Via Worstall, we learn of Ritchie's cunning plan to ban short selling.

We could require settlement of all trading every hour – instead of every fortnight or so – making short selling nigh on impossible. I especially like this idea which is why I expect lots of opposition to it.

Why stop at shares? Shouldn't we ban everyone from selling something they don't have in the hope that, by the time it comes to deliver the product, they've been able to fulfil it more cheaply? Well, that would basically screw up all bespoke sales, like Dell's computer business or most car sales. It would destroy the concept of "just in time" manufacturing, thereby requiring companies to hold more stock, pushing up obsolescence losses and thus prices.

It would have a profound impact on some niche businesses, such as publishing. Is it really sensible to require authors to complete their manuscript before seeking a publisher?

Short selling increases efficiency in a whole range of industries. Unless Ritchie has hastily finished his magnum opus, he's in no position to seek to outlaw its use in financial markets.

Filed under: Capital markets, Economics with tags dell, idiots, just in time manufacturing, richard murphy, short selling, tim worstall
50501 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Flets-ban-short-selling-of-everything%2FLet%27s+ban+short+selling+of+everything%212011-09-27+18%3A31%3A38Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5050

Krugman points us towards a table that, in his view, proves that quite a lot of billionaires do pay a lower rate of tax than their secretaries.

And we’re not talking about one or two exceptional guys, either. Look at the IRS data on returns for the 400 highest incomes in America (pdf) — specifically, Table 43. If you look at the numbers since 2004, you’ll see that in a typical year between 30 and 40 percent of those super-high-income players paid an average tax rate of less than 15 percent; most of them paid less than 20 percent. Bear in mind that for the very wealthy the payroll tax — the main burden on working-class Americans — is trivial, because of the cap on Social Security and the fact that it only applies to earned income. And what becomes clear is that the Obama/Buffet claim is absolutely, totally true.

It may be true to Krugman in America, but it's definitely not true in the UK, no matter what tax campaigners would have you believe. And we know this because of a very helpful publication produced by the Office for National Statistics called The effects of taxes and benefits on household income. Table 14 of this document shows, by decile, incomes and direct and indirect tax payments, so you can work out for yourself whether the UK tax system is progressive ¹.

At first glance, the figures are mixed. The poorest decile pays direct taxes of £1,113 on total income (including benefits) of £9,275, an effective rate of 12.0%, whereas the richest decile pays direct taxes at an effective rate of  25.3% ². However, when you add in indirect taxes, the poorest decile pay total tax at a rate of 43.3% ³ compared to the richest decile's 33.6% ⁴. So, on a total tax basis, there's an argument to be made that the poorest decile pays a higher tax rate than the richest decile.

It's a weak case - when most people talk about tax rate, they mean income tax, not all the other forms of tax. Remember, indirect taxes include all sorts of sin taxes such as gambling taxes and tobacco/alcohol duties. These will obviously be regressive on the poor, but the case for them not being so is very weak.

However, there is another major problem with the tax campaigners' case. And that's the benefits system. You see, a massive slug of the poorest decile's income derives from the benefit system. Where do benefits come from? That's right - from other taxpayers. So when calculating the effective tax rate, we have to eliminate cash benefits, otherwise we don't get a true picture.

Once we remove cash benefits, we get the following picture:

So we can see that the poorest decile's income of £9,275 comprises £5,388 benefits and £3,887 of income. The cruel state then takes £1,113 of income tax from this income, at an effective rate of 28.6% (again, this is higher than the effective direct tax rate on earned income for the richest decile of 25.7% ⁵. However, on a net basis, the state in fact gives the poorest decile £1,369. For each of the four poorest deciles, the state gives them more benefits than it takes back in direct and indirect taxes. It's only the richest 60% that are net taxpayers, the rest are tax spenders.

Looking at the figures this way, it's clearly total nonsense to describe this as a situation where the rich pay a lower rate of tax than the poor: the poor don't pay tax, they spend it.

Filed under: Current issues, Other blogs, Taxation with tags office for national statistics, paul krugman, poverty, progressive, richard murphy, tax, welfare benefits
50363 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fthe-tax-paid-by-billionaires-and-secretaries-the-view-from-the-uk%2FThe+tax+paid+by+billionaires+and+secretaries%3A+the+view+from+the+UK2011-09-26+20%3A31%3A11Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5036

Ritchie claims on this very blog that ICAEW loves his work.

You ignore the fact that Graham Dale was Stephen Timms' SPAD when in office and both are fans of my work

As avowedly is Michael Izza - or so he told me

How then, can you explain this?

