“Blessed is the nation that doesn’t need heroes" Goethe. “Hero-worship is strongest where there is least regard for human freedom.” Herbert Spencer. "My 80% friend isn't my 20% enemy" Ronald Reagan.
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Tuesday 6 November 2012
Sunday 4 November 2012
Unlimited Liability for Speculative Bankers
Bankers must be made to bear the cost of their reckless risk-taking
Separating retail and investment banking is not enough. Speculative banking needs to have unlimited liability
Hot on the heels of the Libor scandal and money-laundering at HSBC and Standard Chartered Bank comes the allegation that Barclays Bank attempted to manipulate the US energy markets to make profits.
Of course, Barclays has no direct interest in buying or selling oil,
gas or electricity. Its aim is to make profits by betting on the price
changes, a process that often drives up the price of the underlying
commodity and forces ordinary people to pay sky-high prices.
This speculative activity is facilitated by complex financial instruments known as derivatives, described by investment guru Warren Buffett as "financial weapons of mass destruction". Behind the technical jargon lies a giant gambling machine, which bets on anything that can be priced. The hard cash needed to settle the outcome of the bets is always highly uncertain until the contracts mature, which could be 10 to 15 years in the future. And, like other bets, derivatives don't always pay off – as the cases of Nick Leeson at Barings and more recently Jérôme Kerviel at Société Générale exemplify.
The UK government claims that speculation will be curbed by a separation of investment banking from the retail side. This, it is claimed, will protect savers and taxpayers from the toxic effects of risky positions adopted by bankers. This policy will not work. Even after separation, investment banks will continue to use funds from retail banks, pension funds and insurance companies for their speculative activities. The speculators will continue to shelter behind limited liability and dump losses on to innocent bystanders. Unless the benefit of limited liability is removed from investment banks, their losses and reckless risks will inevitably be transferred to other sectors. The separation between retail and speculative operations needs to be accompanied by unlimited liability for investment banking, ensuring that those who take excessive risks are 100% liable for their mistakes.
Derivatives are central to the current economic crisis. In 2008, Lehman Brothers collapsed with 1.2 million derivatives contracts, which had a face value of nearly $39 trillion, though the economic exposure was considerably less. For nearly six years before its demise, almost all of the pre-tax profits at Bear Stearns came from speculative activities. It could not continue to pick winners indefinitely, and collapsed in 2008. It had shareholder funds of $11.8bn, debts of $384bn and a derivatives portfolio with a face value of $13.4 trillion. The derivatives gambles also brought down American International Group (AIG) – the world's largest insurer – and Washington Mutual. Then in October 2011, MF Global, a US brokerage firm that specialised in delivering trading and hedging solutions, filed for bankruptcy. It had nearly 3 million derivatives contracts with a notional value of more than $100bn.
Despite these high-profile casualties, risk-hungry investment bankers remain undeterred. The face value of the global derivatives trade is about $1,200 trillion (£749 trillion). With a global GDP of $65-70 trillion, the world economy is not in a position to absorb even 0.1% ($1.2 trillion) of losses.
The UK's GDP is about £1.5 trillion. Just three UK banks – Barclays, HSBC and Royal Bank of Scotland (RBS) – alone have a derivatives portfolio, with a face value totalling nearly £100 trillion. Barclays leads the way with £43 trillion. It has recently reported a third-quarter loss of £47 million, but its balance sheet points to a more serious position. Barclays' last full-year accounts show assets of £1.56 trillion and capital of only £65bn, meaning that its gross leverage is nearly 24 times its capital base. A decline of just 4% in asset values would wipe out its entire capital. Barclays' balance sheet shows gross exposure to derivatives of £539bn, though the bank could argue that this is offset by hedges of £528bn, leaving a net exposure of £11bn. The difficulty is that the hedges, as Lehman Brothers, Bear Stearns and Northern Rock have learnt, do not necessarily work in the desired way and always depend on the position of the counter parties in a highly unpredictable environment.
Merely separating retail and investment banking will neither choke off nor contain the effects of toxic gambles, because speculative activities will affect other sectors of the economy. For any possibility of containing the crisis, speculative banking needs to have unlimited liability. Thus, if the bets go bad, bankers will personally need to bear the negative consequences. One of the tasks of the banking regulator should be to ensure that the size of the bets bears a reasonable relationship to the assets of the gamblers, so that cavalier bankers are not able to gamble more than they can lose. No retail bank, pension fund, insurance company or pension fund should be able to provide money to any investment bank without specific approval from its stakeholders.
The above reforms will help to reduce speculative activity and quarantine the negative effects of reckless gambling. They will also remind neoliberals that the freedom to speculate needs to be accompanied by responsibilities.
