I was on The Daily Politics Show today, being interviewed on my economic ideas that have become known as Corbynomics.
You can see the exchange here, starting at about 9 minutes 30 seconds.
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Andrew Neil is such an irritating so and so I very often resort to the off button when he appears. Congratulations on your responses and sticking to your guns.
Sometimes I wonder why AN even asks a question when it’s so clear that he has a scripted response only to the answer he wants and is consquently unable to process what the interviewee actually said.
If a measure of how badly someone is doing in a debate is the ever increasing volume of his voice, you surely nailed AN. Bravo!
Thanks Nick
Did it look like as much fun as I felt it to be?
For you, yes, for AN, no!
Once Andrew asked his question:
“If this was so easy – if you could just set the printing presses to go with no consequences, to finance everything you want to do, why has no respectable government done this?”
You could see that this was where the whole interview had been leading.
In that you had already identified that the NIB would have three very different financing methods:
– Bonds
– National Saving product for Pension funds and Insurance companies
– PQE – WHEN APPRPOPRIATE
His question was already redundant – i.e. PQE when you NEED a little inflation
His researchers had been rather shallow in their digging methinks!!!
No government ever “runs the printing presses.” Andrew Neil is an idiot.
All govt spending works by creating money.
~Yes – created by using digital technology and putting numbers with lots of noughts in certain account balances!!
“If this was so easy — if you could just set the printing presses to go with no consequences, to finance everything you want to do, why has no respectable government done this?”
All respectable governments do this. Creating Gilts is creating money. That’s what they are – assets in the private sector improving the wealth of the nation.
It’s normal procedure.
Precisely
I think Andrew Neil is one of those people who actually believes the existing £375 QE programme will eventually be unwound. Once you accept the fact that it won’t be, it becomes very hard to make any reasonable objection to money being created to fund infrastructure project which will not only create jobs, but provide long-term economic benefits.
Only Very Special People think like that
Only Special People think unwinding QE is any different from issuing new Gilts.
I’ve had so many people desperately trying to show there is a difference, that I feel like charging for explaining how to do Group Accounting.
Keep going Neil
All govt spending is created money no matter how it is “financed.” The cost and limit to spending is the REAL RESOURCES it uses.
Taxes banning things etc to free up output.
This why people dislike Andrew Neill. He is solely concerned to push his own pre-conceived views (orthodox conservatism), will not listen to any interviewees’ points of fact or opinion and therefore not engage in meaningful debate and resorts to the red herring put down (Venezuela) when all else fails. I though you coped very well. Richard, with a rude and boorish egomaniac.
Thanks to all making such comments
Once the “Printing Money” objection has been neutralised and the attack turns to “out of control deficit” tack – then for the infrastructure investment element we can point to our old friend:
– Global Infrastructure Investment: Timing Is Everything (And Now Is The Time) by Standards & Poor rating service:
http://media.mhfi.com/documents/20150211-sprs-infrastructure.pdf
” With an accumulated infrastructure investment deficit of more than £60 billion (US$95 billion), a clear opportunity exists. We estimate that an increase in public spending in one year of 1% of GDP (coordinated across the EU) would result in a multiplier effect for the U.K. of 2.5 over three years. This is a higher effect compared with the boost to spending in the U.K. alone, which we estimated at 1.9. The main reason is the additional boost to U.K. GDP due to increased demand from its European trade partners. We also project that such investment would add more than 300,000 jobs in the same year as the increase occurred. “
I am familiar with that document
But it is well worth repeating
Richard,
Can you get Corbyn to make the simple point that if there is NO saving in the spending chain, the govt will get ALL its money back, even with a 0.5% tax rate.
Deficits are not under control of the govt they depend on private sector decisions to spend and save.
Importantly in PMQs was what Corbyn did not do. And that was to combat Cameron’s reiteration, almost ad nauseum, of the Tory’s successful management of the economy and the fact that the good things that both he and Corbyn want can only be achieved by a growing economy, mentioning a number of times that taxation underwrites government spending and that governments must live within their means. Corbyn did not respond to any of this. He simply asked his six questions. Cameron actually didn’t really answer most of them, deflecting them by referring to their wonderful economic policies. Corbyn never followed any of this up.
Corbyn needs to explain that the means of a govt that issues its own currency are the real resources it has, which is why it does not have 0.5% tax rates, as there are not enough real resources for the spending.
Also make another simple point that not everyone can live within their means at the same time.
Cheers.
I know that stuff
I am not an adviser
Sterling performance, Richard. On the facts, on the argument, on the delivery and on facing AN’s hostile interview style.
https://alittleecon.wordpress.com/2015/09/16/how-could-corbyn-maintain-party-discipline/
Also see – how Corbyn can win over rebel MPs 🙂
You said that PQE would only be used in as much as it contributed to maintaining a 2% inflation target. Does that mean that in 2011 you wanted to reduce aggregate demand?
I do sometimes wonder what absurd world you live in
Or what understanding you have
My understanding would be significantly higher if you cared to answer the very simple question that I asked.
