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On Osborne’s Inheritance Tax Cut

Back in 2007, I wrote

there is a very simple solution to the problem, which prevents middle Britain being hit by a tax that is designed to punish the very rich: first homes should not qualify for IHT (subject to caveats such as time occupied and value to prevent abuse – you couldn’t have everyone buying mansions to die in to avoid tax)

…which is more or less what George Osborne appears to be proposing. However I didn’t consider it a priority then, and I don’t think it a priority now.


There will be lots of guff about how “insane” cutting this tax is. It’s not insane. Inheritance tax is deeply unfair, unpleasant and resented. It’s falls hardest on those who’ve not prepared for death. And it has come after big cuts to income taxes, so I’m reasonably content.
The main problem with the UK economy is for people to see property as an investment, not as consumption. This encourages people to see their homes as their main asset, and care deeply about how much it’s worth. People oppose dilution of their assets. This is why any and all development – new houses – are opposed so viciously by “the community”.

The problem isn’t inheritance tax, it’s the tendency of old people to hang around in the big family homes long after their family has flown the nest. And their family, when they come to produce grandchildren cannot have a family home because they’re all owned by the baby-boomers. Children are being brought up in flats while granny lives in the big house. And Granny’s in rude health. By the time the house gets passed on, it will be to people well on the way to being grandparents themselves.


Rather than cut inheritance tax on homes, it would make more sense to abolish stamp duty, and make the housing market more liquid. Encourage granny to downsize as soon as little Jonny and Camilla have left for university, with increases to property taxes like council tax offsetting cuts to other income taxes. Granny should take the equity in the house, and invest it in productive assets for her retirement, or use it to help Jonny or Camilla  buy a house for their families.

Above all, we need more houses. And cutting inheritance tax on houses doesn’t help more of them get built. I never oppose a tax cut. And I dislike inheritance tax because it is unfair. From 2007 again 

It is essentially a voluntary tax and is often described as a tax on the unlucky and the unwise. Businesses are exempt as are farms. Potentially exempt transfers can usually see to the rest, and the threshold at £285,000 [now £325,000 – transferrable] is generous. The problem is that it hits unexpected deaths harder than quiet passings in old age. Consider this: A family loses both parents in a car crash and the tax-man – as a direct result – also takes the family home. That’s not on.

I’d want to see stamp duty go, or see more income tax cuts before I cut inheritance tax. After all, Inhertiance tax is, for most people, entirely voluntary, so long as they trust their children, and don’t die unexpectedly. I see why the chancellor is doing this – UKIP have pledged to abolish inheritance tax completely and inheritance tax is wildly unpopular, even amongst people who are unlikely to pay it. This is a policy aimed squarely at the Daily Mail reader and there’s an election very shortly.

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Gary Barlow, Pfizer & some Increasingly Common, but Stupid & Illiberal Ideas

Gary Barlow, formerly of take that invested in a scheme which has subsequently been ruled offside by HMRC. As did Jimmy Carr. Neither of these individuals is a finance professional. They were advised that these schemes were legal, followed advice which subsequently turned out to be wrong.

Upon losing the case with HMRC, the investors in these schemes will get presented with a bill for the tax they avoided. If they pay up, with interest, that is that. No criminal proceedings. Tax is complicated, and there are a lot of grey areas, especially when you have multiple streams of income from royalties, employment, investments and so-forth. This is why people employ accountants to ensure you pay the taxes you owe, and not a penny more.

Calls to strip Barlow by Labour MPs (including from Lady Margaret “the Dodge” Hodge, whose own tax affairs have been called into question) of his OBE are therefore grotesque and vindictive. I am sure this is entirely unrelated to the fact Barlow is a Tory supporter. Tax is not a moral issue. You pay what you owe, and if HMRC and your accountant disagree how much you owe, then the dispute is settled in court. This is what courts are for. Tax should always be seen as a strictly legal issue. Morality doesn’t come into it, however much lefties wish to invoke morality to ensure that more tax is paid (by other people).

Almost no-one pays extra tax voluntarily. But you can lefites; put your money where your mouth is or shut up.

Pfizer is attempting to buy Anglo-Swedish pharmaceutical company AstraZeneca, and they intend to move their Brass plaque to the UK too. Labour are worried about asset-stripping, amid high-minded waffle about something called “the UK science base”. AztraZeneca has about 15% of its people in the UK, and has itself been closing labs, due to the fact it faces a patent cliff. If you don’t know what a “patent cliff” is, then you shouldn’t be having an opinion on the takeover at all.

