Friday, 31 May 2013

Health tourism - the true 'cost' of foreign nationals to the NHS

A new phenomenon has emerged in recent months in the long British history of scapegoating. We've had migrants stealing our jobs, migrants taking our housing, scroungers taking benefits, migrant scroungers taking benefits (I thought they were taking our jobs?!)

Now in a new malicious and factually dubious piece of divisive scapegoating we have David Cameron and Health Secretary Jeremy 'cockney rhyming slang' Hunt accusing foreign nationals of stealing our NHS. They have a catchy phrase for it too - 'health tourism'.

However, the scaremongering immediately ran into trouble when Cameron and Hunt couldn't agree on a figure with Cameron suggesting there was between £10m and £20m that the NHS should be recouping, while Hunt suggested the NHS was losing £200m. In April a Conservative MP found through Freedom of Information requests that the figure might be £40m.

Even though Conservative Party ministers and MPs can't agree on a figure - possibly because the data isn't fully available - they have problematised foreign nationals using the NHS. And this scaremongering has worked: at a recent Benefit Justice meeting I spoke at, a contributor from the floor - after rightly bemoaning NHS cuts - went on to blame the cost an open door policy through which anyone in the world can use the NHS ... apparently.

But since we have three estimates of the gross costs of foreign nationals to the NHS, let's try to get a net figure by looking at the savings to the NHS by foreign nationals, and by British nationals using foreign health services.

Foreign nationals saving the NHS

Firstly, the NHS makes a huge saving by importing foreign nationals to run the NHS. The cost of training a doctor is estimated by the BMA to be a minimum of £269,527, up to £564,112 for consultants - the cost of which is shared between trainees and the state. According to a 2008 study by the OECD (cited in WHO research), the UK had the highest share of foreign trained doctors in Europe - with 37.5%. The same research states that the UK had 243,770 doctors in 2008, so 91,414 were foreign trained.

If the UK had borne the full cost of training those doctors that would have been £24.6 billion - and that is using the lowest end of foundation training cited by the BMA (£269,527). Given we import far more doctors than we export - and that we import more doctors than any other European country - then it's safe to say the UK is saving several billion pounds.

And that's without calculating similar costs for nurses, midwives, etc. According to research by the National Nursing Research Unit, before 2005 10,000-16,000 nurses were emigrating to the UK each year, but following the changes in 2005 the numbers decreased to 2,000-2,500 foreign nurses arriving in the UK each year*.

This is without costing in the UK lives that would be lost were these foreign nationals not there to staff our NHS. How do you think your hospital would cope with losing over one-third of its doctors? The financial, social and human cost to the UK would be immense.

The cost of UK citizens on other health services?

According to parliamentary research, in 2007/08 the average value of NHS services for retired households was £5,200 (compared with £2,800 for non-retired). Now given there are about 220,000 pensioner households living abroad that's just over £1 billion. Even if just 1% of that cost was not recouped from the UK by foreign healthcare systems, that would be over £10 million. If 5% went unrecouped that would be £51 million.

Of course these figures should be treated with a health warning: firstly, they assume health costs have stayed the same as five years ago; secondly, there are no reliable consolidated estimates for what foreign health systems fail to reclaim; and thirdly the figures exclude non-pensioner households living abroad.


Despite whipped up fears by the Conservatives, UKIP and their daily print editions the Mail, Sun and Express, the figures for 'health tourism' cited by the government (which range from £10 to £200m) are relatively trivial in government spending terms.

In 2012, NHS spending was £104 billion. So even at the highest end of the government's dubious estimates, health tourism accounts for just 0.19% of total NHS expenditure.

That gross figure does not take account of the savings made by the NHS by importing already trained medical staff or for UK nationals who receive unrecouped treatment abroad.

