You can download this document UKIP Manifesto Proposal here.
The government is in the process of reviewing what needs to be done to prevent such corporate collapses happening again, and is in receipt of substantial petitions on the subject, so here is my two pen’orth.
The prime focus of the protests and review is on whether the auditors could and should have picked up the warning signs and issued a qualified audit report on the basis that Carillon was no longer a going concern. So the first point to make is that even if they had the damage may have already been done, and if so probably nothing would have been different. I don’t know if the warning signs were there at the time of the most recent audit anyway, but let us assume for this discussion that they were and they were missed. That would be a simple failure in practice that could always occur.
One proposal being pushed is that audit firms be split up with their tax and consultancy arms floated off separately. I qualified as a Chartered Accountant with one of the big firms in London in the early 1970s, and shortly after transferred to the management consultancy division. The first thing I noticed is that it was not a division at all. It was a completely separate practice trading at arms-length from the main firm. Indeed there were some audit partners who would not let us management consultants anywhere near their clients! The audit partners who did pass work to us saw their role as being able to offer a wide range of services to their clients which they could oversee on behalf of their client. There was nothing financial in it for them then, and I do not suppose that has changed since.
So is there a problem here, or are we just looking for scapegoats? I think there is.
For an auditor to qualify an audit report is a hugely damaging decision for both of them, and to do so on the basis that the client is no longer a going concern is incendiary. It takes a lot of courage. So the larger and more significant the client the more difficult the decision. Some people have proposed that the big firms be broken up into smaller practices, but that would just make the client significance problem even greater, and the question of ancillary services is not even relevant. The other suggestion being bandied about is for an audit watchdog, some sort of auditor’s auditor, or for auditing by state auditors. Neither of these suggestions it seems to me addresses the actual problem, and would just add complication and cost and almost certainly a deterioration of service. Yes, state auditors would be more independent, but the cost to the taxpayer would be huge and could not possibly be justified.
However there is another possibility and that is the creation of shareholder supervisory boards (SSBs). I have recommended these separately in relation to fat-cat pay and over-ambitious mergers and acquisitions. Responsibility for appointing and reviewing the auditors is an obvious addition. It would change relationship between the Directors and Auditors completely, making it much more arms-length. The half dozen or so largest shareholders on the register at any time would comprise the board, together with the Chairman, MD, FD and one Non-exec, and where significant government contracts are involved a government representative could be included too. Key decisions have to be made much more quickly these days than can be deferred to all of the shareholders in general meeting, and in any case it is the Directors who get to draft the resolutions. An SSB could make quick interim decisions and approve the resolutions first.
I would also change company law to make the shareholders supreme once again. Even today Directors can over-rule the shareholders on key decisions including resolutions about their own pay. This goes back to the 1890s when the Bank of Glasgow went bust and everyone asked why the shareholders had made such bad decisions. It turned out that most shareholders in those days were retired vicars and little old ladies and so on who had no professional training at all, so it made sense to give the Directors the final say. Today the situation is completely different with most shareholders being highly proficient asset and pension fund managers. Time to repeal this one!
Finally there is the question of limited liability. I am extremely surprised that the risky contracts that brought Carillion down were not being conducted through subsidiaries with limited liability. The conglomerate structure that you will find in most large companies is designed to do this so that if one subsidiary goes bust the rest of the group is unaffected. Bad luck on the creditors of the subsidiary of course because they have no recourse to the holding company or the rest of the group, but it makes sense overall. If a subsidiary is considered to be taking on too much risk there are always insurance options available.
The Government’s Migration Advisory Committee wants to increase the number of jobs on the list aimed at plugging gaps in the UK labour market. Jobs on the Shortage Occupation List are effectively allowed to jump the queue for workers from outside the European Economic Area. Their review said there should be a big expansion of jobs on the list. Under these proposals, the list would cover 9% of jobs in the labour market, compared with approximately 1% currently.
What the government fails to realise is that the economy is over-heating. The alarm bells of inflation no longer ring because open borders mean that the labour market never tightens. The system introduced by Ken Clarke and Gordon Brown whereby the Bank of England can set interest rates to apply the brakes when this happens no longer works. Thus it has become a self-fulfilling prophesy that we are always going to be ‘short’ of labour and key skills however many people we let in.
It is perfectly possible for any government to achieve full employment (strictly speaking that level of employment before inflation takes off) with the right combination of fiscal, monetary and exchange-rate policy. Currently the economy is booming because of the devaluation that followed the referendum and the authorisation of a further £70bn of Quantitative Easing later in 2016. It is quite possible this was a misjudgement because they did not expect the boost from devaluation!
