Bloggers have been having lots of fun today picking apart a BBC article on the benefits cap, in which she distraught family said they would need to choose between "heating and eating" if the cap were introduced. But of course, their spending on cigarettes, alcohol and Sky TV budgets would remain.

Now, given my constant criticism of UKuncut and other idiotic tax campaigners, I have a reputation for being right wing. This isn't fair. I'm swayed not by dogma but by evidence. It just happens that, at this point in my life, I find that the evidence tends to support so-called right wing positions and tends to refute so-called left wing positions. But I remain open-minded as to what the evidence tells me.

So, here's the challenge. I cannot contemplate how anyone could expect strangers to support them through the tax system in excess of the cap. Clearly, this article fails to convince. So, can anyone justify, perhaps from their own budget, why the cap would be unworkable for them?

Because I can't envisage the situation where more than £26,000 is required, my view is that prima facie, the cap is a good thing. Only hard evidence from a real budget could convince me. So, where is it?

But that brings us to a serious concern about the original BBC article. Suppose there really is no evidence of the cruelty of the benefit cap. That would mean the BBC would have not been able to find a sympathetic family to review. In that case, one wonders why did the BBC commission the article in the first place. Just to point and laugh?

And if there is good evidence, why pick this family instead of an actual family in need? Either way, I'm pretty underwhelmed by the article, which smacks of profoundly lazy journalism. I'd like to believe in the kindness of the human spirit, but there's not much of it to be found in the way this article has been published.

Via @jjpoconnell and @rorymeakin, I'm led to this:

VFOOD5540 – Excepted items: Ice cream etc: Other frozen desserts

Gateaux and cakes

Frozen gateaux and cakes, including cheesecakes, which have to be thawed completely to be eaten are zero-rated but those containing ice cream are standard-rated. Baked alaska, which requires further cooking, is zero-rated.

Cheesecakes

Frozen cheesecakes which are usually eaten fully defrosted are zero-rated. A recent development has been the introduction of cheesecake type desserts which can be eaten either straight from the freezer or after just a few minutes at room temperature. These are zero- rated as they are more akin to traditional cheesecakes than to ice cream, ice lollies, frozen yoghurt and water ices.

Mousse and similar products

Mousse and other types of chilled desserts which have to be completely thawed before eating are zero-rated. Such products can be distinguished from ice cream by the fact that they contain agents which maintain their texture when thawed.

How can it possibly be in the public interest for there to be rules at this level of minute detail about the whys and wherefores of what is and is not standard rated for VAT?

H/T.

Whilst a worker on the NMW pays 13% of his income on direct taxation, Tony Blair Associates paid just 3%. That means than a minimum wage worker paid 333% more tax last year that Tony Blair Associates as a proportion of income.

If you compare the tax paid by a company as a proportion of its revenues against the tax rate paid by an individual as a proportion of his/her income, it's hardly surprising you're going to end up with idiotic results.

A company isn't a person. As I heard only this evening, thanks to a great talk by David Allen Green, it's a legal fiction that's given certain person-like qualities, but only in order to enable it to enter contracts, limit the liability of its shareholders, etc.  We tax companies in order to tax their shareholders. But we tax companies on their taxable profits, not their revenues. This is exactly the same way that sole traders and other unincorporated businesses are taxed.

We tax people differently. We tax them on their income, with very little scope for deduction.

So if there's a baddie in this tale, it's the tax system which beats up on the little guy. It's not Tony Blair, who will pay tax on any income he receives personally (possibly in the UK, but possibly not, depending on how he has structured his affairs). 

And it's mathematically dishonest to compare the rates paid and shout that one is higher than the other, without taking account of the actual amounts of tax paid. It takes a superhuman quantity of fuckwittery to actually believe that a minimum wage worker pays 333% more tax than Tony Blair's company. It's simply not true, whichever way you look at it.

I wrote a while back about the Whole of Government Accounts project. As you'll recall, government received a number of qualifications in the auditor's report on the accounts because of the way it had failed to account for some things properly. And one of those qualifications was for failing to consolidate the nationalised banks into government's results.