This speculative activity is facilitated by complex financial instruments known as derivatives, described by investment guru Warren Buffett as "financial weapons of mass destruction". Behind the technical jargon lies a giant gambling machine, which bets on anything that can be priced. The hard cash needed to settle the outcome of the bets is always highly uncertain until the contracts mature, which could be 10 to 15 years in the future. And, like other bets, derivatives don't always pay off – as the cases of Nick Leeson at Barings and more recently Jérôme Kerviel at Société Générale exemplify.
The UK government claims that speculation will be curbed by a separation of investment banking from the retail side. This, it is claimed, will protect savers and taxpayers from the toxic effects of risky positions adopted by bankers. This policy will not work. Even after separation, investment banks will continue to use funds from retail banks, pension funds and insurance companies for their speculative activities. The speculators will continue to shelter behind limited liability and dump losses on to innocent bystanders. Unless the benefit of limited liability is removed from investment banks, their losses and reckless risks will inevitably be transferred to other sectors. The separation between retail and speculative operations needs to be accompanied by unlimited liability for investment banking, ensuring that those who take excessive risks are 100% liable for their mistakes.
Derivatives are central to the current economic crisis. In 2008, Lehman Brothers collapsed with 1.2 million derivatives contracts, which had a face value of nearly $39 trillion, though the economic exposure was considerably less. For nearly six years before its demise, almost all of the pre-tax profits at Bear Stearns came from speculative activities. It could not continue to pick winners indefinitely, and collapsed in 2008. It had shareholder funds of $11.8bn, debts of $384bn and a derivatives portfolio with a face value of $13.4 trillion. The derivatives gambles also brought down American International Group (AIG) – the world's largest insurer – and Washington Mutual. Then in October 2011, MF Global, a US brokerage firm that specialised in delivering trading and hedging solutions, filed for bankruptcy. It had nearly 3 million derivatives contracts with a notional value of more than $100bn.
Despite these high-profile casualties, risk-hungry investment bankers remain undeterred. The face value of the global derivatives trade is about $1,200 trillion (£749 trillion). With a global GDP of $65-70 trillion, the world economy is not in a position to absorb even 0.1% ($1.2 trillion) of losses.
The UK's GDP is about £1.5 trillion. Just three UK banks – Barclays, HSBC and Royal Bank of Scotland (RBS) – alone have a derivatives portfolio, with a face value totalling nearly £100 trillion. Barclays leads the way with £43 trillion. It has recently reported a third-quarter loss of £47 million, but its balance sheet points to a more serious position. Barclays' last full-year accounts show assets of £1.56 trillion and capital of only £65bn, meaning that its gross leverage is nearly 24 times its capital base. A decline of just 4% in asset values would wipe out its entire capital. Barclays' balance sheet shows gross exposure to derivatives of £539bn, though the bank could argue that this is offset by hedges of £528bn, leaving a net exposure of £11bn. The difficulty is that the hedges, as Lehman Brothers, Bear Stearns and Northern Rock have learnt, do not necessarily work in the desired way and always depend on the position of the counter parties in a highly unpredictable environment.
Merely separating retail and investment banking will neither choke off nor contain the effects of toxic gambles, because speculative activities will affect other sectors of the economy. For any possibility of containing the crisis, speculative banking needs to have unlimited liability. Thus, if the bets go bad, bankers will personally need to bear the negative consequences. One of the tasks of the banking regulator should be to ensure that the size of the bets bears a reasonable relationship to the assets of the gamblers, so that cavalier bankers are not able to gamble more than they can lose. No retail bank, pension fund, insurance company or pension fund should be able to provide money to any investment bank without specific approval from its stakeholders.
The above reforms will help to reduce speculative activity and quarantine the negative effects of reckless gambling. They will also remind neoliberals that the freedom to speculate needs to be accompanied by responsibilities.
Friday 2 November 2012
A New 'Real World’ Maths Course
Should Alice marry Bob?
Introducing a new ‘real world’ maths course, designed to engage every sort of pupil
Two problems:
1. You are in an airport and are walking from the main departure lounge to a rather distant gate. On the way there are several moving walkways. There is a small stone in your shoe, which is annoying enough that you decide that you must remove it. If you want to get to the gate as quickly as possible, and if there is no danger of your annoying other passengers, is it better to remove the stone while on a moving walkway or while on stationary ground, or does it make no difference?
2. You want to give £1,000 to somebody as a 21st birthday present. The person in question is just about to turn 16. A savings scheme offers a guaranteed interest rate of 3 per cent for the next five years, provided you save the same amount at the beginning of each year. What should this amount be so that you end up with £1,000?
And which of those two questions did you find more engaging? If you are like almost everybody, you will already be thinking about the first, but the second will make your heart sink.
