From a particularly idiotic online petition:

Our tax chief had secret lunches with Vodafone and Goldman Sachs and then handed them billions in tax breaks – while keeping Parliament in the dark!

No. HMRC hasn't handed out tax breaks. It has taken a view on how the tax law should be applied and, in both cases, decided that it the benefit of settling now outweighed the cost of enforcement, taking into account the likelihood of success and potential impact on future cases.

The tax under dispute in the Goldman Sachs case is measured in the tens of millions, not billions. It's by no means a trivial sum, but it's a country mile from UKuncut's hyperbole.

The idea that HMRC kept Parliament in the dark is particularly lunatic. Parliament is an oversight body, not a managerial function. All sorts of activity takes place in government departments of which Parliament is unaware. That's why we put each department under the watchful eye of ministers. Ministers are then accountable to Parliament for what happens in their departments on their watch. 

MPs are outraged, claiming we are owed over 25 billion pounds in back taxes from these and similar dodgy deals. But the tax agency has blocked an inquiry into the scandal and refuses to release documents to shed light on why these tax breaks were ordered in the first place.

MPs didn't claim we are owed over 25 billion pounds of back taxes. The PAC report noted that there is some £25 billion currently under dispute. But that's not the same thing at all. HMRC thinks it is owed £25 billion but the taxpayer disagrees. Therefore there will need to be some form of dispute resolution, potentially involving the courts, to decide who is right. Do UKuncut really believe that the tax due is the amount HMRC asks for first time? Do they really believe HMRC never gets it wrong?

Tim Worstall covers this issue in more depth here.

By acting together now we can ensure full transparency on the Goldman Sachs and Vodafone deals, and get them to pay the tax they owe. Let’s turn up the heat -- sign the petition to David Cameron for tax justice -- we’ll deliver it with a splash next week.

I think you'll find that the Vodafone case is settled and that due process will make it impossible to reopen.

And let's all be thankful that we do actually have a process for determining the tax due in this country instead of the stupid Humpty Dumpty process that UKuncut seem to think they want. 

Filed under: Taxation with tags goldman sachs, hmrc, idiots, paye, tim worstall, ukuncut, vodafone
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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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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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cjcjc over at Worstall's:

With the Corporation so powerful it is no surprise that all the hedge funds set up in…Mayfair, while a whole load of banks set off for Canary Wharf

Filed under: Current issues with tags banks, canary wharf, cjcjc, corporation of london, hedge funds, quote of the day, tim worstall
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Jack Costello, over at Worstall's:

The veritable panoply of figures purporting to prove that middle-class incomes have declined over the past thirty years can’t overcome the fact that no one in their right mind wakes up in the morning and wishes it was still 1979, with the unreliable cars, cold houses, dearth of good food, bad tv, conspicuous lack of iPads, virtually no foreign holidays and a shorter lifespan.

Filed under: Other blogs, Politics with tags jack costello, living standards, quote of the day, tim worstall
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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
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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
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Nick Clegg calls upon his vast reserves of fuckwittery and, according to the Guardian, puts a stop to the idea that free schools might be able to make a profit:

Nick Clegg has thwarted plans by the education secretary, Michael Gove, to allow the new generation of "free schools" to make profits in the state sector after a massive ideological battle over the coalition's education policy.

The deputy prime minister will on Monday trumpet his success as one of three key victories achieved over Gove, which he says will ensure that free schools have to operate for the "whole community" and not just for "the privileged few" or for profit.

This is totally idiotic. As Tim Worstall points out, and indeed as the comments to the Guardian article make clear, it's easy to not make a profit. You just over pay for your expenses and undercharge your revenues. You will very quickly make no profits. This reveals Clegg's intervention to be Liberal Democrat shallow thinking at its dismal worst.

But, sadly, it's worse even than that. Implicit in lefty thinking is the presumption that, if only we allowed them to, free schools could educate vast numbers of posh middle class kids, obtaining far better results than existing state schools, while managing to cream off massive fees for their 'directors', pay their staff handsomely, charge enormous management charges for brands and other intangibles, but still - miraculously - turn a profit. It doesn't make any sense.

And, even if it did make sense, who could object to such a formula? If there were a button that could turn existing state schools into newfangled 'free schools' that operated along those lines, who could justify not pressing that button? "I'm not pressing it, I want students to languish in lower standard comprehensive schools!", perhaps?

The pursuit of profit has a long and noble history, as people have strived to find easier and more efficient ways of doing things. And, because the new way is cheaper than the original way, we thank the original inventor by paying him/her for dreaming up a new simpler method - be it dishwashing or transport, or any of the countless other simplifications throughout history. What can possibly be the ideological objection to profit-making in schools? Do people really believe that there are huge resources sloshing around state schools, ripe to be skimmed off by merciless capitalists? Existing private schools get better results, for sure, but they do so on the back of far greater resources. Surely private school results on state school resources must be the Holy Grail of teaching.

