The Labour Government

[Chippy_boy]

Perhaps I have misunderstood your post or I wasn’t clear in mind.

It (the tax) doesn’t go in to the price cap rate. What I was trying to say was if my leccy company pays in reality £1 a unit because it sources it exclusively from renewables but is able to charge me the highest per unit rate of £3 then it’s making £2 profit per unit, of that £2, £1.56 is heading back to the treasury in windfall tax and normal tax etc. I wasn’t linking the price cap to the tax, if the tax was 10% the price cap would be the same, I was merely highlighting that one of the biggest beneficiaries to the current setup is the treasury.

Obviously it’s more complex than my crude example posted above as they can offset profits and the unit rates simply made up for illustrative purposes.

Investments are paid for out of retained profits. Tax 78% of the profit away and there's far less money for investments.

So two things happen, prices are pushed up because the business can't afford to invest in things that would drive efficiency improvements, and second, prices are pushed up to increase the amount retained profit so that some level of investment can still be maintained. Either way, prices are pushed up.

There's 2 possible reasons why Milliband said that taxes don't affect prices. 1. He's a buffoon. 2. He thinks we are idiots.

The reality is both are true.

 

[Chippy_boy]

Is it really austerity if public sector productivity is merely expected to return to the pre-Covid level, and the level of public sector expenditure is set accordingly?

Do you think it’s sustainable to continue to implement further tax rises, hobble the economy and increase debt servicing costs via higher inflation (in addition to the extra borrowing), just so the public sector can avoid returning to a level of productivity it managed five years ago?

Great post! How could ANYONE who's vaguely sensible, argue with that???

 

[Vic]

Perhaps I have misunderstood your post or I wasn’t clear in mind.

It (the tax) doesn’t go in to the price cap rate. What I was trying to say was if my leccy company pays in reality £1 a unit because it sources it exclusively from renewables but is able to charge me the highest per unit rate of £3 then it’s making £2 profit per unit, of that £2, £1.56 is heading back to the treasury in windfall tax and normal tax etc. I wasn’t linking the price cap to the tax, if the tax was 10% the price cap would be the same, I was merely highlighting that one of the biggest beneficiaries to the current setup is the treasury.

Obviously it’s more complex than my crude example posted above as they can offset profits and the unit rates simply made up for illustrative purposes.

If the treasury is a beneficiary, that's money they don't need in other taxes.

 

[Brewster's millions]

Great post! How could ANYONE who's vaguely sensible, argue with that???

I’m sure they will argue about it.

Whether they’re vaguely sensible is another matter.

 

[Saddleworth2]

From the Guardian. Difficult to see any other outcome than raised taxes.

Rachel Reeves needs to put up taxes to cover £40bn deficit, thinktank says

NIESR suggests a rise of 5p in the pound on basic and higher rate of income tax would fill the budget gap

www.theguardian.com

 

[metalblue]

Investments are paid for out of retained profits. Tax 78% of the profit away and there's far less money for investments.

So two things happen, prices are pushed up because the business can't afford to invest in things that would drive efficiency improvements, and second, prices are pushed up to increase the amount retained profit so that some level of investment can still be maintained. Either way, prices are pushed up.

There's 2 possible reasons why Milliband said that taxes don't affect prices. 1. He's a buffoon. 2. He thinks we are idiots.

The reality is both are true.

That’s a very fair point and I hadn’t looked beyond direct price inputs to indirect price inputs. It’s true to say that taxing profits damages investment which means we, the consumer, continue to pay higher prices as some of our energy continues to be generated by the most expensive methods. It’s debatable how much the energy firms would invest in cheaper production if it wasn’t taxed but your point stands.

So in that sense I concur that the tax is playing in to the price, just not directly.

 

[metalblue]

If the treasury is a beneficiary, that's money they don't need in other taxes.

Hahaha. Have you met our government?

 

[Chippy_boy]

If the treasury is a beneficiary, that's money they don't need in other taxes.

True.

But many Labour supporters seem to think that raising taxes on people or businesses is something that can be done in isolation without any effects other than raising money. Unfortunately this is not true.

Taxes on people reduce their ability to spend, which depresses tax receipts. And taxes on businesses pushes up prices, which depresses growth and tax receipts.

