@RichardJMurphy tries tax law: not a pretty sight

Following on here I am advised that the House of Lords agrees with Ritchie so there.

Richard Murphy ?@RichardJMurphy

@worstall Shame you ignore the fact that the House of Lords agree with me. But why let facts get in the way of diatribe?

This is what Ritchie says the House of Lords said:

Tax avoidance …. is a course of action designed to conflict with or defeat the evident intention of Parliament.

This is what the House of Lords actually said:

In order to understand the line thus drawn, submitted Mr. Henderson, it was essential to understand what was meant by \”tax avoidance\” for the purposes of section 741. Tax avoidance was to be distinguished from tax mitigation. The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hall mark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. Where the tax payer\’s chosen course is seen upon examination to involve tax avoidance (as opposed to tax mitigation), it follows that tax avoidance must be at least one of the taxpayer\’s purposes in adopting that course, whether or not the taxpayer has formed the subjective motive of avoiding tax.
My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of \”tax avoidance\”, the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in Ensign Tankers Leasing Ltd. v. Stokes [1992] 1 A.C. 655 at 675C-676F and 681B-E. One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of section 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of section 741 is a course of action designed to conflict with or defeat the evident intention of Parliament. In saying this I am attempting to summarise, I hope accurately, the essence of Mr. Henderson\’s submissions, which I accept.

It\’s worth noting that this was in the course of telling the IR (as then was) ever so politely to piss off and stop accusing a retired professor of tax avoidance.

This I think is the important part:

The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hall mark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option.

To take an example, the Greens. Parliament has expressly stated that the transfer of assets between spouses is not a taxable event, Parliament has also expressly stated that dividends from UK companies payable to foreigners non-resident nor domiciled in the UK are not subject to UK income tax.

Given that Lady Green really does own Taveta, which owns Arcadia, and that Lady Green is not resident or domiciled in the UK, her dividends are not taxable in the UK.

Allow us, just for a moment, to accept the Ritchie/UKUncut claim, that Sir Philip transferred these shares in order to avoid such dividend taxation.
But he has absolutely taken the economic consequence: he no longer owns those shares. They are not his property. He cannot vote them. If his wife decides to throw him out of the house she can and keep the property (until a very interesting divorce case at least). She can fire him from his job.

This isn\’t tax avoidance, this is tax mitigation, for he meets that test that Ritchie has pointed us to.

We can then trot through almost all of the cases that Ritchie regards as tax avoidance and show them to be the entirely legal tax mitigation. Using a personal services company? This isn\’t tax avoidance because one does indeed take the economic consequence of running a company. The costs of doing so.


Boots going to Switzerland? This isn\’t tax avoidance it is tax mitigation: they really have gone to Switzerland. Loading up on debt? Economic consequence is that you\’ve got to service that debt in an uncertain environment. Mitigation, not avoidance.

By pointing us to the law and going \”There! See!\” Murphy is actually revealing that his entire construct is nonsense.

Perhaps he\’d better stick to making things up rather than trying to deal with reality, eh?


But this is the problem Polly

The aim is to rubbish the poverty measure accepted by all international organisations and to call for new measures that ignore inequality.

All of those international organisations use a definition of poverty which is about inequality, not poverty. So if you wish to insist, as is perfectly reasonable even if you don\’t happen to agree, that poverty should be about absolute poverty not relative poverty then you\’re going to be entirely out of step with all of those international organisations.

For example, if we measure UK child poverty by deprivation then we\’re 9 th in the OECD (out of 29).

If we measure by relative child poverty then we\’re 22 nd out of 35.

That is, we are a more unequal country than many other places, thus we have higher relative child poverty, but we have less child deprivation than many other places that are more equal than we are.

It is indeed possible to discuss which measure we ought to be using: but all those international organisations measuring it only by relative poverty are rather closing down that conversation, aren\’t they?

The Greek solution


We could give it back to the Turks. Supporting Greek independence was always a mistake. Seems better than the last two solutions we tried – allowing some Germans to run it. Plus they had a third go in the 1940s. Never seems to work out well.

We can tell the Turks we will throw in half of Cyprus for free.

But would the Turks take it?

And SMFS gets this week\’s prize for the most outrageously wonderful joke of the week. Prince P, Duke of E, would approve.

The Glory that is Ritchie!

He\’s done a long interview. Here.

Anyone who wants to teach economics or accountancy these days has to subscribe to neoliberal economic thinking.

Blatantly untrue. Prem Sikka is a Prof of Accounting and he\’s certainly not a neo-liberal. George Irvine most certainly ain\’t a neo-liberal and he\’s a Prof of Economics. Murph might not have noticed that he\’s actually working with academics who refute his very own contention.

In my first year of economics and accountancy at Southampton University in 1976 to 1979, I realized that the assumptions that underpinned the course—including that competition was “perfect” and that this would always lead to “correct” outcomes in the markets—bore no relation to reality.

Absolutely no one at all believes this. Here, for example, are some extracts from the 2005 GCSE Economics syllabus.