The ICAEW had a breakfast seminar two weeks ago to discuss country-by-country reporting. The summary of what occurred is here.

I asked to attend this seminar. As an ICAEW member and the creator of the country-by-country reporting concept I thought that a pretty fair thing to ask. But I was not allowed to do so.

Now, Tim Worstall often goes on about revealed preference, the notion that you can determine the preferences of consumers by what they do. It's a sort of "see what people do rather than what they say". While I'm sure both Dale and Izza would tell Ritchie to his face that they're fans of his work, we can learn far more from ICAEW snubbing him at a seminar in which he is - objectively - the world's leading expert.

Filed under: Institutes, Other blogs with tags country by country reporting, graham dale, icaew, meta, michael izza, revealed preference, richard murphy, stephen timms, tim worstall
5029No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fmichael-izza-nowuv-ritchie%2FMichael+Izza+nowuv+Ritchie2011-09-25+21%3A33%3A13Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5029

Ritchie is an expert, he tells ye!

I wrote the following at the request of the Brighton Evening Argus for publication after the close of the UK Uncut trial in that city, in which I appeared as an expert witness to explain the links between tax avoidance and the cuts agenda of this government.

Now, an 'expert witness' is a pretty important concept in the UK legal system. Here's what Wikipedia has to say about it:

In England and Wales, under the Civil Procedure Rules 1998 (CPR), an expert witness is required to be independent and address his or her expert report to the Court. A witness may be jointly instructed by both sides if the parties agree to this, especially in cases where the liability is relatively small.

So, as an independent expert beholden to the Court, it would be pretty improper for an expert witness to criticise the court's and the CPS's process immediately following the conclusion of a trial. Say, like this:

I regret that the judge, sitting as a magistrate, did not accept that the link was close enough to justify the actions taken during peaceful protest by UK Uncut supporters

Or, indeed, like this:

Shame on the judge? For understanding the way the law works better than a retired accountant does? But there's more:

I'm pretty sure the five who were found guilty might quibble with the view that, because the judge found the other four innocent, that all of them were really innocent too. Judges don't mess about - a guilty verdict against any single person means that there was sufficient evidence to prove that that person did commit the offence. If they weren't really guilty, they would have been found innocent. From a purported 'expert witness', this is astonishing, irresponsible and - frankly - idiotic.

But there's still more:

Had all nine been found innocent, then one might have been able to make the case that these prosecutions were malicious. But five out of the nine were found guilty! How on earth can anyone possibly claim that these prosecutions were malicious when over half produced a guilty verdict? Were the police conspiring with the judge under the instructions of David Cameron himself? What is Ritchie smoking?

However, I think we can safely say that Ritchie was not an 'expert witness'. He was just an ordinary witness for the defence. And I bet the five who were found guilty wish they had hired a rather higher quality witness.

Ritchie is also very naughty here:

So the tax gap is, I estimate, up to £120 billion. In fairness I should note H M Revenue & Customs do not agree, but because of my work they have published their own estimates, which come to £60 billion at present – exactly half of what I suggest.

HMRC does not say that the tax gap is £60bn. They say that it's £35bn, with tax due-but-unpaid of £25bn. Now, to the extent that this due-but-unpaid tax is never paid, it forms part of the tax gap. And, indeed, HMRC estimates what portion of due-but-unpaid tax will never be paid, and they include it in the tax gap. So Ritchie is double-counting this element of tax. To the extent that this due-but-unpaid tax is ultimately collected, it cannot be part of the tax gap.

I trust that Ritchie will see the profound error of his ways, and I'm sure he'll want to write to the judge at the earliest opportunity to inform him that he made an administrative mistake. Otherwise, the judge may have had the wrong impression about just how plausible it is that we could close the deficit by reducing avoidance alone. Misleading the court, whether deliberately or accidentally, is serious business, and we wouldn't want Ritchie to end up in trouble for it.

Filed under: Current issues, Other blogs, Politics with tags brighton, expert witness, hmrc, idiots, richard murphy, tax avoidance, tax gap, ukuncut
49852 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fan-expert-witless%2FAn+expert+witless2011-09-25+20%3A59%3A36Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4985

Ritchie is going to be participating in an event at the Labour Party conference on Tuesday:

When: 27th September 2011, 05:45PM

Where: The ACC, Concourse Fringe Room 9

Demos, Christian Aid and Action Aid are proud to present this panel event at the Labour Party Conference that will examine the effects of corporate tax avoidance on the UK and overseas. We are delighted to be joined by:

Angela Eagle MP, Shadow Chief Secretary to the Treasury

Graham Dale, Head of Public Affairs, ICAEW

Richard Murphy, Director, Tax Research UK

Joseph Stead, Senior Economic Justice Adviser, Christian Aid

Vanessa Houlder, Journalist, Financial Times (Chair)

Now, as we know, so much of Ritchie's public pronouncements on tax consist of his peddling his wild overestimates of the extent of tax avoidance. But it's intriguing that there's someone from ICAEW on the panel as well. Could we help Graham Dale participate more effectively on the panel by suggesting to him some questions he might like to put to Ritchie?

