Ed Miliband vows to get tough on zero-hours contracts

Labour's crackdown, marked in address to TUC, comes as UK languishes near bottom of G20 pay league

Ed Miliband will put forward plans on Tuesday to outlaw the exploitative use of zero-hours contracts, as new figures show Britain has suffered the second biggest fall in wages of any G20 country since the coalition took office.

In an address to the TUC, Miliband will set out proposals to tackle the spread of zero-hours contracts, now believed to affect millions of workers and which have become the symbol of a post-recession economy built on job insecurity and exploitation.

Miliband's commitment stops short of an outright ban on the contracts but will be welcomed by unions demanding he shifts focus from union-Labour reforms to proposals to help working people. Research published by the Unite union this weekend suggested as many as 5.5 million people could be on zero-hours deals offering little or no guarantee of work and pay.

Labour officials said it was likely the proposals would include giving anyone working for a single employer for more than 12 weeks on a zero-hours contract the automatic right to a full-time contract based on the average time worked in the 12 weeks.

The scale of the living standards crisis, in part created by demands for greater labour market flexibility, is underlined in the new figures from the Commons.

A combination of high inflation and a clampdown on wages by UK employers has meant that workers in France, Germany and Canada have seen their pay packets relative to inflation recover since 2010 while the average British worker is £1,500 worse off. Only Italy has performed worse.

The gap between inflation and wage rises mean average wages adjusted for inflation in the UK fell 2.6% from 2010 to the end of 2012 compared with a rise of 0.5% in France, 2.7% in Germany and 3.4% in Canada.

Miliband, who is likely to face a difficult audience at the TUC conference in Bournemouth as relations are strained by the Labour leader's reform efforts, will say any economy that works for working people must have security as one of its foundation stones.

He will pledge to "ban practices which lead to people being ground down", adding that "an unequal recovery won't be a stable recovery. It won't be built to last".

In a competing speech on Monday, the chancellor, George Osborne, will claim the economy has turned the corner, suggesting the recovery under way is sustainable and proof that he was right to reject Labour calls to abandon spending cuts.

A bullish Osborne will say the best way of safeguarding living standards is growth but also promise the proceeds will be shared fairly.

Miliband will propose three specific measures to reduce the use of zero-hours contracts:

• Banning employers from insisting zero-hours workers be available even when there is no guarantee of any work.

• Ending zero-hours contracts that require workers to work exclusively for one business.

• Ending the misuse of the contracts where employees are, in practice, working regular hours over a sustained period.

Miliband has asked Norman Pickavance, former director of human resources at the supermarket chain Morrisons, to chair an independent consultation with business groups and others on how the measures might work.

In particular, he will investigate options to ensure that workers who are actually working regular hours week in week out cannot simply be left on zero-hours contracts without their consent. They include the assumption that workers will move on to a regular contract after a specific period of regular employment.

He will also be asked to work with business to investigate whether other measures should be considered and whether additional legislative steps should be taken.

Miliband will tell the TUC: "We must stop flexibility being used as the excuse for exploitation."

He will continue: "Of course, there are some kinds of these contracts which are useful. For doctors, or supply teachers at schools, or sometimes, young people working in bars. But you and I know that zero-hours contracts have been terribly misused. This kind of exploitation has to stop."

The business department is conducting a review into the scale of the zero-hours contract economy, but Miliband's plans are the most specific proposals to reform so far.

The figures on wages, which also showed that the G20 countries Mexico, Turkey, Russia and South Africa saw bigger rises in real wages, were produced by the OECD and analysed by House of Commons library staff for the Labour party.

The figures highlight the problem faced by Osborne and the Bank of England as they try to sustain a recovery that has accelerated since January, but many economists fear could soon run out of steam.

Critics of the government believe persistently high inflation will undermine the benefit of rising wages and force workers to continue digging into their savings or adding to their already large debts to maintain consumer spending. But Osborne will insist the recovery is sustainable because consumers are also unloading debt.

Miliband will say: "Living standards have now fallen for longer than at any time since 1870. You know what that means. People not knowing how to make ends meet at the end of each month.

"After over three years of this government, with our economy still smaller than it was before the financial crisis, the rewards in our economy are going only to the few at the top. And that's not just unfair. It's bad for our country."

The speech comes as a time when Unions are demanding concrete signs of Miliband's responsible capitalism agenda. But his aides argue it is not a sop to sceptical unions since insecurity at work affects most people. In addition, most people on zero-hours are not in unions.

Article Source : http://www.guardian.co.uk

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Beware the Ides of September: a turbulent month for the economy

It brought Lehman Brothers' collapse and Northern Rock's run, now Syria, the Fed Reserve and G20 are among new flashpoints

September is a dangerous month. Five years ago this month, Lehman Brothers went belly-up. Twelve months earlier there was the run on Northern Rock. Black Wednesday in September 1992 saw Britain's departure from the exchange rate mechanism; the pound left the gold standard in September 1931.

