The Guardian’s faulty financial reporting is a rehash of Boris smear article!

I wrote on here recently about the Guardian’s dubious quality of financial reporting. An article on the 7th of June, by Rajeev Syal and Solomon Hughes, disclosed Lycamobile as the Conservative party’s largest donor. It also mentioned the fact that they have paid no corporation tax, which they didn’t need to having not made a profit.

I have just discovered that this was a rehash of a previous article by one of the authors, Rajeev Syal. The earlier article, dated 1st of May, was focussed on relating the apparent insinuation of tax avoidance by Lycamobile to Boris Johnson and its assistance for his re-election campaign.

So two days before the London Mayoral election the Guardian was reporting that a company that paid no corporation tax was helping to fund Boris’s campaign, thereby implying that they were tax avoiders and therefore just as bad as Ken Livingstone. Poor journalism or just deliberate misrepresentation. I think Leveson should review this!

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Recommended reading on liberty

David Friedman    The Machinery of Freedom.

Stephen L. Newman    Liberalism at wits end.

Thomas Paine    Rights of Man.

Murray N. Rothbard    For a New Liberty.

John Locke    The Second Treatise of government.

Rose Wilder Lane    The Discovery of Freedom.

Robert LeFevre    The Fundamentals of Liberty.

Edwin G. Dolan    TANSTAAFL, The Economic Strategy for Environmental Crisis.

Albert Jay Nock    Our Enemy the State.

Morris and Linda Tannehill    The Market for Liberty.

Robert Nozick    Anarchy, State and Utopia.

Tibor Machan   Individuals and their Rights.

David Graham and Peter Clarke    The New Enlightenment, the rebirth of liberalism.

F. A. Hayek    The Road to Serfdom.

Alexis de Tocqueville    Democracy in America.

Alexis de Tocqueville    The Ancien Regime and the French Revolution.

Adam Smith    Wealth of Nations.

Henry Hazlitt    Economics in one Lesson.

Henry Hazlitt    Time will run back.

Adam Smith    The Wealth of Nations.

A brief synopsis of libertarianism (1993)

Taken from a posting I made in 1993 on Uk.Misc regarding Libertarianism:

To dispel some rumours, and correct many misunderstandings I thought I would spell out the libertarian position. This is my view and may differ from other libertarians.

Libertarianism is developed from the Non-Aggression Axiom. This states that no person may initiate aggression against any other. This is a simple statement, from which property rights and other freedoms may be derived. (For a full explanation see Murray Rothbards “For a New Liberty”).

The meaning of not initiating aggression is not the same as pacifism, although there may exist libertarian pacifists. It means that no-one has the right to start any violence or other forms of aggression. If I steal from you, it is the initiation of aggression. If you remove my property to pay for what was stolen from you, that is not the initiation of aggression. It is justified.

Libertarians differ as to how far they personally would take this principle. The libertarian movement covers free-marketeers, minimalists (limited state liberals) and anarcho-capitalists (anarchists like me). There are also Civil libertarians (Amnesty International, Liberty, Charter 88 etc.), the confused bunch that think it’s wrong for the government to interfere with our civil liberties, but OK to dip into our wallets.

What binds most libertarians is the distrust of government as an institution. “Our Enemy the State” as Albert Jay Nock put it. We do not feel that anyone has the right to decide our lives for us. As intelligent animals, we feel that the human race should be able to make choices in life, not have them removed to some obscure ministry of this, that and the other. Who do they think they are that they know better than I do as to what I actually want in life.

The menace of modern society is taxation. This is equated with theft by libertarians. How is it theft? Well who asked your permission to remove however much they feel fit from your wages each week. If you were robbed at gunpoint every week when you received your wages you would call that theft would you not? So why is taxation different? Because the state has defined it thus.

Although in the UK it isn’t something we have to worry about since the 60s, conscription is another pet hate on libertarians. It is nothing less than slavery. Forced labour being used to defend a state. If the state were worth defending would it need to use slaves to fight for it?

© Andy Bolton, 1993.

Introduction To Libertarianism.

© Andy Bolton 1988, 1993.