So who - other than teaching unions, perhaps (who have much to lose from greater efficiency in teaching - can possibly object to all this?

Filed under: Current issues, Politics with tags guardian, idiots, liberal democrats, nick clegg, teachers, tim worstall, unions
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Ritchie excels himself, with the following article about whether higher personal taxes will drive people out of the UK:

The latest ONS data on pop[ulation growth revealed the extraordinary fact that now we have a 50% tax rate in the UK fewer people emigrated.

 

Why is that?

 

Certainly it doesn’t suggest the rich are leaving in greater numbers.

 

Maybe it does suggest people like a more equal society.

 

And people came here in record numbers.

 

The myth that tax drives people away is, well, just a myth.

 

So’ like the rumour of fairies at the bottom of the garden shall we treat it as a load of old baloney - because that is what it is?

When challenged by his readers, he claimed that he was just being 'ironic' when in fact it's quite clear that he's being an idiot.

The factors which influence the decision whether or not to emigrate are complex. And it's obvious that tax will be one of these. If you're an entrepreneur and personal taxes in your country are 99%, then you will clearly want to move to a country with less punitive rates of taxation. But other factors are at work, such as the rates of tax in other countries, how easy it is to emigrate to another country, the languages they speak there, the system of laws there, what the weather is like there (yes, really), how easy it is to educate children there, and what the transport links are like.

Because there are lots of factors at work, it means that you can't meaningfully take simple observations and draw simple conclusions. You have to undertake a much more complex form of analysis, known as multivariate analysis. And even then you may only be able to draw broad inferences as to the direction of correlation.

Ritchie has shown time and time again that he is absolutely hopeless at multivariate analysis. He loves just to look at his desired outcome and a single variable and draw crass conclusions from random movements, while ignoring a whole host of other data included in the other variables. Two isolated observations, ignoring the other factors at play, are never going to be enough to work out what's really going on.

On the direction of correlation between taxation and emigration, which would ex ante appear to be positive, we can get some information from the team choices of NBA superstars (HT VeryBritishDude and Worstall). The article concludes that, in an environment where top pay is capped, NBA's top players choose to maximise their own personal take-home pay by choosing teams in low-tax states. This neatly eliminates a number of the possible variables that we identified above and leaves just a few, including the impact of personal tax rates.

What does Ritchie say to all this?

But you are showing weakness in multivariable (sic) analysis if you think tax the only cause

I don't. But because I really understand multivariate analysis, I know that a lower rate of emigration between two points is insufficient to conclude that higher tax rates do not correlate positively with greater emigration.  

Filed under: Economics with tags emigration, idiots, multivariate analysis, nba, richard murphy, tax avoidance, tim worstall, verybritishdude
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I sometimes (inadvisably) dabble in economics, so it's only fair that Worstall should have a go at accounting:

An online marketing company decides to treat online marketing as [  ] not an expense.

That's, umm, pretty good really.

Actually, irony aside, there are some reasons to be sympathetic to Groupon. Broadly, there are two approaches to accounting for your own marketing costs: you can either expense it as soon as you spend it, or you can capitalise it and amortise it over some future period.

Businesses, in their management accounts, probably think more like the latter. They are running marketing campaigns today in order to generate sales in the future. Otherwise, let's face it, they wouldn't do it.

Some marketing is very successful. Well, of course, otherwise they wouldn't do it. I can tell you that there's a website called confused.com because I hear young people saying they're "confused.com" (although God knows what you'd find there). I know that there's a series of advertisements with meerkats in them (again, dunno what for). And I can attribute "calm down, dear" to Michael Winner, not David Cameron's sexism. In all of these cases, various companies have - rather unsuccessfully in my case - tried to build their brand familiarity through marketing expenditure.

Accounting standards take a different approach. Because standards are based largely around balance sheet concepts, they seek to understand what asset might have been created once a campaign has aired. An asset in Accountingspeak is "rights or other access to future economic benefits as a result of past actions or events". Obviously, marketing provides no rights over your customers' money. They might buy, or they might go elsewhere. Even if you could argue for the creation of an asset, you would never be able to measure it with sufficient accuracy. So standards say to write the whole lot off.

This is intellectually coherent. But it does mean you've got a load of future sales that don't have the "full" cost of sales against them, because you wrote some of it off earlier.

The accounting standards approach also has the advantage in that, should a campaign fail, you've already written the costs off so there's no need to take further unforeseen expenses through the P&L.

Filed under: Accounting, Other blogs with tags accounting standards, confused.com, david cameron, groupon, marketing, michael winner, tim worstall
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