Why is there now an obsession with re-nationalisation?

DynamicSpirit · 25 Sep 2018

B&I said:
And a great big giveaway via the lowest rates of corporation tax in the developed world, which, combined with the lack of control on money moving in and out of the country, has encouraged brass-plating rather than useful, productive economic activity

Corporation tax by itself is not a good indication of effective business tax rates, because it only gives half the story: Usually, business owners pay two sets of tax: Corporation tax when profits are made, and then dividend tax when those profits are distributed to shareholders. You need to add both taxes together to see the tax that is - in most cases - actually paid. Unfortunately, there doesn't seem to be a lot of data around that does that, but I managed to find this graph, which shows the UK was actually fairly average for the developed world in 2014. (In this graph, "Integrated dividend tax" = corporation tax + dividend tax. No idea how reliable the source is, but the graph is taken from a document whose purpose seems to be to argue that US corporate tax rates are too high, so isn't particularly focused on the UK and therefore probably has no reason to mislead about the UK).

Since 2014, the UK Government has reduced corporation tax and increased dividend tax to balance, so the picture probably hasn't changed much. (Most commentators in the UK who complain about corporation tax going down conveniently forget about the dividend tax going up).

(Even with 'integrated dividend tax' it's hard to do a good comparison, because you have to factor in different treatment of allowances for expenses, as well as things like tax-free allowances in different countries, which is horrendously complex)

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gsnedders · 25 Sep 2018

Also you have employer NI contributions and similar taxes on employing staff, which also count towards the total amount the business pays in tax.

Edders23 · 25 Sep 2018

gsnedders said:
Also you have employer NI contributions and similar taxes on employing staff, which also count towards the total amount the business pays in tax.

Or in the case of Amazon, Starbucks etc nearly all of it

Edders23 · 25 Sep 2018

One of the reasons the current franchising model has worked at all is that a large element of the business risk is underwritten by the government. In the likely event that someone gets their sums wrong the government instead of saying you knew the risks there was always a chance you might make a loss says OK we'll let you off the hook.

No franchisee to date has made a big loss most have made some profit and so there will always be potential franchisee's waiting in the wings knowing that they can't get their fingers burned

As for national Express I read that the shareholders insisted on them focusing away from Uk rail franchises as it was the least remunerative of all their operations

DynamicSpirit · 25 Sep 2018

gsnedders said:
Also you have employer NI contributions and similar taxes on employing staff, which also count towards the total amount the business pays in tax.

Kind of. But because that tax is per employee, and is a % of each employee's salary, not a % of profits, it would usually be considered as a personal tax in most analyses. In terms of its economic effects, employer's NI is much more akin to income tax than to corporation tax. Also, it's paid if the employee is employed in the UK - irrespective of which country the business is based in.

FQTV · 25 Sep 2018

DynamicSpirit said:
Corporation tax by itself is not a good indication of effective business tax rates, because it only gives half the story: Usually, business owners pay two sets of tax: Corporation tax when profits are made, and then dividend tax when those profits are distributed to shareholders. You need to add both taxes together to see the tax that is - in most cases - actually paid. Unfortunately, there doesn't seem to be a lot of data around that does that, but I managed to find this graph, which shows the UK was actually fairly average for the developed world in 2014. (In this graph, "Integrated dividend tax" = corporation tax + dividend tax. No idea how reliable the source is, but the graph is taken from a document whose purpose seems to be to argue that US corporate tax rates are too high, so isn't particularly focused on the UK and therefore probably has no reason to mislead about the UK).

View attachment 52983

Since 2014, the UK Government has reduced corporation tax and increased dividend tax to balance, so the picture probably hasn't changed much. (Most commentators in the UK who complain about corporation tax going down conveniently forget about the dividend tax going up).

(Even with 'integrated dividend tax' it's hard to do a good comparison, because you have to factor in different treatment of allowances for expenses, as well as things like tax-free allowances in different countries, which is horrendously complex)

This is getting not only OT to the thread, it's also verging on completely irrelevant to the whole issue surrounding the HMRC tax liabilities of multinational companies operating in the UK.

The whole point for the likes of Starbucks and Amazon etc., is that their global corporate accounting structure is constructed to bill large 'licensing' fees from a low-rate jurisdiction (such as Luxembourg) into the operations in higher rate jurisdictions.

Some of these companies might not give two hoots if Corporation Tax was 100% in the United Kingdom; they simply adjust the UK earnings to (currently) quite legally avoid the liability in the first place.

