There's a classic fairy tale about an old woman who lives in a vinegar bottle. She complains about her lot and is overheard by a kind fairy.  The fairy decides to grant her wish to live in a nice little cottage instead of the vinegar bottle. But eventually she grows to complain about the cottage too, about how it's too poky and cramped and how she'd rather be living in a larger house. Because she's so kind, the fairy helps her again. And so on and so on. Eventually the fairy gets exasperated with her constant complaining and wishes her back into the vinegar bottle. Because she clearly won't be happy anywhere, she may as well be unhappy there.

The moral of the story is that there are some people who will always be unsatisfied with their lot, no matter how good you try and make it.

In the UK, we can see plenty of people who may as well live in vinegar bottles. 

For example, while there are people who genuinely need benefits, it is viewed by others as an entitlement rather than a safety net.  In most other countries of the world, not working would be a route to a swift death. We hear stories of people who clean out other people's shit with their bare hands or who pick through rubbish tips for things to sell. It's really only in very rich countries that people expect to be kept in comfort by complete strangers by the tax system. But our extraordinary generosity isn't matched with gratitude. It's met with the same grumbling complaints as the old woman in the vinegar bottle.

In this context, asking these people to forego some of their future expectations in the interests of the UK's economy is a really very sensible course of action. Compared to many others in the world, they're not living in vinegar bottles, they're living in palaces. They should start behaving like they appreciate their good fortune.

Filed under: Current issues, Economics, Taxation with tags poverty, ukuncut, untouchables, vinegar, welfare benefits
46826 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fingratitude%2FIngratitude2011-02-28+09%3A29%3A31Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4682

Listening to Eric Daniels this morning discussing LBG's results with Robert Peston, there was one standout figure. LBG repaid £61bn of its government support during the year and, as per his chat with Peston, has repaid a further £13bn during this financial year.

So, the question is this: will UKuncut etc shut up about the bailout having cost us £1trn? Because, as their results make clear, we're getting vast globs of that money back again. It's a loan that's being repaid, not a revenue item.

OK, so I couldn't resist. I had to see what the perennially dreadful Jill Treanor had written. Not a dickie bird about the fact that LBG had even repaid so much as a penny!

Written on my Android mobile phone. Article may be edited later.

Filed under: Capital markets, Current issues with tags banks, guardian, idiots, jill treanor, lloyds banking group, ukuncut
46923 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Frhetorical-question-about-lloyds-banking-groups-results%2FRhetorical+question+about+Lloyds+Banking+Group%27s+results+2011-02-25+09%3A32%3A03Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Frhetorical-question-about-lloyds-banking-groups-results%2F

The Daily Mail gets all hot and bothered this morning:

Public sector workers could see their ‘gold-plated’ pensions slashed to make it easier to transfer services to private firms and charities.

The change would mean a nurse with a final salary of £40,000 could see their pension slashed from £20,000 a year after 30 years’ service to £6,000.

Teachers retiring on a final salary of £50,000, who would normally receive a pension of £25,000, would see this whittled down to little more than £7,000.

Doctors can qualify for pensions of around £50,000. But transferring into a new private pension scheme could leave them with just £11,403 a year in retirement.

Those on the lowest salaries, such as refuse collectors, could see their £10,000 pensions cut to £3,249.

I very much doubt this is the case. It's a principle of pensions law that once you've accrued a pension right it can never be taken away from you. So we're not going to see tales of woe as a teacher "just a few months away from retirement" being cynically transferred into a private sector employer and automagically losing half her accrued pension rights.

Instead this is the Tories doing what should have been done many many years ago and taking an axe to one aspect of future public sector pension accruals. Even then they're doing so in a very limited way - this will only affect those who are transferred from the public sector to a private sector employer providing those services to the public sector. In the past their future accrual rights were guaranteed. Now they won't be.

They can still get the pensions they might have been expecting, but now they'll have to contribute a lot more to it. Just as the vast majority of those in the private sector already do. No wonder the unions are up in arms - they don't want lots of people taking responsibility for their own lives.

