How can Labour prove it’s not on the side of a small cabal in the Square Mile?

How the recent tax avoidance scandal shows that the softly softly approach won’t work, and we need a financial transaction tax.

Ed Miliband repeatedly challenged David Cameron at Prime Minister’s Questions recently to close a tax loophole that allows hedge funds and others to dodge the stamp duty they should pay on share transactions. Last week in parliament a report was launched by former senior banker Avinash Persaud which shows that by tightening such rules we can raise a potential additional £2bn year. In both cases the Conservatives have looked the other way. Perhaps it’s something to do with the Conservative party receiving a large wedge of their funding from the financial sector?

It fits a pattern. The government has bitterly fought European legislation designed to keep financial services in check; the ringfencing of investment and retail banking has been delayed until 2018, a decade too late; and no individuals have been convicted for their part in the crisis. The list goes on: an anaemic bank levy has raised little revenue; financial sector corporation tax receipts are dwindling and financial sector remuneration is so out of sync with the rest of the economy it took senior bankers just the first week of January to earn what the average Briton will take home for all of 2015.

Timidity towards the Stamp Duty (itself a very modest proposal) is thrown into even starker contrast when we consider what is happening across the channel. Eleven European countries, that in total make up around 70 per cent of European GDP, are going further – they’ve committed to a broader Financial Transaction Tax. Our stamp duty, which is set at a rate of 0.5 per cent, is paid every time a UK share is traded. As France’s President Hollande indicated earlier in the year, the European proposal will apply to shares, but crucially it will also apply to the colossal market of financial chicanery known as derivatives. Whilst the details are still to be hammered out this is likely to raise in excess of £10bn a year for participating countries.

This is not a policy preserve of the left – Germany is one of its biggest champions. Like us, they too have unfurled a wide-ranging austerity programme, yet with a quid pro quo: if the public are paying the price of the economic crisis they did little to cause, the financial sector must also pay its share.

Of course, some financial sector players are squealing in horror – but they would protest about a tax they’ll have to pay wouldn’t they? Indeed, we should be more concerned if they were silent. The truth about FTTs is more prosaic than critics suggest. Many moderate variations of the tax have already been successfully implemented around the globe. Most have been implemented unilaterally without unduly impacting on markets, putting paid to the idea they must be global to work. The UK’s stamp duty provides the blueprint – it captures share trades wherever in the world they take place, since without it, legal title will not be transferred to the new owner. This is so effective, 40 per cent of its revenue comes from overseas counter-parties.

Closing the stamp duty loopholes could raise us £2bn a year in extra revenue – this offers a real chance for Labour to put itself on the side of the majority of the electorate and not on the side of a small cabal in the Square Mile. But the real prize comes in extending the stamp duty to a fully-fledged FTT that covers derivatives and other financial asset classes, as they are doing on the European mainland. Labour shouldn’t get bogged down in old arguments about waiting for the United States to join the proposal – not now it’s happening on our doorstep. We should act.

As I set out in my new book, the FTT isn’t a panacea, and must sit alongside other measures such as reforms to inheritance tax and a higher rate of VAT on luxury goods. What it is though, is a moderate, credible and proven revenue raiser that will also curb some of the sector’s most odious practices such as high-frequency trading that deliver little social value.

It’s time we learnt the lessons of history: a softly softly approach to the financial sector does not work.

Shock Therapy Can Prove Fatal

Tribune

True to form, Germany’s finance minister Wolfgang Schäuble got his retaliation in first with talk about blackmail demands from Athens. Big boys’ rules from Berlin.

The eurozone crisis over Greece threatens to turn into more than a war of words. The prospects do not look good for dealing with this existential threat to the eurozone, and even to the European Union itself.

Thank goodness, then, for the call for calm from French Socialist EU Economics commissioner Pierre Moscovici. If only his declaration that: “Our common goal is to enhance growth” were true.

Sadly growth has taken second place to austerity ever since EU leaders prioritised cutting budget deficits above all else at the G20 Toronto summit in June 2010.