Barn · 25 Sep 2018

FQTV said:
The whole point for the likes of Starbucks and Amazon etc., is that their global corporate accounting structure is constructed to bill large 'licensing' fees from a low-rate jurisdiction (such as Luxembourg) into the operations in higher rate jurisdictions.

Some of these companies might not give two hoots if Corporation Tax was 100% in the United Kingdom; they simply adjust the UK earnings to (currently) quite legally avoid the liability in the first place.

They do it in different ways. Starbucks and co use intra-group trading and licensing to shift profits to where they want them to be. This is (supposed to be) regulated by transfer pricing rules, which notionally require such transactions to take effect for tax purposes as if they were on arm's length terms. It's questionable how well these work.

Amazon's model is different. The low-tax entity is the actual seller, so you buy your goods directly from the entity in Luxembourg and it receives the revenue for the sale. The UK entity merely acts as a sub-contractor, storing and delivering the items on behalf of the Luxembourg entity. It receives payment for this but this payment is a small fraction of the revenue. Not even a 'revenue' tax would help here because the revenue is not made in the UK.

You'd need to go to one of two extremes to solve this - either have an EU-wide corporation tax or, after Brexit, terminate the right of EU companies to operate online in the UK without establishing a tax base here.

B&I · 25 Sep 2018

DynamicSpirit said:
Corporation tax by itself is not a good indication of effective business tax rates, because it only gives half the story: Usually, business owners pay two sets of tax: Corporation tax when profits are made, and then dividend tax when those profits are distributed to shareholders. You need to add both taxes together to see the tax that is - in most cases - actually paid. Unfortunately, there doesn't seem to be a lot of data around that does that, but I managed to find this graph, which shows the UK was actually fairly average for the developed world in 2014. (In this graph, "Integrated dividend tax" = corporation tax + dividend tax. No idea how reliable the source is, but the graph is taken from a document whose purpose seems to be to argue that US corporate tax rates are too high, so isn't particularly focused on the UK and therefore probably has no reason to mislead about the UK).

View attachment 52983

Since 2014, the UK Government has reduced corporation tax and increased dividend tax to balance, so the picture probably hasn't changed much. (Most commentators in the UK who complain about corporation tax going down conveniently forget about the dividend tax going up).

(Even with 'integrated dividend tax' it's hard to do a good comparison, because you have to factor in different treatment of allowances for expenses, as well as things like tax-free allowances in different countries, which is horrendously complex)

Isn't dividend tax a tax on something completely different, though ?

HH · 25 Sep 2018

Edders23 said:
No franchisee to date has made a big loss

You'll have to define big. I'd say the bath Stagecoach just took on ECML is quite large. If that's small change to you, please can you let me have the contents of your pocket.

Barn · 25 Sep 2018

B&I said:
Isn't dividend tax a tax on something completely different, though ?

Dividend tax is a class of income tax charged on distributions of profit by a corporation to an individual.

Both corporation tax and dividend tax are relevant to the total cost of running a company in the UK. So it is relevant when thinking about, for example, the incentives for people to set up new businesses.

It's less relevant in an international context, because the shareholder might not be based in the UK and will therefore likely be taxed on dividend income in their own domicile. They are likely to be concerned about corporation tax alone.

Effectively, our corporation tax rate is our advert to the world, whereas dividend tax affects the total tax take from company profits for UK-focussed companies.

Hetlana · 9 Oct 2018

mike57 said:
Maybe the problem with privatisation isn't that its privatised, but the way that its privatised, at the moment there is too much scope for buck passing, splitting infrastructure from the running of the trains, too many operators, meddling from the DfT, its a recipe for a shambles.

Bearing in mind large parts of the network are subsidised taxpayers see there money being distributed to shareholders of the TOC's and don't like it.

Having been born in 1957 and been using trains all my life I have lived through quite a few changes of direction, and the current system is messy and not delivering value for money. Nationalisation is seen as a simple way of getting back to a co-ordinated system. The reality may be different but thats what people see, I lived through the 3 day week, strikes etc during the 70's and Nationalisation wasnt working then, and probably would land us back in the same place now.

If complete routes/areas were sold off, track, stations, trains with perhaps 5 or 6 companies covering the whole of the UK, and agreed service levels and agreements on things like inter-regional services in return for taxpayer subsidies then things might work better. Also build in safegaurds to ensure that open access operators can remain. The DfT should then be limited to providing support for non profitable services and perhaps financing major infrastructure improvements, with no involvement in rolling stock or other micromanaging, the companies running the trains are responsible everything. Also and this may be seen as protectionist, but a limit of 40% foreign ownership of companies running the railways. And its not a franchise, if they run it into the ground then its their asset they devaluing. If they go bust no bailout, just take back the infrastructure, run it like the east coast route and leave the shareholders with worthless shares.

