Is VAT to blame for the productivity puzzle?

Yesterday the Office for Tax Simplification’s released its long-awaited review of Value Added Taxation. VAT raises about £120bn each year and in general is one of the least economically harmful taxes because it taxes consumption not investment. But the UK’s VAT is one of the world’s least efficient. In fact, in the OECD only Turkey and Greece (!) have less efficient VATs.

Source: OECD, Consumption Tax Trends 2016

Source: OECD, Consumption Tax Trends 2016

I’ve commented before on the stupidity of the lower/zero rating of food and children’s clothes on this blog. Readers are probably aware of the famous Jaffa Cake case, but did you know that while potato crisps are taxed at the full rate, tortilla chips and prawn crackers are zero-rated? Alas, any brave politician determined to fix this distortion, would be mocked for proposing a ‘Doritos Tax’.

But it’s not just zero-rating where Britain falls behind. In an attempt to spare small-business owners the administrative burden of claiming and paying back VAT, we set the threshold for VAT registration rather high. In fact, we set it much higher than our European counterparts. If you report a turnover of £85,000 a year then you must register for VAT, incurring a tax bill of £17,000 minus any VAT reclaimed on inputs. As most businesses near the threshold are sole-proprietorships, where their inputs are low and most value-added comes from their own work, they are unlikely to be able to claim back much.

The result is a situation not too dissimilar to the problems caused under the slab system for Stamp Duty. Earning one extra pound can lead to a massive tax bill. As a result there is an overwhelming incentive for firms approaching the threshold to refuse work, under-report turnover or even take extra long holidays . This is seen in the data with firms massively bunching around the threshold.

Source: OTS, Review of Value Added Taxation

Source: OTS, Review of Value Added Taxation

Paul Morton, tax director of the Office for Tax Simplification jokes “We hear that cruise ships are full of people staying below the VAT threshold.” We often worry about the effects of marginal tax rates approaching 50% sapping an entrepreneur's incentive to produce, imagine what a marginal tax rate of 1,700,000% on the next pound you earn does!

This is a serious problem. When we worry about a complex tax system, we are not worrying about the need for HMRC and KPMG having to hire extra accountants, rather we are concerned that it is leading people to behave in ways that will destroy productive economic activity.

This bunching effect is significant enough that it may help explain why Britain’s productivity levels are so stubbornly low. It probably isn’t the main factor, but it’s increasingly becoming clear that low productivity levels are not down to simply one thing. It’s not just people in the North being unable to move to productive work in the South because of eye-watering rents or underinvestment in productive machinery because of inadequate capital allowances. It’s all of those things combined.

There’s a further problem. Companies below the threshold often compete with firms registered for VAT. For instance, most Uber drivers turnover under £85,000 which means your average Uber ride is almost VAT-free (you pay VAT on Uber’s cut). If a competitor that employed its drivers directly entered the market, it would be forced to pay VAT in full on each journey. So, the VAT registration threshold might not simply discourage productive activity, it may also lead to inefficient corporate structures.

So what to do? I think the case for reducing the VAT registration threshold is overwhelming. If we brought level closer to the EU minimum threshold of €10,000, it would solve the bunching problem and raise around £2bn for the Treasury in the process. It would mean that more small businesses will have to bear the admin of registering for and paying VAT, but the harms can be mitigated. First, most will use the VAT Flat Rate Scheme which eliminates the need to claim and register every purchase and instead estimates a flat rate on your total turnover based on the industry you are in. So for instance a corner shop owner with lots of input costs will pay a flat 4% rate, while an IT consultant with few input costs will pay 14.5%. Second, we could use the additional £2bn in revenue to cushion the effect of the tax rise by raising the national insurance thresholds.

VAT is one of the least-bad ways to raise revenue. In theory. In practice the UK's VAT falls far short of the ideal. Fixing VAT would boost productivity, efficiency and give us the revenue to cut other more harmful taxes.

We agree the Charter of the Forest is important, but why it is matters

The Charter of the Forest was an accompaniment to Magna Carta and we entirely agree that it was an important document, the signing of it an important moment. The thing is, it's important in a manner rather different from the way in which some are celebrating it today. It really was the start of the English exceptionalism in law, economy and property. But, crucially, it wasn't the creation of commons that mattered, it was the delineation of what belonged to the state and what to individuals that did.

