rapidly and decisively on moves to full banking and social union, where each country is submerged in the greater whole and each part of the union pays according to its means and receives according to its needs. Germany wants to lead Europe on the cheap. Modern advanced states expect complex and expensive welfare systems, and economic policies which deliver growth and prosperity. The Euro area does neither at the moment.

There has been much discussion about whether government treats benefit cheats relative to tax cheats fairly.

Both set out to worsen the public finances by deception – the one by withholding money due, the other by taking money they are not entitled to. Most of us think they should both be traced and dealt with by the authorities. I see no moral superiority or inferiority in the tax evader over the benefit thief.

For both categories of criminal I think the penalties should usually be financial. Their crime is financial. The reason we do not like their crime is because it leaves the rest of us worse off, as we have to pay for the falsely claimed benefit and make good the shortfall on tax from the evaders. Putting them in prison would mean we will be even worse off, as we will then have to pay to maintain them in prison, and they will not be able to earn to make a contribution. Prison would only be appropriate if there were aggravating factors, like using threats of violence or repeat offences.

There is then the difficult issue of the size of the fine or financial penalty. Clearly the fine a rich tax evader can pay could be a lot larger than the fine a benefit cheat could pay. The benefit cheat should not be expected to pay such a sum that it removed their incentive to go to work and get themselves sorted out financially. The fine a tax evader has to pay should be a penalty rate so that it hurts financially.

The benefit cheat may need assistance to go to work and to pay more of his or her own bills. Getting the balance right is difficult. There should be a penalty for theft, but success surely is getting them to eschew benefit theft in future and to provide more for themselves. We want the taxpayer to pay less for them, not to end up paying more. The tax evader needs a strong warning that cheats do not prosper.Making him pay say twice the amount of tax evaded as a penalty on top of the original bill should hurt. Putting him on to tougher and tighter financial reporting requirements in future would also be a good idea.

Whenever I have been responsible for managing a government department or a company, I have wanted my staff to be honest. All the best organisations are transparent, reporting accurate and relevant information in a timely way. They pour over cases where quality falls short or harm is done, both to compensate the customer or client and to make sure such an error cannot occur again. Remedy begins with honest reporting of the incident. Management does not normally penalise the employee who reports the mistake, but works with them to put it right. It is a bigger offence to suppress the error or seek to cover up the damage, than to make the mistake in the first place.

We see how well honesty and transparency can work by looking at good airlines. An airline knows having a 100% safe flying record is crucial to the health of the business and to the wellbeing of the passengers. Pilots and flight crew are required to report near misses, flight errors, and malfunctions in the aircraft. Each one is investigated thoroughly. Where the error could repeat a generic remedy is inserted in the manuals or programmed into the aircraft systems where this can work.

It is good news to see that Jeremy Hunt, the Secretary of State for Health, is seeking to bring this culture of good management into the NHS. The NHS has great power to do good, but it can also do harm. Serious conditions can be missed by sloppy diagnosis. Individuals can be harmed or even killed by giving them the wrong drugs or the wrong quantities of drugs. Operations can miscarry, leaving a person in pain and difficulty. Recent enquiries have shown examples of very bad care and treatment which are now coming to light.

Mr Hunt is right to carry a torch for greater transparency and honesty. He is right to demand that all medical and surgical errors are reported and properly considered. He is right to demand high standards of cleanliness, infection control and quality through our hospitals and surgeries.

Tax evasion is bad and a criminal offence. Tax avoidance is something different.

When most people in politics seem to  agree about something, it is often a good idea to ask a few questions.

Currently many politicians  seem to agree that the government should crack down on tax avoidance. It is a popular policy, as people assume it is their neighbour that is the tax avoider and they are the taxpayer. It comes “free”, offering lots of extra revenue to spend with no apparent increase in taxes.It gets them through the interview which asks how are they going to spend more and get the deficit down.

If it were that simple, wouldn’t it have happened by now? Can you remember a government that did not want to cut tax avoidance? So why is it so difficult?

It is difficult if not impossible because the self same parties and governments which want to end tax avoidance, also want to continue and expand the number of policies which allow tax relief for good things they wish to reward and identify. Most of those who condemn tax avoidance save for their retirement through pension funds. This allows them to save tax free, and to accumulate capital gains free of capital gains tax and income free of income tax in the pension fund.

Many of them with money to save also buy ISAs, to shield savings from both taxes. So why do people who so strongly condemn tax avoidance do this? Why don’t they see they are doing exactly the same as the avoiders they condemn. They are taking advantage of tax policy decisions which allow people to pay less tax. If they really believed their own rhetoric they would refuse to tax shelter their savings, and put money by for a rainy day and for retirement in tax paying funds with no tax relief.

They need to understand that just as they decide to use these “loopholes” or legitimate tax breaks to increase their own savings and wealth, so companies use tax loopholes or legitimate breaks to increase the amount of money they earn which they can spend on the company rather than sending to the taxman. If the Treasury offers companies tax offsets for investing in certain ways, companies will invest to get the break. If the government allows tax privileges if you operate in certain parts of the country, a business would be remiss not to see if it could do so.

Some multinationals get too clever at minimising their tax bills, and find they incur reputational damage when this becomes a matter of general dislike. Whilst few have any sympathy for multinationals, they do have to seek to satisfy the often competing tax jurisdictions of their various countries of operation. The UK after all sets a lower rate of corporation tax than the other advanced countries deliberately to attract more activity and cost here amongst those multinationals. UK policy is to encourage businesses to do more here to have a lower tax rate.

We can all unite to condemn tax evasion, the refusal to pay taxes due and deceit in telling the tax authorities what your profits or earnings were. That is a different mater. The present debate is in danger of confusing legitimate tax avoidance, something most people and companies do with the encouragement of government, with the criminal offence of evasion. You can  avoid all tobacco duties by the simple approach of not smoking. That I thought makes you a loyal follower of government health advice, not a tobacco tax avoider who should get on with buying some cigarettes for the greater good of the budget.