I wrote a while back about the Whole of Government Accounts project. As you'll recall, government received a number of qualifications in the auditor's report on the accounts because of the way it had failed to account for some things properly. And one of those qualifications was for failing to consolidate the nationalised banks into government's results.

OK, let's clear up some of the jargon in case you're struggling. "Consolidation" is the process of showing the results and financial position of a group of companies as if they were a single entity. This means you remove all balances and transactions between group companies and only show the true external position. In the case of RBS, that means removing the investment in government's books and bringing in instead all the revenues and costs and assets and liabilities.

Now, government really did not want to do this. They argued that this would lead to a strange set of accounts, given how big the figures are compared to the rest of government spending. Too bad, says the accounting standard in question, IAS 27, which explicitly forbids subsidiaries from being excluded from consolidation just because they're very different to the rest of the group ¹.

Indeed, the only exclusion that might apply to WGA is the concession that subsidiaries that are being held for disposal within 12 months need not be consolidated. But, if they're still there after 12 months, you have to consolidate them from the date of acquisition and restate your accounts accordingly.

This was all true even before the Hester bonus kerfuffle. But what the interference over his pay demonstrates is that government won't be a passive investor while the banks get back on their feet. Instead  it will be getting its hands very dirty by meddling in all sorts of operational decision-making. The remuneration committee had already approved his bonus, in accordance with the terms of the contract he signed with the previous Labour government. That contract is shredded today, thanks to Labour's naked and hypocritical opportunism, and the Tories' shameful lack of backbone.

Yet it makes it all the more difficult today to argue that RBS is a soon-to-be-disposed arm's length business. It's quite clearly just another political operation. So government will face increasing pressure to consolidate RBS when it issues the next set of WGA later this year.

Filed under: Accounting, Politics with tags banks, bonuses, conservatives, labour, royal bank of scotland, stephen hester
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I didn't expect this:

Democratic Audit told the inquiry on the basis of the Electoral Commission's register of donations, from 1 January 2001-30 June 2010, donations of £50,001 or more accounted for 41% of Liberal Democrat income, 54% of Conservative and 76% of Labour party declared donation income.

Who would have thought that Labour, of all parties, relied so heavily upon big donations to keep it solvent?

Filed under: Politics with tags conservatives, funding, labour, liberal democrats
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I've long harboured a deep hatred of Howard Flight. Some time ago, I saw him speak on (then) Shadow Treasury policy at an event in London. When the applause at the end was still dying down, he lit up a cigarette. OK, so this was before the ban, but it was still so, well, uncouth.

Not that long thereafter, he got caught briefing supporters before the 2005 election that the Tories would actually cut taxes by more once they were in power. Michael Howard was deeply unhappy with all this and deselected him. While he'd clearly created a shitstorm for the Tories out of nothing, this did feel unreasonably harsh, even at the time. It couldn't be admitted back then, but it did feel like Labour was out of control on spending and Flight offered a hope that their party would get us back on course earlier than Howard felt he could admit.

Perhaps it's how politics has to work. Five years on, Flight has his reward for going (fairly) quietly: a peerage. However, he's managed to upset people again by stating, in rather indelicate terms, that poor people respond to child-related benefits by having more children. Mindful that he doesn't actually have his peerage yet, Flight has beaten a hasty retreat.

But while I don't like the man himself, I admire his determination to say what he thinks, even if it's not politically correct or easy listening. Politics has become appallingly anodyne of late, where every minor misstatement becomes a significant gaffe thanks to stray microphones and Twitter. If politicians are forced to censor vast swathes of political debate because it's "nasty" then we are at risk of making terrible policy errors. So, rather than shouting down Flight or complaining about the way he said
it, shouldn't we worry about the impact of child-related benefits on people's decisions about timing and number of children? Indeed, wouldn't it be astonishing if it wasn't a factor in that decision?

As the saying goes, we should play the ball not the man. Like so many in the UK right now, I don't much care for the man. But I'll concede he's got good balls.

