The Economy

[edwin_m]

I don't have much time for the Tories but I do think Gordon Brown made a big mistake with tax credits. Why should the taxpayer be subsidising employers who are paying their people too little to live on? If there are companies that only survive by paying these wages, do we really want them in the UK? Osborne tried to cut back on this, along with raising the minimum wage, but being Osborne I suspect he was motivated by the good of the Tory party rather than the good of the country and I'm thinking his numbers probably didn't add up for many of the people who would have been affected.

I'd also suggest we should crack down hard on companies that use staff who claim to be self-employed, and on multinationals that export their profits to wherever it is most "tax-efficient" to declare them. I also think that austerity has been too much and too fast, knocking the stuffing out of the economy by cutting back on things like benefit payments which tend to be spent quickly in deprived areas, and decimating social care and other local support services so that the people concerned have to be looked after more expensively by the NHS. The result has been that austerity has done very little to reduce the budget deficit as was promised.

All this (and other things over many decades) has totally alienated a substantial part of the population from the people that are supposed to be running the country. I see the Brexit vote as an outlet for that frustration, driven by certain influential people wrongly blaming the EU and immigration for troubles that have mainly originated in Westminster. This will clobber the economy further, particularly the people who are suffering most today and who voted most strongly for it, and remove one of the safeguards that prevents the cabal who have taken over at Westminster from doing whatever they want.

 

[TheEdge]

edwin_m, I'm not sure it would be possible to agree with your any more than I do!

 

[Dave1987]

The whole Carrilion saga shows just how badly the economy is structured. A private company which has been extremely badly managed, in huge amounts of debt but paying dividends to its shareholders, still given huge contracts by the Government to run everything. And now the taxpayer has to pay out more to ensure those public services still run. Thousands of jobs under threat throughout the supply chain. Government refusing to take Carrilion employees into direct public employment, simply saying they will ‘re-issue the contracts’ to other private companies. Clearly there are vested interests here. I think the whole ‘private sector good, public sector bad’ mantra has been proven to be complete rubbish here.

 

[najaB]

A private company which has been extremely badly managed, in huge amounts of debt but paying dividends to its shareholders, still given huge contracts by the Government to run everything.

It's the rare and uncommon business that doesn't have debt obligations. And Carrilioin's debt:equity/orders numbers weren't that bad - looking at their H1 2017 statement they had £694M net borrowing against £2.6B of new business coming in.

 

[Bletchleyite]

It's the rare and uncommon business that doesn't have debt obligations. And Carrilioin's debt:equity/orders numbers weren't that bad - looking at their H1 2017 statement they had £694M net borrowing against £2.6B of new business coming in.

To @Dave1987 - along these lines you might benefit from doing some kind of business studies course. Doing one as part of my OU degree really did enlighten me to how business accounting works, and it was a massive eye-opener that explained a load of things I thought were a bit odd before.

It might be that the OU offer access to the course materials for free, they do with a lot of their courses, though there are plenty of textbooks out there and the course was based around one specific one the name of which I don't have to hand.

 

[furnessvale]

The whole Carrilion saga shows just how badly the economy is structured. A private company which has been extremely badly managed, in huge amounts of debt but paying dividends to its shareholders, still given huge contracts by the Government to run everything. And now the taxpayer has to pay out more to ensure those public services still run. Thousands of jobs under threat throughout the supply chain. Government refusing to take Carrilion employees into direct public employment, simply saying they will ‘re-issue the contracts’ to other private companies. Clearly there are vested interests here. I think the whole ‘private sector good, public sector bad’ mantra has been proven to be complete rubbish here.

The more comment I read about this affair, the more I get the impression that some people (not necessarily Dave1987) have the idea that being awarded a contract means that the full value of that contract has been paid up front by the client, and that money has now been lost.

When I was involved with civil engineering contracts, the contractor was paid monthly, in arrears, for work already completed.

If a contractor goes bust, you have some delay and inconvenience, and a modest cost, as the tender is reissued, but nothing like the headline figures being banded about.

 

[WelshBluebird]

Erm, all taxi drivers are self-employed. That's not the controversial bit. It's just how the profession has always worked, and I think it's generally something drivers don't mind because it gives them the ultimate flexibility to work only when they wish to work.