I treat your questions like Andrew Neil’s on Venezuela
I don’t understand why you get so precious when someone mentions Venezuela? The fact it is it has printed money with disastrous results. Despite having loads of oil. It also, it is fair to say, pursues quite leftist policies which one would expect Corbyn and you to support (Ken Livingstone is a big fan of Venezuelan policy). How can you deny the disastrous results in that country and why the mock outrage when someone brings it up?
And you didn’t actually answer his question as to why no respectable country has ever resorted to printing money. What is the answer to that question?
The UK has printed vast amounts of money
And my answer on Venezuela was comprehensive, clear and appropriate
That wouldn’t help much. Inflation in 2011 was due to rises in commodities, which was not under our control unfortunately.
A ban on unnecessary commodities speculation would be a good response.
Andrew Neil 4, Richard Murphy 0
You obviously can’t count for toffee.
The sad thing is that this is obviously how Andrew Neil sees things. He hosts an intellectual television show intended to showcase and promote discussion of really important political and economic matters, then spends the entire time closing down the discussion by interrupting, talking over and insulting his guests for the sake of his own ludicrous ego. There may be a place for this kind of thing on the likes of Fox News, but it runs 180 degrees counter to the BBC’s principles and he really should be eliminated from the network altogether.
Excellent viewing, we need more of this.
I hope your telephone *does* ring.
I wonder what you think of the assertion that highlighting your £120bn tax gap in his manifesto, Corbyn’s was inviting the readers of said manifesto to believe this could all be brought back (if he doesn’t think that himself), and therefore that he was being disingenuous. Would you be willing to make a statement to clear this up? If I were you, I would be unhappy with a politician using my data in such a misleading way.
By the way, I don’t make comment on the validity of your figure, save for the nature of the £20bn tax debt.
When HMRC talk of the tax gap they say it is £34bn and not the number recoverable
When I talk of the tax gap I say it is £120 bn and not the number recoverable
The figure was wholly appropriately quoted
As the producer of Daily Politics said to me today, he cannot see how anyone could have misunderstood it
Nor can I
To my knowledge HMRC have never made a distinction between what the tax gap is and how much of it is recoverable, and they certainly have never tried to quantify that. So I don’t know where you get that from.
As Baroness Prosser said, the man on the street is not an expert on these matters. If man on the street sees a number like that they will reasonably assume it can be clawed back. (In fact it appeared that you were agreeing with her on that point in the end, have you changed your mind already?)
They have published a tax gap estimate, I agree
As Jeremy Corbyn did
So are they grossly misleading?
And since when was the Bariness an expert?
If not, why not?
Even if one accepts that the average voter would have known that the 120bn isn’t recoverable in full,you must surely agree that using that figure without stating the amount which IS recoverable renders it completely meaningless?
No
And why don’t HMRC ever do what you suggest if it’s the right thing to do?
My apologies, perhaps I wasn’t being clear. As was discussed on the programme (well done by the way – I think you performed well and gave that City University title a deserved outing!), Corbyn uses your tax gap figure before saying that it can be addressed and that it could pay for the NHS. You agree that it would have been better if this was made clear – that not all could necessarily be got back. So would you be happy to make a statement just to ensure your data is not misused or used in a way liable to confuse people?
Jeremy has made it clear, often, I gather
I have heard him so say ( and did not go to many meetings)
Very courageous of you to appear on Andrew Neil’s Daily Politics. Frustratingly difficult to discuss technical subject matter in such a short time frame, especially with such a cunning and disingenuous interviewer. Keep repeating the arguments and eventually the message will get across. Well done!
Thank you
I’d say the first half of the interview about PQE was a no-score draw, as no-one really knows how it will pan out.
The second half – on the famous £120bn/£20bn tax gap – he trampled all over you I’m afraid.
You are entitled to your opinion
Outside the hard right I am not hearing it
Andrew Neil: more concerned with winning than listening to an argument.
1) respectable governments have tried the “printing money” approach, namely the UK. Like all BBC journalists he did not make any connection between QE, which already exists, and PQE. Likewise Carney, perhaps the question should be – why is QE different from PQE?
2) Neill seemed to be arguing that there was no tax gap and no additional tax to be recovered, a ridiculous proposition.
There is a vast difference between QE and PQE. The latter is the monetisation of fiscal policy in a non emergency situation and leads to currency devaluation, inflation and higher government borrowing costs. It destroys the independence of the BofE. Neill quite rightly asked – if it’s such a simple way of funding government spending, why isn’t everyone doing it and give an example of a country where it has been used successfully.
Neil wiped the floor with Murphy, but additionally Murphy demonstrated a petulant arrogance.
But if you noted correctly I suggested using it in a downturn and provided two other ways of funding infrastructure otherwise
Which does rather suggest you were not listening
You are simply repeating a journalistic cliche, you need to explain why it leads to devaluation(good for exports), inflation (we can increase this by a full 2%) and the loss of central bank independence; and you need to explain why QE does not lead to these developments. Also you need to define an “emergency” situation, many believe that the current housing situation is exactly that..