Taxes should be viewed as a necessary evil to be avoided as much as possible. It's hard to argue that raising any taxes (i.e. rates) is ever a good thing.

 

[Vic]

Is it really austerity if public sector productivity is merely expected to return to the pre-Covid level, and the level of public sector expenditure is set accordingly?

Do you think it’s sustainable to continue to implement further tax rises, hobble the economy and increase debt servicing costs via higher inflation (in addition to the extra borrowing), just so the public sector can avoid returning to a level of productivity it managed five years ago?

Great post! How could ANYONE who's vaguely sensible, argue with that???

First, how is public sector productivity defined?

"Most public services are provided free at the point of use, and so there are no prices with which to value their outputs. This also makes it more difficult to place a value on the outcomes produced by those services. Ideally, we might value a hospital admission by the amount by which it improved the patient’s health, or a year of education by the benefits it has for a child’s development and future life trajectory. In practice, this is rarely feasible." (The Institute for Fiscal Studies)

Is the Fire and Rescue Service less productive if it puts out fewer fires, or more productive if its work prevents more fires?

 

[bluenova]

Perhaps I have misunderstood your post or I wasn’t clear in mind.

It (the tax) doesn’t go in to the price cap rate. What I was trying to say was if my leccy company pays in reality £1 a unit because it sources it exclusively from renewables but is able to charge me the highest per unit rate of £3 then it’s making £2 profit per unit, of that £2, £1.56 is heading back to the treasury in windfall tax and normal tax etc. I wasn’t linking the price cap to the tax, if the tax was 10% the price cap would be the same, I was merely highlighting that one of the biggest beneficiaries to the current setup is the treasury.

Obviously it’s more complex than my crude example posted above as they can offset profits and the unit rates simply made up for illustrative purposes.

As far as I can see, the 78% windfall tax that was being discussed in the interview, is on UK gas and oil producers (which make up a small percentage of the wholesale market), not your retail supplier.

If the UK removed it, then the only difference is that profit would go entirely into the pockets of the people extracting the gas and oil. Wholesale prices would remain the same, your retailer would pay the same, and we'd end up paying the same.

 

[Vic]

Investments are paid for out of retained profits. Tax 78% of the profit away and there's far less money for investments.

So two things happen, prices are pushed up because the business can't afford to invest in things that would drive efficiency improvements, and second, prices are pushed up to increase the amount retained profit so that some level of investment can still be maintained. Either way, prices are pushed up.

There's 2 possible reasons why Milliband said that taxes don't affect prices. 1. He's a buffoon. 2. He thinks we are idiots.

The reality is both are true.

So the energy companies haven't made windfall profits from the Ukraine War? And if they had, they'd spend all the excess profits on efficiency improvements which they'd pass on in lower prices rather than higher dividends...

Yeah, sure.

 

[Vic]

True.

But many Labour supporters seem to think that raising taxes on people or businesses is something that can be done in isolation without any effects other than raising money. Unfortunately this is not true.

Taxes on people reduce their ability to spend, which depresses tax receipts. And taxes on businesses pushes up prices, which depresses growth and tax receipts.

Taxes should be viewed as a necessary evil to be avoided as much as possible. It's hard to argue that raising any taxes (i.e. rates) is ever a good thing.

So no defence spending then?

Have you seen the state of most unadopted roads?

But taxes on the poor certainly mean money not being spent locally, whereas taxing the rich means less going unspent, or more being spent on foreign holidays or foreign-made luxury goods.

 

[Vic]

Anyway, I'm still waiting for someone to tell me what point I'm missing about the Milliband interview (and whether the Sky guy had been asking Tory ministers similar questions about the Levy they'd invented).

 

[Brewster's millions]

First, how is public sector productivity defined?

"Most public services are provided free at the point of use, and so there are no prices with which to value their outputs. This also makes it more difficult to place a value on the outcomes produced by those services. Ideally, we might value a hospital admission by the amount by which it improved the patient’s health, or a year of education by the benefits it has for a child’s development and future life trajectory. In practice, this is rarely feasible." (The Institute for Fiscal Studies)

Is the Fire and Rescue Service less productive if it puts out fewer fires, or more productive if its work prevents more fires?

Fortunately the ONS has just delivered a once in a generation review and overhaul of the public sector productivity data, incorporating many new data sources and broader methodological improvements.