Filed under: Current issues, Economics with tags daily mail, pensions, public sector, trade unions
4688No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fdaily-mail-confusion-over-slashing-public-sector-pensions%2FDaily+Mail+confusion+over+slashing+public+sector+pensions2011-02-25+08%3A39%3A20Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4688

"The cost of raising a child is now £210,000," shrieks the Daily Mail, a cost that has apparently doubled in eight years. But, dig beneath the surface and a different picture emerges.

In arriving at their figure they've looked at the amounts parents actually spend and then added up the amounts that look like they're child related. This is silly.
If they want to do it properly, they should work out what you need to spend on essentials. So this would include food for the kid, some clothing, incremental heating and water costs. You would deliberately exclude discretionary outgoings, such as holidays. And while little Johnnie might want an Xbox or Camilla might demand a pony, these aren't a cost of having a child. They're a cost of being a crap, spineless parent.

To the Mail's cost you need to add things that society demands but which parents don't directly pay for. Yep, education and healthcare, because we don't like children dying of treatable ailments or growing up thick. These are direct costs of raising a child, even though those costs are usually borne by central or local taxation, not the parents themselves. I wouldn't lump university costs in here, because they're more discretionary.

And then, having worked out the costs in each of the (approximately) 20 years of childhood, you need to discount them to the present day. This is because you don't have to find all the money now, and money now is worth more than in the future.

The discounted essential outgoings, even with schools and health thrown in, is likely to come to a lot less than the Mail's figure.

There's an interesting aside too. If we truly believe that each child "costs" £200,000, at what point do we say to a family with no current wage earner, "we think you've got enough children already"? After 4 kids (committing taxpayers to £800,000 in Mail money)? Or shall the benefits cheque be permanently blank?

Written on my Android mobile phone. Article may be edited later.

Filed under: Economics, Other blogs with tags children, daily mail, education, healthcare, net present value, welfare benefits
46876 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fthe-cost-of-raising-a-child-isnt-210000%2FThe+cost+of+raising+a+child+isn%27t+%C2%A3210%2C0002011-02-24+10%3A41%3A40Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fthe-cost-of-raising-a-child-isnt-210000%2F

RBS bankers get £950m in bonuses despite £1.1bn loss

Yes, it's our old friend, Jill Treanor.

I suspect she might have meant "Bankers' bonuses turn a £150m loss into a £1.1bn loss." Bonuses are, after all, a deduction in arriving at the loss, not a deduction once you get there.

It's also noteworthy that RBS made a pretax loss of £399m but had a tax charge on those losses of £634m. That's about –160%! Given all the accusations of tax dodging that have been thrown at the banks, not least by Treanor herself, I would have thought this was noteworthy. Wouldn't you?

(The reasons, in case you're interested, are losses not allowable for tax, offset somewhat by untaxed items; foreign profits taxed at rates higher than the UK; and in-year losses for which a deferred tax asset hasn't been established)

Written on my Android mobile phone. Article may be edited later.

Filed under: Current issues, Other blogs, Taxation with tags banks, barclays, guardian, idiots, jill treanor, royal bank of scotland
46863 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fbizarre-reporting-from-the-guardian-on-rbss-results%2FBizarre+reporting+from+The+Guardian+on+RBS%27s+results+2011-02-24+09%3A12%3A40Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fbizarre-reporting-from-the-guardian-on-rbss-results%2F

Tonight I watched an episode of My Life in Books, a show in which Anne Robinson talks to a couple of celebrities about their favourite books. In this episode, she was talking to Sue Perkins and Giles Coren. OK, so they're both a bit wanky, pretentious and hateful. But Sue Perkins chose a great book - Crime and Punishment by Dostoevsky.  The book tells of Raskolnikov, who hatches a plot to murder his landlady and steal her money. He manages to justify this evil deed to himself by convincing himself that he'll be able to do lots of good things with the money. That's a gross oversimplification of the plot, but it'll do for now.