The ownership, control, finance, management and aims of different forms of
business enterprise
Candidates should be able to:
 distinguish between different ways of organising production through private and
public enterprise;
distinguish between different ways of organising production through sole trader
and plc;
 distinguish between different ways of organising production through cooperatives;
 distinguish between different ways of organising production through municipal

The aims and effects of government intervention on producers
Candidates should be able to:
 illustrate knowledge of advantages and disadvantages of competition within an
economy (knowledge of theories of monopoly and perfect competition is not

So we\’re actually teaching the 14 year olds that there are advantages to not-competition?

The role of public enterprise and the arguments for and against privatisation
Candidates should be able to:
 give examples of public enterprise and privatisation;
 assess the arguments for and against privatisation.

The determination of the allocation of resources in different economic systems
Candidates should be able to:
 analyse the main features of market, state planned and mixed economies and
assess the advantages and disadvantages of each;
 distinguish between private and public goods.
The determination of price in market economies
Candidates should be able to:
 construct demand and supply curves from basic data;
 explain shifts of the curves;
 understand the market forces that determine equilibrium;
 explain the impact of government intervention e.g. taxes, subsidies, minimum and
maximum prices.

We\’re really not teaching them that competition unadorned is perfect, are we?

Differences and changes in factor rewards
Candidates should be able to:
 analyse the effects of changes in demand and supply;
 give arguments for and against government intervention e.g. wage and rent

I don\’t think that Ritchie\’s quite managed to prove that idea that the neoliberals have taken over the basic teaching of the subject, do you?

One of the things I recognized as exceptionally dangerous was the discounting of future cash flows, which entered mainstream economic theory in the 1950s and became prevalent in accounting from the 1970s onwards. What I found extraordinary about this was the assumption that you could dismiss the future consequences of current behavior and appraise it only with regard to its impact on the present. Of course that drives a short-term mind-set where business pays no heed to future consequences of its actions, one where all that matters is peak performance now.

Snigger. Discounting future cash flows is to bring the future in to influence the present. He\’s got it entirely arse about tip.

Modeling is now the bedrock for the teaching of all financial disciplines. However, future consequences are never built into the models, since they are literally “discounted,” which is a very close synonym of “dismissed.”

No, discounting is how we assess future consequences.

It has been undermined by the requirement that all accounting academics must have a PhD, which is quite a hurdle to jump and rules out a lot of talent.

Translation: I couldn\’t get an academic job when I left my marriage and company.

Ho hum

Freiberg Note

Here in Freiberg is the Mormon Temple for, umm, not quite sure, Germany? Eastern Europe? Certainly a large missionary centre for them.

I\’ve seen gaggles of them on the streets: yet I\’m accosted by them less than I have been in either the UK or Portugal. Hmm, \”accosted\” might be a tad harsh.

Anwyay, looks like that prophylactic consumption of Freiberger (as with almost all German towns, there is a local beer) seems to be working then.

This is a very strange Brad Delong piece

BERKELEY – Neville Chamberlain is remembered today as the British prime minister who, as an avatar of appeasement of Nazi Germany in the late 1930’s, helped to usher Europe into World War II. But, earlier in that fateful decade, relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Chancellor of the Exchequer Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory.


Our Neville became Chancellor in 1931.

Whereupon he got us off the gold standard and cut government expenditure.

It was a couple of years later, when the currency devaluation thing had done its stuff that he started to expand spending again.

I\’ve not got the numbers for the deficit or national debt in those years. But the idea that Our Nev did \”fiscal expansion\” in 31, 32, seems very strange indeed. Anyone know?

Polly can be ignorant at times

Start with taxing all incomes at the same rate – a worker on an average £26,000 is taxed £5,981, but someone earning the same in dividends pays zero. Those on the 50% tax band only pay 36% on their dividends.

Bleedin\’ \’ell Polly!

Don\’t you know that (in effect) basic rate income tax is collected on dividends by the company? The reason that no more basic rate is paid by the recipient is because we\’ve already used the company to collect it?

Another surprise!

Figures show that the gender pay gap has dramatically narrowed, leaving young women marginally ahead of their male counterparts for the first time.

Female workers aged between 22 and 29 earn just over £10 per hour on average, while men in the same age bracket are paid just under £10, the study found.

Given that young women, on average, now have more education, are educated to a higher level and have better grades in their education than young men this really isn\’t all that much of a surprise.

However, the really important thing is that the average age of prima gravidae has moved to just shy of 30. Thus all those things like maternity leave, career breaks, couple of years out of the labour force, deliberate choices about working hours and family life, these are extant only as echoes backwards in time.

“The gender pay gap may take another generation to close as the pay feeds through to the more senior workforce,” she said.

But that, I\’m afraid, I don\’t think is going to happen. For we\’ve not actually got a gender pay gap. We\’ve got a motherhood pay gap. And as long as it\’s mothers that do the bulk of the child rearing (which I pretty much assume is going to remain the case. We are mammals after all) then that gap is going to remain.

