Spend all of everyone’s money on me. No, me. ME!
The shriek of every producer group interest ever, everywhere:
Ministers should aim for 70% of young people to continue their education after leaving school by 2040, while tuition fees in England should be increased, according to the leaders of UK’s universities.
The “blueprint for change” published by Universities UK (UUK), which represents vice-chancellors, wants the 70% target to be supported by grants paid to disadvantaged students and a new “tertiary education opportunity fund” for areas with low rates of university and college enrolments.
The blueprint makes a string of other recommendations, including a plea for the government to restore financial stability for universities by ending attacks on international student numbers as well as boosting funding for teaching and research.
More should go through tertiary education - academia can wax fat off the fees - those in tertiary education should pay more - academia can wax fat off the fees - government should pay the fees of more people - academia can wax fat off the fees - more international students paying full freight should be allowed - academia can wax fat off the fees - and taxpayers should stump up more money to boot in order to bloat those not already waxing fat off the fees.
As we say, every producer group ever, everywhere. Spend all of everyone’s money on me.No, me. ME!
This would work rather better in this instance it it weren’t for this:
42% of university-educated workers outside London work in a job that does not require a degree, up from 31% in 1993. The share is highest in Lincolnshire and Cumbria, where more than half of graduates work in non-graduate jobs (58% and 52%, respectively).
We can check this against the ONS numbers. About right. Some half of the people who have a degree do a job that doesn’t require a degree. And that’s before we start counting how “degree required” has slithered down the competence scale to where even journalists - no, really journalists - are expected to have one.
The information from reality is that the tertiary education system should be - at minimum - slashed in half from its current size. Which is a bit of a problem for those academics who would wax fat. You know, this science thing? Take our cues from the reality outside the window, facts and all that?
No, really, it’s a significant problem. Not just that the demand is contraindicated by that reality but supposed academics so ignorant of the reality aren’t worth supporting with any of our money, are they?
Shall we say a 75% haircut then? Any advances on that?
Tim Worstall
Fiscal rules are entirely unimportant except they’re vital
This might not be the most accurate, in detail, piece of economics ever but it is still a good guide:
Rachel Reeves’s “opportunistic” attempt to rewrite Britain’s fiscal rules ahead of the Budget risks causing a surge in interest rates, a leading think tank has warned.
The Institute of Fiscal Studies (IFS) said any move to alter the Chancellor’s self-imposed fiscal rules “would not be without risks”, which comes ahead of her maiden Budget in October.
Ms Reeves is considering the change to unlock up to £50bn for spending on large-scale projects such as roads and housing, as the Treasury seeks to “count the benefits of public investment and not just the costs of it”.
It’s wholly true that to borrow to invest in an asset which will then produce a return is different from borrowing to pay current expenses. Creating that weapon that will fully keep the French at bay for a century will pay dividends in a manner that spending to raise train drivers’ wages will not. Therefore lenders (or if we wish to adopt the rather fanciful claim of some on the foolish left, those who wish to partake in the savings opportunity being offered by government) will be happy with a higher multiple of cashflow available to service the debt if it’s being invested not splurged. This is why you can get a mortgage for 4x income and not an overdraft for beer consumption for 4x income.
Switching about the fiscal rules to make this more obvious makes little to no difference - it’s just playing accounting games and lenders are immune to that sort of nonsense for they make their own estimations. Borrowing to invest (but not to “invest”) will not spook the markets.
However, fiscal rules are also vital. Not particularly for any economic reason but for reasons of political economy. Taxing is hard, spending is joyous. Therefore politicians have a propensity for spending the (insert word of choice here) out of everything and not taxing to cover their joy. Fiscal rules are a self-imposed constraint upon this political fact. Changing the fiscal rules is the statement that we’re not going to accept this self-imposed constraint. Lenders (or, to taste, savers with the government) will therefore likely ask for a little more interest - or more accurately, only lend (save) if they are offered more interest - if the fiscal rules are changed for what look like political reasons. Because spending the (insert word of choice here) out of everything becomes more likely along with the future debt and interest burdens, an increase in inflation from the stimulatory effect upon the economy and so on.
