ASH are making idiots of themselves again:

A new report by FairPensions and ASH (Action on Smoking and Health) has challenged the long held view that UK local authority pension funds can hold 'unethical' assets such as tobacco in order to fulfil a legal duty and  maximise investment returns

With tobacco sales declining for the first time in 2010 and savers continuing to express concerns over whether their money is invested 'ethically', the report claims to expose misconceptions surrounding investors' duty to have tobacco as part of their portfolio. 

The report is launched with figures showing that councils across Britain have at least £1.3bn of employee pension funds invested in tobacco.

Both organisations claim that the three most heard arguments in favour of schemes investing in tobacco can no longer be upheld.

One of the most heard arguments; that is a trustee's "legal duty to maximise financial return" and that a trustee "cannot give consideration to ethical issues", is dismissed by the report as being "somewhat simplistic".

"Although local authority pension funds are governed by different laws to other types of pensions, members of their pensions committees have similar fiduciary duties to pension fund trustees," says the report.

"The phrase 'duty to maximise return' does not appear in any UK statute or case law. Pension fund trustees have a fiduciary duty to invest 'in the best interests of members and beneficiaries'. This is based on the common law duty of loyalty, which exists to ensure that trustees avoid conflicts of interest and do not abuse their position to further their own ends. Trustees also have a duty to invest prudently."

The report also claims that the two other common justifications for the investment practice, (that trustees do not interfere with the day-to-day decisions of external investment fund managers and that tobacco is a low risk, high return investment) are no longer valid.

Now, I mostly hate smokers. I hate the way they smell, I hate the litter they make, and I hate how they're always in the fucking way the whole time, whether walking down the street or when entering or leaving buildings. I hate how they use stupid schoolboy arguments to rationalise their irrational habit. I really hate how they see themselves as funding the NHS single-handed, as if that excuses all their other sins.

However, smoking remains legal. Although I don't smoke myself, I have no qualms about investing in tobacco companies and making money from the addiction of smokers (I've made quite a bit of money in doing so). Yet I can see that some people do have a problem with it.

But when you sign up for a local authority pension, you forego any right to determine what equities your pension fund is invested in. Local authority pensions are defined benefit, ie they promise you what pension you'll get in retirement. If you want a fund to call your own, over which you can make investment decisions, then defined benefit pensions aren't for you. You'll be wanting a defined contribution pension plan instead, just like we private sector taxpayers have been enjoying for years.

You can't have it both ways. Either take your defined benefit pension and shut up, or move to a defined contribution pension scheme. ASH and FairPensions are trying to have their cake and eat it. They can get stuffed.

Filed under: Economics with tags ash, defined benefit, defined contribution, fairpensions, idiots, smoking
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The rate of profits made by companies who work in oil & gas are upwards of 44%. This is at the same time as the rates of profit in manufacturing are less than a quarter of that. Clearly, some sectors have a fast buck culture where their rates of profit do not match the work that they are doing. Multinational Companies operating in the UK should have their rates of profit capped at about 25%.

Oh brother. Let's just have a little look at BP's accounts for 2010:

Revenues: $297 billion

Loss before tax: $4.8 billion

Which I calculate to be a rate of loss of 1.6%.

OK, so 2010 was an extraordinary year for BP, given that it had to pay out bilions of dollars to pay for the cleanup of the Gulf of Mexico (see why they have to charge so much now, Eoin?). Let's look at 2009:

Revenues: $239 billion

Profit before tax: $25.1 billion

That's a rate of profit of 10.5%. I give up. Where on earth does he get his idiotic figures from? Clearly not from the accounts or from anything even remotely resembling reality.

Oh, and these are fun:

No employee/er or shareholder should receive a bonus in shares or payments of above £1m in any one year. The Sainsbury's boss for example received several millions in bonuses and shares while the same company hired disabled teenagers to work UNPAID. 

The idea that no shareholder can receive a bonus in shares or payments above £1m in any one year will totally fuck with any large pension fund. They'd have to reduce their holdings to ensure that they didn't receive dividends in excess of £1m, which for many companies wouldn't require that large a holding.

And forcing bosses to receive smaller bonuses will generally mean that they'll seek larger salaries. That makes payment for failure virtually guaranteed.

