Ritchie has a go at me

And I\’ve left a comment there but shall add it here:


Firstly this:

“That foreign capital was not used to invest in Boots. It was used to acquire Boots. That is something fundamentally different of course. Investment requires the creation of new assets generating a tangible rate of return.”

Yes, I know that’s the definition you like but I’m afraid that it’s not the standard definition.


“Investment is putting money into something with the hope of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument.”

I’ll stick with the language as it is currently understood if you don’t mind.

Secondly, although I don’t actually use the phrase in that post I am of course pointing to the use of “thin capitalisation” as the source of the reduced corporation tax bill. Not the move to Switzerland, but the loading up with debt.

My source?


“The Mail looks at the case of Alliance Boots, which was bought up by a private equity firm in 2008 and shifted (at least its legal base) to a nondescript building, 94 Baarerstrasse in Zug, Switzerland. A company which had a tax bill of £89 million in the last year it was quoted on the stock exchange cut its tax bill to a tenth of that amount now – even though sales and trading profits have consistently grown. The trick it used was an abusive transfer pricing trick known as ‘thin capitalisation.’ It’s a horrible name, but the Mail explains it very simply, and very clearly.

As part of the takeover, Alliance Boots borrowed almost £9billion from various banks. That debt incurs interest, and interest payments can be offset against profits when calculating the company’s taxable income. A higher interest bill means lower profits — and less tax to pay.

I’m using your own organisation as my source.

It comes to something when quoting the Great Man\’s own organisation means that I am \”so clearly wrong\”.

And Richard has responded!

@Tim Worstall

That’s as lame as your original post

a) Your definition of investment is unrelated to tax – I sued a tax definition

b) Sure TJN can say thin capitalisation – which is widely acknowledged as tax abuse. But that’s avoidance which can legitimately be protested against – but you argue otherwise

You are, as usual, way out of your depth – and offered gratuitous abuse as a result aimed at those who clearly know a lot more than you

That was my point and you have proved it for me

Please don’t bother to comment again – my usual policy of blocking your comments precisely because of that abuse you promote will apply

I guess I should ask those who know more than I do then: is that the definition of investment in tax? Is thin capitalisation widely acknowledged as tax abuse? (GM traded for a number of years with a negative equity didn\’t it? Is that tax abuse? What about commercial or rental property where only a 10-20% deposit is used?) And isn\’t it just great that I\’m banned from commenting further on a post which is actually about me?

So we really should nationalise the banks then, eh?

Or turn them into mutuals perhaps: have the local politicians on the boards to make sure that what gets lent to has social value mebbe?

After all, we all know that it\’s this horible shareholder desire for profit which leads to the iniquities of the system: and more than that, the risk taking in pursuit of profit which led to the system falling over.

In fact, why don\’t we go the whole hog? Let\’s have nice little regionally based banks, not owned by anyone? Stick hte politicians and the unions on the boards, just to make sure that the wider interests of society are taken care of.

Obviously, we do still need to be pricing the products properly: making a profit being the measure of that. But not too much profit and if one of these banks does actually make one then they\’ve got to give it back to the community they made it from.

Yes, that all sounds really lovely, doesn\’t it?

Good, so, we\’ve just imported the Spanish Caja system into England.

Traditionally the regional savings banks in Spain have always played an important role in their respective regions, and enjoy a high profile in local communities, subsidising diverse cultural, sporting and educational activities.

Unlike other banks in Spain, Spanish savings banks are not owned by anybody and do not have share-holders. They are \”semi-public\” and their legal status is similar to that of a foundation and is defined by the national confederation of savings banks which decides how the banks should be run. In this sense, the boards of directors of Spanish Savings banks are perceived to be much more representative of the people they serve, because they have to include members drawn from local political institutions, their own clients (drawn each four years at random), and business associations.

By law, all yearly profits of Spanish savings banks must be spent on cultural and educational activities. Each caja de ahorros has a big department called \”obra social\” (literally \”social work\”) which organizes all sorts of activities related to themes such as environmental protection, health, adult training, activities for ageing people, art, music, sporting events etc. Programmes can be obtained at any savings bank branch.

Isn\’t that just lovely, non capitalist and communal?

Yes, indeed it is:

The cajas have long had confusing ownership and governance structures and disclosed far less financial information than other banks. Their boards consisted of local politicians, union members, clients and, in some cases, Catholic priests, many of whom were reluctant to relinquish their influence over lending decisions.