If they genuinely have control over their work, then yeah there is nothing wrong with them being self employed.
The problem with Uber, at least as far as I can see it, is the amount of control they have via the platform. You get less than a certain rating, uber will kick you off the platform for example - isn't that essentially the same as sacking someone for poor performance? Or the fact that according to their rules, a driver cannot reject a fare after accepting it after a certain amount of time without getting penalised somehow. Now I actually agree with those rules as they give the passenger some protection, but surely they imply that Uber has quite a substantial amount of control over its "self employed" drivers?

Why should the taxpayer be subsidising employers who are paying their people too little to live on?

Ideologically I'd agree with you. But in the real world, they would probably still pay their people that little anyway. Tax credits are a way of making sure those people at least have some kind of help.

 

[Tetchytyke]

Or the fact that according to their rules, a driver cannot reject a fare after accepting it after a certain amount of time without getting penalised somehow. Now I actually agree with those rules as they give the passenger some protection, but surely they imply that Uber has quite a substantial amount of control over its "self employed" drivers?

Hackney Carriage drivers on a rank can't reject a fare, even if the fare just wants to go 300 yards down the street. But I wouldn't argue that black cab drivers are anything other than self-employed.

The traditional test whether someone is a worker is whether they can control their work (e.g. hours of work, do they have to turn up to work even if they don't want to) and whether they can substitute someone else to do it instead (i.e. does the work have to be done personally). It's a very fine line with Uber: drivers can choose when they work, and go home any time they want, but they can't substitute and the company pretty much dictates everything once the driver has signed on to the app. Deliveroo couriers are probably more clearly workers, with hours of work more tightly defined, and then couriers for DPD, etc, are even more clearly workers again as their hours of work are pretty much mandatory.

 

[edwin_m]

Ideologically I'd agree with you. But in the real world, they would probably still pay their people that little anyway. Tax credits are a way of making sure those people at least have some kind of help.

Deal with that by increasing the minimum wage, making sure it is enforced and closing the "gig economy" loopholes.

 

[Tetchytyke]

Deal with that by increasing the minimum wage, making sure it is enforced and closing the "gig economy" loopholes.

Tax credits were more about dealing with the marginal tax rates of people transitioning from benefits to paid employment, or from low paid work to higher paid work. The predecessors of child tax credits- income support for those out of work and family credit for those in low paid work- had horrific marginal rates of up to 96%.

Working tax credit is similar. Top-ups at 16 hours (for families) and 30 hours were there to ease marginal tax rates for people transitioning off benefits. The other main elements- for people over 50, and for disabled people- were there as a way of making work affordable for groups who often have higher work costs but a lower realistic achievable wage. The support for childcare was there to help people who earned too little to benefit from the tax advantages of childcare vouchers.

Minimum wages don't help disabled people in the same way. You can't have a higher minimum wage for disabled people compared to non-disabled people- nobody would employ them- but their additional costs of taking employment need to be addressed somehow.

 

[ainsworth74]

Tax credits were more about dealing with the marginal tax rates of people transitioning from benefits to paid employment, or from low paid work to higher paid work. The predecessors of child tax credits- income support for those out of work and family credit for those in low paid work- had horrific marginal rates of up to 96%.

Working tax credit is similar. Top-ups at 16 hours (for families) and 30 hours were there to ease marginal tax rates for people transitioning off benefits. The other main elements- for people over 50, and for disabled people- were there as a way of making work affordable for groups who often have higher work costs but a lower realistic achievable wage. The support for childcare was there to help people who earned too little to benefit from the tax advantages of childcare vouchers.

Of course Universal Credit should actually have done an even better job of dealing with this issue. But then it was utterly gutted on the alter of austerity meaning that most people that currently are in work getting Tax Credits are going to be worse off when they transition to Universal Credit. Whilst those who are unemployed will find that work does not pay as much as they might expect when they do find work.

 

[Bletchleyite]

Deal with that by increasing the minimum wage, making sure it is enforced and closing the "gig economy" loopholes.

