Greece, the EU and You.

This article explains Greece's current predicament more succinctly and clearly than any other I have read. It also hints at the chaos that will ensue. I reccomend that you read it.

Avoiding the Real Problem

The comments about tax avoidance have started again. As always the word avoidance is bandied around so that it sounds like evasion.  In the 1936 case, IRC v Duke of Westminster([1936] 19 TC 490), with regard to the taxation affairs of the then Duke of Westminster, Lord Tomlin said "Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.” Thus it is perfectly legitimate for me to choose to use an ISA rather than any other savings vehicle; it avoids tax. I can choose to buy a book rather than the electronic version because it avoids paying VAT. So, when Nick Clegg says that people are angered by a "wealthy elite" who paid "an army of accountants" to avoid taxes, I don’t agree with him. I think it is the fault of what is purported to be the most complicated tax system in the world, a tax system that takes over 900 pages to detail. And who created this tax system, the very people who are complaining about it.

The solution is very simple and it starts by simplifying the tax system. It is not just me that is saying this; the Institute for Fiscal Studies is also calling for radical tax reform. In the online report Tax byDesign the conclusion includes the following statement (top of page 501):

One consequence of it, on which we have already commented, is the amount of taxpayers’ energy that goes into avoiding tax and governments’ energy that goes into combating avoidance. The more complex and inconsistent the tax base, the more avoidance will be possible and the more legislation will be required, so the more effort is put into shoring up tax revenues rather than into following a coherent strategy. Certainly, one of the central problems of dealing with tax avoidance in the UK has been the propensity of governments to tackle the symptom—by enacting ever more anti-avoidance provisions aimed at the particular avoidance scheme—rather than addressing its underlying cause—often the lack of clarity or consistency in the tax base. 

I suspect we are going to hear a lot more about avoidance and it will induce me to shout at the radio or television every time I hear it.

Dishonourable Honours.

Were you listening to Radio 4 around 6.52 this morning? If you did you will have heard an article that was ostensibly about the honours-for-cash storm-in-a-teacup that some sections of the media have tried to make into a big issue. The person being interviewed was the Chairman of the Committee for Standards in Public Life, Sir Christopher Kelly. Exactly the person you would want to be interviewed if you felt that political donations were resulting in honours being awarded. However, driven by interviewer James Naughtie, this quickly turned into a platform for Sir Kelly to push the committee’s proposals for public funding*.

Now, I don’t care for honours, after all, why should I be impressed that Dr Michael Leigh, for example, received the KCMG when it was apparently awarded to him just because he did his job? That people get honours for donating large sums of money to political parties should hardly come as a surprise to anyone and anybody that cares about it must be one of those already in the Westminster bubble. I do, however, get enormously exercised when anyone starts suggesting that my tax money should support political parties. Quite apart from the fact that my money will be going to support parties that I don’t support (all of them as it happens) the system ensures that no new party can compete. It obstructs the natural growth of new parties. It should be opposed at all costs.

Given the choice between a perceived abuse of the honours system and pblic funding of political parties, I would choose the former every time.

* See 

http://www.public-standards.org.uk/Library/13th_Report___Political_party_finance_FINAL_PDF_VERSION_18_11_11.pdf

The EU and the Euro

I am not so interested in the text that reiterates Bruno Waterfield's assertion that we will not get a referendum on treaty change (which, incidentally, is refuted by Richard North at EU Referendum) but in the illustration below it that shows how many politically important people work, or have worked, for Goldman Sachs.

Matt Ridley

Matt Ridley was the speaker at the Angus Millar lecture held by the RSA in Edinburgh on Monday 31 October. The Bishop Hill blog has posted the text of his speech on the topic of  Scientific Heresy. I recommend that you go and read it.

The Laffer Curve

The curve in this instance is the theoretical curve on a graph. Specifically, a graph that has an x-axis that represents the income tax rate in percent and a y-axis that represents the revenue generated for each possible tax rate. Initially one might expect the graph to be a straight line. Clearly the tax revenue from a 0% tax rate is 0. As the tax rate increases the tax revenue increases until all the income is received as tax thus the graph might look something like this:

However, a moments thought shows that this is not going to be the case. If you are going to be taxed at 100% of your income then you would not bother to work, why would you? You can sit at home doing nothing and be no worse off than working 40 hours a week. We can conclude therefore that the revenue generated from a 100% tax rate would be nothing. This means that we know four things about our graph.

• It must start at the point (0, 0) since a tax rate of 0% generates no revenue.
• It must pass through the point (100, 0) since, as has been discussed, a 100% tax rate generates no revenue.
• It must lie above the x-axis since We know from our own experience that a 20% tax rate raises something.
• It never goes below the x-axis since the lowest revenue that can be generated is zero.

These four facts mean that we can confidently conclude that the curve looks like this:

Given that the curve is as shown then we can further conclude that there is a point at which the revenue is maximised. In practical terms this is the point at which people decide that there is no point in working overtime or the effort of a partner working full-time isn't worth the income. This is the region where people start to decide that trading on the black market is worth the risk of being caught, the point at which dealing in cash becomes the norm.


This, then, is what is known as the Laffer curve. Unfortunately, the one potentially useful fact that we cannot glean form this theoretical curve is at which value the tax revenue starts to fall. Note then this news article which quotes the Institute for Fiscal Studies who estimate that the 50p tax rate is costing £500 million per year as opposed to the Treasury estimate of an income of £2,700 million per year. By 'costing' they mean that overall tax revenue is down which means that this tax raising revenue has made the country worse off. Let me repeat that, we are worse off. How rubbish must our tax collection service be that it cannot identify this decrease? Or, assuming our leaders were well aware that this would not increase the tax take, is it possible to believe that this tax rate was introduced for any reason other than to satisfy the politics of envy?

Vox Pop

In line with the fact that I am still too busy to blog at the moment I will offer another blog offering as a substitute, this time it is here. Do enjoy it.