Education policymaking in the modern age

by Tim Brighouse

There have been two periods of education policy making in the almost 70 years since the 1944 Butler Act. Both have run their course and it is now time for new and better ways of making and implementing policy especially as it affects schools.

Two figures, Fred Mulley and Michael Gove, embody the features of those contrasting ages.

Mulley is better remembered for his time in the 1970s as ‘Secretary of State for Defence’ rather than his earlier spell in the same post at Education. After all it’s not every minister who ‘sleeps with the Queen’, as Private Eye mischievously put it when the hapless Fred fell asleep during official duties at a royal fly-past. When at Education he could have slept well as he had not much to do.

Over the years, however, I confess to looking kindly at his photo portrait among the gallery of so many predecessors and successors in the Department for Education waiting room. His was a different age: not better but certainly more leisurely.

Consider.

In Fred’s day the education minister had just three powers  – the removal of air-raid shelters; securing a sufficient supply of suitably qualified teachers; and rationing the supply of scarce capital resource both to make sure there was a fair distribution of school buildings and that they were constructed to at least a minimum standard. Ministers sought to influence what happened in schools by issuing quaintly named ‘circulars’ to local education authorities, who along with the teaching profession were the principal partners constructed by the Butler Act of 1944, one of just two education acts until the Thatcher government. ‘Circulars’ weren’t dictats, more polite entreaties to partners to consider the evidence and act: so even the famous Tony Crossland circular 10/65 allegedly enforcing the introduction of comprehensive schools was merely a request to local authorities to submit plans. Some refused the invitation.

Of course, as the appetite for immediate improved educational standards became insatiable in the wake of accelerating social and technological change, such a relaxed way of making policy couldn’t last. Nor did it.

How different policy making is now.

The intervening years have witnessed a kind of legislative incontinence- more than forty education acts- as, with one or two exceptions, successive ‘short stay’ ministers have sacrificed thoughtfully considered action on the altar of vaulting career ambition to clamber up the cabinet ladder. Urged on by greenhorn political advisers and a populist press rather than informed by independent professional advice, ministers have tended to indulge their personal prejudices. Michael Gove is a good example. His first action was to distribute copies of the King James’ Bible to every school before appointing and then ignoring the advice of independent experts on the curriculum in favour of his view of what children should learn and their teachers do in school. Armed with more powers- upwards of 2000- than you could shake a stick at, Gove prescribes not just the curriculum and how it should be assessed through tests and exams determined by him but also how it should be taught, for example synthetic phonics as the only way to teach reading. So confused is he in saying one thing and doing another – he protests his undying commitment to delegation and shedding ministerial powers – that he has given up two duties which arguably only he is in a position to exercise (those of securing an adequate supply of suitably qualified teachers and stipulating at least a minimum standard for school buildings), while acquiring many others almost unnoticed. For example there are now thousands of Academies and Free Schools, with their new uniforms and Orwellian names which are under a direct private funding contract with the Secretary of State who can and does interfere in the detail of their government and management. If a parent has a complaint, it is to him rather than any Ombudsman that it should now be directed. Nothing much escapes ministerial decision making nowadays.

Both the periods – the ‘somnambulant era’ epitomised by Mulley and the ‘frenetic age’ encapsulated by Gove – achieved a great deal in policies and practice which reflected the priorities of their time. The first, when education was an uncontested ‘good thing’, saw local authorities establish networks of new school buildings, Colleges of Further Education, Colleges of Education to train more and better teachers, Polytechnics, Public Libraries and  Youth and Adult Education Services. The system was centrally strategically led but managed locally according to a development plan originally approved by ministers but subsequently adjusted in the light of changing circumstances.

The second focused on ever higher expectations of what schools and the system could achieve. In that process power and influence moved in two directions, to the schools and to central government. A national curriculum was established and schools were given total control of the spending of their budgets. A few LEAs, seeking out a new role (as they lost responsibilities for the curriculum, the colleges, the Polytechnics and school spending), led the way on school improvement. Informed by research and with an increasingly rich data set about pupil performance, they opened up a rich vein of knowledge about how to improve schools and pupil outcomes through better practices in teaching and learning. The Blair government picked up that baton and spread the word.