The Charter of the Forest, the lesser-known but equally significant twin of Magna Carta, asserted the rights of ordinary people to access from “the commons” the means for a livelihood and shelter, whether it was grazing their livestock, cutting wood for housing and fuel, fishing and hunting, creating water mills, or sharing the other resources of the forest. It restricted the rights of the king and nobles to privatise and exploit the forest while guaranteeing the rights of the commoners. It represented an early constitutional victory for ordinary people over a wealthy elite, and as such was hugely influential in the writing of other constitutions around the world. The battles in England continued of course, and waves of enclosures across Britain through subsequent centuries stripped away many of the rights.

But now a movement to restore them is growing. Guy Standing, a professor of development economics, is one of those calling for a new charter of the commons, re-establishing the right of the property-less to a basic income, affordable housing, energy and water, and common ownership or control of the means of providing it.

The important part of the Charter to grasp is that the King, and those aristocrats, weren't "the rich" they were, in that time and place, "the State." William the Bastard didn't just say that the throne belonged to him, he insisted that every inch of land and all upon it did. And went out and killed all who demurred. He was really very "Tutto nello Stato, niente al di fuori dello Stato, nulla contro lo Stato" indeed in a rather different and more proprietorial manner than the later "L'Etat, c'est moi." "L'état est à moi" perhaps.

This idea, that the "forest" and all in it continued to belong to the State, the King, is what the Charter overthrew in the time of his descendant, Henry III. Instead there were some things that did, others that were the inalienable rights of individuals. Sure, we might not think that pannage or scutage are all that important today but they are indeed the basis of property rights. 

Property rights being the very things which make market economies possible of course.  To use, as is being done, this example as justification for the commons is thus wrong, it's a justification for the assignment of property rights to people, not the State, with which the individual can then do as they wish within the law. That was all rather the point of it all.

This does indeed have modern implications:

Natural mineral resources are also part of the commons – and where extracting has a detrimental impact on the wider population, it is their interest that should prevail – whether it be leaving them in the ground to mitigate climate change or sharing the profits when appropriate. The Community Chartering Network has already scored a victory here, when its Falkirk group came together to draw up a charter of the communities’ commons assets and successfully opposed fracking for gas.

Oil gas and coal are all, in those mineral deposits, the property of the State today. The lesson of the Charter is that instead of these being vested in the Crown, as they are, they should be the property of those who own the land above and those who have rights to that land through tenancy etc. You know, as has actually been suggested might happen with fracking royalties distributed to those locals. As does actually happen under US law, as does happen with other minerals which are not Crown property. 

The Charter of the Forest distributed property rights away from the State and towards individuals. We agree that's important, we think we should be doing more of it but that isn't the lesson people are taking, is it? 

Protectionism is killing the British Grand Prix

Elsewhere on our blog today, Richard Teather has written a defence of Lewis Hamilton’s tax avoidance scheme, pointing out that the EU’s poorly-designed VAT system is primarily responsible for creating the situation in the first place. As a huge F1 fan (with a soft spot for Hamilton), I’m naturally more likely to come to his defence. But there’s another controversy in the world of British Formula 1, which came to prominence earlier this year, that I feel I can comment on with a more neutral perspective: the potential demise of the British Grand Prix.

In July, the owners of Silverstone circuit (which hosts the British GP) activated a break clause in their contract with the Formula One Group:

“It is not financially viable for us to deliver the British Grand Prix under the terms of our current contract,” said John Grant, chairman of the BRDC [Silverstone’s owners]. “We sustained losses of £2.8m in 2015 and £4.8m in 2016, and we expect to lose a similar amount this year. We have reached the tipping point where we can no longer let our passion for the sport rule our heads.”

The BRDC blame exorbitantly high fees charged by the Formula One Group, whose negotiating position with Silverstone is made more favourable due to the widespread use of government subsidies for tracks in other host countries. The 2017 season opener in Melbourne received around A$60,000,000 from Aussie taxpayers, with Singapore and Bahrain being two other high-profile examples of heavily state-subsidized Grands Prix. In many cases, newer races on the calendar function largely as vanity projects for governments who prioritize the prestige and glamour of an F1 race weekend above overall economic wellbeing.

Team principals like Red Bull’s Christian Horner have argued that Silverstone’s dire situation is largely the result of poor management decisions. It’s true that Silverstone does get comparatively favourable terms compared to many other venues (the 5% yearly fee escalator in their contract is comparatively low by F1 standards), but this is outweighed by the sheer size of subsidies given to other circuits by their respective governments. Silverstone’s ticket fees are some of the highest on the calendar, but despite consistently topping race attendance figures over recent years this has not been enough to make up for the absence of subsidies. Sadly, Formula One Group have little incentive to offer economically viable terms to circuits like Silverstone when they have an easy source of revenue from governments that don’t depend upon the signals of profit and loss.

