30 March 2013

Mr Osborne's Tangential Relaionship With Truth

After quoting from Mr Osborne's budget speech in my last two posts I am left a little queasy. As usual his words don't connect to reality in a direct way. Look at his claim that:
In places like Edinburgh and London, we have a world beating asset management industry.
Well, if you read to the end of my post you will have noticed that Britain's fund industry is only world beating in a world where Dublin and Luxembourg don't exist.

Take this example from my last post:
Many observers of the British tax system complain that it has long biased debt financing over equity investment.
The point he is referring to is that dividends are paid out of profits after tax while interest is paid from pretax profit. So it is cheaper for companies to raise funds from bonds than shares. We are talking about 20% corporation tax, not 0.5% stamp duty.

So how much difference does stamp duty make to the cost of capital? while corporation tax is paid every year, stamp duty is only charged if shares are sold and it is not charged when a company first issues its shares. So basically, not much. It is a tax on speculation rather than companies seeking finance. The effect of the cut will be an incentive to speculation.

It is tempting to propose Mr Osborne for the Pontius Pilate "What Is Truth" award. But at least Pilate was interested in truth.

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