That policy has hit the eurozone economies badly ever since. It is still doing so today. The International Monetary Fund expects the eurozone to grow this year at only one third the pace of the United States economy. Greece has been hit hardest of all.

Aneurin Bevan noted generations ago that shock therapy can prove fatal. The Greek economy has been in a state of shock for years at the hands of the “troika” of the European Commission, the European Central Bank and the International Monetary Fund. It hasn’t worked. Now the Greek people insist, rightly, that there has to be a better way, preferably within the eurozone with the help of their partners.

German leaders can justly point out how well their country adapted to reunification and the single European market in the 1990s, and to the euro and EU expansion in the first decade of the 21st century. But Germany didn’t have to adjust in the face of the greatest global financial crisis for 80 years.

The Greek people have had to endure unemployment rates of 25 per cent overall and 50 per cent among young people, a 40 per cent cut in spending since 2008, and no hope of any let-up for the foreseeable future. On top of all that misery, Greek debt has gone up, not down as the austerity was supposed to deliver. Another catastrophic failure for neoliberal economics so in vogue globally.

Nobel Prizewinning economist Paul Krugman has pointed out that Greek government spending has been far lower than that envisaged in the stand-by arrangement agreed with the troika in May 2010, which assumed a short, shallow recession would be followed by recovery. Instead of growing, Greek gross domestic product collapsed, forcing upward the Greek debt to national income ratio and giving a false impression of Greek reluctance to meet commitments to its international partners.

Yes, Greece has been helped by its EU and IMF partners in the form of big loans on favourable terms, plus pressure on Greece’s private sector creditors to write off some of what she owes. But the underlying reality is that this has been another backdoor bailout of the banks. Greek debt previously owed to private sector banks is now owed to other eurozone governments and the IMF. The Greek people have felt no direct benefit – indeed, the very reverse.

Nor have they received much thanks for cutting Greek wages relative to rivals by 15 per cent since 2010, restoring much of the country’s competitiveness and bringing Greece’s balance of payments into surplus. Just as the Greeks German critics demand.

In September 2008, the American government badly underestimated the likely implications for the world economy of allowing Lehman Brothers to go bankrupt. Its frantic efforts to undo the damage only hours later by rescuing AIG could not turn the clock back. Irretrievable damage had been done. The consequences were not confined to Lehman and its trading partners. World trade began to sink as fast as it did at the start of the 1930s’ Great Depression, as credit dried up and firms and families cut back their spending.

The law of unintended consequences could come into play again here if Greece’s EU partners refuse to recognise that the Greek people have reached the end of the austerity road. They cannot carry on with bailout terms that mean transferring some 20 per cent of Greek national income to their creditors by running huge budget surpluses between now and 2020. Such a budget squeeze would deny any chance of real recovery and condemn our Greek friends to unremitting misery.

The way forward is for Greece’s EU partners to switch priorities from failed austerity and debt to growth. They could do so by backing the call made by Nobel economists Joseph Stiglitz and Chris Pissarides for Greece not to have to service any debt for the next five years unless the Greek economy is growing at 3 per cent or more, and until Greek GDP has recovered half the ground lost since 2008. This should be allied to some debt relief and a major easing of the requirement for Greece to run huge budget surpluses.

But Greece should still meet her commitments to tackle tax evasion and corruption.

That will take real understanding in Berlin and Brussels that the future of the EU and not just of Greece is at stake. Political posturing for the benefits of the volk back home is out of order.

Wales needs to find its place in a federal Britain in the wake of the Scottish Independence Referendum

Western Mail

Former Welsh Secretary Peter Hain – one of Labour’s most senior figures – has urged his party to abandon its commitment to more cuts if it returns to government after May’s General Election.

Here, in the last of a series of extracts from his new book – Back to the Future of Socialism – Mr Hain turns his attention to the aftermath of the Scottish Independence Referendum, and how Wales must find its feet in a federal UK:

‘The aftermath of September’s fraught referendum and the new devolved powers promised for Scotland and Wales have left us facing an unanswered question: If Britain is to stay united, what should be its foundation, its purpose?

