Yes, it\’s another Ritchie report!

Glorious opening:

In ‘The Missing Billions’ tax avoidance by UK companies was estimated at £12
billion. That estimate is not updated here, largely because,…

No, sadly they don\’t go on to say the true reason why: it would just be so embarrassing to have to admit that this was one of the parts of that report that Mr. Murphy got so howlingly wrong.

Just to remind ourselves: Ritchie said here\’s the headline rate, here\’s the actual rate, the difference is avoidance. He entirely and completely ignored the various allowances that Parliament puts into the tax code so as to get companies to do the things that Parliament would like companies to do.

Not updating the estimate prevents people like me from screaming \”Told you so!\”.

Most especially though,
by paying particular attention to tax data in the accounts of the UK’s High
Street banks we show that those banks appear to have since 2008 accumulated
tax losses having a total cash value to them of approximately £19 billion.
These they can now offset against the tax payments they might owe in 2010
and onwards on the profits they are now making solely as a result of their
banking operations being saved at considerable cost by the UK taxpayer.
This is of great significance. At a time when everyone is supposed to be
contributing to the resolution of the UK financial crisis in equal measure it
would seem that the banks who created it, and whose losses were supported by
the government with taxpayer funds, will be offsetting the resulting tax losses
against their future profits for some time into the future.

Yes…and? You are taxed on your profits over time. You make a loss then you\’re entitled to have that taken into account when you do make a profit. There\’s a very good reason for this too. When you start up a business you expect to make a loss as you do so. The tax system recognises this and taxes only on your net profit over time, not insisting that you bear the losses but pay full whack if you do come into profit.

Richard wants to change this of course: retrospectively. Forcing the banks to pay more tax is much more important to Richard than anything so trivial as the rule of law or security of contract, of course.

There is no logic to this extraordinary situation. To give banks a second tax
subsidy on losses which have already, effectively, been borne by the taxpayer
and government is quite unnecessary, and economically inappropriate.

I think you\’ll find there\’s a really rather large economic literature on the necessity of the rule of law and security of contract you know.

What is clear is that the proposed bank levy now being considered will make
little difference to the overall contribution these banks will make to the cost of
remedying the mess they caused, not least if their tax payments in the UK are
reduced to anything like the extent their deferred tax assets might suggest
likely.

The bank levy is not to be thought of as a tax. It\’s an insurance premium (which is why it is only charged on liabilities which are not already covered by other forms of deposit insurance) on the deposit insurance that we taxpayers are indeed granting to the larger banks. It simply ain\’t a tax.

The current situation where
multinational corporations can appear to float above such geographically
based obligation is unacceptable to all organisations in civil society and
government and should be subject to urgent reform.

Crikey! \”all organisations in civil society\”?

I think you\’ll find that it\’s only ones that Ritchie belongs to and that most certainly ain\’t \”all of civil society\”. For example, I\’m part of civil society, as are you. The Adam Smith Institute is a perhaps more organised part of civil society, as is the Women\’s Institute, the RNLI and the Battersea Dogs\’ Home.

I\’m not sure about you but I know that I, the ASI, WI, RNLI and Battersea and it\’s inhabitants couldn\’t give two shits about corporations appearing to float above such geographically based obligations.

I once actually had this argument with Richard and his claim was that I couldn\’t be part of civil society because my heart was not pure.

This is quite glorious! Section 1 talks about the Missing Billions report, this new report and then says:

The extent of UK tax evasion has been most recently independently estimated
in a report for TUC affiliated union PCS, in which the sum was estimated to be
£70 billion a year5.

Richard Murphy wrote the Missing Billions report. Richard Murphy is writing this report and Richard Murphy wrote the PCS report. That\’s some interesting meaning of the phrase \”independently estimated\” there.

And this is absolutely hilarious!

This comparison of the headline rate of tax with tax actually paid might seem
a crude measure but in fact numerous academic studies have found that the
headline rate appears to be a major influence on business decision making
albeit that the effective rate is also of significance9.

footnote 9 is:

For example, see Do Countries Compete over Corporate Tax Rates?, Michael P. Devereux,
Ben Lockwood, Michela Redoano, 2005

That Mr. Devereux about whom Ritchie has said

\”But it does show just how biased, opinionated and thoroughly normative economics is. Prof Mike Devereux amongst others please note.\”….\”I know all the twaddle Devereux, Jim Hines and other aficionados of so called free markets that are anything but free put forward about corporation tax being a tax on labour. And I’ve also shown they are wrong.\”….\”If I might say so that’s a remarkably obtuse comment. No of course we don’t wasn’t a list of all your academic appointments Mike. But we do want to know about your conflicts of interest. Have you no perception at all about how to handle an ethical issue? It would seem not. Which explains a lot about your department.\”….\”What does this actually mean? Just this: create tax loopholes, prevent tax change to block loopholes, cut tax rates and then pay one of the least objective academics in the UK, Professor Mike Devereux of the corruption funded Said Business School at Oxford to undertake an annual review\”…

Yes, that Michael P. Devereux.

It\’s amazing how research is accepted from a source when it\’s agreed with, rejected when, as for example, Mr. Devereux points out that corporation tax is actually a tax upon labour and that the incidence of it, in the UK, is probably over 100%. Convenient eh?