But at the heart of this second period of policy making, there has been a conflict of two ideas. On the one hand there is a belief in the efficacy of applying market practices, evident in the oft-repeated mantras in successive white papers of the desirability of ‘choice’ for parents, ‘autonomy’ and ‘diversity’ of schools; and on the other hand the need for ‘equity’ and ‘equality’, as well of course as ‘excellence’ in quality of provision and outcomes. What is painfully obvious is that the more emphasis you put on the market the more you put at risk equity and equality.  Moreover for what and how schools are held accountable will powerfully affect your chance of achieving ‘equity’ and ‘equality’, and in what areas you will achieve ‘excellence’. So published school league tables of a narrow range of relatively easily established pupil outcomes have distorted what happens in schools and arguably put at risk other desirable educational aims, such as creativity, an ability to work in teams, the capacity to work across disciplines and to apply knowledge in practical situations as well as taking full advantage of the accelerating pell-mell changes in the technologies that so affect our lives. Nor  will we know if schools live up to their broader cultural and sporting aims for pupils’ lives, still less what one comprehensive school so beautifully describes as ‘ensuring our pupils learn to think for themselves and act for others’. You will not discover much about that from the reductionist Ofsted framework which all schools know will decide their fate.

In short the second period has resulted in an excess of ministerial power, more than in any other developed democratic country and leading to micro-management from the centre, coupled with the worst side effects of the market, in which there are inevitably losers both schools and pupils, usually those from poorer backgrounds. Local democracy has been excluded from the policy making process and largely removed from management. Though this last effect is not a popular issue, history shows that dictatorships have always relied on removing local democracy. Hitler, Mussolini and Napoleon all did it. So did Lenin. Teachers too have lost power and had the natural parental trust in their competence and commitment undermined by Ministerial announcements such as Gove’s allowing people without any qualification to become teachers. How many of us would go to hospital for an operation by a quack surgeon or take legal advice from an unqualified solicitor? And what would we think of ministers who suggested we should? In short whether the matter is political or professional, ministers have begun to behave as if only they know best.

Before turning to what we should do about education policy making one more example illustrates what has happened as successive acts have enabled overweening and dangerous increases in ministerial power. The need for spending cuts enabled Gove to abolish QUANGOs and bring into his department their functions so that he could better dictate outcomes. In the same 2010 Act parents’ right to complain to the ombudsman were changed so that now they will be fielded by the Minister himself.

Of course we can all think of policies that need to change- a curriculum and exams which reflect present and future needs rather than those of the 1950s, the establishment of a National College of Teaching, a fairer admission code, separate assessments for individual pupil progress, for holding schools accountable and keeping track of national standards over time. There will be no shortage of suggestions.

The important question however is how those policies are formulated and put into practice. A new settlement is needed between the major players, central government, local government teachers the churches and the academy chains. While that is established so that a cull of existing legislation can take place, a new government should pass a simple Act binding any Secretary of State to observe five test questions when passing legislation or offering statutory guidance.

How is the proposed change intended to improve life’s chances for all children especially those who are gaining least from the schooling system?’

There is a ‘tail of underachievement’, particularly among those pupils adversely affected by poverty and especially boys and in most ethnic groups. This ‘underachievement factor’ has been addressed by attention to schools and, more recently, pupils themselves.  So the Pupil Premium is a positive: so too was the attention given to early-years investment and Excellence in Cities and the London (and other) Challenges.

But accountability practices such as a focus on 5 or more A*- C at GCSE militate against the interests of the ‘tail’. So too will Gove’s proposal for reform of GCSE and the notion of ‘secondary ready’ pupils at the end of primary school. What incidentally will happen to the planned 15% who aren’t ready?

Most actions at national level affect this issue. The rules of pupil admission are particularly important. To give staff priority in admission runs counter to this principle, while giving priority to ‘children in care’ and those with SEN is compatible.

‘Does the proposed change improve the skills and quality of, and promote respect and trust in the teaching profession?’

Next to pupils teachers should be our main concern. National education systems with strong teacher development, and where teachers are well respected, do better than others. The same is true of schools where the ‘teacher effect’ is even greater than the ‘school effect’ so far as better pupil outcomes are concerned.