As the former Labour Prime Minister Gordon Brown argued in his compelling book, My Scotland, Our Britain, the division between separatists and unionists is not about patriotism: both pro- and anti- independence advocates rightly claim to be equally patriotic.

But the incontrovertible advantage of modern Britain is its 20th-century innovation: the pooling and sharing of risks and resources across the whole country to ensure common welfare and decent standards of life for all citizens, regardless of nationality or where you live.

At the heart of this have been ground-breaking decisions made at different crucial points of the 20th century – first introduced by Liberal governments and subsequently consolidated by Labour governments up until 2010 – ensuring common economic, welfare and social standards: common Britain-wide old age pensions; common British social insurance (sick pay, health insurance, unemployment insurance and labour exchanges); common British child and family benefits; a common British minimum wage; and a British system of equalising resources, so that everyone has the same political, social and economic rights, and not simply equal civil and political rights.

Pooling and sharing Britain’s resources also enables redistribution from richer to poorer parts – whether constituent parts of a nation like the coalfield communities of the South Wales Valleys or regions of England such as the North East.

With around 40 per cent of the country’s national wealth concentrated in London and the South East of England, separatists have no answer to what is essentially the democratic socialist case for maintaining the integrity of Britain: redistributing resources from its better to its less well-off parts, and guaranteeing equal opportunity and security for all British citizens regardless of race, gender, sexual orientation, age, disability or faith.

That has meant that while inside the European Union the average income of the typical citizen of the poorest country is just 20 per cent of that of the richest country, and in the US the income of the poorest state is 55 per cent of that of the richest, the average income of the typical Scot is 96 per cent the average income of an English citizen; for Wales the figure is 87 per cent.

A universal right to free health care across Britain in the 1940s and, in the 1990s, a British-wide minimum wage and tax credits that guaranteed a minimum family income stopped regions and nations undercutting each other by offering incoming businesses a lower-paid workforce, thus preventing a race to the bottom between the nations and regions within Britain.

This sharing and redistribution of both resources and risks has therefore come to define the purpose of Britain, to secure cross-country, cross-region fairness and justice.

But, in turn, it means recognising the reality of a more “federal” Britain which I have long advocated and is supported by Labour, Liberal and Green politicians as well as a few thoughtful Conservatives, notably Welsh AM David Melding.

But this federalism should not be based upon an English Parliament to parallel Welsh, Scottish and (subject to the 1998 “Good Friday” settlement which permits unity with the Irish Republic should a referendum endorse that) Northern Ireland Parliaments.

For the 1973 Kilbrandon Royal Commission made a convincing case against a separate English Parliament which has never been rebutted.

Such a federation of four units would be “so unbalanced as to be unworkable. It would be dominated by the overwhelming political importance and wealth of England … [with] Scotland, Wales and Northern Ireland, together representing less than one fifth of the population.”

Instead, in a modern federal Britain, English interests could be protected through devolution beyond London to English regions or city-regions, and by reforms within the existing British Westminster Parliament.

These reforms would be designed to both preserve the equality of all MPs and to introduce special procedures ensuring the voices of English MPs could have weight over English-specific legislation.

The Westminster Parliament would have continuing responsibility for overall economic policy, taxation and spending totals, foreign and defence policy, security (including energy security) and social security.

The devolved legislatures could then take responsibility for most other policy areas, by mutual agreement.

But on taxation there is an important distinction between the Conservative endorsement of income tax devolution and a socialist perspective.

For the right it is an ideological objective to shrink the Whitehall state, offloading as much responsibility as possible onto individual citizens to fend for themselves, outsourcing to private providers and “subcontracting” tax and spending to devolved legislatures.

Having strenuously opposed political devolution in the past, the Tories now see the virtues of economic devolution in right wing terms.

And in that respect, at least, the outcomes if not the ideologies of nationalism and Conservatism converge, because it is the redistributive power of the British state that ensures that the former is extinguished and the latter stunted.

In Wales’ case, independence would leave us much the poorer, just like the North East of England or Cornwall would be if separatism or Tory tax devolution were to affect them.

