May 2008

Erm, Richard?

The next step for the single currency will be for world commodity prices to be fixed in euros rather than dollars, a development that would also strengthen the arguments for UK membership. At present, manufacturers in Britain and, indeed, the eurozone are hostages to fluctuations in the US economy that have nothing to do with our suppliers or our own economy. Having world commodity prices fixed in euros would transfer the US\’s current economic advantage to Europe.

You do know that this is entirely irrelevant, don\’t you? That it makes not a jot nor tittle of difference what currency people use to trade commodities, don\’t you?

Or are you really this deeply ignorant?

Woth reading Martin Wolf on this issue.

Yes, Corbett really is that ignorant.


A very Froggie way to do it.

Now country and western has become so big in France that the country\’s bureaucrats have decided to bring the craze under state control.

The French administration has moved to create an official country dancing diploma as part of a drive to regulate the fad. Authorised instructors who have been on publicly funded training courses will be put in charge of line dancing lessons and balls.

If it\’s happening it must be regulated. No one must do anything without the intervention of the State….and we\’re in the same legal and political structure as these bozos? Can we leave yet?

But the most delicious part is this:

“I think this corresponds to the individualism of our times,” Mr Chauveau said.

State regulation, licencing, publically funded training courses, reflect the individualism of our times?

Hell, line dancing, where all make the same moves in unison, reflects individualism?


My Word, What a Surprise!

Volunteers with no experience of social work are successfully being used in a groundbreaking scheme to help the families of children on the at-risk register.

Two trials conducted over the past three years have led to the removal from the register of all the children involved, The Times has learnt. Crucially, the children have remained off the register. Nationally, two thirds of children who are taken off it are put back on again.

Amateurs do better than trained professionals, who would have thought it?

Of course, the amateurs are simply getting on with things rather than going to planning meetings on outreach projects to the excluded disabled minorty ethnic  people of alternative gender assignation meetings…..hmmm, I wonder, could that be the reason?

More Tesco Tax and the Guardian

I\’m not sure that the Guardian is doing itself any favours here.

In a response to a series of points prompted by the Private Eye story, a Tesco spokesman declined to address details. He said: "The Guardian has already admitted a serious libel against Tesco after the last time it conducted an inept investigation into our tax affairs. It appears from these further allegations that the paper is waging a vendetta against Tesco in order to, somehow, justify this earlier libel."

It\’s one of the oddities about libel law, that if you try and justify what you\’ve said, but still lose, then that very attempt at justification is seen as making the original offence worse. Which is why I don\’t think they\’re doing themselves any favours.

Tesco, the retail and property giant, is facing new allegations of seeking to avoid corporation tax on millions of pounds of profits through an offshore scheme.

The magazine Private Eye this week identified what it said was a Tesco tax avoidance operation involving a complex web of offshore operations centred on the Swiss canton of Zug. These arrangements involved an English limited liability partnership (LLP) called Cheshunt Overseas. Cheshunt is the name of the Hertfordshire town where Tesco has its headquarters.

The Cheshunt Overseas accounts provide grounds for believing that the structure may so far have assisted the international retailer in sheltering more than £66m in profit from UK tax.

Hmm, well…

Tesco appears to have used the structure to channel £1bn debt finance to other divisions of Tesco. The company says: "This partnership is used to fund our overseas businesses." As interest of £66m accrued to Cheshunt Overseas in 2007 these arrangements appear also designed to enable Tesco to defer (possibly indefinitely) UK corporation tax of £20m.

Umm, well, yes, given the way they describe it it\’s very likely that this will defer a UK tax bill. Because UK tax is only ever due on foreign profits when they are repatriated to the UK (in order, for example, to pay a dividend). So if you don\’t bring the profits into the UK, you don\’t owe any tax on them. There\’s nothing I can see dodgy about this at all: only repatriated foreign profits are subject to UK tax (at least as far as I know) so not repatriating them isn\’t tax dodging.

Richard Murphy of course doesn\’t agree but then so what? He\’s in fact completely missed which Treasury is losing from the arrangment, and it ain\’t the UK one. It\’s the ones in the countries where the money was lent, not us. And even then, there\’s nothing illegal or even dodgy about it.

Think through what the allegation is. Tesco has cash at some point in the company. Tesco also has other parts of the company that need to borrow cash for investment purposes. Fine, lend from one to the other. Charge an interest rate for doing so (which you do need to do, yes, you need to price internally just as you would on an external market).

OK, those foreign subsidiaries will be deducting the interest paid as an operating cost, as a cost of doing business, which it is. Those deductions will be the same whether they are borrowing from Tesco itself or from an unconnected bank. The Treasuries in those host countries do lose revenue, yes….but it\’s not because the subsidiaries are borrowing from within the Tesco group, it\’s because they are borrowing in the first place (because interest is indeed a deductible expense).

The one exception here would be if Tesco were charging an over the market interest rate so as to shift monies from those subsidiaries to Switzerland. But at £60 million interest on £1 billion that doesn\’t seem to be true. 6% seems fair enough for a commercial loan.

At the other end of the process, Tesco will pay UK tax on that interest received if it repatriates the money. If it doesn\’t no UK tax is due.

Think of it another way. If we replace Cheshunt Overseas with a Swiss bank, does anything change? The Swiss bank lends the money to the Tesco subsidiaries and they pay interest in the normal manner. The same loss to those Treasuries where the subsidiaries are and the same UK tax liability occurs: ie, none.

I have to admit that it\’s very difficult for me to see where the tax dodging is here. The tax situation is exactly the same as if it were being done as an arm\’s length transaction. So what\’s the problem?