“The central idea of libertarianism is that people should be permitted to run their own lives as they wish. We totally reject the idea that people must be forcibally protected from themselves. A libertarian society would have no laws against drugs, gambling, pornography – and no compulsory seat belts in cars. We also reject the idea that people have an enforceable claim on others, for anything other than to be left alone.” (1)

David Friedman.

In this article I aim to describe briefly the aims of and ideas behind libertarianism. Libertarianism is based upon a single axiom from which a complete logical coherent ideology follows. The basis is the non-aggression axiom. This states that no man or group of men may initiate violence, or the threat of violence, against the person or property of another human being.

From this it follows that the libertarian favours the free market economy with no government intervention. In fact the maximum that a libertarian would allow the state to operate would be national defence, the police and courts – the nightwatchman or minimalist state. Such minarchists include Robert Nozick, Friedrich Von Hayek and Ludwig von Mises. On libertarianism Stephen L. Newman comments:

“Its intellectual appeal lies in its theoretical coherence and logical consistency. Equipped with a vigorous critique of state power, libertarians do not merely protest government policies; they question the fundamental legitimacy of government itself. Libertarians, however are not merely economic conservatives nostalgic for the free-market. Their movement is also more broadly anti-authoritarian. It condemns imperialism in language reminiscent of the student left of the sixties, and is as quick to defend alternative lifestyles as it is to criticize government regulation of the economy. Gays, feminists, black seperatists, environmentalists, survivalists and other such groups are all welcome in the libertarian camp. Libertarianism offers … the option of cultural laissez-faire. Libertarians delight in their failure to conform to an ideological stereotype. They advertise themselves as having transcended the conventional left-right continuum of politics, not by an eclectic borrowing of positions but through a commitment to a set of logically coherent political principles.” (2)

Libertarian anarchists are more consistent than minarchists however, as they regard any state as an aggressor, and so oppose it. They do so because for the state to provide even these basic services it must tax, which they regard as theft; for if you do not pay the states taxes, it imprisons you. this is where the social contract theory, as proposed by Rousseau, fails because nobody has ever signed this imaginary contract.

Lysander Spooner, the 19th century individualist referred to this in his pamphlet “The constitution of no Authority”. The Libertarian anarchist would prefer to see defence and policing become services to be offered on the free-market. Thomas Paine said of government:

“Government is no further necessary than to supply the few cases to which society and civilisation are not conveniently competent; and instances are not wanting to show, that everything that government can usefully add thereto, has been performed by the common consent of society, without government. The instant formal government is abolished, society begins to act. A general association takes place, and common interest produces common security. The landholder, the farmer, the manufacturer, the merchant, the tradesman and every occupation, prospers by the aid which it receives from the other, and from the whole. Common interest regulates their concerns, and forms their laws. The more perfect civilisation is the less occasion it has for government, because the more it does to regulate its own affairs, and govern itself;” (3)

Murray Rothbard, David Friedman, Morris and Linda Tannehill and others have presented arguments that dispel the “public good” myth that surrounds such services as roads, pollution control, policing etc., but as yet they have to provide adequate concepts for the private provision of National defence. Friedman recognises this fact in his book “Machinery of Freedom.” After arguing for the demonopolisation of defence, replacing it with institutions funded by voluntary means, Friedman states;

“What will I do if, when all other functions of our government have been abolished, I conclude that there is no effective way to defend against aggressive foreign governments save by money taken by force from the taxpayers? In such a situation, I would not try to abolish the last vestige of government. I do not like paying taxes, but I would rather pay them to Washington than Moscow – the rates are lower. I would still regard the government as a criminal organisation, but one which was by a freak of fate, temporarily useful. I do not approve of any government, but I will tolerate one, so long as the only other choice is another, worse government.” (4)

