Posts tagged "George Osborne"

George Osborne may not be dead in the water after all. What will Labour do then? | Gaby Hinsliff

The IMF may today deliver good(ish) news on the economy. Even a fake recovery would be bad news for the two Eds

It has been a truth universally acknowledged for some time in politics that George Osborne is a busted flush. After all, the chancellor is relentlessly hammered from left and from right these days, by those who want less austerity and those desperate for more of it. Tellingly, polling shows voters now go cool on an idea if they discover he’s behind it. Judging by the acrimonious infighting over next month’s spending review, some of his coalition colleagues probably know the feeling.

But whenever something becomes an accepted truth in politics, that’s usually the time to challenge it. Could the chancellor be slightly less dead in the water than he looks? He’s certainly been curiously perky of late for a man undergoing the economic equivalent of having the Ofsted inspectors in. The buzz in Whitehall is that today’s crucial IMF assessment of the economy, compiled by a team that has spent weeks embedded in the Treasury, won’t be without criticism but will be less devastating than initially feared. After several false alarms, the Treasury finally thinks it spies light at the end of a very dark tunnel.

After all, business confidence is having at least a dead-cat bounce: inflation fell slightly yesterday, the FTSE is rising and house prices are somehow, insanely, galloping upwards again. One of the many reasons Downing Street so resents the swivel-eyed loon tendency is that lurid headlines about gay sex and Europe have obscured what could be the first good economic news in ages.

We’ve been here often enough to be suspicious, of course. Remember David Cameron boasting in 2010 somewhat less than presciently that Britain was out of the danger zone? These new green shoots may not survive the spring, let alone the summer. But if they do take hold any time between now and 2015, it would be undeniably harder to argue that Ed Balls told us so about austerity, or that Ed Miliband still needs to remake the economy from scratch. Labour needs its own political Plan B, which is why shadow cabinet ministers are now actively debating how to cope if the worst doesn’t actually happen.

What that doesn’t mean, as Ed Miliband and Ed Balls will make very clear in the coming weeks, is throwing caution to the winds. The two Eds will shortly begin carefully lowering expectations of what a future Labour government might do to reverse the coming cuts, arguing that even if things are indeed picking up a bit, they would still inherit a fragile economy with serious underlying structural weaknesses and painful choices to be made over tax rises and spending. The message will be that the next Labour government won’t be anything like the last one, although practical details of what exactly that means will still be thin on the ground.

We can also expect to hear more of the argument Polly Toynbee made in the Guardian yesterday, that if this really is a recovery it’s the worst possible kind: just another bubble, perhaps even more dangerous than the last, inflated by cheap money and the cynical luring of first-time buyers into a sort of housing Ponzi scheme. And for those outside the home-owning, share-buying southern classes it probably won’t even feel like a recovery at all, with wages expected to stay flattish perhaps for another decade, and spending cuts continuing to gouge huge chunks out of ordinary lives. Plenty of people are still likely to answer the classic election question, “Do you feel better off now than five years ago?” with a resounding “no”.

Yet since modest earners began to feel the squeeze years before the coalition came to power and long before the banking crash, there’s no guarantee they will automatically blame the Tories when life gets no better. Some may well decide that no mainstream party has the answers for people like them, leaving an alarmingly Ukip-shaped gap in the market. This squeezed middle have much in common with the Ukip voters described in John Denham’s recent thoughtful analysis of the local election results: driven towards Nigel Farage as much by gnawing job insecurity, or resentment of bankers and corporate tax avoiders, as by hostility to immigration or Europe.

And after five miserable years, better-off swing voters may well be tempted to treat even fake prosperity much as Britons traditionally do the first sniff of sunshine, by getting out there and frying while it lasts. They’re going to take some convincing that it’s a bad thing for their pension funds to be growing again in a bullish stock market, or for their houses to be worth stupid amounts – even if they are worried about their own children being forced off the property ladder. The challenge for Labour, then, may soon be persuading voters to look this dubious economic gift horse in the mouth.

George Osborne urges business leaders to hold their nerve over austerity

Chancellor says he will stick to economic policy as Bank of England forecasts better growth and lower inflation

George Osborne has asked business leaders to hold their nerve and continue backing the government’s austerity measures after the Bank of England gave the first signal since the financial crash of a sustained economic recovery.

The chancellor told the CBI annual dinner on Wednesday night that the business community should ignore critics of his economic policy who advocate a stimulus package to spur growth and reduce unemployment.

“Now is not the time to lose our nerve,” he said. “Let’s not listen to those who would take us back to square one. Let’s carry on doing what is right for Britain. Let’s see this through.”