Ah, but Eoin has a plan:

No worker should ever be allowed to earn 2000% more in one year than the lowest paid worker in the company. The Tories had previously suggested that they might support this during the General Election campaign.

OK, so you've got an apprentice on £2.60 an hour and he works 9-5 for 40 weeks a year. That's a salary of £4,160 per annum. That would mean the boss can earn no more than £87,360. Is that realistic for a large engineering company, or would any prospective candidates make sacking all apprentices their first priority just so they can earn a bit more money?

His grand plan would see the total annihilation of every apprentice programme in the country, dumping loads of half-trained youngsters out of their jobs and onto the street. What a masterstroke!

Filed under: Economics with tags apprentices, bp, dividends, eoin clarke, eoinomics, idiots, oil and gas industry, pensions
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It didn't take them long to start trotting out all sorts of nonsense about the proposed cap on benefits.

The worst hit, of course, are large families in the south-east, where rents are higher. Even in Tolworth, described by the Evening Standard as the "scrag end of Kingston borough", a four bedroom house will give you little change from £400 a week. Cutting housing benefit to £100 a week – which is broadly what the cap means if you have four children – makes life impossible. After rent, council tax and utilities, a family with four children would have 62p per person per day to live on. That is physically impossible.

Do you see what they've done there?

They've worked out the total benefits package that a family of four would get. Then they've made up some numbers for what this family would have to live on. Then they've complained that this would leave the family with only 62p per person per day.

Of course, this family doesn't have such a paltry amount. They've actually got £11.87 [(£26,000 / 6) / 365] per person per day to live on. And every single penny of that £11.87 comes from the good grace of working taxpayers.

Now it's true that rents are expensive. And that utilities are expensive, so a great deal of that £11.87 needs to be spent on those items. But they're also expensive for those who work. A family of four would need to earn a great deal more than £26,000 in order to actually bring home £26,000 because they have to pay tax on their income. And they would still face the same pressures of expensive housing and expensive utilities. It's an appalling insult to those who work to pretend that the real poverty is faced by those who are propped up to the tune of £11.87 every single day for each of their six non-working members.

And pretending that it's not £11.87, but is really only 62p, makes that insult a thousand times worse. Shame on you, Tim Leunig.

Filed under: Economics, Other blogs with tags guardian, housing benefit, idiots, poverty, tim leunig, welfare benefits
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Today's prime Ritchiebollocks:

Erm, Ritchie,this isn't the way business works. We don't make individual employees liable for the losses of their employer, even in cases where you believe you are able to apportion liability to an individual. That's because it's frankly a totally stupid idea. Are we really to say that we should find the employee who - say - failed to tighten a bolt properly on Deepwater Horizon and send them a bill for tens of billions of dollars?

Equally, we aren't commencing a witch-hunt to identify precisely which miserable sod in the London 2012 organisation can be blamed for the tripling of the Olympic budget. Nor are we singling out a Department of Health civil servant to land them with an invoice for the NHS supercomputer overruns. Instead we establish lines of control and responsibility within organisations in order to reduce the risk that an employee goes off on a frolic on his own. In Hartnett's case, this includes lines of political accountability.

The very idea that we should seek to make individual employees liable for the economic outcomes of their business decisions is an extraordinarily right-wing - one could even say 'neoliberal' - point of view. I simply don't know why Ritchie espouses such a view. Other than, in the case of Hartnett, it fits his political narrative to say it. I don't think for one second he actually believes it.

Filed under: Economics, Taxation with tags bp, dave hartnett, hmrc, idiots, nhs supercomputer, olympics, richard murphy
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British Airways has said it will take on fewer people next year as a result of the government's planned 8% rise in Air Passenger Duty.

BA can't pass this tax on to customers, because they'll just fly via Paris or Amsterdam instead. It doesn't want to take the cost to the bottom line. So the only other option is to cut jobs.
This is pretty bad news for people who argue that the incidence of taxes on companies is on the companies themselves rather than on workers, isn't it?

Filed under: Economics, Taxation with tags air passenger duty, british airways, tax incidence
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Eoin isn't happy.