All consistent libertarians stand behind individual rights, commonly known as civil liberties. These include free speech, consensual sexual acts (including prostitution), pornography and gambling. The libertarian opposes such actions as the present farcical attempts to ban “SpyCatcher” and the seizure of material belonging to Duncan Campbell during the Zircon affair. If somebody is a believer in private property they cannot condone such an invasion by state powers, for whatever reason, as the present Prime Minister does. The libertarian, since he believes in the individual’s ownership of his body, does not oppose the use of drugs. They believe it is an individual’s own decision whether or not to ingest or inject opiates, hallucinogens, marijuana, tobacco, alcohol or any other drug, but that they must bear the responsibilities for their actions. After all, are drugs as dangerous as we are told by the media and state? Professor Alec Jenner, head of the department of psychiatry at Sheffield University, thinks not:

“Some doctors and nurses, and others, have lived respectable lives while using drugs daily. Further, much that addicts suffer medically is from dirty syringes and poor black market drugs, hence the abcesses, AIDS, damaged joints etc. Some professionals believe that it is strategically unwise to assert that heroin is medically less dangerous than cigarettes or alcohol. But heroin as such, however addicting, does not cause cancer of the lung, heart diseases, dementia, blindness, liver disease, peripheral neuritis, gastritis etc, etc. Obscuring the truth must at least be questioned in an informed democracy.” (5)

The libertarian is often accused of being immoral or amoral because of his views, though this is not the case. Quite often a libertarian will argue the case for derestriction of a particular act while actually being opposed to it personally, such as smoking, prostitution or homosexuality. This is not however inconsistent as the libertarian sees that he has no right to inflict his morals on anyone else.

What is common to all libertarians is the hatred of the state, a contempt for all its interventionalist actions. As Murray Rothbard, the Marx of the modern libertarian movement, says:

“If you wish to know how the libertarian regards the state and any of its acts think of the state as a criminal band, and all of the libertarian attitudes will fall into place.” (6)

John Locke, founder of the minimal state favoured by minarchists, said of man and state;

“The natural liberty of man is to be free from any superior power on earth, and not under the will or legislative authority of man, but to have only the law of nature for his rule.” (7)

Finally, Rothbard looks forward to an age of freedom from statist oppression, war and threat of nuclear obliteration:

“Liberty has never fully been tried in the modern world; Libs now propose to fulfil the world dreams of liberty and prosperity for all mankind. Only we offer technology without technocracy, growth without pollution, liberty without chaos, law without tyranny, the defense of property rights in one’s person and in one’s possessions. Libertarianism will win eventually because it and only it is compatible with the nature of man and of his world. Only liberty can achieve mans prosperity, fulfillment and happiness. In short, libertarianism will win because it is the correct policy for mankind, and truth will eventually win out. I am convinced that the dark night of tyranny is ending, and that a new dawn of liberty is now at hand.” (8)

Bibliography.

(1) David Friedman The Machinery of Freedom.

(2) Stephen L. Newman Liberalism at wits end.

(3) Thomas Paine Rights of Man.

(4) Friedman. Machinery of Freedom.

(5) Prof. Alec Jenner Heroin: Why not make it legal?

Yorkshire evening post, Jan 17th 1985.

(6) Murray N. Rothbard For a New Liberty.

(7) John Locke The Second Treatise of government.

(8) Rothbard. For a New Liberty.

© Andy Bolton 1988, 1993.

Lies, Damned Lies and Dodgy Statistics – The Guardian’s approach to financial reporting

Introduction

Before we begin let me make a few statements:

  1. Firstly, I love the Guardian. Its style, commentators and quality of journalism are nearly unsurpassed in the UK’s daily newsprint media. Only the FT is better in my opinion;
  2. Secondly, I cannot abide the misuse of statistics or data, whether unintentional, through ignorance, or intentionally through malice;
  3. Lastly, I have no time for the Conservative Party[1], nor any political party, and am always dubious of political donations, whether from company or union.

The article

On Tuesday the fifth of June, 2012 The Guardian published a piece on page 7 about Lycamobile and their donation to the Conservative party. This was written by Rajeev Syal and Solomon Hughes.