So what’s the solution? It’s certainly not subsidizing the circuit. Subsidies might be good for TV viewers in other countries who aren't paying for them, but they certainly aren't good for taxpayers. I’ve been a devoted fan of Formula 1 since I was in primary school, but I’d rather see the British Grand Prix move to a different venue or exit the calendar entirely than force Brits who don’t share my love for the sport to pay for my enjoyment. If F1 wants to thrive in the long-run, British trade negotiators need to use Brexit as an opportunity need to make case for reducing Grand Prix subsidies in other countries as part of a wider strategy of supporting free trade. But even if this fails, maintaining a policy of unilateral free trade in motorsports is vital. Subsidizing the British Grand Prix would allow Formula One Group to reap the undeserved benefits of protectionism by charging higher fees to circuits, resulting in a ‘tit-for-tat’ ratcheting up of subsidies at the expense of taxpayers worldwide. I love my sport, but I love free markets more.

Racing around in circles on tax

Lewis Hamilton has been in the headlines for his tax planning rather than his driving, named in the BBC’s “Paradise Papers” reports as having imported his private jet through the Isle of Man to save £3 million in VAT.

If you want an unintentionally funny tax story, do read the BBC’s piece on this. “It was still dark when the private jet began its descent. Inside, its decor was sumptuous…the island that the plane was heading towards hadn't yet woken up.” Melodramatic prose, private jets, fast cars, exotic islands, shadowy international finance – I think the writer must be angling for a job on the next James Bond script.

But once you cut through the purple prose and outrage, what this shows is the stupidity of governments trying to fiddle with the tax system.

Hamilton bought his jet, according to the stolen files, mostly for business purposes (presumably flying between race courses and training grounds), plus a minority of personal non-business uses.

VAT was invented by a Frenchman, so not surprisingly it has, at its heart, an elegant logic. Also, not surprisingly, that fundamental simplicity is overlaid by a huge amount of bureaucratic complexity.

But fundamentally, the way VAT is supposed to work is that someone in business charges, and pays to the tax authority, VAT on all their sales, their income. They can then reclaim the VAT on all their business expenses and business-related purchases. That way the net VAT paid by the business is on its “value added”, the difference between its sales and its purchases. That’s why it’s called Value Added Tax.

If the EU’s VAT system stuck to this basic principle, Hamilton would have been allowed to reclaim part of the VAT on his jet, the proportion that related to his business rather than private use. If he used it two thirds of the time for business and one third for private flights, he could have reclaimed two thirds of the VAT. Yes, there would have been a bit of wrangling with the tax authorities over which flights were business-related, probably some cross-referencing of flight logs and race schedules, but basically the same business-use principle that all self-employed people are familiar with when HMRC check their expenses.

But at some point some bureaucrat or politician decided that the basic VAT principle of reclaiming VAT on business purchases should be abandoned when it comes to aeroplanes.

Without, it seems, any good reason other than political envy, the EU decided that VAT reclaims would be prohibited for private planes, even when they were legitimately used for business flights, unless they were used solely by an airline.

So that’s how the VAT scheme used by Hamilton and others worked. His advisers set up an airline for him (charter flights count as an airline business, even though the airline’s only customers were Hamilton and his businesses); the aeroplane was imported into the Isle of Man, Hamilton’s company paid the VAT due, and immediately reclaimed it again because the plane was to be used by his charter airline company. There was a bit more complication, but that’s the fundamentals.

Now, did Hamilton do anything wrong here?

There certainly wasn’t anything illegal; everyone agrees that the law was followed to the letter.

But it’s also difficult to say that he “should” have paid that VAT and “should” not have been able to reclaim it. The jet was being used primarily for legitimate business reasons, and the basis of VAT is that businesses “should” be able to reclaim VAT on their business purchases.

Yes, Hamilton does, according to the leaked documents, also use the plane partly for his own private non-business flights. But what the outraged BBC journalists don’t mention is that he will have to pay his charter company for those flights, at the proper price, and that will be taxable income of the charter company, subject to tax in the ordinary way.

So what is the problem? Why is there outrage, other than envy at the rich and successful and a desire for the government to grab ever more money? Yes, an artificial scheme has been entered into, but only because the EU first put an artificial restriction on the business VAT reclaim.