I'm actually starting to lean towards the idea that the "gig economy" is not completely a bad thing, and something like Universal Basic Income would provide an underlying "insurance" while making it easier for business to run.

 

[Barn]

The current economy is clearly broken or the jobs that have been “created” to enable the claims of ultra low unemployment are all low paid, insecure work. I read an article recently from an economist that very neatly explained why wage growth is virtually none existent for most people in this country. Automation is hollowing out the middle class, middle paying jobs and only creating poorly paid insecure work.

Going back to the opening post: yes, it's correct that many new jobs are low paid. But I don't think it is because of automation. In fact, I saw an interesting statistic recently showing that the UK had the among fewest "industrial robots per employee" in the developed world. See attached chart. Note that is "per employee", so it's not a reflection on the size of our manufacturing sector.

We are bad at introducing technology, partly because we have a large market of people willing to work for low wages, subsidised by immediate access to tax credits and other in-work benefits. There is simply no need to invest in expensive automation on this basis. For a real world example, driving around I've noticed several high-tech conveyor car washes which have been replaced by manual car washes by a team of several humans with on minimum wage. This gives us excellent figures for numbers of jobs and terrible figures for productivity per worker.

 

[edwin_m]

Yes, productivity is a big problem in the UK and I feel sure it has something to do with people willing to work long hours for low wages.

Tax credits were more about dealing with the marginal tax rates of people transitioning from benefits to paid employment, or from low paid work to higher paid work. The predecessors of child tax credits- income support for those out of work and family credit for those in low paid work- had horrific marginal rates of up to 96%.

Working tax credit is similar. Top-ups at 16 hours (for families) and 30 hours were there to ease marginal tax rates for people transitioning off benefits. The other main elements- for people over 50, and for disabled people- were there as a way of making work affordable for groups who often have higher work costs but a lower realistic achievable wage. The support for childcare was there to help people who earned too little to benefit from the tax advantages of childcare vouchers.

Minimum wages don't help disabled people in the same way. You can't have a higher minimum wage for disabled people compared to non-disabled people- nobody would employ them- but their additional costs of taking employment need to be addressed somehow.

Couldn't the marginal tax issue be eased by increasing the minimum wage and setting the tax thresholds and rates so someone on minimum wage is better off than on benefits? There might be a case of continuing tax credits for the disabled to offset the higher costs they face - as this wouldn't be available to the general population it wouldn't have the same effect of lowering wages. This could perhaps extend to other groups such as those with children, but at the risk of becoming nearly universal if taken too far.

I'm actually starting to lean towards the idea that the "gig economy" is not completely a bad thing, and something like Universal Basic Income would provide an underlying "insurance" while making it easier for business to run.

As long as it's used to provide flexibility of employment for those people who want it, not as a means for employers to avoid their obligations to treat their workers fairly and pay their dues in taxes. I worry that Universal Basic Income would have a similar effect to tax credits - employers would just cut wages by the amount of the UBI, and the savings would accrue disproportionately to the sorts of employer that have lots of people on low wages.

 

[Dave1987]

Going back to the opening post: yes, it's correct that many new jobs are low paid. But I don't think it is because of automation. In fact, I saw an interesting statistic recently showing that the UK had the among fewest "industrial robots per employee" in the developed world. See attached chart. Note that is "per employee", so it's not a reflection on the size of our manufacturing sector.

We are bad at introducing technology, partly because we have a large market of people willing to work for low wages, subsidised by immediate access to tax credits and other in-work benefits. There is simply no need to invest in expensive automation on this basis. For a real world example, driving around I've noticed several high-tech conveyor car washes which have been replaced by manual car washes by a team of several humans with on minimum wage. This gives us excellent figures for numbers of jobs and terrible figures for productivity per worker.

We are also terrible at adult education. Education is seen as a business and a way to make money, not allow people to better themselves and prepare for the future. People accept low wages because they are forced to by a system that punishes being out of work. I’m very much a supporter of coming down hard on those who want a free ride in life but many people who want to work hard and better themselves are trapped in low paid work because they cannot afford to get the training they need. And with automation taking away any middle earning jobs people are left with low paid work or the dole. And the current Government certainly won’t let people stay on the dole as it would hurt their record employment statistics.