I cant believe that you are arguing that the stock of money does not grow over time – increasing GDPs have to be monetised. Are you seriously saying that money supply has not grown since,say, 1950? The “corset” was removed by Lawson was it not?
If you accept that the stock of money increases over time then it boils down to the timing and control of that process.
Finally the resort to “why has no one else done it” was the last refuge of someone who could not muster a technical argument.
I treat your questions like Andrew Neil’s on Venezuela
I am genuinely interested by what appears to be a contradiction in your arguments. But I see that you’re not willing to discuss it properly, so I guess we’ll have to leave it there.
Respectfully: I do not believe you
So I am deleting your mails
You are contravening the comments policy
Well done Richard. A superb performance. Total marstery of your brief. An intelligent contribution to the present economic impasse. No wonder we don’t see you a lot more often on the media
🙂
great interview technique-you refused to allow yourself to be bullied by the’heavy’ trying to deliver blows. You kept an almost yogic calm which was very impressive, no going red or getting flustered – we need this sort of thing more, people who can put the case across with clarity and dismantle the cliches.
Good on ‘yer!
I did take a few minutes quaker calm beforehand
Dear Mr. Murphy I was very interested to hear you explain your ideas but was frustrated by Neil’s unwillingness to allow you to provide reflective in-depth answer as he constantly interrupted you. In the end he beat a hasty retreat into his research papers. I would appreciate if you could again appear on main stream television as an authoritative antidote to neo liberalism. Neil is dismissive of Krugman et al. but he had major difficulties in dealing with your detailed knowledge. I would dearly love to see a return bout with him-I am sure he will be gunning for you!
You are the first economist I have seen who is able to maintain his position against the entrenched conservative positions of the mainstream media.Well done!
Thank you
I agree and applaud Richard for dealing so brilliantly with the boorish Andrew Neil. However, he is not the only heterodox economist to face down AN – Molly Scott Cato has practically had him eating out of her hand. Maybe AN finds it more difficult to be aggressive with a woman.
When asked what respectable government had used QE in the past, could it not be argued that the US federal reserve used a form of it in the 30’s/40’s to get out of the great depression?
Yes
And Japan in the 30s
It was a great interview. My understanding is wobbly, but like many others accross the land I am putting in the effort and it is improving; it was just great to see an AN guest take him on with Knowledgeable winning confidence.
Good interview on your part. You tried to answer the questions by AN wasn’t having any of it. As other commentators have said, he wasn’t going to allow you to say anything that might conflict with the prevailing/accepted narrative, or which might be in any way novel.
Your point about all those economists advocating public investment is well worth repeating, preferably at every opportunity. Indeed, it was put ruthlessly by Professor David Hendry at this conference (“We seem to be governed by amongst the stupidest people that have been in power in my lifetime.”) see from 53′ onwards.
https://www.youtube.com/watch?v=bVU0LpZrLlk
I called the BBC and left a message of complaint about him. I am tired of the BBCs bullying on its political shows.
Ed comment: deleted comment
Golden rule here: do not take on other commentators
I might be game, but others are not
So don’t do it
I don’t appear to be able to anymore. You seem to have deleted my contribution to our discussion about Corbyn’s use of your data.
By the way, I wasn’t taking anyone as ‘game’. I challenged their opinion very respectfully. But I understand you don’t want dialogue not involving you. However, there’s no reason to delete my other contributions – we were having a nice and interesting discussion. That’s a real shame.
You might have thought we were having a nice and interesting conversation
Actually you were being repetitive and boring
Read the comment policy: then I use what I term editorial freedom
BBC mission is to inform and educate (and entertain). It failed today.
How are viewers going to understand unfamiliar and new ideas if the intention of the interviewer is throw ‘let’s catch you out ‘ questions by an irrelevant association with Venezuela?
It was like arguing with a teenager? Well done Richard.
Thanks
Andrew Neil: but Paul Krugman has never run a government economy
No he hasn’t Andrew, but neither have you, and out of the two of you only one of you is a Nobel prize winner.
Andrew Neil: I have a background in Economics
Translation: I studied political economics years ago from books written by the people who’s advice ran the economy into a crash and has not come up with any real answers since.
Keep putting the message out there Richard, without people like you putting innovative alternatives across nothing will ever change.
We thank you!
You may be interested to see this edited version from Guido Fawkes who term you a Twitter Eccentric! http://order-order.com/2015/09/17/corbynomics-guru-gets-brillod/#:mTB011srT0aloA
The man is pure poison
Keep going Richard – we know the truth.
I thought you came over very well.
I enjoy Daily Politics conducted by Jo Whatshername – A Neal is a thicko who cant’ stray from his printed notes – he hasn’t got the intellect or the mastery of his subject. He plagiarises shamelessly, hounds women verbally and thinks he is a Paxo when he interrogates … “you didn’t answer the question” repeatedly. His brillopad is encroaching on his forehead – definitely has moved perhaps to recently married(surprise surprise) shennanigans !
