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.

Occasionally

Most of my infrequent blogging consists of moaning about the state of affairs that we find ourselves in. Occasionally though, there is a blog elsewhere that one just wants to share. With this in mind can I direct you to this. May I also recommend that you read the comments?

Communicating with my MP

I sent the following email to my MP, Mr. Alok Sharma, today via they work for you. It said:

Dear Mr. Sharma,
Perusing the Pink Book 2010 (see http://www.statistics.gov.uk/statbase/product.asp?vlnk=1140) I notice that the net transfer of money from the UK to the EU institutions is £5,365,000,000 (section 5.1 Current Transfers, p, 80). Given that in 2009 we had a deficit of £32,000,000,000 (Figure 1.3, Trade in goods and service, p. 24) in trade in goods and services with the EU countries would you be so kind as to explain to me in simple terms why we remain a member of the EU? What benefit are we receiving for the £5,365,000,000 membership fee?

Yours sincerely,
Paul Coombes

I will let you know if I get a response.

University Education

In the paper edition of the Sunday Times, Chris Woodhead responds to a readers enquiry regarding the number of university students that were accepted on to courses in 2010 who have no UCAS tariff points. He cites values taken from the Higher Education Policy Institute report titled Higher Education Supply And Demand To 2020 written by Robbie Coleman and Bahram Bekhradnia, see here. Turning to table 10, 2010 applicants to UCAS by tariff points, we discover that an astonishing 35% of the intake last September had no UCAS points whatsoever.

Extract from table 10

As the authors point out in paragraph 28,

Unfortunately, the nature of these students with no UCAS tariff points are not known. Some will have overseas qualifications and some will have other, often professional, level 3 equivalent qualifications not recognised by UCAS; but it is reasonable to suppose that in large part they represent able people who left school with few qualifications, and who are seeking to improve their life chances.

Now, if the applicants were paying the full cost of their course then I would, indeed could, have no objection to this state of affairs. After all it would be up to the universitites who they do business with. The problem is that they are being subsidised by the tax payer which means that we are relying on the universities to choose their students well. The only measure I can find that gives some indication of how well the universitites choose their students is a table of Projected Outcomes (Table T5) on the Higher Education Statistics Agency website. There the projected percentage of non-completers for students that entered higher education in 2008 is 12.3%. Even the meanest interpretation of these values implies that at the very least 22.7% of the entrants with no UCAS points will finish their course. So it would seem, much to my surprise, that the admissions procedure is not as barmy as it would first appear.

Which leads me on to another method of selection, this time the selection of pupils for Reading and Kendrick secondary schools. Due to their history of using selection tests to determine which pupils will be offered a place they continue to do so with tests for both schools running at about 10 examinees per place. However, there is a method for parents to challenge selection which is enshrined in The Education (Grammar School Ballots) Regulations 1998. This specifies that if a petition can be raised containing signatures which represent a minimum of 20% of the eligible parents then a ballot can be held. The outcome of the ballot in the form of a simple majority will determine whether the schools are allowed to continue using a selection procedure. Incidentally the eligible parents are those people who are the parents of children at feeder schools. The definition of a feeder school is any school that has sent at least five children in total to these schools in this school year. Needless to say this is causing a lot of debate, mainly here and here, with commenter's quoting OECD and FSM statistics at each other. I have a vested interest in this matter as I have a son at Reading and a daughter at Kendrick. I am also a product of a Grammar school. I am a supporter of selecting people to determine the best education for that child but then given my situation I would say that wouldn't I? What I don't understand, and, incidentally, what makes my son most angry when this topic is raised, is when the subject of class or income is brought into the argument. There seems to be an assumption that academic selection favours the middle-classes and this is proven by the low percentage of pupils receiving free school meals. I would be interested to know what percentage of footballers were eligible for free school meals. My suspicion is that a far greater percentage than the national average of 20% would be the case but would that be a reason for me to suggest that Reading FC should cease to selcet its academy players purely on ability. Surely, as one comment  on the Local Schools Network says, what we should be rewarding are hard work, application and effort?

Interesting footnote: One of the founders of the Local Schools Network is Fiona Millar. According to Wikipedia she attended Camden School for Girls, then a selective grammar school, on Sandall Road in Kentish Town. Now Wikipedia may be wrong but I do know that her partner, one Alastair Campbell, went to a selective grammar school becasue he was in the year above me.

Marriage

You can't get away from that marriage and I make no apologies for referring to it myself because I think marriage is important. Consequently, I am happy to recycle a blog I originally posted on 13 July 2009.

Steve: I see that the Tories don't approve of giving cohabiting couples the same rights as married couples.

Dave: Is that right?

Steve: Yeah, they also want to make divorce harder.