Here's some ideas:

• Does Richard feel that he has satisfactorily addressed criticisms of his estimates of the tax gap?
• Does Richard feel that his treatment of critics is an appropriate way for a chartered accountant to behave and might he be bringing the profession into disrepute?
• Is it sensible for an 'expert witness' to criticise the judge of the case so publicly?

If you want to suggest any ideas to Graham Dale, you can e-mail him directly. Be quick - you've only got a couple of days.

Filed under: Current issues, Politics, Taxation with tags graham dale, icaew, labour, richard murphy, tax avoidance, tax gap
50083 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fritchie-at-the-labour-party-conference%2FRitchie+at+the+Labour+Party+conference2011-09-25+15%3A59%3A39Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5008

The ICAEW is as pleased as punch that it's the very first professional accountancy body to get the Carbon Trust Standard:

I am delighted to tell you that ICAEW has been awarded the Carbon Trust Standard and is the first professional accountancy body to achieve this certification.

We believe that sustainable business is the future of business, and it is central to our long-term strategy. And since actions speak louder than words, we felt we needed to track and monitor our own carbon footprint.

The Carbon Trust standard was achieved following a programme of recording, measuring, and managing ICAEW’s carbon emissions each year between April 2008 – March 2011.

As part of our programme ICAEW installed new lighting systems, controlled by movement sensors, developed a system of switching off plant and equipment during non-operational hours and installed energy efficient water cooling equipment.  These changes on both ICAEW sites in the City of London and in Milton Keynes ensured the right carbon outputs for certification.

As many businesses around the world have found, taking these actions are delivering tangible bottom-line benefits for us.

It is also the right thing to do environmentally and is a priority in our goal of having a net positive impact.

Going through the assessment process to achieve the Carbon Trust Standard helped us to not only quantify our footprint, but also benchmark our performance and identify areas for improvement bringing tangible and significant cost savings across our operations.

Er, wtf mates? Could you maybe go for a Plain English Standard next time, because that's the biggest load of management-speak cobblers I've ever read. "Quantify our footprint"? "Benchmark our performance"? This is obfuscation of the highest order.

If you really want to know what this all means, there's some documentation over at the Carbon Trust's website, including the full standard. Basically, ICAEW is using less carbon than it was in 2008. But carbon measurement is a curious science. For example, the graph of carbon emissions by country says that China is the 'worst' emitter. Yet most of China's emissions relate to production of goods which are then consumed elsewhere in the world. So while Brits throw lots of shit away, China gets the blame for it, carbon-wise. And the other big scam is carbon offsets, where you pay someone who might pollute to not pollute, so that you can instead. It's the discredited system of indulgences, reinvented for the 21st century.

Of course, saving money is A Good Thing. So why not just say that that's what they're doing - they're turning lights and the air conditioning off at Moorgate Place because it means the subscription won't have to go up as much next year? I'm sure members would love that. 

One can only hope that more will be made clear when ICAEW publishes its annual review in spring next year. In the mean time, if you want to undertake a futile gesture, you can always 'vote down' the article on ICAEW's website. Go on, you know you want to...

Filed under: Institutes with tags carbon footprint, carbon trust, china, icaew
50041 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fin-carbon-we-trust%2FIn+carbon+we+trust2011-09-22+21%3A59%3A52Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5004

Ritchie says that HMRC is playing fast and loose with statistics when it claims that it has reduced the tax gap by £7bn.

Extraordinarily HMRC have claimed that the tax gap has improved by £7bn in a year. But that’s not true. The tax gap has only improved by £4bn at best (£39bn to £35bn) – their own table say so. Candidly to claim that because they put their own prior calculation errors right means the tax gap closed by £7bn – as their own press release seems to imply by subtle use of language – is as a result blatantly untrue.

OK, so they found that they made some mistakes last year and they corrected last year's figures as a prior year adjustment. As you're supposed to. But in order to maintain continuity with what they reported last year, they've included last year's reported figures too.