One technicality has cancelled out another technicality, the law has been obeyed, and VAT has been paid and refunded as it was designed to.

This is essentially the same as the “flat tax” argument that I have been making in Adam Smith Institute reports for years. Rather than over-complicate the tax system, with hugely bureaucratic and interfering rules where some types of income get tax breaks and some don’t, and some types of expenditure get special tax allowances but others are penalised, let us just treat everything the same, have an easy system and keep the rates as low as possible.

It would have been far better to have a simple system where VAT just does what it is supposed to, without trying to use tax for social engineering. It would also show that the UK is open to business rather than merely trying to extract every last pound of tax.

A feast of classical liberal thought: Mont Pelerin Society in Stockholm

[This post was originally written by Edwin van de Haar on Notes on Liberty.]

Last week, Stockholm hosted a special meeting of the Mont Pelerin Society (MPS) on the populist threats to the free society. MPS meetings are held under Chatham House rules, which means I cannot report in any detail about the proceedings. Yet a few impressions can be shared.

I have been a MPS member since 2010, when my nomination was accepted at the end of the general meeting in Sydney. In those days the old rules still applied, which meant you had to attend three meetings before you could be nominated for membership. However, this strict rule led to the erosion of the membership base (the MPS was literally starving out), so the rules to join as a member have been made easier.

My first MPS meeting was in Guatemala City, in 2006. I had participated in the essay contest for young scholars which is always organized in the run-up to the bi-annual General Meetings. As a runner-up I won free entry to the meeting. I happened to be in the south of the USA in the weeks before, doing PhD research at the Mises Institute in Alabama, so could easily make the trip to Central America. Because I lived in Manila during those years, I could also easily attend the 2008 meeting in Tokyo.

I had are number of reasons for wanting to join the MPS. First of all, the quality of the meetings offer a great chance to listen to and speak with the leading scholars within current classical liberalism. Increasingly multidisciplinary (back in the old days the economists dominated), the programme committees of the MPS Meetings always succeed in attracting an impressive crowd of high quality speakers and commentators from across the globe. I always find this a great intellectual treat. Second, the meetings are characterized by extremely pleasant and open atmospheres. Everybody mingles with everybody, you can talk with everybody, no matter your age, or academic background. Thirdly, the meetings take place across the globe, so they offer a great opportunity to travel and see places. Although it must be added that even when you do not stay at the conference hotel, the meetings are never very cheap, so it remains an investment. Fourth, for a Hayekian like myself, it feels very good to be a member of the society founded by the master himself, which had and has such an illustrious membership, ever since its beginnings 70 years ago.

Besides the big one week General Meetings held every two years, there are shorter regional or special meetings in the other years. Last week’s MPS meeting in Stockholm was a special meeting, very well-organized by the Ratio Institute. The theme was discussed from numerous angles, through sessions on Russia’s foreign policy, the economic issue of secular stagnation, or the danger of political Islamism. Two sessions were focused on new classical liberal ideas to counter the threats. At the opening day there was a session for young scholars to present papers. This was of course also a way to attract new talent and interest in the MPS. And at the end of the second day there was something different: beer tasting while listening to Johan Norberg. A rather splendid combination!

The speakers and commentators were high level, including MPS chair Peter Boettke (George Mason), David Schmidtz (Arizona), Deirdre McCloskey (Illinois), John Tomasi (Brown), Leszek Balcerowic (former president of Poland’s Central Bank), Russia specialist Anders Aslund, German thinker Karen Horn, Jacob Levy (McGill), Mark Pennington (Kings College London), Paul Cliteur (Leiden), Amigai Magen (Hoover Institution), and the energetic Ralf Bader (Oxford). A lineup like this guarantees a number of new insights, solid arguments, and general intellectual stimulus. Many answers were provided, yet in true academic fashion, many questions remain.

While well represented in this program, International Relations are normally a minor topic at MPS meetings, and there are not many IR scholars around (nor are sociologists or legal scholars, by the way). Personally I am convinced that the future appeal of classical liberal thought also relies on taking into account world affairs. So there is a need to keep on writing and publishing about it, to expand the basis for thought, also in the MPS. To hear about the concerns and insights of other classical liberals in other disciplines helps my thought process, besides remaining up to speed with current classical liberal issues in general.

So it was a great meeting again, And for all you young scholars out there: if you are interested make sure to regularly check the MPS website (www.montpelerin.org) to see if there are opportunities to participate in one of the upcoming meetings.