It is unlikely anyone buying AstraZeneca would close good, productive labs, especially ones close to a large and internationally respected university like Cambridge, at the hub of a Pharmaceutical and Biotech cluster called “silicon fen”. Indeed that lab, in which AstraZeneca has recently invested is one of the things that would be worth keeping. And if Pfizer don’t want it, if it’s that valuable, it can be sold to someone who does.

The UK listing is another. The US charges tax is a perverse way – money earned overseas, on which tax has already been paid may face further taxes should the company wish to bring profits onshore. Broadly speaking No other countries do this. The US has been able to get away with this for now, because the US is so important. But companies like Pfizer, and Apple whose “problems” with their enormous pile of useless overseas profits will only grow may choose to move their head office to a friendlier regime in order to sidestep this problem.

This means US business will still get taxes charged in the USA. But all other profits will be charged and taxed in the non-US jurisdiction (in Pfizers case, the UK) and the movement of profits for investment will not face US taxes that no other jurisdiction would think to charge. Yes Pfizer is “tax-dodging” but the beneficiary of this is HMRC who’re simply less vindictive and stupid than the IRS.

Despite this vast inward investment (£26bn or so) that Pfizer is making in the UK, Ed Miliband invokes fears of “Asset Stripping”. Indeed all asset-stripping is, if done profitably, is selling assets to people who value them more. Being against this process is just left-wing flat-earthism. Much like the cant about Gary Barlow’s tax affairs.

There’s a kind of Hysteria in which anyone who gets into a dispute with the tax-man, or who seeks to quite legitimately reduce their tax bill is seen as a “tax-dodger” and so beyond the pale. It’s stupid, it’s illiberal and it harms business and prevents investment. A Miliband-led UK will be a great deal poorer as a result.

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Labour’s dishonesty on tax.

There are few things that annoy me more than watching Labour complain about a “tax-cut for the rich”. The top rate of tax is higher under the coalition than it was for all but one month of Labour’s time in office. The rate was raised as a nasty political ploy in order to trap the coalition. Labour raised a tax, knowing it would be damaging, simply so they could accuse the Tories of being “for the rich”. I cannot think of anything more damaging than using the tax-system to score political points.

This is why Labour ruin everything, every time they get into power.

Never, ever let them get in again.

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A Better Basis for Taxation

I don’t like tax, but if we absolutely have to raise some taxes, it’s better if it’s raised in ways that have other benefits.

Fuel taxes reduce pollution and congestion. Tobacco taxation reduces smoking and so forth. Land value taxes increase the assortiveness of the property market. The added benefit is these taxes are extremely unpopular, which limits the amount Government can raise. Now… all we need to do is ban PAYE. Once everyone has to write a cheque for income tax and national insurance, it will be at least as unpopular as fuel duty.

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Minimum Unit Pricing for Alcohol

Cameron seems to think a minimum unit price for alcohol is a good idea. It isn’t of course, it’s the worst type of New Labour nanny-state idiocy. You know that, I know that. What’s important is who the enemies of liberty are, and how they use their positions in a conspiracy against the public.

The medical political complex has become dominated by a kind of purse-lipped puritan, who sees the maintenance of life as its sole aim. To these people, the poor especially must be bullied, for that is what it amounts to, into “healthy lifestyles”. To this end, government must see to it that the poor especially must be prevented from doing harm to themselves. Especially by smoking, drinking and taking drugs.

The war on smoking is going well. The habit has been de-normalised in much of middle-class society, remaining widespread only in the working class. The ban on smoking in pubs has caused tens of thousands of pubs to shut down. Not, of course the nice gastro-pub in which the members of the medical/political complex might take their 21 units a week (a number for which, of course there is NO evidence), but the kind of local boozer in which a builder might enjoy a pint after work. Builders, who are more likely to smoke than public health professionals, have responded to the incentive provided by the smoking ban by going to the supermarket for lager, and watching the television at home, where they are (still, just) allowed to smoke, instead of socialising with their friends and work colleagues.

The public health professional is not now satisfied with the steady decline in smoking. They are now going after booze, in a big way. And they are fundamentally dishonest. The UK has relatively low consumption of alcohol. Consumption of alcohol is falling. Young people are drinking less than ever. Of course some people go out and get squiffy on a Friday night, but THEY ALWAYS HAVE and much of the vomit and blood on the street is down to insane licencing laws that see local pubs shut (no “entertainment” you see) and vertical drinking barns with bull-necked bouncers who delight in giving random kickings, stay open late. People are herded into noisy “venues” only to have all of them shut simultaneously, leading to fights in kebab queues and taxi ranks. Stressed, drunk people whose jackets are probably still in the cloakroom of the club they’ve been kicked out of, and by whose bouncers they’ve had kickings, are herded around by increasingly officious and aggressive people wearing high-viz, until the police arrive and add one more person to the crime & disorder statistics.