The new, improved time series show that public sector productivity is still more than 4% below the pre-pandemic level.

 

[Chippy_boy]

That’s a very fair point and I hadn’t looked beyond direct price inputs to indirect price inputs. It’s true to say that taxing profits damages investment which means we, the consumer, continue to pay higher prices as some of our energy continues to be generated by the most expensive methods. It’s debatable how much the energy firms would invest in cheaper production if it wasn’t taxed but your point stands.

So in that sense I concur that the tax is playing in to the price, just not directly.

A more concerning impact is that it dramatically reduces investment. This is probably Millibrain's covert aim. As a closet Green he's hell bent on wrecking our oil and gas industry.

Even if you agree with the IMO potty net zero initiative, people must accept that when the sun doesn't shine and the wind doesn't blow, we will need to burn oil and gas to generate electricity. And unless we allow our domestic producers to invest, we are still dependent upon external sources and factors.

 

[Chippy_boy]

Fortunately the ONS has just delivered a once in a generation review and overhaul of the public sector productivity data, incorporating many new data sources and broader methodological improvements.

The new, improved time series show that public sector productivity is still more than 4% below the pre-pandemic level.

Waste of time mate. Vic will argue black is white unless it aligns with Labour socialist dogma. He will scour the internet for whatever crumb of data to support whatever argument no matter how indefensible.

There's barely a soul arguing that public sector productivity is not in the toilet but he managed to find something. Mr Reliable.

 

[bluenova]

Investments are paid for out of retained profits. Tax 78% of the profit away and there's far less money for investments.

So two things happen, prices are pushed up because the business can't afford to invest in things that would drive efficiency improvements, and second, prices are pushed up to increase the amount retained profit so that some level of investment can still be maintained. Either way, prices are pushed up.

There's 2 possible reasons why Milliband said that taxes don't affect prices. 1. He's a buffoon. 2. He thinks we are idiots.

The reality is both are true.

Chippy, how much of a difference do you think it would make?

There's an indirect argument that some of the money would be used for investment (although I believe the majority of the initial windfalls went to shareholders), and this would at some point in the future help, but I don't see how it has any kind of direct impact on the wholesale price of gas.

If the wholesale price is set to £10, but the upstream energy companies are producing at £5, then the retail suppliers end up paying more, and the public has high bills. The only immediate consequence is the likes of BP make much bigger profits for doing the same thing. The windfall tax on that profit is a result of high prices, but it's not driving them. If the wholesale price comes down, the profits are lowered and the tax isn't paid.

 

[stonerblue]

Investments are paid for out of retained profits. Tax 78% of the profit away and there's far less money for investments.

So two things happen, prices are pushed up because the business can't afford to invest in things that would drive efficiency improvements, and second, prices are pushed up to increase the amount retained profit so that some level of investment can still be maintained. Either way, prices are pushed up.

There's 2 possible reasons why Milliband said that taxes don't affect prices. 1. He's a buffoon. 2. He thinks we are idiots.

The reality is both are true.

No3, shareholders still get big fat dividends

 

[Vic]

Waste of time mate. Vic will argue black is white unless it aligns with Labour socialist dogma. He will scour the internet for whatever crumb of data to support whatever argument no matter how indefensible.

There's barely a soul arguing that public sector productivity is not in the toilet but he managed to find something. Mr Reliable.

I wasn't going to respond to Brewster's post as there was nothing to disagree with.

"Productivity" is a bit shit anyway as a measure of human happiness. If it means destroying people's "work-life balance" it may put strain on society elsewhere with illness etc. And a manufacturer can always improve productivity by closing a factory making small profits relative to the number of employees. The state can then increase tax to pay unemployment benefit to the redundant employees.

(I hope that's better - I've not cited anyone else. I just google for what I want to argue, and hey ho up pop these websites. Is that worse than someone posting TV interviews without being willing to explain what they're upset about?)

 

[blue b4 the moon]

I can feel a chant of "Where's the money gone, where's the money gone".

The finger points at all Governments & parties in opposition for the last 40+ years.

If things need funding and cuts in things like benefits, WFA etc. aren't acceptable then the very people who want funding and better services will have to put their hands into their pockets.

Successive Governments, just like executives in high places have done what suits themselves with no thought of the future as they'll not be there by the time the shit hits the fan.