OK, let's clear up some of the jargon in case you're struggling. "Consolidation" is the process of showing the results and financial position of a group of companies as if they were a single entity. This means you remove all balances and transactions between group companies and only show the true external position. In the case of RBS, that means removing the investment in government's books and bringing in instead all the revenues and costs and assets and liabilities.

Now, government really did not want to do this. They argued that this would lead to a strange set of accounts, given how big the figures are compared to the rest of government spending. Too bad, says the accounting standard in question, IAS 27, which explicitly forbids subsidiaries from being excluded from consolidation just because they're very different to the rest of the group ¹.

Indeed, the only exclusion that might apply to WGA is the concession that subsidiaries that are being held for disposal within 12 months need not be consolidated. But, if they're still there after 12 months, you have to consolidate them from the date of acquisition and restate your accounts accordingly.

This was all true even before the Hester bonus kerfuffle. But what the interference over his pay demonstrates is that government won't be a passive investor while the banks get back on their feet. Instead  it will be getting its hands very dirty by meddling in all sorts of operational decision-making. The remuneration committee had already approved his bonus, in accordance with the terms of the contract he signed with the previous Labour government. That contract is shredded today, thanks to Labour's naked and hypocritical opportunism, and the Tories' shameful lack of backbone.

Yet it makes it all the more difficult today to argue that RBS is a soon-to-be-disposed arm's length business. It's quite clearly just another political operation. So government will face increasing pressure to consolidate RBS when it issues the next set of WGA later this year.

There's a good letter in today's City AM:

Held accountable

I watched Nick Clegg’s interview on BBC Breakfast TV yesterday morning and was furious to hear him say “for those who can't afford an accountant to fiddle their taxes”. How dare he. I assume therefore that he does his own return?

I’m fed up of politicians referring to accountants as one degree away from criminals. Professional, qualified accountants like myself have a high degree of integrity and abide by the UK tax laws, we do not “fiddle” taxes.

Joe Lee ACCA FMAAT
principal, Apple Accountancy Services

I totally agree. Clegg's assault on our profession demonstrates a total lack of understanding of what tax accountants actually do. He should be ashamed of himself.

Via e-mail, I learn of two interesting looking events on financial reporting that the ICAEW is running.

First up is the 2012 Information for Better Markets conference, which will be held on 17-18 December 2012 on the subject of ‘Who is Financial Reporting for?’.  They suggest you can register your interest by e-mailing them.

ASH are making idiots of themselves again:

A new report by FairPensions and ASH (Action on Smoking and Health) has challenged the long held view that UK local authority pension funds can hold 'unethical' assets such as tobacco in order to fulfil a legal duty and  maximise investment returns

With tobacco sales declining for the first time in 2010 and savers continuing to express concerns over whether their money is invested 'ethically', the report claims to expose misconceptions surrounding investors' duty to have tobacco as part of their portfolio. 

The report is launched with figures showing that councils across Britain have at least £1.3bn of employee pension funds invested in tobacco.

Both organisations claim that the three most heard arguments in favour of schemes investing in tobacco can no longer be upheld.

One of the most heard arguments; that is a trustee's "legal duty to maximise financial return" and that a trustee "cannot give consideration to ethical issues", is dismissed by the report as being "somewhat simplistic".

"Although local authority pension funds are governed by different laws to other types of pensions, members of their pensions committees have similar fiduciary duties to pension fund trustees," says the report.

"The phrase 'duty to maximise return' does not appear in any UK statute or case law. Pension fund trustees have a fiduciary duty to invest 'in the best interests of members and beneficiaries'. This is based on the common law duty of loyalty, which exists to ensure that trustees avoid conflicts of interest and do not abuse their position to further their own ends. Trustees also have a duty to invest prudently."

The report also claims that the two other common justifications for the investment practice, (that trustees do not interfere with the day-to-day decisions of external investment fund managers and that tobacco is a low risk, high return investment) are no longer valid.

Now, I mostly hate smokers. I hate the way they smell, I hate the litter they make, and I hate how they're always in the fucking way the whole time, whether walking down the street or when entering or leaving buildings. I hate how they use stupid schoolboy arguments to rationalise their irrational habit. I really hate how they see themselves as funding the NHS single-handed, as if that excuses all their other sins.

