DMossEsq

Monday 19 December 2011

Congratulations to Lin Homer

Some misguided readers are under the impression that Lin Homer, the hero of The Adventures of Marsham Towers, is a fictional character.

Far from it, she has now been appointed Chief Executive of HM Revenue & Customs.

Our congratulations to Ms Homer.

Congratulations to Lin Homer

Friday 16 December 2011

The on the spot answer

This is the (draft and subject to change) answer to a comment posted by one Mr Reader:

Dear Mr Reader

Thank you for trying to put me on the spot. I’ve been trying to put myself on the spot for years. And failing.

Assuming that that continues, when the final enquiry report is in at the end of next month, the most likely outcome is that everyone’s reputation will be tarnished – Brodie Clark, Theresa May and Helen Ghosh – but the daily round will revert to its pre-4 November 2011 pattern, the usual dismal calm will prevail in the Dark Department, there will be no more sense of sudden explosions, nasty surprises and unexpected eruptions.

That’s the 98%+ likely scenario. A dirty taste in the mouth, business as usual re-established.

The outcome with the 2%- probability of happening?

Consider the following Economist article, Friday 11 May 2012:

Brodie Clark speaks quietly and at first no-one heard him say that fingerprint verification is the ninth and lowest priority security/identity check at the border, the least reliable check and the most sensible check to suspend when the disorderly queues in Arrivals begin to threaten safety.

Well everyone’s heard him now, thanks to the alliance between Theresa May, the UK’s Home Secretary, and Helen Ghosh, Permanent Secretary at the Home Office. Their careers both shipped a lot of water in the days following 4 November 2011 and they were determined to find out why.

Clark was supposed to have endangered UK border security by suspending fingerprint checks. But May and Ghosh could find no evidence that fingerprint checks promote border security. There is none. So he hadn’t endangered anything.

True, he had arguably disobeyed his minister. She had specifically instructed that fingerprint checks were not to be relaxed for non-EEA nationals. But did that instruction refer exclusively to the new intelligence-led border security scheme being piloted? Was the suspension of fingerprint checks covered by the 2007 HOWI procedures?

Pure noise. The real question was: why did the Home Secretary instruct that fingerprint checks should not be suspended, given that they’re no use? Answer, because she had been told by her officials that the technology is reliable. Who told her that? And why?

As May and Ghosh looked deeper and deeper into the affair, the tangled web of today’s mass consumer biometrics industry began to unravel. First in the UK Border Agency, where IBM’s National Identity Assurance Service contract was cancelled. That took out Morpho at the same time. (Morpho is a subsidiary of France’s Safran Group, their answer to our BAE Systems.) And Computer Sciences Corporation and VFS Global.

The damage spread to the National Policing Improvement Agency, where they were using Morpho’s products for mobile fingerprinting by police patrols – not any more they’re not. And to the Identity & Passport Service, where they use Morpho for biometrics in ePassports. For the moment. And to DWP, who were going to use voice biometrics for their Universal Credit system, but can only be described now as tight-lipped about their plans.

Who advised the Home office on biometrics? They got internal advice from the Home Office Scientific Development Branch and external consultancy advice from PA Consulting. Not any more they don’t.

How did this fiasco persist, the Prime Minister wants to know, under the leadership of Lord O'Donnell, until last years head of the home civil service, and Sir David Normington, Dame Helen's predecessor? We await the answer with interest.

Projects that depend on these biometrics being reliable were being cancelled all over Whitehall. The taxpayer didn’t know whether to be furious about being deceived for so long by the Home Office or deliriously happy when the savings from all these cancelled projects over the next 10 years topped £20 billion.

This sort of news doesn’t respect borders. Safran Group were relying on Morpho for 20% of their turnover. Once the news had rowed across the channel, their turnover was down by 20%. Former President Sarkozy tried to blame the Anglo-Saxons but then turned on the European Commission, blaming their 2003 OSCIE specification for a pan-European biometric ID card. The European Commission blamed the US Department of Homeland Security and the DHS blamed NIST, the US National Institute of Standards and Technology.

Which was too much for Prime Minister Manmohan Singh in India, where they’re spending billions on Aadhaar, a biometrics-based identity management scheme for 1.2 billion people. At least they were.