Spain plans to pour billions more euros into its troubled savings banks……In a first step, Spain is preparing to issue €3 billion ($4 billion) in debt in coming days, the people familiar with the matter said. Government officials are putting plans in place to eventually raise as much as €30 billion,……Another part of last year\’s rescue attempt was an injection of €11 billion via the newly formed Fund for Orderly Bank Restructuring. At the time, Spain said it could put up to €99 billion into the fund, but until recently had said further injections wouldn\’t be necessary. Now, it\’s reversing course……..Many of the cajas, which account for €1.3 trillion in assets—or 42% of total bank assets in Spain—used liberal lending practices to fuel a decade-long housing boom that went bust and left many of the institutions holding billions in bad loans and facing heavy losses.

Oh. Maybe it\’s not such a good idea after all: this is exactly the system which looks like it might bankrupt Spain.

Back to the drawing board boys and girls, back to the drawing board.

Dear Ms. Lucas

For example, evidence suggests that the vast majority households supported rationing, because it was fairer than the alternative of restricting food consumption through prices. Small individual action added up to a massive contribution: collecting food scraps – which due to rationing were nothing like the amount of food waste Britain produces today – was enough to feed over 200,000 pigs.

So you will be introducing legislation to allow the feeding of pigs with swill then?

No, really, the Soil Association is a trade union

And an extremely bad one for the rest of us as well.

The organic farmers\’ group the Soil Association objected to an application from Midland Pig Producers (MPP) for an intensive pig farm in Foston, Derbyshire, last summer, raising concerns in general terms about disease, antibiotic resistance and animal welfare in large pig herds.

OK, that\’s what they say.

For the Soil Association and many of the other objectors – 2,800 people worldwide objected to the first application – mega- farms represent precisely the opposite of a sustainable future.

They argue that the application represents a pivotal moment in which British farming is in danger of making another leap in intensification, squeezing out smaller mixed farms that they believe are more environmentally and animal friendly.

But that\’s what they mean.

Melchett has said he is happy to meet the company, but is alarmed by the way it has chosen to respond to his group\’s objections. \”It\’s the first time to my knowledge that a group like ours has been threatened for taking part in the democratic planning process, which is meant to be where citizens and those who represent different interests have the opportunity to air their case.

Quite, organic and \”small mixed farmers\” are one of those interests and the Soil Association is their representative. They\’re trying to stop this new pig farm because it will produce pork more cheaply than organic or small mixed farms can.

This is straight up use of the planning system to strangle economic competition.

Melchett is being as reactionary as any High Tory speaking in favour of the Corn Laws. In fact, the heir to the ICI fortune, the Old Etonian, landowning, third Baron Melchett is a reactionary High Tory, arguing that people should pay more for their bacon sarnies so that Old Etonian landowning peers can gouge more money out of them*.

Fuck \’im I say.

*Melchett farms beef not pork but you know what I mean.


Yes, quite right on the substance of the case.

And of course, Eljibiti is a word that we will all now have to use.

This is an order and yes, we must indeed remember Ms. Pisani as our source.

In which one of the country\’s leading tax experts reduces tax revenue while claiming to increase it

Rightie ho Richard:

Assuming the UK pay is pro rata world pay total remuneration in the UK will be about £1.6 billion. But, as Robert Peston suggested yesterday, this is not split equally of course. It goes about 80 / 20 – i.e. 20% of staff get 80% of pay. So, that’s average pay for 1,200 people of about £1.07 million – a total of £1.28 billion in all.

Now let’s suppose that the UK took a simple and straightforward step – entirely in line with the ConDem’s policy on pay, which is to say that maximum pay need not be more than 20 times minimum pay in the UK. The minimum wage works out to be around £12,000pa at present – so let’s say for ease maximum pay should be £250,000pa. Anything above that is, I think, a profit distribution. Bob Diamond could not justify why pay of this amount was needed. Nor can I.  In that case it is not incurred for the trade, I suggest. And in that case tax releif is not due on it.

Apply this rule to Goldman’s in the UK and of the tootle pay of £1.28 billion to its senior staff and just £300 million of that pay would be subject to tax relief. That would mean that £980 million would not get tax releif, which at 28% tax would raise £274 million in corporation tax.

Hmm, could there be something of a problem with this idea?

Well, yes, there could actually. For a start, the Coalition hasn\’t said anything at all about relating maximum pay to minimum pay across the economy: it\’s only within one organisation that maximum pay and minimum pay might, if we think about it a bit, need relating to each other. In the public sector to boot.

But there\’s another problem here, one that you might expect one of the country\’s leading tax experts to note.

We have another name for \”a profit distribution\”.


And we have a taxation system for such dividends.

Let us take that £980 million figure he uses there.