His speech followed a series of forecasts from Threadneedle Street showing the UK recovery strengthening and inflation falling over the next three years. Sir Mervyn King said the outlook had improved, with growth likely to reach 0.5% in the second quarter of 2013, after the 0.3% registered in the first three months.

The Bank of England also forecast that inflation in two years’ time was likely to be around its 2% target – down from the 2.3% it forecast in February and a major improvement on the current 2.8% annual rise in prices.

Osborne said: “The fact is, the most recent economic news has been more encouraging. The economy is growing. Surveys are better. Confidence is returning to financial markets. This is all reflected in the Bank of England’s Inflation report. As the governor says, ‘There is a welcome change in the economic outlook’.”

But Chris Leslie, Labour’s shadow treasury minister, said Osborne was in “total denial about the failure of his economic plan”, adding that the recovery remained on track to be the slowest in 100 years.

“If we’re to have a strong and sustained recovery, and catch up all the ground we have lost over the last three years, we need urgent action to kickstart our economy now and reforms to strengthen it for the long-term,” he said.

“Even the IMF has warned the chancellor he is ‘playing with fire’ by sticking to the same failing policies and called for temporary tax cuts and greater infrastructure investment to boost the economy. It’s time George Osborne listened before any more long-term damage is done.”

The modest improvement in output over recent months comes against a backdrop of rising unemployment, the lowest wage rises on record and a report showing that the Obama administration’s efforts to stimulate the US economy have brought down the government’s annual deficit more quickly than the UK.

According to the Office for National Statistics unemployment rose by 15,000 to 2.52m in the three months to the end of March. Wages were 0.8% higher in March than a year ago and only 0.4% better if bonuses are taken into consideration, which is the lowest rise in incomes since records began in 2001.

The Congressional Budget Office’s report was pounced on by Labour after it showed the US budget deficit falling this year to almost half the UK level of 7.6% of GDP, and projected to fall below 3% by 2015, two years ahead of Britain.

Labour has accused the coalition of increasing the UK’s debt pile by £245bn more than had been expected as a result of its austerity measures. In contrast, the US deficit has declined faster than forecast after Obama’s $447bn stimulus in 2011, which maintained payroll tax cuts to boost consumer spending, coupled with a multi-trillion dollar injection of funds by the federal reserve.

The chancellor is aware that several areas of the economy have yet to improve and that the annual shortfall in the government’s budget remains stubbornly high at £120bn, down from £147bn in 2011. But he insisted he needed to keep a tight rein on government finances to keep the economy on course for a sustained recovery. Only the Bank of England could support the economy further with additional policies to support lending, he said.

“The most powerful weapon we have in supporting economic demand is monetary policy,” he added. “So we have been monetary activists, helping keep interest rates low for families and firms, keeping credit channels open, using our balance sheet to encourage private investment, and repairing the banks.

“You cannot have an activist monetary policy if you’re not fiscally responsible. So we have set out a credible deficit reduction plan that has brought the deficit down by a third while switching more money into productive capital investment and allowing the automatic stabilisers to operate.”

King gave no sign that the Bank’s monetary policy committee was about to add further stimulus, describing the £375bn it has injected into the economy and the funding for lending scheme to ease the supply of loans as “highly stimulatory”.

“The economy is likely to see a modest and sustained recovery over the next three years,” the central bank said, despite predicting that the recovery would “remain weak by historical standards”.

George Osborne urges EU finance ministers to sign tax directive

Osborne says EU savings directive is an essential precondition of developing worldwide exchange of tax information

George Osborne will step up his campaign to toughen developed countries’ stance on tax havens and company tax transparency by urging his fellow EU finance ministers to sign the delayed savings directive as a first step to creating a global standard on tax information.

In a letter to his fellow finance ministers Osborne says the EU savings directive is an essential precondition of developing worldwide exchange of tax information. Britain, as part of its G8 chairmanship, is campaigning for automatic exchange of tax information between countries encompassing developed and developing countries.

Osborne, in advance of a heads of EU government summit later this month devoted to tax transparency, will urge his fellow EU ministers to sign off the directive, which has been delayed by almost a decade.

 Writing to other EU finance ministers ahead of Tuesday’s meeting, he says: “Unless Europe can show it can agree on this existing proposal, our commitment to a new, stronger standard will not be credible. It is a test of our seriousness, and the world is watching us.”

The amended savings directive is designed to close loopholes to make it much more difficult to sidestep the reporting requirements, but more importantly it will show that the EU is united behind increased automatic exchange of information.”

Automatic exchange of tax information, and possibly public registers of company ownership are two of the main gains being sought by Cameron at the G8 summit in June.

