Ragging on Ritchie

I\’m sorry, but this does make me snigger

Over the next four years the top rate of corporation tax in the country will be reduced from 28% to 24%, only paid for in part by a small reduction in the investment allowances large businesses (in particular) enjoy.

Small companies will, at the same time, see a fall in their corporation tax rate from 21% to 20%.

However, all is not as it seems. In the TUC publication The Missing Billions published in 2008 we showed that the effective rate of corporation tax paid by large businesses in the UK was no more than 22%. Subsequent data from H M Revenue & Customs published on their own web site has confirmed this estimate as generous – they show an average rate of 21% and that some large companies pay much less.

Now, do we all recall how Ritchie got to his estimate of the tax gap (for of course this is Ritchie)?

Yes, we do: he said that the headline tax rate is x, the actual tax rate is y and the tax gap is x-y equals loadsamoney. But what he didn\’t include in his calculations was that Parliament deliberately puts all sorts of things into the tax code, things that it really rather wants companies to do. R&D gets a 125% tax allowance for example, there are all sorts of capital allowances, no doubt there are ones that I\’ve not even dreamt of. But Ritchie counted all of these entirely legitimate uses of allowances, companies actually doing what Parliament wanted them to do, as part of the tax gap.

So, what the government is doing is reducing those allowances and offsetting this in part by reducing the headline rate. The headline rate will therefore be closer to the actual rate. X-y equals lessthanloadsamoney.

In short, given the way that Ritchie calculates it, the Coalition has just ensured that the tax gap will shrink, just as Ritchie desires.

And yet he\’s complaining?

And I see that others have the same thought.

Ritchie on t\’budget

This gamble will fail. Give it three years and, as I predicted on Radio 2 today, we\’ll be seeing unemployment at 4 million, almost no cut in the deficit and the coalition government a distant memory after its chaotic disintegration as backbenchers fled its ranks. Furthermore, a new government will be announcing a budget to tackle the mess that George Osborne has left.

Well, there we go, a firm and testable prediction.

Shall we all come back 22 June 2013 and see how well Richard\’s knowledge of economics stands up?

Glory Be! Ritchie cannot even read!

So we have a new bank levy – to be charged on bank assets.

Err, no.

Plans for a global bank levy took a major step forward on Tuesday as the UK announced it would raise £2.5bn with a tax on bank balance sheets and the leaders of France and Germany called for the Group of 20 to reach international agreement on a similar tax……..The levy will have the secondary effect of encouraging banks to cut their reliance on short term funding – a major goal of global banking regulators – because wholesale funding of more than a year’s duration will be subject to a reduced rate of 0.02 percent, rising to 0.035 per cent, and tier 1 capital and retail deposits would be exempt.

We have a new bank levy – to be charged on bank liabilities.

Good grief, the man\’s an accountant and cannot even get which side of the balance sheet is which right.

Ritchie\’s found a new dupe

This time his same old report goes out under the banner of the Green Party, with Caroline Lucas headlining.

First up is the Green New Deal: they\’ve still not grasped that by making energy more expensive you destroy more jobs than you create in making energy more expensive. 2:1 according to that Spanish report.

Now the Spanish may or may not be right in their counting: but to, as the Green New Deal does in all its myriad appearances, claim that because a someone now has a job that nett jobs have been created is nonsense. We need to look at the effect upon unemployment of the rise in the cost of energy as well.

We also get a nice little chart about how the debt was brought down after WWII. With no mention of the budget surpluses that were run at the time: nor the inflation which ate into the debt. Tsk, tsk.

You\’ve already guessed that there\’s going to be the argument that pre 2007 spending was just fine and dandy, haven\’t you? It\’s revenue that\’s fallen off a cliff?

Entirely ignoring the point that to be properly Keynesian, back in 2007 and the years before, at the tippy toppy of a vast boom (the longest in our modern history) we should have been running huge budget surpluses. If you\’re a Keynesian that is. So that there was room for both fiscal expansion and also to take on the debt to pay for it.

