Oh dear. First, trouble over the government’s pension “reforms” and bank regulation, now over its short-lived triumph over Google’s tax bill. It’s been a bad few days for cocky George Osborne, further indication that his hopes of succeeding David Cameron as prime minister are just that.
What’s more, his likely fate will echo that of Cecil Parkinson, who died on Monday and who also aspired to the top job as Margaret Thatcher’s protege, but was let down by character flaws. And we haven’t even mentioned Sir Nick MacPherson’s far-sighted tax planning yet.
I know, I know, everyone has character flaws. Parkinson – here’s Martin Kettle’s assessment – was clever and politically shrewd. He also had a lot of charm and a good backstory, a clever grammar schoolboy from Lancashire. But his affair with Sara Keays and the way he handled it (very badly) proved his undoing.
When Keays blasted him all over page one of the Times on the last day of the 1983 Tory conference in Blackpool (I was there) he was making the keynote speech. Suddenly his easy charm rebounded on him. He stayed active in politics, but it was never glad, confident morning again.
Osborne’s problem as a public figure has always been over-confidence. He may not always feel it in private, but it’s how he comes across on TV and in the Commons. Bouncy metropolitan cockiness served him well as the only one of six or seven Tory shadows who ever worsted Gordon Brown. It becomes a wasting asset once a chancellor’s own record is in play.
The Treasury has just announced that it’s appointing Andrew Bailey to succeed Martin Wheatley, whom Osborne removed last summer as head of the independent Financial Conduct Authority (FCA) for being a bit too independent. Wheatley’s removal and the FCA’s subsequent retreat from its review of banking culture (Treasury fingerprints all over the decision) got Osborne a bad press across the board. Let’s see how Bailey fares. He looks like an inside job.
Which other new year headache will damage the Osborne share price most? Pension reforms, which upset a LOT of people who vote Tory? Or the chancellor’s rash claim that Google’s £130m 10-year tax settlement was a “major success” for the tax men and women at HMRC?
Pensions first. I know it’s boring to most people under 60, it was to me, but it shouldn’t be.
Osborne’s existing squeeze on tax allowances on pension contributions is already set to cut the individual lifetime allowance from £1.25m to £1m on 1 April (it was £1.8m a few years ago) and the annual maximum contribution to £40,000. It sounds a lot – it is a lot – but over decades of accumulation, it’s less than you think. Watch out, teachers!
It also hits middle class Tory voters, so their newspapers are pretty cross about it – they’ve taken some hits during the austerity years. Worse may be to come if Osborne actually imposes a single flat rate of relief – say 25% for everyone – instead of relief at up to 45% for top earners.
There’s a case for doing some of this, since higher earners get most of the relief, which costs the Treasury £30bn per annum in lost revenue. Less affluent savers would benefit, though many of them are also going to lose out from Iain Duncan Smith’s flat-rate £155 per week state pension reform. So will higher earners. It’s all been appallingly managed and misrepresented.
Scary stuff for the middle-aged (I’m too old to be affected much by this) and there are rumours of even more drastic action in March’s budget.
The inescapable conclusion on all sides is this is not about “reform” but about raising cash upfront to cut the budget deficit, like so many other short-sighted cuts. The two 1 April “reforms” will net the Treasury £5bn a year. Osborne could end up squeezing savers even more than Gordon Brown did over dividend tax credits, itself a Tory idea.
The experts, many already alarmed at Osborne’s “pension freedom” reform, which ended compulsory annuities (another upfront-tax wheeze), are unimpressed. Tory rebel David Davis warns against picking a fight with middle class savers. Irate Tory MPs will “play quite a large part” in picking the next leader, he reminds Osborne.
Quite so. And the reaction to Google’s tax deal adds to No 11’s woes. Of course, it’s an HMRC deal, nothing to do with a chancellor’s day job. But Osborne chose to call it a “major success” when a glance at the numbers suggests otherwise to both lay and expert observers.
No 10 distanced David Cameron from it all by calling it “a step forward”. Perhaps that’s why crafty Dave is PM, not his pal George. HMRC also chose to publicise the settlement, but cited tax confidentiality in refusing to explain it. A junior minister, David Gauke, was put up to answer John McDonnell’s attack in parliament, where John Crace was underwhelmed.
Tory MPs joined in the catcalls. The Treasury select committee, chaired by the formidable Tory MP Andrew Tyrie (picked by MPs not the whips under 2009 reforms), is going to take a look at it all. Tyrie usually draws blood. The Sun, whose owner knows a bit about tax avoidance, denounced the deal. Boris Johnson, rival for the Tory crown, spotted a bit of opportunism and joined in.
Meanwhile, this week’s papers are full of articles and graphics to show how Google shunts the bulk of its UK revenues, mostly from advertising (£4.5bn a year) via Ireland and the Netherlands to a company called Google Ireland Holdings (hence the “double Irish” and “Dutch sandwich” slang), which is registered in Bermuda.
As Nils Pratley points out here, HMRC’s crucial negotiating failure is to make Google acknowledge that it has “permanent residence” in the UK. The Times reports it never even challenged the claim (paywall), despite a whistleblower’s advice. Yet it is safe to assume Google does not employ approaching 5,000 people in Bermuda, as it does in Britain, where it is building a fancy £1bn new HQ in the revived King’s Cross area – near the Guardian’s office at King’s Place.
During the 10 years when HMRC was “reviewing” Google’s position, a lot has changed and more is understood about the ability of digital companies to move revenue around. Europe is acting on it. France is now seeking three times as much from Google’s local operation on much smaller revenues. Not for the first time the UK’s unilateral action – the actions of a sovereign state, as Nigel Farage would put it – have undercut collective action. Not too good, eh George? But much of the damage is self-inflicted.
No, I haven’t forgotten Sir Nick MacPherson. He’s the permanent secretary at the Treasury, successive chancellors’ right-hand man, just about to retire at 56 to less arduous work in the City. The Sunday Times reports (paywall) that two years ago the sensible chap froze payments into his excellent civil service pension and applied for what is known as “fixed protection” for his current pot.
You don’t have to understand the details (as an OAP, I do) – it’s an entirely legal technical wheeze that means the new £1m cap from 1 April won’t affect him. The old limit of £1.5m will still apply. I may be missing something, but I’d say that for a senior policymaker to take that step raises serious issues.
But Nick might call it a “major success”.
This article was written by Michael White, for theguardian.com on Tuesday 26th January 2016 15.57 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010
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