Monday, 15 July 2019

Amazon Prime Days

They spent a lot of money advertising their Prime Days, which appear to be 15 and 16 July.

15 and 16 clearly aren't prime numbers, so that's a bad start.

If you write the date and month the English way, 157 and 167 are prime numbers (hooray, the world makes sense again) but if you write them the American way as 715 and 716 they are clearly not prime (bugger).

There are plenty of consecutive prime dates using the English format in January, March, July, September and November (apart from "2" and "5", all prime numbers end in 1,3,7 or 9).

But the only two pairs of consecutive dates which are prime using the American format, are:
2/29 (in a leap year) - 3/1;
3/31 - 4/1.
You can't have consecutive primes in any calendar month using American format because one of them will be even, so you are restricted to the last day of a month with 29 or 31 days, followed by the first day of next month.

I couldn't find any consecutive dates which are both prime using English format and American format.

Just sayin'.

Sunday, 14 July 2019

Economic Myths: Miller & Modigliani Theorem

The first part of the original M&M Theorem makes perfect sense:

The Modigliani-Miller theorem (M&M) states that the market value of a company is calculated using its earning power and the risk of its underlying assets and is independent of the way it finances investments or distributes dividends.

There are three methods a firm can choose to finance: borrowing, spending profits (versus handing them out to shareholders in the form of dividends), and straight issuance of shares. While complicated, the theorem in its simplest form is based on the idea that with certain assumptions in place, there is no difference between a firm financing itself with debt or equity.


So far so good. If the value of the business is more than the outstanding debts, then the shares have value; if the debts exceed the value, then the shares are nigh worthless. The total value of debts + shares remains roughly the same. The value of the bonds can't exceed value of the business and the value of the shares can't go lower than zero.

If you aren't sure whether to buy shares or bonds in a company, the best strategy is to have a mix. For example Mike Ashley/Sports Direct spent £150 million on acquiring 30% of the shares in Debenhams. Unfortunately for him, the debts ballooned to far more than the value of the business, so the lenders took over the business and his shares were wiped out (a kind of debt for equity swap).

His better strategy would have been to spend less on shares and more on acquiring Debenhams debts pro rata (say 15% of each). If the business had done well, his shares go up in value and if it does badly, his shares are wiped out but he still ends up with 15% of the business in his capacity as lender.
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What's nonsense is the related claim that the tax system encourages businesses to borrow money instead of issuing shares:

Third, the use of debt is less expensive than the use of equity because debt is generally subsidized by the state through the tax system –since debtors can deduct the interest payment associated with the use of debt. Therefore, the use of debt may reduce the firm´s cost of capital.

That's a generalisation across many countries' corporation tax systems, but whether it is true or not depends on the rates of tax applied to corporate profits (at corporate level) and dividend and interest income at shareholder/lender level.

(I started as a tax adviser in 1989 and had to advise clients on 'what is better for tax', the answer depended on the circumstances. I later did an accounting and finance degree, and the lecturer trotted out the M&M tax drivel and would simply not listen to reason and logic.)

IIRC and generalising a bit, Singapore and Hong Kong governments get so much money from land rent, land auctions, stamp duty and capital gains on land that they barely need to bother with taxing incomes. So companies pay 15% corporation tax and individuals pay 15% income tax. If an individual gets a dividend, it is treated as tax paid, so no further income tax due. If an individual receives interest income, it is taxed at 15% so it is as broad as it is long.
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In the UK, we had a brief period in 2012 or thereabouts (before Osborne started messing things up again), when it simply did not make a difference for corporation tax/income tax (ignoring National Insurance, which clearly distorts things, the 45% additional rate and overseas stuff).

The rates were:
Corporation tax - 20%
Basic rate income tax - 20%
Higher rate income tax - 40%
Withholding tax on interest - 20%.

* If a basic rate taxpayer received a dividend, there was simply no more tax to pay (same as Singapore or HK) because the company had already paid 20%. (Ignore the bullshit with the 10% tax credit and the 10% nominal rate, it worked out at nil, unsurprisingly).
* If a basic rate taxpayer took a salary bonus, the employer took 20% income tax via PAYE and the employee had no more income tax to pay.
* If a basic rate taxpayer received an interest payment, the company paid over 20% withholding tax/income tax on a CT61 and the individual had no more tax to pay.