Just think how wondrously we could regulate all markets

That California is moving toward legal recreational pot is excellent news, it’s an advance in human freedom and a reduction in the absurdities of the war on drugs. Yet there’s still something about the process which is turning brains to mush. For they’ve managed to organise matters so that the legal market is going to be more expensive –as much as 50% more perhaps – than the illegal one they hope to replace. That’s not quite how markets do work, greater expense leading to the replacement of lower cost suppliers. No, really, that’s not the human experience.

How they’ve done this is fun, they’ve decided that there could be a huge tax bonanza so they’ve decided to tax at all levels. Growers pay per sq foot of land they use, there’re huge ($100k) costs just to be regulatory compliant, then the state, counties and so on take their share of ever rising excise taxes. At which point cue the standard jokes about dope, dopes, the consumption of by and so on. All of which is most fun but not actually the important point here.

Rather, this is what all markets would look like if we really did allow the bureaucrats to specify all such markets. For note again what they’re doing. We’ve a thriving black market in weed in California, vast acreages under production up in the hills and there’s not been a noted shortage in any ‘ville or ‘burb in living memory. Costs are high as everyone involved risks substantial jail time for being commercially so. Further, there’s no rule of law, property rights are enforced at gun point at best. This is Ayn Rand red in tooth and claw and without even the sensible things which government can and should do to make markets work better.

Add the bureaucracy and we manage to make it worse? We manage to make it, as it is claimed, 50% more expensive? What an advertisement for the joys of all those tax leeches protecting us from ourselves and the vicissitudes of free markets, eh? 

That, fellow liberals (oh yes, we are indeed a liberals, see above about the legalisation decision, we're just from the classical arm of the movement) is the lesson we really should be taking from this. It is undoubtedly true, absolutely so, that government can make our lives better through judicious action. That’s why all societies have had the institution in some form or another. But that is not to say that judicious action insists that government must be doing something.

Rather more often what the government should be doing to make our lives better is simply one less damn fool thing that it does currently. California has an illegal and highly functional cannabis market right now. If we want to make that market legal then all that is needed is for us to proclaim it so. That is, stop government stating it’s illegal. And definitely, definitively, given their performance so far, absolutely forbid them from doing anything else like trying to plan or regulate that very efficiently functioning and extant market.

Better government can and often does mean less government.

How would a planned economy deal with this problem?

Matt Ridley leads us to an interesting question about how a command or planned economy works- or does not work of course.

Forecasting technological change is almost impossibly hard and nobody — yes, nobody — is an expert at it. The only sensible course is to be wary of the initial hype but wary too of the later scepticism.

One of the sillier critiques of free market economies is to look at the conditions for perfect competition, note that perfect information is assumed and thus declare that of course a planned economy is better as we cannot meet the necessary conditions for a market one.   

But, of course, if we don't know then how can we plan? 

Further, as Ridley points out, if we don't know what the new technologies will or can do then how can we plan what to do with them? This accords well with William Baumol's more formal investigations of invention and innovation. The state, planning, can indeed invent as can markets. But innovations are something the planned economy simply cannot handle while they seem to be the very essence of market systems. That is, innovation appears to be an emergent phenomenon from people playing around, as they wish, with those inventions. That playing around being something which a planned system cannot, by definition, do.

It might even be true that the State invented the underlying technologies of the iPhone, as Mazzucato has been saying, but it's still true that no state did nor has built a smartphone.

A harsh childhood, yes, but not exactly caused by relative poverty

We take it as a simple truism that we wish to alleviate poverty. This is why we so support this neoliberal globalisation stuff, these past few decades have seen the greatest reduction in absolute poverty in the history of our species. Yes, we know, we've pointed this out before.

However, what others call poverty is not quite the same thing. Take this for example:

I’m one of those formerly “poor people” vomited up from the gaping class wound at the heart of British society to offer “shocking”, “inspiring” testimony about the adversity they have since transcended. You might find me recounting the day my drunk mum chased me with a knife or see me on television looking very bored as I explain, yet again, that I managed to avoid smoking crack because somebody knocked on the front door as the pipe was being passed to me.

I’m one of structural poverty’s most comforting cultural tropes: the survivor who lived to tell the tale.

Not childhood experiences we'd wish upon anyone to be sure. But it's very difficult indeed to see what they have to do with what is claimed to be the cause:

The overriding emotion anyone should be feeling at news that in excess of a third of British children will soon be growing up in relative poverty is fear. The tidal wave of social problems racing towards all of us because of this unsustainable inequality has the potential to overwhelm society.