Anyway, Ritchie still tells us that his estimate of the tax gap is £120bn, so really the improvement from that to HMRC's current estimate is £81bn.

But that’s not the limit of the gall of HMRC senior management. Read the detail and you realise that the reason why the VAT gap went down is in no small part due to the fall in the VAT rate matched by a fall in GDP.

VAT is paid a quarter late. Allowing for that the GDP fall in 2009/10 was 2.9%. And the VAT rate was 15% for must of that period for VAT payment to HMRC purposes. So given that the VAT gap is the difference between expected VAT paid and actual VAT paid we’d expect this gap to fall in cash terms by up to 14% for the falling VAT rate (but I’ll allow for timing differences and only use 11%, generously) and by another near 3% for GDP fall. In combination taking the revised 2008/09 VAT gap estimate of £14.6bn as the base we’d expect a fall to near enough £12.6bn (you can argue a decimal point either way – the above is my generous estimate, i.e. favouring caution). So £2bn or more of the fall is due directly to Alistair Darling’s VAT cut or declining GDP.

In that case the real fall is £2bn (£4bn real fall less this £2bn adjustment) at most.

Except, of course, the fall in GDP did not only apply to VAT – it applied to all other income as well. There was £24.4bn of gap relating to that in 2008/09. So a fall of at least £0.7bn of the resulting fall would result from the decline in GDP alone. Now we’re down to an improvement in the gap using HMRC methodology of £1.3bn at best – and candidly that’s in the range of statistical error.

This is amusing. Ritchie is learning what sensible economic commentators and accountants have been saying for some time: if you reduce tax rates then the tax gap will come down. Conversely, Ritchie's policy of ever increasing tax rates is the single biggest contributor to the size of the tax gap!

But, having just said that it's totally improper for HMRC to claim the effect of reducing rates on the tax gap, what does Ritchie go and do? He only uses announced increased rates to predict how the tax gap will increase and excoriates HMRC for it!

But this year the VAT rate is 20%. So right now the VAT gap will have automatically risen on the basis of the same rate of crime by not less than £3.8bn. That follows like night does day as the VAt rate has risen from 15% in most of 2009/10 to 20% now.

So Ritchie wants to argue that HMRC are to blame for the increased tax gap when rates go up, but cannot take credit for the reduced tax gap when rates go down. The man truly is legendarily and incoherently insane.

Filed under: Current issues, Other blogs, Taxation with tags hmrc, hypocrisy, idiots, richard murphy, tax gap, vat
4997No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fin-which-ritchie-has-his-cake-and-eats-it-over-the-tax-gap%2FIn+which+Ritchie+has+his+cake+and+eats+it+over+the+tax+gap2011-09-22+21%3A43%3A43Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4997

Ritchie is still peddling his tired old estimate of the tax gap:

All you need to know about HMRC have got their tax gap calculations wrong is explained here.

And all you need to know about how Ritchie has got his tax gap calculations wrong is explained here.

Why he's continuing to trot out these numbers when they're so clearly wrong, have been proven to be wrong, and the errors in his calculations have been spelled out to him in crystal clear detail is anyone's guess. I hope the PCS didn't pay him very much this month.

Filed under: Current issues, Taxation with tags hmrc, idiots, public and commercial services union, richard murphy, tax avoidance, tax evasion, tax gap
49894 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fritchie-and-overinflated-tax-gap-estimates%2FRitchie+and+overinflated+tax+gap+estimates2011-09-21+18%3A51%3A40Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4989

Er. Suppose, just for a second, that Ritchie has just proposed something butt-clenchingly stupid. Such as nationalising all the banks, or any of the myriad of other suggestions he has made over the years.

You might sigh patiently, and say that that's not such a great idea. And Ritchie, being Ritchie, will say "Saying you're wrong isn't debate. You need to provide some evidence." So you provide that evidence. In the case of nationalising all the banks, that evidence could be a bank such as HSBC, which didn't need to be bailed out by the government then and still doesn't now.

Aha! But that's no longer good enough. Because, far from proving that Ritchie knows nothing about economics and has got it terribly wrong again, your counter-example in fact proves that he was right all along!

//Facepalm.

There really is no end to his chutzpah, is there?

Filed under: Other blogs with tags banks, fail, hsbc, idiots, logic, richard murphy
4976No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fritchie-logic%2FRitchie+logic2011-09-20+21%3A47%3A57Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4976

Ritchie has a plan for the banks. And it's a cunning plan:

Candidly, we have to prepare now for the complete, even if temporary, nationalisation of banking.

In 2008 we let banks off the hook. We threw hundreds of billions at them – and they took it all and gave nothing in return.