Fiscal rules don’t matter except they’re vital. Odd but true.
We also have a stock of approaching £3 trillion in government debt - before we even start to think about pensions obligations and so on. A change of 1% in the interest rate demanded (or, the interest rate at which people will save with the government) thus costs £30 billion a year. A 1% change in the rate on gilts would be a huge change and is unlikely from the being discussed tweaks to the fiscal rules. A belief that the current government really was going to spend the (insert word of choice here) out of everything could change it by that and more. It’s also true that that higher rate would only kick in as the stock of gilts matured and was reissued - but the long term effect would still be there.
A tweak to produce £50 billion more to spend now at the cost of £30 billion a year forever doesn’t look hugely clever if we’re honest about it. Even if that £50 billion is invested, not “invested”.
No, we’re not saying that tweaking the rules is going to move gilts interest by a full percentage point. That’s a deliberately exaggerated example of the logic, nothing more. But insisting upon spending the mortgage on beer is likely to increase the interest that has to be paid all the same. Of course, of course, the current po-faced lot won’t spend the cash freed up on anything so useful as beer. But we really do still face this problem or point. Borrowing to invest in productive assets has its merits. So, interest rates will move by however much the lenders believe the money will be spent upon productive assets and not beer, train drivers’ wages and so on.
And do recall, money is fungible. So it’s not actually how much of the extra borrowing is invested (not “invested”). The view is going to be about how much of the average £ is invested not “invested”.
You see the problem?
Tim Worstall
Start again everybody - all economics is wrong
No, really, scientists tell us so:
Neoclassical economics (NCE) theory and neoliberal economics practice together form one of the principal driving forces of environmental destruction and social injustice. We critically examine ten key hypotheses that form the foundations of NCE, and four other claims. Each fails to satisfy one or more of the basic requirements of scientific practice. Hence, NCE is fundamentally flawed, is irrational in the common meaning of the word, and should not be used as a guide for government policies. Because NCE is socially constructed, it can be replaced with an interdisciplinary conceptual framework that is compatible with ecological sustainability and social justice.
Well, there we are and doesn’t that just tell all of us. That the sort of references they use are the American Prospect, Jason Hickel - one paper of his insists that the population was on less than subsistence incomes in a century when population tripled - Naomi Klein - she who insisted that more expensive Canadian solar cells would increase the installation of solar in Canada - and Steve Keen* could mean that we’re not going to pay much attention to this tripe but we should, in fact, take the idea seriously.
For this is a common enough claim. Some or all of the base claims - rational consumers, utility maximisation say - are not true of all people in all circumstances. As we know any scientific theory is destroyed by just the one ugly fact. Therefore neoclassical economics fails. And Yah Boo Sucks! and the Commissar will tell us when we may nibble our raw turnip.
The failure of this contention is that neoclassical economics is not a scientific theory. Thus it is not something to be proven - or subject to disproof - by the scientific method. As Brad Delong has been pointing out, correctly, for decades neoclassical economics is a toolbox we can use to explore human interaction, human responses to incentives and so on. Often enough it will give us some guidance as to how to achieve a goal. Or, more inconveniently for planners and politicians, the likely result of certain actions. But that is what it is, a toolbox.
Within that toolbox there are models that assume irrational consumers if that’s what we want to study - say, the market for Pet Rocks**. Similarly we can drop the utility maximisation - as many models do, assuming statisficing instead. That is, within the toolbox are many tools, many models, and the trick is to use the screwdriver when dealing with a screw and the hammer with a nail. It’s never “the toolbox is right” it’s “which is the right model right here, right now?”