Recently, the government has expressed a wish that all schoolchildren should study mathematics up to the age of 18, a view that appears to have cross-party support. As a mathematician, I am a firm believer in the benefits, both direct and indirect, that mathematical understanding can bring. However, I am also aware that many intelligent people thoroughly dislike mathematics, give it up at the age of 16, and have absolutely no regrets afterwards. Will two further years of mathematics really make a difference to such people, other than turning them off the subject even more?
One method that is sometimes proposed for making subjects more appealing is to make them ‘relevant’. In mathematics, this supposed relevance often takes the dismal form of ‘word problems’ such as this: two apples and three pears cost £1.80, while four apples and one pear cost £1.60. What do apples and pears cost each? To solve such a problem, the technique is to turn the words into equations and solve the equations. Here one might begin by saying, ‘Let A be the number of apples and P be the number of pears. Then 2A+3P=180 and 4A+P=160.’ Then, using standard techniques, one shows that A=30 and P=40, so apples are 30p each and pears 40p each.
But problems like that don’t feel relevant at all. This problem may pretend to be about a trip to the greengrocer’s, but we all know that it is really just a flimsy disguise for some equations. We also know that a question of this form would neverarise at the greengrocer’s: if you want to know the price of apples, you look at the little sign that tells you the price of apples.
What is it that gives the stone-in-shoe question its appeal? Part of the answer is that one can imagine being in the situation described, or at least one can imagine thatsomebody might be in that situation. But that cannot be the whole story, because one can also imagine needing to know how much money to put away into a savings scheme in order to end up with a certain amount, and yet that question has no appeal at all. Another difference between the two questions is, I believe, more important: whereas the second question asks for a number, the first asks for a piece of advice. Many people, when asked to do a numerical calculation, switch off immediately, but almost nobody switches off when asked for advice: the natural reaction is to put oneself in the position of the person seeking the advice and to try to work out the best thing to do. The stone-in-shoe question exploits this instinct, at least initially, and it can then be answered without any calculations. (Just imagine how much less appealing the question would become if you were told the speed at which you walked and the speed of the moving walkways. Fortunately, you don’t need to know these.)
One might think that if calculation and solving equations were absent from a mathematics course, then there would be nothing left to teach. But that is quite wrong: there are plenty of things one could teach, many of them entertaining, important and useful in later life. Here are some examples.
We often need to make decisions based on incomplete data. Exact calculation is usually not possible in such situations, so it is very useful to be good at making rough estimates. For instance, will the benefits of building a high-speed rail line to Birmingham outweigh the costs? Even to begin to think about this question, one should have a rough idea of the number of journeys that would be made on the line each day. A useful trick for getting the right order of magnitude for quantities like this is to break the problem up into smaller parts. In this case we could estimate the number of hours per day that trains run on the line, the number of trains per hour, the number of carriages per train, the number of rows of seats per carriage, the number of seats per row and the proportion of seats that would typically be occupied. We would then need to multiply these numbers together. My own guesses, which I have made simple round numbers so that the multiplication will be easy, are 15, 4, 10, 20, 5 and 1. Multiplying those -together I get 60,000. Perhaps you would like to object to my assumption that the proportion of seats occupied is equal to 1. Of course I don’t actually believe that all seats would be occupied, but I think that most of them probably would be, and at this level of -accuracy rounding up a number like 0.8 to 1 is perfectly acceptable.
Another skill of genuine use is that of getting to the heart of a question by abstracting away irrelevant details. Consider the following dilemma faced by Alice, who has just been proposed to by her boyfriend Bob. Alice is very fond of Bob, who is a better match than any of her previous boyfriends, but she worries that whatever she does, she may end up with regrets. If she accepts his proposal, she risks going on to meet somebody she would much prefer to be married to, but if she refuses him, she risks never again meeting anybody as suitable.
Let us imagine that Alice is determined to be married by the age of 36, and that by that age she would expect to have had serious relationships with eight people, of whom Bob is the third, say. Then we can model Alice’s situation as follows. She is presented with a sequence of eight random numbers, one by one. At any time, she can say ‘stop’ and the number that has just been presented to her is the one that she must accept. What strategy will give her the best chance of accepting the largest number?
This purely mathematical problem encapsulates Alice’s difficulty and has a known solution. Given the numbers above, it can be shown that Alice’s best chance of avoiding later regrets is to turn down Bob and then go for the first person she meets who is better than Bob. However, the validity of this advice depends on a number of questionable assumptions — not least of which is that the ‘irrelevant details’ that were abstracted away really were irrelevant — so this question is a good example both of the power of mathematics and of its limitations.
A third skill that is extremely useful is the ability to evaluate statistics, since we are continually bombarded with statistical arguments of widely varying degrees of soundness. For example, studies have shown that British vegetarians have, on average, higher IQs than the general population. Does this show that meat is bad for your brain? What other explanations might there be for an observation like this? How informative is an average anyway? Given some numerical data, what else can one usefully calculate from it besides the average? How large a random sample is needed if you want to be convinced that an observation is probably more than just a typical random fluctuation? One can get a feel for this kind of question without ever calculating an average or a standard deviation.