Just my twopennorth...

Hear Hear.

Hetlana · 9 Oct 2018

What I don’t understand is why they didn’t privatize the London Underground. I’d it because the political elite in London want their own city to have the delights of socialism while the rest of the country has to experience capitalism?

In all seriousness though, I really think it would have been interesting and pretty cool to see the LU network privatized to different companies.

Here’s how I would have done it - forget franchising, I would have sold off the track and the trains to the same buyer for each line, with no subsidies or price control - and the tube company would be responsible for the maintenance and all.

Given that so much brownfield land is/was on the side of railway tracks, I would have done what they do in Hong Kong and handed over all this land to the railway companies for them to build shopping malls and apartment blocks for commercial rent - we have super expensive buy to own and council houses for the less well off, but nothing in the middle.

In fact, I would have handed over our opportunity areas - Docklands, Old Oak Common, Stratford, Nine Elms etc, to any private company that was willing to build new underground lines of their own to these places - that way you have new tube lines and potentially hundreds of thousands of apartments to let to the squeezed middle. Again, it’s what they do in Hong Kong.

B&I · 9 Oct 2018

Hetlana said:
What I don’t understand is why they didn’t privatize the London Underground. I’d it because the political elite in London want their own city to have the delights of socialism while the rest of the country has to experience capitalism?

In all seriousness though, I really think it would have been interesting and pretty cool to see the LU network privatized to different companies.

Here’s how I would have done it - forget franchising, I would have sold off the track and the trains to the same buyer for each line, with no subsidies or price control - and the tube company would be responsible for the maintenance and all.

Given that so much brownfield land is/was on the side of railway tracks, I would have done what they do in Hong Kong and handed over all this land to the railway companies for them to build shopping malls and apartment blocks for commercial rent - we have super expensive buy to own and council houses for the less well off, but nothing in the middle.

In fact, I would have handed over our opportunity areas - Docklands, Old Oak Common, Stratford, Nine Elms etc, to any private company that was willing to build new underground lines of their own to these places - that way you have new tube lines and potentially hundreds of thousands of apartments to let to the squeezed middle. Again, it’s what they do in Hong Kong.

Or, you could have flogged off public assets on the cheap to subsidise property developers throwing up yet more unaffordable developments for the global rich to invest in, while no doubt failing to complete the new tube lines which were meant to be the justification for the project

Hetlana · 9 Oct 2018

B&I said:
Or, you could have flogged off public assets on the cheap to subsidise.property developers throwing up yet more unaffordable developments for the global rich to.invest in, while no doubt failing to complete the new tube lines which were meant to be the justification for the project

And you think the two are the same do you?

underbank · 9 Oct 2018

DynamicSpirit said:
Kind of. But because that tax is per employee, and is a % of each employee's salary, not a % of profits, it would usually be considered as a personal tax in most analyses. In terms of its economic effects, employer's NI is much more akin to income tax than to corporation tax. Also, it's paid if the employee is employed in the UK - irrespective of which country the business is based in.

And there's also VAT which is a tax on sales that is also paid to the UK on sales made in the UK, regardless of which country the seller is based in. Corporation tax really is only a small part of the story.

underbank · 9 Oct 2018

B&I said:
Isn't dividend tax a tax on something completely different, though ?

Not really. Corporation tax is on profits. Dividend tax is a tax on profits paid out as dividends to shareholders. So dividend tax is a tax on business profits, just like corporation tax.

RLBH · 9 Oct 2018

Hetlana said:
Again, it’s what they do in Hong Kong.

It's a brilliant idea, if only someone had thought of it sooner...

Hetlana · 9 Oct 2018

RLBH said:
It's a brilliant idea, if only someone had thought of it sooner...

What do you have against it?

RLBH · 9 Oct 2018

Hetlana said:
What do you have against it?

Nothing at all, just saying that it's been done before on the London Underground network and worked very well.

yorksrob · 9 Oct 2018

If you really wanted such a scheme to work (i.e developing former public land for housing) you'd need to bar non-resident investors from snapping it all up, otherwise it would end up the same as every other development scheme in London.

Secondly, why do you need to privatise in the first place when one can build social housing instead.