To put this in terms these social ecological scientists might understand. All physics is wrong. There is no unified theory of everything. Newton’s just great for tracking a cricket ball or getting to the Moon. Using Newton to get to Mercury will have you crashing into it, not landing - at this point we need to use Einstein. As we also do with GPS. Neither Newton nor Einstein are going to get quantum computing working - to be fair, nor might anything else. But, of course, we don’t say that physics is wrong because we have to change models and explanations at times. We say that the models, explanations, are useful at times and not at others - we can track a cricket ball, get to the Moon and Mercury, GPS does work and quantum computing, well…. real soon now no doubt.
Neoclassical economics - neoliberal if you like - tells us that if we tax foreigners who live here really a lot they might leave the country. Or, that some will and some won’t to be slightly more precise. Which means that attempting to tax foreigners who live here really a lot might increase tax revenues by a couple or three billion £, might actually reduce tax revenues by a billion £. Which is a useful thing to know really, as we consider whether to tax really a lot foreigners living here. No, really.
Neoclassical - neoliberal - economics is useful. Which is what we ask of tools and a toolbox after all. The usefulness does not depend - as with models of physics - upon whether it’s a scientific theory which explains all. The usefulness depends upon whether the model is useful.
Tim Worstall
*Keen once insisted to one of us that as we never do have truly infinite suppliers - correct - therefore no supplier is ever a price taker. That marginal production will, marginally, change the world price and so all are price formers, not takers. Thus all markets must be modelled as oligopolies, not free ones. Logically true but of no use whatsoever - for we find that markets with more than 4 or 5 non-colluding producers act more like the free market models than the oligopolistic ones. It’s never is the model wholly and accurately true, it’s is this model useful right here?
**The answer to which is that anyone not noting that humans value a couple of minutes cackling and silly joy is not noting something fairly important about human beings. This also explains Big Mouth Billy Bass - apparently a favourite of our late, lamented, Queen - and The Guardian’s Opinion page - so rumour has it, less of a favourite.
Max Roser is right - we need to make the world bourgeois
Max Roser - of Our World in Data - suggests in the New York Times that we should start to have a different poverty measure. We disagree with one word there, poverty - the new measure is absolutely fine by us.
Taking these references into account, my suggestion is to set a higher poverty line at $30 per day.
The aim, of course, is to set a target that we all then strive to beat. As with that Millennium Development Goal of halving $2.15 per day absolute poverty. You know, the one MDG over achieved and early by allowing free market capitalism to go out and forcefully prod butt.
Now, we’re a bit nervous about the $30 a day becoming the new “poverty”. Because we’ve all seen how renaming poverty has led to disaster. Poverty used to be, domestically, an absolute measure, like that $2.15. Then it got changed to a relative measure of 60% of median household income. Which isn’t a measure of poverty, at all, it’s a measure of inequality. And no, for all the bleating, it is not true that poverty and inequality are the same thing. We can, now, as a result of this change, end up with poverty being recorded as decreasing even as all get poorer. A truly decent recession would do that, collapse inequality so lower recorded poverty even as the poor themselves actually had less.
So, let’s not call that $30 a day poverty, let’s call it what it is - petit bourgeois. For that is the realm of that state, three squares, change of clothes, roof over head, the petit bourgeois lifestyle aimed at by millennia of human effort.
Of course, as with the MDG, once we achieve that we’re going to have to set ourselves another target. Which we suggest is the Bourgeois Line. $100 a day. Per person, PPP adjusted, for everyone on the planet. Roughly, and approximately (very approx) the average British lifestyle today, perhaps a little ahead, for all 8 billion humans. We do think it will be a better world. And just think of the joy at insisting to all the socialists that we’re only trying to make the world entirely bourgeois, eh?
And there is another little joy here too. This is entirely and wholly achievable. We get that from the IPCC models about climate change in the SRES. If we have globalised capitalism and free markets then we might have climate change problems and we might not - that depends upon fossil fuel use or not (A1FI or A1T in the scenarios). But what we’ll definitely get is everyone on about current British living standards - no, really, globally.