How should this kind of mathematics be taught? I strongly believe in two guiding principles. The first is to start with the real-world questions rather than with the mathematics. That is, rather than explaining mathematical ideas (about statistics, say) and then discussing how they can be applied to the real world, a teacher should instead start with a question that is interesting for non-mathematical reasons and keep a completely open mind about what mathematics has to contribute to the discussion.
The second is to make the discussion as Socratic as possible. Rather than asking the question and then explaining the answer, the teacher should just ask the question and leave the job of answering it to the pupils. The teacher’s role would be to guide the discussion, encouraging it when it moves in fruitful directions and making gentle interventions such as ‘Does everybody agree with that?’ when somebody says something wrong and is not corrected. This would be the opposite of the kind of spoonfeeding that goes on with GCSE and A-level.
Imagine if a teacher came into the classroom and said, ‘I’ve just read in the news that they are considering culling 70 per cent of badgers in certain areas of the country to halt the spread of TB in cattle. How on earth do they work out how many badgers there are in the first place? And how will they be able to tell whether the culling has worked?’ And imagine if the teacher admitted without any embarrassment to not knowing the answers. The aim would be to prompt a discussion in which the pupils were treated like adults and encouraged to think. The discussion would have many features that occur in real life: it would be open-ended, it would involve quantities that are hard to measure, it would be about estimates rather than exact calculations, and it would be responding to a non-mathematical need.
Can this possibly work? In February I was at a meeting about mathematics education at which Michael Gove was present, and at which I advocated this kind of course. The idea interested various people at the meeting, so in June I wrote a blog post about it, for which I compiled a list of over 50 questions that I thought could be the basis of interesting classroom discussions. One of those interested, Sir John Holman, arranged for me to visit Watford Grammar School for Boys, where I was given two hours with a class of about 25 sixth-formers, some from that school, some from the equivalent girls’ school, and some from a nearby comprehensive. Some were doing maths A-level and some were not. I discussed about half a dozen questions with them in the way I have been suggesting, and that left me convinced that it can be done.
Another person who was interested was Charlie Stripp, the chief executive of Mathematics in Education and Industry, an independent curriculum development body. He got in touch with me and said that MEI wanted to try to develop a course along these lines. Very recently, the government has agreed to provide the necessary funding, not just for developing the course, but for working out how best to assess it and for organising appropriate training for teachers, both of which will be essential, given how different this course will be from a traditional mathematics course. There is no guarantee that the course will be taken up by schools, and even if it is, it will not be suitable for everybody. But there is nothing to lose by making a course of this type available, and it is an experiment that is surely worth trying.
Some further questions for interested readers. The best answers will be published in next week’s letters page (letters@spectator.co.uk).
1. Roughly how often would you expect somebody in the UK to dream of the death of a loved one and that loved one to die the very next day?
2. You play a game in which when it is your turn, you can either add a point to your score and remove two points from your opponent’s score, or stop the game. You start with five points, and when someone stops the game you get £10 for every point you then have. Your opponent, whom you dislike, starts, choosing to add a point to his/her score and remove two points from yours. What should you do?
3. A divorcing couple are dividing up their possessions. The husband and wife agree about the financial values of these possessions but attach different sentimental values. Devise a good procedure for carrying out the division.
4. Roughly how many people could fit into the Isle of Wight?
Met police corporate sponsorship: how about Samsung Yard?
The Metropolitan police, one of the most sclerotic institutions in Britain, is at last making strides to join the modern world where money is short and everyone has to shape up or ship out. As well as considering the sale of New Scotland Yard in central London, which will make a very nice luxury hotel or HQ for a Middle Eastern sovereign wealth fund, and moving to a refurbished terraced house in Peckham, it is also now seeking to attract sponsors, with donors supplying an increasing amount of its equipment.
There are the usual leftwing critics (Boris Johnson would have a ruder word for them) who carp that this will undermine the independence of the police. But they need to get real. Policing is expensive and our police will know where the red lines have to be drawn to ensure that their view of McDonald's is not influenced by the fact that it is paying for police mountain bikes, or that the policing of matches involving Chelsea or Queens Park Rangers is not affected by the fact those clubs have kindly given the police much-needed football shirts.
Scotland Yard robustly defends the donations, saying it has a "long history" of working with commercial partners to tackle crime. It's time to move that history along. There is no reason why many aspects of police work shouldn't be paid for by commercial organisations, following the example of UK Payments Administration Ltd, which has donated £11.9m to fund the police's dedicated cheque and plastic crime investigation unit.
