The Welfare State We're In, The website of the book by James Bartholomew
November 08, 2010
Monday
Did Channel 4 know what it was doing when it commissioned this film?

A TV programme is coming up on Thursday evening in which I expect I will appear. It is a 90 minute film by Martin Durkin about the huge national debt that has piled up and his solution. He will be arguing against Big Government and he interviewed me about the NHS and about welfare and social housing. Apparently the film also includes interviews with four former Chancellors. I believe he also filmed in Hong Kong.

I wonder if Channel 4 knew what they were in for when they commissioned this film since these kind of arguments - presented at length - are not usually seen on British TV. If the channel knew what it was doing, then all credit to it. Maybe something really is changing in Britain. There was a time when most of the media elite would not contemplate giving airtime to such ideas.

Here is a link to the programme details.

Posted by James Bartholomew • Indexed in Behaviour & Crime • Housing • Media, including BBC bias • NHS • Parenting • Reform • Tax and growth • Welfare benefits

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May 21, 2010
Friday
More on what's wrong with increasing Capital Gains Tax

One of the points about Capital Gains Tax that is well put in the video below is that when one earns money after tax, one has a choice. Either one can spend it straight away, or else one can save it to spend later. There is no good reason why the government should prefer you to spend it straight away. On the contrary, deferred consumption - otherwise known as saving - provides capital which promotes long term economic growth.

Capital gains tax is, in this sense, a tax on deferred consumption. It discriminates againts deferred consumption and in favour of current consumption. It is an anti-saving tax.

That is one reason why Hong Kong, for example, with no capital gains tax has a high savings and capital formation rate whereas Britain does not. This discouragement of saving and investment is, in turn, one of the reasons why the growth rate in Britain is so low.

There is one objection that can be made to this line of logic: namely that a proper capital gains tax only attempts to tax 'real' gains - in other words gains that add to the real value of the savings. That is why for many years, the tax was on the gains after allowing for inflation. The trouble with that system is that it is expensive and complicated both to administer (for the government) and to comply with (for the saver). It is thus a big deterrent to investment. Consequently even the Labour government came to prefer a taper, which is a bit easier, and then just a lower rate (simplest of all). This whole history and logic of what does and does not make sense in capital gains tax is being junked in a rushed political accommodation between the Conseratives and the Liberal Democrats.

Thanks to the IEA blog for bringing my attention to this video.


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May 20, 2010
Thursday
The proposed top Capital Gains Tax rate would be higher than that in China, where the image of the late Chairman Mao, communist, is displayed on the bank notes
...the tax raised will not be as much as is expected. In the long term, as rich people leave Britain, it may even result in a lower tax take. What happens elsewhere? Let us take some of the countries where economic growth has been fastest. The capital gains tax rate in both Hong Kong and Singapore is zero.

Even in China, where the image of the late Chairman Mao, its former communist leader, is prominently placed on bank notes, the rate varies between 10 and 25 per cent. Does anyone really expect the people who are successful, taxpaying and job-creating to hang around in a country with a top rate of 50 per cent?

Even now there are plenty of tax exiles. Take Zug, the province of Switzerland which has particularly low tax rates, where property prices are high because of the influx of British financiers. And the chief executive of HSBC has made his base in Hong Kong. But this will not just affect the financiers. It will affect most of us.

The above is from an article I wrote for the Daily Express.

Postscript: See also this article by Richard Wellings.

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March 25, 2010
Thursday
The Tories need to argue that low taxes matter

Osborne was asked on Radio 5 Live whether he wanted to get rid of the new 5% stamp duty on homes sold for more than £1m. He treated this question as though he were a bomb disposal expert and this was a particularly dangerous explosive. He replied that his priority was to reduce the burden on the less well-off - I think he picked out the rise in National Insurance. He clearly did not want to appear to be anything so terrible as a defender of the rich.

This is the way the Tory party has now allowed itself to be boxed in. It has implicitly accepted the way of thinking of Labour, Liberal Democrats, the BBC and so on. It has given up promoting its own ideology. Margaret Thatcher, when she was Tory leader, might have also replied that the priority was to take taxes off the poor. But she would also have been keen to go on to say that the overall level of taxation on everyone - rich and poor - was far too high and that it was damaging to employment and economic growth. She would have lambasted socialists for thinking that taxing and spending were the way out of every problem whereas she believed in low taxes, free enterprise and thus economic growth.