So, you know, we let rip with that globalised capitalism, free markets and reach the Bourgeois Line. Probably better to do it without the climate change but that’s eminently possible. Isn’t that a plan?
And think how many socialist, communist, degrowth and doughnut noses we can put out of joint by insisting on this nefarity, the aim of making all of everyone as rich as we are.
Tim Worstall
Those Laffer Curves seem to be coming home to roost
Unlike England’s footie, economics is coming home.
Labour’s non-dom plan could raise no extra funds, officials fear
Cost of super-rich leaving UK may exceed money raked in by new system, say Treasury sources
Oh.
Keir Starmer’s promised tax crackdown on non-doms could yield no extra funds for the Treasury, leaving a £1bn hole in the government’s planned spending for schools and hospitals.
Labour planned to use the money raised from wealthy individuals who are registered overseas for tax purposes to invest in ailing public services.
But the Guardian understands that Treasury officials fear estimates due to be released by the government’s spending watchdog may suggest the policy will fail to raise any money because of the impact of the super-rich non-domiciles leaving the UK.
Gosh, so the plans of the mice have ganged agley, have they? As Herr Hayek was known to remark, planning is difficult.
At which point your standard reminder. Every tax has a Laffer Curve. There’s a point at which the bite being taken changes behaviour. This is just the first lesson in all economics - incentives matter. At some point people will slow their work. Stop working. Take less risk. Go fishing. Talk to their own wives (shudder). Leave the country. Something. What that point is will depend upon the tax, the surrounding environment, the other attractions of it and so on.
The European Union itself famously proved that a Financial Transactions Tax at 0.01% was above the revenue maximisation point. The IFS has shown that stamp duty on shares at anything above 0.0% is above that revenue maximising point. And here we’ve the claim at least that taxing non-doms as if they’re locals is over that peak of the Laffer Curve.
We can’t shore up the system either, not with non-doms. The whole point is that they already get charged local taxes, in full, on local assets and incomes. It’s only their foreign stuff that doesn’t get taxed in the UK. And there really is no way that we can tax foreigners on foreign assets or incomes if the foreigners return to living in foreign.
The Laffer Curve(s) exist and they’re important. It really is possible to try to tax so much that you collect less revenue.
Ho well, back to the drawing board, eh?
On that drawing board there does need to be this thought. If charging non-doms the amount that they would have to pay if they were dom is over the top of that curve then is the amount of tax we charge to doms already also over that peak? Inquiring minds would like to know and we’re really rather sure the answer is “Yes”.
Homes for Heroes - the Prime Minister needs a history lesson
Or, if it were not for the fact that we’d never say such a thing about one so distinguished, the Prime Minister needs to be boxed about the ears until he grasps the problem. The announcement that the government is going to build homes for heroes - we approve, as do veterans. So, good.
Except that phrase has been used before. Lloyd George’s promise during WWI of “homes fit for heroes” became Homes for Heroes in the early 1920s. Then as now an entirely valid plan and political goal. It’s just that for one of us that whole story tells us what has actually gone wrong - howlingly, horribly wrong - with British building in this past century. Or, perhaps, what it is allowed that people may build.
Along one particular street in Bath, along Englishcombe Lane, it’s possible to see that gone wrong.
If we’ve managed to get Google Streetview right at the bottom of the road, some very grand late Victorians and Edwardians. Just opposite is part of Morlands, which is a 60s or so development by the styles of that time. No private space at all, no front or back gardens, no room to put the dog out, not even a flower bed. Houses on a council lawn that is. Ho well, socialists and private space, eh?
The more apposite point is that a couple of hundred yards up the road are those post-WWI homes for heroes. Here. Semi detached, not huge to be fair. But kitchen, living room, parlour, 3 beds and indoor bathroom. They’re still highly desirable houses in fact. Note, they’ve front gardens. They’ve also back ones too.