In fact immigrants do not ‘take our jobs’ as the government can simply increase consumer demand in this way to accommodate any level of population, though it may not seem that way during a recession. If immigration were restricted then conversely the level of consumer demand could be set to match that lower level of population and you would still have full employment.
There are many reasons why we do not want net immigration to this country which I am sure I do not need to rehearse. Personally I would prefer a Quota and Auction system to Nigel’s Australian points-based system, some loose version of which we now seem to have, because it would create a far less bureaucratic and more open competitive market for the skills we need as well as giving much more direct control over the actual numbers involved.
Employers wanting to import labour, and others wanting to come under their own steam, would have to buy a place in a monthly quota, which we can gradually tighten until they realise it would be cheaper to train up and employ British staff. We also need urgent reform of the welfare system to remove the poverty trap and reverse the sadistic implementation of Universal Credits this government is fixated about and which is having completely the opposite effect. I want to see self-assessment for benefits. We have it for tax, so why not for benefits, with payment by return on submission of an online timesheet? As Nigel doesn’t seem to understand, there is more to Brexit than Brexit. It needs a whole raft of additional policies if we are to avoid a C&D (crash and disaster).
It is disingenuous of Greybull, the owners of British Steel, to blame Brexit for their losses. They had already lost £19m in the year to March 2018 long before delays to Brexit were even announced. The company had been profitable as recently as 2017.
The real reasons are firstly the EU’s refusal to grant the company its proper quota of emissions trading licenses until Theresa May’s Withdrawal Agreement has been passed, and secondly China’s increased dumping of inefficiently produced steel onto world markets following Donald Trump’s imposition of tariffs.
Once we are out of the EU (properly – without any sort of ‘free-trade’ deal either before or after – that would just increase our deficit as any mathematician could tell you) we can either ditch the emissions trading scheme or ensure that British Steel uses a green energy supplier. The green taxes can be removed because green energy is now cheaper than fossil fuel energy. Panic over. That will reduce British Steel’s costs significantly.
Secondly we can impose our own import tariffs after Brexit. We have a massive trade deficit with the other EU countries which we must turn around and eliminate if we are to recover economic growth. That requires import tariffs which a No Deal Brexit will enable to prevent dumping as well as manage our trade balance.
Steel is not a dying industry. There is huge demand for it both in this country and potentially as exports. Investment in it makes a lot of sense. New technology is currently available and continues to develop alongside artificial intelligence. Yes, that will lead to a gradual loss of jobs, but there is no need for a cliff-edge collapse now. We can nationalise or part-nationalise the company just as we did with the banks. That was in fact very successful with the benefit of hindsight. The capital came from QE and the taxpayer profited from the rise in the share price.
I am not suggesting that the taxpayer or QE fork out for the new investment required. That way lies inflation, as they have discovered most recently in Venezuela. It worked for the banks because it was offsetting a fall in the money supply due to the writing off of bad debts (and also, it is now apparent, the financing of our rapidly increasing trade deficit with the EU). A new share issue can be raised for that if the investment is genuinely viable, and the City is in the best position to judge that. Either way new management is needed.
Finally Brexit will enable us to put in place a proper regional policy aimed at achieving an even level of percentage employment across the land. Those released from work as technology raises living standards generally can then find new jobs much more easily. It just needs to be given time.
During the euro election campaign, as a candidate I have received over 400 identical emails asking whether I would support EU spending or other influences to persuade either EU member states or other countries to legalise abortion. I sent out a response saying that as a libertarian I am pro-choice but that does not mean I would support any EU spending or policies to interfere with the internal democracies of such countries.
Interestingly I did not receive any emails on any other subject. Perhaps others realised that at number seven on the London list there was no hope of me becoming an MEP! However I did get around a dozen responses to mine which to my surprise represented a wide range of views, and certainly not all of them based on religious beliefs. One of the latest read as follows:
This article is a follow up to my previous post entitled ‘Nissan, Felixstowe, Lettuces and Whisky’ in which I proposed a system of refunding foreign importers of British exports for the import tariffs they will pay to their own governments after Brexit, thereby allowing our exports to continue unaffected. If nothing is done about this our exports will suffer. Even though the economy overall will get a net boost from a No Deal Brexit, because the effect of import substitution will be so much greater than that of export substitution simply on account of the massive trade deficit we have with the other EU countries, and the Treasury will benefit from another £25 billion in revenues from the import tariffs, it is still a fly in the ointment and better to remove if we can.