The issue has been given impetus by the US passing anti-evasion Fatca (the Foreign Account Tax Compliance Act) legislation that will impose higher taxes on individual and companies that do not exchange information. The chancellor is also expected to welcome signs that other member states want to join the pilot – based on the Facta legislation – for automatic exchange of information between the European G5 (UK, France, Germany, Italy and Spain).

The British Overseas Territories, including the Cayman Islands, British Virgin Islands and the Turks and Caicos, have agreed to join this pilot. No date has yet been set for the start of these pilots.

As well as information about individuals’ accounts, the pilot will automatically share information on certain accounts held by entities, such as trusts. It is unclear how far Britain is pressing for the ultimate beneficial ownership of companies and trusts to be revealed.

Britain has made tackling global tax evasion and avoidance a priority for its G8 presidency. The next steps include: broadening the information-sharing pilot to include more countries as a way of building up a global standard, giving support to developing countries so they can meaningfully make use of the standard, and backing OECD work to the define the standard in detail.

In his letter, the chancellor writes, broadening the pilot based on Fatca as a way of building up a global standard “is clearly the fastest, most effective route available to us to get agreements in place, and capture hitherto ‘lost’ tax revenues – a priority for us all”.

G7 agrees action needed against tax evasion, says George Osborne

Chancellor states importance of nations’ collective action over tax avoidance and evasion on final day of financial summit

The G7 group of industrialised nations has agreed collective action needs to be taken to target tax avoidance and evasion, the chancellor George Osborne has said.

Speaking at the end of the two-day summit of finance ministers and central bank chiefs in Aylesbury, Buckinghamshire, Osborne said it was “incredibly important that companies and individuals pay the tax that is due”.

Osborne said there was also strong agreement among the seven member nations – the United States, Germany, Japan, the UK, Italy, France and Canada – on tackling tax cheats.

“We all agreed on the importance of collective action to tackle tax avoidance and evasion,” he said.

“It is incredibly important that companies and individuals pay the tax that is due and this is important not just for Britain and for British taxpayers but also for many developing nations as well.”

Osborne said British overseas territories “need to do more” to end tax evasion.

Asked about the future of tax havens such as Jersey or the Cayman Islands, he said he had already been very tough in his message to them but wanted to see more action.

“Of course you have to respect that many of these territories have important industries and we don’t want to unnecessarily damage them.

“But it is necessary to collect tax that is owed and it is necessary to reduce tax avoidance and the crown dependencies and the overseas territories need to play their part in that drive and they need to do more.”

The chancellor said there was also consensus to ensure banks are no longer “too big to fail”.

He added there is an “improved outlook” for the world economy, with more agreement among the rich member nations on how to nurture the recovery than was often suggested, but admitted the situation remains fragile.

“We are of course meeting at a time when financial market sentiment has improved and there are signs that this is feeding through to an improved outlook in some of our economies,” Osborne said.

“However we all agreed that growth prospects remain uneven and we can’t take the recovery for granted.”

While there were “still many challenges”, he said, “this meeting confirmed that there are more areas of agreement between us on fiscal policy than is commonly assumed.”

Among those attending the talks was Canada’s central banker Mark Carney who takes over from Sir Mervyn King as Bank of England Governor in July.

King said the meeting had been the most productive of the 25 he had attended during his term at the helm.

Joking about his impending departure, King said: “In a week in which retirement came to Sir Alex Ferguson, it is pretty clear it has to come to everyone. I am looking forward to a new life.”

Also at the talks was IMF managing director Christine Lagarde as the body undertakes its annual health check of the UK.

The IMF, which will deliver its verdict later this month, has already suggested Osborne must be more flexible with his deficit-reduction plans.

Shadow treasury minister Catherine McKinnell said: “It’s disappointing that this G7 meeting has failed to set out any concrete steps to promote economic growth or tackle tax avoidance.”

Watch out, George Osborne: Smith, Marx and even the IMF are after you | Ha-Joon Chang

When even the IMF’s free market ideologues recoil from the UK chancellor’s austerity politics, democracy itself is at stake

George Osborne and his Treasury officials are gearing up for a fight. They’ve promised to make life difficult for the other side for the next two weeks. The unlikely opponents are the team of economists visiting from the IMF for a regular policy review.

Why has this routine meeting, which would hardly be noticed outside professional circles, become a confrontation? Because the IMF has recently dropped its support for the chancellor’s austerity policy and repeatedly urged him to rethink it. It even said he was “playing with fire” in refusing to change course.