Currently, paid out as pay, this pays (as we\’re already well above the higher band tax limit) 50% in income tax. Plus from this coming year, 13.8% in National Insurance (oh yes, employers do indeed continue to pay national insurance, it\’s only employees\’ NI that is capped. And yes, employers\’ NI does come out of wages in the end, as Ritchie himself has said).

So we get, of that £980 million, 63.8% going to the Revenue*. £625.24 million then.

Now what happens if we do this as a dividend, a profit distribution?

Yes, we get that £274 million in corporation tax. However, we don\’t get 50% in income tax on what is received, because we already count that corporation tax as having been paid upon the dividend. You actually only pay 36.1% on the dividend that is actually paid.

That dividend actually paid is £980 minus the corporation tax, £980 – £274 is £706 million, which is taxed at that 36.1% which is £254.866 million.

And there is no National Insurance payable upon a dividend or profit distribution.

Add our two tax sums together and we\’ve £274 million in corporation tax and £254.866 million in income tax for a grand total of £528.866 million to the Revenue.

Which is, with a bit of rounding, £100 million less than we\’d get by taxing those bonuses as wages.

So there we have it, one of the country\’s leading tax experts has decided to reduce tax revenue while claiming to increase it.

And he\’s done it by reducing the amount of tax bankers pay on their bonuses.

And as Ritchie continually tells us, reducing taxation on the rich simply increases the amount that must be paid by the poor.

Why does Richard Murphy wish to oppress the poor so?

* This isn\’t quite right as the NI is in addition to the £980 million but I cannot be bothered to work this out.

Ritchie on inflation

This is amusing:

And they do not need to do so, because the reality is that this inflation is being imported. Russian wheat shortages, imported gas and oil (and we are now a net importer), imported food and increases in the price of raw materials are what are causing this inflation, in addition to the impact of VAT rises. The VAT increase apart none of these will be resolved by any action the Bank of England or the government can take – unless they are willing to regulate speculation in raw material and food prices by hedge funds and others which are no doubt fuelling this crisis. So any action to reduce demand can only make this crisis worse for the working people of this country.

He\’s forgotten about exchange rates. Other things being equal, a rise in interest rates should raise the value of the currency. Thus higher interest rates would reduce imported inflation as sterling rose against other currencies.

But what\’s really amusing is that Ritchie is arguing for continued inflation: not an absurd idea by any means. But rather strange from someone who insists we should all be saving for our pensions in Green Bonds paying 3% interest: when inflation is 3.7%.


So, we have an innovative product–a mini-book that will sell for just $4–to tell us that we have stopped coming up with valuable innovative products.

Amusing really

The upper chamber of Spain\’s parliament has caused controversy by allowing senators to debate in five of the country\’s languages, with interpreters employed to turn their words into a tongue they all speak perfectly: Castilian Spanish.

Critics claim that allowing senators to speak Catalan, Galician, Valencian and the Basque language of Euskara has turned the Spanish senate into a tower of Babel. They accuse the senate of wasting public money at a time of swingeing public spending cuts.

Of course it\’s a hugely political thing: one way of looking at Spain is that it\’s a Castilian Empire imposed upon the regions. Indeed, that\’s actually a pretty reasonable way of looking at it. And traditionally the conservatives have thought that this was just fine while the left has thought, again traditionally, that it isn\’t.

But what\’s more fun is that, Euskara aside, they\’re really just four dialects of the same language. Certainly no further apart than Geordie and Cockney in our own dear mother tongue. At least one of them (Galician) is mutually intelligible with Portuguese as well.

Perhaps we should introduce this into our own Houses of Parliament? So that the Honourable Member for Newcastle can speak to us in his rich, native, tones (assuming that such a pocket Labour seat actually appoints a local, unlike the neighbouring Hartlepool which got Mandy) and we have a bank of translators to make him intelligible to the rest of us?

Although it would be a little cruel, I know, to appoint a translator for John Prescott. How could anyone ever work out what he was trying to say so that it could be translated?

What is the connection between these two stories?

Bankers were accused of \”sticking two fingers up to austerity Britain\” after it was revealed that Goldman Sachs had handed its staff a £10bn payday as new figures showed unemployment among Britain\’s young people had hit its highest level since modern records began.

Data from the Office for National Statistics showed that one in five people under 25 were out of work by the end of November last year – a total of 951,000.

Meanwhile, the Wall Street bank Goldman Sachs\’s announcement that its employees – 6,000 of whom work in the City – earned an average of $430,000 (£268,000) in pay and bonuses in 2010, prompted calls from Labour for a repeat of Alistair Darling\’s City bonus tax.

I don\’t get it.