The impact on our exports is the only logical element of Project Fear left that has any substance, given that all the remaining issues are being quietly dealt with through side agreements with those concerned. If we can deal with the export issue as well, that leaves the anti-No Deal brigade completely naked.
So I thought it prudent to check my interpretation of the WTO Rules with a leading QC. His reply was instant, unequivocal and offered no discussion of the rules themselves. He said my scheme is clearly prohibited! When I pressed him in reply I have not received any response. The good news was that he confirmed by default there is no other aspect of the Rules, other than than the Agreement on Subsidies and Countervailing Measures to which I referred in my previous post, that affect the decision, so I have not missed anything. The nature of his response left me suspicious that these lawyers will just play safe and protect their own backsides, especially if they are not being paid! So is he right?
You will find the critical articles at https://www.wto.org/english/docs_e/legal_e/24-scm.pdf. Let’s look more closely at them:
Article 1 defines a subsidy in various ways none of which include payments to foreign importers. Indeed it specifically refers to payments or discounts within the territory of the Member government. It goes on to say that such subsidies will only be prohibited if they are ‘specific’ in accordance with Article 2.
Article 2 defines specificity as payments (etc. as above) to ‘an enterprise or industry or group of enterprises or industries within the jurisdiction of the granting authority’. My scheme is therefore clear on both counts, namely that it is general to all exports and countries, and that the recipients are not within the jurisdiction of the granting authority (UK government).
Article 3 deals with prohibition directly which it defines in three ways, namely (1)subsidies contingent on export performance, (2) subsidies contingent on the use of domestic over imported goods, as well as (3) the provisions of Articles 1 and 2 above. Quite clearly my scheme clears all of these hurdles.
Article 4 is even more fascinating. It deals with remedies for complaining members. It sets out procedures for complaint, arbitration and appeal, all of which are dealt with within the WTO itself. So suppose, despite all the above, a decision went against us; what is the worst that can happen? There are no provisions for fines or exclusion, only that the offended member can take its own countervailing measures against us, and then only if the WTO thinks they are appropriate.
So what countervailing measures could the EU take against us? The most obvious one is that they could do the same and start paying our importers for tariffs paid to us. But hang on a sec, isn’t that just a reversion to free trade anyway? Exactly what the numpties in Parliament want in the first place! We would still be faced with taking our own countervailing measures against all the barriers the EU has mounted against us over the past twenty years (the WTO may even support our own complaint against them!), but at least our exports would be protected and our consumers would be delirious.
Alternatively the EU could do something like double its own tariffs. In which case we do exactly the same to them. It would be a trade war (partly sanctioned by the WTO – we would then be contravening the most-favoured nation principle, but so what if the EU is allowed to do so), but one we would win easily on account the massive trade deficit we have with them.
So whichever way it goes there is nothing to fear. It’s win-win. So let’s just get on with it – leave the EU unilaterally and protect our exporters in this way at the same time. Publish and be damned!
Finally two further thoughts: 1). If I can be given wrong advice by a lawyer, what have government minsters and business leaders been getting?, and (2) the SCM Agreement is actually very cleverly written to give remedy to deficit countries but not to surplus ones, thereby creating an automatic stability mechanism. Unfortunately it is routinely misunderstood. The WTO should clarify and promote it to address the massive international trade imbalances that currently threaten the global economy.
I am sure we all understand the situation Nissan and other companies which export a majority of their UK production to the Eurozone will find themselves in after Brexit. They will face 10% tariffs by the EU on these exports, and it stands to commercial reason they would then be better off re-locating their production into the Eurozone, where they would face 10% tariffs only on their re-exports into the UK – a lesser percentage of their total turnover. Neither we nor they want that.
The obvious solution is export subsidies. Payments would be made directly to the foreign importer on presentation of their receipt for import tariffs paid, with the exporter acting simply as agent. We could for example implement an export subsidy regime which is a mirror-image of our import tariff regime, with the latter funding the former. For as long as we run a deficit the Treasury would make a profit, but when we move into surplus it would make sense to negotiate trade deals wholly or partly removing both subsidies and tariffs together. Provided our import tariffs, and thus export subsidies, on cars are the same as the EU’s Nissan will not be affected by Brexit. Indeed the effect would be like unilateral free trade for exports only – no need to negotiate anything with anyone!