Let's start thinking creatively about this and get more companies involved. WH Smith could sponsor police notepads and pencils; Dyson could pay for anti-litter units; Yale locks would be an obvious sponsor for police units dealing with burglaries; Virgin could underwrite the Flying Squad; Ann Summers could produce branded handcuffs and truncheons; the Antiques Roadshow could sponsor the art theft unit; Visa and Mastercard will want to compete for the plastic card crime contract; there must be mattress companies that would want to sponsor padded cells (with extra pocket springs); and do Black Marias really have to be black – why not orange (EasyJail)?
New New Scotland Yard, down in Peckham, could itself be sponsored. With the break-up of the UK imminent, Scotland Yard is clearly an inappropriate name. Why not Samsung Yard? And why not brand individual police stations? Instead of Paddington Green, why not Paddington Bear?
Police personnel wear drab uniforms and for some bizarre reason walk around with their fingers tucked into their tunics. Why not redesign the uniforms and cover them in stylish logos like Formula One drivers? They will look and feel better about themselves, and their forces will be making some desperately needed dosh.
This isn't rocket science. It's simple commercial thinking that will transform the face of the police in this country. As a nation we have become fearful of change and commercialisation, losing out to more innovative countries in Asia and South America which don't have hang-ups about keeping public service and tawdry commerce separate. There are no Chinese walls in China! Unless we wake up, we will be eaten by the Asian tiger and the South American (subs – please fill in appropriate animal). The police, in embracing the need to find sponsors and reduce their dependence on the state, are showing what is possible. Now for the fire service … or rather the EDF fire service.
Wednesday 31 October 2012
Campaigners report Tony Blair's office over use of unpaid interns
Graduate Fog passes evidence of possible minimum wage infractions to HM Revenue and Customs
Tony Blair's private office may face investigation by tax authorities for breach of national minimum wage laws over the use of unpaid interns.
The Office of Tony Blair, which helps administrate the former prime minister's consultancy and diplomatic interests, confirmed that despite its non-charitable status it uses unpaid interns for three months at a time.
Evidence of possible minimum wage infractions, gathered by the careers website Graduate Fog has been passed to HM Revenue and Customs (HMRC).
This includes an email from Blair's office setting out tasks which interns are expected to undertake during the full time role, including answering phones, managing meeting rooms and sorting and sending the post.
Recent employment tribunal rulings have used evidence such as set tasks and responsibilities as one way to differentiate between volunteer and paid worker status.
In a statement to the Guardian, Blair's office said that all its interns were volunteers and that they supported them by paying travel and lunch expenses.
One would-be intern has complained that despite passing an interview process, which included a timed 90 minute exam, he was rejected by the office because he was unable to work unpaid for the full five days.
When the graduate asked office staff if he could reduce his time from four to five days a week so he could continue to support himself financially with a part-time job, Blair's office eventually wrote back to say the position had been filled by another intern.
Writing to confirm that "four days a week availability did not suit your needs" office staff replied: "Sorry for not getting back to you sooner but the role has now been filled by someone who was available for the full 5 days."
Speaking to the Guardian, the 22-year-old, who did not want to be named, said: "From what I can tell, they are trying to staff the office with that classic, rotate your interns; get the interns to do the office admin, don't pay them a thing and, after three months, kick them out and get someone else in. That's what it sounded like to me."
"Through the minimum wage legislation," he said, Blair "had given people, young people especially ... a decent wage. But he's not even providing it for his own business. It's completely outrageous. I can't think of anything more two-faced to be honest."
Blair, who has made millions since departing as prime minister in 2007, operates numerous charities, diplomatic initiatives and business consultancies including Tony Blair Associates.
After an interview with Blair this summer, the Financial Times estimated his annual income at £20m.
It is understood that he continues to draw on a public allowance worth £110,000 per annum to support his good works and a prime ministerial pension of £70,000.
HMRC said they were unable to specifically comment on individual cases but gave a statement confirming they always act on allegations passed to them.
"We ensure that employers comply with the national minimum wage rules across the board. Where we have reason to believe the rules are being abused we will investigate. We always act on allegations of NMW abuse."
In a statement Blair's office said they value their interns "very highly".
"The Office of Tony Blair is not a charity," they confirmed. "Each internship lasts for around three months and is designed to give young people valuable experience in a high profile and fast moving work environment," they said adding, "our interns are volunteers."
A spokesperson for the London School of Economics, who previously advertised unpaid internships for Blair's profit making businesses, said they no longer do so.
"LSE is fully compliant with its legal obligations in relation to internships; furthermore we support the advice on internships issued by the UCU and NUS in 2011.
"LSE Careers is not advertising opportunities of any kind in the office of Tony Blair or with Tony Blair Associates and does not work with any third parties that facilitate unpaid internships."