I’m puzzled Richard – you say that Jeremy, in normal times, is prepared to borrow money from the private financial sector. Why did he and John McDonnell his shadow chancellor both sign the Early Day Motion 748 calling for the British Government to bring back the debt-free, interest-free Treasury-issued Bradbury Pound which worked so well in 1914? Surely we don’t need to ‘innovate’, we just need to carry out what has worked before?
I am sure they have signed a lot of EDMs to promote debate
They have no intention of using Bradbury pounds that I am aware of
Can I ask you then Richard, what is your view on the principle of the Bradbury Pound? It worked with Colonial Scrip, the Greenback Dollar and the Guernsey Pound and none of them led to inflation or having to deal with the debt-creating private banking sector.
I suggest there is not a hope of it happening
So I am not engaging on it
I don’t know how that man gets away with it. He’s a terrible presenter and his attempts at humour are embarrassing.
My advice to Jeremy is that he watches how you dealt so effectively with Neil and learns from your example Richard.
Corbyn is a genuine bloke but when he is confronted by some of the frankly stupid questions he gets asked (for example – ‘How do you feel about getting on your knees before the Queen’ – an incisive and essential political topic brought up by one the BBC’s so-called ‘political editors’ – not) you can read his face which becomes a picture of exasperation and contempt.
It’s early days yet and I’m sure he will get there but these things need bringing up and dealing with because any weaknesses will only be exploited by people who will do anything to make sure that their dysfunctional way of making the world work is retained.
I find Andrew Neil exceptionally annoying. What is the point in interviewing someone if you wont let them talk? In truth it wasn’t an interview, it was a vehicle for Neil to put his own points across. I thought Richard did very well under the circumstances.
Subscribed.
Learning.
Cheers.
You know I don’t like Leftist twaddle, but darn it, you were good.
Just picking myself off the floor
Richard
Do you support in any way the figure of £93bn ‘corporate subsidy’ that is being touted by, amongst others, John McDonnell
I personally wonder how anyone with aspirations to be Chancellor could give thay nonsense the time of day.
The figure is just fine
What no one is saying – expect those who wilfully misread – is that corporate tax subsidies will end
What is being said is that they need to be reviewed to make sure they are still good value for money
Shouldn’t all chancellors do that?
Richard – the person who came up with the £93 billion number doesn’t appear to even understand capital allowances in his verbal summary. He implies if a company spends 100 on a truck it gets 110 back from the Government. I really don’t think having this research as a significant part of strategy helps Corbyn’s credibility whatsoever.
To quote the author:
“taxpayers not only effectively pay the costs of the entire investment, the government provides an additional ‘bonus’ equivalent to 10 per cent of the total cost of the outlay.”
If the review is considered the basis of a suggestion to review the use of government subsidy I am happy with it
I have not read the paper in any detail, to be honest
I have, and I’ve exchanged emails with the author to explain to him how capital allowances work.
He is trying to establish the extent to which the tax system can be regarded as a subsidy of capital expenditure, but unfortunately the report which gives rise to the £93bn figure rests on a large number of (what I consider to be) misunderstandings about the capital allowances system.
The most serious of these misunderstandings is that the gross allowances are used rather than the tax effect of those allowances; another is a certain confusion of profit and cash. As the grounds for the calculation (at least to the extent it relates to capital allowances, which is considerable) are extremely shaky, the result of £93bn cannot be considered to be at all reliable.
I understand the figures are to be revised, and have offered to assist with that, although I haven’t heard anything on that front for a little while.
I am not defending the £93 bn
As I said I have not read the report
I do think all allowances and reliefs need reviewing
Agreed – the level of reliefs given, and the method by which they are given, should be constantly monitored.
I’m glad to see you do not accept the £93bn figure. I was slightly confused when you said “the figure is fine” in response to another commentator, but I assume you mean that it is correct that there is *some* figure that can be put on subsidies – it’s just that it’s not £93bn.
Agreed
I am not in any way suggesting £93 billion is the right number
Capital allowances in the CT regime are not a ‘subsidy’. That is really very simple. Since they make up the lion’s share of the £93m it isn’t “just fine”; it’s a misnomer.
They are a subsidy
There is no universal principle of tax relief on capital spending
It is a choice made by parliament to give them
And one capable of review as to rates and assets they relate to
Shall we therefore discuss the real world – not your make believe?
Sure – review seems reasonable (and as you say should be done by any chancellor on an ongoing basis).
But my point is trumpeting the report as some kind of Ace card as politicians seem likely to do is a mistake. Even if the figures are correct, the commentary will just lead to significant credibility issues in my opinion.
Anyway – back on topic I thought the interview was a good one. Even if I don’t agree with some of your opinions I thought you handled the heavy interviewer fire very well.
Well played Richard, Andrew Neill tried to be dismissive but you were well prepped for the exchange.
Dare I suspect the debate is gaining ground?
Yes, why not? PQE is being taken seriously more and more as you pointed out with re to what Paul Krugman and the Telegraph have been saying etc.