The question then arises as to whether this would contravene WTO rules. These are governed by the Anti-Dumping Regulations and the Agreement on Subsidies and Countervailing Measures, often referred to together as “AD-CVD”. Dumping and subsidies — together with anti-dumping (AD) measures and countervailing duties (CVD) — share a number of similarities. Many countries handle the two under a single law, apply a similar process to deal with them and give a single authority responsibility for investigations. Occasionally, the two WTO committees responsible for these issues meet jointly.
I am not a lawyer but it seems clear to me that my proposal would neither be dumping – defined as the export of a product at a price lower than the price it normally charges on its own home market, nor would it contravene either of the two categories of subsidy –Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods, or Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests, otherwise the subsidy is permitted.
In any case the most sensible course of action, which needless to say Theresa May’s government has not taken, is to negotiate a special transitional agreement with the WTO which could remain in force until we have eliminated our trade deficit. Such an agreement would be in the WTO’s interests as it has been unable to negotiate any further General Agreements on Tariffs and Trade (GATTs) since 1994, due to the massive international trade imbalances that have developed around the world since the onset of globalisation.
We need a new international regime which promotes equilibrium at balance. My proposal would not only do that from the UK’s perspective, it could also, with the proviso that only deficit countries may pay subsidies, be rolled out by the WTO as an international standard to everyone’s benefit, thereby recreating the conditions under which free-trade deals would be mutually beneficial. Otherwise there is always the option of not re-joining the WTO! For our economic survival our prime focus must be on eliminating our current account deficit as described in my last post. My proposal gives us for the first time the tools to manage our trade balance.
Let’s also just think through what WTO Rules mean as far as import tariffs are concerned. There are two principal requirements. First the Most Favoured Nation (MFN) rules require us to charge the same tariffs to all countries for each product category, and second, once we have re-joined, we cannot increase our tariffs we can only reduce them.
This means we have quite a wide range of options on how we set these tariffs (strictly speaking after Brexit but before we rejoin). We can level up to the EU tariffs, or even beyond, or we can level down to zero, or we can cherry-pick somewhere in between. It would make most sense to charge tariffs on those goods where UK producers can substitute, but zero-rate those we cannot or where we don’t want a cliff-edge increase in prices such as lettuces. However we do want to encourage UK producers to substitute for imports. This means a gradualist and selective approach; the former would have to be agreed with the WTO. We also want to make sure we raise tariffs as much as we can to maximise revenues for the Treasury as well as reduce the deficit.
Import tariffs are just another tax, but they are unique as a form of taxation that boosts the economy and creates jobs. Obviously (one would have thought) placing tariffs on both sides of the Channel will make foreign stuff more expensive than British stuff, which means people will buy more British stuff and less foreign stuff, thereby reducing the deficit, creating jobs, boosting the economy and providing additional income for the Treasury all at the same time! If we level up to EU tariff rates the additional income for the Treasury could be as much as £25bn. Of course the same is true on the other side of the Channel, but as we have a deficit the impact is less. All this talk of crashing out and disaster is pure Remainian fantasy.
Of course there are always those Magic Money Tree growers who want zero tariffs now! Zero tariffs will have the opposite effect and just increase the deficit still further. But consider this. Given that the Treasury must fund public expenditure somehow, whatever level of expenditure we settle at, and that all other forms of taxation reduce consumer demand and employment, surely it makes sense to have import tariffs in the mix?
In recent days we have seen a resumption of Project Fear, but we must address the points that arise and show how we will deal with them otherwise uncertainty will continue. I have answered the Nissan and Lettuce issues above, so that leaves Felixstowe and Whisky unless I have missed something.
The Felixstowe issue involves bonded containers arriving from Asia with products for re-export all over Europe. The concern is that they will face double tariffs; once here and then again on re-export. Again the solution is obvious – zero-rate imports for re-export! We will be perfectly free to do that. Yes we would lose 20% of the tariff revenues (the other 80% is paid across to Brussels anyway at present), but that is peanuts compared to the revenues we will be getting after Brexit.
The Whisky issue is a classic government cock-up. This concerns those countries with which the EU has free-trade agreements, such as South Korea. On Brexit, if we haven’t agreed roll-over treaties with those countries, our exports will face their normal tariffs – 20% in the case of whisky to South Korea. Needless to say the Government could have started doing this two years ago but hasn’t. As a result there are now ships loaded to the gunnels with whisky for South Korea, for example, and they are not expected to arrive until after 29th March. As the Government is culpable it should bear the cost of these tariffs until the relevant roll-over treaty is in place so that trade can continue smoothly.