Dave: Well, that's no bad thing.

Steve: You don't think so?

Dave: No, well divorce is painful and expensive, look at Brian.

Steve: He should never have married her in the first place. He was never home, that's why Sarah started to look elsewhere.

Dave: I suppose they should have lived together.

Steve: The amount of time Brian spent on the road you wouldn't have known that they were living together.

There is a short pause while both reflect on Brian's recent history.

Dave: Steve?

Steve: Yes?

Dave: You approve of cohabiting couples getting the same rights as married ones, yeah?

Steve: Yeah.

Dave: Well how do you know when two people are cohabiting, then?

Steve: They live together.

Dave: Pete and Sandy live together but they aren't cohabiting.

Steve: Given the fact that Sandy is a lesbian everybody knows that they aren't cohabiting.

Dave: So the difference between just living together and cohabiting is whether their friends know that they are cohabiting or not.

Steve: I guess so.

Dave: But what about Mark and that Susan, she started off as a flat mate and they ended up getting married. What if they had just moved into the same bedroom in the same flat? When would they have stopped being flat mates and become a couple?

Steve: Well, they started going out last November.

Dave: Should they have got married rights last November, then?

Steve: Well not until they had been going out for a while.

Dave: So, when then.

Steve: You remember at that Karaoke evening at The Bull when Mark announced the fact that they were engaged?

Dave: Yeah.

Steve: Well, people who want to cohabit should go through a similar sort of announcement so that everybody knows what they intend to do.

Dave: You mean announce your intention in front of a group of peers, friends and relatives.

Steve: Yeah.

Dave: But the authorities don't know that you have done that. They will need to record it somewhere so that everybody can tell from which date the rights begin.

Steve: Well, there could be a person who you went to and told and the rights would start from the date that you told this official person.

Dave: So it would make sense to invite your mates and family along to this telling the official so that it became a sort of celebration of your getting together?

Steve: Yes!

Dave: So, let's put that all together. If cohabiting couples want to get the same rights as married couples then they need to invite a few friends, peers and relatives to a special place where they stand up and tell an official person that they intend to spend the rest of their life as a cohabiting couple.

Steve: That's right! It's a good idea isn't it?

Dave: Steve, you plonker, you have just re-invented marriage!

Weasel Words

You will recall that just under a year ago I blogged about the word deficit being used as if it was the word debt. Well, another word is being abused. The word is re-structured as in ‘Greece is considering re-structuring its debt.’ Whenever you hear this sentence you should mentally change it to ‘Greece is considering defaulting on its debt’, for this is what is meant. Quite why this euphemism is being used I do not know.


Incidentally, if you were in a situation where you had accumulated a large debt, a debt so large that you could no longer afford the interest payments, would you consider it wise to solve the problem by taking on more debts? Of course not, but as far as I can see this is exactly the approach that has been taken by Greece, Ireland and Portugal. Given this illogical approach it would seem to be only a matter of time before all three countries eventually succumb to the inevitable re-structuring of defaulting on their debt. What happens then to the billions of pounds that we have given to European Financial Stabilisation Mechanism?

A Walk in the Park

This is an extract from a press release by the European Commission:

The European Commission today adopted a comprehensive strategy for a competitive transport system that will increase mobility, remove major barriers in key areas and fuel growth and employment. At the same time, the proposals will dramatically reduce Europe's dependence on imported oil and cut carbon emissions in transport by 60% by 2050.


To achieve this will require a transformation in Europe's current transport system. By 2050, key goals will include:
- No more conventionally-fuelled cars in cities.
- 40% use of sustainable low carbon fuels in aviation; at least 40% cut in shipping emissions.
- A 50% shift of medium distance intercity passenger and freight journeys from road to rail and waterborne transport.
- All of which will contribute to a 60% cut in transport emissions by the middle of the century.

[My emphasis]
I'll be 93 if this ever happens so it won't affect me too much but I still think it will make me angry. If you want to raise your own blood pressure, the press release is here.

It is really quite simple

As regards MPs expenses it is really quite simple, they should be subject to the same rules that any employee are subject to. There should be no special treatment for them.
The history of remuneration for MPs is quite interesting and it would appear to have been a contentious issue for a very long time. However, salaries for MPs only started in 1972 when they were paid £4,500 per annum. According to the Bank of England that is the equivalent of £46,307.46 in 2010 terms. The salary for an MP in 2010 was £65738 which means that their salary has increased by 41%* in real terms in 38 years. Can you think of any other job where the remuneration has increased by 41% in real terms for doing the same job?

* That is an increase of 0.926301% above inflation every year for 38 years.

