General Election 2017

[PompeyVillan]

Richard Murphy: Why Corbyn is right to increase corporation tax

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POSTED ON MAY 10 2017

Jeremy Corby has said he will increase corporation tax from its current 19% for all companies to 21% for small companies and 26% for larger companies if Labour wins the election. Let’s leave probabilities aside and discuss the merits of this idea.

The logic of both proposals is sound. For small companies the case is that it makes no sense at all to have a corporation tax rate below the basic rate of income tax: all that becomes is a blatant invitation to avoid tax. This abuse is already costing up to £4 billion a year according to the Office for Budget Responsibility: I suspect it may be more when the full national insurance impact is taken into account. In that case the 21% rate is almost certainly too low: I would have gone higher to beat abuse and win back more of the lost billions, which is exactly what is required.

Dealing with larger companies (of which there are vastly fewer) the situation is more complex. First, 26% is not high: it is close to the EU and OECD averages when adjusted for our current low rate.

Second, it’s not that long ago we had these rates.

Third, there is no evidence at all that cutting the rate has brought jobs, growth or new corporation tax revenues to the UK (the rise in revenues is very largely because of the rise in the number of small companies and broad based recovery in profits from banking and elsewhere and not because of new inward investment driven by tax).

Fourth, we know that business itself did not lobby for the low corporation tax rates now on offer.

Fifth, we know business says tax is low in its considerations when real business is being relocated as opposed to profits being relocated – which is the type of abusive activity Ireland attracts and which has rendered its national accounting meaningless because so much of its GDP is profits simply flowing through the place leaving almost not a trace bar some fees for bankers, lawyers and accountants on the way.

Sixth, and most important, I argue low tax rates and low capital allowance rates are counter productive and rarely help anyone but banks. This needs explaining.

Right now, and I summarise, with a corporation tax rate of 19% and a 20% allowance on capital spending a year a large company in the year that spends £100 on capital equipment gets a cash rebate of £100 x 19% x 20% = £3.80 in the year it spends the money. Tory plans to reduce the corporation tax rate to 17% reduce this to £3.40. That, to be candid, provides no incentive for investing at all. This is a tax system for rentiers and bankers. It does nothing at all to encourage any activity in the real economy where people work and value is created.

Now change the tax rate to 26% and offer 100% first year allowances and the allowance is worth £26, or near enough seven times more.

This will encourage investment.

That will create growth.

The investment will increase productivity.

That increases wages.

And growth, again.

And so future tax revenues as a result.

In other words, increasing the corporation tax rate kickstarts the economy in a way that a corporation tax cut can’t. And it pays for itself.

So Corbyn has a plan that firstly beats avoidance, second raises revenue, thirdly can encourage investment and fourthly delivers growth. None of those come from the Tory plan.

On this occasion he is onto a winner.

And he’s the one talking economic sense.

Give it two years and it will be a Tory plan. But right now they’ll just ridicule it. Which will be a loss to us all.

Finally, let’s talk education. I may be biased, but UK universities provide us with a real competitive advantage and a massive rate of return in terms of relative skills. Redirecting money to this sector whilst leaving those departing it debt free (or with reduced debt) would create a big economic stimulus.

Corbyn has a policy that is coherent in that case from beginning to end. And it is appropriate I say so.

 

[mockingbird_franklin]

5 minutes ago, dAVe80 said:

Shame it wasn't Kunessburg!

a foot injury could have resulted in serious brain damage if it was,

[a m ole]

5 minutes ago, PompeyVillan said:

Richard Murphy: Why Corbyn is right to increase corporation tax

 

But that sounds like it will disadvantage the banks and bankers, so is obviously an awful idea.

[Demitri_C]

2 hours ago, blandy said:

That's rubbish twice Dem. Firstly "the people" didn't ask to leave the single market. That wasn't the exam question. Secondly Cameron ran away the day after the result. He delivered nothing. May has started the process, and God knows where it's heading, but no-one's delivered on anything.