Yes, we do know that The Spirit Level blames such things upon inequality. We also know that Chris Snowdon has refuted, entirely, that contention.

But look at this in more detail, this specific example. Relative poverty is less than 60% of median household income (usually after housing costs, which we'll ignore for the moment). That median household income is, close enough, £25,000 a year in Britain.

So, the contention is that households with lower than £15,000 a year encourage knife wielding among drunken mothers. That £16,000 a year stops crack cocaine taking - or perhaps it increases door knocking, the point isn't quite made clear. These aren't contentions which accord with reality.

Apologies to those attempting to build this narrative, that inequality is corrosive of the fundamentals of our society, but it's just one of those things which isn't true.

This is making us angry now and you'll not like us when we get angry

Yet another report, yet another paper, insisting that Brexit will do bloodcurdling things to the cost of living in Britain. Based on the same flawed logic that has been abounding recently. The underlying assumption is that we'll be complete idiots and deliberately structure our trade policy so as to make us as poor as the current international rules will allow. Yes, obviously, there is politics involved here and it's not beyond possible that they really will do something that damn stupid but really, it shouldn't be a base assumption now, should it?   

Households face increases of up to £930 in their annual shopping bills if Britain walks away from Brexit talks without a trade deal, according to new research that reveals a disproportionate impact on poorer families and the unemployed.

Meat, vegetables, dairy products, clothing and footwear would be subject to the largest consumer price rises under a “no-deal” scenario, according to a study published in the authoritative National Institute Economic Review, adding to inflationary pressures that have already forced the first interest rate rise in a decade this week.

That study is here.

We have discussed this both here and elsewhere. There are two things that interact here, WTO tariff levels and most favoured nation status. Those tariff levels are the maximum that may be charged to all and any imports from other members of the WTO - pretty much the rest of the world. MFN status says that if we decide to tax ourselves less on what we decide to buy from foreigners - and do not for a moment forget that import tariffs are paid by us, the consumers of the imports - then we must charge to imports from all those WTO members the same rates on the same products. So, say, a zero tariff on imports applies to all imports from everyone. A 1% rate on cars applies to all cars from anywhere.

Thus a report that Brexit will increase living costs by the thick end of a grand a family is either nonsense, for we won't do it, or a very decent warning of what we shouldn't do. For why would we want to raise living costs by a grand a household? Quite, every time this calculation is performed, and it is being done repeatedly, it is just another proof of the basic contention about trade itself, the only rational stance to have is one of unilateral free trade. 

These multiple reports are being used to insist upon the terrible costs of Brexit. Instead we should regard them as warnings about the terrible costs of stupid trade policy. Don't impose import tariffs precisely because, as is being pointed out, they make us poorer.

The latest climate change prediction - sigh

The UN has told us, once again, that we're all going to end up boiling Flipper in the remains of the last ice floe.

When UN climate negotiators meet for summit talks this month, there will be a new figure on the table: 3C.

Until now, global efforts such as the Paris climate agreement have tried to limit global warming to 2C above pre-industrial levels. However, with latest projections pointing to an increase of 3.2C by 2100, these goals seem to be slipping out of reach.

As you know about us around here, we take no real view of the underlying science here - not because we agree or don't (either with it or among ourselves) but because we don't think that's the useful thing to be arguing about. A sufficient head of steam has been built up that they're going to do something so let's discuss instead what to do. All of which means actually understanding what it is that people are telling us when they talk about last ice floes and Flipper etc.

The truth here being that the UN has just said something of no relevance whatsoever to reality.

Their report is here. What they are not saying is that emissions are going to rise sufficiently to create this temperature rise. They are not measuring technological change - the obvious thing which is going to determine what does happen - nor the turnover of capital assets which emit, whether we're on RCP 8.5 (we're not) or RCP 2.6 (probably not as yet at least) etc. 

What they are saying is that governments haven't promised, through their Nationally Determined Contributions, to cut emissions sufficiently to avoid that 3C.

And? 

It isn't going to be governments making pledges in Paris which change the future anyway, is it? It is going to be technological advance and the associated actions of the aggregated 7 billion of us which will. And one lesson to take from that great economic experiment we call the 20th century is that markets and incentives work rather better at determining what does happen than the promises, pledges and predictions of governments when trying to manage an economy. Or even reality. 

As Bjorn Lomborg said near two decades ago - and boy doesn't he still get stick for having been right - in a world where solar power drops in cost by 20% per annum and is still doing so what a politician promises to do to the rest of us is really very small beer indeed.