Tanya de Grunwald, founder of Graduate Fog said: "Too many employers have convinced themselves that experience, plus a few quid for a sandwich and the bus fare, is an acceptable form of payment – we just never expected one of those employers to be the man who introduced the minimum wage law.
"Perhaps hanging out with some of the richest people on the planet has made it hard for Blair to remember how it feels to struggle to make ends meet every month on a meagre wage. What's more, for a man so obsessed with his legacy, it is astonishing that he seems to have 'sold out' over one of the few things he is remembered fondly for."
The Office of Tony Blair, which helps administrate the former prime minister's consultancy and diplomatic interests, confirmed that despite its non-charitable status it uses unpaid interns for three months at a time.
Evidence of possible minimum wage infractions, gathered by the careers website Graduate Fog has been passed to HM Revenue and Customs (HMRC).
This includes an email from Blair's office setting out tasks which interns are expected to undertake during the full time role, including answering phones, managing meeting rooms and sorting and sending the post.
Recent employment tribunal rulings have used evidence such as set tasks and responsibilities as one way to differentiate between volunteer and paid worker status.
In a statement to the Guardian, Blair's office said that all its interns were volunteers and that they supported them by paying travel and lunch expenses.
One would-be intern has complained that despite passing an interview process, which included a timed 90 minute exam, he was rejected by the office because he was unable to work unpaid for the full five days.
When the graduate asked office staff if he could reduce his time from four to five days a week so he could continue to support himself financially with a part-time job, Blair's office eventually wrote back to say the position had been filled by another intern.
Writing to confirm that "four days a week availability did not suit your needs" office staff replied: "Sorry for not getting back to you sooner but the role has now been filled by someone who was available for the full 5 days."
Speaking to the Guardian, the 22-year-old, who did not want to be named, said: "From what I can tell, they are trying to staff the office with that classic, rotate your interns; get the interns to do the office admin, don't pay them a thing and, after three months, kick them out and get someone else in. That's what it sounded like to me."
"Through the minimum wage legislation," he said, Blair "had given people, young people especially ... a decent wage. But he's not even providing it for his own business. It's completely outrageous. I can't think of anything more two-faced to be honest."
Blair, who has made millions since departing as prime minister in 2007, operates numerous charities, diplomatic initiatives and business consultancies including Tony Blair Associates.
After an interview with Blair this summer, the Financial Times estimated his annual income at £20m.
It is understood that he continues to draw on a public allowance worth £110,000 per annum to support his good works and a prime ministerial pension of £70,000.
HMRC said they were unable to specifically comment on individual cases but gave a statement confirming they always act on allegations passed to them.
"We ensure that employers comply with the national minimum wage rules across the board. Where we have reason to believe the rules are being abused we will investigate. We always act on allegations of NMW abuse."
In a statement Blair's office said they value their interns "very highly".
"The Office of Tony Blair is not a charity," they confirmed. "Each internship lasts for around three months and is designed to give young people valuable experience in a high profile and fast moving work environment," they said adding, "our interns are volunteers."
A spokesperson for the London School of Economics, who previously advertised unpaid internships for Blair's profit making businesses, said they no longer do so.
"LSE is fully compliant with its legal obligations in relation to internships; furthermore we support the advice on internships issued by the UCU and NUS in 2011.
"LSE Careers is not advertising opportunities of any kind in the office of Tony Blair or with Tony Blair Associates and does not work with any third parties that facilitate unpaid internships."
Tanya de Grunwald, founder of Graduate Fog said: "Too many employers have convinced themselves that experience, plus a few quid for a sandwich and the bus fare, is an acceptable form of payment – we just never expected one of those employers to be the man who introduced the minimum wage law.
"Perhaps hanging out with some of the richest people on the planet has made it hard for Blair to remember how it feels to struggle to make ends meet every month on a meagre wage. What's more, for a man so obsessed with his legacy, it is astonishing that he seems to have 'sold out' over one of the few things he is remembered fondly for."
The market can’t deliver growth without government help
Like so many of The Daily Telegraph’s readers, I am an entrepreneur. And when
I first left the small business I had created to join government in the
1970s, I was convinced that the best thing government could do was get off
our backs – cut red tape, deregulate, lower taxes. These things are still
important. My time in business still shapes my outlook. I believe there are
many areas where government should stand aside completely. But I have learnt
that there are some things that only government can do to drive growth.
In March, the Prime Minister asked me to report to the Chancellor and Business
Secretary on how we might more effectively create wealth in the UK. My
report has been shaped by my belief that in the vast majority of cases, we
will only get the very best results if government, business and local
leaders work together in partnership.
When producing recommendations, I have always asked: “Does this make us more competitive?” There are no easy ways to do this. Competition from an ever more educated, motivated and capable world is facing us every day. We do, however, have much to celebrate – from the very smallest of businesses striving on the street to the large multinationals headquartered here, from inspiring local leaders to a government that encourages enterprise. We have many strengths and should be proud of talking them up. But how do we go that extra mile and make sure we can beat our global competitors for generations to come?