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

Filed under: Current issues, Politics with tags child benefit, conservatives, deficit, howard flight, smoking, twitter, welfare benefits
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The papers have eased off for a couple of days now.  But, let's face it, the problem is still there:  the coalition's proposals for stripping child benefit from families with a higher rate taxpayer do not work.  They cannot be made to work.  If it weren't for the one-way direction of the political process, they would already have been ditched.

Here's why:  to the extent that benefits are means-tested, they're done on household income.  By contrast, the coalition is proposing to means-test on the tax-paying status of one of the earners.  While HMRC can ask households to provide their income on a combined basis as part of means-testing, one of the advantages to child benefit has always been its universality and its design.  Because it's paid in most cases to the mother, while in most cases the main breadwinner is the father, it generally reaches children.

However, there are no current benefits that are based on the taxpaying status of either earner.  That's because, while salaried income can be forecast with reasonable accuracy, your taxpaying status for the year cannot.  This explains why the child benefit proposals now suggest that the means-testing will be on the prior year.

Yet that could produce some extreme unfairness.  Imagine a family where a higher rate taxpayer loses their job right at the end of the tax year.  Because of the year's lag, they could be prohibited from receiving child benefit for a full year, even while they have a much lower income.  And how will the system deal with couples that split up?  Will they be bound by the marital status from the year before?

Unfortunately for the coalition, married couples are under no obligation to reveal their tax status to each other.  It's a product of the decision from the early 1990s to abandon joint tax filings.  Because the proposal is to withdraw child benefit via the higher earning spouse's tax code, he/she may demand that the child benefit-receiving spouse hand the child benefit over as compensation.  The very idea that a taxpayer could be fined for not knowing about their spouse's tax status is ludicrous.

One way out of this mess would be to revisit the system of joint tax filings for married couples.  The Tories have said that they want to reward marriage through the tax system.  The best way to do this would be to let married couples file a joint tax return, letting them offset their joint pension contributions agianst their joint income, while taking advantage of both personal allowances and both basic rate bands.  Under this system, child benefit could easily be denied by means-testing the couple's income.  A couple that refuses to file together could still get child benefit if one of them has an income below the higher rate limit.  Note how I believe that it should be based on income, not taxpaying status.  I think it's a big mistake to encourage tax avoidance by such legal means as paying in pension contributions.

Another, as has already been suggested, would be to tweak the tax system to take it back off higher rate taxpayers.  A downside of this approach would be that it would tax those without children more.

But both of these would be practical.  The coalition's current proposals aren't practical and have some dangerous consequences.  We desperately need a rethink.

Filed under: Politics, Taxation with tags child benefit, conservatives, hmrc, married filing jointly
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It happens every year. Actually increasingly it happens twice a year. That is, people in positions of authority who have the 'bright' idea of messing around with our clocks. Don't these people have anything better to do?

Here's their basic idea. They've noticed that people use less energy after the clocks go forward in the spring. And that they use more energy when the clocks go back in the autumn. Ergo, the use of energy must be due to the hour of daylight this gives people at the end of the day. So let's change the clocks permanently to being an hour ahead, or two hours during the summer months, and we'll use less energy forever!  Profit!

The latest moron to take up this cause is Rebecca Harris, the Conservative MP for Castle Point, wherever the hell that is.  Her vain campaign aims to prevent the clocks going back tonight, so she has failed almost before she has begun.  Yet the idea that we should move to a GMT+1/GMT+2 system is even more stupid than the idea that we should move to GMT+1 without a summertime.

You see, we are at the westernmost point of Europe.  If we gave a stuff about Europe, we would get up early in the day in order to maximise the intersection between our working day and theirs.  But we actually start our working day later than many European countries, and that's before you take account of the hour's time difference.  By the time we finally stroll into work, at 10am European time, they've probably already been there for 2 hours.  Almost time for lunch, too.

