Chapter 11

In the policy world you keep your ear to the ground and still things gallop up unannounced. One such is David Cameron’s ‘Chapter 11’ proposal. It certainly didn’t arrive through long rounds of brainstorming. More likely it came off a long list of squibs that CCHQ keep in order to keep DC in the news every week.

Still, it’s not a wholly bad idea, and the timing is excellent, since the UK economy is shot to pieces and lots more people will be going bust pretty soon.

The idea of Chapter 11 is that individuals and firms who are facing bankruptcy are allowed to keep control of their assets provided they have a recovery plan. Does it work? Well, most of the high-profile cases have been airlines. Sure, it has staved off the instant shock of an airline collapsing, but it’s not obvious that it has really changed what would have happened anyway. Some Chapter 11 filers (Northwest and Delta) have merged, some (ATA) still failed, some (United) limp along, hobbled with debt. In the UK, by contrast, we have competition red in tooth and claw, and the threat of failure is all too real. And yes, weak airlines go bust. But it makes the competition so strong that cost-conscious airlines like Ryanair and Easyjet are becoming dominant. America’s airlines still look fat and bloated.

The UK bankruptcy problem, though, is local councils and HM Revenue & Customs. The former try to bankrupt people for unpaid Council Tax of just £1200. The latter are far too willing to force a firm into bankruptcy – no doubt pocketing a fat bonus for the tax they collect – rather than help them through the hard times that years of reckless economic policy have caused. It's all a matter of incentives, Dave.

First in Line?
written by The Englishman, July 17, 2008

HMRC does not have preferential status in the distribution of the assets of an insolvent estate. The former Departments of Customs & Excise and Inland Revenue both lost preferential status on 15 September 2003 under the provisions of the Enterprise Act 2002 But that is not to say they aren't keener to wind up businesses than local private traders who may be a bit more understanding.

...
written by Mark Wadsworth, July 17, 2008

What The Englishman says.

Also, please note that when HMRC are chasing insolvent companies, it is usually PAYE or VAT. The Employer's NIC element of PAYE and VAT are The Worst Taxes because even loss making companies have to pay them - in many cases, businesses would be profitable in the absence of these taxes.

Corporation tax (The Second Least Bad Tax) obviously does not have this effect as only profitable companies have to pay it.

Tax Incidence
written by Rory Meakin, July 17, 2008

Companies don’t really pay Employers’ NIC. Employees do, through lower wages. Apart from the fact that some people are ignorant of the fact that employers are prevented from stating employees’ true wages (ie, gross wages plus employer’s NICs) thereby hiding what is, effectively, income tax – I don’t see any reason why it is anything other than just that – a hidden income tax on ‘earned’ income.

But anyway – shouldn’t loss-making companies pay tax anyway? Any justification for taxing companies would surely rest on pricing for the impact they have on public goods such as infrastructure, regulation and the legal system. Wouldn’t sales be a much better reflection of that likely impact rather than profits, which is merely a measure of how efficient they are?

Written by Dr Eamonn Butler
Thursday, 17 July 2008
In the policy world you keep your ear to the ground and still things gallop up unannounced. One such is David Cameron’s ‘Chapter 11’ proposal. It certainly didn’t arrive through long rounds of brainstorming. More likely it came off a long list of squibs that CCHQ keep in order to keep DC in the news every week. Still, it’s not a wholly bad idea, and the timing is excellent, since the UK economy is shot to pieces and lots more people will be going bust pretty soon. The idea of Chapter 11 is that individuals and firms who are facing bankruptcy are allowed to keep control of their assets provided they have a recovery plan. Does it work? Well, most of the high-profile cases have been airlines. Sure, it has staved off the instant shock of an airline collapsing, but it’s not obvious that it has really changed what would have happened anyway. Some Chapter 11 filers (Northwest and Delta) have merged, some (ATA) still failed, some (United) limp along, hobbled with debt. In the UK, by contrast, we have competition red in tooth and claw, and the threat of failure is all too real. And yes, weak airlines go bust. But it makes the competition so strong that cost-conscious airlines like Ryanair and Easyjet are becoming dominant. America’s airlines still look fat and bloated. The UK bankruptcy problem, though, is local councils and HM Revenue & Customs. The former try to bankrupt people for unpaid Council Tax of just £1200. The latter are far too willing to force a firm into bankruptcy – no doubt pocketing a fat bonus for the tax they collect – rather than help them through the hard times that years of reckless economic policy have caused. It's all a matter of incentives, Dave. Bookmark Comments (3) Subscribe to this comment's feed First in Line? written by The Englishman, July 17, 2008 HMRC does not have preferential status in the distribution of the assets of an insolvent estate. The former Departments of Customs & Excise and Inland Revenue both lost preferential status on 15 September 2003 under the provisions of the Enterprise Act 2002 But that is not to say they aren't keener to wind up businesses than local private traders who may be a bit more understanding. ... written by Mark Wadsworth, July 17, 2008 What The Englishman says. Also, please note that when HMRC are chasing insolvent companies, it is usually PAYE or VAT. The Employer's NIC element of PAYE and VAT are The Worst Taxes because even loss making companies have to pay them - in many cases, businesses would be profitable in the absence of these taxes. Corporation tax (The Second Least Bad Tax) obviously does not have this effect as only profitable companies have to pay it. Tax Incidence written by Rory Meakin, July 17, 2008 Companies don’t really pay Employers’ NIC. Employees do, through lower wages. Apart from the fact that some people are ignorant of the fact that employers are prevented from stating employees’ true wages (ie, gross wages plus employer’s NICs) thereby hiding what is, effectively, income tax – I don’t see any reason why it is anything other than just that – a hidden income tax on ‘earned’ income. But anyway – shouldn’t loss-making companies pay tax anyway? Any justification for taxing companies would surely rest on pricing for the impact they have on public goods such as infrastructure, regulation and the legal system. Wouldn’t sales be a much better reflection of that likely impact rather than profits, which is merely a measure of how efficient they are? Write comment This content has been locked. You can no longer post any comment. Powered by Azrul's Jom Comment for Joomla!