* 2002 research by the Royal College of Nursing found in just one London NHS trust nurses and midwives from the following 68 countries: Algeria, Angola, Australia,  Austria, Barbados, Belgium, Benin (Dahomey),  Brazil, Cameroon, Canada, Central African Republic, China, Congo, Denmark, Dominica, Finland, France, Gambia, Germany, Ghana, Greece, Grenada, Guyana(British Guyana), Hong Kong, Hungary, India, Ireland, Isle of Man, Italy, Ivory Coast, Jamaica & Cayman Islands, Japan, Kenya, Korea (South), Malawi, Malaysia, Malta, Mauritius & Reunion, Mauritania, Moldavia, Nepal, Netherlands, Netherlands Antilles, New Zealand, Niger, Nigeria, Norway, Philippines, Poland, Romania, Russia, Sierra Leone, Singapore, South Africa, Spain (inc Canary Islands), Sri Lanka, St Lucia, St Vincent (Grenadines), Swaziland, Sweden, Tanzania, Trinidad & Tobago, Turkey, Uganda, United Kingdom, United States of America, West Indies, Zambia, Zimbabwe

Tuesday, 28 May 2013

Country-by-country reporting is a victory for citizens over companies

Prem Sikka

The Twitter age is about to chalk up its first success in the grey world of corporate accounting. It has been reported that the European Union will seek to make large companies disclose the taxes they pay and profits they make on a country-by-country basis.

This is part of the crackdown on corporations avoiding their obligations. The concerns are driven by tax avoidance, as companies have sales, employees and assets in one place, but end up booking them in jurisdictions with comparatively few employees, sales and assets. The idea behind country by country (CbC) reporting is to enable citizens to scrutinise corporate practices and ask critical questions.

The EU proposals mark the beginning, but CbC is a much broader idea. It supplements the traditional model of publishing profit and loss account, balance sheet and a cash flow statement. These statements relate to the company as a single economic entity and do not provide any disaggregated information. So these statements do not reveal the taxes a company may have paid in each country, or the profits and losses made there.

The traditional approach in accounting circles has been to require companies to publish “segmental reports”, in which company directors offer a commentary on major operating segments, products and services, the geographical areas in which they operate and their major customers. Such reports are too general and do not focus on each country.

In contrast, CbC requires companies to publish a table showing sales, costs, profits, losses, taxes, loans, subsidies and employees for each country of its operations. It could even be used to demand information about carbon emissions and other corporate footprints in each country. Such a table would show that a location has relatively few employees but is reporting very high profits, or that a country has a high proportion of a company’s sales and employees, but pays little or no tax. Armed with this information, citizens may be able to construct shadow accounts and question conventional accounts offered by corporations – the ones that say, “we are good citizens, we pay taxes and really care for the community”.

CbC is the culmination of a decade-long campaign by civil society organisations. When fully enacted, it will be the first accounting standard formulated and developed by civil society rather than the traditional accounting standard setters. It represents the first time activists have demanded and secured an accounting standard that the establishment was not keen on in the social media age.

In 2003, in my capacity as director of the Association for Accountancy and Business Affairs (AABA), I encouraged Richard Murphy, a chartered accountant, to draft a proposal that could highlight flight of capital, profits and the mismatch between profits, employees, assets and tax.

The first draft was published in 2003 and has continued to be refined. Initially, meetings were sought with the more traditional accounting standard setters, such as the International Accounting Standards Board (IASB) and the Financial Reporting Council (FRC), but they showed no interest.

There was considerable opposition from the professional accountancy bodies. For example, the Institute of Chartered Accountants in England and Wales was vehemently opposed to it. Major accounting firms and corporations were also opposed to CbC.

For example, Deloitte said “we do not believe that imposing incremental country by country disclosure in financial statements prepared under IFRSs is warranted”. A survey in 2010 did not show much enthusiasm for CbC among FTSE 100 directors. The usual arguments were that disclosure would be costly, even though companies should already have the information about the performance of their subsidiaries in each country of their operation. The cost of publishing this internally held information is negligible.

The main turning point was the support given by NGOs, such as Christian-Aid, Publish What You Pay (PWYP), War on Want, Tax Justice Network, Oxfam and many others, not only in the UK and the EU, but also in developing countries and the US. The credit for this must go to Richard Murphy. This campaign was joined by some Members of the European Parliament (MEPs) and also Labour MPs.