In it they referred to the donations of “more than £300,000 over the last nine months”. I cannot and do not disagree with this data, as I have no independent way to verify it; the data is purported to come from the electoral commission. However the first line of the article stated that the company “has paid no corporation tax for three years”. It then later in the article states that the company “did not pay any tax between 2008 and 2010, despite generating a turnover of between £47m and £88m”. Before I start any analysis just a basic understanding of the way company accounting works suggests that this is in fact two financial years, 2008-2009 and 2009-2010 (their financial year runs from 1st March to 28th February the following year; so this is not actually ‘three years’. Also, confusingly, why is there such a variance in the revenue figures of £47m and £88m – that’s quite an error margin!

Corporate Taxation 101

Now let us start with some basics for those not initiated in corporate taxation; if you are then please skip this paragraph. Revenue is the money the company earns due to its principal business activities. Then a company has costs, or outgoings. These costs are paid for from the revenue or from savings (capital carried over from previous years or other investments, such as share capital or loans). If the costs cannot be met by revenue or savings and investments then the company is insolvent and can be declared bankrupt. If the outgoings are less than the revenue then the difference is called a profit (the opposite case is called a loss). These profits are subject in most countries to some form of taxation on profits. In the UK this is called Corporation Tax (or CT). If a loss is made then no tax is due. Losses can be carried over to subsequent years when profits are made to balance them out. This is logical, otherwise a company gets taxed on the upside, when it is profitable, but has no help on the downside.

The Guardian’s analysis

Now let us go back to the Guardian’s first sentence: “A mobile phone company that has paid no corporation tax for three years”. Can you see where this may be going yet? So having checked the published company accounts from Companies House I can clarify this misstatement as containing a number of errors:

  1. The figures are in fact for two financial years: 2008-2009 and 2009-2010 (24 months), as I suspected. Reporting this as “for three years” is factually incorrect and either professionally negligent or deliberately misleading.
  2. The revenue figures quoted are £47m for 2008-2009 (actually £47.9m, conventionally rounded to £48m) and £83.9m (not £88m) for 2009-2010 respectively. To report this as “between £47m and £88m” is semantically incorrect as well as professionally incompetent.
  3. The company made a loss in both 2008-2009 (-£10.9m) and 2009-2010 (-£8.3m). Therefore no UK Corporation Tax should be due on earnings in these years. However £8,465 was paid in CT in 2008-2009, possibly due to its minimal profits carried over from the previous year of £40,863. Therefore the statement “paid no corporation tax” is also untrue and either professionally negligent or deliberately misleading.

Interestingly the company did make a profit in 2010-2011 of £4.6m from revenues of £116.8m. And paid no Corporation Tax! This is because it was able to completely legally offset this profit against its loss of £8.3m the previous financial year. Some of those with a socialist leaning may not like this ability to offset losses against profits, but it has been around for a long time. I am surprised the Guardian didn’t lead with the more sensational, but at least factually correct, headline that ‘the company made £249m in revenue over three years (correct as 2008-2011) and has paid minimal corporation tax‘(£8,465). In reality across four years it has made a £14.6m loss and has paid 8,465 Corporation Tax on that, which seems pretty fair. Even if it hadn’t made its enormous political donations of £300,000 to the Conservative Party, alleged by the Guardian, this would not have reduced those losses.

The Company’s market

It could be implied from the article that the company should somehow be more profitable; to the innumerate that this could all appear to be some elaborate tax-dodge. However Lycamobile, which started in late 2006, operates as what is called a ‘virtual network mobile operator’; that is it has no physical mobile telephony infrastructure itself, only usually having the billing platforms that are traditionally associated with the real mobile provider (of which we only have 4 now in the UK[2]). Frequently the virtual network operator is supplied all the necessary IT and network infrastructure by the actual network services provider company, who ‘white-labels’ its service to them. Virgin Mobile is a well-known operator in this market place. This type of company makes an extremely low profit margin as it is typically taking a few pence per transaction and relies on huge volumes to drive revenues sufficient to overcome its fixed costs and therefore make a passable operating profit.

History repeating itself?