The thing is Pete if you don't believe in something why would you stay on? I wouldn't if I was in his position. His position was untenable in my view. My view is someone who pushed us in this direction like Gove or Johnson should have been in charge after being "out" camp

[blandy]

Just now, Demitri_C said:

The thing is Pete if you don't believe in something why would you stay on? I wouldn't if I was in his position. His position was untenable in my view. My view is someone who pushed us in this direction like Gove or Johnson should have been in charge after being "out" camp

Yeah, that's fine Dem and makes good sense. I was just commenting on a teensy weensy inaccuracy or two in your previous post.

 

[MakemineVanilla]

With Labour announcing their plans for nationalising the railways, it seems to reveal why Comrade Number One was so non-committal on Brexit issue because under EU law such privatisations aren't impossible but there is a barrage of legal obstacles which makes it difficult, where 'necessity' needs to be proven in court.

Corbyn's reference to Brexit being a fact, in his recent speech, was as amusing as it was cynical, as he made out Brexit had been reluctantly forced upon him. 

 

 

[blandy]

2 minutes ago, MakemineVanilla said:

under EU law such privatisations aren't impossible but there is a barrage of legal obstacles which makes it difficult, where 'necessity' needs to be proven in court.

The franchise system that's used makes it a piece of cake, in or out of the EU.

[mockingbird_franklin]

not to be outdone, the Tories have leaked their manifesto

 

[blandy]

I thought the tory one was just the UKIPs 2015 one with the date changed and party name crossed out and changed to "Theresa May".

[mockingbird_franklin]

I think it could be fake though, it's far too well thought out to be a Tory manifesto

[MakemineVanilla]

18 minutes ago, blandy said:

The franchise system that's used makes it a piece of cake, in or out of the EU.

You may be right but some of your comrades say otherwise:

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What a pity, therefore, that Labour cannot renationalise it! Britain is a member of the European Union (EU)  and as such bound by the EU Treaties. Indeed, every British court is duty-bound to enforce every EU law in preference to any conflicting British statute. Under Article 106, the EU prohibits public monopolies exercising exclusive rights where this violates EU competition rules. The EU’s Court of Justice has interpreted Article 106 as giving private companies the right to argue before the national courts that services should continue to be open to private-sector competition. Nationalised services are prima facie suspect and must be analysed by the judiciary for their “necessity”. Thus the EU has given companies a legal right to run to court to scupper programmes of public ownership.

Fight it out amongst yourselves but beware of anyone carrying an ice-pick.

Edited May 11, 2017 by MakemineVanilla

[Demitri_C]

5 minutes ago, mockingbird_franklin said:

not to be outdone, the Tories have leaked their manifesto

 

Thats still probably more than Corbyn and Abbott! 

[blandy]

50 minutes ago, MakemineVanilla said:

With Labour announcing their plans for nationalising the railways, it seems to reveal why Comrade Number One was so non-committal on Brexit issue because under EU law such privatisations aren't impossible but there is a barrage of legal obstacles which makes it difficult, where 'necessity' needs to be proven in court.

Ahem

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Professor Nicol argues that the Treaty on the Functioning of the EU (TFEU) and EU liberalisation directives prohibit renationalisation of energy utilities, as proposed by Jeremy Corbyn. Professor Nicol raises an important point. The EU probably encroaches on the sovereignty of member states to its most egregious degree when it comes to market liberalisation. Art. 176 TFEU commits member states to the expansion of markets.

I have a lot of respect for Professor Nicol and recommend his excellent book. But I can’t help but feel that, in this instance, he has reduced a complex area of law to a zero sum conclusion. There are many forms of “nationalisation” that would never be touched by the TFEU (such as taking utilities into municipal control, as has happened in Germany). Furthermore, EU law wouldn’t prohibit the sort of nationalisation proposed by Mr Corbyn.

Let’s be clear, the Corbyn plan isn’t for complete nationalisation. Mr Corbyn wants to nationalise the grid (the infrastructure that transports gas and electricity from generator to supplier), the “Big Six” energy companies and the railways.