Now, we’ve heard this, even heard it from someone on Bath City Council (who had heard it, we’re not quite old enough to know anyone who was on BCC in the 1920s), and never, quite tracked it down officially. But the statement was made that the Homes for Heroes needed to be on 1/4 acre gardens. The working man needed the space to grow vegetables for his family and to keep a pig. These houses, the 1920s ones, do have substantial gardens as the 1960s ones don’t.
We can then carry on up this same road, to here. Perhaps 70s or 80s houses. No, no, not 1880s, 1980s. Note the wholly trivial size - and no, they do not have decent back gardens. The road at the top is called Whiteway. And a couple of hundred yards along that - please do note that all these locations are within hundreds of yards of each other - we’ve a view of Englishcombe itself. Which is, of course, free of housing because that’s Green Belt, that is. It would strike terror into the heart of the haute bourgeoisie if we ever built upon that - even if it were Homes for Heroes, let alone something better than a rabbit hutch for the proles.
And this is what is wrong with housing in Britain. Yes, yes, of course, not everyone’s going to live in a grand Edwardian. Yes, yes, we can fail to replicate those mistakes of when we allowed the sociologists to miss the point in the 1960s - personal, defensible, space is important to humans. One little thing - all our examples are council housing here.
But Homes for Heroes? We’ve done this before. And those Homes for Heroes? Right now, today, it’s illegal to build them. No, really. What was considered the basic minimum that the local council should provide to the working man is illegal to build now. Those decent sized houses were on those decent gardens d’ye see? You can get perhaps 9 dwellings with 1/4 acre gardens on a hectare of land. Last we saw the current insistence is that we must have no less than 30 dwellings per hectare in order to gain planning permission. Even though Englishcombe - as with so much other land - is there and ripe for the taking.
It’s actually illegal to build houses that were regarded as the proper minimum a century ago.
That’s the problem with British housing. It’s simply not legal to build anything that our grandparents thought was the necessary minimum, let alone better.
At which point we change our minds. Yes, the Prime Minister - whoever it is - needs to be boxed about the ears until they understand the problem. Then, of course, the boxing needs to continue until they actually do something about it.
Homes for Heroes is a great idea. But an entirely serious and sensible suggestion. Anyone and everyone involved needs to go see what our forbears built for that same reason a century ago. Then wonder how we’ve ended up with a system that makes building just that - a house with a garden for the working man - illegal.
No, really. Think on it. Really? How did we get into this state? And shouldn’t we be boxing the ears of every Prime Minister that allowed this to happen?
Tim Worstall
The average today is higher than the living standard of 19th century royalty
For those of us in Europe and offshoots - generally what we call the developed world - yes, this is true. We do live better, on average, than the average 19th century royalty.
This is a claim that some will guffaw at. Yet it is still true.
In a number of ways it can be claimed we don’t - we’re not living in palaces for example, nor festooned with diamonds. We also don’t have to put up with German princelings which is nice.
In a number of ways we’re about the same. For the average of us we’re well fed, well clothed and so on. As were those royals.
But in a number of important ways we’re better off.
We have the entire wisdom of mankind to hand, immediately available for example. But not just smartphones, we’ve just phones, something the average decade, let alone royal, of the 19th cent didn’t have. And jetplanes, and even planes themselves - it would be interesting to find out if there was actually an exception to the statement that no one regnant in the 19th century in any country ever got on an airplane. Transport, communication, vastly better these days.
But they had servants, right? But we’ve mechanised those servants - the washing machine, the electric stove, the steam iron, vacuum cleaner. By and large we’d consider that a wash (sorry).
But two things really stand out that are different. The first is that we are hugely, vastly, warmer. Those palaces were never known as being warm - there are lovely stories from the beginnings of the National Trust that those big old houses were freezing cold in general. We’ve seen, recently, an argument that the average across the property temperature in winter was 0 oC. It was only actually in front of the fire that it got up to 10 oC. Those old high backed chairs were to keep your neck warm from the draughts, d’ye see? The very design of porter chairs tells us that significant areas of the house were not warm.
