What should be done about Public Sector pay?

"Jeremy Corbyn has said he will increase corporation tax from its current 19% for all companies to 21% for small companies and 26% for larger companies if Labour wins the election. Let’s leave probabilities aside and discuss the merits of this idea.

The logic of both proposals is sound. For small companies the case is that it makes no sense at all to have a corporation tax rate below the basic rate of income tax: all that becomes is a blatant invitation to avoid tax. This abuse is already costing up to £4 billion a year according to the Office for Budget Responsibility: I suspect it may be more when the full national insurance impact is taken into account. In that case the 21% rate is almost certainly too low: I would have gone higher to beat abuse and win back more of the lost billions, which is exactly what is required.

Dealing with larger companies (of which there are vastly fewer) the situation is more complex. First, 26% is not high: it is close to the EU and OECD averages when adjusted for our current low rate.

Second, it’s not that long ago we had these rates.

Third, there is no evidence at all that cutting the rate has brought jobs, growth or new corporation tax revenues to the UK (the rise in revenues is very largely because of the rise in the number of small companies and broad based recovery in profits from banking and elsewhere and not because of new inward investment driven by tax).

Fourth, we know that business itself did not lobby for the low corporation tax rates now on offer.

Fifth, we know business says tax is low in its considerations when real business is being relocated as opposed to profits being relocated – which is the type of abusive activity Ireland attracts and which has rendered its national accounting meaningless because so much of its GDP is profits simply flowing through the place leaving almost not a trace bar some fees for bankers, lawyers and accountants on the way.

Sixth, and most important, I argue low tax rates and low capital allowance rates are counter productive and rarely help anyone but banks. This needs explaining.

Right now, and I summarise, with a corporation tax rate of 19% and a 20% allowance on capital spending a year a large company in the year that spends £100 on capital equipment gets a cash rebate of £100 x 19% x 20% = £3.80 in the year it spends the money. Tory plans to reduce the corporation tax rate to 17% reduce this to £3.40. That, to be candid, provides no incentive for investing at all. This is a tax system for rentiers and bankers. It does nothing at all to encourage any activity in the real economy where people work and value is created.

Now change the tax rate to 26% and offer 100% first year allowances and the allowance is worth £26, or near enough seven times more.

This will encourage investment.

That will create growth.

The investment will increase productivity.

That increases wages.

And growth, again.

And so future tax revenues as a result.

In other words, increasing the corporation tax rate kickstarts the economy in a way that a corporation tax cut can’t. And it pays for itself.

So Corbyn has a plan that firstly beats avoidance, second raises revenue, thirdly can encourage investment and fourthly delivers growth. None of those come from the Tory plan.

On this occasion he is onto a winner.

And he’s the one talking economic sense.

Give it two years and it will be a Tory plan. But right now they’ll just ridicule it. Which will be a loss to us all.

Finally, let’s talk education. I may be biased, but UK universities provide us with a real competitive advantage and a massive rate of return in terms of relative skills. Redirecting money to this sector whilst leaving those departing it debt free (or with reduced debt) would create a big economic stimulus.

Corbyn has a policy that is coherent in that case from beginning to end. And it is appropriate I say so."

From www.taxresearch.org.uk

Sorry, but that's just wrong. It's not independent evidence.
The article in the FT shows the numbers - cutting corporation tax has increased revenues.
Richard Murphy is not credible. He's been criticised by the IFS and quite a few others. Take a look at his wiki page,

I'm sure there might be plenty of incentives, gillybob but clearly corporate tax rates wouldn't be one of them if they were prepared to move to a higher tax regime.

However, I suspect that they'd take their manufacturing to a lower tax country than France. Their reason won't be the prospect of higher corporate tax; it'll be Brexit. And if the increased costs of Brexit aren't cancelled out by higher productivity they'll be off like a shot.

Richard Murphy is not credible. He's been criticised by the IFS and quite a few others.

Have you considered that the IFS is not credible?

There are many 'credible' economists who think the same way that Murphy does. Criticism doesn't make one automatically 'wrong'.

Then they're contradicting the tax receipts published by HMRC.
John McDonnell disagrees with him too.

In a response to a question raised in the House of Commons, Labour's Shadow Chancellor John McDonnell stated with regard to Murphy "He is not the economic adviser and never has been, because we doubted his judgment, unfortunately. He is a tax accountant, not an adviser. He is actually excellent on tax evasion and tax avoidance, but he leaves a lot to be desired on macroeconomic policy"

That's from his wiki page.

Which economists agree with him?

gillybob You seem to be very angry about the Labour Party and Corbyn but it is the Conservatives who have been in power for the last 7 years. Surely they bear some responsibility for the difficulties your business is experiencing?

