What do banks and financiers get in return for paying George Osborne £50,000 for one hour of work?

George Osborne presided over a national productivity disaster when he was Chancellor. But the MP for Tatton is certainly making an outstanding personal contribution to repairing some of the damage now.

Last week the House of Commons Register of Members’ Financial Interests disclosed Osborne’s earnings from outside Parliament since he was sacked from the Cabinet last year. What the record shows is nothing less than a productivity miracle. In October Osborne spent two hours delivering a speech to an outfit called Palmex Derivatives in the City of London for which he received £80,240. That’s more than £40,000 per hour of his time. Not even Paul Pogba of Manchester United gets that kind of hourly rate.

Earlier in the same month Osborne gave a speech to the Securities Industry and Financial Markets Association in New York for just one and a half hours. He expects to receive £69,992 for his efforts; an hourly rate of £46,000.

Osborne’s full salary when he was a Chancellor was around £120,000 a year. Assuming that he worked 10 hour days and took five weeks holiday a year his pay rate was around £50 an hour. So since leaving office Osborne has multiplied his personal output per hour by more than 900 times. If only the rest of the economy could bottle some of that productivity-enhancing magic. Maybe we should all get sacked from the Cabinet by Theresa May.

But speeches to financial firms are not Osborne’s bread and butter. That will come from four days a month “advising” the colossal US asset manager Blackrock, a job for which he will be paid around £650,000 a year (not including share-based bonuses). Assuming, again, a 10-hour working day, that’s £1,350 an hour, still at least 25 times his previous daily rate as a minister.

When he was shadow Chancellor George Osborne talked tough on the need to reform finance, sensing the mood of outrage in the country in the wake of the collapse of Lehman Brothers and the associated economic carnage. In 2009 he made radical noises about breaking up “too big to fail” banks including Lloyds and the Royal Bank of Scotland, which had been bailed out by the taxpayer at huge public expense.

But that radicalism melted away when he entered 11 Downing Street. He did establish the Independent Commission on Banking headed by Sir John Vickers to look into the case for breaking up the giant banks.

But in his 2011 report, Vickers failed to recommend a split and instead delivered a halfway house known as “ring-fencing”. The banks still gripe about that hassle of that reform, but this a pedicure compared to the amputation a full split would have represented.

And as the years went by Osborne talked less and less about financial reform and more about the need to unclip the wings of the banks. Avoiding “the stability of the graveyard” became his catchphrase. The Treasury’s door was constantly open to the industry’s lobbyists and top executives. In one remarkable episode, he personally intervened to stop the US Department of Justice bringing criminal charges against HSBC for laundering the profits of terrorists and drug dealers. One of Osborne’s lucrative speeches in January was to HSBC: £51,328 for two hours of work.

As Chancellor he pushed through regulatory changes with major implications for the savings and pension industry – most of them positive for the bottom lines of those companies. And now Osborne works for the largest asset manager in the world, which plans to pay him almost 10 times his MP’s salary while he continues to sit in the House of Commons.

We have no reason to believe that Osborne was motivated, while he was in high office, by the possibility of one day earning hundreds of thousands of pounds a year from the financial sector; nor that he took any decision as Chancellor in relation to the industry with anything except the good of the British public uppermost in his mind.

Nevertheless what message does the example of him now being sprayed with cash by giant banks, financial trading companies, asset managers and hedge funds, all within months after leaving office, send? What’s the message that goes out to other politicians ascending the greasy pole? It sends the message that it would be wise to be attentive towards the interests of the financial industry because, if your political career is terminated prematurely, these companies can – and do – reward former top politicians in ways that would make a Premier League footballer blush.

#Blackrock #GeorgeOsborne

Facebook is a business. If you really want it to change the way it works, log off

It’s often said you should keep an eye on what politicians actually do, rather than fixating on what they say. That wisdom applies just as much to corporations.

Facebook’s community standards policy states it will remove any content that promotes sexual violence or exploitation. But when the BBC flagged various examples of this kind of content to the social media platform, most of the images were left untouched.

Facebook’s founder Mark Zuckerberg has insisted he is alive to widespread concerns about the dissemination of fake news via Facebook and that he takes misinformation seriously. But there has been no substantive action taken to eradicate obvious hoaxes from the platform, despite claims from the founder that progress is being made.

This is not a question of lack of resources. Facebook’s revenues last year were $27.5bn, up from just $3.7bn in 2011. Profits have risen from $1bn to $10bn over that same period. Money is not the problem for Facebook.

What we are dealing with here is a lack of will; or rather a strategic paralysis. Facebook is determined that it will not be bounced into becoming an active curator and editor of the content that appears on the platform; content that is posted and shared by its 1.86 billion active users.

Not only would that entail a considerable expansion of its cost base, but it could fundamentally change the relationship between the platform and the regulatory authorities across the many territories it operates. If Facebook is perceived to be “in charge” of what appears on the platform then it may also be held accountable for that content.

This is an expectation that traditional newspapers and online news organisations like The Independent have long been used to. But while Facebook is happy to collect the billions of dollars a year of advertising revenues that formerly flowed to the traditional news media it does not want the social responsibilities that come with being a media company.

