Vir Cantium

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Category Archives: Economy

Competition Is Bad And Must Be Stopped, Says @RichardJMurphy

This ‘competition’ thing really must stop. We need a level playing field. It cannot be right that car maker A who produces, say, a better quality vehicle for the same price as car maker B, can then take so many of B’s customers. Or that maker C produces a less well-appointed car than maker D, charges a lot less for it, and again takes so much more market share.

What about, instead of buying a car from our choice of dozens of manufacturers, we simply acquire a car from any one of them and then the price we pay is ‘fairly’ apportioned between all the makers – regardless of who you actually ‘bought’ the car from?

Of course, the method of calculating this apportionment ‘would be a huge task’.

Yet we could then apply the same logic to, say, the supply of and payment for state-run services. Maybe something like this intellectual colossus of the economic firmamentsuggests:

… we can recalculate what Amazon should pay here in the UK using the unitary apportionment formula method of taxation …. We split the profit in accordance with a formula.

…we need radical corporation tax reform in the Uk and worldwide. IUnitary apportionment formula taxation stops tax haven abuse of countries like the UK.”

Multinational siting HQ in low tax country shocker!

By ‘tax haven abuse’ Murphy means, of course, tax competition, and naturally the EU leans towards the view that while competition in the private sector is a Good Thing (and it is), when it comes to themselves tax competition between countries is a Very Bad Thing. We must create and maintain the cartellevel playing field and all that.

Ritchie does have it right, briefly, here though:

… we need radical corporation tax reform in the Uk …

We do – we need to abolish it.

P.S. Christie, as ever, has also had a swipe.

The Archbishop Wades In With Irony and Ignorance

It seems that a man whose career is built on faith in the supernatural and thinks Sharia Law is a good idea now supports the ‘Robin Hood Tax’.

I could just end the post there, really, but as I haven’t blogged for a week or so, I’ll carry on.

The Archbishop has clearly been taken in by the ‘it’s all the bankers fault’ fallacy. Need I point out yet again that for an irresponsible lender there must be an irresponsible borrower? I assume Dr. Williams is not in a forgiving mood. He has obviously had some divine gift in actually being able to ascertain exactly what the St. Paul’s squatters are on about. In his view, the answer is our old friend, the Robin Hood Tax.

This means a comparatively small rate of tax (0.05 per cent) being levied on share, bond, and currency transactions and their derivatives, with the resulting funds being designated for investment [sic] in the “real” economy [sic], domestically and internationally.

The Tobin Tax / Financial Transactions tax / Robin Hood Tax is unworkable, as to be truly effective all countries would need to impose it. That is not going to happen as there will always be those who see an opportunity to capitalise on other nation’s masochistic tax regimes.

Even as far as it does get imposed, the cost of such a ‘small’ tax – it would take £30bn out of the UK economy – will ultimately fall on us, not the bankers. That’s us, through our pensions, bank charges, insurance premiums, energy prices, in fact almost every day to day commodity uses the sort of financial instruments that the tax would hit. I’ve blogged before on it (look for the first comment on there – a good technical demolition of the tax). Furthermore, naturally, the better qualified Timmy has had a go this morning.

So that’s the ignorance dealt with, now for the irony. Let’s look at the irony of the Archbishop supporting a tax.

If we want to take seriously the moral agenda of the protesters at St Paul’s, these are some of the ways in which we should be taking it forward.

Moral? Tax is immoral. Yes, it is a necessary evil; it is the most practical way to fund certain indivisible public services, but far beyond that it is used as a (largely ineffective and counter-productive) tool of ‘social justice’ through the forced redistribution of wealth or supporting one group’s view of deserving causes. That’s the “investment in the ‘real’ economy” cobblers the Archbishop is coming out with. Let’s face it, if you were mugged it wouldn’t make the crime any less immoral if the mugger then donated his ill-gotten gains to the local homeless shelter, would it?

The fact is that if the Archbishop truly understood the issues that the so-called ‘anti-capitalist’ squatters claim to be concerned with, he would recognise that it is not capitalism that is the problem, it is corporatism, and more tax and regulation will simply push us towards more of the same.

As further reading I can recommend Alistair Heath‘s piece today, but for my part I will leave you with one last thought for the day. Previous high profile supporters of the Robin Hood Tax have included actors, Bill Gates (the visionary who failed to foresee the rise in popularity of the internet and smartphones) and, naturally, politicians (so no vested interests there then). With the exception of the last, these supporters hardly have any real influence on matters. If you think the Chief Executive of the Church of England falls into the same category, and that it doesn’t really matter if he wants to come out with such economically illiterate socialist cobblers, then I will just say this: ‘faith schools’.