Youth unemployment: yes, we\’re in bad economic times and it will be the young and untrained, those with the lowest productivity, who get shafted.

It\’s also an entirely normal part of the economics of the minimum wage that it will be the young and the untrained, those with the lowest productivity, who will get shafted. So what we\’re seeing happening to youth unemployment is exactly what we would expect to be happening from the introduction of a minimum wage: don\’t forget, this is the first major recession since its introduction.

I wouldn\’t go so far as to say this proves the minimum wage is therefore a bad idea (although I obviously think it is) but the evidence before uas is indeed consitent with that position, that it is a bad idea.

But what\’s the connection between this and bankers\’ bonuses? Are we supposed to think that if bankers weren\’t getting the dosh then lots of young people would then find jobs? How would that work?

Isn\’t it actually the other way around? Firstly there\’s the 50% take the taxman gets of that dosh. But also, as good little Keynesians, we want money to move from where there is a low propensity to spend to where there is a higher one. You know, a little bit of boosting of aggregate demand?

And given that the corporate sector is stuffed with cash at present, moving money from a corporate to the employees of it will certainly increase the likelihood that that money is spent.

So as I say, I don\’t really get it: unless it\’s all just political. Look at the poor youth, look at the gilded excesses of the usurers. And policy should be based on more than that, surely?

The problem with taxing bankers\’ bonuses

An energy trader is suing BP for unpaid bonuses of $1.1m (£700,000), claiming that he made the oil giant more than $20m of profit in a single year.

It isn\’t just bankers who get the bonuses you see.

In fact, it\’s not even only bankers that play in the markets where bankers earn bonuses.

So restricting how much can be paid to bankers as a bonus, taxing them differently, even insisting upon deferred payment, could just mean that activity currently done within a bank will just be done outside it.

If your contention is that those with the ultimate taxpayer backstop should not be speculating, this is just fine of course. Although, in the UK context, it\’s rather difficult to insist that such speculation was or is the cause of our problems: Northern Rock went down over the funding system it used for its mortgages, not because of any speculative markets. RBS imploded because it had overpaid for ABN Amro and Lloyds is in the doo doo because of the merger with another failing mortgage provider.

But even if you do think this is a good enough reason, don\’t forget that there are no solutions, there are only trade offs. And one of these trade offs will be that such speculation moves out of the orbit of the banking regulators and: well, just look what happened to the unregulated shadow banking system, that one that existed outside the orbit of the regulators, indeed, that shadow banking system that grew up over the years precisely to be outside said orbit.

And there\’s nothing new or unusual about this problem: the secondary banking crisis of the early 1970s had exactly the same cause.

It\’s often better to have these things where you can see them, even if you don\’t do much about them, than try to do something and drive it all to where you cannot see, therefore cannot understand, them.


Unions said a proposed review of primary and secondary school subjects would render the curriculum unfit for the needs of a modern education system.

They insisted that a renewed focus on detailed subject knowledge was “elitist”

Very strange use of that word there. It\’s elitist to know things now, is it?

In which I agree with Richard Murphy

I am increasingly aware that people are now asking whether we can do without the investment banks – which are the toxic element of the banking industry. And increasingly I think the answer is an unambiguous yes.

Sure we can. Plenty of places don\’t have investment banks: no one had them three hundred or so years ago.

But you might also want to note that the absence of a vibrant Pyongyang capital allocation mechanism, the State monopoly on such in Havana, seems, to put it politely at best, somewhat deficient in the production of economic growth.

We can certainly do without the investment banks: the thing is, do we want to?

I admit I haven’t formulated the whole logic of the bank free alternative, yet. But it is something we need to do.

And I\’ll guarantee you that when you do you will have reinvented the investment bank.

The problem with Damian Carrington

And it really is a major problem.

Here\’s a piece about geothermal energy. OK, great, lovely, why not? We should indeed be looking at all possible sources.

What\’s the one really rather important thing that he doesn\’t mention?

Yup, that\’s right: price.


There is no shortage of energy: there\’s not even a shortage of useful energy.

There\’s just a shortage of useful non fossil fuel energy at a price we\’d like to pay. Which makes the price of alternative energy sources the most important point about them, not something to be ignored.

All of which means that Mr. Carrington gains this blog\’s highly coveted (and entirely new) \”climate change twat of the day award\”.

UK Uncut: blithering idiots

And ignorant to boot.

UK UnCut claims that since Boots, bought out by private equity firm Kohlberg Kravis Roberts in 2008, moved its headquarters to Switzerland, the tax it pays has dropped from 33% to 3%, saving £150m a year.