And so the truth rolls on, bowling around the world, knocking over civil servants like ninepins wherever it fetches up. In China, one day Dr Tieniu Tan was a research professor with dozens of successful spin-off companies and, next day, he wasn’t. In Pakistan, first Brigadier Saleem Ahmed Moeen (Retd) was Chairman of NADRA, then there was no NADRA and now the Brigadier really is retired.

And all because of a quietly-spoken Glaswegian, speaking quietly on 15 November 2011, giving evidence to the Home Affairs Committee. Listen to him here. The good bit starts at 12:18.

The on the spot answer

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Thursday 15 December 2011

Plus ça change – tax farming

Matthew xviii:17

And if he shall neglect to hear them, tell it unto the Church : but if he neglect to hear the Church, let him be unto thee as an heathen man and a Publican.

Luke xviii:11

The Pharisee stood and prayed thus with himself, God I thank thee, that I am not as other men are, extortioners, unjust, adulterers, or even as this Publican.

Presumably schoolboys have been told for 400 years to stop giggling, the gospel-writers in the King James version were not suggesting that everyone who runs a pub is an extortioner or an adulterer, deaf to the church. Rather:

In antiquity, publicans (Latin publicanus (singular); publicani (plural)) were public contractors, in which role they often supplied the Roman legions and military, managed the collection of port duties, and oversaw public building projects. In addition, they served as tax collectors for the Republic (and later the Roman Empire), bidding on contracts (from the Senate in Rome) for the collection of various types of taxes.

In modern, accessible versions of the Bible, "publican" is replaced with "tax farmer". No doubt a whole new generation of giggling has arisen at the thought of fields being ploughed, planted with taxes, fertilised and harvested by men in muddy boots.

But that's because we proletarians don't know what "farming" means. It's all about farming out or outsourcing:

Farming is a technique of financial management, namely the process of commuting (changing), by its assignment by legal contract to a third party, a future uncertain revenue stream into fixed and certain periodic rents, in consideration for which commutation a discount in value received is suffered. It is most commonly used in the field of public finance where the state wishes to gain some certainty about its future taxation revenue for the purposes of medium-term budgetting of expenditure. The tax collection process requires considerable expenditure on administration and the yield is uncertain both as to amount and timing, as taxpayers delay or default on their assessed obligations, often the result of unforeseen external forces such as bad weather affecting harvests. Governments (the lessors) have thus frequently over history resorted to the services of an entrepreneurial financier (the tenant) to whom they lease or assign the right to collect and retain the whole of the tax revenue due to the state in return for his payment into the Treasury of fixed sums (rent) in exchange.

Tax farming stayed with us for a long time:

Systems of tax farming similar to the Roman model were used in Pharaonic Egypt, various medieval Western European countries, the Ottoman and Mughal empires, and in Qing Dynasty China. As states become stronger, buoyed up by revenues brought in by tax farming, the practice was discontinued in favour of centralized tax collection systems. In part this was because tax farming systems tended to rely on wealthy individuals outside the state machinery, gangs, and secret societies.

And so did the associated problems:

The key flaw in the tax farming system is the tension between the state, which seeks a long-term source of taxation revenue, and the tax farmers, who seek to make a profit on their investment in as short a time as possible. As a result tax-farmers often abuse the taxpayers in various ways, [causing] them to switch their economic activity from strategic long-term projects to short-term revenue generation. A common abuse by tax farmers is the undervaluation of goods received in lieu of taxes, allowing the tax-farmer to re-sell the goods to create a second profit source. Such abuses stifle economic growth by restricting the ability of the tradesman to reinvest in his business, thereby limiting the quantity of taxes generated over the long-term.

Tax farming continued well into the 18th century in France:

The Ferme générale ... was, in ancien régime France, essentially an outsourced customs and excise operation which collected duties on behalf of the king, under six-year contracts. The major tax collectors in that tax farming system were known as the fermiers généraux, which would be tax farmers-general in English.

In the 17th and 18th centuries fermiers généraux became immensely rich ...