In fact, everyone - including royalty - was in what we would today call fuel poverty:
Adequate warmth is considered to be 21 °C (70 °F) in the main living room and 18 °C (64 °F) in other occupied rooms during daytime hours, with lower temperatures at night,
It’s not a matter of money, simply not technically feasible to heat a place to those levels back then. Actually, anyone who grew up - however bourgeois or aristocratic - more than 60 years ago will have been in fuel poverty by that standard.
But the real biggie is health care. Antibiotics more than anything else. In the 1920s the son of the President of the US died of a blood blister. Childbirth cut a swathe through royal as other families - it’s the reason we got the Queen Vic. It’s generally although not wholly true that a health care system could really only do bed rest and hydration until we gained those antibiotics. And to return to childbirth, Viccie again was one of those whose use popularised the new anaesthesia in childbirth. Before that all births were natural, even to the most highborn. And let’s not even go to child mortality, something that claimed near half of all children before puberty - lower levels for royalty of course, but still at levels that would be considered a holocaust today.
We do live better lives than the average 19th century royalty. Given that the NHS is currently the national religion we must do as we do have medical care.
But as so often, PJ O’Rourke:
In general, life is better than it has ever been, and if you think that, in the past, there was some golden age of pleasure and plenty to which you would, if you were able, transport yourself, let me say one single word : Dentistry.
There’s a reason none of those royals in that first half century of photography smiled and said “cheese”. None of ‘em had any teeth.
Solved it: The Chancellor should charge CGT on gilts
As we all know there’s a certain hunger for more tax money out there. So, we should think of new ways to gain more tax money, obviously - the idea that anyone’s going to just spend less is absurd, equally obviously.
We’re also told that the richer should be paying more tax on those absurd profits they make from investing in things. Capital gains tax should be the same as income tax and at the top end this means 45%. Let’s just call that 50% for ease of calculation in what follows.
There’s an about £400 billion* (again, let’s just play with very rough numbers) profit that investors are going to make. All of which will be CGT free. So, we should tax that £400 billion.
The Bank of England owns some £800 billion in gilts. The latest announcement is that they’ll sell £100 billion of this in the coming 12 months. The capital loss is said to be around £50 billion (again with the very rough numbers). This is because those gilts were bought when interest rates were 1 and 2%, now they’re 5%. The loss is already baked in - it’s possible to collect that loss year by year on the difference between the 5% being paid out to banks on reserves and the 1 or 2% being collected. Or, the bonds can be sold and the loss taken as a capital loss. Same difference, different accounting year is all.
OK. But that capital loss will be a capital profit to the buyers. The total return to the buyer will be the 1 or 2% interest coupon plus, obviously, the rise to par value of the bond as it approaches maturity. So, if the BoE is to lose £400 billion here then investors must make £400 billion. The bonds are to be sold at, say, 50% of face value and they’ll mature at 100% of it.
But here’s the thing. That capital profit on gilts is untaxed. Entirely so. It’s also concentrated among the rich. It’s entirely possible for individuals to buy gilts but the poorer tend to go with NS&I instead. It’s the richer, in larger size, that go for gilts.
So, whack CGT on gilts and collect £200 billion over the years. Job’s a good ‘un and the problem is solved, right? After all, why should the rich gain access to a savings opportunity with the government without paying tax for the privilege?
Glad we could help out here.
Hmm, what’s that? There’s a reason there’s no CGT on gilts? In order to encourage investors to buy them? And taxing gilts would make investors less likely to buy them you say? But, but, that would mean that the tax rate on investing changes the amount of investment done, right? And we’re all agreed that we insist upon having a high investment, high productivity Britain, right? So increasing the CGT rate on private sector investing will reduce the amount of private sector investing and thus damage that aim of a high investment economy. Yes?