Instead of messing about with the clocks, we should change the working day.  Government can't dictate to private businesses what time to start, but it can change the start of the school day, say to 8am.  And it can instruct its own employees to start earlier too.  The private sector would probably fall into line in due course.  We could all finish at 4pm instead of 5pm and we'd get our extra hour of daylight at the end of the day.

As for complaints from sports venues, they are even more stupid.  Football only starts at 3pm because it always has done.  If they really wanted, they could start at 2pm.  Wimbledon and cricket could start earlier too.  C'mon, most people start work at 9am.  Why can't tennis players and cricketers do the same?

Harris has been hoodwinked by a simple, but obviously false argument.  She honestly believes that it's better to change the clocks instead of addressing the more fundamental issues that in fact give us problems.  We choose to work 9-5, when we could just as easily work 8-4.  Let's deal with that instead of messing with the time of day.

Until she sees sense, she can be inducted as the latest clock sucker, that merry band of idiots who think it's that thing on the wall with two hands and a face that dictates when we get up.

Filed under: Current issues, Politics with tags british summer time, clock suckers, conservatives, cricket, greenwich mean time, idiots, rebecca harris, wimbledon
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So the notion of universal child benefit is finished, at least for now. The Conservatives have proposed to remove child benefit altogether from households with a higher rate taxpayer. But there remain some very serious doubts about how this will be implemented in practice. 

This is because the coalition proposes to remove child benefit from those families where there is one or more higher rate taxpayer.  Yet child benefit was always predicated as a payment that was made (ordinarily) to the mother regardless of household income or personal situation.  In doing so, it does more than almost any other benefit to improve child welfare.

And it's not hard to predict what harm this might do.  I'm reminded of Steven Levitt's "slaughter of the innocents" in which overnight seven million American children silently disappeared in 1986 when the IRS demanded, reasonably, that their parents provide social security numbers for the dependents for which they were claiming tax deductions.  As so many had simply been made up to claim the deduction, they were omitted from the forms in future filings.

Similarly, we should be aware of these intrinsic pitfalls when designing tax systems today.  It's madness to design a system that virtually persuades people to undertake tax evasion.  Even Ritchie thinks it's a bonkers idea.  Even those who fill in the forms correctly may find themselves claiming the benefit illegally if their income changes mid-year or if their circumstances change.  It will all rather depend on the way the law is drawn up, and it's pretty difficult to imagine a way that will be both fair and watertight.

Jon Stow portrays HMRC's proposal as an honesty box approach, and in the absence of other controls they rarely work.  We should be designing a system that encourages compliance, not evasion.

One such system, if Osborne is mad enough, would be to return to the family system of taxation abandoned absolutely yonks ago in the UK, but still alive and kicking in the US.  This allowed couples to file a joint household tax return and would be a massive sop to the middle classes by allowing a non-working or basic rate taxpaying person to pool income with their higher rate taxpaying spouse. This would have the advantage of providing a mechanism for forcing couples to share information on their earnings, which they are currently not required to do.  But HMRC would be able to remove child benefit only from those who elect to file jointly, which add to complexity and reduce the savings available.  Married filing jointly status would also reduce the overall tax take.

So we await details from HMRC on how they intend to navigate their way through this mess.  But it's looking pretty bleak for both the simplicity of the tax system and HMRC's ability to remove child benefit from those Osborne has singled out.

Filed under: Politics, Taxation with tags child benefit, conservatives, george osborne, higher rate, hmrc, jon stow, married filing jointly, richard murphy, steven levitt
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A common charge levelled against Conservative policies is that they embody the "I'm alright, Jack" philosophy. In other words, they just reflect an individual's own selfishness. And That Will Not Do.