A free market in the night-time economy wouldn’t look like that.

Sheffield university’s Professor Petra Meier’s MODEL-BASED APPRAISAL OF ALCOHOL MINIMUM PRICING is being widely touted as evidence that minimum pricing works. It’s nothing of the sort, of course. It’s a model. If you assume a policy works, and put those numbers into a spreadsheet, you can estimate by how much consumption will fall at different unit prices. All you need is a title – in this case two PhDs and a Professor – to be believed when you say “but the model shows that consumption by problem drinkers falls the most”. But it is by no means evidence that the policy will work. It’s a tarted-up guess. It’s policy-based evidence making, and hoping no-one challenges you on the data.

In a word they’re lying to you. But by repetition the lies become the accepted truth.

But it’s not about whether an intervention into minimum pricing would work. To make the argument about that risks the medical/political complex actually finding it does work, within their parameters, and being encouraged to ban bacon. Is a drop in alcohol consumption a good thing? Why? We probably want to cut the blood and vomit on the street on a Friday night, but that isn’t about booze, it’s culture, law and licensing. Why fight on ground of the puritan’s choosing?

The question should whether it’s the state’s role to intervene in pricing. Because once that rubicon’s been crossed, you can bet we’re back to fighting the cold war again as price-planners flood through the economy, and every decision gets scrutinised by your GP. We will see restrictions on fatty foods. And before long, no-doubt the nation will be forced (for the good of the NHS) to do their press-ups and sit-ups every morning, in the road, where you can be inspected. Minimum pricing therefore is about whether the state has a right to tell you and me what we do with our bodies.

I like a glass of wine now and again. Once in a while, and less often than I used to, I like to get squiffy with my friends. This is absolutely none of the government’s business. And it’s the poor who suffer most. Pubs in poor areas were  already marginal businesses, and they’ve gone. So the low-waged have seen their social forum shut, increasing atomisation and alienation. And all because the temperance lobby don’t like the sight of men with cigarettes and a pint. The poor have been driven to a WORSE health outcome by the smoking ban. And because their lives are a bit less social, the harmful drinkers may well drink more. Of course, if this is the case, there’s no evidence, because there’s no-one looking. The temperance lobby got their policy, and they’ve moved on.

This isn’t about health. It’s about a certain type of curtain-twitching middle-class puritan, drawn to careers in public health who see the poor not as people, but a problem to be tidied up. This is true of slum clearances which destroyed communities in the name of public health, and it’s true of the modern-day temperance crusade.

My prediction: This policy will be declared illegal under European law as the Scottish experiment is shot down. Cameron will use that as a pretext to drop a policy in which he’s invested, but on which the rest of the Cabinet is less less keen. He will use it, like the votes for prisoners, as something on which he will “stand up to Europe”. We will still hear the confident assertions medical/political complex go unchallenged on the Today program.

Further reading on the subject: Heresy Corner’s post is very good and Christopher Snowdon’s blog is excellent on the litany of lies by public health professionals and the temperance industry. You should read it.

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Starbucks, Tax and Idiocy.

On my local high-street, which leads up to a market square there is an independent coffee shop, Cafe Rouge, Thorntons, Greggs, Costa Coffee, and on the Market square there is an independent next door to Starbucks and another selling coffee from a trailer in the middle of the Square. All of these are within 300m of each other. All of them sell coffee, as do the 5 pubs and two other restaurants which you would pass were you to walk from one end of the high-street to the other. That’s before you consider the 4 sandwich shops which also sell coffee to take away. At nearly half the premises in the high-street, you can buy a coffee.

Is anyone surprised that Starbucks is not making money in the UK?

The UK’s corporation tax rate is 28%. Starbucks paid a rate of 31% globally. Surely they should be declaring profit here if they can?

Once again, the UK uncut crowd are simply wrong; but that didn’t stop MPs jumping on the bandwagon. What must be especially galling for a company making little profit in a brutally competitive market-place is being hauled in to face questioning by a new-Labour parasite like Margaret Hodge. Hodge, herself a multi-millionaire whose family business, Stemcor also pays its tax globally, at a global rate of 41%, (which suggests they need a better accountant) but pays very little of that in the UK. Hodge may not be an expenses cheat, but that’s probably because she was born into the fabulously wealthy Oppenheimer family and doesn’t need to be.