I can see the pay gap disappearing for those who don\’t take the time out: it\’s already gone in fact, single never married women make a fraction more than men in the same age cohorts. I can see it shrinking to almost nothing for those who take only the time out for the stitches to heal. But I can\’t actually see it disappearing altogether, on average across the population, while men and women with children continue to make different decisions (on average, of course) about who works flat out in the market and who works a bit in the market and bit/lot at home.

And I just don\’t expect that difference in choices to disappear. For as I say, we are indeed mammals.

Cousins doing art

An art project (I think this is what it is called? Performance art? Inclusive art? Participatory art?) being done by a beloved cousin.


If any of my readers who actually know about such artistic things (clearly, the familial art genes did not acumulate in me) would care to track down the project in London and give a more considered view space is available here for such a review.

@richardjmurphy new report: wrong on tax again

Ritchie\’s new report goes to great lengths to try and insist that corporation tax rates don\’t have very much effect on growth. Something which is true, no one has ever said otherwise, but then he takes the great leap into nonsense:

Mike’s trouble is I did not say it did not affect growth: read the report and it clearly says there is a link between corporation tax and growth. I did not deny it: I do not deny it.


In English that means that at most 7% of growth differences can be explained by differences in tax rates.

We\’ll assume he\’s got his numbers right.

But my point is that Devereux’s choice to ‘control’ for those other factors when coming to this recommendation ignores the fact that my findings suggest that those other factors explain 93% of growth and changes in corporation tax in countries comparable to the UK explain just 7%.

So, when making policy, and deciding how to allocate scarce resources would any rational, objective person, use corporation tax to stimulate growth when it is apparent that this has weak links with growth and that its impact is at best highly marginal or would you instead go off and look at and invest in the other factors that encourage growth?

The right choice is very obviously to look to recreate growth using other mechanisms.

Ah, no, that\’s the leap into the dustbin of bad ideas.

Recall what it was that the OECD was saying in the first place.

Different taxes have different effects on the rate of growth. No, not that taxation is the only influence on growth, that would be an absurdity. Just that *for the same revenue raised* you\’ll get more growth with one tax mix than you will with another.

And we can construct a table, as the OECD did do, which tells us which taxes *for the same amount of revenue raised* give us more or less growth. From the most growth *for the same amount of revenue raised* to the least growth *for the same amount of revenue raised* it\’s property taxes, consumption taxes, income taxes and then with the very least growth *for the same amount of revenue raised* we get capital and corporation taxes.

And Ritchie has calculated that this effect might be able to explain 7% of growth at best (for he is indeed looking at only corporation tax rates and growth).

Which gives us that lovely rarity in economics, the free lunch. By changing our tax mix we can have more growth than if we don\’t change our tax mix. If we have lower corporation tax than we do and higher VAT, or higher property taxes than we do, then *for the same amount of revenue raised* we\’ll have more growth. Our children will be richer by our doing this.

So, is this what Ritchie does? Says that, well, of course corporation tax rates are not the whole story but the evidence is clearly that lower corporation tax will boost growth and therefore we should have lower corporation taxes?

No, don\’t be silly, of course he doesn\’t. He says that given that there is a free lunch we shouldn\’t eat it.

He makes the choice ‘do you cut taxes, or not?’. Well if that was the only option then you might cut taxes. What my work shows is that Devereux asks the wrong question, uses statistics badly and as a result comes to the wrong answer, which is inevitable when your political blinkers mean you ask the wrong question, which is what I think he’s doing.

Quite. When Ritchie\’s research shows that cutting corporation taxes and raising other taxes so that we can go and do all of those other things as well, changing the tax mix *for the same amount of revenue raised* makes us better off, Ritchies\’s conclusion should be that we should change the tax mix *for the same amount of revenue raised*and also go off and do all of those other things with that revenue raised.

Which he doesn\’t suggest for when a report:

uses statistics badly and as a result comes to the wrong answer, which is inevitable when your political blinkers mean you ask the wrong question,

you will, as Our Retired Accountant From Wandsworth says, come to the wrong answer.


Well yes, Mr. Huhne

Huhne will say: \”If the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45bn over two years. This is not just far-off speculation: it is a threat here and now.\”

And of course your own plans to douple, triple*, the cost of electricity will have exactly the same effet.

Making energy more expensive will have costs for the wider economy, whether it\’s via a general rise in global prices or through your tariffs, taxes and quotas.

*Exaggeration for effect.

Anna Chapman

United Russia, the Russian prime minister\’s all-powerful party, has already pencilled in Miss Chapman as the next MP for the Volgograd region in southern Russia according to the daily Nezavisimaya Gazeta newspaper which said it had seen the list.

The former spy is all but guaranteed electoral success as Russia is a de facto one-party state and the United Russia party is expected to keep its dominant position for years to come.

Well, yes, I guess that does confirm that she actually was a spy then…..

Guardian editorial numptiness

What is needed is policy and a body which will support films that can secure European co-funding. Not Hollywood sell-outs but commercially successful British films with their own distinctive audience.

If they\’re commercially successful then they won\’t need taxpayer subsidy then, will they?