Much to the dismay of the accounting establishment, their pressure persuaded the EU to launch a consultation exercise in 2010 and has now resulted in partial implementation of CbC. No doubt, there is more to come.

The story of the country by country reporting is that in the digital era, it may well be possible to mobilise alternative centres of power, at least in crafting new accounting disclosure rules. This announcement has been a victory for those of us who campaign for greater transparency on tax. Let’s hope it’s the first of many.

Prem Sikka is senior adviser to Tax Justice Network.

This article first appeared on The Conversation website

Friday, 24 May 2013

We are light years away from the days of Cadbury capitalism

Prem Sikka

The tax debate offers insight into the possible trajectories of capitalism.

Organised tax avoidance does not create anything of social value, but encourages concentration of wealth in relatively few hands. It is part of the unsustainable technique for increasing short-term profits. Companies have become adept at increasing profits through imposition of wage freezes of workers and dilution of their pension rights. This has been supplemented through management of how and where taxes are paid.

Public attention is now focused not only on the tax practices of multinational corporations, such as Google and Amazon, but also on traditional retailers such as Marks and Spencer. And then there is the tax industry. This is dominated by accountants, lawyers and finance experts. The role of the Big Four accountancy firms – KPMG, PricewaterhouseCoopers (PwC), Deloitte and Ernst & Young – in designing, marketing and implementing complex tax operations has been scrutinised by the House of Commons Public Accounts Committee (PAC).

Anyone looking at the websites of accountancy firms will see claims of ethics, integrity, and a burning desire to serve the public interest and uphold the law. Yet, following a briefing from a former PwC insider the PAC chairperson said (see page Ev4) that the firm “will approve a tax product if there is a 25% chance – a one-in-four chance – of it being upheld. That means that you are offering schemes to your clients where you have judged there is a 75% risk of it then being deemed unlawful”.

The PwC partner at the committee’s hearing denied this. Partners from other firms claimed their thresholds were 50%. By their own admission the firms are selling tax avoidance schemes with the knowledge that there is a 50% chance that their practices will be found to be unlawful. The firms know that in the age of austerity the tax authorities will never have sufficient resources to challenge them. So they continue, with the sole aim of producing private profits.

We are light years away from the capitalism of Cadbury and Quaker, which had some social conscience. Highly organised tax avoidance is the outcome of the relentless promotion of enterprise culture and deregulation over the last 35 years. It has persuaded many to believe that ‘bending the rules’ for personal gain is a sign of business acumen. Any ‘deal’, regardless of the social consequences is considered to be acceptable as long as it produces private profits, especially where competitive pressures link promotion, prestige, status and reward, markets, niches with meeting business targets. Those able to sail close to the wind are seen as financial wizards, media stars and are much in demand. The shame no longer resides in participation in activities that undermine social fabric, or even in being caught. Fines and sentences have just become another business cost.

In March 2013, Ernst & Young paid a fine of $123 million to the US tax authorities to resolve allegations of tax fraud. The firm admitted wrongful conduct by certain partners and employees. A number of its former personnel have received prison sentences. Previously, KPMG paid a fine of $456 million after admitting “criminal wrongdoing” over the sale of avoidance schemes and a number of its former personnel also received prison sentences. Despite massive reductions in the rate of corporation tax and top rates of personal income tax, the tax avoidance industry shows no sign of abating.

A large number of tax avoidance schemes have been declared illegal by the UK courts. The UK Ministers have referred to the schemes marketed by the big accountancy firms as “blatantly abusive avoidance scams”, but this has not been followed up with any investigation, inquiry, prosecutions or fines. No accountancy firm has ever been fined or disciplined by its professional body for selling unlawful tax avoidance schemes. In fact, there are no negative consequences for the designers of such schemes.

The big firms, HMRC, the Treasury and senior civil servants and politicians (see chapter five for evidence) maintain a close relationship. The firms provide jobs for some former and potential ministers. They donate money and services to political parties/former partners now hold senior positions at HMRC and the Treasury.

