Hypothecation

Abstract: Tax earmarking, or hypothecation, refers to the assigning of receipts either from a single tax base, or as a proportion from a wider pool of revenue, to a specific end use; it contrasts with general fund financing of expenditure from consolidated receipts. The idea has been seized on both by those who want to defend the public sector who think it would make taxation popular and by those who want to cut public spending who expect the opposite effect. Earmarking may be applied in a strong or substantive sense, or in a weak or nominal sense. In the strong case, revenue determines expenditure, or at least revenue must match expenditure, and there may be associated referendums on the amount of spending and the tax rate. In the weak case, earmarking is purely formal — undertaken to make the system more transparent and to inform the taxpayer of the cost of a service. Earmarking may also be wide, covering a whole spending programme, or narrow, for a specific project within a programme. The principal example of earmarking (nominal) in the UK today is National Insurance contributions (NICs) which go to the National Insurance Fund out of which contributory benefits are paid. This paper considers the range of support for earmarked taxes, examines the issues, and asks if there is a role for such taxes in the British system.

Abstract: 1. The Background Transport planning and transport investment are alike in crisis. The Conservative Government, with its hostility to planning and public expenditure, has yet to produce a satisfactory transport policy. It proposes to privatise parts of British Rail, and is entertaining possible private investment in the provision of roads and bridges. At present, public investment is under tight Treasury control, and macroeconomic circumstances have been main determinants of the infrastructural investment programme in both road and rail. Environmental lobbies are increasingly delaying major road and rail projects, but the Treasury is hostile to any hypothecation of road tax revenue for financing road investment. Congestion is reaching a critical level, with its true costs somewhat disguised by the recession, while railways continue to lose massive annual sums. The government has recently begun to entertain the idea of road pricing in some form, possibly starting with charges for motorway access or use. While there is a steady flow of ideas and proposals emerging from the Department of Transport, such as the recent Paying for Better Motorways (HMSO, 1993), there does not yet seem to be a coherent strategy or set of guiding philosophical principles. This paper attempts to rectify that failing, as well as providing quantified estimates of the costs of paying for better motorways, and the inefficiencies that may arise from private toll roads.

Abstract: We present a dialogue on Counterparty Credit Risk touching on Credit Value at Risk (Credit VaR), Potential Future Exposure (PFE), Expected Exposure (EE), Expected Positive Exposure (EPE), Credit Valuation Adjustment (CVA), Debit Valuation Adjustment (DVA), DVA Hedging, Closeout conventions, Netting clauses, Collateral mod- eling, Gap Risk, Re-hypothecation, Wrong Way Risk, Basel III, inclu- sion of Funding costs, First to Default risk, Contingent Credit Default Swaps (CCDS) and CVA restructuring possibilities through margin lending. The dialogue is in the form of a Q&A between a CVA expert and a newly hired colleague.