A proper Keynesian would therefore place the blame with Brown….for not taxing enough or for spending too much (either way) in 2001-2007. A non-Keynesian might look at the same figures and simply blame Brown for pissing away all that money.

This is quite gorgeous:

The second step in this programme is to take
action to close down tax avoidance that exploits
loopholes in our tax system. In 2008 the TUC
estimated that there was £25 billion of tax
avoidance per annum in the UK. The figure has
been disputed – most recently by a coalition
government minister who on one hand claimed this
sum represented legitimate use of loopholes and
was not, therefore, avoidance and who then on the
other hand said the government was determined to
stamp out tax avoidance, leading to serious doubt
if he really understood what he was talking
aboutxvi. It has also been challenged by a Big 4
firm of accountants – but only because they said
that there really was no such thing as tax
avoidance at allxvii. We accept the TUC view that
there is serious tax avoidance in the tax system
– and that this is particularly problematic in
big corporate businesses. That is why many of the
legislative proposals to raise more tax noted
below are aimed at these issues.

That \”TUC reports that\” is in fact Ritchie himself making entirely absurd estimations of the amount of avoidance and evasion. He even says so himself in that very report: \”undoubtedly some of this is the result of legitimate uses of tax allowances\” or some such. And then goes on to insist that there\’s still that £25 billion missing.

And as to \”we accept the TUC view\” well of course you do. It\’s the same damn person writing both reports.

And guess what? We also get an echo of the report Ritchie wrote for PCS, the taxman\’s union. Yup, hire more union members!

But really, the very bestest is at the last. Here\’s their list of references:

The following documents are referenced in this report:
A Green New Deal, The Green New Deal group, New
Economics Foundation, London, 2008
http://www.neweconomics.org/sites/neweconomics.org/fil
es/A_Green_New_Deal_1.pdf
The Cuts Won’t Work, The Green New Deal group, New
Economics Foundation, London, 2009
http://www.neweconomics.org/sites/neweconomics.org/fil
es/The_Cuts_Wont_Work.pdf
A Socially Just Path to Economic Recovery: TUC
Submission to 2009 Pre Budget Report, Trade Union
Congress, London, 2009
http://www.tuc.org.uk/extras/pbrsubmission2009.pdf
A Code of Conduct for Taxation Richard Murphy,
Association for Accountancy and Business Affairs and
Tax Justice Network, London, 2007
http://www.taxresearch.org.uk/Documents/TaxCodeofCondu
ctFinal.pdf
Country-by-Country Reporting: Holding Multinational
Corporations to Account Wherever They Are, Richard
Murphy, Task Force on Financial Integrity and Economic
Development, Washington, 2009
http://www.financialtaskforce.org/wpcontent/
uploads/2009/06/Final_CbyC_Report_Published.pd
f
In Place of Cuts, George Irvin, Dave Byrne, Richard
Murphy, Howard Reed and Sally Ruane, Compass, London,
2009
http://clients.squareeye.com/uploads/compass/documents
/Compass%20in%20place%20of%20cuts%20WEB.pdf

Information Exchange: what would help developing
countries now? Richard Murphy, Tax Research LLP,
London, 2009
http://www.taxresearch.org.uk/Documents/InfoEx0609.pdf
Small Company Taxation in the UK: A review in the
aftermath of the ‘Arctic Systems’ Ruling, Richard
Murphy, Tax Research LLP, London, 2007
http://www.taxresearch.org.uk/Documents/TRLLPSmallBusi
nessTax8-08.pdf
Stemming the Flood, Richard Murphy, Trade Union
Congress, London, 2009
http://www.tuc.org.uk/extras/stemmingtheflood.pdf
Taxing Banks: A joint submission to the International
Monetary Fund, Richard Murphy, The Tax Justice
Network and others, London and Washington, 2010
http://www.taxresearch.org.uk/Documents/IMFTaxingBanks
.pdf
Tax Justice and Jobs: The business case for investing
in staff at HM Revenue & Customs
Richard Murphy , Tax Research LLP for PCS, London,
2010
http://www.taxresearch.org.uk/Documents/PCSTaxGap.pdf
The direct tax cost of tax havens to the UK Richard
Murphy , Tax Research LLP, London, 2009
http://www.taxresearch.org.uk/Documents/TaxHavenCostTR
LLP.pdf
The Missing Billions, Richard Murphy, Trade Union
Congress, London, 2008
http://www.tuc.org.uk/touchstone/Missingbillions/1miss
ingbillions.pdf
The Robin Hood Tax, London, 2010
http://robinhoodtax.org.uk/how-it-works/the-big-idea/

