Schop and change

Posted by Christie Malry on July 16, 2014 at 8:34 am

Change is then predicated on the existence of disruptive thinking and, as Schopenhauer suggested, it usually provokes a three or four fold response. At first it can be ignored. That clearly did not happen in this case. Second it is ridiculed, which most certainly occurred. Then it is violently opposed. It may be fair to say that happened, although I mean in terms of the argument, and no more. Last it is accepted as being glaringly obviously appropriate and the right thing to do, with the idea then being adopted by those who usually have no idea how it might have emerged.

A couple of reflections on this:

The original quote isn't about change, or even disruptive thinking. It's about truth. While it's often attributed to Arthur Schopenhauer and sometimes to Gandhi, it's unlikely either were the true source.

But Ritchie has gotten the quote the wrong way around. The quote isn't a manual for how to bring difficult new concepts into common acceptance: first make sure they ignore you, then get them to laugh. It's descriptive, not normative. It says that, for a given truth, it will have followed these steps. And for novel scientific advances that's probably true. But Ritchie is holding it up as a scorecard. Because he has been ignored, because he's being pilloried, he's effecting change. And this is clearly a fallacy of affirming the consequent. Silence and ridicule are products of truth, not determinants of it.

Carl Sagan explains the latter point brilliantly:

But the fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright Brothers. But they also laughed at Bozo the Clown.

Responding to the Fair Tax Mark consultation on its criteria for multinational companies

Posted by Christie Malry on July 5, 2014 at 12:21 pm

The Fair Tax Mark is looking for feedback on its draft criteria for UK-owned multinational companies. Well, they say they are. But they haven't actually asked any questions to help reviewers direct their energies towards particularly contentious or difficult areas of the criteria. And they have given a mere two weeks for people to respond.

I think the approach taken by Fair Tax Mark is flawed. It is, in my view, insufficient either to ensure that companies who pay a fair rate of tax are eligible for the Fair Tax Mark or to ensure that companies who use unacceptable tax avoidance schemes are ineligible for the Fair Tax Mark.

I've commented here. My comments are blunt and in places a bit rough around the edges. I'm sorry; I didn't have time to tidy it up. Given a 12 week comment period and an indication of the areas the authors had struggled with, I could have had time to clean it up.

My main comments are:

  • The scope of this document is unclear - is it just UK parent companies and does it apply to listed and unlisted companies?
  • The meaning of ‘Fair Tax’ in respect of MNCs is unclear - the objective suggests all taxes worldwide must be 'fair' but the criteria look only at UK taxes.
  • The impact of accounting standard choice should be explained - because the criteria look at effective tax rate, it would appear the choice of accounting standards (IFRS, UK GAAP, etc) would impact the assessment.
  • The MNC criteria notes do not make use of HMRC’s processes for ensuring that UK companies pay the right amount of tax in the UK at the right time according to the spirit of the law in the UK - it presumes HMRC does nothing.
  • The MNC criteria equates “transparency” with “disclosing more”, which is incompatible with the Financial Reporting Council’s work on cutting clutter in financial statements
  • The document is in places inconsistent with the UK-only criteria
  • The consultation process makes it unlikely that FTM will have captured viewpoints from all stakeholders

Bad Technocrats and Good Technocrats

Posted by Christie Malry on June 16, 2014 at 9:19 am

Jolyon's post continues to generate debate, including this astonishing wibble from Ritchie. I've already explained why it's not unreasonable to expect Moralists to ground their social campaigning in the truth. But thinking about this some more, I can distinguish a "good" form of Technocracy from a "bad" form. So that's what I'll explore here.

The Good Technocrat identifies flaws in Moralist arguments. The Good Technocrat demonstrates where data have been incorrectly derived or have been abused, whether mathematically or otherwise. He warns when seemingly  innocent proposals might bring dangerous unwanted consequences or offend basic liberties. He speaks up where there are other, better or simpler solutions on offer.

Contrast this to the Bad Technocrat. He refuses to debate with any Moralist until they can demonstrate competence in the subject. However, he fails to help them get this competence. He is encapsulated by the single sentence once uttered by a French-speaking African audit manager of mine who shrieked at his audit staff "Don't ask questions until you fully understand!" Pointing out that Moralists aren't tax experts isn't, in itself, helpful. But the Bad Technocrat offers only that statement of the bleeding obvious.

Now there is a place for a bit of Bad Technocracy in all disciplines. For example, there's only so much the medical community can and should do to rebut homeopathy or anti-vaccine campaigners when they wilfully ignore evidence and make wildly unsupported claims. Sometimes you do simply have to profess something to be, in your professional opinion, "bollocks".