The signs are that September 2013 will also be an interesting month. That's interesting as in scary. There are five potential flashpoints: Syria, the G20 summit, emerging markets, the Federal Reserve meeting to discuss scaling down the US stimulus, and the German election. Any one of them has the potential to damage the global economy.

Let's start with Syria. Military action by the west against the Assad regime could affect growth in two ways: directly, through higher oil prices, and indirectly, by depressing business and consumer confidence.

On the face of it, there is no real reason why the air strikes favoured by Barack Obama should have led to the price of crude rocketing.

Syria is not an oil producer and there would only be an impact on oil supplies if Iran tried to close the Strait of Hormuz. This seems unlikely. But commodity markets quite often ignore economic fundamentals. There is already a Syria premium built into the price of Brent crude, which was changing hands at just under $120 a barrel in London last week. Any hint of the conflict spreading beyond Syria will see the cost of oil rise further, and while talk of $150 a barrel seems overly pessimistic there have been plenty of examples of rumour, fear and speculation combining to ramp up prices. Capital Economics estimates that $150 crude would knock a percentage point off global growth, turning a lacklustre performance into something close to stagnation.

The impact on sentiment is impossible to gauge. There were no long-lasting effects on confidence from the much more extensive military action in Iraq a decade ago, but that was before the Great Recession of the past five years. Businesses looking for a fresh excuse to keep investment plans on hold may find that Syria provides it.

That is more likely to be the case if the G20 summit in St Petersburg ends in acrimony. The conclave of developed and developing countries was supposed to usher in a new epoch of more co-operative global governance, and so it did – for the first 12 months after the G20's inaugural meeting in Washington in 2008.

Since then it has been downhill all the way. G20 countries have failed to agree a joint line on economic stimulus versus austerity, and in the end member countries have simply done their own thing.

But this time the summit could get really nasty if Vladimir Putin cuts up rough over US policy towards Syria, and gets backing from China. On past form, the chances of a big diplomatic bust-up are high, in which case expect markets to respond in their time-honoured fashion by seeking out safe havens in gold, the Swiss franc and the US dollar.

This would exacerbate the problems of the more vulnerable emerging market economies, which have already seen sharp falls in their currencies against the dollar. India, which saw the rupee sink to a record low last week, and Indonesia, which raised interest rates to defend the rupiah, are the most exposed. Both India and Indonesia have deep-seated structural problems and these have been exposed by the Fed's announcement that it was contemplating scaling back – or tapering – its asset purchases under the quantitative easing programme. Money has flowed out of emerging markets and back into the US as a result, prompting fears of a rerun of the Asian currency crisis of 1997.

These fears are almost certainly overblown. The trouble in the late 1990s was caused by countries with fixed exchange rate regimes trying to cope with vast hot money flows, which came flooding in and then flooded out again. The worst-affected nations had high levels of foreign currency debt and insufficient reserves with which to fight the speculators. None of that holds true today. There has been no repeat of the big capital flows seen in the 1990s, while floating exchange rates and substantial reserves mean emerging market economies are far better placed to defend themselves.

Which is just as well, since collectively the emerging markets are far more important to the health of the global economy than they were in 1997. As Nick Parsons of National Australia Bank notes, 30 years ago the advanced world made up 70% of global GDP, with emerging markets the other 30%. Today the split is 50-50. As a result, he says, the Fed needs to be careful at its meeting on 18 September.

"US policymakers must increasingly be aware of their global responsibilities. The world economy, more than at any point in history, depends crucially on the success of the emerging market bloc and its fast-growing, populous nations. In 1998 the world economy withstood the Asian crisis. An emerging market crisis now – with policy stimulus in the developed world largely exhausted – would be a global, not merely a local concern."

Of all September's potential pitfalls, policy error by the Fed is the one troubling markets the most. A year ago that would not have been the case, when pundits would have put the German election on 22 September at the top of their list of concerns. That is no longer the case as fears of a breakup of the euro have faded and Europe has emerged from an 18-month double-dip recession. But the eurozone's economic recovery is fragile and the need for a third bailout for Greece shows that the debt crisis is far from over. A tougher approach to indebted countries by the new government in Berlin would not be helpful.

Action by the Fed is likely to be modest. The US central bank is not proposing to stop stimulating the economy, merely to trim the amount of support it provides. The likeliest outcome is that asset purchases will initially be tapered from $85bn a month to $75bn (£55bn to £48bn), the equivalent of a doctor slightly reducing the dosage of a powerful drug in the hope that eventually the patient can be weaned off the medication altogether.

Ben Bernanke, the chairman of the Fed, has adopted a reassuring bedside manner in his dealings with the stimulus junkies of Wall Street. He has talked through exactly what he plans to do and when he plans to do it. He has made it clear that he doesn't expect markets to stand on their feet overnight. Even so, there is still no certainty about the way things will pan out. Central banks have been using large doses of experimental drugs, and nobody knows for sure whether there will be hazardous side-effects.

In a month's time we should have some sort of inkling of just how dangerous those side-effects might prove to be.

