A little lesson in economics for Ritchie: the marginalist revolution

We all know that Ritchie didn’t pay attention to his economics lectures at university. He’s told us so himself.

I’ve also noted an interesting tendency of his to insist that it is neo-classical economics (not just the epithet of neoliberal such) which is wrong. Meaning that he’s missing the entire point of the marginalist revolution: things happen at the margin.

Which leads to this point of his today:

All the usual excuses are rolled out from HMRC before it is noted that:

The large-business service, which deals with the 770 largest businesses, collected an extra £3.17bn in tax in 2012-13, an 8 per cent drop from £3.44bn the year before – and a 25 per cent drop on 2010-11. Extra revenue gained from challenging large businesses over how much corporation tax they pay peaked at £4.1bn in 2010-11.

Let me suggest the two real reasons for the change.

The first is a lack of resources.

The second is a lack of political will: you can’t run a tax haven and then frighten business away by being aggressive.

Oddly, neither are mentioned by HM Revenue & Customs in the explanations they provided to the FT. And so the tax gap will keep on growing.

One point that is worth making is that less tax being collected does not mean that the tax gap is growing larger. Not necessarily at least: it could be that simply less tax is due.

But let’s look at his insistence that more resources are needed. We’ll simply note that he’s paid by PCS, the taxmens’ union, to say this and move on. To point out that the large business service has had more resources thrown its way. Yes, there are fewer taxmen in total but that specific sector of the HMRC has been beefed up.

More resources have been applied and the tax take as a result of those extra resources has fallen. We’re in that Laffer Curve world again. The answer to this of course being that those extra resources have been wasted. There just isn’t the amount of tax there to collect that justifies having more union brothers on the payroll.

We should therefore cut the amount spent upon this large business sector as we’ve clearly gone over the peak of where more resources leads to higher revenue. The very thing that Ritchie is complaining about leads us to reject Ritchie’s argument.

Not that this is the first time this has happened.

3 thoughts on “A little lesson in economics for Ritchie: the marginalist revolution”

  1. When adjustments can easily run into hundreds of millions, you only need one or two more or less in a year to swing the numbers significantly. There’s no need to look for anything more complex than that.

  2. Note that the peak extra tax collected was in 2010-1 under Osborne, not Brown. So “lack of political will” is not the reason for the subsequent decline – Osborne has been progressively stepping up his attacks on the egregious tax avoidance encouraged by Brown

  3. I would have thought the obvious answer is that corporations have take note of previous cases and adjusted their tax affairs accordingly.

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