Ritchie writes at Lib Con

And I pop up in the comments:

\”the Ernst & Young Item Club now estimate that Britain’s large companies are sitting on a cash pile that between them that amounts to £750 billion.

To put that enormous number in context, it is enough to fund the budget deficit from 2008-09 to 2014-15 inclusive. Rather than invest large companies are simply lending their cash to the government.\”

Gosh, that\’s amazing Richard.

Because, do you know, there\’s some idiot out there on the internet who says that non financial corporate holdings of gilts are somewhere around zero.

You can see it here:

http://www.taxresearch.org.uk/Blog/2010/05/18/who-owns-our-debt/

You\’d really better go and straighten him out. It just wouldn\’t do to allow someone to remain in such error, would it?

12 comments on “Ritchie writes at Lib Con

  1. “2. It also denies the government essential revenue that is needed to close the deficit.”

    There is another way of closing the deficit…

  2. In other shocking news: the amount of money that people owed money are owed is exactly the same as the amount of money that people that owe money owe.

  3. Thanks chris
    So Murphy is wrong again – the number is £250m not £750m – the £745m is the *gross* amount of bank balances by “financial institutions” – some of which are funded by borrowings from banks but the largest part are insurance premiums which the insurers have to hold in cash or near-cash (including short gilts) until they have paid the claims and the policies have expired. Either Murphy is blaming the insurers for not using the premiums to make long-term investments instead of paying out claims when a house burns down or a car crashes or he doesn’t know what he’s talking about (or both).
    And the £250m is lent to the banks, not the government.

  4. I think the previous two commenters have got a bit mixed up.

    The £750 billion figure comes from Ernst & Young ITEM club. They state is the total value of cash sitting on UK corporate balance sheets – a bit like how Apple have (well did until they announced the recent dividend and share buyback plans) $100 billion sitting on their balance sheet.

    The E&Y source basically contrasts the public sector injecting cash into the economy (by borrowing) while the private sector takes money out of economy and is largely hoarding it (as cash/bank deposits) rather than investing it or returning it to shareholders.

    http://www.ey.com/UK/en/Issues/Business-environment/Financial-markets-and-economy/ITEM—Background

    One point Richie fails to mention is that this is not just a British experience. US companies, led by Apple, are also hoarding cash while both Germany and China aren’t spending theirs either.

  5. Logical inconsistency. If the cash is already lent to the government then it evidently isn’t enough to fund the deficit.

  6. Josh,

    It still doesn’t make sense. According to Chris’s link, the BoE figure for financial institutions’ M4 sterling liabilities to the non-financial sector at the end of February was £251bn. If Ernst & Young’s figures for non-financial corporate cash balances are correct, where on earth is the £500bn difference being held, because it isn’t anywhere in the UK financial sector?

    I’m just wondering if Ernst & Young have failed to eliminate non-sterling assets converted to sterling for the purposes of year-end financial reporting…..but if so they are bloomin’ useless accountants.

  7. They could have deposits in non-UK banks, in which case it would show up in E&Y’s accounts-based calculations but not the BoE figures.

    Fairly likely, since the biggest companies tend to be multinationals.

  8. Richard,

    yes, that would probably explain the difference. But it rather complicates things from Ritchie’s point of view. If those overseas deposits relate to overseas activities, then by claiming them for the UK exchequer he would undermine his case for taxation in the country where the activity takes place, wouldn’t he?

  9. Once again, thanks to Frances and, in this case, Josh for showing that I should not make comments on what Murphy has said because I can miss two errors when looking at a more visible third.
    BUT we are stuck with BoE figures of £250 billion for *all* non-financial companies with Murphy claiming that a sub-group has £750 billion on deposit.
    This is where I point out that I am not an accountant but belong to two professions, each of which has a higher standard of professional ethics and intellectual rigour.

  10. John77

    Actually in this case I think the real problem lies with Ernst & Young, who have been less than transparent in their production (creation?) of those inflammatory figures. Murphy’s mistake was to swallow the figures whole without asking how they were derived.

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