* If a higher rate taxpayer received a dividend, he had to pay 25% income tax on the dividend, so the overall rate was 40%. Remember - company earns £100, pays £20 corporation tax, pays £80 dividend, individual pays £20 income tax and nets £60. (Ignore the bullshit with the nominal 10% tax credit and the 32.5% nominal rate, it worked out at 25%).
* If a higher rate taxpayer took a salary bonus, the employer took 40% income tax via PAYE and the employee had no more tax to pay, net pay £60.
* If a higher rate taxpayer received an interest payment, the company paid over 20% withholding tax/income tax on a CT61 and the individual declared the gross amount and paid a further 20% of the gross amount, net interest £60.

Osborne and Hammond then busily messed up this state of affairs and now you have to do the three calculations each time to see 'what's best for tax'.
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There are lots of other wrinkles...

* Pension funds can receive interest or rent truly tax-free, but receive dividend payments out of after-tax income. It would make more sense to tax all sources at a flat, lower rate, so that they get some refund of the corporation tax on dividends but pay some tax on interest and rental income.

* Some companies have large tax losses (R&D tax credits, Film Tax Credits etc) but have distributable commercial profits, so are advised to pay dividends so that shareholders get the (slightly) lower income tax rate that applies to dividends.

* Some companies don't have distributable commercial profits, so aren't allowed to pay dividends, but can still pay salary bonuses or interest.

In a perfect world, therefore, dividends, interest, rent and wages would be taxed exactly the same way i.e. there would simply be a flat withholding tax at the same rate on each when the company pays them out.

We used to do this for dividends (Advance Corporation Tax);
Banks used to withhold 20% income tax from deposit interest;
Non-banks still have to do it for interest payments (CT61s);
PAYE applies to wages;
CIS deductions apply to sub-contractors in the construction industry;
and tenants with non-resident landlords are supposed to, by default, pay 20% of the rent to HMRC and pay the landlord the balance of 80% (though most wriggle out of this).

You wouldn't even need to bother having special rules for foreigners and there would be no need to distinguish whether it's wages, rent, dividends, interest, sub-contractor payments etc. It could all be included on one return/reporting system and paid to HMRC in one payment. As a final flourish, dividends paid net of tax would be an allowable expense for corporation tax purposes.

Individuals who have to submit income tax returns (i.e. higher rate taxpayers) can then just enter all 'net of tax' payments in one box and pay the same tax rate on the lot, minus the credit for income tax withheld at source.

Here endeth.

Saturday, 13 July 2019

University Open Days

Funnily enough, we've been doing some of this, so interesting to see an article:-

"It's important to talk about the cost of going to open days," says Rachel, a sixth-former from Plymouth, in Devon, who is looking at university choices.

"Not everyone can afford to go out of their area. Train tickets are expensive and there's most likely accommodation as well."

This is peak season for university open days, when tens of thousands of teenagers and their families are criss-crossing the country viewing places where they might study.

A return trip by train from north to south can cost £200 or even £300. And even with railcard discounts, when there might be four or five universities to visit, the open-day season can soon become an unaffordable closed door.

"Can". Yeah. Plymouth to Manchester, maybe.

There is no charge to attend these events. But Rachel says the travel costs mean she has effectively ruled out universities in the North of England.

"I wouldn't want to apply to a city I hadn't been to before, in case I'd regret it," she says.

Why does someone from Plymouth need to study in the North of England? I'm not saying there aren't sometimes specific courses in certain places (like Southampton excels at marine biology), but I doubt most people in Plymouth can't find something close to what they want at Bristol, Exeter, Bath, Southampton, Cardiff, Reading, UCL, Imperial, Oxford, Cambridge, Birmingham and Warwick (plus all the ex-polys).

"It is unfair. We all know rail fares are phenomenal in this country, particularly if they're choosing to go at the last minute. Planning an open day in advance isn't always easy," she says."

Actually, rail fares aren't "phenomenal" in this country, unless you go to certain places at certain times. Mostly into London at peak hours. Travelling from Swindon to Cardiff is about £30-35 by train. Exeter is about £50, which I don't think is any more than most places in Europe.

It's usually left to parents to provide the money and organisation for their teenagers, so they can meet tutors, find out about applying for courses and check out the accommodation.

And when thousands of families are descending on a university town at the same time, the trains are not going to be cheap.


That's actually bollocks. None of the fares rise on university open days. Mostly because they're on Fridays and weekends when demand is lower on trains, anyway.

Sadie, from Hastings, in East Sussex, says her friends are working out which universities they can afford to reach.

She won't look any further north than Nottingham, which means ruling out places she might otherwise have considered, such as Newcastle and Durham.