Taking Us For A Fuel

Let's agree one thing, companies do not pay tax, they collect it. They charge their customers extra to cover the tax that they will have to pay and, ultimately, it is you and me, the public, who have to pay. I cannot emphasise this statement enough, it is always the public who end up paying for a tax whatever it is called.
So when I heard that the Chancellor had announced a £2 billion-a-year windfall levy on North Sea oil to fund an immediate cut in fuel duty of 1p per litre, I laughed. Did he really think that we would be taken in  by this prestidigitation? Now, I am sure that if you go out to a petrol station today then the price of the petrol they are selling will be less than the price were selling it for yesterday but it won't stay that way. I assure you that the increased cost of extraction due to this windfall levy will work its way through the system and we will end up paying for it in the end.
I don't know whether to admire the man for his chutzpah or to bemoan the fact that politicians apparently think we are collectively so stupid that they can get away with tricks like this.

What a State We Are In.

Very little time for blogging at the moment but I did want to share this which is a quote from A. J. P., Taylor in the book English History 1914 - 1945, published 1965.

“Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country for ever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. For that matter, a foreigner could spend his life in this country without permit and without informing the police. Unlike the countries of the European continent, the state did not require its citizens to perform military service. An Englishman could enlist, if he chose, in the regular army, the navy, or the territorials. He could also ignore, if he chose, the demands of national defence. Substantial householders were occasionally called on for jury service. Otherwise, only those helped the state who wished to do so. The Englishman paid taxes on a modest scale: nearly £200 million in 1913-14, or rather less than 8 per cent. of the national income. The state intervened to prevent the citizen from eating adulterated food or contracting certain infectious diseases. It imposed safety rules in factories, and prevented women, and adult males in some industries, from working excessive hours. The state saw to it that children received education up to the age of 13. Since 1 January 1909, it provided a meagre pension for the needy over the age of 70. Since 1911, it helped to insure certain classes of workers against sickness and unemployment. This tendency towards more state action was increasing. Expenditure on the social services had roughly doubled since the Liberals took office in 1905. Still, broadly speaking, the state acted only to help those who could not help themselves. It left the adult citizen alone.


All this was changed by the impact of the Great War. The mass of the people became, for the first time, active citizens. Their lives were shaped by orders from above; they were required to serve the state instead of pursuing exclusively their own affairs. Five million men entered the armed forces, many of them (though a minority) under compulsion. The Englishman’s food was limited, and its quality changed, by government order. His freedom of movement was restricted; his conditions of work prescribed. Some industries were reduced or closed, others artificially fostered. The publication of news was fettered. Street lights were dimmed. The sacred freedom of drinking was tampered with: licensed hours were cut down, and the beer watered by order. The very time on the clocks was changed. From 1916 onwards, every Englishman got up an hour earlier in summer than he would otherwise have done, thanks to an act of parliament. The state established a hold over it citizens which, though relaxed in peacetime, was never to be removed and which the second World war was again to increase. The history of the English state and of the English people merged for the first time.”

On a Lighter Note

See this for a list of some of the more bizarre complaints allegedly sent in by Thomas Cook customers. It is difficult to believe that these are genuine but if they are ...

Listen to your Leader

Via Witterings from Witney comes this, a message from Herman Van Rompuy, President of the European Council, talking about the European Council meeting on Friday 4 February.
.
There is a transcript of his speech here.

Incidentally, do you remember voting for him, for a single energy market, for interconnectedness, for one single market of brains? No, neither do I.

Update
Surprise, surprise, at 06.53 this morning on the Today programme on  BBC Radio 4 there was an article explaining how we need a European-wide network for electricity transmission in order to move "power from the sun in the south and from the wind in the north." How incredibly fortuitous that they chose to highlight this burning problem on exactly the same day as the Council of Europe are about to discuss it. Bizarre that the reporter never mentioned the Council of Europe though.

Wind Turbine Accidents

Thanks to EU Referendum I found myself perusing the "Summary of Wind Turbine Accident data to 31 December 2010". It is fascinating. Did you know that there were 18 incidents of blade failure last year? Or that pieces of failed blades have been known to travel over 1300 metres (6.5 furlongs or 0.8 mile)? However, for me the most remarkable fact is that there were 5 fatal accidents last year, clearly it is a dangerous business.

Statistics above come from Caithness Windfarm Information Forum (www.caithnesswindfarms.co.uk)

Wet

This is well worth watching, is safe for work and you don't need to hear it.



What would you do after that, especially if you were on your way to work?

Back Down to Earth

Since writing the previous blog I have discovered that Pekka Pohjola died 27 November, 2008 and Bo Hansson died April 24, 2010. What with the recent deaths of Gerry Rafferty, Pete Postlethwaite and Professor Sir Maurice Wilkes it would seem that I have reached a certain age.