All ministerial edicts or advice on professional matters should cease, though they should reinstate their duty to plan teacher numbers in order to avoid an imminent critical shortage.

What is the evidence to support this change?

Rarely will the evidence be uncontested or unequivocal. When a law is to be introduced, a regulation made, it should be required that the minister publishes a commentary drawn up by an independent panel showing:

  • Research evidence in support of the proposed course of action with an examination of countervailing evidence
  • Any appropriate recommendations from the Select Committee
  • HMI view – until the establishment of Ofsted, HMI’s main duty was to advise ministers. That duty should be reintroduced.

These first three test questions should be fairly uncontentious. The next two become progressively less so.

‘Within the context of the desirability of the principle of democratic accountability and subsidiarity, will the proposed change increase or decrease the power of the centre and the Secretary of State?’

Most people agree the need for democratic accountability and originally it was envisaged that much of that could and should be exercised locally. That is a good starting point not least because local knowledge can be powerful in securing equity for individual pupils and their parents.

Some of the many powers which the Secretary of State has acquired should be taken away from him.  It is astonishing that a system has been created whereby schools (in the form of Academies and Free Schools) have in effect been nationalised and are subject to private contract law to the Secretary of State. Parental complaints should be handled by local government not by an ombudsman still less by the Secretary of State.

‘Does the change promote collaboration among schools and guard against the dangers of leaving schools and their pupils unfairly exposed to market forces?’

Butler the architect of the 1944 Act quoted William Temple approvingly in establishing a limit on business’s involvement in education when arguing the special case and moral duty for those within education to treat children as they might become contrasting with the need later in life, through business and the market to treat adults as they are. Indeed he went on to argue such treatment as the basis of social justice and political freedom.

In the market driven second period we have overlooked that distinction.

We should be wary of applying market forces both in making provision and in setting school against school, especially when the evidence (e.g. the London Challenge) is that systemic school improvement comes about partly through collaboration and learning from each other.

The promotion of partnership among schools should be supported through financial and inspection arrangements.

Schools are naturally competitive places where pupils are constantly encouraged to improve on their previous best both individually and in the school as whole. Team competition is encouraged in sport and other aspects of school life among pupils and staff. Excellence in performance and optimising the individual pupil’s development are the guiding principles behind the professional judgement of when and how to increase the competitive edge between pupils.

We should however approach the application of market competitive principles to the education system as a whole with equal care, especially as they are a generally accepted part of the rest of our society. The arguments become more contentious.

First in the accountability system establishing winners and losers within the publicly funded system requires as many losers as winners with all that implies for the pupils. Do we want that? If we don’t our accountability system needs an overhaul.

The second element of market involvement is in arrangements for the provision of schooling itself. The argument here is complex. If we look at the period before the widespread adoption of market principles and practices, it was generally accepted that textbooks, equipment and furnishings were best left to the private sector. Since then, however in the name of what is called ‘outsourcing’ inspection, advice, support services, school meals, cleaning are just a few of the areas where the private sector has largely taken over from the public sector. The profit motive and what ‘plcs’ understand as ‘short-term shareholder value’ are not a good match with Temple’s moral argument for the treatment of children. Efficiency was the argument for private involvement and may have been well-founded but the track record of failure within the private sector is far worse than within the public sector.  In short the process may not even be efficient.

It is urgent to address these issues when policies are created, since we want people in education – and schools in particular – who are driven by ‘walking the extra mile’ and by moral purpose.

Two more points demand notice, as hopefully a new government post 2015  discusses a new settlement for education. It is best highlighted by Cameron and Gove comments justifying the new national curriculum as ‘necessary so our children will compete with those in higher performing systems such as ‘Hong Kong, Singapore and Massachusetts’. They meant of course England’s children not those of Scotland, Wales or Northern Ireland.

Is there anything in education that binds all the future citizens of the United Kingdom together?

Finally the international comparisons are themselves instructive. Hong Kong (pop;7m) Singapore (pop;3.3m) Massachusetts (pop;6.5m) are of a match with Scotland (pop;5.5m) Wales(pop; 3.0m) and Northern Ireland(1.8m) but much different from England’s 53m population. In short is it feasible to run such a large system centrally within a democracy? We should remember that a sense of powerlessness is the enemy of democracy.

