Tax is the taxing issue of the day, thanks to the avoidance of it by big, wealthy American companies. Ebay, Amazon, Starbucks, Facebook, Goldman Sachs, the list goes on. All have been exposed as serial tax avoiders.
Note, before their libel lawyers start reaching for some of the money they've saved, I said avoiders, not evaders. There's nothing illegal about tax avoidance and no one's ever alleged any illegal practices on the part of those listed above. But it is problematic, and not just because of the sense of one law for us, one law for them that it fosters among consumers who are losing benefits, paying more tax and watching public services topple. It's problematic because it's bad business.
Allowing multinationals to pay little or no tax on UK earnings is anti-competitive. It gives them an unfair advantage over domestic rivals. This is part of the reason why your favourite espresso bar is now decked out in green and white livery. But it's quite wrong to get cross at the companies: they are under a fiduciary duty to seek the best possible return for their shareholders. If facilities are there for them to do that legally by ducking tax, they have to use them.
In fact, they're not behaving any differently to the swaths of senior people and celebrities who have wages paid as fees to personal services companies to legally duck tax. They all do it because they can.
The real focus of our ire should be the policymakers and the mandarins who have allowed the situation to develop.
Reforming tax rules is difficult and complicated because you run the risk of cutting off your nose to spite your face. This is what happened when Gordon Brown introduced new rules on controlled foreign companies aimed at preventing UK multinationals from funnelling profits through low tax jurisdictions while reporting losses in higher ones. All the measure did, as it was framed, was to disadvantage them against overseas rivals.
But that shouldn't stop our political masters from trying.
There is also an international issue here. With Western governments desperately short of revenues you'd think there would be considerable mutual interest in addressing the problem together.
The trouble is the UK can hardly start banging on doors without looking hypocritical. We're indulging in tax competition by cutting business taxes in the hopes of luring multinationals to these shores, and are set to continue doing so. We also offer support and succour to a string of offshore islands, which owe nominal allegiance to the British Crown while acting as tax avoidance facilitators. Taking action against them, however, appears to be a mite too taxing.
US power means we have a proprietary trading ban
The Europeans got their turn before the Parliamentary Commission on Banking Standards yesterday, making the case for why ringfencing deposit-taking from some of the more esoteric proprietary trading indulged in by investment banks works better than an outright ban as favoured in the US.
Erkki Liikanen, the governor of the Bank of Finland, is responsible for proposing a set of rules for Europe which look rather similar to what Sir John Vickers' Independent Commission on Banking has proposed for us.
His argument against a ban was that it's quite difficult to draw the line between activities such as market making (good, socially useful) and prop trading (bad), as Paul Volcker, who drafted the US ban, found. He also argued that it's better to keep prop trading inside the regulatory net, where you can see what's going on. That stance has a number of holes in it – there's already a lot of financial gambling going on outside the net.
The debate is actually rather sterile, because if you're a big bank you're going to do business in the US, otherwise you wouldn't be a big bank. That means you'll get hit by the Volcker rule.
Thanks to the American habit of imposing its rules on the rest of the world, you'll find it applies to the ringfenced European subsidiaries that do things that look rather like prop trading. If the Volcker rule says they are prop trading, the SEC will be at your door regardless of whether they have been done in Europe by ringfenced European subsidiaries.
The Volcker rule is here. The debate we ought to be having now is whether we want ringfencing in addition to it.
A smart idea from the pensions association
This week's new idea from the National Association of Pension funds is every bit as good as last week's was bad.
The NAPF is proposing to publish information that grades fund managers on how they approach stewardship; in other words, doing things such as voting at annual meetings and being prepared to act when companies behave badly.
If it goes ahead with the idea – which will probably be greeted by howls of outrage from a fund management community that is generally resistant to any form of accountability – it would be a thoroughly good thing.
Well-governed companies tend to do better than badly governed companies. So long term, forcing fund managers to take stewardship seriously ought to improve investment performance. Better long-term investment performance would help to reduce pension schemes' deficits and therefore the need for ideas like last week's, which saw the NAPF calling for pension schemes to be able change the assumptions on which deficits are calculated. Or, in English, to cook the books.