All British taxpayers – English, Welsh, Scottish – contribute their taxes at a British level to guarantee free health care, pensions, a decent family income and universal education, as well as defence and security – and to guarantee that where relevant the Scottish Parliament, Welsh Assembly and English regional or city-region governments have the capacity to deliver them.

Today, as policies diverge under devolution that may mean different things in different nations.

For example, there is free care for the elderly in Scotland but not in England.

In Wales student tuition fees are a third of those in England.

In Scotland and Wales collectivism is culturally more deeply rooted than in England, where Tory support is proportionately much greater.

Although socialists and Labour Party members right across Britain share common values of equality, social justice, democracy and liberty, these are increasingly expressed through different priorities and policies.

There is – at least as yet – no recognisably Welsh or Scottish socialism that might differ from an imagined English socialism.

But there is a direction of travel which will only be accommodated under a British socialism that is much more participatory, pluralist and devolutionary.

A Labour government, for example, should not be afraid to promote countervailing sources of power – for example, through an elected second chamber to replace the House of Lords and through devolution in England.

Some Labour traditionalists of both left and right have balked at such democratic pluralism because, as has been the case in Scotland and London, these bodies are not necessarily Labour controlled.

But that contradicts what ought to be a fundamental and defining characteristic of socialism, namely its essentially empowering ethos.

A truly democratic socialist state is an enabling one, though of course it needs to retain an enforcing role through upholding individual rights, asserting the common good on behalf of the community, and curbing excessive influence by the rich and powerful.’

The austerity agenda is based on a series of deceits

Western Mail

Former Welsh Secretary Peter Hain – one of Labour’s most senior figures – has urged his party to abandon its commitment to more cuts if it returns to government after May’s General Election.

Here, in the first of a series of extracts from his new book – Back to the Future of Socialism – Mr Hain outlines what he sees as the folly of the austerity agenda, and how a right-wing media narrative in sections of the London-based press is falsely representing Labour’s years at the helm of the economy:

‘The obsessive pre-election debate surrounding still more savage cuts to “cure” the deficit is based upon a whole series of deceits.

The first of these is that the last Labour government left the country with a mountainous levels of national debt, a budget deficit and the need for public borrowing because we spent too much.

In truth Labour cut national debt as a share of national income from over 42 per cent inherited from the Conservatives in 1996-97 to less than 30 per cent in 2001-02; though it rose to 36 per cent by 2007-08, that was still well below Tory debt levels.

Britain’s national debt as a share of national income was lower than that of France, Germany, the US, Italy or Japan, having fallen by 6 per cent since 1997 (worth some £90bn today).

Lower government debt meant Labour saved the taxpayer about £3bn in annual interest payments: we did indeed “fix the roof when the sun was shining”.

This helped to establish a stable economic foundation and delivered a decade of record investment in public services that so desperately needed repairing; from the dismal inheritance of patients dying on trolleys in hospital corridors and sinking school standards to the worst railways in Western Europe.

By June 2007 Labour had delivered a historically unprecedented decade of steady economic growth, low inflation and low interest rates which had taken employment to record heights as GDP per head grew faster than for any other member of the Group of Seven leading developed economies.

The low yields on government bonds before, during and after the 2008 credit crunch under Labour bore eloquent testimony to the fact that the international markets had full confidence in our policies; and that they were not clamouring for the right-wing cuts dogma subsequently visited upon Britain.

Before the global financial crisis, government borrowing was some £15bn lower in today’s money than in the Tories’ last year in office in 1996-97.

In fact the Tories have borrowed more money in the last five years than Labour did in the entire 13 years of our government.

International Monetary Fund figures showed that Britain’s 2007 public sector deficit, at 2.7 per cent of GDP, was also low: the same as that of France and the US.

The deficit too had been significantly cut from the one Labour inherited.

Indeed, so desperate was he to identify with Labour’s success that David Cameron in September 2007 even pledged to match Labour’s spending plans for three further years up to 2010.

In his subsequent lurid, repetitive denunciations of “Labour bankrupting Britain” he seems to have been struck by a prolonged bout of amnesia.

Labour’s spending was in fact lower than in France, Germany, the Netherlands, Norway and Sweden, and was never “out of control”.