Hetlana · 9 Oct 2018

yorksrob said:
If you really wanted such a scheme to work (i.e developing former public land for housing) you'd need to bar non-resident investors from snapping it all up, otherwise it would end up the same as every other development scheme in London.

Secondly, why do you need to privatise in the first place when one can build social housing instead.

Restrict the rail-property developers to letting out their properties for the first twenty years, and Bob’s your uncle.

Dr Hoo · 9 Oct 2018

RLBH said:
It's a brilliant idea, if only someone had thought of it sooner...

I wasn’t aware that the Metropolitan Railway had developed Metroland on brownfield railway sites. I thought that it was merely ‘selling’ the vision of a bucolic suburban idyll in the hope of drumming up long-term season ticket holders. Weren’t the houses in Pinner, etc. built by private developers?
(Yes, I know that there was some specific residential development like Chiltern Court over Baker Street station but I don’t think that that paid for or justified building the railway in the first place.)

martin butler · 9 Oct 2018

The metropolitan railway took commutorland into the suburbs away from the city, in effect giving its intended customers the best of both worlds, regular easy ways of getting to work in London, and rural life at week ends quite an easy sell I would think,
Now where as privatisation gone wrong? its the dead hand of the DFT , and treasury they dictate the terms, the stock , and often the manpower levels, why is it the toc's are short of drivers? because they were told you will need x, when that number was worked out incorrectly, it meant staff working excessive hours and rest days, it meant DOO, minimum staff for maximum usage .
I agree the present system is the worse of all options, you run it, but we tell you how to, is the best way to sum it up, and of course its the companies that get the blame, not the DFT .
The only option is either you fully privatise everything, and allow the market to decide, which will mean probable closures and reductions of loss making lines, or you run it as a public industry, but the government has to not allow ideologic dogma to dictate policy it will mean a joined up railway, probably along the lines of the big four and with everything coming under the same regional control, track, rolling stock services, and will have to include the freight sector, and the heritage operations also becoming absorbed into operating company .

AndrewE · 9 Oct 2018

martin butler said:
The only option is either you fully privatise everything, and allow the market to decide, which will mean probable closures and reductions of loss making lines, or you run it as a public industry, but the government has to not allow ideologic dogma to dictate policy it will mean a joined up railway, probably along the lines of the big four and with everything coming under the same regional control, track, rolling stock services, and will have to include the freight sector, and the heritage operations also becoming absorbed into operating company.

If run as a public industry why waste time on the Big 4? They were turned into a very much more successful operation when BR had got into its stride. Sectorisation had some benefits, but joint traincrew depots would probably offer more flexibility.

HH · 9 Oct 2018

AndrewE said:
If run as a public industry why waste time on the Big 4? They were turned into a very much more successful operation when BR had got into its stride. Sectorisation had some benefits, but joint traincrew depots would probably offer more flexibility.

Yes, but you do need to split things up in some way, or you don't have any proper local management. Whatever the best setup is I don't know, but what I do know is that it needs properly trained, suitably incentivised local managers to work well. And, before anyone mentions BR, you couldn't get away with the chaotic way that BR was run these days.

AndrewE · 9 Oct 2018

HH said:
Yes, but you do need to split things up in some way, or you don't have any proper local management. Whatever the best setup is I don't know, but what I do know is that it needs properly trained, suitably incentivised local managers to work well. And, before anyone mentions BR, you couldn't get away with the chaotic way that BR was run these days.

Maybe you don't remember that BR was organised in Regions, which worked quite well together. What was your experience of BR Management? There will be people here far senior to me who will tell us whether they thought they were part of a chaotic organisation.
It had one of the best-regarded management training schemes in the UK, also one of the best-run pension schemes, which was regularly pilloried in the gutter press even though a friend in the profession said it was exemplary. (and by the way, last year it won European pension fund of the year!)
If it (BR) had been so bad then it wouldn't have had the reputation that it had (amongst people qualified to comment, of course.) If you get your info from the Telegraph, Daily Mail or similar then you have been reading propaganda (a polite way to decribe lies.)

HH · 9 Oct 2018

AndrewE said:
Maybe you don't remember that BR was organised in Regions, which worked quite well together. What was your experience of BR Management? There will be people here far senior to me who will tell us whether they thought they were part of a chaotic organisation.
It had one of the best-regarded management training schemes in the UK, also one of the best-run pension schemes, which was regularly pilloried in the gutter press even though a friend in the profession said it was exemplary.
If it (BR) had been so bad then it wouldn't have had the reputation that it had (amongst people qualified to comment, of course.) If you get your info from the Telegraph, Daily Mail or similar then you have been reading propaganda (a polite way to decribe lies.)