“OK, but…” – Yes, It’s a George Osborne Speech #cpc11

In to the conference hall (my customary no-more-than-one visit to that glorified media briefing) to hear George Osborne’s contribution. It was a good speech from a technical point of view; it had a few jokes and he said what need to be said (S&P today reaffirming the UK’s AAA credit rating).

The Party has also learned a lesson from New Labour: that reannouncements work, as the morning’s headlines testified. Those in local government had it confirmed some time ago that the second year of the concil tax freeze was on, and so Labour were right that it was nothing new … but such details never stopped them when in government.

The interesting stuff was the small business ‘credit easing’ (is that a recognised term?) and the reigning back on the carbon emissions targets. The latter might also have the happy outcome of cheesing off Chris Huhne; as it was no doubt meant to, to keep us polar bear barbecuing right-wingers happy.

Yet just as with the Chancellor’s major parliamentary statements, such as the budget, the announcements among the cynical old timers could only lead to a muted “OK, good, but …”.

On small business lending, the banks are not avoiding lending because they can’t be bothered to take the time out from counting their bonuses and toasting their saviour Gordon Brown. Banks are nervous, quite probably over-cautious, and are looking to rebuild balance sheets and minimise the effects of any existing toxic debt. Presumably Osborne’s scheme, one way or another, will involve the government intervening in lending decisions (either by the banks or markets at large). Will they have available some secret font of wisdom as to whether businesses are being denied credit by a nervous bank, or if they are genuinely bad risks; be it because of poor management, business potential or more quantifiable matters such as collateral?

Having avoided the temptations of unfunded fiscal stimulus, an infrastructure bank or more direct means of forcing banks to lend, he must not, even unwittingly, spark the creation of another credit bubble.

Then we have the scaling back of the carbon emissions targets. Again, good on the face of it, but the acid test will be what effect it has on the climate change levy, fuel duties, feed-in-tariffs and carbon reduction commitment mechanisms, all of which are adding to living costs in the name of fighting climate change, sometimes with the most tenuous of justifications.

OK, that’ll do for now, back to the fringe guide to find something to eat before the Boris rally tonight.

Balls To the Bankers

As the currant bun, among many others, reports:

Balls has no regret over UK’s vast debt

[…]

Mr Balls told the Liverpool conference: “Don’t let anyone say it was public spending on public services here in Britain which caused the financial crisis.”

No, it wasn’t public spending that caused the financial crisis, but it is at the heart of the fiscal crisis. The financial crisis was caused by a credit bubble, formed by the bankers irresponsible lenders and borrowers, and which his government encouraged (or at least was happy to allow to continue, while interest rates were too low). Yet when that bubble inevitably burst it was the size of the existing annual deficit and the total public debt that left the country so poorly prepared. That, Ed, is what you should be apologising for.

But Mr Balls did admit to Labour “mistakes”.

They included the 75p pension rise, abolishing the 10p tax rate, weak controls on Eastern European migrants and failing to regulate the banks properly.

Ah, there we are: the banks.

Frankly, Labour blaming the bankers for the deficit is like a drunk driver blaming the tree that stepped out in front of him.

Let me do a picture for you, Ed:

If it wasn't for those pesky bankers ... in their time machines

Tessa Jowell (speaking on LBC radio on Sunday) might call it an underachievement of income (i.e. they didn’t tax us enough), but if I buy that Aston Martin that I cannot afford, it’s not because I’m undercharging my clients.

More pressingly, though, it’s not swivel-eyed right wingers like me you have to win over; it’s the people who put your leader where he is.

This Isn’t Just an M&S Parody …

This wasn’t just a gold sale,
This was gold drizzled away at the bottom of the market.

This wasn’t just a deficit,
This was a wholemeal structural deficit steadily rising over 9 years.

This wasn’t just overspending,
This is an artisan underachievement of income.

This wasn’t just printing money,
This was a jus of quantitative easing supporting a shell of faux growth.

This wasn’t a raid on pensions,
This was a delicate extraction of £5bn a year topped with a liberal portion of chutzpah.

This wasn’t just an end to boom and bust,
This was a conflate of bovine extract on a bed of debt and dodgy accounting.

This wasn’t just an economic balls-up,
This was a Labour economic balls-up.