EU law explicitly protects the right of member states to nationalise industries. Art. 345 TFEU states “The Treaties shall in no way prejudice the rules in Member States (MS) governing the system of property ownership.” In his book Professor Nicol argues that this provision has recently been ignored by the ECJ. This is largely correct but it does not justify the conclusion that it will always be ignored.

Art. 345 remains in the treaty. It is possible to generally promote liberal markets and operate some industries as national monopolies. Arts. 176 and 345 are not mutually exclusive. The ECJ has often been tolerant of member states accused of violating the treaties if their actions are “proportionate“, i.e. for a legitimate aim (which would include one endorsed by the electorate) and effective, but not excessive, in achieving that aim. Assuming that nationalisation was prominent in Mr Corbyn’s manifesto, conducted on a transparent timetable and proper compensation was paid, Mr Corbyn would have a strong case based on Art. 345.

But even without Art. 345 EU law would not prohibit the Corbyn plan. Professor Nicol relies heavily on Art. 106 TFEU. But this provision doesn’t ban nationalised industries. It simply regulates how they can behave in relation to other enterprises. In essence, enterprises with a dominant position in the market due to state action cannot use that position to behave unreasonably. The ECJ will only intervene if Art. 106 is breached.

Professor Nicol argues in his book that the ECJ now presumes that a government supported enterprise will always breach Art. 106. But this is based on a case in which the enterprise in question acted truly outrageously. It’s not clear that the decisions in this case would apply across the board. It almost certainly wouldn’t apply to the railways as these are already operated by government subsidisedmonopolies. If there’s only one player in the game it doesn’t make the market any more or less competitive if his name is Corbyn or Branson.

Even the court decides Art. 106 has been breached, the treaty includes exceptions allowing a state supported entity to operate without or with limited competition if it is necessary in the national interest.

This gives the Corbyn plan two defences. It could ensure that its nationalised enterprises cohere with Art. 106 ab initio (for example by writing a duty to respect it into the Act of Parliament). Or it could argue that it qualifies for an exemption.

The latter argument would be stronger if the new enterprise was to focus on green energy. Energy suppliers themselves have argued that taking the necessary steps to respond to climate change is too difficult in the existing energy market. Yet EU law purports to take climate change very seriously. The Corbyn government could argue that nationalisation represents an essential (and legally mandated) response to climate change.

Professor Nicol also argues that EU directives on electricity and gas will prevent nationalisation. It’s true that both directives require that third parties have access to the national grid. This seems to prohibit a monopoly. But it wouldn’t prohibit nationalisation of the grid. The grid is inevitably operated by natural monopolies (it would be absurd to have competing grids) and this reality is accepted in the directives long as third parties can access the grid. Nationalising the grid would make no difference to the current dynamics of the market.

There are over a hundred energy generators and suppliers in the UK. The Corbyn plan only involves nationalising the “Big Six”. Clearly this wouldn’t prevent “third party” access to the grid. In France over 90% of the market is dominated by state owned or backed entities. Allowing third parties access to just 20% of the market was sufficient for France to discharge its obligations.

We should also remember that the directives must be applied in the spirit of the treaties. This brings Art. 345 back into the mix. It would be difficult for the ECJ to overturn a proportionately conducted, partial nationalisation considering that the fundamental law of the EU recognises the rights of member states to do just that.

Finally it’s worth noting that the energy industry already receives significant state aid. It would be difficult for opponents of nationalisation to sue based on an unfair competition argument when it’s by no means clear that the previous situation was any better.

In summary, the Corbyn plan may well face a challenge in the ECJ. But so might almost any piece of legislation. EU law would by no means, immediately prohibit a properly handled nationalisation. This is important. Debate about progressive ideas can too often be choked off by assertions of illegality. Those of us who care about the environment (or just about our energy bill) should fervently hope that doesn’t happen here.

 

[Xann]

1 hour ago, blandy said:

I don't get the level of hate.