There is no easy answer – we must face the reality that we can’t be complacent and rest on our laurels as a country. I have not selected a handful of popular suggestions. I make 89 recommendations – each one important. Taken together, they provide a blueprint for the future.
What does that future look like? Above all, it is a world with stronger local leadership. We must continue to reverse the trend of the past century by unleashing the dynamic potential of our local economies. Key to this are Local Enterprise Partnerships, which should be given a much greater role in supporting their business communities. Much more of the inspiration for our economy should be based on the strength, initiative and ambition of our cities and their communities.
There are those who hanker for the old rules of free trade, for the market to
look after itself, who want to shut the Business Department and for
government to have a minimal role. This is a clear and simple message. To
some it is attractive. But it has one major weakness. No other leading
country or emerging nation believes it can work. The US, our European
cousins, the BRICs – they certainly don’t practise it. Why should we be out
of sync with the rest of the world? You can close your eyes to the threat of
an ever more competitive world, but that threat will not go away.
We need a number of significant changes to provide a stable yet flexible architecture for the future. These include: creating a National Growth Council chaired by the Prime Minister, to ensure all parts of government play their part; inviting local business partnerships to bid for significant funding from central government on a competitive basis every five years to build local economic growth; an enhanced role for chambers of commerce in helping develop the capabilities of businesses; devolving funding for the skills system to improve its alignment with the needs of local economies; injecting greater urgency into the planning system; improving public procurement by employing an experienced chief procurement officer in every department; allowing all county councils to move to unitary status; and incorporating business engagement far deeper into the school curriculum.
The location of Birmingham Town Hall could not be more fitting to announce my report. It is a city with a proud tradition of civic leadership, going back to the days of Joseph Chamberlain. It is vibrant, entrepreneurial and prosperous: it saw tough economic problems in the past and faces challenges in the present. In this, it is a microcosm of Britain as a whole.
The drivers of our economy – business, central government and local leaders – should be organised and structured for success. I have therefore reassessed the way that we, as a country, conduct business. I’ve re-evaluated each of their roles with the single overall aim of embedding a culture of wealth creation. As the saying goes, we are all in it together.
It has been a privilege to produce this review for George Osborne and Vince Cable. The Government has shown strength and confidence by commissioning and facilitating this exercise. The Coalition is fundamentally on the right track, and in many areas I praise its work: Vince Cable for announcing the recent industrial strategy plans; Greg Clark for pioneering city devolution; Michael Gove and Iain Duncan Smith for their revolution in education and tackling unemployment. These initiatives need to be built on.
What I suggest is challenging – but it is not just a challenge to central government. It’s a challenge to the public and private sector, boardroom and business leaders, and to us as individuals. The end goal has to be wealth creation. There are debates as to how wealth should be divided, but ultimately these are sterile until it is created in the first place.
I am positive that if we work together, we can build a strong, sustainable future for the British economy – one we can be proud to pass on to our children and grandchildren.
Lord Heseltine is a former deputy prime minister
We need a number of significant changes to provide a stable yet flexible architecture for the future. These include: creating a National Growth Council chaired by the Prime Minister, to ensure all parts of government play their part; inviting local business partnerships to bid for significant funding from central government on a competitive basis every five years to build local economic growth; an enhanced role for chambers of commerce in helping develop the capabilities of businesses; devolving funding for the skills system to improve its alignment with the needs of local economies; injecting greater urgency into the planning system; improving public procurement by employing an experienced chief procurement officer in every department; allowing all county councils to move to unitary status; and incorporating business engagement far deeper into the school curriculum.
The location of Birmingham Town Hall could not be more fitting to announce my report. It is a city with a proud tradition of civic leadership, going back to the days of Joseph Chamberlain. It is vibrant, entrepreneurial and prosperous: it saw tough economic problems in the past and faces challenges in the present. In this, it is a microcosm of Britain as a whole.
The drivers of our economy – business, central government and local leaders – should be organised and structured for success. I have therefore reassessed the way that we, as a country, conduct business. I’ve re-evaluated each of their roles with the single overall aim of embedding a culture of wealth creation. As the saying goes, we are all in it together.
It has been a privilege to produce this review for George Osborne and Vince Cable. The Government has shown strength and confidence by commissioning and facilitating this exercise. The Coalition is fundamentally on the right track, and in many areas I praise its work: Vince Cable for announcing the recent industrial strategy plans; Greg Clark for pioneering city devolution; Michael Gove and Iain Duncan Smith for their revolution in education and tackling unemployment. These initiatives need to be built on.