‘Do Nothing’ Should be Osborne’s Plans B to Z

You’re the captain of the super-tanker ‘Tired Metaphor’. You’ve only been there a few hours, taking command with your plan to jettison a modest amount of the unnecessary and badly distributed weight, to allow the vessel to right itself and thus be steered away from the iceberg that those Mediterranean leaky buckets over there have been heading straight for.

But despite having nudged the wheel only minutes ago, you can hear the old captain down in his cabin. He’s been working his way through his drinks cabinet, and is now so blotto that he can’t even see the icebergs anymore and thus thinks there never was any problem, and is saying that you’re doing it wrong anyway because the tanker isn’t turning on a sixpence.

Labour's car scrappage scheme - were you stimulated?

Yes, the Left are whining that the economy isn’t booming yet, and if only George Osborne were to commence another spending splurge – a.k.a. ‘fiscal stimulus*’ everything would be OK. The economy is grinding to a halt and yet Osborne’s doing nothing. After all, the stimulus that Alistair Darling embarked upon was such a success, wasn’t it?

Err, no. Apart from the sickening sight of thousands of perfectly good cars being destroyed as part of the scrappage scheme (a bung for the motor industry dressed up in green clothing to get round EU state aid rules), the extra spending added even more to the public debt total, increased the deficit and yet as soon as the stimulus ended (as it inevitably had to, because there was no money left, remember?) everything drifted back to a near-halt.

This is the fundamental problem with ‘fiscal stimulus’. The ‘multiplier effect’ is a mirage because for every pound spent by the state, a multiple of that pound must first be generated by the private sector. It must be raised through tax, either now or in the future; the latter not only presenting a net drain on the economy, but also adding to upward pressure on interest rates. On top of that, the state pouring money (back) into the economy will be inflationary.

So, the Left seem to think that pushing up taxes, interest rates and inflation is the way to get the economy moving do they? Fiscal ‘stimulus’ may provide some short-term relief, but it doesn’t significantly shorten the time it will take for the economy to recover. The culmination of a twelve month recovery will be two years’ away if we embark on a year of ‘stimulus’.

The problems we have seen in recent years are down to one thing: debt. First, it was business and personal debt – specifically the ‘toxic debt’ – that gave rise to the ‘first’ financial crisis. (And no, its not just ‘the bankers’ to blame: for every irresponsible lender there must, by definition, be an irresponsible borrower.)

The shock of that episode then sent its waves towards the other great indebted institutions: governments.

It is the addiction to debt (and for governments its parents, interventionism and excessive public spending) that is the problem here. Not surprisingly, as with an addict in the early stages of their withdrawal, many people are screaming for more of their drug. Just as with drugs, the comfort that comes with another shot is short term. Just as with an addict, every shot puts off their recovery. “Just one more dose, please”, cry the Left (and, unsurprisingly, some sectors of business), “then we promise we’ll be able to give up”.

George Osborne should stay strong (some would say be stronger and bolder). Do not give in to the debt addicts, you’ll only put off their – and the nation’s – recovery.

Not for the first time, I find myself quoting Reagan: “Don’t just do something, stand there.”

* A caveat for the future: my definition of fiscal stimulus for these purposes is purely one involving increasing public spending: tax cuts are no such thing; they involve leaving money in the economy and thus present a real lasting positive effect.

From One Lib-dem Led Government to Another?

Front-page of The Sun from Saturday 11 April 1992.

It's that Murdoch again

Guido seemed to having a “It’s the Sun Wot Won It” moment yesterday. That’s not to say that he swayed the electorate in a last minute clarion call – for neither did the Sun in 1992, if truth be told; rather they and he simply read well and had faith in the opinion polling close to polling day. In the Sun’s case it was the eve of poll results. These days the pollsters have honed their skills, and there is such depth now to the data, that one can get a pretty good idea of the result even a month beforehand, as did Guido.

Anyway, he is appears to be hinting at a Lib/Lab coalition after 2015.

Reading the runes again it seems to Guido increasingly likely we are looking at a one-term Tory-led government.

I could comment that we actually have a LibDem-led government. He then goes on:

Right now the bookies favour no overall majority, polls suggest Labour could be the largest party, in that event the LibDems, probably without Clegg, will in all likelihood support a Labour government.

Guido is circumspect enough not to actually call it for another coalition but the implication is there. He raises two key points in his analysis: the danger of a global double-dip recession and the possibility of Andy Coulson being tried and convicted close to the next election.