Article Source : http://www.guardian.co.uk

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US blocks crackdown on tax avoidance by net firms like Google and Amazon

France fails to win backing for tough new international rules targeting online companies in run-up to G20 summit

France has failed to secure backing for tough new international tax rules specifically targeting digital companies, such as Google and Amazon, after opposition from the US forced the watering down of proposals that will be presented at this week's G20 summit.

Senior officials in Washington have made it known they will not stand for rule changes that narrowly target the activities of some of the nation's fastest growing multinationals, according to sources with knowledge of the situation.

The Organisation for Economic Co-operation and Development (OECD) has been told to draw up a much-anticipated action plan for tax reform at the gathering of G20 finance ministers this Friday, but the US and French governments have been at loggerheads over how far the proposals should go.

While the Americans concede that the rules need to be updated, they are understood to be pushing for moderate change. They are believed to want tweaks to the existing wording of international tax treaties rather than the creation of wholly new passages dedicated to spelling out how the digital economy should be taxed.

This has put the US at odds with several G20 nations, particularly France, which in January published radical proposals for new concepts in international tax treaties designed to counter some of the avoidance measures deployed by internet firms. Officials at the G20 governments have been working closely with the OECD, a club for the world's industrialised nations, over the proposals.

Google chairman Eric Schmidt and French president François Hollande, who has been targeting internet companies that pay little or no tax in France.Despite opposition from the US, the French position – which also includes a proposal to link tax to the collection of personal data – continues to be championed by the French finance minister, Pierre Moscovici.

The OECD plan has been billed as the biggest opportunity to overhaul international tax rules, closing loopholes increasingly exploited by multinational corporations in the decades since a framework for bilateral tax treaties was first established after the first world war.

The OECD is expected to detail up to 15 areas on which it believes action can be taken, setting up a timetable for reform on each of between 12 months and two and a half years.

Among the areas expected to take longest to produce results is in which jurisdiction a multinational group should pay tax on its business activity, under "permanent establishment" rules. Many internet firms' tax structures, such as those of Google and Amazon, exploit loopholes in this area.

While the case for broad reform of the international rules has been made repeatedly by top politicians around the globe, in many areas there is limited common ground on what shape new rules should take.

As a result, because of its consensus-driven nature, the OECD action plan is expected to contain watered-down recommendations in some areas.

Nevertheless, the OECD has already made clear it regards aggressive tax engineering by internet multinationals to be among six "key pressure areas" it will address.

In a report to the G20 in February it said: "Nowadays it is possible to be heavily involved in the economic life of another country, eg by doing business with customers located in that country via the internet, without having a taxable presence therein.

"In an era where non-resident [corporate] taxpayers can derive substantial profits from transactions with customers located in another country, questions are being raised as to whether the current rules ensure a fair allocation of taxing rights on business profits, especially where the profits from such transactions go untaxed anywhere."

However, tensions are thought to have surfaced in the OECD working party looking at how to address the permanent establishment rules in the light of the burgeoning internet economy. This working party is being jointly led by US and French teams – representing the extremes of opinion among G20 nations.

France has been among the most aggressive in responding to online businesses that target French customers but pay little or no French tax. Tax authorities have raided the Paris offices of several firms including Google, Microsoft and LinkedIn, challenging the companies' tax structures.

In the case of Google, in 2011 French tax officials demanded €1.7bn (£1.47bn) in back taxes. In February this year Google settled the case, agreeing to paying €60m to help France with digital innovation and other issues. The French president, François Hollande, said it was "a model for effective partnership and is a pointer to the future in the global digital economy."

In the UK, outcry at internet companies routing British sales through other countries reached a peak in May after a string of investigations by journalists and politicians laid bare the kinds of tax structures used by the likes of Google and Amazon.

Margaret Hodge, the chair of the public accounts committee, called Google's northern Europe boss, Matt Brittin, before parliament after amassing evidence on the group's tax arrangements from several whistleblowers.

After hearing his answers, she told him: "You are a company that says you do no evil. And I think that you do do evil" – a reference to Google's corporate motto, "Don't be evil".

Last month, the Treasury minister David Gauke told backbench MPs who had called a short debate on multinationals and tax avoidance that the government did still hold out hope that shortcomings in international tax guidelines – specifically in what constitutes a business taxable in the UK under permanent establishment rules - would be addressed by the G20.

"We are leading the way in encouraging the OECD to look at what needs to be done to ensure that the tax rules are brought up to date for the internet world," he said.

Writing in the Observer in May, the Google chairman, Eric Schmidt, appeared to drop his previously unapologetic defence of existing international tax rules.

In the face of building public anger, he conceded that rather than taking up tax incentives offered by governments, his firm and others had built tax structures that had not been foreseen by those who drafted the rules decades ago before the advent of the internet.

"Given the intensity of the debate, not just in the UK but also in America and elsewhere, international tax law could almost certainly benefit from reform," he wrote, describing this week's OECD action plan as "hotly awaited".

Article Source : http://www.guardian.co.uk

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