Osborne-created tax loophole diddles the UK out of hundreds of millions

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A tax avoidance loophole specially created by George Osborne, the UK Chancellor, last year means that water companies have played the system to reduce their tax bills to a trickle.

Some people just don’t know when it’s time to do the right thing.

Look at the three water companies that are paying practically no tax on their huge profits, while yanking up prices every year according to the retail price index and enjoying a monopoly in their areas – according to today’s report in The Observer.

Thames Water avoids tax by offsetting the interest payments on its debts against its tax liability and delaying it by claiming allowances on capital project spending. The company is seeking government support for a £4.1bn project to build a new “super sewer” under the Thames.

Anglian lent £1,609.1m to a subsidiary company in the Cayman Islands tax haven in 2002. This year it was able to pay £478.1m in equity dividends to investors, including its subsidiary in the tax haven.

Yorkshire Water also increased the debt on its books recently, which offsets tax payments.

In other words, all three were able to exploit a new tax loophole, created by George Osborne last year – that’s right, the Chancellor who is supposedly trying to stop tax avoidance has actually been creating more ways for big business to achieve it – to pay as little tax as possible.

In my article last Monday, I highlighted changes to the tax laws, brought in by Gideon, I mean Mr 0, that mean companies in the UK pay nothing at all on money made by their foreign branches and may claim the expense of funding those foreign branches against tax paid in the UK. That is exactly what Anglian and Yorkshire are doing, according to the Observer report.

Without knowing where the Thames debt is based, it’s hard to say for certain whether it falls into this category of tax avoidance.

Thames made an operating profit of £650 million last year, and Anglia’s was £492, while Yorkshire’s was £303 million. With Corporation Tax at 26 per cent (they should all pay the higher rate), this means the Treasury failed to collect nearly £376 million from the three companies.

The amount lost to the Treasury from these three companies alone would pay off three-quarters of what the government hopes to take away from people currently on council tax benefit, when local authorities implement their new council tax relief schemes – the ‘Pickles Poll Tax’ – in accordance with Eric Pickles’ Localism Act, next April.

Both Thames and Anglian told The Observer their tax was merely being deferred, and they would have to pay it in full at a later date. Yorkshire declined to comment.

My problem with this is that the UK is in deficit difficulties NOW. We need everybody’s tax money NOW. Not later. By exploiting a loophole in the tax system that the Chancellor irresponsibly created, they – AND HE – are extending the problem.

The absence of any significant tax bills means Thames and Anglian were able to pay out dividends totalling £1.5881 billion. I don’t have the figures for Yorkshire. Ask yourself how many of those shareholders have tax avoidance schemes of their own.

Meanwhile, those of us on PAYE have to pay the full amounts of our tax bills – and our utility bills – no matter what harm they do to our household finances. There can be no deferrals for the working-class citizen!

And what help do our bloated water companies give us?

A drop in the ocean.

Why are councils silent about the Localism Act’s eviction threat?

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If you don’t have a plan to deal with the financial demands of the Localism Act, this could be you.

Has anyone received any information from their local authority about how it plans to implement the new council tax support scheme required by the Localism Act?

This scheme will be running from the beginning of April next year (2013), and it is therefore a matter of urgency that we find out what it will involve. Or is it our councils’ intention to take us all by surprise?

It is two months since I wrote my article on the subject, Poll Tax revival plan to take away your home, and I have heard nothing from my own local authority.

I have therefore written a letter, asking for information. If you are in the same situation, you may wish to use what follows as a template:

Dear County Council,

You will be aware that the Coalition government’s Localism Act means that Council Tax Benefit will be scrapped from April next year. Instead, local authorities – such as yours – will be compelled to set up local council tax support schemes. The aim is to cut 10 per cent from the current council tax benefit bill, or around £470 million.

Because pensioners will not be attacked in this way (at this time) – the legislation exempts them – this means working-age people are likely to face a loss of at least 16 per cent of their benefit.

Councils could choose to reduce spending in other areas or increase council tax, but these would affect groups other than current benefit recipients and so, in the name of fairness, I think we can be sure those who are on benefit now will end up paying that £470 million bill.

You can be sure that the illusion of choice has been included by the Coalition to ensure that you – and all the other local authorities in the UK – take the blame for what will be a considerable increase in the bills being paid by poorer households. I don’t think anyone who devised the legislation stopped to think what the tax hike will be, as a proportion of claimants’ earnings.

Worse than that, though, is the fact that I have not heard a single word from you about how you plan to approach this matter. Implementation of the scheme is now less than six months away, and those who will be affected need to plan how they intend to absorb the extra expense.

My fear is that you think you can remain silent until the very last minute in the hope that this will minimise harmful publicity against you. This would be disastrous for your taxpaying constituents.

Such a policy may well leave them unable to pay their bills and therefore, ultimately, homeless.

Please publicise your proposals to deal with the demands of the Localism Act now.

Get your votes out, lads and lasses!

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The only power you have: Pensioners keep their benefits because they vote; youngsters are told they can’t change the system, so they don’t bother. They give up their democratic power and, as a result, are made to suffer.

Is the government is right to maintain benefits to older people, whatever their financial situation, while cutting benefits to more vulnerable people?

This was the popular issue on BBC radio’s Any Questions/Any Answers this week – popular because it highlighted the contrast between pensioners, who influence governments, and youngsters, who don’t.

The simple fact – nailed by a tweeter – is that old people vote more than young people. Therefore, it is the choice they make that can decide who forms the next government. Therefore any party (or parties) in power will pander to them and try to ensure that they take as few hits as possible during a time of cuts.

Remember the old adage that, if you don’t vote Tory when you’re old, you’ve got no brains? They try to look after their support base.

So pensions stop being linked to RPI and get linked to CPI instead, meaning a drop of 0.4 per cent in their annual rise (which was 5.2 per cent last year – well above average pay increases). They get a Christmas bonus. They get winter fuel payments whether they need them or not. Free TV licence.

Meanwhile, youth services are cut hard. Student tuition fees are tripled. The number of young adults out of work skyrockets and they are faced with crippling sanctions on their Jobseekers’ Allowance if they don’t comply with slave-labour Workfare schemes. The Universal Credit will cap the amount of benefit they receive to keep them in poverty. The Localism Bill will bring in county-based council tax relief schemes instead of Council Tax Benefit, which will push low-earners (traditionally the young) out of their homes to look for accommodation in less-desirable areas.

The government can get away with this because young people don’t vote – so they are no threat.

Of course, we’ve all heard the naysayers banging on that there’s no point in voting because it won’t change anything; whatever happens, you’ll end up with a politician representing you. We’ve all heard that sort of tripe. Their point – that politicians are no different from each other; that they’re all in it to line their own pockets, may seem valid. But just look at the evidence of the last century in Britain alone and you will see that it is not true.

Was Aneurin Bevan lining his own pockets when he set up the NHS? Of course not – but Andrew Lansley and many other MPs are lining theirs by breaking it up. And that’s just the obvious example.

So, young people of the UK – and in that I count anybody from 18 up to retirement age – it’s time to start thinking seriously about your situation.

Do you really want to be a Conservative politician’s helpless pawn? Do you want to be consigned to poverty, to a life of endlessly being shifted from one inadequate set of digs to another? From one Workfare placement to another?

Or will you take charge of your own political life and make it clear that you won’t be pushed around like that?

There are more of you than there are pensioners. You can choose a government that is fair; that actually wants to help you. Remember, the government that formed the NHS did it when there was supposed to be “no money left”, and in a time of far worse proportionate debt. And it wasn’t a Tory government. Or a Liberal Democrat one.

So get your votes out.