What’s really pissing me off is the reporting of tax as a proportion of revenues in order to give a low number. If your margins are low, as in food and beverage retail, you can have huge turnover, off which you’re skimming a little profit, after wages, payroll taxes, overheads, materials, property and so on. Taxes as a percentage of revenues is an utterly meaningless number, yet this is becoming the dominant ratio in the idiot left and the mainstream media.

So here’s a little guide. Revenues is the money you take from customers. Corporation Tax is NOT calculated on this number, Value Added Tax is, and no-one’s suggesting VAT is being avoided. Then there’s costs of sales, which represents all the things you do to make those sales such as employ people, buy materials and stock, rent or buy premises. You also include your central functions, such as HQ staff and buildings. Revenues less cost of sales is known as ‘operating profit’, or sometimes ‘profit before tax’ or ‘pre-tax profit’. You then apply the tax-rate to that number.

Please don’t report tax as a percentage of revenues and call it tax-dodging because that marks you out as an utter moron.

 

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Ed Balls’ “Wealth Tax”

In an Independent “exclusive“, Ed Balls has said he’s going to impose a “proper wealth tax”. Wealth taxes are window-lickingly stupid and anyone advocating them is an economically illiterate moron. here’s why:

  1. Moral hazard. It penalises those who save for retirement, pay off a mortgage and seek to not be a burden on the state, against those who spent their surplus income on Beer and Cocaine.
  2. As Tim Worstall points out, a well-off retiree might face a wealth-tax greater than their annual income.
  3. Real wealth is very mobile. No-one is going to stick around or let their money stick around to be taxed by the government. The left hand side of the laffer-curve on wealth taxes is very short. For this reason, the super-mobile top 1%, who pay 25% of income taxes will leave for Switzerland, Monaco or the Carribean. You end up therefore not taxing the 1%, but the less-mobile upper-middle income retirees instead. Even here, a wealth-tax increases the attractiveness of the Costa-del-sol, where retirement property is currently cheep, like a budgie. The wealth tax may, and probably will, therefore end up costing the exchequer.
  4. For the reasons laid out above and many more, wealth taxes are very hard to collect. Dennis Healy, former Labour chancellor of the exchequer during the ‘winter of discontent’, no rich-pandering neo-something he, said in his memoirs “in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and the political hassle“

    5. Though to be fair, that the hapless Healy thought something impossible does mean it actually is.

Wealth taxes are so utterly stupid that even Gordon Brown’s lickspittle, Ed Balls is not actually proposing one. He appears to be entering negotiations with the Liberal Democrats by suggesting a mansion tax instead. He’s just appeasing his own moron supporters by calling it a wealth-tax. I’ve no problem with a mansion tax, but it would be best imposed putting a few more council tax bands on at the top, rather than designing another silly, gimmicky tax with its own bureaucracy of Labour-voting trades unionists. However increasing council tax, even on the rich is political suicide because of the Daily Mail.
So. Everyone’s wrong. Democracy: doncha love it?
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The Jimmy Carr Tax Trick.

Self-employed? Sick of paying tax? Here‘s how Jimmy Carr got away with paying 1% on his income.

  1. Resign from employment in the UK
  2. Establish a company based overseas
  3. Get hired by the offshore company, on a minimal salary, say £8,105 per year.
  4. Pay any earnings directly to the offshore company
  5. Receive large interest free loans from your company
  6. Declare these interest free loans as tax liabilities to reduce Income Tax payable to HMRC

It stinks so bad, I might have to try it.

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Filthy Lucre

Of course, following the bust in 2000, over a decade of poor returns means those excitable investors who got into shares following ‘Big Bang’ and the privatisations, got burned and left. While share ownership is a bit broader than it was pre-1986, it is being seen as increasingly the preserve of the rich or institutions which manage pension funds. Companies are increasingly eschewing a listing on public markets, preferring to tap other sources of capital. The Economist is in no doubt as to why.

The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth.

I’ve also seen the bleat from the left about companies like Boots being taken private. Suddenly the left is reaping what it sows. If you make it difficult to raise risk-capital on the stockmarket, you cause people to seek other, less onerous sources of capital. This means the returns available to the private equity industry (which haven’t been all that good) are not available to the private investor, or his pension fund. This benefits no-one except the caste of city/wall st. insiders.

