Some fantastic doublethink here…

Couldn’t help but laugh at this:

Screen Shot 2014-05-20 at 10.12.04The EU actually, on average and before bad debt and criminal attacks in both cases, thinks the UK has a lower tax gap than HMRC does, but the trend is very different. The marked recent downward trend HMRC has found is not matched in HMRC [sic – EU?] data. Given that overall the two strongly agree….”

… I’m sorry, what?

The two sets shows “very different” trends? But they “strongly agree”?

Let’s hope nothing significant is riding on that unsubstantiated observation… The rest of the paragraph reads:

Given that overall the two strongly agree I took the HMRC data for VAT lost to criminal attacks and bad debt off the EU estimate then averaged the two over five years to come up with my estimate as a base for projection of 9.7%. HMRC may say that’s wrong: I would suggest it’s fair use of data. I think the likely result from doing so statistically appropriate.

Right… Just the entire basis of his calculations….

And I don’t think it is fair use of data. Openly observing that two sets of data are “very different” and then deciding that is irrelevant in order to use figures from one set of data to manipulate the other? I might want to justify that choice a bit more…

To be fair, I think he’s talking about agreement in overall magnitude as opposed to difference in trend. But I think that when one data set suggests that the other is overstated by as much as a third in some years and understated by almost a third in other years , I would really think about providing some actual evidence before declaring that they “strongly agree”.

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About Ben Saunders

I'm a Chartered Tax Adviser and a freelance writer. This is my personal blog about, well, mainly taxation. I might put other stuff in. Who knows.
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6 Responses to Some fantastic doublethink here…

  1. DG says:

    You are missing the big problems with his methodology though….
    Firstly, he takes the VAT gap from HMRC’s bottom up approach, then works out how what volume of sales would be needed to generate that VAT gap. He comes up with a number of 100bn of “sales”.
    Then, within a paragraph on p56 of his report those “sales” suddenly become “income”. Via some truly tortured logic, he then applies NICs, income tax etc to get to a 40% rate for tax avoided, on the 100bn.
    Of course, we all know sales does not equal income. Nor are all business and transactions subject to VAT. There is simply no treatment of this.
    When I questioned him about this on his blog he started tying himself in knots about it, saying that this 100bn was actually added value – but then couldn’t answer why he hadn’t treated the non-tax gap part of VAT receipts in the same manner.
    Nor could he understand that what he has done is not top-down research…but is actually inferring results from bottom-up work. He says the IMF agree with him – I can’t find where.

    • DG, thanks for commenting. I saw your exchange with him and I am in agreement on several points.

      Where you have undeclared sales, it doesn’t necessarily equate to undeclared profit as you point out. This assumes that all costs associated with undeclared sales are treated as allowable for tax purposes somewhere else. Whilst some would, I don’t think you can just assume that all will.

      I agree about accounting for the non-VATable transactions too. I haven’t thought through the consequences.

      To my mind Richard’s mention of the IMF is what is most problematic. His method is clearly not what the IMF suggested.

      I’ve ended up breaking down my (current) criticisms of his report into a few blog posts and I think his main calculation is the key problem. It’s far too simplistic in comparison to the IMF suggestion.

      To be fair, he says that the IMF don’t agree with HMRC. They don’t. But they don’t disagree with them.

      And they don’t agree with him.

      He might be trying to agree with them but he’s done a pretty poor job if that’s the case.

      • DG says:

        Pretty much agree with what you have to say. Essentially, if all those sales had no net profit associated with them, a zero tax gap would be the lower bound. What he’s done is maximise to create a rather extreme upper bound.

        The truth is probably on-zero, but HMRC do try and separate out the problem and deal with the second order terms in their calculations for other parts of the tax gap. Murphy, as I’m sure we’ll see, will probably double count them to make sure he gets to an even more extravagant number for the overall tax gap.

        I’ve several reads through of the IMF paper now. overall they rate HMRC’s treatment of the problem as good, and following practices many other countries also use. They do offer suggestions of how to improve, how to use the data and for additional work – which is the purpose of such reviews. It’s hardly a damming criticism of HMRC though.

        I’d love to see an IMF review of Murphy’s work – if nothing else to stop all his fibbing and have someone he has previously said agrees with him thoroughly damn his methodology. His head would probably explode from the doublethink.

      • “Fibbing” is exactly the word I was contemplating using in relation to his IMF claim. It’s not quite lying, but it is most certainly misleading people into thinking that the IMF don’t agree with HMRC’s criticism having actually heard it.

        The only way a reasonable person would contemplate using what the IMF say as agreement is if you have done exactly what they suggest in the report and evidence that in your work.

        Murphy hasn’t done that.

        Either he knows that’s the case, and knows that what he says is a bit misleading, or he doesn’t know that, and there is a serious question mark over his competence.

  2. Pingback: … and some fantastic double counting… | Ben's white space entries

  3. DG says:

    Honestly not sure. I have enough questions surrounding his competence simply looking through his work. Not that he shares that, with headlines like “I am right. HMRC are wrong”.

    Judging by the claim that this piece of work was peer-reviewed, but showing total unwillingness to say how or by whom, I have to conclude that he knows full well that at least some of what he has said is untruthful.

    However, his reputation, income and much of his life’s work is now so heavily invested in this series of, let’s diplomatically put it, information misallocations, that any chance of him admitting or correcting his mistakes is very slim.

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