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Sharing the pain of CovEcon-19

Covid-19 has had a devastating impact on families across the country and made exceptional demands on the health service. At the same time it has brought the vast bulk of the UK’s economy to a hard stop. Responding to both the health service costs, the social and economic lockdown the Treasury has spent billions of pounds.

The automatic stabilisers of transfer payments during times of recession have been magnified by both the depth and breadth of the economic impact. This has added enormous sums to the Government’s annual deficit which will in turn increase total government indebtedness to levels last seen after World War Two.

This level of indebtedness is certain to increase before it comes down. Cuts to government expenditure and increases in taxation in the midst of an historically unprecedented economic downturn will only deepen the depression and make recovery even slower.

At some point however a reckoning will come and taxes will have to be increased to address the costs of the combined health and economic consequences of CovEcon-19. When that day comes there needs to be some principles as to how the pain is distributed.

The first principle is taxation should be fair. In other words those with the broadest shoulders should carry most weight. This means the rates of taxes applied should be progressive with the rich and super rich paying very significantly more than those who are not within those categories.

There are a number of reasons for this. Firstly there is a moral argument that the riches of the rich and the super rich are so far distant from personal effort. The argument they are the just rewards to innovation or hard work have always been thin but now are non-existent in the vast majority of cases.

Second, the claim that the enormous rewards are what makes the economy grow thus providing the tide to lift all boats is discredited by the fact even when the economy grows most boats are stuck in the mud. Their crew’s, far from being lifted up are being drowned.

What is more in the 1950’s and 1960’s when the distribution of incomes was much less extreme than now the economy was more productive with better growth levels. As the captains of industry have increased their pay growth has gone down. It is time this was reversed.

There is another, economic, argument which is critical in societies based on consumer capitalism. Basically, the need for consumers. The rich and super rich tend to save very significant proportions of their incomes, buying financial assets.

The vast majority of the population save much less, indeed, many save nothing. All of their income is spent. They are the consumers of consumer capitalism. In aggregate, over the past thirty years the share of income going to workers as opposed to owners of capital has gone down. Thus reducing aggregate demand in the economy. A bad thing.

Redressing the balance therefore would not just be morally, but also, economically good.

The second principle is that everyone should pay their taxes. This seems obvious and for the vast majority of the working population is an inescapable given. For those with large incomes however taxes become more optional.

Governments talk about addressing this at the same time as they reduce the number of tax inspectors, and allow the Crown Dependancies like the Isle of Man and British Overseas Territories, like the Cayman islands to provide opaque financial locations for those with large fortunes to hide their wealth.

As the recent Report of the Intelligence and Security Committee has indicated, London, always an innovative financial centre, became the ‘laundromat’ for the illicit finance of Russian oligarchs. This enabled them to park the wealth extracted from their country into a stratospheric property market having detrimental knock-on effects for the rest of the housing market in the City.

The Russian elite are not the only ones using the City to hide their wealth. Plenty of locals take advantage of the creative skills of the big four accountancy firms to avoid and evade taxes, a distinction which needs to be redrawn to provide clarity and more tax.

The two principles do not appear revolutionary. But they are. To make them effective will certainly require new legislation and investment in resources to implement that legislation. However, much more than this will be a political determination to drive through the radical transformation to the economy they require.

Failure to do so will undermine the support for taxation which is critical in a democracy. Eventually, consent to tax will be withdrawn and we will no longer be able to purchase civilisation.

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The Intelligence Lark

The loss of Mr Grayling to the Chair of the Intelligence and Security Committee (ISC) puts me in mind of the old radio comedy “The Navy Lark” about the hapless crew of the Royal Navy Frigate HMS Troutbridge. In the show Ronnie Barker was the voice of Naval Intelligence and answered the phone with a gormless drawl, “This is intelligence speakin’.”

Mr Graylings involvement in government to date has not been an unqualified success. It is fortunate that the man who gave a contract for boats to a company with no boats was not around at the time of Dunkirk. This is a man who can make a mitigated disaster unmitigated with no appearance of noticing.

He remains a member of the Committee so the actions of Julian Lewis, working with the opposition parties, to take the Chair can only be seen as “damage limitation”. However the whole affair is fascinating as an insight into the approach to government of this administration.

They clearly adhere to the arithmetic, elective dictatorship view of democracy. A view which goes beyond seeing elections as giving the government the right to implement its’ policies within the framework of consent, which includes the rule of law and a whole series of checks and balances. Rather a view, most clearly exhibited by President Trump, that once elected, the whole panoply of state power must bend to the will of the executive.

The Justice and Security Act 2013 states, “A member of the ISC is to be the Chair of the ISC chosen by its members.” (my emphasis) Given it is statutorily given to the members of the Committee to decide who amongst them should be Chair one may assume the intention of the legislators at the time was not to place it within the gift of the Prime Minister.

