In other words, increasing the corporation tax rate kickstarts the economy in a way that a corporation tax cut can’t. And it pays for itself.
No Spud, no, it doesn’t. From your own workings:
Right now, and I summarise, with a corporation tax rate of 19% and a 20% allowance on capital spending a year a large company in the year that spends £100 on capital equipment gets a cash rebate of £100 x 19% x 20% = £3.80 in the year it spends the money. Tory plans to reduce the corporation tax rate to 17% reduce this to £3.40. That, to be candid, provides no incentive for investing at all. This is a tax system for rentiers and bankers. It does nothing at all to encourage any activity in the real economy where people work and value is created.
Now change the tax rate to 26% and offer 100% first year allowances and the allowance is worth £26, or near enough seven times more.
It’s the change in allowances which make the difference, not the corporation tax rate.
And it’s not even a cash rebate, is it?
Wasn’t this man an accountant once?
I suppose he does add value in some way.
All those students have to be retrained…
On reflection, that’s the broken window fallacy isn’t it?
It’s even worse than that.
There is no 20% rate for capital spending. Apart from limited 100% year one reliefs on limited expenditure or green tech (essentially), the top rate is 18%.
He doesn’t even know basic tax stuff now.
Murphy was presumably also bunking off his accountancy course when they did net present value calculations.
Businesses evaluate potential investments by comparing the cost of the investment (after tax reliefs) with the likely returns (after tax).
If you increase the tax rate, yes, you can increase the tax relief on investment and so reduce the net cost of the investment. But you also reduce the after-tax returns, so it doesn’t improve your investment appraisal.
Jim2
To be fair to the fat one, the reduction from 20% to 18% only happened in 2012. Can’t expect him to be that up to date.
Of course, even his figures are bollocks. It’s not looking at 100% v 20% (sic) it’s about timing. A business will know it’s going to get a tax write off over a number of years – closer to the economic life of the asset.
Then there’s AIA which is 100%. And short life asset elections which can accelerate allowances.
He’s dangerous. Just dangerous. He’s joined that tax advisory firm I’m always clearing up after “My Mate Down The Pub”.
When I was posted to Cyprus in ’76 the Brit UN guys there had a T-Shirt with the logo: “Fighting for peace is like fucking for virginity”*.
Perhaps we need a new one:”Taxing companies to create jobs is like fucking for virginity”.
*Probably not unique then but the first time I saw it.
In my experience, accountants don’t have a great grasp of cash flows. On the other hand, bankers don’t have a grasp of accounting.
OT: I was amused by the Lib Dems promise to fund education spending by staying in the Single Market (which assumes there is a benefit to doing so). But we are already in the Single Market, ergo there is nothing to be gained by staying in, or at least there is no more cash than at present. Still they seem to have fooled most commentators, and probably themselves too.
Andrew C
Forgive my ignorance, but what is AIA?
@Richard
Yes, he doesn’t understand NPV. He’s been quoted as saying that the “discounted” in discounted cash flows mean that the cash flows are ignored. He is an idiot.
@Theophrastus – annual investment allowance… You can spend a certain amount on certain things and claim 100% back (or something like that, too late in evening to dig out the fine details…)
Alex
An SME FD that doesn’t have a good grasp of cash is often one involuntarily looking for another job?
Bankers, agreed…
Looks like Labour’s latest suicide note has been leaked.
Theresa does look to be lucky; she’s having it gift wrapped for her and everything.
I’m waiting to see if this suicide note is better than the 1983 one.
I tried to have a discussion with him about NPV and cash flow once, made me wonder what the hell they teach chartered accountants as you’d never get through CIMA or ACCA with the level of ignorance he displayed, then decided on balance that it makes you wonder how he’s fulfilling CPD requirements and realise why they have them in the first place. Also agreed with the other comment that anyone with accounting experience in SMEs usually has an unhealthy obsession with cash flow
BniC
“NPV & discounted cashflows”
In fairness to him – this is going to hurt – he took the exams a very long time ago, probably never had to think about such issues in the type of small company tax practice he engaged in, and hence has long since forgotten?
His current CPD requirements are broadly relevant to what he personally needs to maintain current knowledge and expertise. In his case, some would argue that that would mostly be talking out of his backside? Suggests to me his CPD is pretty much up to date…
“Cash is king” – accountancy 101.
GlenDorran
‘He is an idiot’
Amen to that – easily the most ignorant commentator whose views get a wide airing on what the Corbynites describe as the ‘Hard Right’ BBC and Guardian.
Indeed. Wasn’t it Alan Sugar who pointed out many a profitable company had gone but because of lack of cash?
“Indeed. Wasn’t it Alan Sugar who pointed out many a profitable company had gone but because of lack of cash?”
If you are thinking back to the 1980s you may be thinking of Terry Smith, the UBS analyst who wrote “Accounting for Growth” which explained how many former stock market darlings had hit the buffers.
It is not an original idea. MBA courses usually push the idea that a company that grows faster than its annual return on equity will eventually run out of working capital, which means they invariably have to issue shares to stay afloat.
@PF “An SME FD that doesn’t have a good grasp of cash is often one involuntarily looking for another job?”
Indeed, but I was thinking more about discounted cash flows etc. Ask a banker whether he would rather receive x in 7 days or y in a month and he will check out the forward rates for three weeks starting a week ahead to see which to go for.
Ask the same question to an accountant and he will probably check whether the implicit interest rate is higher than the figure in his budget.
A budget is cash flows in and out so yes the accountant will take a different view as your paying more for being overdrawn than having money on deposit so the accountant is concerned more about surplus/defecit, add in multiple currency requirements with different timing and fx rate fluctuation and it can quickly become a complex model more like trying to forecast the weather than accounting
No – really???
Wow – that’s probably the most ignorant single comment I have ever heard for anyone with pretension to accounting, finance, or economic expertise. The Spud continues to amaze, doesn’t he?