This one is not going away
Alex Salmond signed up last night, I was pleased to see
“There is no universal principle of tax relief on capital spending”
Oh really. Try s2 CTA 2009: “Corporation Tax is charged on profits of companies for an financial year…” Those profits are based upon the accounts. Accounting profit includes depreciation and amortisation. Capital Allowances are the codified tax alternative to that. You do know this don’t you?
In other words there is no allowance for depreciation
And CAs are granted on occasion instead
Exactly as I said
Now stop wasting my time
Ironman –
s.53(1)CTA09 – “In calculating the profits of a trade, no deduction is allowed for items of a capital nature.”
Yes, really.
You say “Accounting profit includes depreciation and amortisation”. Absolutely right. And if these aren’t adjusted out in the tax comps before arriving at the taxable profit, then a company can expect an HMRC enquiry, it should expect to lose, and it should expect a penalty for failing to take reasonable care resulting in the submission of an inaccurate return. Honestly, tax practitioners and Inspectors learn this stuff pretty much on day one.
Do you actually know the first thing about how tax is administered in the UK? I ask in all seriousness. Your knowledge appears to be incredibly weak.
You know full well the point ironman is making. As he says capital allowances are the Revenue’s way of dictating how depreciation is calculated for tax purposes. Semantics aside do you really think it is unreasonable for companies to claim capital allowances?
I argue that they should have capital allowances
But they are not a right
And their effectiveness has to be reviewed constantly
So my argument is entirely correct and logical and one I would hope any Chancellor would adopt
Sorry Richard. I was replying Geearkay. Ironmans point is a valid one. I don’t think that posters response about weak knowledge was needed at all.
Jim –
I know what Ironman was trying to say. I also know that he used only the part of the legislation that fitted the comment he was making, overlooked the obvious statute which countered the capital deduction, ignored the fact that CAs are a relief at the gift of Parliament (and not one I think is unfair or should be removed) and (most importantly) started off his point with a rather sneering “Oh, really?”.
Now, I know our host is more than capable of fighting his own battles, but that sort of point-scoring nonsense gets in the way of rational debate. Hence the tone of my response. Apologies to Mr Murphy if it wasn’t my place to engage with Ironman in such a way.
In response to you, Jim… why is it OK for you to say “Oh come on… you know the point Ironman is making”, but it NEVER seems to be OK for people to say the same whenever Richard (or others of a similar view) alludes to a point of view?
You were welcome
I am afraid I can’t stand Andrew Neil. The man is seriously punchable. He comes from the school that suggest they are winning the argument judging by how many times they can talk over and interrupt someone.
I have never seen your appearance on this show. I don’t know if it is available on iplayer.
By the sound of it, you gave a really good account of yourself, though. I understand Venezuela was a topic that kept popping up. When they said that PQE was printing money, was the spectre of the Weimar Republic in Germany during the 1930s brought up?
It often is. “The government printed money there and look what happened to them”. They keep repeating the same old prejudices. It saves actually having to properly research a topic, doesn’t it?
It is in i player, yes
No, not exactly as you said. The universal principle is you tax PROFITS. There is no credible tax professional could think otherwise. And CAs are not granted “on occasion”. Again, no credible tax professional could hold that view.
For the record, I have done a survey of 147 tax jurisdictions
In not one is profit taxed
In all taxable income was
You are just wrong
Richard
You are engaging in petty semantics that do not become you.
Businesses around the world get a deduction from taxable profits for capital expenditure for plant & machinery. Businesses get a deduction from capital gains on disposal of assets outside these regimes for the capital costs of acquiring those assets.
There is not a single tax jurisdiction around the world which does not operate some form of this regime.
You talk of the ‘real world’. That is the way things operate in the real world. Tax deductions for capital costs are no more a subsidy than are tax deductions for staff wages or the costs of buying goods for re-sale.
Your arguments may work among those who know nothing of accounts or tax but among even the most junior of staff involved in the profession your arguments are laughable.
There is not a country around the world that taxes accounting profits
And it is right to say so
In the UK, companies are taxed on “Profits chargeable to corporation tax”.
Section 2 of CTA 2009 explicitly says that tax is charged on profits. The rest of that act, and CTA 2010, refers to the calculation of profits.
“Taxable income” is merely a term which is useful for distinguishing between profits calculated according to GAAP and profits calculated on tax principles. It avoids the ambiguous term “profits”, which could mean either; but it is still a measure of profit.
It is also useful for an analogy with non-corporate taxation, where “profit” is not necessarily a good way of describing things (referring to profit from employment makes a certain logical sense, for example, but isn’t normal usage).
So they are not the same thing
As I said
Shall we stop being silly here?
You have subtly shifted there, from “no-one taxes profits” to “no-one taxes accounting profits”.
This is not at all meaningful, really. You might as well say “no-one (except the UK) taxes UK taxable income”.
The profits which are taxed are simply profits calculated under a different system of accounting. HMRC’s accounting policies differ from UK GAAP by having some assets not depreciated at all, some written off immediately, and some depreciated on a reducing balance basis, but they are still a coherent way of calculating profits.