One day the Tory party will have to start saying these things again, otherwise it is starting the argument with an arm behind its back.

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June 01, 2009
Monday
Suggested questions for Messrs Humphrys and Naughtie

Those who find the constant drip of anti-capitalism from most of the presenters on the BBC Radio 4 'Today programme' aggravating now have a more bearable alternative: Radio 5 Live, despite also coming from the BBC, generally has more open-minded presenters. Nicky Campbell is certainly not anti-capitalist and is able to ask questions which seem wholly beyond John Humphrys and Jim Naughtie on the Today Programme. True, there is a certain Left-wing bias to the questions of a chap called Bacon, but he is not usually around in the morning, I think.

Despite all the evidence, I still hope that one day the Today Programme might reform. In case the producers finally decide that the interviewers should sometimes ask questions from a free market viewpoint instead of always a Left-of-centre one, I offer some suggestions:

TO BE PUT OVER THE MIRRORS OF JOHN HUMPHRYS AND JIM NAUGHTIE

"Wouldn't this problem best be left to the market?"

"Government service + monopoly = bureaucracy + bad service + rationing. Which part of that do you disagree with, minister?"

"Since this government service has done so badly, does it make sense to throw more taxpayer's money at it?"

"Is it responsible to raise taxes when you know - or should know - that all taxes have bad unintended consequences?"

"We know what all this extra public spending will lead to don't we, minister: more waste of taxpayer's money, more index-linked pensions and early retirements, less productivity..."

"The government already taxes people whom it defines as being 'in poverty'. Is it morally right to add to those taxes?"

And here is a long one, especially for Jim:

"Since the government already taxes poor, elderly people, any further spending by government has to face a severe test: it has got to be more worthwhile than reducing the taxation of the poor. Your idea [for letting off fireworks/keeping an out-of-date car factory going etc etc] does not pass this test, does it minister?"

Further suggestions welcome.

Posted by James Bartholomew • Indexed in Media, including BBC bias • Tax and growth • Waste in public services

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The parable of the broken window - one of the most superb arguments ever made

I visited Dartmouth College in New Hampshire recently to give a talk about The Welfare State We're In. I was told by the professor of economics who invited me that he had told his students that my book illustrated one of the theories of Bastiat. I was painfully aware that my education had not actually included Frederic Bastiat. So I thought I had better quickly gather up an idea of what he said. Naturally I googled him and found the Wikipedia entry. This led me onto a Wikipedia entry specifically on his 'parable of the broken window'. I don't think this one relates to my book but it is a superb bit of argument. This section of the entry reproduces Bastiat's own words:

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

The Wikipedia entry continues:

Fallacy of the argument

The fallacy of the onlookers' argument is that they considered only the benefits of purchasing a new window, but they ignored the cost to the shopkeeper. As the shopkeeper was forced to spend his money on a new window, he could not spend it on something else. For example, the shopkeeper might have preferred to spend the money on bread and shoes for himself (thus enriching the baker and cobbler), but now cannot because he must fix his window.

Thus, the child did not bring any net benefit to the town. Instead, he made the town poorer by at least the value of one window, if not more. His actions benefited the glazier, but at the expense not only of the shopkeeper, but the baker and cobbler as well.

Excellent. It is an argument worth remembering next time someone suggests that spending money on public works is, of itself, good for the economy. (Yes, someone is employed. But taxes are taken sooner or later from someone else to pay him. That someone else would otherwise have used the money to buy something else from a third party.)

It really is a pity they don't teach Bastiat in British schools. Then Gordon Brown might have read him. But then Gordon Brown thinks he can spend your money better than you can.

There are plenty of books on Bastiat. Here is one published by the Institute of Economic Affairs.

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November 18, 2008
Tuesday
The spirit of Thatcherism lives on

David Cameron's speech this morning was the most encouraging thing I have heard from the Conservative Party in a long time. He said that a public spending splurge now would result in higher taxes later. He noted that Japan had tried increases in public spending to get them out of a long economic malaise during the 1990s. It certainly did not work. The economy grew at less than one per cent a year.

He noted that already Britain could only borrow at a premium rate compared to other countries. If the government tried to borrow even more than it has already, we would find it even more difficult to borrow and at higher interest rates. We could damage confidence and thus damage investment. In such ways, extra spending could actually reduce economic growth rather than increasing it.