Alan Rusbridger today mounted a defence of Guardian Media Group's tax planning strategies, in the face of very severe criticism by Guido Fawkes. Guido has pointed out that it's hypocritical of The Guardian to put the boot in to companies that use tax planning and/or hedge funds while simultaneously signing off on GMG using hedge funds and undertaking some pretty pongy tax planning strategies. And, as coincidence would have it, Rusbridger's defence is broadly the same as Raskolnikov's:

"It's okay for me to do whatever I like with GMG because I'll be able to do lots of really good things with The Guardian."

Don't be fooled by Rusbridger's flowery language and wistful tales of the poor Scott family, faced with terribly difficult circumstances as a result of the death of both CP Scott and his son Ted, triggering a potentially catastrophic inheritance tax bill.  This is no different to the choices ordinary folk face every day. The Guardian doesn't have sympathy for ordinary people seeking to reduce their tax bill just because they're facing tough choices - it expects them to make the choice that keeps their tax bills high. Similarly, we shouldn't tolerate Rusbridger's mealy-mouthed excuses for why he believes it's acceptable to keep The Guardian afloat, no matter the consequences for anyone else.

It's the same with hedge funds. If The Guardian wishes to criticise the use of hedge funds by others, then it needs to eschew them itself. It can't have it both ways.  It's not alright just because it provides a bit of extra money to plough into The Guardian.

The Guardian simply isn't special. It's just like a retired person: it spends more than it earns. We don't accept that it's okay for Vodafone or Barclays, two recent UKuncut targets, to play fast and loose with their taxes ¹ just because it keeps retired people afloat.

Even more amusing is Rusbridger wheeling out Richard Murphy and Richard Brooks to defend GMG's tax affairs. Both have written for The Guardian, so to apply one of Ritchie's favourite arguments straight back at him, neither can be considered to be independent. The Guardian has yet to correct its article on tax at Barclays, despite the obvious howlers being pointed out to them right here on this blog. The newspaper simply isn't  a credible outfit in the realm of tax. And their failure to put their own house in order while they seek to criticise others is a rank hypocrisy.

It's commonly argued that the end justifies the means. Rusbridger's paper won't tolerate this argument for tax avoiders. And therefore this argument is closed off for The Guardian too, unless it wishes to expose itself to hypocrisy.

Filed under: Other blogs, Taxation with tags alan rusbridger, guardian, guardian media group, guido fawkes, hedge funds, richard brooks, richard murphy, tax avoidance
467812 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Frusbridgers-defence-of-gmgs-tax-avoidance%2FRusbridger%27s+defence+of+GMG%27s+tax+avoidance2011-02-23+09%3A40%3A19Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4678

From Accountancy Age, we learn the following:

The Treasury select committee will consider asking the banks to extract payroll taxes from the wider tax bill, the Telegraph has reported. This followed reports over the weekend about Barclays paying £113m in corporation tax out of a total tax bill of £2bn in 2009. The bank made £11.bn profits that year.

I don't really understand this. We know that Chuka Umunna is desperately out of his depth when it comes to accounting, so it's possible that this is one of his ideas. When he asked Bob Diamond at the Treasury Select Committee for the total amount paid by Barclays to HMRC, Diamond gave him a slightly cryptic response that possibly confused people, by giving a single number that incorporated several elements. He was then unable to unpick it, and had to provide further details by letter to the committee.

But it's untrue to say that the "total tax bill" was £2bn in 2009. The total corporation tax payment due was £113m, so that's what Barclays paid. The notes to the accounts explain how the overall tax paid to all the countries in which Barclays operates fits together. The rest of the £2bn paid to HMRC included a big slug of employer's national insurance, payable at 13.8% on salaries and, unlike employees' national insurance, it's not capped.

The reaction to the news that corporation tax was "only" £113m out of the £2bn paid is disappointing. The nation should be grateful that we have an employer that is contributing so much economic benefit to our country that such a substantial amount can be paid into HM Treasury by both the company itself and its employees. Instead we have been treated to some unsightly bickering and misinformation.

Of course, Accountancy Age doesn't do our profession any favours by referring to the £2bn paid to HMRC as a "tax bill". This is a subject that requires rather more precision than that.