I know some very senior ex-BR Managers and my father was regional manager for freight. I first worked on the railway in 1970. I don't need to read anything.

The organisation was chaotic in many ways - the people at the top did not know what was going on below them on a day to day basis. That's not to say that the graduate scheme wasn't good, it was. Very good for the graduates anyway. Not sure what the pension scheme has to do with anything though.

Domh245 · 9 Oct 2018

Hetlana said:
What I don’t understand is why they didn’t privatize the London Underground. I’d it because the political elite in London want their own city to have the delights of socialism while the rest of the country has to experience capitalism?

In all seriousness though, I really think it would have been interesting and pretty cool to see the LU network privatized to different companies.

Here’s how I would have done it - forget franchising, I would have sold off the track and the trains to the same buyer for each line, with no subsidies or price control - and the tube company would be responsible for the maintenance and all.

They did partially privatise it, but it didn't work very well. There were 3 'bunches' of tube lines, BCV (Bakerloo, Central (+W&C), Victoria), SSL (Metropolitan, District, Circle+Hammersmith & City, East London Line), and JNP (Jubilee, Northern, Piccadilly) which were bid for - Tube Lines won JNP, whilst Metronet won BCV and SSL. The arrangement was that TfL would operate and staff the railway, but the private partner would be responsible for maintenance and upgrades (track and train) - tube lines (to their credit) performed acceptably, but metronet entered administration in 2007.

Until recently the effects were/are still noticeable, for example the resignalling for the jubilee and northern lines went to Thales, whilst metronet's signalling upgrades (Victoria and SSL) were originally invensys/siemens DTG-R.

AndrewE · 9 Oct 2018

HH said:
I know some very senior ex-BR Managers and my father was regional manager for freight. I first worked on the railway in 1970. I don't need to read anything.
The organisation was chaotic in many ways - the people at the top did not know what was going on below them on a day to day basis. That's not to say that the graduate scheme wasn't good, it was. Very good for the graduates anyway. Not sure what the pension scheme has to do with anything though.

That's the mark of a well-run organisation, in my opinion. How could the people at the top possibly have known all that - especially in the clerking/letter- and report-writing age. Good people right down through an organisation have the trust of their superiors and the people at the top have a broad overview and are (hopefully with honest feedback) working on the future rather than being involved in day-to-day minutiae or crisis-management.
It's one of the problems we get with a presidential-style government, and as can be seen in Trumpland today. My bit of BR was catastrophically damaged by being bought outright by a Trump/Philip Green style "entrepreneur."

ChiefPlanner · 9 Oct 2018

HH said:
I know some very senior ex-BR Managers and my father was regional manager for freight. I first worked on the railway in 1970. I don't need to read anything.

The organisation was chaotic in many ways - the people at the top did not know what was going on below them on a day to day basis. That's not to say that the graduate scheme wasn't good, it was. Very good for the graduates anyway. Not sure what the pension scheme has to do with anything though.

I have chipped in many times before on the "merits" of BR - and yes I was a Graduate Trainee , (and proud of it - never joined for money but for "public service"and interest) - note please that a good number of staff were promoted internally onto the scheme - and BR even had "student trainees" in operating where BR paid for a course of study and put them onto the same course with the same aspirations and promotions etc. Many of the latter did well - even better , as they had an incentive. Some very high ranking BR managers started off on the platform or working manual signal boxes in urban areas. That ain't going to happen today with the rail / train split.

As for "chaotic" - I really would appreciate some detailed and quantified information and data on that. Various reports in the 1980's quoted BR as the best performing and (I will use capitals)" BEST VALUE FOR MONEY OPERATOR in an European study , maybe because Area and Station Managers had tight revenue and cost budgets , and the sector managers had a better vision on a higher level. And planned accordingly. Th engineers joined the party so that the poorly invested regional routes - to give one example - were kept going at basic cost. (£15 for a sleeper replacement on the Cambrian coast , whereas the main line Salop-Aber got relayed and improved with second hand rail etc off the ECML.

Try asking any TOC or FOC today what a section of line actually costs to run - infrastructure wise ?

Senior Management often / sometimes came down to see what was going on - partly because they liked to keep in touch , I got one of them to help me secure a freight train one Saturday morning - I did the hard bits but needed him to help ..(I know he actually enjoyed it , and he was only the Assistant Director Freight , BRB)

Why is there now an obsession with re-nationalisation?

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