Tim Brighouse was Chief Education Officer in Oxfordshire and Birmingham and is currently Chair of the New Visions for Education group.

 

Recap: waste and recycling

On Wednesday January 29th, we held a meeting at The Warehouse on waste and recycling, led by Birmingham Friends of the Earth waste campaigner John Newson. We ended up having a really interesting discussion on waste as a resource, and how we can extract the most value out of it while keeping emissions low.

If you would like to catch up on the discussion, we created a Storify of the discussion, including background information and supporting data. You can find it here.

Workers’ Cooperatives – We can learn from Spain

Workers’ Cooperatives – We can learn from Spain

by William Franklin and Andrew Coulson 

There was no shortage of publicity in November 2013 when the Cooperative Bank got into difficulties and survived by selling a majority of its shares to two American hedge funds. At almost the same time, and hardly reported, but almost certainly of greater significance for the future of worker-owned businesses, was the receivership of the Spanish cooperative Fagor.

Fagor (under its earlier name Ulgor) was the founding member of the Mondragon Cooperatives, a group of cooperatives and companies which began in 1956 in the Basque country, in the Western foothills of the Pyrenees. Mondragon grew to become the 7th largest business group in Spain, with 120 member cooperatives, 83,000 worker members, and subsidiary companies in many other countries including the UK, China, Brazil, Mexico and Poland.

The Basque Country

The Basque Country

The loss of Fagor will not be the end of Mondragon. Indeed many might say that a company manufacturing cookers, microwave ovens, refrigerators and pressure cookers, and faced with competition at one extreme from Bosch with its huge research budgets and marketing expertise, and at the other by cheap labour in China and elsewhere, did well to survive as long as it did. But it does send a dark shadow across that part of Spain, and demonstrates that even the biggest and best supported cooperatives can only hold out for so long against adverse market forces.

There were manufacturing cooperatives in the Basque country in the 1920s. In the 1930s the area was one of the main theatres of the Spanish Civil War. In 1941 a politically motivated Catholic priest was appointed to the parish in Mondragon, a manufacturing centre in a narrow valley. One of his initiatives, to help unemployed young people get jobs, was to found a small technical training college. Five of its early graduates were the founders of Fagor. They fundraised locally and used the money to purchase a small engineering works, making paraffin stoves. They diversified, and expanded, at first by copying, later through licensing agreements and their own R&D. They created legal and financial structures which enabled them to spin off new cooperatives, while keeping worker ownership and involvement.

Each worker member purchases an interest in their cooperative enterprise over the first five years of work – currently for € 15,000. He or she accumulates a share of the profits, which are paid out on retirement or leaving the cooperative, and receives dividends on the accumulated sum (which provides a useful source of capital for further cooperative investment). The sums are not massive by the standards of UK executive compensation and vary with each individual’s earnings but for an average employee could be quite meaningful: before the recession the average member retiring could hope to receive around € 130,000, accumulated over a working career.

The individual cooperatives are in a similar position to subsidiaries in a large conglomerate, other than that they are answerable to worker members rather than shareholders, who elect a board which appoints managers. Legally, worker members are self-employed. As such they do not qualify for many of Spain’s social welfare payments, such as sick pay or redundancy pay, so alternative provisions have to be funded and provided through the cooperatives. They are not unionised.

Mondragon’s first period of rapid expansion was in the 1960s and early 1970s. Franco died in 1975 and the years that followed were very unstable, especially in the Basque country, where the ETA resistance was fighting for independence. This period ended in 1982. Spain and Portugal joined the European Union in 1986, leading to the second period of extremely rapid expansion in the last 20 years. This included creating or purchasing companies in many other parts of the world, though most of these are conventional companies not cooperatives, which means that the group now has two very different kinds of governance structure.

Mondragon companies worldwise

Mondragon companies worldwide

From the start the cooperatives were committed to innovation. 14 are research centres, employing 1885 scientists and engineers in 2011, and having created 716 patents. The original technical college grew to become a technical university, with a modern business school, but also teacher training and a specialism in Basque cooking. It is one of the best endowed universities in Spain. So these are not cooperatives taking over failing manufacturing businesses. They are at the cutting edge of manufacturing technologies.