Democracy is a major casualty of a rampant tax avoidance industry. We can all be persuaded to vote for a political party that promises investment in education, healthcare, pensions, security and transport, but the ultimate veto rests with the tax avoidance industry and its clients. They can scupper any chances of public investment by designing schemes that erode tax revenues. The result? The loss of hard won social rights and inability of governments to deliver on their promises.

Thursday, 16 May 2013

Mervyn King’s rosy recovery prediction means little for a shattered nation

Prem Sikka

The outgoing Bank of England governor Mervyn King has presided over a huge economic crisis. His parting gift is the claim “a recovery is in sight” that the UK might achieve economic growth of even 1% this year. Despite this, the GDP will still be less than the 2007 figure.

Don’t be in a hurry to pop any champagne corks, because the assumed economic recovery is not what it seems and is unlikely to be sustained. It has been achieved through quantitative easing, printing money as old-fashioned economists used to call it, to the tune of £375 billion. That is equivalent to about £16,000 per household.

This money has been added to national debt – the only thing that citizens seem to own these days – but has not been used to restructure the UK economy or start new industries. Instead, it has been mainly given to the banks and they have used it to bolster their balance sheets and pay high executive salaries.

The plight of ordinary people has been getting worse. UK unemployment is rising and the official count now stands at 2.52 million. Nearly a million young people aged 16-24 are unemployed, taking the rate to a depressing 21.2%. The number of young people on zero hour contracts has doubled from 35,000 in 2008 to 76,000 in 2012. Zero contract hours are jobs which provide no guarantee of regular work or pay and have become the preferred mode of employment for some 23% of UK employers. Many miss out on rights such as sick pay, pension and paid holidays. Many firms and even charities and public sector organisations are adopting zero hour contracts.

Large sections of the UK population are wracked with insecurity. Since the 1980s, the governments have sought to weaken and destroy trade unions. In 1979, some 13.2 million UK workers, or 55.4% of the workforce was in a trade union, but by 2011 this declined to just over 6 million workers or 23% of the work force, compared to 69.2% in Finland, 68.4% in Sweden, 66.6% in Denmark and 54.4% in Norway.

In the absence of countervailing power structures, workers' pay has been ruthlessly assaulted. In 1976, wages and salaries paid to employees, expressed as percentage of GDP, stood at 65.1% of GDP. Now it stands at barely 53%. The plight of ordinary people is made even worse because the above statistics include the rewards lapped up by executives. The rates of corporate profitability are at historically high.

Wealth has been sucked upwards with the aid of state policies. Corporation tax rate has been reduced from 52% in 1982 to 21% for 2014. The top marginal rate of income tax has declined from 83%, in 1979, to 45%. Despite the recession, the rich are getting richer. In 2012, the richest 1000 people, representing just 0.003% of the adult population, increased their wealth by £35 billion to £450 billion, enabling them to fund political parties and shape public choices.

It is misery for ordinary people who have borrowed £1.423 trillion, equivalent to the GDP, to maintain a decent living standard. Thousands of people have become victims of the payday loans industry which does not shy away from charging interest at the rate of 4000%. Some 13.5 million people, including 1.8 million pensioners and 2.5 million children were estimated to be living below the poverty line and with a deep austerity programme these numbers will increase.

The number of people relying on emergency food handouts, simply to survive, has trebled to 350,000. People are facing massive hikes in the price of electricity, gas, water, transport and other essentials and simply do not have the financial capacity to take any further hits. One survey has suggested that an increase in monthly bills of just £99 will prove to be disastrous for a large number of families.

The above sketch of the social landscape is a million miles away from the rosy picture painted by the Bank of England. Equitable distribution of income and wealth is a key requirement for any sustained economic recovery, but it is not on the agenda of any major political party. Some may be happy to gather the crumbs of economic recovery; but most of us will simply be asking, “what recovery?”

Wednesday, 15 May 2013

Are Tax Dodgers the Real Scroungers?‏

Looks like an excellent event organised by Sussex LRC, a week today as part of the Brighton Festival Fringe.