As far as I can tell, every single one of those reports was written by Richard Murphy. We\’ve not actually got any outside references at all: everything is built upon the Tower of Babble that the Great Man himself has been pumping out through various front groups over the past few years.

Every time one part of such a report is critiqued, critiqued to the point of being shown to be untrue, (as examples, the £25 billion lost to tax avoidance being an artefact of his refusing to recognise people doing what Parliament expressly wants them to do by using tax allowances, or his tax debts unpaid figure which includes all those people and companies which go bust and thus have no money to pay taxes, his highly entertaining idea that raising tax rates on the highly paid will lead to greater market labour being offered (no, really, he thinks, contrary to what all of the research shows, that raising tax rates on high earners will mean their wives go out to work), his even more entertaining idea that a rise in CGT will produce more revenue….when our historical experience is that revenue fell when Lawson raised it and only rose again when the rate was cut….well, you get the picture, eh?), this same falsity is then laid out as fact in the next report.

A fact which relies upon no one bothering with the errors in the first report for its veracity.

With that list of reports you can see the stilts upon which this nonsense is balanced.

For more detailed rebuttals of each of most of the points he makes in these varied reports (and thus a snatching away of those stilts he supports this latest nonsense upon) just have a search through the archives here for \”Ritchie\”, \”Richard Murphy\”, \”our favourite retired accountant \” and even the \”Ragging on Ritchie\” category.

Have fun.

Interesting claim by you know who

It has its own currency, so it’s not Greece, because if you have your own currency you can’t default.

(And Ritchie says in comments \”As an economist I know how limited the accountants view of the world is\” which is really rather amusing.)

So let us look at the modern bible of defaults: This Time is Different. (Yes, I did get my copy as a freebie from the publishers and yes, it is worth buying if this sort of thing is your bag.)

Modern defaults (ie, post gold standard, post Bretton Woods fixed exchange rates, only countries with their own currency).

Algeria 1991, Angloa 1985, Egypt, 1984, Kenya, 1994, 2000, Morocco, 1983m 1986, Nigeria, 1982, 1986, 1992,2001,2004, South Africa, 1985,1989,1993, Zambia, 1983, Zimbabwe 2000, Indonesia, 1998, 2000, 2002, Myanmar, 2002, Phillippines, 1983, Sri Lanka, 1980, 1982, Poland, 1981, Romania, 1981, 1986, Russia, 1991, 1998, Turkey, 1978,1982, Argentina, 1982, 1989, 2001, Bolivia, 1982, 1986, 1989, Brazil, 1983, Chile, 1983, Costa Rica, 1981, 1983, 1984, Dominican Republic, 1982, 2005, Ecuador, 1982, 1999, 2008 (that last doesn\’t count as they had dollarised, maybe the second doesn\’t either), Guatemala, 1986, 1989, Honduras, 1981, Mexico, 1982, Nicaragua, 1979, Peru, 1976, 1978, 1980, 1984, Uruguay, 1983, 1987, 1990, 2003, Venezuela, 1983,1990,1995,2004.

And that is just external default: there\’s a whole other chapter on episodes of default on domestic debt to go as well.

Sure, some of these are wars, repudiations, regime changes and so on.

However, I think we\’ll take \”if you have your own currency you can’t default\” as being not true then, shall we?