But then came the international banking crisis, the global credit crunch and the worst recession in Britain for 80 years.

The proposition that by building so many new hospitals and new schools, by recruiting tens of thousands of extra nurses, doctors, teachers and police officers in Britain, Labour triggered the subprime mortgage defaults in the US that ricocheted throughout the world’s financial institutions is preposterous.

It wasn’t Labour’s public spending that triggered Britain’s or the world’s economic crisis. It was the global interdependency of reckless banking practices that in 2008 caused an economic meltdown in Britain and right across the globe.

Britain under Labour, just like the other G20 governments, took on record annual budget deficits by agreeing to boost public spending and borrowing through multi-billion bank bailouts.

But these were deficits which stopped a banking collapse and a slide into slump; and also laid the basis for recovery from the biggest shock to hit the world economy in peacetime since the 1930s Great Depression.

However the new Tory-led government that took office in May 2010 embarked upon massive and immediate public spending cuts which turned a fragile but real recovery from the banking crisis under Labour into a fresh recession under the Tory/Lib Dem coalition.

The budget deficit wasn’t caused by Labour’s “reckless spending and borrowing”, but by irresponsible bankers.

Today after all the cuts, the deficit is still more than double the target in the Tory plan for this Parliament. And yet – cheered on by the Daily Mail, Telegraph and Murdoch stables and echoed by broadcasters – their plan of action is still more savage cuts if they win.

It may be good politics for the Tories, leading Labour on the economy according to pollsters. But it is lousy economics, because it hasn’t worked.

Before the last election David Cameron luridly trumpeted that Labour’s commitment to halve the budget deficit would take Britain over “the brink into bankruptcy”.

It was necessary to eliminate the whole deficit he insisted, pledging to cut government borrowing by 2014-15 to exactly half what Labour had planned, £37bn instead of £74bn.

Yet official forecasts expect government borrowing to exceed £91bn – nearly £20bn more than Labour’s allegedly “disastrously high” target, and over £50bn above the Tory one. So the Tories have simply moved the goalposts, insisting their “plan” is working after all.

The problem is that none of this deceitful propaganda confronts the fact that the kind of capitalism we face today is a more financially unstable and more unfair system than ever before: productive but prone to paralysis, dynamic but discriminatory.

My book, Back to the Future of Socialism, explains why and provides a practical political alternative to reform Britain’s economy and generate sustainable growth.

It confronts the right wing orthodoxy of recent decades – an ideology favouring market forces wherever possible and tolerating state regulation only where absolutely necessary.

Although that same ideology caused the banking crisis, it has clung on nevertheless, as if somehow it were not the very root of the problem all along.

Nevertheless, despite having backed Labour’s spending plans in 2007, David Cameron suddenly switched after the banking crisis to announce in October 2009: “It is more government that got us into this mess.”

He made no mention of irresponsible bankers, still less of the failure of politicians to control them. The entire global banking crash was apparently nothing to do with Big Finance: it was all the fault of Big Government. The cause was too much public spending – not too little public regulation.

But the real culprit was that governments across the world (including Labour’s) allowed the financial system over a 30-year period to get out of control and become a law unto itself.

Takeovers and mergers led to banks so big they couldn’t be allowed by government to fail.

Bankers bent rules to lend ever more riskily without anything like enough capital cover, until it all unravelled to catastrophic effect.

In truth – at the very least in terms of finance – governments were too small and too passive, not too big and too active.

Back to the Future of Socialism explains why and insists that the real choice facing voters in the May election should be between the right’s insistence on minimalist government and the left’s belief in active government; between the right’s insistence on a free market free-for-all, and the left’s belief in harnessing markets for the common good.

Understanding the on the runs debate

Progress

Tony Blair was masterful giving evidence before the Northern Ireland select committee today, confirming that the so-called ‘on the runs’ scheme was indispensable to the historic peace settlement we achieved in 2007.

Yet he and ministers like me have been accused of doing a ‘shabby’, ‘one-sided’ side deal with Sinn Fein behind the backs of parliament, the Northern Ireland political parties, victims and the public at large.