The University runs a 3-year degree in entrepreneurship, taught in English. The first six months is concentrated academic study. After that each student is expected to create a viable business. They get technical and financial support, and mentoring, but if at the end of three years the business (cooperative or other) is not viable they do not get the qualification.

The advantages of the Mondragon approach are its flexibility, its culture of sharing rather than competition and secrecy, its avoidance of excessive salaries, and the loyalty and commitment it engenders. But even that is put under pressure by a prolonged recession. The Centre assisted Fagor as much as it could, but once it realised that it could not trade out of recession there was no alternative but to take the hard business decision and allow the pride and joy of the group to go into receivership.

There are many possible lessons from this, although what is possible in one place may not work so well elsewhere, and the Basque country is special and different, and a suitable territory for cooperative activities. Mondragon shows that from small beginnings a group of cooperatives can grow extremely fast, to become a force on the world stage, and that the cooperative form can be adapted to allow for innovation and a period of low profit before an investment comes good. It fosters something we largely lack: cooperative entrepreneurs. It shows how cooperatives can generate surpluses which can be used for investment. Its concept of accumulating bonuses, and earning interest on them, but only receiving them on retirement or on leaving, is a big improvement on the UK type of bonus culture. It is also significant that when it comes to votes on important issues such as whether the company should be taken over it is strictly one person one vote; in contrast to our situation where employees who have received large bonuses in shares and other shareholders can use these to vote through takeovers which will give them great capital receipts but not necessarily be in the best long term interests of the company and its employees as a whole.

However, the receivership of Fagor, like the troubles at the Cooperative Bank here, shows that nothing should be taken for granted. It will test the model to the limit – not least the distinction between the different kinds of enterprises in the Mondragon Group and the different consequences if these are closed down or sold on. Both Fagor and the Cooperative Bank demonstrate the need for professional competence, marketing and finance skills, and above all auditing and holding to account. But if these are in place there is little that workers’ cooperatives cannot do.

A final thought: does any UK university in an area with a history of manufacturing have the courage to create a Department of Cooperative Entrepreneurship running post-graduate degrees on the Mondragon model, for individuals who would like to set up in business? The University would encourage mentors from business to be involved, and break down the barriers between business and the academic world. It would take minority shares in the companies so created, both to protect them, but also to allow some of the benefit to be transferred to future cooperatives if at any stage they were sold. If this country is serious in wanting to recreate manufacturing, that is the kind of initiative, and confidence, it will need.

William Franklin, a chartered accountant and Partner of Pett Franklin, a law firm with a specialism in employee ownership and sher schemes, visited Mondragon in April 2013. Andrew Coulson is a development economist at the University of Birmingham.

African Agriculture: We Must Support Small Farmers

Summary of a Labour Campaign for International Development (LCID)/ Birmingham Fabian Society Meeting, 29th October 2013

Background

International development was one of the success stories of the last Labour Government and the next Labour government will want to put poverty reduction back at the top of the priority list.

The development of agriculture and the rural economy in Africa is highly relevant because all over the continent land is being purchased or otherwise obtained by large-scale farmers sometimes promising to farm tens of thousands of acres. Ownership is often taken into the hands of large external corporations producing for rapidly fluctuating export markets. It sometimes seems as if Governments and aid agencies have given up on small-scale farming. Yet the track record of large-scale agriculture in Africa is very poor indeed and has not led to reductions in poverty and in enhanced rural livelihoods. This note draws from a presentation to a LCID / Fabian Society discussion meeting held in October 2013 and the paper presented at this event by Dr Andrew Coulson focussing on rural development in Tanzania.

Context

Economists from the Marxist left (such as Henry Bernstein) and from the pro-market right (such as Paul Collier) have emphasised a commitment to the development of large-scale commercial agriculture as a way forward for development. Land is being acquired at a rapid pace as a result of a wide variety of pressures and is now well documented e.g. Fred Pearce The Land Grabbers (2012). This process is being driven by worldwide high prices for food; by moves to bio-fuels in the US; by increased demands in China and other countries; by stalling of green revolutions e.g. in India and are all compounded by speculation in world markets and global warming. In addition, Middle East and Asian countries such as Korea, Qatar and Saudi Arabia are trying to get land to grow rice to feed their populations. The Department for International Development (DFID) is under strong pressure from commercial interests to support large scale agriculture. Yet much of the evidence questions the benefits of these trends in the context of development objectives. This needs to be considered when setting Labour’s development priorities for post 2015.