 

[Dave1987]

I see on the news this evening that Carrilion top management have walked away with hundreds of thousands of pounds each, loads and loads of ordinary working people are being laid of. This is the reality of our present economy! The Government has a lot to answer for for this mess.

 

[Tetchytyke]

I see on the news this evening that Carrilion top management have walked away with hundreds of thousands of pounds each, loads and loads of ordinary working people are being laid of. This is the reality of our present economy! The Government has a lot to answer for for this mess.

I don't think we can blame the Tories for this one.

The reality is that this will always happen for as long as you can set up a company limited by guarantee. Limited companies have their own legal identity and so the management and shareholders have no personal liability for the actions of that company. Unless and until company law brings back personal responsibility, nothing will change. These debts aren't personal debts, these responsibilities aren't personal responsibilities, and it shows.

If only the rest of us could walk away from financial failure with all our possessions.

 

[najaB]

If only the rest of us could walk away from financial failure with all our possessions.

You can. You just need to set up a company (with a mate as director) that owns your assets and then lease them from that company.

 

[61653 HTAFC]

I see on the news this evening that Carrilion top management have walked away with hundreds of thousands of pounds each, loads and loads of ordinary working people are being laid of. This is the reality of our present economy! The Government has a lot to answer for for this mess.

But as with so many apparent injustices with how the economy works, this isn't a bug- it's a feature.

It's also been this way pretty much since Milton Friedman managed to sell his snake-oil theories to governments saddled with post-war reconstruction debt.

 

[takno]

You can. You just need to set up a company (with a mate as director) that owns your assets and then lease them from that company.

Wouldn't it be better to do the failing inside the company and keep your assets in your name?

 

[Bromley boy]

I don't think we can blame the Tories for this one.

The reality is that this will always happen for as long as you can set up a company limited by guarantee. Limited companies have their own legal identity and so the management and shareholders have no personal liability for the actions of that company. Unless and until company law brings back personal responsibility, nothing will change. These debts aren't personal debts, these responsibilities aren't personal responsibilities, and it shows.

If only the rest of us could walk away from financial failure with all our possessions.

But, as a PLC, Carillion was limited by shares rather than limited by guarantee, I think you're confusing the two concepts.

As such shareholders will most likely lose the value of their investment in the shares so are not retaining all their possessions.

 

[Bletchleyite]

I don't think we can blame the Tories for this one.

The reality is that this will always happen for as long as you can set up a company limited by guarantee. Limited companies have their own legal identity and so the management and shareholders have no personal liability for the actions of that company. Unless and until company law brings back personal responsibility, nothing will change. These debts aren't personal debts, these responsibilities aren't personal responsibilities, and it shows.

Ignoring "limited by guarantee" as it applies just as much to private companies limited by shares which tend to be owned by way of £1 shares which limits liability to £1.

This is something that I found quite interesting when doing the Business Studies course I mentioned upthread that I hadn't previously understood. The things I found hard to get my head around are:-

1. That a company is to be assumed to exist in perpetuity, i.e. there is no need to plan for an ordered shutdown, most companies if they stop either collapse with debts or are taken over.

2. That accounting is a very woolly concept, and is not anything like cash accounting that is practiced by individuals and charities, where income is money you actually get in your hand/bank account and expenditure is money you have actually paid out of it. It's more of a modelling scheme with several different measures of liquidity.

(Edit: this one is why you can have a company that appears highly profitable collapse due to a lack of actual money in the bank)

3. That almost every company however small is started by way of finance of some kind rather than someone buying assets and using them to make money.

The question is, if these three were reversed, as I guess they would need to be to meet the suggestion you make, would we just end up back as a subsistence economy? Would that be good or bad? I don't know.

 

[Barn]

Wouldn't it be better to do the failing inside the company and keep your assets in your name?

Yes it would. Not least because, if you failed in your own name, your trustee in bankruptcy would receive title to your shares in the company holding all your assets.

 

[Tetchytyke]

As such shareholders will most likely lose the value of their investment in the shares so are not retaining all their possessions.