This comparison of the headline rate of tax with tax actually paid might seem
a crude measure but in fact numerous academic studies have found that the
headline rate appears to be a major influence on business decision making
albeit that the effective rate is also of significance9. If, therefore, business takes
account of the difference between these two rates in making their decisions it is
entirely appropriate to do so for other purposes.

And to the major point: depends what you\’re trying to measure really. If you\’re trying to measure the amount of tax that those scabrous bastards aren\’t paying then it\’s not appropriate: if, that is, you fail to adjust for all those allowances that Parliament puts into the tax law so as to get those scabrous bastards to do what Parliament would like them to do. You know, like invest in R&D (125% allowance), workforce training, capital allowances (investment by corporations is GOOD!) and so on.

This is Richard desperately trying to worm out of having to admit to getting it wrong first time around.

Yup, page 9, he adjusts for goodwill and for deferred taxation: but not for allowances. His estimate is thus garbage.

Here\’s a fun little thing. If you were going to go and try and work out something about how those scabrous bastards in companies are ripping off the British tax system, you\’d take care to limit your studies to those companies which are in fact subject to the British tax system, wouldn\’t you?

You know, companies which are actually domiciled in the UK?

Not Ritchie though, that would be much too accurate. He\’s got WPP in there (domicile, Eire), BHP Billiton (some weird joint UK/Oz domicile) and Unilever (Dutch/UK isn\’t it?).

He\’s missed the point that you don\’t have to be UK domiciled to be on the London Stock Exchange nor in FTSE.

Tax expert, eh?

The effective rate of corporation tax paid by the companies surveyed fell from
just under 28% in 2000 when the headline rate was 30% to about 23% in
2009 when the headline rate was 28%. But, much more significant is the trend.
Over a decade the trend has been for effective corporation tax rates of major
corporations to fall by almost half a per cent a year with the trend rate in 2009
being just 21% – a figure 7% below the headline rate for that year.

Umm, OK. So, were there any changes in the allowances that a company could use over these years? I\’ve no idea but it\’s the first thing I would expect a tax expert, forensic accountant and one of the country\’s leading experts to tell me at this point. Even if it were to consider it so as to reject it. You know, \”this change to capital allowances will have had a small effect but not explain the whole amount\” or some such?

On the way that the banks will be able to carry forward their tax losses:

In this case the question must, and should arise, about the alternative tax
contribution banks can and should make if their corporation tax payments will
be substantially lower than might reasonably be expected in years to come.
This is especially true as it seems likely that no other corporate sector enjoys
anything like the tax benefit that banks now do as a result of losses that this
bailed out sector seems to benefit from.

Umm, no other corporate sector will enjoy such tax losses in the future because, erm, no other corporate sector has made such losses.

Jeez, it\’s not that hard is it?

As a result, action is now needed to ensure that banks contribute through their
tax payments to government to the extent most in the UK would expect so that
as cuts begin to impact on the UK economy as a whole they are seen to be
bearing their fair share of the burden for the consequences of their past
profligacy and recklessness. Without such action this will not happen, and that
is unacceptable.

In essence, Richard wants to tear up the rule of law, retroactively change tax law, so as to make sure banks pay more tax, the amount he considers acceptable rather than the amount either the letter or spirit of the law make them liable to.

Those companies which are leaving are making the point that it\’s not so much the amount of tax making them leave but the uncertainty. Not a great surprise when you\’ve got Mr. Murphy and the TUC insisting on ripping up contracts.

BTW, if we\’re allowed to screw people over, breach previous promises to them, why can\’t we do this to public sector workers with their pensions? Times have, after all, changed,  and we\’re already being told that people should bear their fair share of the burden for past profligacy and recklessness, no?

Not a great improvement on any of his previous reports: same mistakes being made with more being added.

7 thoughts on “Yes, it\’s another Ritchie report!”

  1. Page 25:

    “According to the Accountancy Age Financial Power List for 2009 Richard is the 25th most influential person in UK finance.”

    Should read:

    “According to the Accountancy Age Financial Power List for 2010 Richard is not a very influential person in UK finance.”

  2. Persons of a nervous of volatile disposition are advised (in the interests of their health and the integrity of their TV screen) to avoid, evade or mitigate, not their taxes, but their TV viewing, at 8pm on Channel 4 tonight (Dispatches: How the rich beat the taxman).

    I understand that R Murphy Esq. is expected to make at least 6 appearances on the programme and John Christensen will appear as well.

    The number of potential appearances by Noddy, Big Ears and the Smurfs is not known.

  3. Back to the days of “‘ang ‘im! ‘ang ‘im! Why aren’t you ‘anging ‘im? Look at ‘im. Anyone what looks like that MUST be guilty. ‘ang ‘im, I say!”

    Such is the progress the progressives wish to impose upon the rest of us.

  4. Pingback: FCAblog » Ritchie’s latest tax gap report

  5. By no possible stretch of the imagination could Richard Murphy be called a tax expert, except apparently by himself and the idiot journalists and others who take him at his inflated, pompous, self-important and utterly ridiculous word.

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