Try, try and try again
The government’s refusal to make any sense out of its insane taxation policies continues to thwart any chance of meaningful growth in the wider economy.
Not only have they piled an extra £40 plus billion onto “hard working people” (Copyright) they have borrowed an additional £186 billion. What has this achieved? Precisely nothing apart from a worsening situation. For some reason they appear to believe that public spending is NOT an expense. They believe their Mission Led Government can improve things. In all honestly, how could it when it tramples on what Mr.Market and millions of individuals actually want? There can be an argument to help individual sectors but sadly even this is beyond the present incumbents. It would require them to make a value judgement as to which to support and the track record here is soooo abysmal as to beggar belief.
I’d be really interested to know what AI thinks of the way our tax system is working. Nigel Lawson’s excellent book “The view from Number 11” propounds 6 principals, and again I am indebted to Jacob Reese-Mogg for producing an excellent video. These principles should govern/run through ALL taxation.
Number one was to leave people more of their money so they could choose what they want to do with it. There are people who argue that the man in the street wastes his money, but that is his prerogative – it’s HIS or hers – not the States.
Number two was to keep marginal rates low so there are no ridiculous cliff-edges like that at the moment at £100,000. You end up with MORE money in hand if you earn £99,995 than if you earn £100,005. How incredibly stupid is that?
Number three was that tax is to raise money, not promote social policies. As a result, people’s choices should not be distorted by the tax system.
Number four was that there are arguments to incentivise certain sectors using taxes for a short time. The point is you don’t want these incentives to become entrenched, as they then become subject to attempts at avoidance and increasingly complicated legislation. As an example of how badly we have managed this, when I first had to pay tax there were about 5,500 pages of taxation legislation and rules. Now, admittedly quite a few years later, there are over 23,500 and counting. Tax should be simple and understandable, not impenetrably obfuscated. Done properly, these short-term incentives have the capacity to improve the economy.
Number five builds on this – tax should be simple. This to a large extent prevents avoidance but also makes it more acceptable.
Finally number six reiterates that tax is there to raise money to make the state work NOT to promote its social policies.
If only we had kept to these principles we would for sure have been in a much better place than we are.
In fact, we are in an even worse place than we think. £3 trillion of debt? It’s more like £5.5 trillion. Why do I say that? Because no account is being taken of the increasing and on-going pension liabilities of not only the general public but that wonderful agglomeration of people we call the Civil Service. This extra requirement is not – as you might think – paid for by prudently investing the money raised for National Insurance, which is a misnomer if ever there was one. None of that gets put aside. What is raised in tax and borrowing today is spent today on those pensioners. As I’ve written before the National Insurance Fund is going to run out pretty soon and good luck if you are retiring after then.
John Penrose had an excellent podcast on the present situation on CapX where he argued that rather than promising snippets here and there (all costing money we don’t have) or fiddling with the fiscal rules (worsening the overall position) Burnham should be drawing a line and being honest with exactly where we are and what we need to do about it.
If he committed to reducing that debt overall there would be a huge number of benefits starting with better borrowing terms and actual growth within the economy as the “crowding out” of liquidity and cash for investment fell.
I hate to say it but I’m not holding my breath. The reckoning will come, but the mindset here at the moment is fudge things and tax, borrow and spend. It can’t continue for very long but it will go on TOO long to be rescued without real and prolonged pain.
There is another way as I’ve said before. In 2008 the per capita GDP of the UK was 76.5% of the good old USA.15 years later it had dropped to 50%.
The reason is productivity. American productivity has grown 88% in that period. The European equivalent was only 30%. Why? Because the Americans, as they always have, embraced creative destruction and the Europeans went on a "let's not change anything "rampage.
Let's go further. The UK has 50% of their assets tied up in property and only 8% in non-pension fund assets. Compare that with the US where they only have 26% tied up in property and 33% in what might be called earning assets. The UK has double the amount of dead money doing nothing in property and America has FOUR TIMES the dynamic potential for investment. Not hard to understand why they are doing better and that's before you reach the various States that have no income tax. What this difference means is that the Americans have an innate desire NOT to tax and spend, which translates into more money in the hands of the general populace and hence more native investment.
I was struck the other day by how nations rely on a leader - “Cometh the hour, cometh the man” – or woman – and especially in the UK we see these as waves. Just when you think things are finally shot to pieces, something turns up – very Micawberish, but true none the less. I’m thinking of Lloyd George both before and during WW1, Churchill in WW2, Mrs. Thatcher in 1979 (you can argue all you like), and there are more. We are at the point where we desperately need a Milei or at least a copycat. Once again I’m not holding my breath.
Here’s just a tiny nugget to make you realise how utterly insane what is happening is. I’ve mentioned Tobacco Tax before. The latest figures show a further drop in tax take (read: higher levels of illegal tobacco being sold in the UK). Unabashed, there is to be ANOTHER increase in Tobacco Tax in the autumn which we are told will raise a further £80million. As the fall in the last year was of the order of £1 million a WEEK, I think I can confidently predict there is no chance of £80 million more being collected, or even 80p. In fact I’d go so far as to say that the tax collected will fall again for the seventh year running, making crooks and gangsters even more money with the connivance of most of the British public. I told you we were insane.
