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So, That Answers The Question About Arun Advani Then

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Arun Advani was on that Wealth Tax Commission. You know, the one that ended up saying that it would be just fine to have a retroactive 5% tax upon wealth. Because, you know, rich folks, Bah!

As I pointed out to the committee this is tantamount to theft:

Rushanara Ali: Tim, did you want to add any points?

Tim Worstall: Yes, please. I am unconvinced by this argument that we need to be raising taxes. Yes, we have just spent an enormous amount of money on dealing with the coronavirus. Depending on how we unwind or do not unwind QE, we may or may not need more tax revenue in the future. Once the vaccine is around and the economy has returned to normal, I do not see the case for higher taxation and more Government spending because the problem will be behind us. I am not buying that first stage of the argument here that we need to have more taxes.

The other thing that has just struck me is that people are talking about retrospective one-off wealth taxes. One-off wealth taxes are not all that good an idea simply because, once it has happened once, absolutely nobody is ever going to believe that it will not be done again. That is just the way people react to Government doing things. Currently, if the Chancellor stands up and says, “I am raising income tax,” then everybody has a choice to say they are going to go to work or they are not going to go to work, that they agree to pay that tax or they do not agree to pay that tax.

A retroactive tax is an appalling idea. It is akin to theft. Roy Jenkins did this in the 1960s. He retroactively imposed a 130% tax at the top end of capital incomes on the previous tax year that was already closed. That is just appalling behaviour. However much Government need the money, that is just not what we should be doing. Tax, just like any other form of law, should be, “It starts today. If you do not agree with it, you can change your behaviour in the future to avoid it and not do the activity, whatever.” I regard taxing people today on what they did last year, changing the law on them, as an appalling breach of civil rights.

But it’s possible to agree with Advani, needs must and all that. What’s the value of civil rights when there are civil service pensions to pay after all?

So we need a method of evaluating Advani in the round. Which he provides us with:

The end of the high street has been declared many times. The Covid crisis has certainly hit hard, but even before the pandemic local shops were struggling as they tried to compete with the likes of Amazon and Starbucks, who pay minimal tax despite large sales. In that context, the US proposal to set a global minimum tax rate and allow some of its companies to be taxed based on where they make their sales is a step in the right direction.

The reason Amazon doesn’t pay much tax is that it doesn’t make much profit. Never has done, it is careful to reinvest profits in this time period into expanding operations in this time period. It’s the Starbucks one that’s the real signifier though.

It is true that Starbucks UK paid very little to no tax for many years. It is also true that Starbucks UK wasn’t making a profit for many years. The reason why is obvious to any economist – Ricardo on rents. The best explanation of which for the modern age is Tim Harford’s in “Undercover Economist” which uses coffee shops as its example. The profits of supplying ghastly coffee to commuters go to the landlords, not the retailers. The landlords – because buildings are not movable, this being rather the point of them – end up paying lots of lovely tax. There are significant taxes from the process, they just don’t come from the unprofitable layer of that process, the brand that runs the coffee shops.

This is all well known. Even after we scour the Starbucks accounts and look at their 20% margin on coffee beans to their Swiss subsidiary – something actually required by the transfer pricing rules – and their royalty payment to Holland for the brand, the British chain still didn’t make a profit. Therefore no tax was due. The government even looked into this as Vince Cable pointed out – no tax was due.

So, Advani uses as his example something we have investigated and, umm, conveniently forgets perhaps, doesn’t tell us the result of that investigation. Instead he waves the original, disproven, claim as with a bloody shirt at the head of a mob.

So, we can now make up our minds about Arun Advani, can’t we? Well, go on then, make up your own mind.

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expunct (ɪkˈspʌŋkt)
VERB (transitive)
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