This is not the only example of what we might generously call Zuckerberg’s cognitive dissonance. He talks grandly of his desire to spread “prosperity and freedom” through Facebook’s expansion and “making the world open”. Yet last year he was making overtures to the internet-censoring autocrats of Beijing, meeting with China’s propaganda chief Liu Yunshan. He also posted what looked alarmingly like a propaganda picture of himself jogging in the smog-blanketed Tiananmen Square, promoting some richly deserved online derision in China.

But we should be fair to Zuckerberg. Sensitively curating 1.86 billion users is no trivial task. Facebook has faced complaints in recent years for taking down images of breast-feeding mothers that it mistakenly identified as explicit. Facebook is different from a newspaper in that people feel that what they post is “their” content. There’s a tendency at times for people to demand a combination of the wisdom of Solomon and Papal infallibility from the company.We want them to interfere with the content of others, but to leave ours well alone.

And curating the news is an especially hazardous business. Zuckerberg raises valid points about the difficulty of distinguishing hoaxes from satire and the risk of sending people even further into their ideological bunkers through heavy-handed editing.

When it turned out that Facebook’s “trending” newsfeeds were operated by human editors, rather than algorithms, and there were allegations those editors were suppressing the output of right-wing news organisations, Facebook caught huge flak from conservatives. More active policing of the network involving human judgements, particularly in the news arena, is inevitably going to generate controversy and criticism.

Yet at the same time we shouldn’t be naïve. There is a tendency in the media to revere Zuckerberg as some sort of technological-seer-cum-freedom-fighter. But his primary goal is to continue building his business in order to justify the enormous valuation put on it by the financial markets since it floated on the stock market in 2012.

Investors have priced Facebook at a domination price – and that means Zuckerberg needs to deliver domination. Hence his desire to get into the vast China market, where Facebook is currently barred.The value of his own stake in the company, worth some $55bn, depends on success. If cleaning up the platform conflicts with its user growth, or allows a competitor to take market share, it’s not difficult to guess which way he will lean.

If we want reform of the pre-eminent online social network of our times we cannot rely on its founder to deliver it; that change will need to be driven by the demands of users, whose eyeballs attract those billions of advertising dollars. If people really want change, logging off may be the only way to achieve it. Actions speak louder than words.

#Facebook #socialmedia

Get house sellers to pay stamp duty instead of first time buyers? It may sound good but there’s a ca

Who pays tax? We all do of course (or at least most of us). But who really bears the financial burden of an individual tax? That’s a rather more complex question – and one that isn’t asked enough.

Andrew McPhillips, economist at Yorkshire Building Society, last week called on the Chancellor to change the law so that stamp duty is paid by sellers of homes rather than buyers.“[This] would reduce costs for first-time buyers, helping more people to get on the property ladder,” he said.

To first-time buyers this might sound a good idea. Indeed, why not give this beleaguered group a break by lightening their tax load? But McPhillips’s logic is the sort that causes economics professors and public finance experts to weep tears of frustration.

For it ignores the fact that other things in a market are very likely to change in response to shifting the nominal target of a tax, in this case the asking price. Those selling a home will surely respond to a large new stamp duty bill with a commensurate rise in the asking price.

So first-time buyers would be no better off in substantive economic terms – it is buyers who will end up paying the tax even if it’s nominally levied on to the seller.

The same logic applies to Value Added Tax. This is paid to HM Revenue & Customs by retailers and companies. But most of us realise that it’s really we consumers who pay the VAT because when the rate increases, prices rise. We had vivid proof of this when George Osborne raised the rate from 17.5 per cent to 20 per cent in 2011 and most prices immediately rose in response.

But the story of who ultimately pays tax or fees, known as “incidence”, is not always so obvious. When the Government said last year that it would ban lettings agents levying fees on tenants, some said this would merely push the fees on to landlords, who would put up rents in response, leaving tenants no better off. 

Yet the price of shares in estate agents dropped sharply in the wake of the decision. This suggests that those fees have been a major source of profit for the estate agent rather than an unavoidable transaction cost and that landlords will be better placed than tenants to resist being gouged. The incidence of that regulatory change would seem to fall on estate agents, despite the objections raised.

Business rates are a tax payable by firms based on the rentable value of the property they occupy. But a firm will generally want to secure a certain rate of return on their invested money and efforts regardless of such tax changes. So if business rates rise (as they are set to do in many swanky districts of London) then businesses should, in theory, seek to renegotiate their rent downwards to reflect that shift. Thus the tax should, according to the textbooks, be ultimately borne by landlords rather than firms.

Some evidence suggests this shift in rental prices does happen in the end. Yet it plainly doesn’t happen instantaneously for the simple reason that firms do not tend to renegotiate their rents with their landlords every year. Thus much of the initial cost of any increase does fall on firms, or rather the people who are involved in those firms.

Corporation tax is nominally a tax on corporate profits, prompting many people to assume that companies pay it. But companies don’t pay tax, only people do. The question is: which people? Many are convinced that the shareholders of the company pay the tax in the form of lower profits and dividends than they would otherwise enjoy. Others insist that workers pay the tax because the company responds to the tax by hiring fewer workers than it otherwise would, or by paying its workforce less.

There is no consensus view among researchers over who bears the burden of corporation tax. Empirical research points in different directions. The answer is likely a mixture of the two and the relative share will probably depend on the company in question, the structure of the local economy and the institutions of the society in which the tax is levied.

Yet the fundamental point is that all taxes will ultimately be paid by someone – and it may well not be who you’re invited to believe.

#corporationtax #incidence #stampduty #VAT