There are more than a few problems with this line of argument. Firstly, it's on very shaky philosophical ground. Regardless of your world view, selfishness is just what human beings do, even if they see themselves as acting selflessly. Take Franny Armstrong, the hapless leader of the 10:10 organisation, recently eviscerated in the press for their stupid and ill-judged No Pressure campaign. Even someone like Frannie, who might claim to be acting in the greater good, can be redefined in terms of her own desires and beliefs which she is acting out. And, by that measure, she does what she wants rather than what anyone else wants, which is the dictionary definition of selfish.  (we can pass over, for now, the fact that she herself is responsible for many many times the carbon emissions of a 'normal' citizen).

So, given that selfishness is a necessary consequence of free will (at least as we ordinarily understand it), how can we usefully categories the Conservatives?  Conservative philosophy rests on the basic idea that society, not the state, is best placed to help others and create prosperity.  Conservatives believe that ordinary people are brilliant and, left to their own devices, will more or less just get on with their lives as they want.  It's the "You're alright, Jack" philosophy - the belief that people can - and will - succeed.

Compare this to the Labour message.  Labour believes that the state must help people. Left to their own devices, people will fail.  They are stupid, useless and incompetent and must be assisted by the state at every turn, or they will surely die.  This is the "You're not alright, Jack" philosophy, which seeks to enslave everyone to the state.

So, do you believe people can, or cannot? Whose side are you on?

Filed under: Ethics, Politics with tags big society, conservatives, franny armstrong, labour
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Via Twitter, we find the following in the Tax Journal:

The Chancellor has told MPs that they will be ‘pretty staggered’ by new, independent estimates of the tax gap.

‘Labour members seem to forget that their people were in power for 13 years. We have inherited this situation, and we will be taking steps to reduce tax avoidance, including tax avoidance by the richest people in our society, so that everyone makes a contribution,’ George Osborne said during a Commons debate on public expenditure cuts.

The Guardian reported that the figures would be published by the Office of National Statistics this week.

Osborne added: ‘We are putting in place the measures that I believe will improve HMRC and enable it to focus on reducing that tax gap.’

Ritchie will, for the second time in a day, be pleased as punch.  Yet I suspect this isn't the knockout punch he's hoping for.  This is probably a bit of Osborne politicking.  It's good to put the boot in to your predecessors, especially over something as emotive as tax.  If he can suggest that the last lot left unpaid tax with vested interests, it makes them look bad and him look good.  It also lets him keep the pressure up on big business, in case they get any ideas about how a Conservative government might treat them.

And that remains true, even if the tax lying in the supposed gap never gets paid (because it doesn't exist).  In the meantime, Ritchie is most welcome to address properly the criticisms of his prior work on the tax gap, such as his complete abject failure to account for double tax relief, or his gross overestimation of the tax gap that arises from the black economy.

Filed under: Politics, Taxation with tags conservatives, double taxation, george osborne, idiots, richard murphy, tax avoidance
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There's a simple ethics test.  You walk into a pub and there's a twenty pound note on the table.  You know it's not yours.  Do you pocket it or do you leave it?  Discuss.

Government proposals to fund the Big Society by raiding 'dormant' bank accounts suggest that they would soundly fail the test.  How can the government believe it is acceptable to use money in dormant bank accounts for any purpose?

A bank account necessarily belongs to the person who deposited it there. In today's modern climate, with all the checks and balances to protect against money-laundering and terrorist funding, it's inconceivable that any account could ever become truly lost.

How pathetic and supine are our banks for letting them do this.  And how pathetic are we for allowing our politicians to fleece us once through the taxation system and now again by stealing money straight from our bank accounts.

It was bad enough from Labour.  But the Conservatives have proven themselves to be equally immoral.  They should call a halt to this disgusting plan, immediately.

Filed under: Ethics, Politics with tags banks, big society, conservatives, dormant bank accounts, labour, money laundering
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A dilemma from Ritchie in respect of government food policy:

if the Tories want us to believe they are serious on obesity (and they say they do) then either they’re stupid or they think we are

I don't think the Tories are stupid.

Filed under: Other blogs with tags conservatives, idiots, pwned, richard murphy
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