Well, that seems like a good thing.

Sarah, from Plymouth, says she probably wouldn't go any further than London.

Which is a long sodding way from Plymouth and actually, an expensive train route. Birmingham is quicker and a similar price.

And if you think travel is expensive, wait until you find out how much more accommodation is in London.

Friday, 12 July 2019

Daily Mail On Top Form

No mucking about here, they included the value in the headline to save us the bother of scrolling through the article:

Tenant fights for life after being hit in the throat by hail of bullets in 'targeted attack' at £780,000 house owned by comedian Russell Kane

UPDATE: Thomas (in the comments) noticed that one of the neighbours complained that the valuation was too low, and it's been relisted at £1.2 million

Twisted PC Logic Of The Day

From the BBC:

A Republican candidate for Mississippi governor has refused to be interviewed by a female reporter unless she brings a male colleague with her.

Larrison Campbell, 40, said she had asked to shadow Robert Foster on a 15-hour "ride-a-long" on his campaign, but was denied because of her sex.


Ho hum, does he explain why..?

Mr Foster said he was acting out of precaution and he did not want to raise any suspicions about his marriage. "This is my truck, and in my truck we go by my rules," he said on CNN.

During the CNN interview with Ms Campbell and Mr Foster on Thursday, the 36-year-old gubernatorial candidate cited his religion and faith, arguing he had made a vow to his wife to not be alone with someone of the opposite sex.

"I don't trust the perception that the world puts on people when they see things and they don't ask a question, they don't look to find out the truth," he said, "Perception is a reality in this world, and I don't want to give anybody the opinion that I'm doing something that I should not be doing."

Mr Foster said following the #MeToo movement, "men are under attack all the time". "I'm not going to allow myself to be put in a situation with any female where they can make an accusation against me" without someone else in attendance, he said.


So he doesn't want to make his wife feel insecure and is worried about false claims. I think it's fair to infer that he fears he will be Led Into Temptation and or that he might end up with a Bunny Boiler. And that is the end of that. As the man says, his truck, his rules. And fifteen hours is a heck of a long time, quite unnecessarily long to conduct an interview. What next, a reporter asks whether she can camp out at his house for a weekend?

Here's the PC leap of logic:

"What you're saying here is that a woman is a sexual object first and a reporter second," Campbell told Mr Foster on Thursday.

No, that's exactly the opposite of what he said.

If he really "viewed women as sexual objects" he would have invited her along unaccompanied and tried it on. He wanted to have a neutral situation where they could both concentrate on the actual reporting/interview,.

Can Someone Tell Me the Truth About This?

Madeleine Grant, on High Streets, wrote this

Our business rates, levied on the rental value of the premises, penalise physical shops in favour of e-commerce and price many out of trading on the high street altogether. Charity shops are exempted from paying the majority of these fees, which explains their proliferation in recent years. Any relief here would be of great assistance to Britain’s ailing high street, as would a rethink of other ill-advised tax policies.


First of all, I don't see anything wrong with e-commerce not paying the same rates. They use cheap land that no-one is fighting over, so they pay cheap rates. They do their thing without scarce resources.

And yes, I know charity shops get some exemptions

But other than that, is any high street half empty because of business rates? What's the mechanism for setting them, because if I was a council, I'd rather get £100/yr of rates than £0/yr of rates. Having empty shops because you set rates too high would seem to be shooting yourself in the foot.

Thursday, 11 July 2019

Gloriously muddled thinking on corporation tax.

Article in City AM this morning by John Penrose MP who "is Jeremy Hunt's policy guru".

After some fawning drivel about the German Mittelstand and dissing of UK businesses...

The OECD says that corporation tax is the most damaging and distortive, stopping investment flowing to wherever in the economy it is needed most.

This is clearly nonsense. Tariffs and turnover taxes (VAT) are the most distortionary and damaging taxes. Things like currency controls and foreign ownership restrictions (which the UK doesn't have, by and large) are awful non-tax distortions.

The distortionary effects of corporation tax are minimal:

Our businessman has some money to invest in starting or expanding his business. He ignores tax, and identifies Project A with an expected 20% return on investment and Project B with an expected 10% return on investment. He chooses Project A.

His accountant reminds him that he'll have to pay corporation tax on his profits, so actual expected returns are only 16% for Project A and 8% for Project B. The businessman will still choose Project A; corporation tax makes no difference for decision making purposes.