Sadly for verity, the Guardian has form with this type of financial legerdemain. On Saturday the 18th of February 2011 the Guardian published a front page article entitled: “Barclays bank forced to admit it paid just £113m in corporation tax in 2009”. This article, by Jill Treanor, rather luckily coincided with a time of UKUncut protests, and as such caused a firestorm on Twitter over that weekend. The article suggested that Barclays had earned £11.6bn of profits in 2009 (their tax year is also the calendar year) and only paid £113m Corporation Tax. A quick reference to the accounts shows firstly that £6.8bn was a one-off profit due to the sale of Barclays Global Investors (BGI) to Blackrock, which is treated differently for tax reasons (possibly under legislation introduced by Gordon Brown, though I am happy to be corrected on this, if wrong). In that year Barclays incurred a £43m tax liability on the disposal of BGI. Excluding the one-off disposals this leaves the profit from operations of £4,559m (notice that £4,559m plus £6,777m do not make £11.6bn, but £11.3bn – the Guardian appears as bad at basic maths as its reputation is for spelling). On this £4,559m operating profit it paid £1,047m in tax, an effective rate of 23.0%. The Guardian claimed that Barclays only paid £113m in Corporation Tax: It did; Corporation Tax is the UK’s name for its tax on company profits, but a tax on profits isn’t unique to the UK. Companies usually pay their tax on profits in the country in which those profits are earned. This is common and obvious: why would a government let a company trading locally repatriate all of its profits to pay tax in a lower tax regime, unless forced to by tax treaties[3]? So Barclays paid overall 23.0% tax on its operating profits, although only 10.8% of this was to the UK tax authorities. Is that a bad thing? For the UK, possibly yes. For the other countries in which Barclays operates, employs people, offers their services and pays tax: no, it’s a good thing. If people want to be jingoistic, racist or just ‘patriotic’ and believe that UK-based companies should only pay a tax on profits in the UK, then let them have their outdated attitudes. However we should recognise that we inhabit a global market, and so many UK brands and companies are no longer owned by UK companies: Santander owns a whole swathe of former UK banks and building societies; Telefonica owns O2; etcetera. To believe that a UK company is UK only and should only pay tax here is a ridiculous view in this day. In addition to the payment of tax in the locale that the profits are earned in there is another mitigating factor already covered: the carrying over and offsetting of losses in previous years. Barclays was one of many UK banks that suffered due to the nearly global collapse of the banking markets in the sub-prime crisis of 2008, the preceding year to that targeted by the Guardian’s article. There were undoubtedly considerable losses: its value on the balance sheet fell by £673bn in 2008 and £111bn in the following year. As a comparison Guardian Media Group earned £591m in revenue across the two comparable financial years covering 2008-2010 and paid ‘no Corporation Tax’ by their definition (actually receiving a £30m tax credit, equating to 5.1% tax refund). This was because they made a loss of £267.7m.

Conclusion

At a time when journalism as a profession is under detailed scrutiny from both the Leveson Enquiry and the Select Committee for Culture, Media and Sport, I would expect the Guardian to ensure an article that is couched in such accusatory terms (“Tory donor firm paid no corporation tax”) is at least technically correct. On the financial aspects it is not; it could be considered professionally negligent of Syal and Hughes at best, or deliberately misleading by its enemies. It highlights a potential lack of governance controls at the paper, which Alan Rusbridger and the rest of the Guardian Media Group board should be concerned with, for the attention that sloppy reporting like this may bring in the current climate. Also if Lycamobile was an exchange-listed company there could be a significant impact on its share price and trading volumes following publication of an article such as this, potentially resulting in investigations from the Financial Services Agency or other exchange-based authorities.

For the sake of the Guardian, a newspaper I love, I would hope this is just basic negligence on a long bank holiday weekend. They should be concerned, as it wouldn’t take much scrutiny from Jay and Leveson, with their power to access emails and texts, to get to the cause of such sloppy reporting and identify governance failures. Guardian: I expect better.


[1] Declaration: I was a member of Essex University’s Conservative and Unionist Association, affiliated to the Federation of Conservative Students, in 1987-1989. I resigned on principles of libertarianism.

[2] Telefonica O2, Everything Everywhere (the merged Orange and T-Mobile), 3 and Vodafone.

[3] The Republic of Ireland is a useful example: at 12.5% its corporation tax rate is one of the lowest of major countries in the EU and so many companies, especially from the UK, have relocated their head offices there to take advantage.