According to the OBR (table T4.7 29/11/11) George Osborne is planning to raise more than £300,000,000,000 in extra taxes this parliament over and above what Labour were taxing people in 2010-11. That in itself will shock many Conservatives but since I'd prefer that taxes were raised as opposed to cuts, I will not take him to task for that. My issue is how George Osborne plans to raise those taxes. If you are going to raise more than £300bn in new taxes it is important that the burden falls on the broadest shoulders right? Well, not according to Osborne no.

According to the OBR, Osborne is planning to raise an extra £96bn in Income Taxes, and extra £92.8bn in VAT and an extra £72bn in National Insurance. You remember National Insurance at the last election was referred to as a 'Jobs Tax' by the Chancellor? He then promised that he would cut this so-called 'jobs tax'. You trust a Tory at your own peril. But, to top it all off, George Osborne has opted to only raise £4.5bn in taxes from profit. Yes, that's right, he'll tax consumers and workers to the hilt but profits escape the hit. Osborne is happy for the profiteers to go on raking in large profits and for ordinary people to foot the bill through taxes.

Like so much with Eoin's work, the precise calculations are hard to verify. I found Table 4.7 but no matter how I jigged and poked the numbers, I couldn't get them to add up to £300m, which is, after all, only £60m per year. Put another way, the growth in taxes from2010/11 to 2015/16 is only compound growth of 4.6% per year, or approximately inflation. So portraying this as a giant smash and grab on the working poor is rather over-egging the cake.

Then we can take issue with his hypothesis that taxes on income hit 'ordinary people' whereas taxes on corporate profits don't. This is an idiotic viewpoint.  Remember our favourite HMRC table, which shows who actually pays income tax. The 1%, much hated by #occupylsx, actually pay 27.7% of all income tax collected in 2011/12. And the richest 25% pay almost a full three-quarters of all income tax. Income tax is very much a tax whose weight falls on the broadest shoulders. Given the 1% rate of NICs on higher incomes, you would expect the distribution of NICs to be less progressive. But VAT, as we've shown before, is progressive on expenditure. Given that it's a consumption tax, it's silly to try to measure it against incomes.

Similarly, the issue of who bears corporation tax is hotly debated, as Tim Worstall often reminds us. But who are these fat cat owners of UK companies? By and large, it's ordinary working people through their pensions and insurance assets. Even if you believe the incidence of corporation tax is the company's owner, taxing companies more would only hurt ordinary people.

And then there's the logical flaw. Eoin assumes that all increases in tax over the base year of 2010/11 must be due to deliberate tax increases. But there are a raft of reasons why the tax take will increase without such deliberate action, including growth and fiscal drag. Or indeed, any successful attempts to reduce tax avoidance and evasion would also increase the tax take.

Isn't it wonderfully ironic that a possible explanation could be that George Osborne has finally cracked the problem of tax evasion, and left-wing commentators criticise him for it? 

HT: Jonathan M

Filed under: Economics, Taxation with tags eoin clarke, eoinomics, hmrc, idiots, income tax, tax avoidance, tax evasion, tim worstall
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Some bad news for final salary pension schemes in the private sector:

Falling stock markets and corporate bond yields saw deficits - the shortfall between a scheme's assets and liabilities - hit £80billion on 30 November, having stood at £60billion at the end of October, according to consultancy firm Mercer.

This is the perfect storm for pension plans. Soggy stockmarket prices mean that the value of plan assets are low. And low corporate bond yields mean that you discount future liabilities by less, resulting in a higher liability. So the net liability (plan assets less plan liabilities) just gets bigger and bigger.

Ultimately, scheme sponsors may conclude that this problem may never reverse and that they should simply cut their losses and stop all future accruals. Unless, of course, the scheme sponsor is the taxpayer.

Filed under: Accounting, Economics with tags defined benefit, liabilities, mercer, pensions
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Let's put a lie to rest, shall we? Encapsulated by this tweet I saw today, but often repeated:

Happily, in among the news stories from five years ago, Accountancy magazine has a table of CEO remuneration last year, so we can have some fun with sums.

Let's take Frank Chapman, CEO of BG Group. He earned £7,451,398 last year. So could he have entertained a "tiny bit of redistribution"? BG Group has 6,172 staff, most of whom work outside the UK. So, even if Frank had decided to work for nothing, the maximum each member of staff could have received would be £1,200 more. And do BG Group employees feel hard done by? One can only presume that they would seek employment elsewhere if they did. The accounts show that total remuneration for employees was $1,126,000,000 which works out at $182,000 per employee. Is that not considered a reasonable salary?