I have practical experience of this. When you are dealing with deferred tax and trying to keep track of the same companies using UK GAAP, US GAAP, IFRS, *and* UK tax rules, then treating the last as if it were simply another GAAP makes the whole exercise enormously simpler (or rather, it makes the whole exercise significantly less mind-blowingly-complicated).
Deferred tax is only complicated if you think tax rules are something other than “HMRC GAAP”.
But as you are saying: no one taxes profit then
They tax the income subject to tax
And it is simply not the same thing
There is no debate to be had here
Factually I am correct
Why waste time debating it?
Let’s assume you are right and reliefs get withdrawn and tax rates in companies goes up. Now let’s assume Joe Bloggs owns the company. His tax bill goes up. Joe’s first thought is, times are tight and he looks around to find cost savings and behold his eyes settle on one of his biggest costs – wages. Now Joe thinks I won’t recruit that person I was thinking of recruiting and I’ll also trim the staff pay rises and performance awards. All Joe Bloggs do this. Net result is workers suffer. Unlikely? Not if businesses are run by the types of capitalists you think they are.
I very much doubt CAs would be withdrawn
In my new book I make a case for increasing them
I think R&D allowances are dubious
I think a great many other reliefs are as well
I think you are missing the point
“But as you are saying: no one taxes profit then
They tax the income subject to tax
And it is simply not the same thing”
No, I am saying that everyone taxes profit. A company’s income subject to tax is that company’s profit, as calculated using the relevant tax authority’s methodology.
In simple UK terms: PCTCT is profit, calculated using HMRC GAAP.
HMRC call it a profit. Companies call it a profit. Parliament call it a profit. It is calculated in the way a profit is calculated. It is closely related to accounting profit. It is costs less expenses, which is how one defines a profit. By any test one can come up with, it is a profit.
It is not necessarily the same amount as accounting profit under UK GAAP, I grant you. But profit under UK GAAP is not necessarily the same figure as profit under US GAAP, which is not the same as income under IFRS; but they are all measures of profit.
I am not sure how I can argue with soemthing so obviously wrong
If X does not equal y describing X as Y does not make them the same
It just creates confusion as a result of obfuscation
Which is what you areb offering
You are the one who is obviously wrong.
A mallard is not the same as a merganser, but both are ducks.
PCTCT is not the same as accounting profit, but both are profits.
Richard you are factually correct, but the point for me is politicians (and subsequently people on social media) are trumpeting the £93 billion number as if it’s an outrageous tax break companies are getting. It’s a number which conjures images of big business ripping off the taxpayer.
In reality everyone on here agrees that the biggest item (Capital Allowances) are perfectly logical and to remove them would be unthinkable. That is not the impression people with no expertise get when someone talks of £93 billion in “corporate welfare”.
I think anyone believing that it was suggested that £93 billion could be reclaimed was wilfully misreading what was suggested
Many agree with me
Some don’t
It depends on what you want to believe
But it is not my issue: I have not even read the report in question
Is it any different from making outrageous claims about the welfare state or the NHS or any other political topic though? Yes it’s regrettable, but it’s hardly unique.
I do think the issue needs raising. While I’m sure much of the money is well spent, just like any other government spending, there may well be waste and it shouldn’t be exempt from efforts to streamline government surely?
Any organisation has to be reviewed
But I do think you are likely to be over stating the case
The point is that companies are taxed on cost less expenses. In general terms this is called profit. I’d be very surprised if you could find an accountant that disagreed with that, unless you want to disagree yourself.
Now what costs are allowed is a matter of debate and should be reviewed as are accounting definitions of profit. I’m pretty sure if you went back to the start of your career (and me to mine) we would question some of what where accepted signed off figures of the time as the definitions have changed as debate has evolved.
You can argue what you will
But if you;re suggesting any old number is profit relating to the same entity for the same period you have a weird understanding of accounting
So where the same company reports profit in UK GAAP, IFRS and US GAAP for the same period, as well as providing a return of profits to HMRC, where each of those gives a different number as “profit”:
– Which of those is “the” profit?
– Why are the other ones not profit?
– What is the qualitative difference between the three systems of calculating accounting profit on the one hand and the system of calculating taxable profit on the other?
I have always been aware of the problem of defining profit
But taxable income is not profit
It is chargeable income less allowable expenses and that bears little relationship to any accounting capital maintenance concept – the definition of which is a pre-requisite for profit measurement
So you please answer the question using this technically appropriate concept
What, the capital maintenance concept?
My answers to my questions (as you haven’t asked any questions, I assume you’re referring to mine) are:
1) None of these is “the” profit. All are equally valid ways of measuring profit, and differ because they apply different policies derived from differing views of how revenues should be recognised and costs should be measured.
2) Not applicable – all are “profit”
3) There is no qualitative difference between those two groups, as the “accounting profit” measures having nothing which distinguishes them as a group from the “taxable profit” concept.