Key Issues

Small-scale farmers have found many ways to survive on a sustainable basis which can be verified through scientific assessment. For example, use of fallow periods, multiple or mixed cropping, use of many small plots, seed selection – for taste and drought – uses of trees and famine crops and also risk avoidance – especially with innovations. Large commercial farms, often externally owned and oriented to global markets, start out with a number of short term advantages such as the choice of very good soils/locations, use of protection against soil erosion, use of high-yielding varieties and efficient marketing and/or processing which in some cases small farmers cannot match . But they have very high fixed costs and are often inflexible in responding to changing environmental and economic conditions. They frequently do not contribute to sustainable development or provide locally produced food required in the case of many countries for the needs of growing urban populations.

The future.

At current world prices, small farms in Africa can produce food surpluses and so feed the growing cities if the conditions are right. Crucial to DFID development objectives under a future Labour government should be small-farm improvement as the only way that will also reduce poverty in the medium term. In order to develop practical tools for intervention and support, we need appropriate, farmer based, research. We need to focus on marketing and farm prices and extension to support market forces. Farmers often have logic (and science) on their side, so aid agencies and their agents should make sure they listen to farmers and address problems through their eyes. Appropriate and effective delivery mechanisms are needed to ensure that the cost of delivery and the unit costs of inputs do not prevent support of small farmers in favour of large producers.

Awareness and understanding of these issues is needed amongst politicians, experts and officials in the UK and other donor countries and bodies but also in the relevant Ministries within the countries concerned.

Planning for Power – Education – Speaker Tim Brighouse

A meeting of Birmingham Fabian Society, Wednesday 27 November, at 7.00pm

Venue:  Priory Rooms Conference Centre, Bull Street, Birmingham B4 6AF.

This meeting is one of a series organised by Birmingham Fabian Society on Planning for Power 2015.

Tim Brighouse  is coming back to Birmingham – to introduce a discussion about what the Labour Party – or anyone else who wins power in 2015 – should do to improve our education so that it gives all children the start in life which they deserve.

Tim is the charismatic educationalist who transformed Birmingham’s education in the late 1990s.

By the time he left, the city schools were getting results far better than those predicted by its social class composition.  Much of his legacy has survived – especially the importance of what happens in children’s early years, the value of groups of schools working together to solve problems and lift each other up, and for teachers to be empowered and trusted. Those who worked with him have not forgotten this supposed bureaucrat who was interested in visiting schools, talking to teachers, giving a stream of practical advice.

Before he came to Birmingham Tim was a professor of education at Keele, and before that Director of Education for Oxfordshire. He is widely admired for his contributions and advice, both academic and practical, around the country and the world, as well as for his consultancy.

Not long after he left Birmingham Tim was advising London Councils.  Surprise, surprise, their results started improving.  London schools now have some of the best results in the country.

Tim has not been back to Birmingham often. This meeting will give him an opportunity to share what he learnt here and developed subsequently, and to get a message across about what political parties and governments can do to improve schools – and what they should not do.

His talk will be followed by an open discussion, from which we will draw conclusions for (especially) Tristram Hunt, the new Shadow Spokesperson for Education.

This meeting, like all Fabian meetings, is open to all people of goodwill.

For more information see birminghamfabiansociety.org.uk/

It is free for members of Birmingham Fabian Society – non-members are invited to pay £2.50 to help cover the costs of room hire.  We hope that you can come – and look forward to an extremely lively meeting.

If you want to get in touch, or would like more information, please email: birminghamfabiansociety@gmail.com

Land Grabbing or Small-scale Agriculture: How can we help African farmers out of poverty?

A meeting of Birmingham Fabian Society and the Labour Party Campaign for International Development, Tuesday 29 October, at 7.00pm

Venue:  Priory Rooms Conference Centre, Bull Street, Birmingham B4 6AF.

This meeting is one of a series organised by Birmingham Fabian Society on Preparing for Power 2015.

With world prices high for food grains, and countries like China and India becoming importers, there is a rush to grab land in Africa to produce food.