As regards Coulson, I think Guido is suffering from Westminster Proximatosis. The public are already tiring of Hackgate, and as the economic picture plays out this will only increase the apathy. Remember, the public only started taking an interest when Milly Dowler entered the picture; attention was briefly re-engaged with the Murdochs’ appearance before the select committee. The riots then largely killed the story in the popular soap-opera-following, where’s-next-month’s-mortgage-payment-coming-from conscience. As more newspaper titles are implicated in the scandal, so one may find the print media going rather quieter on the subject than previously.

As always, though, it will be the economy stupid, and I think Guido is right to focus on this as there clearly is a danger.

The primary cause will be the economy, the probability of a double-dip recession is rising. The US economy is in trouble, the Eurozone is in turmoil, growth is faltering at home and abroad. Inflation is out of control, real incomes are actually falling in the UK. By 2015 the answer the electorate will give to Ronald Reagan’s Are you better off than you were four years ago?” question may well be “No.”

However, many people, if asked if they feel better off than four five years ago, will only tend to think of the last one or two years’; by 2015 that only takes us “back” to 2013, two years’ away still from now, and the 2013-15 period should see us naturally emerging (albeit slowly) from any double-dip. Also by then I predict that the armageddon promised by the Left as a result of the cuts will have failed to materialise. In any case, it would be easy to underestimate people’s intelligence in how they react – it’s not as if Labour have been nowhere near the tiller in eighteen years.

This is not to say that I am a fan of the Cameron-Osborne clique. Reducing the deficit is key and the timescale is realistic (if not particularly bold), but it’s the detail where they have shown a disconnection with people. Ringfencing overseas aid but cutting defence, and then exacerbating it with the Libyan adventure has damaged Cameron beyond the Tory hardcore. The government seems to suffer from a chronic inability to defend itself – even, for instance, through the simple expedient of properly explaining the benefits to students of the new tuition fees system. A drip feed of incompetence stories will also, if unchecked, erode political confidence among floaters. They could even, arguably, have slowed any recovery: not by the cuts, but by over-doing the rhetoric to a degree not warranted by the necessity of playing to the audience in the markets. Recessions are ultimately states of mind, and can easily become self-fulfilling prophecies.

Finally, Cameron can always be relied upon to lose his cool with euro-sceptics; whether it’s ridiculing UKIP (a bad move, given that many Tories sympathise with the ‘Kippers) or condescending remarks on the desire for referendum on continued EU membership. Insulting your core supporters is never a good strategy especially when those supporters, who previously could only stay at home as a protest, now have another option to show their displeasure in the form of support for Nigel Farage’s gang. Lest we forget, finally, Cameron failed to win the general election – and for that he largely has himself to blame.

There is a possible saving grace, though, which really is difficult to call even if closer to an election: the Lib Dems. They have been thoroughly contaminated by coalition. They’ve spent a hundred years striving to get back into government in any meaningful sense, and they couldn’t have picked a worse time. With so many Conservative seats formerly seeing the Lib Dems as the natural challengers, we may now see the defections of former Lib Dem voters to Labour simply moving the colours around on the map, but making no real impact on the Conservative majority. Indeed, the prospect of a hung parliament in 2015 may be further away than at any time in decades. In what way this plays out depends on how the LibDems behave after Clegg. So, just as the final outcome of this election depended on the fortunes of Nick Clegg, so will the next.

Oxfam: We're Doomed (Again)

It’s Tuesday and the end, naturally, is nigh.

The prices of some staple foods will more than double by 2030 unless world leaders reform the global food system, Oxfam has warned.

Scarlett Johansson

The agreeable looking Scarlett Johansson - an expert in global food economics, apparently.

The ‘global food system’? Didn’t know there was one. Anyway …

The aid charity warned that millions more people could suffer food shortages in two decades due to a ‘perfect storm’ of ecological and sociological factors.
A combination of population growth, climate-hit harvests and rising energy prices will see countries ‘sleepwalk into an unprecedented human development reversal’.

Those of us of a certain age (and I am moving into the period when I can start using that phrase) will remember being at school in the Eighties (or earlier) and being told of the inevitable crises that were to ensue given the massive growth in world population by the year 2000. There would not be enough food to go round and very bad things will happen.

Now, granted, there are localised famines most years that occasionally grab the headlines, but most are as much products of war and (sometimes wilfully) incompetent government as pure over-population or poor weather. However, by and large food production has kept up with population growth as farming, food processing and transport become more efficient – thus billions of lives are saved thanks to the great evils of globalisation and free markets.