Filed under: Current issues, Other blogs, Taxation with tags accountancy age, banks, barclays, bob diamond, chuka umunna, corporation tax, national insurance, treasury select committee
46723 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fbanks-and-total-payments-to-hmrc%2FBanks+and+total+payments+to+HMRC2011-02-22+09%3A40%3A36Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4672

Introduction

On Friday 18 February, The Guardian generated an enormous amount of public interest in the tax affairs of Barclays with an article that suggested that, in 2009, Barclays paid UK corporation tax at a rate of 1% instead of the statutory 28%.  This caused inevitable howls of anguish from their left-wing readership. The timing was particularly unfortunate, as it came on the eve of a mass demonstration against Barclays arranged by UKuncut. It added a considerable amount of fuel to an already tense situation.

Even more unfortunate was the fact that the article was founded on five total howlers that mean virtually the entire content of the article is complete nonsense.

Here's where the article went wrong:

1) Cash paid in 2009 largely relates to earnings from 2008

The article compares the cash paid to HMRC in respect of UK corporation tax in 2009 (£113m) to the profits generated by the consolidated Barclays group in 2009.

In the UK, tax is paid in arrears, subject to a payment on account system. A large company like Barclays would certainly be making a payment on account. But, even so, a large slug of money paid in 2009 would relate to 2008, not 2009.

2) Barclays only pays UK corporation tax on its UK sourced profits

Multinational companies such as Barclays pay tax in a number of jurisdictions. Carving up the profit between the various countries in which it operates isn't a trivial exercise and, in some cases, profits may end up getting taxed twice - a nightmare for any CFO. However, generally speaking, Barclays only pays UK corporation tax on profits it generated in the UK.  Anything earned outside the UK doesn't get taxed here.

So it's a howler to compare the UK corporation tax payment to the global consolidated profit. Most of that profit isn't taxed here in the first place.

3) Barclays 2009 consolidated profits include a significant disposal which is taxed differently under UK law

(HT here to The Pedant-General and Alex, who first commented on this over at Tim Worstall's blog)

In arriving at a profit before tax figure of £11.6bn, The Guardian has added the profit from the ongoing business (£4,585m ¹) to profits from a disposed business (£726m ²) and the gain made on disposal of that business (£6,331m ³) to reach a total of £11,642m.

In 2002 (yes, under Gordon Brown), the UK government introduced the Substantial shareholdings exemption, a corporation tax exemption for UK businesses disposing of a substantial shareholding in part of their business.  The idea was that businesses should be more able to restructure their businesses without having to worry about unfortunate chargeable gains implications.

As explained in note 39 to the accounts, this means that the bulk of the gain on disposal isn't chargeable to UK corporation tax at all.

4) Barclays has brought-forward losses which alleviate the income that's taxable in 2009

It's a general principle under UK tax law that companies get much less favourable treatment of tax losses than of profits. At first glance this might be a bit counter-intuitive. When a company makes a profit it must make a tax payment. If it then makes a loss, shouldn't it get a tax refund to help it out?

Not so long ago, companies that made UK taxable losses were allowed to look back up to six years and 'carry back' those losses to a prior period. They could then demand a refund against tax already paid to HMRC. Over time, reflecting perhaps Gordon Brown's desperation for tax revenue, this has been tightened so that there is now only an unlimited carry back for one year.  Losses above that must be carried forward to offset against future tax liabilities.

And that's what Barclays has done. In 2008 it offset global losses worth £859m against its tax bill ⁴. This isn't tax evasion; it's not even avoidance. It's a company that's made horrific losses being given some relief for those losses by tax authorities around the world. The utilisation of those losses will have reduced the amount of tax it handed over to HMRC in 2009.

5) Chuka Umunna is complaining about tax law introduced by his own party

The campaign of righteous anger being led by Chuka Umunna, a Treasury Select Committee member, is seeking to mobilise public protest against the Coalition.  This rather overlooks the fact that Barclays made these profits in 2008 and paid tax on them in 2009. At this time the Labour party were in power.

Umunna should be writing to Gordon Brown and Alistair Darling to ask them why they did nothing at the time.