Are Tax Dodgers the Real Scroungers?‏

Wednesday 22 May


Community Base, 113 Queens Road, Brighton, BN1 3XG

Speakers: Richard Murphy (Tax Justice Network), Mark Serwotka (PCS), Katy Clark MP

Sadly, it seems tickets are sold out - though contact in case of late returns. But we'll try to get a report and even video from the meeting, if possible.

In the meantime, you'll have to make do with this Class blogpost 'Who are the real scroungers?' - which should be a good teaser for the meeting.

But even more clearly - are tax dodgers the real scroungers? Look at this graphic and make up your own mind ...

Saturday, 11 May 2013

Hype wars: Return of the FDI?

Here's the propaganda: Chancellor George Osborne has pulled off a massive coup by personally negotiating a deal to secure the next film in the blockbuster Star Wars saga will be made in the UK.

George Osborne has not been shy about hyping his own success in making this happen:
"It is clear evidence that our incentives are attracting the largest studios back to the UK.

"I am personally committed to seeing more great films and television made in Britain."
Yes, there's our doughty chancellor securing foreign direct investment (FDI) to Britain and securing a healthy future for the UK film industry ... or so he'd want you to believe ...

Here's the reality: previous Star Wars films (in fact the first four) have been made (entirely or substantially) in the UK too, so this is hardly breaking new ground or attracting new business to our shores.

It's also worth analysing what Osborne means when he talks about "our incentives". What that means is that even if just a quarter of the film's production occurs within the UK, then the producers (Lucasfilm) can claim back tax relief on 80% of the full budget. This is a colossal tax break - and is basically offering multinational firms a tax avoidance scheme - giving them the option to reassign profits from elsewhere to the UK.

Hailing this as some kind of success story - when in reality it represents a race to the bottom on tax (i.e. governments prostrating themselves to business)  - is typical of a chancellor who hailed the 'Irish miracle' in 2006 for its slashed corporation tax, shortly before that economy spectacularly imploded.

Of course, Osborne's economic strategy is based on slashing taxes for business and the super-rich. What underpins the Chancellor's thinking is either a deeply flawed belief in Hayekian economics or more crudely a policy of class war: reducing taxes on the wealthy while slashing services and entitlements for everyone else.

Far from being return of the FDI, this is more the (evil) empire fights back ...

Friday, 10 May 2013

The UK minimum wage - flying at half mast ...

As previously reported on this blog, the UK minimum wage is being cut in real terms this October, and would be 7% higher today if it had increased in line with inflation over the past 5 years.

The infographic below shows just how much the UK minimum wage needs to catch up not only with inflation, but with rates in many other comparable countries.

(We're reliably informed that if the national minimum wage (NMW) had increased at the rate of that for FTSE100 Chief Executives since 1998, it would today stand at more than £19 per hour - equivalent to a full-time salary of £39,000 a year!)

A recently published infographic by the PCS union* shows that the UK NMW lags behind comparative rates in many other nations (though the UK edges the US on 32%).

The graphic also mentions that if our minimum wage was equivalent to that in France, low paid UK workers would be earning an extra £1.95 per hour - equivalent to nearly £4,000 extra a year. (If it rose to New Zealand levels, our NMW would be £9.55 per hour - equivalent to nearly £19,000 a year for full-time work).

For the national minimum wage to reach the UK living wage of £7.45 per hour would mean the NMW being equivalent of 42% of average earnings - the same rate as in Portugal, and just below that in Australia.

It's a commonly made argument that raising the minimum wage would increase unemployment. Indeed that same argument was made the NMW was first introduced. Study after study (including this one from the US) shows that not to be the case - and there are even Tories calling for an increase in the minimum wage.

It's quite clear that the UK's low wage economy is having a drag on demand (one that loosening credit doesn't solve). Indeed, a PCS report published earlier this year - Britain needs a pay rise - showed that the real value of wages has fallen by 7%, there has been a real terms drop in consumer demand of 5% over the same period.