To try and whip this decision is a clear attempt to undermine the intention of the statute and betrays, at the very least, a nonchalant attitude to the rule of law. To then withdraw the whip from a member of the Committee who had the temerity to get elected within the terms of reference of the Committee and the statute is a cack handed compounding of the offence.

It betrays an obsessive compulsion for control combined with a complete lack of political sensitivity. It has all the hall marks of Prime Minister Johnson’s chief advisor and it is worrying.

Mr Cummings seems to sacrifice politics to efficiency and confuses efficiency with what he wants, when he wants it. Unfortunately, politics is not a science or a game of chess, it is an art. The numbers do not always add up, even when you have a majority, and the chess pieces have minds of their own.

Steering the ship of state cannot be easy. It almost certainly requires constant attention. Attention to the big picture, taking the ship towards its destination, but also the instinctive attention to the details which matter.

This latest fiasco is a spectacular own goal, either of his own making or that of Chief Petty Officer Cummings. Why on earth would you risk political capital in providing Chris Grayling, of all people, with a sinecure which he is ill qualified to fill? He now looks as if he is losing control because he tried to control something he should not have done, what is more it is not even apparent that he needed to.

Worse the machinations look like an attempt to control the committee just at a time when it is about to deal with a report into Russian interference in the last election. A report the PM has been sitting on for months. This inevitably raises questions about whether there is something in the report which justifies the manipulations?

Sub Lieutenant Phillips was an amiable buffon, guiding HMS Troutbridge in to harbour with the technical precision of “Left hand down a bit” but almost always ended up crashing into the harbour wall with an “Ooh nasty!” Sadly it appears the Sub Lieutenant is at the helm again.

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The Rulers’ Law

Former FT Moscow correspondent Catherine Belton’s recent Book “Putin’s People” chronicles the rise to power of Russia’s President. It provides a fascinating insight to the form of State Capitalism put in place by Putin and his former KGB colleagues over the past 20 years.

Central to this process has been the transformation of Russia’s legal system into a pliant arm of the Kremlin. For long it had been subject to local corruption due to the very low pay of Russian judges. However, what Putin has done is incorporate the judiciary into the state, no longer providing an independent assessment of facts and guilt versus innocence but rather a step back to Soviet era “telephone law”. In practice the whole of the legal system is at the behest of the political elite and more specifically Putin.

The key shift to this was the trial of Mikhail Khordorkovsky, at one point the richest man in Russia, a beneficiary of the first moves to a market economy under Boris Yeltsin. The trial lasted 11 months and, according to Belton, “…created a precedent for the country’s judiciary to be turned into an extension of the long arm of Putin’s siloviki.”*

The three female judges were accommodated by the Kremlin in a sanatorium 50 kilometers outside of Moscow, all expenses paid, while they wrote their verdict. When one of the judges refused to go the sanatorium under police guard Vladimir Kalanda, a deputy in the presidential administration spoke to the chairwoman of the Moscow City Court to make sure her subordinate complied. The official reason for this was to ensure they would not be bribed by representative of Khordorkovsky.

Surprisingly, the judgement was almost an exact summary of the prosecution. In truth it involved the retrospective and partial implementation of laws to ensure conviction and resulted in a sentence of 10 years hard labour. An appeal was submitted and after a number of delays was heard in a single day due to concerns that the statute of limitation might apply to some of the counts against Khordorkovsky. It took the judges a matter of minutes to reject the appeal.

Oddly enough, following this Russian oligarchs were very careful to ensure they did not upset Putin and indeed when asked to jump for him only asked how high. And he did ask them to jump or rather treated their wealth as an extension of the states available for him to direct as he thought fit.

In short Putin converted a nascent independent judiciary into a shield and sword to overwhelm any opposition, appropriating assets and incarcerating oponents at his pleasure.

Of course he has a different take on the matter and argues that the courts act according to law and he cannot interfere in their independent prosecution of those he falls out with. In short, he lies.

Belton’s book provides plenty of evidence to support this degradation of the rule of law into rulers law. Whatever the limitations of the British legal system and whatever bias to wealth and power it contains, the situation is categorically different to one where the Executive becomes, rather like Humpty Dumpty, able to say the law “…means just what I chose it to mean – neither more or less.”

All this is truly frightening and undermines two foundational principles of democratic societies. First the rule of law and its application without fear or favour to all citizens equally. No one is above the law. The second principle, is the separation of powers and the independence of a professional judiciary. One which stands separate from the Executive and indeed can hold it to account if it breaks the law.

Obviously, there has not been a long tradition of any of this in Russia. Neither before the 1917 Revolution nor after in the Soviet Union. On the collapse of the latter there was a brief period when these principles seemed to be gaining ground. However, they were under challenge from the moment Putin came to power in 2000. The judiciary came under increasing pressure and after the trial of Khordorkovsky in 2005 it was really game over.