But one must strive to be Good wherever possible. Contrary to popular opinion, I do try. Hopefully, I've sought to show where Moralists have got it wrong, rather than merely asserting that they are wrong. Remember, "you're wrong" is not debate. And when I point out that there are unforeseen consequences, I'm opening up the debate in a very complex area, not seeking to close it down. I wouldn't be so bold as to suggest I've always got it right. But, unlike some commentators on the Other Side, the comments on this blog are, and have always been, open to anyone to explain where I've got it wrong in their own terms.

"If Rome is in France, then grass is green." Why the Moralists should heed the Technocrats

Posted by Christie Malry on June 14, 2014 at 2:18 pm

Photo by flickr user Moyan Brenn. Used under the CC licence. https://www.flickr.com/photos/aigle_dore/

The terribly nice Jolyon Maugham has written a thoughtful blog post in which he characterises online debates around tax policy as a war between Moralists and Technocrats. Do go read the piece for yourself (not least because he's very kind about me), but in summary he argues that Moralists want change for the better, while Technocrats revel in pointing out the flaws in their arguments. Because both sides have entirely different objectives, this is a war that neither can win. So they should work together to build a better world. Hooray!

I want a better world, for sure. But I'm unpersuaded by Jolyon's blasé dismissal of the Technocrats' concerns. Here's why.

The title of this piece is taken from a first year Cambridge Philosophy paper. The question is based around the logical principle that, if you start from a falsehood you can deduce anything logically, even statements that in retrospect turn out to have been true. The same is true in tax policy. If you throw the truth out of the window, you can conclude anything. So in assessing and implementing tax policy it is vitally important to hold on to the truth for dear life. Abandon it at your peril, because you may end up drawing the wrong conclusions from your dodgy premises.

In criticising the work of Jolyon's Moralists, that's what I see myself as doing. Where they have got something wrong, it must surely be right - moral, even - to seek to get them to correct it. If, as they argue, it doesn't matter to their overall argument then they can have no problem with using the truth instead of a half-truth. If, unfortunately, it holes their argument below the waterline then they're better off admitting it now rather than the truth becoming clear after politicians have wrongly believed their arguments.

Simply, there can be no justification whatsoever for resisting factual corrections to their arguments.

So why do they? Maybe, as Jolyon suggests, they care so deeply about their cause that they will do anything that solves it, even if that means cutting a few corners. But Technocrats care about these causes too. It's a lie to pretend that the only reason to oppose a sloppy, half-baked Moral case is because the Technocrats want to maintain the status quo.

Imagine a Moralist is trying to plan a journey with his Technocrat spouse. "We'll take the A888 for 20 miles then turn left and carry on for 10 miles" "Yes, but that won't get us to our destination." "You don't want to get us to our destination, do you?!"

If the Moralist has misread the map, is he truly serious about the destination? Or does he maybe just want to sit in the driver's seat?

Ritchie and numbers

Posted by Christie Malry on May 22, 2014 at 10:34 am

The average current UK mortgage rate at present is, apparently, about 3.4% whilst the average balance is about £96,000. No doubt many of the households have bigger loans balances than that. But even for those on such balances a rate rise of 1% (which is entirely plausible) increases their annual cost £80 a month.

True if they're on an interest-only mortgage. If they're on a repayment mortgage, as most people these days are, monthly payments comprise a portion of principal and a portion of interest. Over time, this balance shifts. And that means that interest rate changes affect repayment mortgages less. For a borrowing of £96,000 without fees, the difference between 3.4% and 4.4% is about £53 a month according to MSE, not the £80 he quotes.

I would expect a chartered accountant to know this sort of thing.

Richard Murphy thinks auditors should have triggered multiple catastrophic bank runs

Posted by Christie Malry on March 29, 2014 at 12:16 pm

Is there any other way to interpret this?

I am sorry – but if the auditors were worth their salt they’d have said no to the government

They did not

They are culpable

So, when the government told auditors that, in order to provide the necessary stability to a very nervous banking sector, it would provide funding of last resort, auditors should have told government tough tit. Even though the banks were now going concerns thanks to government's intervention to restore confidence to the sector, auditors should have undermined their efforts altogether. And, in doing so, triggered a series of catastrophic bank runs that would have crippled the entire UK economy.

Really, Ritchie? You sure about that?

Can accountants be trusted? A response to Ian Fraser

Posted by Christie Malry on March 28, 2014 at 12:41 pm

Yesterday, Economia magazine published the latest in its rather controversial series of debates. Entitled "Can accountants be trusted?" it put former ICAEW president, Mark Spofforth up against journalist and author, Ian Fraser.

I didn't find myself convinced by Fraser's case and, thanks largely to Twitter's 140 character limit and my own mercurial mood, we didn't get that close to resolving our differences on Twitter. So that's the purpose of this post: to set out what I see in flaws in Fraser's reasoning that lead him to incorrect conclusions about the accountancy profession.

It's worth pointing out that I'm not in the employ of the Big 4. As has been the case with this blog ever since I first started blogging in 2010, I care only about facts and what can logically be deduced from those facts. So my issue with Fraser's piece is that I see it as drawing inferences that cannot be inferred, not that I am personally unhappy with where he ends up. Nor should you read anything into my clashes with Fraser before. This is solely to do with this piece.