It isn\’t the move to Switzerland which has reduced Boots\’ corporation tax bill. Not, at least, in anything more than a very minor manner.

It\’s the interest bill it\’s paying which has reduced corporation tax paid.

The company was bought by loading it up with debt. The interest on that debt is therefore an operating cost of the company and so reduces taxable profits.

Do also note that it\’s not actually certain that such a manouvre has reduced total tax collected. Of course, yes, the debt has reduced taxable profits at Boots and thus the amount of tax that Boots pays. But the interest received by whoever does actually receive it is taxed at the level of the recipient. If it\’s, just as an example, a higher rate taxpayer who holds one of the Boots bonds, then they will be paying 40% (possibly even 50%) on that interest received: a higher rate than the 28% corporation tax that Boots would have paid without the interest bill.

And whining that all the interest goes to foreigners doesn\’t work either: what this means is that there\’s some £billions (whatever the number is) of foreign capital being used to provide luvverly shops and pharmacies for Brits to enjoy: us getting the benefits of foreign capital is a good thing.

I would bet reasonable money that not a single one of UK Uncut would be able to explain this story. Yet they\’ll still protest it: gullible, ignorant fools that they are.

Of course, don\’t look for those who do understand this (Mr. Murphy perhaps? TJN?) to bother to tell anyone. Gullible, ignorant fools are just what they need and are thus delighted to have.

What does \”nutritious\” mean?

Three people complained that the poster for Vitamin Water was misleading for using the word \”nutritious\’\’ in the catchline, with one of them saying they believed each 500ml bottle contained more than 30g of sugar.

Upholding the complaints, the Advertising Standards Authority said it thought consumers would understand the word \”nutritious\’\’ as a claim that Vitamin Water had added ingredients needed by the body in order to stay healthy.

Coca-Cola said the product actually contained 23g of sugar per 500ml.

All varieties of the product qualified for the category of \”low-calorie\’\’ drinks under European Union regulations.

Defending the use of the word \”nutritious\’\’, Coca-Cola said the product contained \”nutritionally meaningful quantities of several nutrients including 25 per cent of the recommended daily allowance of four B vitamins\” and \”100 per cent of the recommended daily allowance of vitamin C\’\’.

Might I suggest that the ASA bods try keeping body and soul together without ingesting calories?

Quite, calories are nutrition thus something which contains calories is nutritious.

My word now this is a surprise!

The EBRD, which is headquartered in London, said it had lifted the immunity of four Russian officials following a request from the UK Foreign & Commonwealth Office (FCO).

In a statement, the EBRD said: \”The purpose of lifting the immunity is to facilitate investigations by both UK police and by Russian authorities into alleged criminal activities.\”

One of the Russians is Yelena Kotova, the Russian director of EBRD. The other three, who have not yet been identified, worked in the Russian office of the bank.

The thought that Russian officials in a bank might take bribes!

Just so, so unexpected.

Interesting question for feminists

Edwards denied murder but accepted that he had committed manslaughter on the grounds of provocation.

The jury returned a not guilty verdict to murder but guilty on the manslaughter charge.

Mr Justice Andrew Nicol, sentencing, said the events of June 11 were “the proverbial straw which broke the camel’s back”.

Jailing Edwards for five years, he noted that he had shown genuine remorse.

We\’ve been told often enough that women who suffer abuse do not react like men do. That emotional (to say nothing of physical) abuse can indeed lead to a killing but that this should not lead to murder charges, indeed, some of the more vehement tell us that it\’s all self defence, not even manslaughter.

So, when a man suffers years of such abuse and kills, should it be murder? Manslaughter? Or simply self defence?

Energy company profiteering

In September, the firms were making £65 annual profit per customer but that figure is now £97 on a typical household energy bill of £1,200.

Well, yes, OK, but, umm.

How much capital are they using? A quick peek at the Centrica accounts (which isn\’t British Gas alone, I know, but using it as a proxy) shows that they have some £18 billion of assets upon their balance sheet.

And while you can indeed look at profit per customer, you should/could also use profit on capital being used as a measure. Or even how much capital is being used to service each customer and what would be a reasonable return on that?

Say it costs £1,000 in capital to service each customer (thus B Gas….and noting that this is Centrica, not BG accounts that we\’re looking at) is a £97 return, just under 10%, excessive?

I\’ve no idea what the actual numbers are mind, no intention of finding out either. But looking only at profit per customer without looking at the cost of the infrastructure required to supply that customer strikes me as being wrong.

And yes, whether that profit is going to a private company or to the State, if such companies were nationalised, makes no difference. We would still want to charge the market rate for the capital allocated to the sector, whoever owns it.