This is an astonishing development. For in the past three decades the IMF has been the standard-bearer for austerity. Back in 1997 it even forced South Korea – with an existing budget surplus and one of the smallest public debts in the world (as a proportion of GDP) – to cut government spending. Only when the policy turned what was already the biggest recession in the country’s history into a catastrophe, with more than 100 firms going bankrupt every day for five months, did it do an embarrassing U-turn and allow a budget deficit to develop.

Given this history, being told by the IMF to go easy on austerity is like being told by the Spanish Inquisition to be more tolerant of heretics. The chancellor and his team should be worried.

If even the IMF doesn’t approve, why is the UK government persisting with a policy that is clearly not working? Or, for that matter, why is the same policy pushed through across Europe? A certain dead economist would have said it is because the government is “in reality instituted for the defence of the rich against the poor“. Dead right.

Current policies in the UK and other European countries are really about making poor people pay for the mistakes of the rich. Millions of poor people have lost their jobs and the support they received through welfare, but how many of those top bankers who caused the crisis have suffered – except for a cancelled knighthood here and a partially returned pension pot there? If anyone has suffered in the financial industry, it is its poorer members – junior analysts who lost their jobs and tellers who are working longer hours for shrinking real wages.

In case you were wondering, it wasn’t Karl Marx who wrote the words that I quoted above. He would have never put it so crudely. His version, delivered with typical panache, was that the “executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie”. No, those damning words came from Adam Smith, the supposed patron saint of free-market economics.

To Smith and Marx, the class bias of the state was plain to see. They lived at a time when only the rich had votes (if there were elections at all) and so there were few checks on the extent to which they could dictate government policy.

With the subsequent broadening of suffrage, ultimately to every adult, the class nature of the state has been significantly diluted. The welfare state, regulations on monopoly, consumer protection, and protection of worker rights are all things that have been established only because of this political change. Democracy, despite its limitations, is in the end the only way to ensure that policies do not simply benefit the privileged few.

This is, of course, exactly why free-market economists and others who are on the side of the rich have been so negative about democracy. In the old days, free-market economists strongly opposed universal suffrage on the grounds that it would destroy capitalism: poor people would elect politicians who would appropriate the means of the rich and give handouts to the poor, they argued, completely destroying incentives for wealth creation.

Once universal suffrage was introduced, they could not openly oppose democracy. So they started criticising “politics” in general. Politicians, it was argued, would adopt policies that maximised their chances of re-election but damaged the economy – printing money, handing out favours to powerful monopolies, and increasing social welfare spending for the poor. Politicians needed to be prevented from making important policy decisions, the argument went.

On this advice, since the 1980s, many countries have ring-fenced the most important policy areas to keep politicians out. Independent central banks (such as the European Central Bank), independent regulatory agencies (such as Ofcom and Ofgem) and strict rules on government spending and deficits (such as the “balanced budget” rule) have been introduced.

In particularly difficult economic times, it was even argued, we need to insulate economic policies from politics altogether. Latin American military dictatorships were justified in such terms. The recent imposition of “technocratic” governments, made up of economists and bankers who have not been “tainted” by politics, on Greece and Italy comes from the same intellectual stable.

What free-market economists are not telling us is that the politics they want to get rid of are none other than those of democracy itself. When they say we need to insulate economic policies from politics, they are in effect advocating the castration of democracy.

The conflict surrounding austerity policies in Europe is, then, not just about figures on budget, unemployment and growth rate. It is also about the meaning of democracy.

As José Manuel Barroso, the president of the European commission, has recently recognised, the policy of austerity has “reached its limits” in terms of “political and social support”. If European leaders, including the British chancellor, keep pushing these policies against those limits, people will inevitably start asking: what is the point of democracy, when policies serve only the interest of the tiny minority at the top? This is nothing less than crunch time for democracy in Europe.

Watch out, George Osborne: Smith, Marx and even the IMF are after you | Ha-Joon Chang

When even the IMF’s free market ideologues recoil from the UK chancellor’s austerity politics, democracy itself is at stake

George Osborne and his Treasury officials are gearing up for a fight. They’ve promised to make life difficult for the other side for the next two weeks. The unlikely opponents are the team of economists visiting from the IMF for a regular policy review.

Why has this routine meeting, which would hardly be noticed outside professional circles, become a confrontation? Because the IMF has recently dropped its support for the chancellor’s austerity policy and repeatedly urged him to rethink it. It even said he was “playing with fire” in refusing to change course.

This is an astonishing development. For in the past three decades the IMF has been the standard-bearer for austerity. Back in 1997 it even forced South Korea – with an existing budget surplus and one of the smallest public debts in the world (as a proportion of GDP) – to cut government spending. Only when the policy turned what was already the biggest recession in the country’s history into a catastrophe, with more than 100 firms going bankrupt every day for five months, did it do an embarrassing U-turn and allow a budget deficit to develop.