We can choose not to fund Murdoch's brand of bias, Pete.

[itdoesntmatterwhatthissay]

3 hours ago, blandy said:

That's rubbish twice Dem. Firstly "the people" didn't ask to leave the single market. That wasn't the exam question. Secondly Cameron ran away the day after the result. He delivered nothing. May has started the process, and God knows where it's heading, but no-one's delivered on anything.

I don't get this point of view. Leaving the EU is leaving the single market because the EU is the single market; it's a trading union not a co-operative one. (exampled many times by Junker and the EU post Brexit)
It was mentioned by 'Remain' scare stories (facts) throughout the campaign and reiterated by many 'Leavers'.

It's like the battlebus; only the very entrenched still use it to criticise 'Leave' because they weren't interested in what was being said or even how they said it. 

The same ignorance has already permeated our papers this morning with the 'Labour taking us back to the 1970's' story. The radio is full of callers regurgitating headlines and not reality and it bloody stinks.

[blandy]

13 minutes ago, Xann said:

We can choose not to fund Murdoch's brand of bias, Pete.

I thought she was the BBC politics reporter, who previously worked for the Guardian? She seems intelligent, balanced..etc. to me. 

[Chindie]

11 minutes ago, itdoesntmatterwhatthissay said:

I don't get this point of view. Leaving the EU is leaving the single market because the EU is the single market; it's a trading union not a co-operative one. (exampled many times by Junker and the EU post Brexit)
It was mentioned by 'Remain' scare stories (facts) throughout the campaign and reiterated by many 'Leavers'.

It's like the battlebus; only the very entrenched still use it to criticise 'Leave' because they weren't interested in what was being said or even how they said it. 

The same ignorance has already permeated our papers this morning with the 'Labour taking us back to the 1970's' story. The radio is full of callers regurgitating headlines and not reality and it bloody stinks.

The EU isn't the single market. The single market is a part of the EU. Hence there are members of the single market who aren't members of the EU.

The referendum never mentioned the single market, leaving a Norway shaped door open. But people are ignorant and politicians devious, and immigration trumps all apparently.

Edited May 11, 2017 by Chindie

[blandy]

7 minutes ago, itdoesntmatterwhatthissay said:

I don't get this point of view. Leaving the EU is leaving the single market because the EU is the single market; it's a trading union not a co-operative one. ...

The same ignorance has already permeated our papers... it bloody stinks.

Um, The question was should we leave or remain part of the EU, wasn't it?. The EU is a co-operative and trading union. The EU existed before the single market. The EU is more than the single market, much more. The EU gives citizens rights and protection, it makes law about the environment, and health and standards and funds science and infrastucture and education and has policies on movement of people and on policing and on policy to the likes of Israel and Russia..and I could go on.

So fundamentally I belive you are wrong to claim the EU is the single market and just a trading block.

Now, this ignorance thing...

[itdoesntmatterwhatthissay]

47 minutes ago, blandy said:

Ahem

There are cases supporting either side, so to 'ahem' with such confidence misses the point made in the long quote!
ECJ decisions are unpredictable as we saw with the greendeal. 

I'll also include the section of the article which you missed out. He starts with 'will not' and ends with 'should fervently hope'.

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Sorry Nigel but EU law will not prohibit a properly handled nationalisation of energy utilities.

Nigel Farage thinks EU law prevents nationalisation. Ironically he seems to have got this from a recent post on Left Futures by Westminster University’s Danny Nicol. Professor Nicol argues that the Treaty on the Functioning of the EU (TFEU) and EU liberalisation directives prohibit renationalisation of energy utilities, as proposed by Jeremy Corbyn.

Btw this isn't an attack but you're a smart cookie so I was surprised you posted in the manner you did.

[StefanAVFC]

Multiple prominent 'Leave' campaigners stated that we wouldn't be leaving the single market, with one saying it would be madness.

We hear a lot about 'Remain' scare stories; yet none, if any, have been debunked as we haven't left yet.