He emphasised his long-established policy of keeping the growth in government spending over the cycle below the growth of the economy, thus gradually reducing the debt and the tax rates of Britain and creating a more prosperous society.

It was a speech so sound that it could have come from the days of Margaret Thatcher. Rejoice!

...and here is an article by George Osborne which was similarly welcome.

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June 25, 2008
Wednesday
Taxing the rich more could easily bring in less money

Last night I was a speaker in an Intelligence Squared debate on the motion "Tax the rich (more)". It can be heard on the Spectator magazine website here.

I, of course, was against the motion. Our side won easily and gained many more of the 'don't knows' than the other side. Our case was given great assistance by the data. According to a detailed study by the Institute for Fiscal Studies earlier this year, if you taxed the rich more, there is a good chance that you would reduce the proportion of tax revenue which they pay. It was pretty difficult for the pro-tax side to argue with that. Polly Toynbee chose to ignore the point entirely in her speech and then later said "It's just not true!" without supplying any evidence.

The background to the paradoxical fact that taxing the rich less, induces them to pay more money is the simple history of the past 30 years. In 1978/79 when the top tax rate was 83%, the richest one per cent of the population contributed 11% of the income tax paid. The top rate was then reduced to 60% in the following year. The investment income surcharge of 15% was abolished in 1984 and then the top tax rate was brought down to 40% in, if I remember rightly, 1988/89.

The innocent would have assumed that this would lead to a massive reducation in tax contributed by the rich. In fact, by 2001/02, the contribution of the richest had doubled - yes, doubled - to 22%. If you were to increase the tax rates on the rich, all the evidence suggests you would be in great danger or reversing this benign process.

Kelvin MacKenzie gave by far the most outrageous and amusing speech which made the evening entertaining as well as interesting.

ADDED LATER

In my speech I referred to a study published by the Institute for Fiscal Studies. This suggested that the marginal rate at which the richest one per cent are taxed is currently 53% (this includes indirect taxes). It further suggested that the rate at which the treasury could extract the largest amount from these people was 56.6% or 40% or 49% depending on different ways of analysing the data. The paper commented on the latter two estimates, "...both these estimates imply that cuts in the Marginal Effective Tax Rate facing the richest 1% would actually increase revenues".

The paper can be accessed on the IFS website at http://www.ifs.org.uk/mirrleesreview/press_docs/rates.pdf .

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January 23, 2007
Tuesday
We shall tax on the beaches...

With the news that many more people will be liable for inheritance tax than previously and more people are now paying the top rate of income tax, I enjoyed Richard Littlejohn's take on it in the Daily Mail:

Gordon Brown has been comparing himself to Churchill (as well as Gandhi).


I look forward to his first prime ministerial broadcast. "We shall tax on the beaches, tax on the landing grounds, we shall tax in the fields and in the streets.

"Never in the field of human taxation, has so much been owed by so many.

"I have nothing to offer but tax, tax and more tax."

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December 20, 2006
Wednesday
As Cameron gives up on the tax issue, it is becoming more important

The Cameron leadership of the Conservative Party has given up on the tax argument at a time when it is getting increasingly strong and important.

This from today's Daily Telegraph:

Britain's ballooning public sector will grow bigger than Germany's next year for the first time since the early 1970s.

The Organisation for Economic Co-operation and Development figures show public spending in the UK will overtake that of Germany in 2007. The crossover will be seen as the latest stage in Britain's transformation under Gordon Brown into a big government economy.

The OECD says state spending will hit 45.3pc of gross domestic product next year, compared with 45.1pc in Germany. The proportion of the economy accounted for by the Government has risen dramatically under Labour, from a low of 37.5pc of GDP in 2000. The gap will be wider in 2008 since Germany is reducing its public spending.

Britain's public spending remains far above that of other major economies including the US, where it will be 36.9pc of GDP next year, and Japan, where it will be 36.2pc. But it is far below France's state expenditure, which will be 53.5pc.

Corin Taylor, head of research at the TaxPayers' Alliance, said: "The OECD has given warning that Britain's rising tax burden and high public spending is out of step with international practice. Britain's economy will feel the pinch with businesses and jobs going overseas. The prudent course would be to get a grip on public spending and cut taxes now."

Peter Spencer, economic adviser to the Ernst & Young Item Club, said: "With public expenditure heading towards 45pc of GDP, the real worry is that a lot of that money is actually borrowing."