Given this history, being told by the IMF to go easy on austerity is like being told by the Spanish Inquisition to be more tolerant of heretics. The chancellor and his team should be worried.

If even the IMF doesn’t approve, why is the UK government persisting with a policy that is clearly not working? Or, for that matter, why is the same policy pushed through across Europe? A certain dead economist would have said it is because the government is “in reality instituted for the defence of the rich against the poor“. Dead right.

Current policies in the UK and other European countries are really about making poor people pay for the mistakes of the rich. Millions of poor people have lost their jobs and the support they received through welfare, but how many of those top bankers who caused the crisis have suffered – except for a cancelled knighthood here and a partially returned pension pot there? If anyone has suffered in the financial industry, it is its poorer members – junior analysts who lost their jobs and tellers who are working longer hours for shrinking real wages.

In case you were wondering, it wasn’t Karl Marx who wrote the words that I quoted above. He would have never put it so crudely. His version, delivered with typical panache, was that the “executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie”. No, those damning words came from Adam Smith, the supposed patron saint of free-market economics.

To Smith and Marx, the class bias of the state was plain to see. They lived at a time when only the rich had votes (if there were elections at all) and so there were few checks on the extent to which they could dictate government policy.

With the subsequent broadening of suffrage, ultimately to every adult, the class nature of the state has been significantly diluted. The welfare state, regulations on monopoly, consumer protection, and protection of worker rights are all things that have been established only because of this political change. Democracy, despite its limitations, is in the end the only way to ensure that policies do not simply benefit the privileged few.

This is, of course, exactly why free-market economists and others who are on the side of the rich have been so negative about democracy. In the old days, free-market economists strongly opposed universal suffrage on the grounds that it would destroy capitalism: poor people would elect politicians who would appropriate the means of the rich and give handouts to the poor, they argued, completely destroying incentives for wealth creation.

Once universal suffrage was introduced, they could not openly oppose democracy. So they started criticising “politics” in general. Politicians, it was argued, would adopt policies that maximised their chances of re-election but damaged the economy – printing money, handing out favours to powerful monopolies, and increasing social welfare spending for the poor. Politicians needed to be prevented from making important policy decisions, the argument went.

On this advice, since the 1980s, many countries have ring-fenced the most important policy areas to keep politicians out. Independent central banks (such as the European Central Bank), independent regulatory agencies (such as Ofcom and Ofgem) and strict rules on government spending and deficits (such as the “balanced budget” rule) have been introduced.

In particularly difficult economic times, it was even argued, we need to insulate economic policies from politics altogether. Latin American military dictatorships were justified in such terms. The recent imposition of “technocratic” governments, made up of economists and bankers who have not been “tainted” by politics, on Greece and Italy comes from the same intellectual stable.

What free-market economists are not telling us is that the politics they want to get rid of are none other than those of democracy itself. When they say we need to insulate economic policies from politics, they are in effect advocating the castration of democracy.

The conflict surrounding austerity policies in Europe is, then, not just about figures on budget, unemployment and growth rate. It is also about the meaning of democracy.

As José Manuel Barroso, the president of the European commission, has recently recognised, the policy of austerity has “reached its limits” in terms of “political and social support”. If European leaders, including the British chancellor, keep pushing these policies against those limits, people will inevitably start asking: what is the point of democracy, when policies serve only the interest of the tiny minority at the top? This is nothing less than crunch time for democracy in Europe.

George Osborne to tell IMF that austerity U-turn would do damage

Chancellor is determined to resist pressure for greater boosts to growth in talks this week, arguing harm would outweigh benefits

George Osborne will warn the International Monetary Fund that a U-turn on the government’s budget plans would do more harm than good when officials from the Washington-based organisation arrive in London on Wednesday for two weeks of talks.

The Treasury intends to reject the IMF’s call for an easing in the pace of deficit reduction and will insist that any change in the strategy is both unnecessary and counterproductive. Alarmed at the flatlining of the British economy in 2011 and 2012, the IMF said last month it was time for Osborne to do more to boost economic growth and urged that he should rethink plans to cut the government’s structural budget deficit by 1% of national income in 2013-14.

The chancellor was stung by the criticism, which was seized upon by shadow chancellor Ed Balls as evidence the government had damaged the economy with an over-aggressive austerity approach.

Despite the government’s poor showing in last week’s local elections, Osborne has no intention of changing course but is keen to avoid a public call for a volte-face from the IMF, which initially was a strong supporter of the coalition’s approach to tackling the UK’s record peacetime budget deficit.