In the west of course we believe the two principles mentioned above are well and truly secured in democracies such as the United States. Or we did. From the very start of his term in office President Trump took his Twitter scythe to undermine the judiciary by attacking judges and courts for rulings he disagreed with and used his powers of appointment to attempt to take control of it from within.

His track record on Attorneys General illustrates a restless search for someone that will meet his exacting requirements. Most Presidents seem to have around three Attorneys General. FD Roosevelt managed with four in his exceptional twelve year 3 term presidency. George W Bush had the most with 3 acting and 3 full Attorneys General. That of course was in his 8 years in office.

President Trump had gone through three acting and one full Attorney General in just over two years before settling on William Barr in February 2019. His first full appointment was Jeff Sessions who made the school boy error of recusing himself from the inquiry into Russian involvement in the 2016 Presidential election campaign of Donald Trump. From that moment on he was a dead man walking, openly ridiculed and berated by the President in public.

After he had left office the President made clear what he saw as his shortcomings. In essence these were his failure to Protect Trump by closing down the Mueller Inquiry or the “Russia Witch Hunt” as he called it.

With William Barr he seems to have discovered an Attorney General that does understand the legal immunity which attaches to the office of President. Mr Barr has assiduously attempted to ensure the President is protected from the distracting attentions of Federal Prosecutors.

As soon as he took office Mr Barr inserted himself into the Stormy Daniels investigation of campaign fund violations. Ms Daniels was paid $130k for her silence about an alledged affair with candidate Trump in the run up to the 2016 election. His personal lawyer Michael Cohen was jailed for 3 years for making the payment on behalf of “Individual One”, President Trump.

Following Mr Barrs review of matters the Federal case investigating the liability of “Individual One” drifted for months and then was wound up with Federal Prosecutors confirming no further action on this matter would be taken against any other individuals.

Mr Barr also insisted that any other cases in any Federal Prosecutors Office relating to the President needed to be reviewed by a hand picked team in his office.

When the Mueller Inquiry finally reported to Mr Barr he initially tried to prevent its release to the public providing a letter to Congress with his own rather contentious summary of what he believed it concluded. It attempted to set the tone about exonerating the campaign and the President.

Mr Barr holds the radical view that whilst in office not only can the President not be charged with any breaches of the law but that neither does he have to respond to investigations into such breaches. According to him the President does not have to provide congress with documents even if they are supported by a subpoena.

Not only has Mr Barr used the law to shield his boss but he has also used it as a sword, setting up criminal inquiries into the actions of law offices in relation to the establishment of the investigation into Russian attempts to support Trump in the 2016 election.

His latest moves have been to replace the US Attorneys in Washington DC and both the Southern and Eastern Districts of New York. What all these Districts have in common are ongoing investigations into President Trump and the Trump organisation. Geoffrey Berman, Attorney for the Southern District, denied he had resigned when Mr Barr announced this one Friday evening. This forced Mr Barr get the President to remove Mr Berman.

No doubt the estimable Ms Kayleigh McEnany, the Presidents indefatigable press Secretary, can confirm that all this is perfectly normal and there is nothing to see here. But there is. Incredibly what we see is a process undermining the independence of the judiciary with frightening parallels with what has happened in Russia.

Fortunately there are signs of push back. Last week the President lost two cases in the Supreme Court which struck down definitively and in terms the notion that the President is above the law.

In the Southern District of New York the State prosecutors office have picked up the case dropped by the Federal Prosecutors office into the Stormy Daniels hush payments which they believe breach a range of State campaign finance laws. The State Prosecutors do not answer to Mr Barr and importantly State laws are not subject to Presidential pardon.

There is hope the attack on the rule of law in the States will be overcome. However no one should underestimate the strength of that attack or the risks it creates if even partially successful. By far the most effective way to defeat this is by the US public rejecting candidate Trump at the polls in November. Experience to date, however, indicates President Trump will do all he can to transform The Rule of Law into The Rulers’ Law to secure victory. The 2020 US election is not for the Presidency, it is for democracy.

*Siloviki = Putin’s inner circle of ex KGB colleagues.

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Italian mafia bonds sold to global investors | Financial Times

Italian mafia bonds sold to global investorsInstruments were backed by front companies charged with working for the ’Ndrangheta organised crime group International investors bought bonds backed by the crime proceeds of Italy’s most powerful mafia, according to financial and legal documents seen by the Financial Times.

In one case, the bonds — backed in part by front companies charged with working for the Calabrian ’Ndrangheta mafia group — were purchased by one of Europe’s largest private banks, Banca Generali, in a transaction where consulting services were provided by accountancy group EY.

About €1bn of these private bonds were sold to international investors between 2015 and 2019, according to market participants. Some of the bonds were linked to assets later revealed to be created by front companies for the ’Ndrangheta.

Source: Italian mafia bonds sold to global investors | Financial Times

 

 

Ed Northern Comment. “If money goes before, all ways do lie open.”