The Murphmonster and incentives

He really doesn\’t quite get them, does he?

But I suspect there will only be one tax cut in the budget. Expect a further cut in the large company corporation tax rate to be announced – reducing it to 20%.

This is the one cut this country does not need. It will cost more than £1 billion and the benefit will go only to big business. But we already know from widespread reports from the Big 4 accountants, Ernst & Young, more than £700 billion is held in cash by the largest UK based companies right now. A tax cut giving them £1 billion will in that case make no difference to the economy at all: they have all the cash they already need to invest and aren’t doing so. However I expect dogma to over-rule common sense and for them to be given another cash give-away at cost to the rest of society and with the sole policy purpose of increasing the wealth divide in our society. But that, after all, is what Osborne is all about.

So companies have lots of cash that they\’re not investing. How could we change this?

Well, why not change their incentives to invest it? Like, for example, we\’ll take a smaller cut of whatever profits you might make by investing your cash? Could work, no?

And as to this:

In fact both tax cuts and spending are vital now. In combination the boost they will give the economy to get people back to work, off benefits and into paying tax will more than repay any short term increase in borrowing. This is the only rational policy for next week’s budget.

OK then. So let\’s stop pursuing that tax gap nonsense shall we? So that more money is left to fructify in the pockets of the populace? Sounds like a rational policy, no?

14 thoughts on “The Murphmonster and incentives”

  1. He must be after a lab seat in the commons or some award by the next lab government, A truly awful and stupid man.

  2. When he’s talking about increasing the wealth divide in the UK Murph says:

    “But that, after all, is what Osborne is all about.”

    Ok Murph, I see you now for what you are.

  3. I’m afraid I’m with the Murphmonster on this one.

    I find it very difficult to understand why Unilever or BP are going to invest more if their potential tax charge will be 20% rather than 21%. The reason they aren’t investing is either because demand is so low or they are being stymied by planning or other regulations (this is main complaint all business owners I know mention).

    The main argument normally used by proponents of a lower corporation tax rate is to attract foreign investment into the UK. A sound argument but at a relatively low 21% already and with all the other benefits that the UK offers (from skilled workforce to fun London restaurant scene) does a marginal tax change make any significant difference ?

  4. @Shinsei

    “I find it very difficult to understand why Unilever or BP are going to invest more if their potential tax charge will be 20% rather than 21%.”

    But do we really care about whether those two companies invest? Or those companies sitting on RM’s £700bn? These are big beastly bastards and they’ll do whatever it is they do if the return is there… 21% to 20% won’t be the difference (though, as part of the longer-term cut from 28%, it would tickle the cost-benefit analysis).

    No, screw them… it’s the SME’s that we’d like to see invest. That’s where the good stuff happens. That’s where innovation and employment growth happens. That’s where there’s not billions of quid sloshing around earning 0.8% on deposit. That’s where the overall quantum of CT cuts can make a difference.

  5. Shinsei,

    “I find it very difficult to understand why Unilever or BP are going to invest more if their potential tax charge will be 20% rather than 21%. ”

    Everything that makes up the cost/benefit in a cost/benefit analysis affects the likelihood of it being a good investment. If you have an investment that shows that you’ll lose

  6. “Well, why not change their incentives to invest it? Like, for example, we ll take a smaller cut of whatever profits you might make by investing your cash? ”
    Like Shinsie, I would also have doubts about that proposition. For different reasons.
    Companies invest on long time scales. The profits from investment, the corporation tax would be liable on, could be years away. Governments work on very short time scales. There*s absolutely no guarantee the corporation tax at the time the investments were yielding profit wouldn’t be at whatever level the then government dreamed up. Murphy had his way, 100% or higher.
    I wouldn’t invest in the UK economy. That*s a personal decision I’ve already made. I think it*s headed down the tubes, along with much of Europe. Only question puzzling me, is how much can be plundered whilst it does so. And how.

  7. @The Thought Gang

    I did say “significant” impact rather than just any impact, after all there will no doubt be a few investments that are only viable at a 21% rather than 20% CT rate.

    However I doubt these would make any susbstantial inroads into the

  8. @The Thought Gang

    I did say “significant” impact rather than just any impact, after all there will no doubt be a few investments that are only viable at a 21% rather than 20% CT rate.

    However I doubt these would make any susbstantial inroads into the

  9. @The Thought Gang

    I did say “significant” impact rather than just any impact, after all there will no doubt be a few investments that are only viable at a 21% rather than 20% CT rate.

    However I doubt these would make any substantial inroads into the £700bn cash pile large companies are sitting on. For that we need other measures to encourage investment.

  10. Shinsei1967,

    However I doubt these would make any substantial inroads into the 700bn cash pile large companies are sitting on. For that we need other measures to encourage investment.

    OK, what?

  11. “In fact both tax cuts and spending are vital now. In combination the boost they will give the economy to get people back to work, off benefits and into paying tax will more than repay any short term increase in borrowing. This is the only rational policy for next week’s budget”

    SUrely the most glaring fault is that Murphy doesn’t understand that part of the deficit is structural.

    We already have a huge stimulus of

  12. Huh? What happened there….

    We already have a huge stimulus of a budget deficit of £150 billion a year, QE and the loosest monetary policy ever. It still won’t close the deficit.

  13. Why is a cash pile treated as such a sin?

    All our friends on the left treat it as if its stuffed in mattresses. The reality is that it is available for investment /spending by those that wish to borrow it, which is currently predominantly the government.

    If the cash pile were smaller, interest rates would be higher, and state spending would fall, which under any other circumstances would be regarded as a catastrophe.

    In addition, companies who want to invest, and do not have a cash pile of their own, are also able to borrow more cheaply.

    The only people who should be complaining, are actually the fat capitalist pigs themselves, the shareholders.

  14. Why would a company want to invest in Britain when we have a ‘moral tax’ to be paid in addition to a legal tax. Don’t pay enough taxes? Maybe the government and media will spin things so you lose custom. Plenty of other countries without the idea of a moral tax on top of legal taxes that can be invested in.

    Some of those looking to invest as SMEs can be scared off too. How many people will choose to take on a Starbucks franchise these days? How many people will choose to take on any franchise from a multinational now?

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