Treasury officials intend to show that any change to the strategy followed for the last three years would damage the government’s credibility in the financial markets and that the subsequent increase in long-term interest rates would outweigh any benefits from cutting taxes or increasing spending.

They will also say that the sluggishness of the UK economy in 2012 was a result of the drop in exports to the crisis-hit eurozone, rather than weak consumer spending.

The IMF has become more concerned about the health of the UK economy over the last year and has called for a rethink of fiscal policy – tax and spending – unless the pace of growth picked up. Olivier Blanchard, the IMF’s chief economist, embarrassed the chancellor last month when he singled out the UK as a country that had the scope to ease fiscal policy to boost growth. The chancellor was particularly irritated by Blanchard’s comment that the UK was “playing with fire” by refusing to change tack.

IMF officials are likely to point out in the discussions that the level of national output in the UK is still more than 2% below its peak five years after the recession began in early 2008. By contrast, the US and Germany have both more than recovered the ground lost in the slump.

Osborne’s team knew about Blanchard’s views but expected any concerns to be raised by the IMF in the Article IV discussions – the organisation’s annual economic health check on its 188 member states – that begin this week. IMF deputy managing director David Lipton will issue advice to the government on 22 May at the end of the discussions.

The Treasury will say that the economy is gradually on the mend and that the IMF’s anxiety about the weakness of growth has already been addressed in recent policy initiatives.

Osborne believes that the “help to buy” measures announced in the budget to stimulate the housing market, and last month’s decision to target lending to small and medium-sized businesses in a beefed-up Funding for Lending scheme, should be taken into account by the IMF before it calls for a budget volte-face. And it will insist that the loss of credibility suffered by the UK from changing course would outweigh any benefits from fine-tuning the government’s financial plans.

The Treasury will argue that budget plans are in line with the advice the IMF has been dispensing to rich countries following the deep slump of 2008-09: that there are other western nations doing a faster repair job on their public finances, despite even weaker growth; the IMF’s view about the need for a different approach is not shared by Brussels.

The European commissioner for economic and monetary affairs Olli Rehn said last week: “The level of public debt is projected to rise to close to 100% next year.

“There really is no case for a discretionary fiscal loosening in the UK. It is important the UK follows through with consistent consolidation of public finances to achieve a more sustainable fiscal position.”

George Osborne claims progress in tax haven plan

All British overseas territories with large financial operations have signed up to transparency strategy, says chancellor

George Osborne claims to have won a significant victory in his campaign to open up secretive British tax havens by revealing that all British overseas territories with significant financial centres have signed up to the government’s strategy on global tax transparency.

In a statement, the Treasury said that Anguilla, Bermuda, the British Virgin Islands, Montserrat and the Turks and Caicos Islands have agreed to much greater levels of transparency of bank accounts held in those jurisdictions, following on from a similar agreement signed by the Cayman Islands.

They have agreed to automatically share information bilaterally with the UK and multilaterally within the G5, made up of Britain, France, Germany, Italy and Spain. Under this agreement, much greater levels of information about bank accounts will be exchanged on a multilateral basis as part of a move towards a new global standard.

Osborne hailed the agreement as “a significant step forward” in the fight against tax evasion and illicit finance, one of the chief themes of the UK’s chairmanship of the forthcoming G8 meeting, which is being held in Northern Ireland in June. The chancellor has been working closely with the Organisation for Economic Co-operation and Development to try to develop clearer tax transparency rules, and the agreements highlighted by the Treasury will be closely studied to see how effective they will prove in reality.

Guardian investigations have shown the extent to which offshore territories have been used by wealthy individuals and firms to keep financial activities secret. A leak of 2m emails demonstrated that a British businessman jailed for contempt for concealing assets from his ex-wife, Francois Hollande’s campaign treasurer and Mongolia’s former finance minister were amongst those with accounts in the BVI.

Rosie Sharpe of Global Witness, which has been campaigning strongly on the issue of offshore tax havens, welcomed the government’s announcement.She said that the campaign group wanted to study the details, adding: “Automatic exchange of information is the key to making this work. It also needs to be multi-lateral, not just a case of information going from Overseas Territories to the UK. In other words, it needs to be shared with other countries and information from them needs to be coming back to the UK as well.” It will mean that the UK, and other countries involved in the pilot, will be automatically provided with much greater levels of information about bank accounts held by their taxpayers in these jurisdictions, including names, addresses, dates of birth, account numbers, account balances and details of payments made into accounts. This also includes information on certain accounts held by entities, such as trusts.