So, what are the answers?

Oxfam are launching a campaign in 45 countries, called Growing a Better Future, which has been backed by South African Nobel laureate Desmond Tutu and actress Scarlett Johansson.

Scarlett Johansson? Really? Wow. I’m sold on it then. No, don’t bother explaining any more. Oh, go on then….

Solutions envisaged by Oxfam focus on cutting out waste, especially of water, and curbing agriculture and biofuel subsidies in rich countries.

More efficiency, yes – that’s what such increases in demand will drive. Curbing subsidies, also good – promoting free markets and allowing them to do their work.

The report also calls for prising open closed markets and ending the domination of commodities and seeds trade by a handful of large corporations.

Again, more free trade, lowering barriers to entry (such as protectionist duties and subsidies). All good. Doesn’t sound like Oxfam at all.

Oh …

The charity also called for new global governance to tackle food crises, including creating a multilateral food bank.

Global governance? Like the UN, that model of efficiency and effectiveness to which so many in Darfur Rwanda various places owe their lives. Perhaps they mean some structure whereby all the countries get together and agree on things in the global, rather than their national, interest. Always works well, that does.

And then, put that body in charge of a ‘multilateral food bank’? Superb idea. Perhaps they can ask the EU for help setting it up – Brussels has a wealth of experience with running food mountains banks.

Bankers’ Bonuses: I Don’t Like To Say I Told You So …

… nah,  who am I kidding?

Well, although a few may be playing the residency system, most will have paid tax on those bonuses…. They would have paid tax at typically 51% (ignoring the effects of pension and personal allowance restrictions). Now, those bonuses, if not paid and retained by the bank, will be taxed with the banks profits at 28%. if circumventing the rules involves converting the bonus into capital, then we’re looking at just 18% tax.

And lo:

Bankers’ pay cuts lead to £5bn tax loss

The Treasury will lose up to £5bn of tax revenue in the next five years because of a reduction in bonuses to UK bankers following a crackdown on pay packages.

An analysis by the Office for Budget Responsibility reveals that the UK’s bankers will receive about £10bn less in bonuses over the next six years than had previously been expected.

The OBR has cut its forecasts for tax receipts from “financial sector bonuses” by £1bn a year between 2010 and 2015. At the effective 60pc tax rate the OBR uses – from 13pc national insurance and a weighted average of 47pc income tax – the annual cut in bonus payments is £1.6bn.

That is all.

#UKUncut Scores an Own Goal and Takes Inspiration from the Kray Twins

Well, didn’t UKUncut do well? Intimidating low laid shop staff into closing their stores, criminal damage, and a magnificent own goal when they occupied a shop owned by a charity. Barring the injuries which clearly no-one – except the protesters – would be pleased about, it was a good day for the government.

Fortnum & Mason, Piccadilly, London, England

What do we want? Nice chocolates! Who do we want to pay for it? Someone else!

The Fortnum & Mason attack was supposed to be the highlight of the UKUncut/TUC/[insert leftist cause of choice]’s day, yet within minutes of the ‘secret target’ being revealed and the unwashed hordes descending on the evil purveyor of the devil’s tea and rather nice chocolates, those who actually know something about business pointed out that the owners of F&M are a charitable trust that has donated millions to good causes.

So much for the march “bringing to Big Society to London”.

Ah, say UKUncut, but the owners also have 54% in Associated British Foods, who are alleged to have “dodged” £40m in tax. Now you can be sure that the ‘dodging’ is legal tax avoidance, but let’s go with it for now.

The logic here is that you are going to beat up a vicar because his half-brother didn’t pay more than was asked by the protection racketeers last week. Actually, I think tweeter @cassiustweets summed up the general strategy rather well:

#ukuncut ARE peaceful. Like the Kray brothers, they only smash up shops that don’t pay up.

That might work for the plot of a Mafia or Gangster movie, but the F&M action confirms that the UKUncut/tax ‘justice’ movement lacks access to quality tax and business expertise. Then again, we’re taking about a movement which only refers to accountants as a pejorative term, when explaining how the evil rich don’t voluntarily pay more than either the letter or the spirit (back to the Westminster doctrine) asks them to. It really wouldn’t be very ‘right on’ to consort with us*, the foot soldiers of the devil’s regiment of bean-counters now, would it?

* P.S. Just to be clear, UKUncut, don’t bother calling me.