Now they are in crisis again – a crisis at least as bad as in 2008. And they need capital very, very badly in very short order. There is no functional market that can supply that capital in the timescale required - it’s weeks at most, maybe less. So only government can. Bail out 2 is now inevitable. I think the IMF at least know that.

The fact is the banking system is now failing again. It’s systemically failing. And in that case only nationalisation can save it.

And it’s only nationalisation of the banks that can also save nation states from failure too at this moment. The reason is simple: if the banks are brought under state control then first of all we can undertake radical reform of the way in which they operate before handing parts at last back to private owners (on which more in another blog, later). And second, we can do what else that is really needed: which is massive cross cancellation of debt so that balance sheets of countries and banks are deleveraged all at the same time in an act of mass debt forgiveness – the ultimate Jubilee.

So let's unpick this for one second. A bank, like any other company, is a collection of assets and liabilities. On its assets side, it has loans that it has made to other institutions, on which it receives income. Some of these assets can be very long-lived, 25 years or more in the case of a mortgage. The bank also has cash and liquid assets and other stuff that it can quickly hand out.  These can include short-term deposits with other banks and the like.

On the liabilities side it has a hodgepodge of things. It can have retail deposits, ie money that ordinary folk like you and me have stuck in a bank. Unfortunately, we tend to like to withdraw our money, especially when a bank looks like it's in trouble, so the bank needs to have sufficient liquid assets to cover these withdrawals, or arrange alternative sources of finance. The bank has other liabilities too - perhaps long term arrangements with investors or the central bank and, the 'safest' of them all, equity finance. This equity layer is the most illiquid, but will get wiped out completely if the bank gets into trouble.

So, armed with a bit of background, what do we think of  Ritchie's proposals?

Firstly, he says he wants the "complete" nationalisation of "banking". Which banks? It really does matter. There are lots of banks that operate here but also operate elsewhere. How do you decide which are nationalised and which aren't? One presumes that RBS and Lloyds Banking Group are included, but would HSBC and Nationwide Building Society be too? Would UBS's UK division be included? I think we should be told. It really does matter.

Secondly, what does nationalisation actually mean? If it's just the swapping of private investors' shares for government shares then it's a profound waste of time as it won't mean any new funds. So he must mean that government will provide new money. And, as government doesn't actually have any money of its own, he's proposing that taxpayers provide humungous amounts of funds to the banks in order to acquire their share capital and buy some more.

Thirdly, there's an issue over price. Is this to be a forcible nationalisation at an undervalue or would current shareholders get a fair market value? Again, this really does matter because a lot of our banks' shares are owned by foreign investors. So, unless we really want to pick a fight with the Qataris, we probably want to give them a fair market value for their investment in Barclays. And, fair market value here means a considerable premium to any current quoted stock market price. This raises yet more questions about exactly how you set the premium to derive that fair market price.

But, it could be done. Government could commit hundreds of billions of pounds of taxpayers' money to buy out the current share capital of all the banks, if it really wanted to do that. This raises a fourth question: from where would it raise the money to do that? From other banks? Would it just print the money?

Fifthly, Ritchie wants a massive feeding frenzy as the banks cross-cancel their debt with other countries and bank, so that  "balance sheets of countries and banks are deleveraged all at the same time in an act of mass debt forgiveness". To the extent that a country (think Greece) has borrowed from a bank and is now struggling to pay it back, that debt exists as an asset on a bank's balance sheet (think Royal Bank of Scotland, if you like). Ritchie wants to forgive the Greek debt, so that means stripping an asset from the bank's balance sheet. Because balance sheets must always balance, that means you must identify an equivalent liability to match it against. In this case, because we've just elbowed private investors out of the way at a cost of hundreds of billions of pounds, that means the government (aka the UK taxpayer) is effectively gifting huge sums of money to the Greek government (aka the Greek taxpayer).

This plan makes absolutely no sense. While lefties might cheer at the prospect of "nationalising the banks in order to reform the system and permit global deleveraging", somehow "let's print hundreds of billions of pounds we don't have in order to hand it to the Greeks" doesn't have the same ring to it, does it?

Filed under: Economics, Other blogs with tags bad debt, balance sheet, banks, barclays, greece, hsbc, idiots, lloyds banking group, nationwide building society, qatar, richard murphy, royal bank of scotland
49804 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fritchies-grand-plan-to-nationalise-all-the-banks%2FRitchie%27s+grand+plan+to+nationalise+all+the+banks2011-09-17+08%3A14%3A27Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D4980