What I suggest is challenging – but it is not just a challenge to central government. It’s a challenge to the public and private sector, boardroom and business leaders, and to us as individuals. The end goal has to be wealth creation. There are debates as to how wealth should be divided, but ultimately these are sterile until it is created in the first place.
I am positive that if we work together, we can build a strong, sustainable future for the British economy – one we can be proud to pass on to our children and grandchildren.
Lord Heseltine is a former deputy prime minister
A roll call of corporate rogues who are milking the country
Those at the sharp end are being hit hardest: from cuts to disability and housing benefits, tax credits and the educational maintenance allowance and now increases in council tax while NHS waiting lists are lengthening, food banks are mushrooming across the country and charities report sharp increases in the number of children going hungry. All this to pay for the collapse in corporate investment and tax revenues triggered by the greatest crash since the 30s.
At the other end of the spectrum though, things are going swimmingly. The richest 1,000 people in Britain have seen their wealth increase by £155bn since the crisis began – more than enough to pay off the whole government deficit of £119bn at a stroke. Anyone earning over £1m a year can look forward to a £42,000 tax cut in the spring, while firms have been rewarded with a 2% cut in corporation tax to 24%.
Not that many of them pay anything like that, even now. The scale of tax avoidance by high-street brand multinationals has now become clear, in no small part thanks to campaigning groups such as UK Uncut. Asda, Google, Apple, eBay, Ikea, Starbucks, Vodafone: all pay minimal tax on massive UK revenues, mostly by diverting profits earned in Britain to their parent companies, or lower tax jurisdictions via royalty and service payments or transfer pricing.
Four US companies – Amazon, Facebook, Google and Starbucks – have paid just £30m tax on sales of £3.1bn over the last four years, according to a Guardian analysis. Apple is estimated to have avoided over £550m in tax on more than £2bn worth of sales in Britain by channelling business through Ireland, while Starbucks has paid no corporation tax in Britain for the last three years.
The Tory MP and tax lawyer Charlie Elphicke estimates 19 US-owned multinationals are paying an effective tax rate of 3% on British profits, instead of the standard rate of 26%. It's all entirely legal, of course. But taken together with the multiple individual tax scams of the elite, this roll call of corporate infamy has become an intolerable scandal, when taxes are rising and jobs, benefits and pay being cut for the majority.
Not only that, but collecting the taxes that these companies have wriggled out of would go a long way to shrinking the deficit for which working- and middle-class Britain's living standards are being sacrificed. The total tax gap between what's owed and collected has been estimated by Richard Murphy of Tax Research UK at £120bn a year: £25bn in legal tax avoidance, £70bn in fraudulent tax evasion and £25bn in late payments.
Revenue and Customs' own last guess of £35bn has been widely recognised as a serious underestimate. But even allowing for the fact that it would never be possible to close the entire gap, those figures give a sense of what resources could be mobilised with a determined crackdown. Set them, for instance, against the £83bn in cuts planned for this parliament (including £18bn in welfare) – or the £1.2bn estimated annual benefit fraud bill – and you get a sense of what's at stake.
Cameron and Osborne wring their hands at the "moral repugnance" of "aggressive avoidance", but are doing nothing serious about it whatever. They've been toying with a general "anti-abuse" principle. But it would only catch a handful of the kind of personal dodges the comedian Jimmy Carr signed up to, not the massive profit-shuffling corporate giants have been dining off.
Meanwhile, ministers are absurdly slashing the tax inspection workforce, and even introducing a new incentive for British multinationals to move their operations inbusiness to overseas tax havens. The scheme would, accountants KPMG have been advising clients, offer an "effective UK tax rate of 5.5%" from 2014 (and cut British tax revenues into the bargain).
It's not as if there aren't any number of measures that would plug the loopholes and slash tax avoidance and evasion. They include a general anti-avoidance principle (of the kind the Labour MP Michael Meacher has been pushing in a private member's bill) that would outlaw any transaction whose primary purpose was avoidance rather than economic; minimum tax (backed even by the Conservative Elphicke); and country-by-country financial reporting, and unitary taxation, to expose transfer pricing and limit profit-siphoning.
The latter would work better with international agreement. But there is already majority support in the European Union, and it is governments in countries such as Britain – where the City is itself a tax haven – that are resisting reform. When you realise how closely the tax avoidance industry is tied up with government and drawing up tax law, that's perhaps not so surprising.
But when austerity and cuts are sucking demand out of the economy, fuelling poverty and joblessness and actually widening the deficit, the need to step up the pressure for corporations and the wealthy to pay their share as part of a wider recovery strategy couldn't be more obvious.
The target has to shift from "welfare scroungers" to tax dodgers, and the campaign go national. Companies that are milking the country at the expense of the majority are especially vulnerable to brand damage. Forcing them to pay up is a matter of both social justice and economic necessity.
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