And the misery doesn't end there for low paid UK workers - who are also facing a real terms cut in a range of in-work benefits, including working tax credit and child tax credit - while child benefit is frozen for the third consecutive year.

If you want an economic recovery, you need more £s in people's pockets. If you want more £s in people's pockets, you have to either legislate for a higher minimum wage (as many other nations have done) or restore some trade union rights, so that workers have greater bargaining power to win better pay.

*PCS has a great series of infographics which you can see via the PCS Facebook page

Wednesday, 1 May 2013

Borrowing for growth - some advice for Ed

Earlier this week Labour leader Ed Miliband made the case (somewhat haphazardly) for more short-term borrowing to stimulate the economy.

Not unexpectedly, Miliband's reluctance to admit that an alternative to austerity might involve borrowing was seized upon by the the right wing press.

Miliband's unease reflects a battle within Labour that has yet to be won. Seumas Milne analyses that ongoing political fight in his Guardian column. As Milne correctly observes:
"The Tories want to lure Labour into signing up for the same medicine – or a mildly watered down variant – as they did in the far more benign economic environment of 1997.

"If Miliband and Ed Balls (who still defends the 1997 decision to stick to Tory spending limits) fall into that trap, it would be a disaster – both for Labour's election prospects and the chances of rebuilding an economy that delivers for the heavily squeezed majority".
But I want to look at the economic timidity (and the power of the Tories' economic framing) that made Ed stutter in that interview.

Ed should have responded by saying this:
"Yes of course it means borrowing - but borrowing to grow the economy. George Osborne is borrowing over £240 billion more than he said, our debt is rising, because his policies are failing. He has to borrow for his failure, we would borrow for growth."

The graph to the right shows how Osborne's plan set out in his emergency budget has faltered - as many predicted it would - due to the self-defeating nature of austerity policies in an economy with already weak demand.

Labour should be ramming this home. The choice - framed by the Tories and put to Labour - is not between cutting spending or borrowing more. It is between borrowing for failure or borrowing for growth.

Ed Miliband should have had these arguments to his fingertips. The Labour leadership still seem caught in this false trap between borrowing or austerity. This stems from the acceptance of another narrative that Labour borrowing and investment in public services is the reason for the deficit today. It's not, no matter what economic illiterates like Liam Byrne scrawl.

In office New Labour spent less as a percentage of GDP than the governments of Thatcher and Major (as this graph shows) and had reduced the national debt prior to the economic collapse caused by the banking crisis (as this graph shows).

So while Ed should swat aside the silly jibes about Labour's spending, saying:
"The last Labour government invested in public services, while the governments of Thatcher and Major spent more on social failure, just like David Cameron's government today."

Finally, Labour's borrowing plans. All the World at One furore was caused by Ed Miliband's plan for a temporary VAT cut - "The point I was making yesterday was to get growth going by cutting VAT, then over time you will see borrowing actually fall. That was the point I was making."

There's a good solid case for permanently reducing VAT - a regressive flat tax - and redistributing the tax burden onto those on higher incomes (e.g. restoring 50% tax rate) or by taxing wealth (mansion tax). Assuming some revenue neutral combination of the above, there is a stimulus effect because poorer people have to spend their income, whereas the rich invest their surplus wealth. Taxing wealth of course unlocks capital.

However, a temporary VAT cut (and the timid message it sends) is hardly the most effective way of stimulating demand.

Why not instead argue for a mass housebuilding programme - that would create thousands of construction jobs (a sector where there is excess capacity) and more in the supply chain. Getting people into work (or more work) means more taxes and fewer benefits.

Building new homes, with a hefty chunk of council homes, would also meet an urgent social need and provide revenue to local government through rents. The knock-on impact of furnishing new homes would also boost the retail sector.

Housing is of course only one example, but there are others from new energy infrastructure, energy efficiency programmes to new transport networks.

By enmeshing economic stimulus with meeting social need, Labour could then mobilise thousands of people into backing their demands. But that needs the political fight to be fought and won within the party ... back to Seumas.