However, smoking remains legal. Although I don't smoke myself, I have no qualms about investing in tobacco companies and making money from the addiction of smokers (I've made quite a bit of money in doing so). Yet I can see that some people do have a problem with it.

But when you sign up for a local authority pension, you forego any right to determine what equities your pension fund is invested in. Local authority pensions are defined benefit, ie they promise you what pension you'll get in retirement. If you want a fund to call your own, over which you can make investment decisions, then defined benefit pensions aren't for you. You'll be wanting a defined contribution pension plan instead, just like we private sector taxpayers have been enjoying for years.

You can't have it both ways. Either take your defined benefit pension and shut up, or move to a defined contribution pension scheme. ASH and FairPensions are trying to have their cake and eat it. They can get stuffed.

If you don't, you won't find this sign,at the junction of London Wall and Copthall Avenue, much help.

It's pointing the wrong way!

The rate of profits made by companies who work in oil & gas are upwards of 44%. This is at the same time as the rates of profit in manufacturing are less than a quarter of that. Clearly, some sectors have a fast buck culture where their rates of profit do not match the work that they are doing. Multinational Companies operating in the UK should have their rates of profit capped at about 25%.

Oh brother. Let's just have a little look at BP's accounts for 2010:

Revenues: $297 billion

Loss before tax: $4.8 billion

Which I calculate to be a rate of loss of 1.6%.

OK, so 2010 was an extraordinary year for BP, given that it had to pay out bilions of dollars to pay for the cleanup of the Gulf of Mexico (see why they have to charge so much now, Eoin?). Let's look at 2009:

Revenues: $239 billion

Profit before tax: $25.1 billion

That's a rate of profit of 10.5%. I give up. Where on earth does he get his idiotic figures from? Clearly not from the accounts or from anything even remotely resembling reality.

Oh, and these are fun:

No employee/er or shareholder should receive a bonus in shares or payments of above £1m in any one year. The Sainsbury's boss for example received several millions in bonuses and shares while the same company hired disabled teenagers to work UNPAID. 

The idea that no shareholder can receive a bonus in shares or payments above £1m in any one year will totally fuck with any large pension fund. They'd have to reduce their holdings to ensure that they didn't receive dividends in excess of £1m, which for many companies wouldn't require that large a holding.

And forcing bosses to receive smaller bonuses will generally mean that they'll seek larger salaries. That makes payment for failure virtually guaranteed.

Ah, but Eoin has a plan:

No worker should ever be allowed to earn 2000% more in one year than the lowest paid worker in the company. The Tories had previously suggested that they might support this during the General Election campaign.

OK, so you've got an apprentice on £2.60 an hour and he works 9-5 for 40 weeks a year. That's a salary of £4,160 per annum. That would mean the boss can earn no more than £87,360. Is that realistic for a large engineering company, or would any prospective candidates make sacking all apprentices their first priority just so they can earn a bit more money?

His grand plan would see the total annihilation of every apprentice programme in the country, dumping loads of half-trained youngsters out of their jobs and onto the street. What a masterstroke!

There's been some press attention to a speech that Andy Haldane, a Bank of England director, gave at the ICAEW's Information for Better Markets conference in December.

Of most interest to the media was the suggestion that banks ought to be able to follow a different set of standards to other businesses because, basically, banks are different. I'm afraid I don't agree.

Having discussed this a bit on Twitter, I do share Frances Coppola's concern over banks following the fair value model in a rising market, then seeking to abandon it when the market falls. But the accounting rules were very clear about what should be done. It was unacceptable political interference in those standards that led to the rules being relaxed. It's not clear to me how aligning bank accounting standards with prudential regulation will reduce political meddling. If anything, wouldn't it be likely to make it easier?

Secondly, we just don't need to change accounting standards to make prudential regulation more effective. The regulator already has a lot of power at its disposal to demand information. So why not use those powers instead of reducing the usefulness of information available for shareholders? The precedent is there in corporate tax: the tax authorities request what they need, and amend information in the financial statements if necessary. No serious commentator has suggested aligning tax and financial reporting to reduce tax avoidance. And Haldane's suggestion fails for the same reason.