Taking UK taxable profit as an example, there are a number of differences between it and say UK GAAP profit. Listing some of the differences out:
– UK GAAP says you should recognise pension contributions as an expense as they are accrued. HMRC GAAP says you should recognise them as they are paid.
– UK GAAP allows you to depreciate plant on a straight-line basis, taking it down to residual value over its useful economic life. HMRC GAAP requires certain plant to be depreciated at 18% reducing balance and other plant at 8%; it also permits (but does not require) certain plant to be immediately expensed.
– UK GAAP says that certain assets such as land should not be depreciated. A profit or loss will however be recognised on disposal. HMRC GAAP extends this to other assets such as leasehold buildings and certain intangible assets, which are not depreciated in arriving at taxable profit.
– UK GAAP and HMRC GAAP differ in the extent to which costs connected with a capital transaction should be capitalised or expensed. For example, UK GAAP permits the expensing of legal fees which HMRC GAAP would require to be capitalised; conversely, HMRC GAAP permits the expensing of certain interest costs which UK GAAP requires to be capitalised.
– UK GAAP requires to you recognise the potential cost of share options each year, calculating that effect based on an estimate of the share price now and spreading it over the life of the option, using some rather arcane methodology that few people really understand. HMRC GAAP only permits the cost to be recognised when shares are issued pursuant to the option.
– HMRC GAAP requires some adjustments – for example in relation to entertaining (which is not recognised as a cost) and (for small companies) R&D costs, which have an exaggerated impact on profit – which have no parallel in UK GAAP.
All this is very similar to the differences between UK GAAP and IFRS, and between IFRS and US GAAP. Things like “how do I depreciate this asset?” and “How do I recognise the effect of share options?” (where, incidentally, US GAAP is very similar to HMRC GAAP, but IFRS and UK GAAP are similar but different from the US/HMRC treatment) are common questions when comparing any two of these four sets of accounting principles.
Now: you answer the questions too. If you can’t work out how to tell the difference between UK GAAP, US GAAP, and IFRS, how can you confidently assert that you know HMRC GAAP is different?
You didn’t answer the question
I guess you do not know what profit is
Hold on, they’re my bleeding questions! Who are you to decide whether I’ve answered them or not?
If you’d like to ask a question of your own, feel free; or perhaps you could try answering my questions yourself?
You define taxable income as “chargeable income less allowable expenses”.
I read that as “income recognised for tax purposes, less expenses recognised for tax purposes”.
When you recognise that tax rules are HMRC’s version of GAAP, that turns into “income recognised by the GAAP in question, less expenses recognised by the GAAP in question”.
Which is the definition of profit.
The capital maintenance principle is a way of ensuring that the profit you end up with has taken account of *all* the expenses – so if your assets have declined in value, the impact of that decline should be included. It doesn’t affect the basic principle of “Profit = income less expenses”.
I have asked you a question
You can’t define profit without a capital maintenance concept
You have not offered one
And I have suggested that the basis of tax charging does not explicitly embrace one, so it is not a profit
Explicitly tax does not take account of all the expenses, so it is not a profit, and even you say so
Now you’re being silly. Capital maintenance is one of dozens of accounting concepts: something desirable, which is borne in mind when designing accounting policies.
Quickly Googling for a precise definition, I came across another concept which ranks with it:
“Realisation: any change in the market value of an asset or liability is not recognised as a profit or loss until the asset is sold or the liability is paid off”
Now clearly this is not applied rigorously: you yourself have complained recently that IFRS recognises unrealised profits. So why on earth should capital maintenance be a sine qua non?
As for “tax does not take account of all the expenses, so it is not a profit”, well UK GAAP doesn’t take account of all expenses either. If I pay now for something I’m going to use next period, I don’t take account of that expense. Does that mean UK GAAP does not give a profit?
You’re overthinking things and confusing yourself. I’m not sure why
I’m just pointing out that you really do not know what you are talking about
For the 100th time
For about the 100th time, we have:
– You asserting that I am wrong.
– Me providing detailed arguments to support my position.
– You asserting that I am wrong.
Your position might be somewhat credible if you were to back it up with any form of argument at all.
I have provided a complete argument showing you are wrong
You haven’t even recognised it
I despair
Your “argument” is simply that you can’t have profits without a rigorous application of the capital maintenance concept.
You’ve not shown why, you’ve just asserted it.
You’ve then not bothered to show that there is no capital maintenance concept in taxation, but have simply taken it as axiomatic.
You haven’t even bothered to address my point that as the realisation concept is not rigorously adhered to in GAAP there is no reasons to suppose that the capital maintenance concept needs to be.
Your “argument” consists only of assertion and begging the question.
I have said you can’t have a proit unless you define what it is
And without a capital maintenanmce concept you can’t define profit
In contrast tax is charged on a sub set of transactions so it is not profit at all
It is the taxable income for a period
And they are simply not the same thing
Is that so hard to understand?
Ah, thank you! Now we’re getting somewhere.
Profit is defined as income less expenses.