Or, for a more extreme example, look at Justin King at Sainsbury's. He earned £2,601,449 in 2010. Had his pay packet been shared among Sainsbury's 146,900 employees, each could have enjoyed an additional £17.71.

The idea that bosses should earn less so that their employees can earn more  is driven by a combination of envy, idiocy and economic naivety. While bosses do earn a lot, they are responsible for the livelihoods of many thousands of employees. Even if you wanted to redistribute, it would generate such a negligible difference to staff, it would be meaningless.

Filed under: Economics with tags accountancy magazine, bg group, directors, j sainsbury, justin king, remuneration, twitter
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This latest Ritchieism is so false, it's virtually criminal.

Today is a day of national strikes by public sector employees over their pension rights.

The average public sector pensioner gets a pension of £5,600 median.

The average pension of a woman who worked for local authority is £2,600 pa

Basic old age pension is £102 a week or £5,300.

Pension poverty is defined as having less than £178 a week. £9,256 pa.

So in most cases those retiring on only a state pension from the private sector who have paid nothing get almost £4,000 a year in pension credits and other benefits from the state for which they have not paid a penny in contributuion.

But state employees have to pay all their lives for on average something little better.

And you call that a gold plated deal?

How?

The reality is that public sector employees are paying in very many cases for what they could egt anyway without a pension scheme. Those complaining, please note. The subsidy is to the private sector here – paid for by state sector employees.

That’s the reality of what is happening.

All data from http://www.pcs.org.uk/download.cfm?docid=31F34882-8A2E-4BAB-9CF42FA92DFB02CF

Ugh. He's only gone and taken the median public sector pension, which includes all those people who only work for the public sector for a short time, and compared it to pensions credit, which is made available to those who have low incomes in retirement.

Note how he falsely claims that "state employees have to pay all their lives for on average something better". This, children, is what is commonly referred to as a "lie", because a state employee who had paid all their lives into a state pension scheme would have a higher pension in retirement. It's all those people who, for whatever reason, don't stay in the public sector for very long that bring down the median figure.

Using an average which includes short-period workers to make a point about lifetime payments into state pension scheme is complete and utter Ritchiebollocks. Even when this is pointed out to him by one of his own commentators, he refuses to correct it and commits a further howler by using a level annuity rate to price up a public sector inflation-linked pension. Would that be because it makes the cost look cheaper? Fancy that!

And this is the man who claims to be the #1 Economics blogger in the UK. Heaven help us.

Filed under: Economics with tags idiots, pensions, public sector, richard murphy, ritchiebollocks
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Eoin commits an appalling fallacy:

Today's data shows that we are all in the shit together. 80% of families have £25k or less a year.

The graph [  ] shows, in increments of 10%, the household income of each decile group in the UK. It is based upon a modified version of the OECD equivalised scale.  Crucially, it is not my data but the government's Office of National Statistics see here. The calculation factors in the number of dependents and the size of the household. Considering that rents are £8,600 & that dual energy bills are £1,400, one can quickly gain the impression that families are struggling worse than ever. With inflation running at 5% 23% Gas, 11% Housing, 8% transport, and wages growing at just 300 pennies a week over the year, life is now very unaffordable for millions.

This is a dismal fallacy, one that I shall attempt to get named 'Worstall's fallacy', in honour of the person who I first saw mention it (eg here).

He's looking at income before benefits, but then totting up all the things that people need to buy from their income after benefits. So he naturally will assume that we're a bunch of Tory baby-eating bastards, because he's deliberately ignored the welfare state, by which we help the very poorest in society. And that's a key mechanism by which the state alleviates the very problems he identifies.

Yet there's more. He has got his income from this table, which the eagle-eyed among you will note is a table of expenditures. He's taken the 'lower bound' information of each decile from the top of the table and multiplied by 52 to arrive at annual income figures. But that's not the average income for each decile. This explains why his graph shows that the poorest decile has income of £0, a clearly ludicrous position.

I appreciate that Eoin wants to show that the poor are poor. But abusing the data like this is hardly the way to do it.

Filed under: Economics with tags eoin clarke, eoinomics, fallacy, idiots, office for national statistics, poverty, tim worstall
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