You're quite right about the difference between limited by guarantee and limited by share. Although there is always the question as to whether a share with a face value of 50p has an intrinsic value.

My wider point still stands though. The company disappears and the legal liability for the debts of the company disappears with it. The small sub-contractors reliant on Carillion paying them disappear too. But Richard Howson gets to keep his Alpine chalet and his Dales pied-a-terre. It isn't fair and it is certainly not ethically or morally right.

 

[Bromley boy]

1. That a company is to be assumed to exist in perpetuity, i.e. there is no need to plan for an ordered shutdown, most companies if they stop either collapse with debts or are taken over.

Of course most companies as we know them are actually enormous groups of different entities.

It's perfectly possible for individual entities to become dormant and ultimately they can then be liquidated, although the process for doing this is quite a lengthy one, involving a notice being published in the gazette. There's potential for criminal liability if the process isn't followed to the letter and it later turns out that the company being liquidated had creditors.

The question is, if these three were reversed, as I guess they would need to be to meet the suggestion you make, would we just end up back as a subsistence economy? Would that be good or bad? I don't know.

Quite likely - all developed economies have the concept of companies as separate legal entities. In fact the ability to conduct business through an entity with legal personality is now a fundamental aspect of the business world. It is perfectly possible for the "corporate veil to be pierced" (and the company to be "looked through" and shareholders made fully personally liable) where the concept is abused and a company is created as a sham.

Salomon v A Salomon & Co. (1896) is a case worth reading.

 

[Bletchleyite]

My wider point still stands though. The company disappears and the legal liability for the debts of the company disappears with it. The small sub-contractors reliant on Carillion paying them disappear too. But Richard Howson gets to keep his Alpine chalet and his Dales pied-a-terre. It isn't fair and it is certainly not ethically or morally right.

Isn't it? Are there other jobs (jobs, not being self employed) where if you make an error, even a serious one, you are personally liable for all of it to the point of bankruptcy?

Can you imagine the idea of a train driver involved in a serious accident writing off a couple of trains and with many injuries being liable for the lot, assuming he survives?

So why a company director?

One thing worthy of note, though, is that charity Trustees do have personal liability, though it is very common to insure against it - the Scout Association does so, at least, as otherwise people would very much be put off being a Trustee.

 

[Barn]

The company disappears and the legal liability for the debts of the company disappears with it.

Usually, but there are some exceptions. Directors can be personally liable if they wrongfully continue to trade the company once they should have realised it is insolvent, or if they breach their duties towards the company. Certain transactions made prior to the entry into liquidation can be reversed in some circumstances - such as if the transaction was at an undervalue or if there was an attempt to prefer one creditor over another. Directors can also suffer disqualification from acting as a director in the future.

One thing worthy of note, though, is that charity Trustees do have personal liability, though it is very common to insure against it - the Scout Association does so, at least, as otherwise people would very much be put off being a Trustee.

Depends on the form of charity. Many large charities are companies and the trustees are directors. The usual rule about debts being the debts of the company and not the directors/trustees applies. But, as above, directors can be liable in certain circumstances, and trustees do have an additional layer of duties over and above other directors.

 

[Bletchleyite]

What's also not uncommon is charities having a trading arm which could technically fail without taking the charity down with it. Though the main reason is that there are quite heavy restrictions in how a charity (as a registered charity/charity exempt from registration, which is the form all Scout Groups take[1]) can trade.

[1] Whether they must register or are exempt is based on income/assets in some way.

 

[Bromley boy]

My wider point still stands though. The company disappears and the legal liability for the debts of the company disappears with it.

Well the company won’t simply disappear until it’s been liquidated, and all remaining assets have been shared out to creditors. This is a lengthy process that will go on for months or years with a company as large as Carillion.

The directors could be liable for wrongful trading, but the point of limited liability is that it is the shareholders, not the directors, who are liable for the debts of the company (to the value of their investment). The directors are themselves employed by the company to do a job - albeit that they owe fiduciary duties to the company which normal employees of course do not.

 

[najaB]

Wouldn't it be better to do the failing inside the company and keep your assets in your name?

Yes, indeed it would - I got it backwards.