Before the French Revolution, the public revenue was based largely on taxes known as:
the taille – direct land tax imposed on French peasant and non-noble households, based on how much land they held.
the taillon – a tax for military expenditure
the vingtième (one-twentieth) – based solely on revenues (5% of net earnings from land, property, commerce, industry and from official offices)
the gabelle – a system of salt taxes
the aides – national tariffs on various products (including wine and tobacco),
the douane – a local tariff on specialty products
the octroi – a local tariff levied on products entering towns
a local tariff levied on products sold at fairs
the "dîme" – a mandatory tithe to support the church (and so, not formally a tax) ...
The Ferme générale had its headquarters in Paris. It employed in its central offices nearly 700 people including two chaplains. Its local operations included up to 42 provincial offices and nearly 25,000 agents distributed in two branches of activity; that of the offices which checked, liquidated and charged the fees; that of the brigades which sought and suppressed smuggling with very severe punishments (such as hard labour or hanging).

The employees of the Ferme générale were not royal civil servants, but they acted in the name of the king and therefore benefitted from particular privileges and the protection of the law. The guards of the service of the brigades moreover had the right to bear weapons ...

The Ferme générale was thus one of the institutions of Ancien Régime which were most highly criticized during the French Revolution and were depicted as birds of prey and tyrants ... The Ferme générale was suppressed in 1790. The fermiers-générals paid the price at the scaffold: 28 former members of the consortium were guillotined on 8 May 1794, including the "father of chemistry" Antoine Lavoisier, whose laboratory experiments had been supported from his administration of the Ferme générale ...

This business of the tax farmers having their own army/gendarmerie was serious. They were a lively lot with a keen interest in enforcement. In December 1775, Voltaire negotiated a tax settlement between the tax farmers and the residents of his estate at Ferney (pp.427-31). As he wrote later to a friend, the night the deal was agreed:

... while the whole province was busy drinking, the gendarmes of the tax farmers, whose time runs out on 1 January, had orders to sabotage us. They marched about in groups of fifty, stopped all the vehicles, searched all the pockets, forced their way into all the houses and made every kind of damage there in the name of the king, and made the peasants buy them off with money. I cannot conceive why the people did not ring the tocsin against them in all the villages, and why they were not exterminated. It is very strange that the ferme générale, with only another fortnight left for them to keep their troops here in winter quarters, should have permitted or even encouraged them in such criminal excesses. The decent people were very wise and held back the ordinary folk, who wanted to throw themselves on these brigands, as if on mad wolves.

Good job they hadn't disagreed.

Considering what Matthew and Luke had to say about tax farmers, one wonders what the two chaplains made of it in the Paris HQ of the ferme générale.

What the author of the long quotation above makes of it is:

Le choix d'instaurer de telles délégations s'inscrit dans les courants politiques favorables au « moins d'État ».

Toutefois, on peut faire à l'affermage les mêmes reproches qu'à la ferme générale de l'Ancien Régime :
la collectivité publique se prive d'une ressource ;
le service rendu n'est pas toujours meilleur, sur le long terme ;
le coût peut être supérieur pour l'usager ou le contribuable, qui paie ses impôts plus la marge prélevée par le fermier général ;
le recouvrement des créances (des arriérés d'impôts) peut être fait brutalement par le fermier ;
se privant d'une ressource, la collectivité doit s'endetter, et affermer de nouveaux revenus pour obtenir de l'argent frais.
C'est ainsi qu'à la fin du xviii^e siècle, l'État français était considérablement endetté ; des États comme le Maroc ont aussi fini par être colonisés de fait, et durent subir un protectorat, étant entrés dans un cercle vicieux d'endettement/affermage/diminution des ressources disponibles.

Inversement, l'affermage permet de combattre la bureaucratie. C'est faute d'une réforme administrative dans ce sens que l'Espagne de Philippe II a perdu toute sa richesse conquise en Amérique au profit de ses rivaux européens et que l'Empire austro-hongrois s'est écroulé en quelques mois.

En anglais, roughly: outsourcing appeals to people who want a smaller state; outsourcing suffers from a lot of the same problems as tax farming; Morocco, for example, got into a vicious circle of budget deficits and that's why it ended up to all intents and purposes being colonised; on the other hand, it was for lack of an outsourced revenue-raising system that Spain lost its American empire and the Austro-Hungarian empire collapsed in a couple of months.

How times have changed.

Not.

Ireland, Greece and Italy have ended up to all intents and purposes being colonised, the Ancien Régime has been re-constituted with added Germany, tax farming is undertaken by the internal revenue services of each of the 28 members of the EU under the control of the ferme générale, the European Commission, which stands no nonsense from member states who cut up rough about paying their dues.