The chancellor’s announcement comes the day after Google was told it would be summoned back to parliament to restate its tax position following an investigation by Reuters into its advertising sales practices. The company told MPs last year that it was not liable to pay tax on the money it makes from UK advertisers because, while the bulk of its marketing staff are based in London, those negotiating and closing the deals are based in tax-sheltered Dublin.

Evidence gathered by Reuters – from Google’s own website, interviews with clients and former staff, and descriptions of their own jobs by Google staff on recruitment site LinkedIn – appear to show that the search group employs a fully fledged UK ad sales team.

Margaret Hodge, chair of the public accounts committee, which questioned Google in November, said she wanted to put new questions to its executives and its auditor, Ernst & Young. “We will need to very quickly call back the Google executives to give them a chance to explain themselves and to ensure that actually what they told us first time around is not being economical with the truth,” said Hodge.

Google employs “a couple of hundred” staff at its European headquarters in Dublin whose job it was to sell to UK clients, but 700 in marketing and sales in the UK.

Google’s own website was found to be recruiting London-based staff whose duties would include “negotiating deals”, closing “strategic and revenue deals” and achieving “quarterly sales quotas”.

A spokesman for Google said Brittin denied firmly he had misled Parliament and stated that London staff were employed as “digital consultants”, while only those based in Dublin handled sales contracts.

He added: “Our advertisements for UK staff sometimes refer to sales skills, and many of the roles include sales in the title as we are seeking to attract people with those skills and that background. We accept that the wording of some adverts may have been confusing and we are working to make it clearer. As we have said many times, we comply with all the tax rules in the UK and in every other country in which we operate.”

From 2006 to 2011, Google generated $18bn (£11.5bn) in revenues from the UK, according to statutory filings, and paid just $16m in taxes.”It is strange given their vast profit how little tax Google are paying,” said tax expert Prem Sikka, professor of accounting at the University of Essex. “They are exploiting legal ambiguities. Tax should be paid on where the profits are made. If it’s UK ads, the tax should be paid here.”

George Osborne claims progress in tax haven plan

All British overseas territories with large financial operations have signed up to transparency strategy, says chancellor

George Osborne claims to have won a significant victory in his campaign to open up secretive British tax havens by revealing that all British overseas territories with significant financial centres have signed up to the government’s strategy on global tax transparency.

In a statement, the Treasury said that Anguilla, Bermuda, the British Virgin Islands, Montserrat and the Turks and Caicos Islands have agreed to much greater levels of transparency of bank accounts held in those jurisdictions, following on from a similar agreement signed by the Cayman Islands.

They have agreed to automatically share information bilaterally with the UK and multilaterally within the G5, made up of Britain, France, Germany, Italy and Spain. Under this agreement, much greater levels of information about bank accounts will be exchanged on a multilateral basis as part of a move towards a new global standard.

Osborne hailed the agreement as “a significant step forward” in the fight against tax evasion and illicit finance, one of the chief themes of the UK’s chairmanship of the forthcoming G8 meeting, which is being held in Northern Ireland in June. The chancellor has been working closely with the Organisation for Economic Co-operation and Development to try to develop clearer tax transparency rules, and the agreements highlighted by the Treasury will be closely studied to see how effective they will prove in reality.

Guardian investigations have shown the extent to which offshore territories have been used by wealthy individuals and firms to keep financial activities secret. A leak of 2m emails demonstrated that a British businessman jailed for contempt for concealing assets from his ex-wife, Francois Hollande’s campaign treasurer and Mongolia’s former finance minister were amongst those with accounts in the BVI.

Rosie Sharpe of Global Witness, which has been campaigning strongly on the issue of offshore tax havens, welcomed the government’s announcement.She said that the campaign group wanted to study the details, adding: “Automatic exchange of information is the key to making this work. It also needs to be multi-lateral, not just a case of information going from Overseas Territories to the UK. In other words, it needs to be shared with other countries and information from them needs to be coming back to the UK as well.” It will mean that the UK, and other countries involved in the pilot, will be automatically provided with much greater levels of information about bank accounts held by their taxpayers in these jurisdictions, including names, addresses, dates of birth, account numbers, account balances and details of payments made into accounts. This also includes information on certain accounts held by entities, such as trusts.

The chancellor’s announcement comes the day after Google was told it would be summoned back to parliament to restate its tax position following an investigation by Reuters into its advertising sales practices. The company told MPs last year that it was not liable to pay tax on the money it makes from UK advertisers because, while the bulk of its marketing staff are based in London, those negotiating and closing the deals are based in tax-sheltered Dublin.

Evidence gathered by Reuters – from Google’s own website, interviews with clients and former staff, and descriptions of their own jobs by Google staff on recruitment site LinkedIn – appear to show that the search group employs a fully fledged UK ad sales team.