Also, UK plc pays twice as much in cash dividends to shareholders as it pays in corporation tax. If they really needed to retain cash for re-investment, they'd pay lower dividends.

At the moment, we've only got ourselves to blame, because our company tax system rewards firms which borrow much more than ones that invest... So why not reverse the incentives? Stop rewarding borrowers so lavishly and encourage investment instead? It would be fairly simple to do; we could make capital expenditure fully tax deductible as soon as it is spent, and stop company debt interest being tax deductible.

How thick is he? "Borrowing" is money coming in to the business and "investing" is money leaving it. These are completely separate things and have nothing to do with each other.

For example, a company could borrow from a bank and spend it on expanding the business. Does he count this as borrowing or investing? Similarly, it could borrow money without investing it (paying the cash out as dividends or a share buy back); or it could expand the business out of retained profits without borrowing.

The UK corporation tax system is pretty neutral on all this. If a company borrows from a UK bank, it gets a tax deduction for the interest paid and the bank pays an equal and opposite amount of tax on the interest it receives. If one company invests in shares of another, dividends paid on those shares are not an allowable expense of the paying company but are exempt from tax for the investing company. Both of these are completely tax neutral overall.
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UPDATE - to illustrate
Co A lends to Co B, receives £10 interest
Co B saves £2 tax (tax relief on interest paid)
Co A pays £2 corp tax on interest income
Co A ends up with £8 after tax.

Co A invests in Co B, receives £8 dividend
Co B makes £10 profit that 'belongs' to Co A, pays £2 corporation tax
Co B pays £8 dividend out of post-tax profits
Co A receives £8 dividend, on which it does not have to pay tax.
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He also has a very old fashioned view of modern business. Sure, some businesses make massive investments into physical plant and machinery. But by and large, businesses spend a lot more money on other things which help them grow - market research, R&D, staff training, advertising, renting larger premises and taking on more staff etc.

Such expenditure is fully allowable as a tax deduction when incurred; small businesses can claim 100% first year capital allowances but larger businesses are stuck with laughable 8% or 18% reducing balance capital allowances on qualifying items. So for this and many other reasons, 100% first year capital allowances for all businesses large or small are a good idea as it levels the playing field. So he's right for the wrong reasons - there is no particular reason to assume that the overall amount spent on plant and machinery would go up much.

Treating interest payment as a distribution of profits rather than as an expense is also a good idea, but not for the reasons he gives. The flip side would have to be that lenders don't pay tax on the interest they receive, so overall, the effect would be minimal; interest rates would just fall to the net of tax amount.

Wednesday, 10 July 2019

Daily Mail On Top Form

From The Daily Mail:

Romanian national Cristian Sabou was detained on a European Arrest Warrant this morning at his address in the northern town of Dej over the death of grandmother Valerie Graves.

The 55-year-old artist was murdered with a claw hammer in a ground floor bedroom at a £1.6million house in Bosham, West Sussex - a village featured in ITV drama Midsomer Murders.


Another good reason to legalise cannabis

From the BBC:

Teenagers are less likely to use cannabis in places where the drug has been legalised, a new study suggests.

Researchers at Montana State University looked at health surveys of US high school pupils between 1993 and 2017. While overall use among US youth went up, the likelihood of teen use declined by nearly 10% in states where recreational use was legalised.


For sure, we can take all these stats with a pinch of snuff. If it's illegal, are people likely to deny smoking cannabis or more likely to exaggerate (bravado and general trolling)? How do we adjust to get the true figure? Is it even relevant to anything?

Overall, the trend appears to be slightly less usage (which should keep the bansturbators happy) and lower crime (acquisitive crime and turf wars) which is the important bit, so win-win.

But it's sort of OK if just men are murdered?

From the BBC:

Papua New Guinea: Women and children killed in tribal massacre

On Sunday, seven people - four men and three women - were killed in Munima village. Then on Monday, 16 women and children were hacked to death in the village of Karida, EMTV said. Two of the women were pregnant.

According to the Post-Courier newspaper, the attacks took place on Saturday and Sunday with six people killed the first day and 16 - including two pregnant women - in a retaliatory attack the following day.


I've genuinely never understood the extra horror expressed when "even woman and children" are murdered, as if it's acceptable for "just men" to be murdered. At what age is does a male move from being an unacceptable target to an acceptable one?

Feminists would be up in arms - and rightly so - if it were the other way round and things like this weren't reported as long as it's "just women" being murdered and only hit the headlines when "even men" are killed .