The OECD figures show the rise in the UK's tax burden over the next two years will be the fourth-biggest in the Western world.

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June 06, 2006
Tuesday
The 80 tax rises under Labour

Here is the list, as published in the Mail.

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June 02, 2006
Friday
Bring back 1966! We didn't just win the world cup, we paid less tax, too.


When Geoff Hurst scored the final, sensational goal in the 1966 world cup final, it felt great. But what made that year even better was that we were paying a great deal less tax than we are now.

One way of putting it is to say that, in 1966, people worked up until May 2nd to pay their tax and from then on, they worked for their own benefit. On the day when Nobby Stiles and Martin Peters exhausted themselves in pursuit of glory, every taxpayer had already enjoyed a long period of earning money for themselves and their families.

How things have changed. The world cup is nearly upon us and still we have not reached what has been christened 'Tax Freedom Day'. It will not come until tomorrow [saturday] according to the Adam Smith Institute, which works it out each year. That is more than a month later than it was 40 years ago.

Despite the rise in taxation, yesterday George Osborne, the Conservative Shadow Chancellor of the Exchequer, announced that at the time of the next election, Tory promises of tax cuts are "very unlikely to be on offer". He emphasised 'stability' and, though he talked of going in the 'direction' of tax reductions, it sounded about as determined as Tracey Temple's resistance to John Prescott.

Mr Osborne has meekly accepted the way in which Gordon Brown has increased taxation and now appears to think it is not such a bad thing. Astonishingly, he has moved Tory policy so far on this that he now finds even some people in the Labour party take a tougher line than he does.


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May 09, 2006
Tuesday
Ruth Kelly's 'social justice' and taxing more pensioners

Ruth Kelly was on the Today programme this morning and asserted that, under Labour, social justice had advanced. How does Ruth Kelly define 'social justice'? How does she measure it? The concept seems extremely vague. Does it mean giving more to the poor and taking more from the rich? So is the ultimate social justice when everyone has the same wealth? And does that not go by another name: communism? Has the concept of communism not been totally discredited by the vast and disastrous experiments in it during the 20th century?

It leads one to suspect that the phrase 'social justice' is a eumphemism for socialism or communism. And if it is not that, what is it?

Is it 'social justice' that:

The number of pensioners paying income tax has risen by 1.2 million under Labour, official figures reveal.

When Tony Blair entered No 10 in 1997 3.9 million men over 65 and women over 60 were in the tax net.

That figure has risen by a third to a record 5.1 million - nearly half the 11.1 Britons over state pension age, according to Government figures for the current tax year.

And later,

The Treasury put the rise down to the ageing population last night.

But the number of old age pensioners has only gone by 400,000 since 1997.

The above is from the Daily Mail.

Is the taxation of more old age pensioners a reflection of the greater 'social justice' in modern Britain? It remains the case, as I described in The Welfare State We're In, that the government defines a considerable number of people in this country as being in 'poverty'. It then taxes them. Many of these are pensioners. Rather more of them are now pensioners after Labour's rule. (I was glad to see the Tory spokesman Philip Hammond also making the point yesterday that the government taxes pensioners it defines as being in poverty.)

Incidentally, the Daily Mail is probably the most despised newspaper among the urban elite. But it keeps on picking up stories like this which tell us a great deal. It would be good to see some part of the BBC take this story on. The Today programme, for example.

Posted by James Bartholomew • Indexed in Media, including BBC bias • Pensions • Tax and growth

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May 04, 2006
Thursday
The 'pauperisation' of the elderly
A parliamentary answer published by the Government yesterday revealed that between 44 per cent and 51 per cent of pensioner households were eligible for the top-up credit in 2003-4.

That is from the Daily Mail today, reporting the answer to a question posed by Lord Oakeshott (who is very active on pension issues). The Mail also stated, though the source is not so clear: "Government figures show that only around 60 per cent of pensioners eligible for means-tested benefits receive them and some refuse to claim."

It is a double scandal. The first scandal is that a country whose wealth has multiplied over the past century has been so incompetent that nearly half its elderly are, to use the Victorian word, 'paupers' - that is in receipt of special handouts because they are so poor.

The second scandal is that the government should have chosen to give them money in a form which, it knows, many of them will not get. It seems from the above that 40 per cent is the figure. They have to fill in forms. Naturally the ones who are oldest, weakest, least able and perhaps poorest, too, will be the ones who are likely not to manage to fill in these forms. So the government knowingly runs a system which disadvantages the frailest members of society. It is obscene.