One further amusement. Murphy wants country by country reporting and for all transactions and activities to be taxed where the economic substance of it actually takes place. The above would seem to match this….the subsidiaries are paying the right tax in their jurisdictions, for they pay the same tax as they would whether they were borrowing from Tesco or a Swiss bank (or, indeed, any other). Tesco itself shouldn\’t be paying UK tax on it as the economic substance of the transaction has nothing to do with the UK (indeed, under Murphy\’s rules it shouldn\’t pay tax even if it does repatriate such profits). And the money is being loaned from Switzerland just as if it were being loaned from a Swiss bank, meaning that the economic substance of the lending transaction is in Switzerland, and should thus be taxed there at whatever Swiss rates are. Which it appears to be.

So what\’s the problem and where is the tax dodging?

The Benefits of Offshoring

This is an excellent piece which deserves to be read in full. By shifting manufacturing offshoe Hornby has been able to reduce manufacturing costs, of course. But in the process it\’s raised total employment in the UK and those jobs here are in hte design side, the high wage end of the business. Oh, and better products and a wider range of them.

The workers there, the workers here, the consumers and the investors all benefit.

Long live globalisation, eh?

Government Explained

Dawn Primarolo, the public health minister, said: "Protecting children from smoking is a government priority and taking away temptation is one way to do this.

"If banning brightly coloured packets, removing cigarettes from display, and removing the cheap option of a pack of 10 helps save lives, then that is what we should do."

Eh? Since when was saving lives the only determinant of policy? Aren\’t we supposed to also weigh in the balance those little things called freedom and liberty? It\’s not so much these specific proposals as the ghastly arrogance with which they are justified.


Johnny Porritt asks a question:

"Moreover, the less well-off are being disproportionately hammered, and the hikes in fuel taxes are far from fiscally neutral and never have been.

So, economically, socially, ethically, what are the implications of all that?

Your thoughts really welcome. As the Government’s official advisers on such matters, what do you think the SDC’s advice should be?"

I answer.

The advice should be that the Government should be consistent. Looking at the Stern Review we get a social cost for CO2 emissions of $85 per tonne. That is thus the correct amount by which emissions should be taxed to cover their social costs (and yes, of course, this does cover climate change issues).

That translates into roughly 11 p per litre of petrol. The fuel duty escalator has added some 23 p since 1993 to the price of a litre of petrol (without this autumn\’s proposed rise).

Thus, if the government accepts the conclusions of the Stern Review, which it says that it does, it should cut fuel duty by 12 p a litre.

Anyone arguing that it should raise it further is simply rejecting the scientific consensus, aren\’t they?


So It\’s Not the French Then?

He sleeps in pyjamas, paints his walls yellow and over a year drinks 540 glasses of alcohol and has sex with his wife 117 times, as well as having erotic dreams 15 times a month.

She wears nighties to bed, likes baking, orchids and piling cuddly toys on the back of the sofa. She also has sex with her husband 117 times a year, consumes a total of 229 alcoholic beverages and dreams about sex five times a month.

For if it were they\’d have to include the numbers for sex with other people\’s husbands and wives, no?


Slightly alarming, don\’t you think?

That the entire global cooling of the 1940s turns out to have been based on errors in measurement (and yes, this does make me change my mind about that part of the story)?

What other parts of the narrative are down to such errors?

Yes, it\’s Tony Juniper Again.

This man is at the least economically illiterate and probably innumerate as well:

Going down the renewables and efficiency route will give us more jobs, more power and more security and, in the long term, for less money.

Creating jobs is a cost of such schemes, not a benefit. I think you\’ll find that when people turn up to work to polish the mirrors of your solar power system, they\’ll expect to get paid for doing so. If you\’re going to use any form of accountancy from the realistic side of this universe that cash flowing out to pay them is a cost, no?

So if we employ more people in this scheme, by creating more jobs, then it\’s very difficult to see how this is going to (other things being equal*) cost us less money.


* Yes, of course, there\’s the difference in capital costs, in fuel and so on, but that\’s why we build spreadsheets so that we can test the effects of substituting one for another. And no, as yet we don\’t see that solar is cheaper….something we can prove by simply pointing to the subsidies required to fund solar systems. And please don\’t start on CO2 emissions….solar PV releases some three times nuclear. The "creation" of jobs is to be analysed as a cost of such sschemes, not a benefit.

Weird Argument of the Day

Belongs to Alexander Chancellor.

One argument for taxing the rich heavily is not so much to narrow the wealth gap as to liberate them from their enslavement.

We\’re taxing you for your own good you know!

Sheesh. God forbid that we should have the Puritans back, running your life for you for your own moral improvement.


Dark days call for direct measures, which perhaps explains why Gordon Brown has taken to cold-calling members of the public who write him letters of complaint.

Although the majority of queries and complaints written to the prime minister get a polite, generic letter in reply, as many as two dozen people a week get a personal telephone call from Brown, according to sources close to Downing Street.

The initiative is thought to have come from his chief of strategy, Stephen Carter, former Ofcom chief executive, and is intended to show Brown is a listening leader in touch with the British people. PR Week reports that the calls are seen as a means to spread positive "word of mouth". A source told the magazine: "Carter thought it was a good idea to have Brown call people personally. Carter will choose a letter or email at random, have one of his team at Number 10 prepare a response, then get Brown to call."

Bit micromanagery isn\’t it?

Still, be interesting if he were to give this gentleman a call one day, wouldn\’t it?