Because annotating each comment in HTML might become cumbersome, I've uploaded his entire text to Google Drive and added comments there. Please feel free to add your own comments to my comments (I think I've set the permissions right for you to be able to do this). Or you can simply comment below too.

In most cases, my issue is that Fraser makes claims which he doesn't support. If these claims turn out not to be true then everything that is deduced from them is in turn also not true. I also find that he has drawn examples from a selection of accountancy firms' behaviour and then claimed that these behaviours are representative of other accountancy firms and other work done by those firms, without demonstrating that it's appropriate to do that.

Whether accountants can be trusted is an important debate, and it needs rather more air than Economia's rather unfortunate to-and-fro, restricted to a single page of their magazine, can provide. So I hope we can get rather further than Economia managed.

No, you're not correct

Posted by Christie Malry on March 1, 2014 at 12:41 pm

 

*

twat

He really needs to stop being such a twat about his critics. After all, the main motivation for Ritchie wanting "transparency" is so he can abuse them.

 

The £120bn tax gap and the Fair Tax Mark cannot co-exist

Posted by Christie Malry on February 27, 2014 at 9:58 am

Richard Murphy has been trying his hardest recently to explain the Fair Tax Mark methodology. At the heart of many criticisms of it is the observation that Fair Tax Mark is obsessed with the effective current tax rate. However, it permits companies with a low effective current tax rate to 'earn back' the points they need to secure a Fair Tax Mark by providing disclosures.

Murphy describes this - and in doing so rather tortures the corporate governance lexicon - as 'comply or explain'. What he means isn't "comply with the tax law". He means "comply with my personal, distorted view of how the tax system should work. For there may well be companies that, as a result of losses, capital investment, R&D or other government incentives have a low effective current tax rate for very good reasons. But to earn the Fair Tax Mark they need to also explain what they're doing. So it isn't "comply or explain". It's comply AND explain, because they're both complying with tax law and having to explain it to Murphy's satisfaction.

But this raises an interesting dilemma for Murphy's own tax campaigning. For years, he has promoted his own rival estimate to the tax gap. HMRC say it's £35bn or so. Murphy says it's £120bn. I've comprehensively debunked his estimate here and he has yet to engage with those criticisms so I think we can take it as read by now that he cannot respond to them. But, as Tim shows, his estimate presumes that every difference between the statutory tax rate and the effective tax rate is caused by tax avoidance and therefore belongs in the tax gap. So the £120bn estimate includes very naughty tax scheme dodges as well as vanilla deductions caused by investment in plant and machinery.

Murphy has made quite a name for himself, as well as quite a lot of money, by using the £120bn estimate to foment public anger against large corporations. UK Uncut, for instance, take his figure as gospel and base their campaigns on the apparent unfairness that large corporations can apparently legally not pay a penny of corporation tax ever while ordinary folk have their income tax and NI withheld at source. The £120bn tax gap could close the budget deficit. So every penny of it must be unfair.

This leaves Murphy with an uncomfortable conclusion. While he merrily awards the Fair Tax Mark to companies with low effective current tax rates but good disclosures, he is simultaneously seeking to argue that a low effective current tax rate, no matter how it is caused, is unfair. The two concepts simply cannot co-exist. And ultimately one - or, more likely both - will have to give.

Spot the difference: ICAEW edition

Posted by Christie Malry on February 25, 2014 at 10:10 pm

Today:

The Institute of Chartered Accountants in England and Wales has given unambiguous backing to the Fair Tax Mark.

‘Thanks’ is all I can say to that. Appreciated.

In December:

The ICAEW – arch defender of vested interests and the status quo against democratic accountability

There are occasions when I find my own professional institute – the Institute of Chartered Accountants in England and Wales - intensely annoying. I can even understand why another outstanding accountant of my acquaintance, Tim Bush, has now quit the Institute in disgust, but I persevere with membership in the hope that one data, maybe, the ICAEW will do the right thing. And then along comes something to dismay me.

It’s pure arrogance.

It shows the ICAEW has forgotten its public interest duty – which in no way can be aligned with these comments.

And it shows a profound misunderstanding of or disquiet for our political process, either of which is unappealing.

The ICAEW has a long way to go if it is to do anything to mend the enormously damaged reputation of accountants, and this is not the way to go about it.

And in January:

If the ICAEW wants to be credible it has to do much better than this. If not, it has to expect to be by-passed in the debate on what to do, and it will be. The choice is theirs to make: own up to the nature of the problem that exists and how it might be dealt with or simply look like an apologist for the abuse. At present it looks pretty clear which way they’re jumping. I hope they change their tune, and soon.

So it seems Ritchie wants us to ignore the ICAEW except for when they agree with him.