The capital maintenance concept says that when you’re looking at profit, you should ensure that anything which affects your net asset position should be taken into account, and so when you define “expenses” you should ensure that it picks up things like the depreciation of fixed assets, or bad debts, or future liabilities.
However, it is not an absolute sine qua non: it is simply a tool used when coming up with your definition of expenses in a particular system of calculating profit.
It is exactly analogous to the concept of realisation, which says that you should only recognize income that you’ve received. Except that in practice it is never applied only in this strong form: GAAP routinely recognises income that has not yet been realized.
If there is no need to apply the realisation concept in an absolute form when coming up with policies for calculating profit, why should the capital maintenance concept be applied absolutely?
You are confusing the general concept of “profit” with a specific method of calculating it.
That is: you are saying that a mallard is a duck, but this merganser is not a mallard, so this merganser is not a duck.
Andrew
But profit is not income less expenses
You have to pretend things that are not Spenser are to make that idea work
Sorry – but I can waste no more time on this deftness on your part
This conversation is closed
Well one of certainly seems to
And yes there are varying definitions of profit which can vary (surplus of revenue over costs incurred just leads to what is revenue/ what costs can be included), anyone dealing with international companies and various accounting regimes would understand that (let alone the obvious taxable/accounting definition already discussed).
Not sure what exposure you had to it, but for example calculation of revenue relating to multiple long term contracts with warranty periods for capital equipment is a little trickier than just adding up a few numbers.
A complex restatement for a mining company that decided to move to average inventory cost rather than a FIFO basis doesn’t mean the past accounts were wrong, just a different way of looking at the same thing.
Well done. Have you noticed how difficult BBC people find it to let guests speak, even when they are invited onto a programme to do just that. Presumably they see constant interruption and not listening, as having some entertainment value. They are not unlike politicians engaged in the ‘theatricals’ of parliamentary question time.
On a slightly different tack, the Bank of England seems to be preparing for hard times.
Andrew Haldane: Table 2 looks at cumulative recession probabilities over three time horizons (1, 5 and 10 years ahead) measured over three historical samples (the UK since 1700 and 1945 and a cross-country panel since 1870). Recessions occur roughly every 3 to 10 years. Over the course of a decade, they are overwhelmingly more likely than not. [http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech840.pdf]
Presumably QE for People will be with us in a few years, whatever the Governor of the Bank of England says. All they have to do now is to demonstrate that its all their own idea, and has got nothing to do with either you, or J Corbyn.
pe
Indeed
Not your finest hour, Richard, I think you’d agree.
A few basic media training rules you failed to follow:
1. Don’t let your irritation show (calling for ‘respect’ etc) – it makes good TV but just distracts from what you’re trying to say.
2. Never tell the journalist “you’re wrong”, as you did on more than one occasion. Instead, “that’s not true”, “that’s completely incorrect”, or even “that’s simply wrong” won’t antagonise the journalist as much. Remember – he does this every day; you’re playing away.
3. You allowed yourself to be question-led rather than responding to each question accordingly and then moving to a key message.
Failing interviewees always claim they can’t get a word in, even when it’s not true. Watch the interview again. You had plenty of time and opportunity if you’d handled it differently.
In fact, the whole thing was not so dissimilar to Jeremy Corbyn’s total mishandling of his first few days as leader. And please don’t tell me his supposed lack of spin is refreshing; it’s just embarrassing. Tom Clark at The Guardian wrote an excellent piece about this earlier this week – ‘Four reasons Jeremy Corbyn needs a spin doctor’ on 15/9. (Although claiming Corbyn doesn’t try to spin isn’t even true; appealing to the public for ‘questions to present at PMQs’ was one of the most blatant bits of attempted spin I’ve seen in a long time. Fine if you think the House of Commons should be turned into some sort of local radio phone-in, I suppose…)
I’m sure you’d rather I was frank about your failure. It does help explain why your performance was the car crash it turned out to be.
Eric
Interesting comments
Hundreds of people sent messages of congratulation
Only those of strong right wing persuasion take your view
The programme’s senior team met me off the set to invite me back?
A car crash?
Only for those who think Grand Theft Auto’s Oolitucs are the world they want to live in
Thanks Richard – but left-wing commentators take my view too (hence my mention of Tom Clark at The Guardian).
I may not agree with your theories (I don’t) but there are some important arguments out there which really ought to be debated and they’re simply not being aired. Blatantly believing that you did OK in the face of the evidence won’t improve the situation.
Of course the programme’s senior team invited you back; the Green Party’s Natalie Bennett still gets plenty of invites (perhaps more!) after her ‘car crash’ interview on LBC. (Another media tip by the way: don’t repeat the negative words or phrases used by your accuser; it only means they have succeeded in putting their words in your mouth).
Repeat interview invites aren’t about the quality of the interviewee’s argument; they’re about the ‘value’ of the interview to the broadcaster. And in a democracy, I’d rather both sides had a fair crack of the whip.
Eric
I have no idea what you are talking about e.g. re Tom Clark
And if I want advice I have plenty I will take it from