I have worked in the public sector and private sector - in psychiatric and general hospitals and the technical services, housing and legal departments of local councils. However, I have mostly worked in the private sector, mainly because, working as a secretary, the pay was much better there. In the last few years of my working life I spent three years re-training as an adult literacy teacher. I enjoyed teaching, received good reports and really liked the students but the amount of work involved for the money I received was unsustainable and after 2 years I returned to legal work.

My husband had a very demanding job in the public sector, which involved responsibility for a large number of staff and service users. Although he received a good salary, it was in no way commensurate with what he would have received in the private sector. My son, who is 38, who works in the private sector, is already earning more than my husband was earning on retirement.

As I have often said, if public sector jobs like nursing, social work, teaching, etc., are such a doddle and pay so brilliantly, why can these sectors not retain their staff?

Try researching Modern Monetarist Theory, Primroses.
And I might point out that McDonnell isn't an economist either.

As a life longer Labour voter and a small business owner of some 25 years I, (and many like me) feel very let down by all political parties and successive governments Eloethan . JC only ever talks about "his" public sector, their pay, their conditions, poor nurses, teachers etc. and he says or does nothing at all to give small businesses such as mine any confidence in a government under his leadership. Added to that his plans on raising the minimum wage for everyone including trainees, and older apprentices is very worrying .

Researching private sector secretarial jobs in my area brings dozens of so called apprentices and minimum wage positions Eloethan so maybe a case of where the jobs are.

Correction. It's Monetary theory, not Monetarist.

That's what I thought Maizie. He's not credible. There are no credible economists who agree with him. You can't name one.

Selling me to research theories is not backing up your assertation!

He is often quoted on here though, Primrose

Economists never agree anyway.

I've noticed that Jalima and I have no idea why!

Primrose65
I will save your post @00.20, I feel that it might come in handy at some time in the future

Interesting review of MMT and the comments are worth reading, too. This neither proves nor disproves that MMT is 'right' but I like reading the pros and cons.

It's a contested theory, yes, but most theories are (even scientific ones which aren't 'theory' in the commonly accepted meaning of the word.

I like MMT because it is founded in Keynesianism, which has always made sense to me (though there are different schools of thought even within it)

To me a great deal hinges on how money is created; the concept of 'sovereign currencies' and how 'value' is assigned to currency.

Perhaps we should have an Economics thread...

It would help if I posted the link, too

www.washingtonpost.com/business/modern-monetary-theory-is-an-unconventional-take-on-economic-strategy/2012/02/15/gIQAR8uPMR_story.html?utm_term=.74b63fe064cb#comments

Back onto public sector - I listened to an interesting podcast of 'The Moral Maze' where they were discussing the public sector.

www.bbc.co.uk/programmes/b08wphjg

I think an economics thread is an excellent idea Maizie

Well it might help firstly if we agreed on who can be defined as an economist. Secondly, we'd need some understanding of basic economic theories and where they fitted into the political spectrum. You can't discuss Hayek meaningfully without acknowledging his right wing beliefs or Stieglitz without his left wing stance.

Well, let's start the thread and see how it goes.

Regardless of the economics the problem in the public sector is recruitment and retention. With 25% of teachers leaving the profession within 5 years, nursing recruitment down and vacancies for head teachers that can't be filled something has to be done. Money will definitely help but it isn't the complete answer. Many of these jobs were described in the past as 'vocations' and required some self sacrifice from the employee. I don't think that applies any longer. But to maintain an experienced and motivated workforce something has to be done, other wise we run the risk of an education system and a health system that relies entirely on inexperienced and bank staff.

From experience in my DGC's school and a large hospital very close to here, some of those who choose to retire early end up coming back as bank/supply staff. I know a nurse who cut her hours from full time to just 12 hours to enable her to work the balance on bank for a higher salary. My DGD's supply teacher (her actual/supposed teacher is on maternity) is an retired teacher who worked at their school for many years. Personally I think she's too old and grumpy to be teaching little ones but that's a whole other argument. Not sure what you can do about that other than say if you (choose) to leave, you leave and you cannot come back. There has been a widely reported case of some extremely high up people in two of our local health authorities (a husband and wife) leaving their positions with final salary pensions and returning to do the same/similar job. Which is totally rubbish for those at the bottom of the tree struggling to make ends meet.

Bank staff are paid more per hour than permanent staff so it is often more worthwhile to work for the bank, of course there is no job security. Bringing back retired staff is often what schools have to do to find anyone, so if the 'you can't come back' rule was applied there would be classes without teachers and an even worse nursing shortage.

Aaaah yes I see that trisher but could it be that many are leaving their public sector jobs early knowing they can go back to them for more money?

Well if they are paying more in the first place might be a good idea.