So much so that it sometimes seems as if Governments and aid agencies have given up on small scale farming.    Yet the track record of large scale agriculture in Africa is very poor indeed.

So what policies should Labour adopt if it wins power in 2015?

The discussion will be introduced by

Andrew Coulson who for many years worked on rural development in Tanzania, and is currently advising AGRA, the Alliance for a Green Revolution in Africa, on its policies towards small farmers. His book Tanzania: A Political Economy has just been re-published by Oxford University Press.

and

Dave Jepson of the Labour Party Campaign for International Development.

This meeting, like all Fabian meetings, is open to all people of goodwill.

It is free for members of Birmingham Fabian Society – non-members are invited to pay £2.50 to help cover the costs of room hire.

There will be plenty of time for discussion.

So come if you can – and encourage any friends involved in or interested in the topic to come too.

Unitary Tax: article by David Price

In almost 30 years of my time as a practitioner, tax has never been so much in the headlines as it is now. Following Sol Picottio’s very interesting article in the last edition, I do not want to focus on individual cases nor on where the line between acceptable tax avoidance and unacceptable tax avoidance may lie. I want to look at the overall global tax system and ask two questions. Firstly, is there a case for change, and secondly, if so, what are the merits of the Unitary taxation proposal versus other options for ensuring that the tax system is fit for purpose.

As Sol says, the basic global tax system has been in place for many years, while trading patterns have changed beyond all recognition in this period. For example, who could have predicted that so much trade would be done over the internet even a decade ago? There is also a mismatch in that multinational business is done on a global basis whereas tax is levied and collected on a country by country basis with little co-operation in practice between countries. For tax payers, the tax system is complicated and provides multi-layers of taxation – and there is incidence of both double taxation and no taxation due to mismatches between different tax systems. What multi-nationals look for in the global tax system is clarity, consistency and as much certainty as can be achieved. So more co-operation between fiscal authorities, and consistency in application of the tax rules would be beneficial, and one has to hope that the desire to do this expressed at the G8 actually delivers some action.

Transfer pricing regulations have become increasingly important over the past 20 years as a key tool used by the tax authorities to combat anti-avoidance, and over this period the number of countries with an effective transfer pricing regime requiring documentation to support intercompany pricing has increased considerably. However, as Sol rightly says, the divergent methods used by different countries have created complexity, inconsistency and confusion for taxpayers. Much greater Global standardisation of the transfer pricing rules would be beneficial to jurisdictions and multi-nationals alike and would be more effective in ensuring a fair allocation of tax between countries and would provide more clarity, consistency and certainty. Changing the global tax system in this way would also be consistent with existing international law obligations arising from double tax treaties.

An alternative to achieving greater consistency in the global tax system is the Unitary Taxation proposal which Sols sets out in his paper. I think it is fair to say that this proposal involves much more wholesale change to the international tax system than standardising transfer pricing regulations. However, it could, subject to how it was implemented, provide many advantages for multinationals not least in providing more clarity, consistency and certainty to taxpayers. In addition, it would provide the ability to have the offset of losses against income on a global basis.

However such a system would require substantial global agreement for it to be workable.

Firstly, the proposal requires agreement to implement by a significant proportion of countries to avoid the problems involved in having two systems operating side by side. Two completely different systems operating side by side would create even more confusion in the global tax system than is present today, would result in a significant increase in compliance for tax payers, which would have a negative impact on investment activity, and there would be much more incidence of either double or non taxation of transactions.

Secondly, the proposal requires agreement by a significant proportion of countries on some of the key terms so that implementation would be consistent from country to country.

These key terms include:-

-Appropriate formula to be used in allocating profits between jurisdictions.

-Definition of “Unitary business” (for which profits should be aggregated)

-The basis on which profits are calculated (ie common accounting standards)

-Functional currency to be used.

Without agreement on these key terms, taxpayers would not be paying tax on their overall actual profits, but on a very different figure based on the different calculations of different countries. There would be mismatches between jurisdictions, and, for taxpayers, risks of double taxation as well as opportunities for zero taxation. The US experience , where a huge range of approaches is used between States in the Unitary system there, is not encouraging.

Many questions arise on how Unitary Taxation would work in practice.