A third scandal is that the government also taxes many of these frail, old, poor people who do not manage to fill in these forms. It is true that there is a bigger personal tax allowance for older people. But elderly people can still be taxed when, according to the government's own ideas, they are in 'poverty'. I am referring here to income tax. But of course elderly people also face, disproportionately, council tax. They, like all of us, regularly pay VAT, too and fuel duty and so on. Then the government condescends to give them a little back. Only it doesn't because the process is too difficult for many of the elderly.

The full Daily Mail article does not appear to be online. But here is a previous article on the take-up of means-tested benefits by 'senior citizens'.

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March 23, 2006
Thursday
Not according to plan
During the past five years, there has been a major deterioration in our financial position. We were running a remarkable financial surplus of 1.6 per cent of gross domestic product in 2000/01. Now, in the current year, the budget has descended into a deficit of three per cent.

Economic growth rolled along at a pretty good rate in the earlier years of Mr Brown's stewardship, but in the current year it has declined to only 1.75 per cent. Government spending has risen to more than 42 per cent of GDP and is now at or near the point where rising government expenditure will overtake the falling government expenditure of Germany. After years of falling unemployment, the jobless total is now rising.

It is not quite a crisis, but the numbers that - for the first half of Mr Brown's term - went well, have turned nasty. What is more, Mr Brown did not see any of this coming.


This is from the Daily Telegraph editorial today, to which I contributed.

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March 10, 2006
Friday
Waddeson Manor used to have 114 staff

Yesterday the government said it was not going to meet its targets for 'reducing child poverty'. I was asked onto the Jeremy Vine show on Radio 2 to debate with a Scottish MSP whether it was genuinely the case that real poverty still exists in Britain.

As is well known, the current definition of 'poverty' in Britain is a relative one, not an absolute one. People are said to be in poverty if they have less than 60 per cent of average income. If Bill Gates became a British citizen, average income would rise and therefore more people would have incomes below 60 per cent of the increased average. Therefore it would be said, by this government, that poverty had increased because Bill Gates had become a citizen.

This is clearly ridiculous. For a fuller discussion of this, see the afterword in 'The Welfare State We're In' on "Why do people talk more about 'poverty' now that there is less of it?"

But on this matter of differentials of income, my suspicion is that there is a natural tendency, as a capitalist economies grow, for a reduction of differentials. I suspect this happens even without re-distributive taxation.

Think of the enormous numbers of servants the very rich could afford in centuries gone by. Going back only as far as the late 19th century:

In 1891 Waddeson [Manor - owned by the members of the Rothschild family] had an indoor staff of 24 , with a further 24 coming in to work and at least 66 gardeners.

(This is from Waddesdon's 'Diary 2006' advertising events for this year.)

In other words, this one household had 114 employees. Compare this with the number of personal or household staff that someone like Richard Branson, Alan Sugar or even the Duke of Westminster has. I have little doubt that they have far fewer. And there were plenty of similar grand houses that existed in the late 19th century, many of which have been destroyed or turned into hotels or made into National Trust and other houses that people visit.

The large number of servants whom the rich could employ in former centuries reflected the enormous gulf between the wealth of the rich and that of the rest. It was surely far more dramatic than now.

Further evidence comes from the luxury in which the rich in developing countries often live. When I was in the Philippines in the early 1980s, I remember a chauffeur-driven Mercedes was sent to collect me when I went to have supper at the home of rich person. It is, I think, typically the case that the contrasts in developing countries are very dramatic. At the same time, it was said of Hong Kong that it had the highest number of Rolls Royces per capita of any country in the world (probably excluding Brunei, I suppose, where the Sultan had an astonishing number of them).

But then, as capitalist economies mature, the contrasts in wealth appear to become less extreme. You could argue that this is because of re-distributive taxation. It would be hard to disentangle the two possible causes. I wonder now whether Hong Kong, as somewhere which continues to have low taxation, has lower differences in wealth than it used to? If so, that would support my contention. If not...

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February 27, 2006
Monday
Low tax and free trade created western civilisation?

At a lesson on Ancient Greece last week, Professor Robin Osborne was asked what were the main economic activities of the country in around the 5th century B.C. He mentioned silver mining and, of course, agriculture. But he also said that Greece was a trade centre and that there was a tax on imports and exports of only two per cent.