It is argued that as a result at least one alleged ‘terrorist’, John Downey, has evaded justice and that therefore many more will have also have done so. It is further alleged that, by involving the police in this process the government ‘politicised’ them, as well as the law officers and civil servants who were involved in the administration of the scheme.

I utterly reject these accusations, and believe that they spring from a fundamental misunderstanding about the core issue.

In the controversy which has understandably raged since the John Downey prosecution fiasco in 2013 over the Hyde Park bombing, there has been a complete failure to distinguish between, first, those who were genuinely ‘on the run’ (that is, who the police were pursuing on the basis of evidence against them), and, second, those who may or may not have committed pre-Good Friday Agreement Troubles-related crimes but against whom there was either no evidence, or insufficient evidence to detain, let alone prosecute, if they came back into United Kingdom jurisdiction.

For some the difference between these two categories is immaterial. But it is actually fundamental.

The Northern Ireland offences bill, which I introduced to the House of Commons on 9 November 2005, was designed to honour commitments our Labour government made at Hillsborough in 2001, and published in detail after the Weston Park talks in April 2003.

Had I not withdrawn that bill on 11 January 2006, it would have dealt with the first category of cases, namely, those who had committed crimes or were wanted by the police.

That key ‘on the runs’ issue Sinn Fein wanted dealt with is still outstanding and has still not been resolved.

The second category came under the Administrative Scheme – which, as the Tory attorney general, Dominic Grieve, confirmed to the House on 26 February 2014, was entirely lawful. It was essentially a screening exercise that in the Downey case obviously went wrong. As I understand it, this Administrative Scheme began some five years before I became secretary of state for Northern Ireland on 6 May 2005 and continued after I left on 27 June 2007, including under the current government.

Far from being ‘invisible’ the existence of the Administrative Scheme was mentioned to the House both by one of my predecessors John Reid on 1 July 2002 and by me on 7 February 2007. It was again publicly referred to by Lord Eames and Denis Bradley in their Report of the Consultative Group on the Past, published in January 2009.

The Administrative Scheme processed people on behalf of whom Sinn Fein inquired as to their status: were they wanted or not at the time of asking.

It was no more than that. The function was in the title: ‘Administrative’.

In the case of those not wanted the letters they received contained statements of fact after careful checks by the police, the attorney general’s office and NIO officials, and they were clear that, should further evidence come to light, these letters would no longer be valid.

Consequently they were emphatically not ‘get out of jail free cards’ nor ‘amnesties’ – as indeed has been made clear to NI MPs committee by three chief constables, the attorney general’s office and the DPP for Northern Ireland. And also by Justice Hallett’s 2014 review which also cleared all Labour ministers involved of any wrongdoing.

At no time was I aware of the names of those being processed under the Administrative Scheme, nor the timing involved, nor the nature of the assessments made. Those were matters for the police, the law officers and officials, not for government ministers.

It would have been wholly improper for me to have inquired about or got involved in that process.The Administrative Scheme in whatever iteration over time never was an attempt to resolve the first category issues set out in that bill.

And those issues, I repeat, remain unresolved.

This distinction between the two categories lumped under the generic title of ‘on the runs’ is absolutely central.

I was part of a government in which I am proud to have served as secretary of state for Northern Ireland that had the lead responsibility along with colleagues in the Irish government to negotiate and deliver a political settlement following, not decades but centuries, of division and, at times deadly, conflict.

It often involved taking difficult decisions in real time, but what I am absolutely certain of is that at all times those were decisions taken honourably and within the law. And we can unpick and pick at aspects of that process as much as we like. But if we analyse them in isolation as if the world is other than it was then, I am not sure where that will take us.

Having appointed the interim victims commissioner in 2005 and commissioned the comprehensive Eames-Bradley Consultative Group on the Past which reported in 2009, I am very conscious of the harrowing legacy of horror and evil that victims and survivors continue to bear. I utterly reject any suggestion that I, or anyone with whom I served in government, was indifferent to their suffering. It was precisely to ensure that there never again would be victims in the future that I am proud of everything I did to achieve what most people thought impossible: the 2007 settlement which has now produced over seven years of relative peace and stability.