One key question is what would be a fair and reasonable apportionment of profits? To the extent that it is partly based on employee numbers, there is a risk that this could reward inefficiency and also invites the question as to how to take into account outsourcing. To the extent that it is based on total costs, this could again reward inefficiency. Also, with wages/property costs higher in richer countries, such richer countries could potentially be able to tax a greater proportion of profits and developing countries therefore a lesser proportion. Also, as taxpayers can relocate staff, it would be open to manipulation. The exclusion of intangibles from the formula would likely provide a disincentive for innovation and investment as no there would be no effective tax relief on the expenditure.

A further question arising is how will the tax authorities of a particular country be able to carry out a tax audit of a taxpayer when the tax base is not actual profits earned in that country but a proportion of global profits.

There would clearly be some global winners and losers amongst nations with the adoption of the Unitary Taxation proposal, so in a world of sovereign nation states, which countries set the rules and how will they be enforced?

In conclusion, there should be a competitive tax system that supports business and where everybody pays their fair share. It is widely recognised that the global tax system needs to constantly evolve to keep pace with trading and the system we have today is too complex. Taxpayers and authorities alike would benefit from a global tax system that is simpler, more consistent and provides more certainty for tax payers. Further development, as well as standardisation, of the transfer pricing would involve less wholesale change and be more consistent with existing legal obligations. The Unitary Taxation proposal merits serious consideration, but there are many questions on the detail and its workability requires significant global agreement to firstly implement and secondly on the application of the key terms. What is clear though, is that whichever way forward is selected, there needs a substantial number of countries working together, otherwise the global tax system will continue to evolve slowly and inconsistently, with all the complexity and uncertainty which is present today.

Mondragon 2013: William Franklin explores one of the world’s most successful co-operative economies

Smelling the Coffee: tax reform on an international stage – Saturday April 27th, 10am-1pm

The Birmingham Fabian Society in partnership with the Methodist Tax Justice Network are hosting a debate on the highly topical issue of international business tax reform and whether a fairer and more efficient basis of taxing multinational business is possible.

The speakers will include:

Professor Sol Picciotto is a former Law Professor at Warwick University. He is one of the leading academic thinkers on the taxation of multinational corporations. He will present ideas for radical reform of the system by moving to a unitary basis of taxation of multinational businesses.

David Price is an independent international tax consultant and former Big 4 tax partner with 25 years experience of advising multinationals particularly in Russia and the Far East. David will assess the practical feasibility of Sol’s ideas and also comment on them from a political perspective as he is on the Conservative Party’s candidate list for the European Parliament.

Andy Harrop leads the national Fabian Society and has close links with the Labour leadership. He will consider the likelihood of a future Labour government implementing change.

The event will be chaired by Claire Spencer.

The event will be held at the Priory Conference Centre on Bull Street in Birmingham city centre, and is free for paid-up members of the Birmingham Fabians, the Methodist Tax Justice Network and Jubilee Debt Campaign. For all other attendees there will be a small charge of £5.00 to cover costs.

To register for this event, please go here to do so. If you are having trouble with the form, please email birminghamfabiansociety@gmail.com for assistance.

This event is sponsored by the Birmingham-based leading employee share scheme advisors Pett, Franklin& Co.LLP

Save the date: The future of education in Birmingham

I wanted to make sure that you all have October’s meeting in your diaries: ‘The future of education in Birmingham’, will feature Councillor Brigid Jones (Cabinet Member for Children, Young People & Families) and Selina Stewart, former Assistant Principal at Joseph Chamberlain College and an educational consultant.

Birmingham’s response to the raft of reforms from the government has been really interesting, so this is a great opportunity to discuss that response, and have a wider debate on what needs to change so that no student is failed by their school years.

The meeting will be held at the Birmingham & Midland Institute on Margaret Street in the city centre on Tuesday October 30th, 7-9pm. If you could also bring the year’s membership to the meeting (£12), or a small contribution to the room hire if you are still making up your mind, that would be much appreciated.

Our next meeting, which will be on the devolution of housing services (led by Councillor Lisa Trickett) will be held at the same venue on Tuesday November 27th, 7-9pm.

We now meet on the last Tuesday of the month (no meetings in August and December).