On the rich capturing the State

In other words profits rise when state spending rises, not vice versa. Cutting state spending now is likely to reduce profits, that’s what the evidence says…….But it is outright class warfare as the rich seek to capture the state for their own benefit.

Guess who says that cutting state spending so that profits fall is proof perfect of the rich capturing the State for their own benefit?

Only Ritchie could say this

The man\’s sure up on his British political history, ain\’t he?

Before the election it amazed me that some from the same Manchester School of economics- like Giles Wilkes of Centre Forum were being called “progressives”. He wasn’t – he’s now a ConDem adviser. The positions are simply irreconcilable – and I bet he’s loving every minute of all the cutting he’s no doubt relishing.

As I suspect Clegg is.

These people infiltrated the Lib Dems better than the Trots (thankfully) ever did Labour.

Seriously?

Sure, OK, disagree with Manchester and all that but to call adherents of Manchester Liberalism infiltrators into the Liberal Democratic Party is showing the historical awareness of a wet cod.

Our favourite retired accountant does know that Cobden and Bright were founders of both, no?

So says Ritchie

Look, I know I make fun of the man but there is a reason:

I am incredibly worried about the impact of debt on society. No one is free when in debt.

This is said by the man who insists that we should borrow more money (through the government) in order to have further fiscal expansion.

So, can we objectively say that he wishes to increase our debts so as to reduce our freedom?

Or would that just be me being this appalling neo-liberal type who asks for consistency?

And barbequed babies, of course, for everyone knows that neo-liberals insist upon those.

I would have left this snark there but of course Ritchie doesn\’t allow people like me to sully his blog any more.

Tant pis.

Is it \’coz I is a neo-liberal?

Ritchie\’s throwing his toys out of the pram again over comments on his blog:

This blog is suffering another bout of comments from the fringes the political right wing. These people, who call themselves libertarian but whose whole object is to subject others to abuse, loss and poverty in pursuit of their own desire for wealth and power, present an agenda which is, thankfully, far beyond the bounds of political credibility in the UK.

Yes, he really does mean me .

And my being beyond the bounds of political credibility in the UK is a touch harsh: there\’s very little that I either say or believe that couldn\’t come straight from the lips of some Orange Booker. Perhaps the only major area of disagreement would be over the EU.

You know, like the new Business Secretary, new Deputy Prime Minister, new Environment Secretary, new Minister of State for Pensions and even our last but one Chief Secretary to the Treasury.

Which is an interesting definition of beyond the bounds of political credibility really (even though I too have trouble remembering that we\’ve actually got Lib Dems in the Cabinet now….I can just about remember when the jokes about getting all of their MPs in a cab were actually true).

So we shall just have to continue reporting and commenting upon our favourite retired accountant from afar then as comments there from the likes of us will simply be deleted.

Yes, I know, this obsession is perhaps unhealthy: a little like poking the special child at school with a stick to see if his brains really will run out his ears when he loses it. They never actually did but I still have high hopes….

Slapped wrist for Ritchie!

So, Ritchie says:

There’s a perverse untruth about the fiscal deficit that the likes of the Institute for Fiscal Studies and their acolytes, like Stephanie Flanders on the BBC, keep going on about. This untruth is that we had one before 2008. The truth is that if government had accounted like a company – on an accruals basis – there would have been no deficit recorded at all.

Some horrible little fact checkers decide to have a look:

The Treasury, however, disagrees.

A spokesman told Full Fact: “[Murphy\’s] article misunderstands entirely the way we account for public finances. We already use accruals accounting.

“It\’s also quite wrong about the payment of tax lagging by a year. Many taxes are paid much earlier and corporation tax, for instance, can be paid slightly in advance.”

Independent experts are also sceptical.

Andrew Gambier, manager of technical strategy at the Institute of Chartered Accountants in England and Wales, says that the Government uses a mixture of accruals and cash-flow accounting, with items such as Private Finance Initiatives and state pension liabilities covered by the latter method.

Mr Gambier said: “I think Richard Murphy\’s argument is a nice try, but it\’s overly simplistic. I\’m concerned about him simply shifting the income graph forward a year.