In the name of equality, share transactions and dividends are taxed, further promoting debt finance over equity. Executive pay is being regulated, further weakening any incentive to go public. The left through rhetoric and regulation is destroying a means by which ordinary people can take control of their lives through investment.
It’s not just at the level of the company. In the name of protecting investors, regulations ensure it’s difficult to give advice, especially on small amounts of money. So the poor are vulnerable to the bucket-shop, leading to poor strategies and lost money even where there is not outright fraud. Private investors are encouraged by tip-sheets into wildly inappropriate stocks because their broker isn’t allowed to point them in the right direction. Banks are the most complained-about sector on the high-street. They are also absurdly tightly regulated, selling investment “products” larded with fees with opaque performance measurements designed to comply with regulation and keep the customer in the dark thereafter. If that same person wanted me to suggest a share for him to dabble in the stockmarket, I would be breaking the law. The bank can chuck his money into a crappy fund and forget about him drawing commission every year for doing so.
The greatest engine for investment has been broken, not by excessive risk-taking (that’s what the stockmarket is FOR) but by over regulation based around the foolish notion that a chaotic system can be rendered safe. What’s left is the kind of big, regulated utility which doesn’t offer the returns to attract the hot money (utilities) massive hype businesses whose owners want to cash out (glencore, facebook) or crappy aim-listed mining juniors whose shareholders are ultimately betting on the financial equivalent of three-legged bob in the 3:15 at Epsom. The rest are there out of habit, until they’re taken over or taken private.
Regan’s epithet about the Government’s view of the economy is aposite:

“If it moves, tax it. If it still moves, regulate it. If it stops moving subsidise it.“

Big business still needs the stockmarket. But only just, and not as much as you, me and your pension fund need it. The Government needs to let it breathe. This is how regulation makes us poorer without making us safer.

Stamp duty (our very own Tobin tax) needs to go. Restrictions on advice need to be softened. Taxes on dividends need to be cut. Share ownership is a means to the ownership of capital open to the masses and it needs to be encouraged, not tamed.
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Pigouvian Taxation, Externalities and Markets.

Tim Worstall, Writing at the ASI makes an interesting point about Pigouvian taxation. Namely that politicains will see them as a source of revenue rather than simply trying to disinterestedly find the level of Externalities to build into the price.

And I’m afraid that the more we see of entirely righteous Pigou Taxes the more we see of this behaviour. I pointed out in these very pages some years back that if we applied the Stern Review to petrol taxation then fuel duty should fall by 12 p a litre: since then it has risen another 5 or 6 p still using Stern as the justification. Air Passenger Duty was set (amazingly, by Gordon Brown) at the Stern level of some $80 per tonne Co2-e: it has been doubled at least since then purely for revenue purposes.

Of course that’s the “pigouvian” element of these taxes. But many taxes, such as land value and fuel duties are not just pigouvian searches for the correct price for the externalities. In the case of APD and Fuel, this “externality” is the price of climate change caused by CO2, but They are also part of the system of taxes which set the price on the use of a scarce resource: Road and Air space. Here the “correct” price is whatever the market will bear to ensure the (for example) roads run full, but not congested. So it’s possible to argue that road space (as priced by fuel duty) is too expensive for 12 hours a day (overnight when the roads are empty), far too cheap for 4 hours a day, and about right for the rest of the time when the road flow is high but laminar.

Taxation can be used to ensure a more efficient use of a scarce resource. A tax on the value of a property for example, will provide an incentive to buy a house no bigger than you need, encouraging Granny to move out of her 4 bedroom house earlier than she may have done, increasing supply for those who may well value these scarce properties more: Families with children.

There are NO upsides to income taxation. Given that the money needs to be raised somehow, wouldn’t it be better if our taxes helped ensure assets were used more efficiently? These are also taxes that can be avoided by changing behaviour, which makes it harder for a Chancellor to take a higher share of the national pie than people are comfortable with. Income taxes are an unavoidable punch in the face. A pound raised from pigouvian tax, even a tax set at too high a level is better than one on income or corporate profits, that reduces the supply of jobs.

Finally, the very fact that these taxes are deeply unpopular is a good thing. It is harder politically for the Chancellor to screw more out of drivers than he is doing. However he is under constant pressure to increase taxes on “the rich” (i.e. people other than “me”). If the basis of taxation moved towards consumption, the chancellor, rather than finding it easier to raise money and spend more, will find it harder as people change behaviour to avoid the tax, and agitate against it if they can’t.

Tell me that’s a bad thing.

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