Margaret Hodge, chair of the public accounts committee, which questioned Google in November, said she wanted to put new questions to its executives and its auditor, Ernst & Young. “We will need to very quickly call back the Google executives to give them a chance to explain themselves and to ensure that actually what they told us first time around is not being economical with the truth,” said Hodge.

Google employs “a couple of hundred” staff at its European headquarters in Dublin whose job it was to sell to UK clients, but 700 in marketing and sales in the UK.

Google’s own website was found to be recruiting London-based staff whose duties would include “negotiating deals”, closing “strategic and revenue deals” and achieving “quarterly sales quotas”.

A spokesman for Google said Brittin denied firmly he had misled Parliament and stated that London staff were employed as “digital consultants”, while only those based in Dublin handled sales contracts.

He added: “Our advertisements for UK staff sometimes refer to sales skills, and many of the roles include sales in the title as we are seeking to attract people with those skills and that background. We accept that the wording of some adverts may have been confusing and we are working to make it clearer. As we have said many times, we comply with all the tax rules in the UK and in every other country in which we operate.”

From 2006 to 2011, Google generated $18bn (£11.5bn) in revenues from the UK, according to statutory filings, and paid just $16m in taxes.”It is strange given their vast profit how little tax Google are paying,” said tax expert Prem Sikka, professor of accounting at the University of Essex. “They are exploiting legal ambiguities. Tax should be paid on where the profits are made. If it’s UK ads, the tax should be paid here.”

George Osborne warns Bank of England over economic recovery plans

Chancellor tells Sir Mervyn King that financial policy committee must consider impact of its actions over bank capital

George Osborne has warned the Bank of England that it risks derailing Britain’s fragile economy if it uses tough new financial watchdog powers to clamp down too hard on the City.

The chancellor told the Bank’s governor on Tuesday that Threadneedle Street’s new financial policy committee (FPC) should take account of the impact of its actions on “near-term economic recovery” when deciding on the regime under which banks operate.

In a letter to Sir Mervyn King, Osborne said there may be “short-term tradeoffs between the committee’s secondary objective of contributing towards economic growth and its primary objective of addressing sources of systemic risk, which may vary at different points in the economic and credit cycle”.

The letter highlights the Treasury’s concern that the Bank may set such tough capital and liquidity requirements for banks and other financial institutions that the flow of credit to business and households is impaired. After flatlining for two years, figures released last week showed that the UK economy grew by 0.3% in the first three months of 2013. Osborne is keen to ensure there is no relapse in the coming months.

“It is particularly important, at this stage of the cycle, that the (financial policy) committee takes into account, and gives due weight to, the impact of its actions of the near-term economic recovery,” the chancellor said.

Last month, the FPC sowed uncertainty among the main UK banks when it said they needed to raise an additional £25bn in capital to secure themselves against future problems.

The lack of clarity on the amount of capital banks need to hold is one of the issues impeding Lloyds Banking Group’s ability to decide if it can start paying dividends for the first time since the financial crisis began. Such dividends are regarded as crucial if the bank is to be sold to private investors. On Tuesday, Lloyds, of which 39% is owned by the government, reported a sharp rise in profits for the first quarter of 2013, to £2bn, despite its failure to sell 630 branches to the Co-operative Group last week.

George Culmer, the Lloyds finance director, said the bank was awaiting the outcome of discussions with the new Prudential Regulation Authority, spun out of the Financial Services Authority to regulate banks, over the size of any capital shortfall it may have. Culmer said he was unsure when Lloyds would know about its capital position.

Lloyds’s closely watched measure of capital – the core tier-one capital ratio – rose from 12% to 12.5% by the end of the first quarter. “Given our strongly capital generative core business and continued progress in increasing capital and reducing risk through non-core asset disposals, we continue to be confident in our capital position,” the bank said.

The FPC was set up at the Bank of England by the coalition government in response to what was seen as the regulatory failings that led to the crash of 2008. The committee has been operating on an interim basis since 2011 and only formally came into existence on 1 April.

Osborne used his letter to set out the remit for the FPC and to make recommendations about how it should operate.

“The damaging effects of the financial crisis revealed the need for macro-prudential regulation. Even if individual firms are believed to be sound, when their activities are considered in aggregate, risks to the whole system can emerge,” the chancellor said.

He added that under Labour’s tripartite system – in which the Treasury, the Bank and the Financial Services Authority all played a role in policing the City – no one authority had responsibility for addressing systemic risk.

Osborne instructed the Bank to agree and publish “those risks it intends to address as a priority, together with the underlying risk assessment and the time horizon over which it proposes to address them” by the time of its late 2013 financial stability report.