“Large, profitable businesses making more than £1.5 million profit a year have to make payments on account of their corporation tax liability so they are already on an accruals basis. Also, as corporation tax is a small proportion of overall tax receipts it wouldn\’t make much of a difference even if he were right – and he\’s not.”

Both the Treasury and the ICAEW say his argument is, umm, full of shite.

Ouch!

As Ritchie himself says in his own comments section:

And if you deny that you know nothing of tax, accounting or economics

Ritchie doesn\’t like this!

The more you study economics the more likely you are to be Republican and to hold free-market views.

How terrible, eh? The more you study astronomy the more likely you are to think the Earth is not flat, the more you study physics the more likely you are to think that gravity works, not the Earth sucks, the more you study medicine the more likely you are to think that conventional medicine has its points as opposed to Mail style Woo!

The more you study economics the more likely you are to conclude that this capitalism/free market blend has something to do with the fact that we\’re rich enough to be able to study economics.

Such a shocker when the study of a subject actually teaches you something about that subject, isn\’t it?

But the best bit is this:

The other questions were: 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree).

How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.

Isn\’t it fun that someone has just published a survey which shows that those leaning rightwards (which is what Republican means, there are some as wet as Francis Pym was as well as those more forcefully righty) are indeed more informed as to the basics of the interaction between economics and the real world.

And what does Ritchie say about, no, not this survey, but that the economically informed lean right?

But it does show just how biased, opinionated and thoroughly normative economics is.

I had to go and look up normative economics just to check that I wasn\’t having a brain spasm:

It is common to distinguish normative economics (\”what ought to be\” in economic matters) from positive economics (\”what is\”).

Umm, those questions there and their answers are not normative economics at all: they are positive economics. They are not describing what ought to be: they are describing what is.

Normative economics would be such things as: the rich ought to pay more tax, the workers should get higher wages….positive economics is, well, OK, maybe they should but in the real world there\’s a limit to how much you can tax the rich before either or both future growth is constrained or tax revenues fall. Maybe the workers should get more: but at least at some level minimum wages curtail employment. Wishes and shoulds are wonderful but we do have to test them against what is.

And so on etc.

That is, it is Ritchie who is the great advocate of normative economics and us proper liberals who are the great practitioners of positive economics.

But then he did say that he didn\’t pay attention to his economics lectures, didn\’t he?

Ritchie on accruals accounting for government

Now this is actually interesting from Ritchie.

If we do a bit of accruals accounting we can close the government deficit. That is, recognise tax revenue when it becomes legally due (ie, when people do the action which leads to a tax liability) rather than when it is actually due or paid, then there was no deficit under Brown.

Well, yes, sorta. Because of course accruals accounting means that you don\’t just recognise revenues in this manner. You also recognise liabilities in this manner.

Which means that we have to add into the mix the state pension liabilities accrued, the public sector pensions liabilities accrued, the PFI liabilities accrued and so on: things which would rather blow out that deficit instead of contracting it.

Odd thing for an accountant to forget really.

Or is he an economist these days?

Don\’t raise taxes says the TUC (and Ritchie?)

So, a new paper from the TUC. Written, I suspect, by our favourite retired accountant.

There\’s the usual blather about an entirely unimportant hobby horse. The no VAT on packages under £18 from the Channel Islands…..this is 0.1% of the VAT tax take, even on their figures, and 0.02% of the total tax take. Rounding errors really.

But this is cheering:

\”At present we argue that there is no economic justification for…tax increases….\”

Excellent, so, perhaps Ricthis would like to stop plotting all those wonderful tax increases he has up his sleeves then?

Part of the tax gap

As we all know, our favourite retired accountant tells us that there\’s a huge amount of tax being left unpaid. One of the numbers he uses to get to his sky high estimate is tax debts….taxes which everyone agrees are owed but which never quite manage to get into the Treasury\’s coffers.