Well, isn’t that a pretty pickle. Experience tells us that zero CGT on gilts increases investment in gilts. We’re also being told that more than doubling CGT on non-gilts investments will aid us in increasing the amount of investment in our economy. Logic tells us that both can’t be true at the same time.
So, who to believe, eh, who to believe?
We’d suggest it’s the rather hard headed folk who have to write the cheques to those who do invest in gilts. The Bank of England, Debt Management Office and the Treasury. They would all be absolutely horrified at the idea of CGT on gilts. Because they know, very well and absolutely, that this would reduce investment in gilts. Therefore, if we want a high investment economy we need to be reducing taxes upon investing, not raising.
But then logic and government, so, so, difficult to get the two aligned.
Tim Worstall
*Yes, yes, we know, most of the holdings are inside some tax wrapper. This is an explanation of the logic not a real world calculation of the numbers.
Asset stripping is recycling, so why the hate?
From a man who teaches at a British univerity, much to our perplexity:
The reality is that private equity is not the best of capitalism, as it would like to pretend. Back in the 1970s it was described as what it really is. The description commonly used then for those undertaking this activity was ‘asset strippers'. Nothing much has changed, except the scale of the activity. Despite that, asset stripping is what it still is.
Clearly, the implication there, the intended meaning, is that asset stripping is something bad. When, in fact, it’s the recycling of economic resources.
Recycling is good, right?
Think through how a market economy works. There are varied economic resources - land, labour, capital being the usual trio - that are combined in different ways to try to achieve some goal. Not all of these tries work. This is the very point of a market economy, that the different combinations, methods and tries get, erm, tried. Then we do more of what works and less of what doesn’t.
But that does mean that there are those combinations that we do less of. In fact, there are those failed experiments that we’ve got to stop. Which means that those scarce economic assets we’re currently using to do something not worth doing need to be extracted, recycled and moved off into some other usage which produces value.
That is, asset stripping is not just an entirely valid part of capitalism, it’s also not just a desirable one, it’s one that makes us all richer. After all, moving an asset from a lower to a higher valued use is the very definition of wealth creation.
Odd how people who actually teach in universities can fail to grasp the basics really.
Tim Worstall
If we could just suggest something to Mr. Peston?
If you are going to start complaining about the tax paid by some corporation do, please, try to have at your side someone who has a clue about corporate taxation:
Quadrature Capital Ltd made a £4m donation to Labour on 28 May 2024. It was reported to the Electoral Commission on 30 July 2024. It has only just been revealed by Open Democracy. I have just looked up Quadrature’s UK accounts. The firm says it’s receives remuneration for “investment management services” and that profits are driven by “the performance and assets of the funds under management”. According to its most recent filings (see attached) it paid tax of a paltry £5.3m in 2022/3 on profits of £231m and just £35m of tax on profits made in the previous year of £560m. In other words it has been paying a fraction of what was the UK corporation tax rate of 19% - which at the time was low by UK standards. There will be Labour members and supporters who will be surprised and disappointed that the party is funded by a business that pays considerably less in tax than the official rate.
They’re an investment management firm, as you say. Which means that they manage investments for people. Those investments will change in value over the course of a year - this is rather the point of hiring the company to do the managing of investments. Which is the bit that’s been missed in the analysis.
The “fair value movements on investments” is not taxable. Because it’s not a realised gain. In exactly the same way that you are not charged capital gains tax if your shares go up - but are charged CGT if you sell shares that have gone up and thereby take a profit. You are not charged tax every time your house changes in value. You might well be when it is sold and you book the profit (second homes etc). Profits that stem from marking to market are not taxed. Profits that are realised are.
This is different from what you get to say to shareholders and potential customers - there, of course, you do want to say “Look, number go up!” and good luck to you as you do so.
We do know that this is quaint, even old fashioned. But we do still run with the idea that the purpose of journalism is to inform.
Tim Worstall