Conclusion

It's rare that an apparently reputable broadsheet newspaper such as The Guardian would allow itself to be associated with such a poorly constructed article as this. It's been picked up in the Daily Mail too.  In fact, there are very good reasons why the cash payment to HMRC in 2009 might be substantially smaller than the global profits delivered in that year. In fact, the same is also true of the apparently ethical Co-Op bank.

Even worse, "facts" like those in the article tend to travel faster and more widely than the rebuttals which follow them. However, that's not going to stop me from reinforcing the facts of the UK tax system ahead of the UKuncut rhetoric.

Please comment below if you wish to challenge or reflect on any of the material above.

And please share this article with your friends and enemies. Spread the word!

Filed under: Current issues, Other blogs, Politics, Taxation with tags alistair darling, banks, barclays, chuka umunna, daily mail, gordon brown, guardian, hmrc, idiots, substantial shareholdings exemption, ukuncut
460676 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fthe-five-howlers-made-by-the-guardian-in-reporting-tax-paid-by-barclays%2FThe+five+howlers+made+by+The+Guardian+in+reporting+tax+paid+by+Barclays2011-02-20+09%3A33%3A00Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4606

The moral panic caused by Barclay's apparent 1% tax rate has sent the left-wing luvvies into a tizzy. They've been so overcome by Pavlovian outrage that many of them have suggested that all right-thinking people should shut their Barclays accounts forthwith and move to the Co-Op.

It would seem only fair, therefore, to apply the Guardian's (flawed) methodology to the Co-Op so that we can double-check whether they really are the nice, kind organisation Guardian readers seem to think they are.

Looking at their 2009 financial statements, we find that income tax paid in 2009 was £3.1m ¹ and that profit for the financial year (after significant items) was £164.6m ². That makes their 'effective tax rate' under the Guardian's preferred metric a measly 1.9%. A case of "out of the frying pan and into the fire", if you may.

I expect Chuka Umunna to be hauling the Co-Op's chief executive in front of the Treasury Select Committee next week!

Filed under: Current issues, Exclusives, Politics, Taxation with tags barclays, chuka umunna, co-operative bank, guardian, idiots, treasury select committee
465610 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fexclusive-your-caring-sharing-tax-avoiding-co-op-bank%2FEXCLUSIVE%3A+Your+caring%2C+sharing%2C+tax-avoiding+Co-Op+Bank2011-02-19+19%3A35%3A38Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4656

Accountants are really good at measuring things. And we love doing it. It can be fun, too. Why not have a go yourself:

Which of the following shoemakers makes more shoes? Mr Apple, who makes 10 in 100 hours, or Mr Banana, who makes 180 in 2,000 hours?

Well, I hope we can all agree that, while Mr Apple might have worked more quickly, Mr Banana actually produced more shoes.

What about this one? Alfie plays one game of football and scores one goal. Bertram plays 200 games of football and scores 180 goals. So who scores more goals?

Again, not trying to trick you here. Bertram, by virtue of his greater number of games, scores more, even though Alfie has a better average. It would be more than just a little deceptive to claim that Alfie scored more, just as it would be very misleading to claim Mr Apple had produced more shoes.

So, here's another. Mr Ash pays £1,000 tax on his salary of £10,000. Mr Birch pays £18,000 tax on his salary of £200,000. Who pays more tax?

Our friends at UKuncut like to claim that Mr Ash pays more tax. But we have just demonstrated that this isn't a reasonable representation of the situation. In fact, it's a filthy lie. Bashing Mr Birch, who pays 18 times the tax of his lower paid comrade, for paying "less" tax is tantamount to fraud.

If you are ever tempted to make similar claims about tax, think about Mr Banana and Bertram. They prove that it's bananas to claim that the poor pay more tax.

If, after reading all this, you still want to argue the toss about it, please feel free to comment below.

Written on my Android mobile phone. Article may be edited later.

Filed under: Current issues, Taxation with tags football, idiots, statistics, ukuncut
46513 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fmeasuring-more%2FMeasuring+more+2011-02-19+14%3A08%3A17Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F02%2Fmeasuring-more%2F