First Quench Retailing, owner of the Threshers off licence chain, crashed into administration last autumn owing HM Revenue & Customs £24.7m in unpaid VAT, excise duty and National Insurance arrears, new documents reveal.

That\’s where some of it is and it\’s very difficult indeed to see how it could be any other way.

If we\’re going to have a system in which bankruptcy is an option, in which bad businesses get swept up and the assets redistributed to those who can make better use of them (and this is absolutely vital to an efficient economy, that this happens), then we\’re always going to have instances where tax goes unpaid.

Which means that we really cannot just run around shouting that if only we collected all our tax debts then there wouldn\’t be any deficit. Because there are always going to be instances when there is indeed a tax debt but simply no money to pay the tax debt.

I can\’t remember whether HMRC is still a preferred creditor or not: doesn\’t matter, for there will still always be instances where this happens, given that tax is paid in arrears.

Oh, and as to the mooted new law about not selling alcohol below cost:

As soon as First Quench collapsed a fire sale of assets – and stock – began. Thousands of customers flocked to its stores to pick up cut-price bottles of wine and spirits.

How\’re you going to deal with that laddies?

How wonderful

Our favourite retired tax accountant gets a mention in The Guardian today on the issue of tax avoidance, tax evasion, tax debts and the tax gap.

It\’s worth reading the comments there. A goodly proportion of them are about how, umm, interestingly creative, Murphy\’s estimates are.

Perhaps the message is getting through…..

It\’s the way he tells \’em

Guess who?

Now I wonder why they looked at the USA when the proposal being made here is that CGT be changed so that it is paid at the taxpayers highest marginal income tax rate.

Nigel Lawson did that in 1988. As a result we have a case study on whether it worked or not reasdilty available.

The stats are here.

The yield rose by 68%.

Odd that the Adam Smith Institute didn’t spot that.

Do, please, look at those stats.

1) They are not inflation adjusted.

2) Anyone remember what else happened in 1988/89? No? How about the peak of the Lawson Boom?

Yes, how remarkable, CGT revenues rose in a boom.

Now, let us have a closer look. CGT revenues in 1987/8, the tax year before the rise in CGT rates, were £1,379 million. In 93/4 they were £710 million.

That may be many things (for example, the effects of booms and busts upon CGT revenues) but it most certainly ain\’t an example of a sustained rise in CGT yields from a rise in CGT rates.

This just in

From our favourite retired accountant.

The government has announced the first round of cuts in government spending. At just over £6bn they represent just 0.8% of total forecast state spending this year, and by themselves are insignificant to the economy as a whole.

Any government could make savings of this amount as part of regular spending reviews on an ongoing basis and they would not be noticed.

How excellent, eh?

We could cut 0.8% of GDP from the government bill on a regular basis….every 6 months or so….and no one would even notice. It\’s easy! Hurrah!

So, all we need is a decade of that, we\’ll slice 16% off the burden and have fructifying going on in pockets everywhere. Finally, a suggestion from Ritchie that I can really get behind!

This is more of the usual though:

This belief in so called ‘supply side\’ economics has been discredited worldwide: there is no evidence it works.

The evidence being that when places like Sweden *, New Zealand, Canada and so on faced towering debt burdens and sluggish growth, exactly these sorts of supply side policies, market liberalisations, are exactly what dragged them out of the cacky.

But there\’s none so blind who will not see and all that…..

*The welfare system that had been growing rapidly since the 1970s couldn\’t be sustained with a falling GDP, lower employment and larger welfare payments. In 1994 the government budget deficit exceeded 15% of GDP. The response of the government was to cut spending and institute a multitude of reforms to improve Sweden\’s competitiveness.

Arguments that don\’t totally convince me

Until multinational corporations are required to have non-execs from outside business they will not be brought to account.

And don’t argue the skills aren’t possible. We run governments on this basis…..

I can\’t say that I\’m entirely convinced that bringing the standards of transparency, effectiveness and efficiency of government to multi-national companies is actually a step forward.

Ritchie of course disagrees.