I wondered whether Greece, the foundation of European civilisation, was created by wealth resulting from relatively free trade and low taxation. He resisted the idea and mentioned the importance of good ship and cargo insurance systems for trade. But at the same time, he agreed he did not know what were the import and export tax rates in Spain or Egypt, for example.

He suggested that Greece was in a geographically advantageous position for trade. But I would have thought the same could be said for a number of other places, such as Malta and Sicily.

It is an intriguing thought: low taxationa and perhaps other circumstances favouring capitalist activity as the foundations of modern western civilisation.

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January 16, 2006
Monday
Britain deteriorates as Germany recovers

Bank of America calculates that Britain's taxes will hit 42.4 per cent of GDP this year which will take it above the level in Germany for the first time in recent history.

Germany is expected to get down to 42.1 per cent. This is a big improvement of the 46.4 per cent in 1999.

Britain, meanwhile has deteriorated from only 40.4 per cent in 1999. This is reported in the Daily Mail today. (I have found no link to the article, unfortunately.)

It looks as though we are swinging back to a position in which we will underperform Germany again. That is what we did after the war, after British Governments opted for more and more socialism. Then came Thatcher and our economic potential improved dramatically. Now we are slipping back again. The British economy's performance over the past seven years was riding on the back of previous reforms together with unsustainable increases in personal and government debt. The party is now over.

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September 13, 2005
Tuesday
Could this be the 2000 petrol crisis all over again?

Queues at petrol stations have started to appear. Hauliers are planning to blockade supplies, to stop Dover operating and to create a go-slow on the M4. The cost of a petrol is rising towards a £1 and we are thinking twice about whether we should make longer journeys because the cost of the petrol is beginning to hurt.

It may sound familiar. Is this going to be the petrol crisis of 2000 all over again?

At first blush, a great deal is different. Everyone accepts that the main driver for the soaring price of petrol this time is the rise in the international oil price, which has practically doubled compared to a year ago.

That is a change from five years ago when Gordon Brown got the lion's share of the blame because he was deliberatedly ratcheting up the tax on petrol each year. Since that is not the case now, support for proposed blockades appears to be weaker now. It also means that the hauliers they may not manage to cause such great disruption.

But people are losing money - not just hauliers but nurses on modest salaries driving to work in country hospitals and the self-employed travelling around as part of their business. It would be provoking to us all if the Chancellor just carries on complacently as though all this were nothing to do with him. Though he does not want us to realise it, he is caught at the centre of this problem.

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August 31, 2005
Wednesday
The tax system that Gordon Brown does not want you to know about

If you tell a teenage girl that she may go anywhere she likes tonight except, say, the Blue Casablanca Club, you will immediately fascinate her. What, she will wonder, is so bad about the Blue Casablanca? What goes on there? Is it naughty but thrilling?

That is the effect the Treasury has had by blacking out the arguments for and against a radically different way of raising tax. The Treasury wrote a paper which was released under the Freedom of Information Act. But where there should have been a discussion about the merits of a 'Flat Tax', the text was missing. Nothing could have been better designed to intrigue us. What is the Treasury trying to stop us from considering? Is this, too, wild but exciting?

Apparently Gordon Brown himself did not do the censoring. But of course his officials know that a flat tax is the very opposite of his approach. A flat tax might even provide a solution to the problems he has created.

So what is it?

A flat tax is a single rate of income tax that applies to everybody. Typically the tax rate in countries where it has so far been tried has been between 16 and 26 per cent. A rate of 22 per cent has been suggested for Britain. A vital part of what could make it attractive is that it comes with a vastly bigger tax free allowance. In Britain, people start paying tax on any income over £4,895. With a flat tax, it has been proposed that the tax free allowance should leap to £10,000 or even £12,000. Another key aspect is that all sorts of tax allowances and deductions would be abolished. This would be a dramatically simpler system.

The idea has suddenly become fashionable, sweeping across Eastern Europe and beyond.

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June 25, 2005
Saturday
One part of Gordon Brown's incompetence

Gordon Brown's poor record as chancellor is gradually becoming more obvious.

This week, more light fell on his bad policy of tax credits. But first a quick summary of the bad policies he has pursued:

1. He has raised tax heavily to pay for investment in a monopolistic healthcare system (adding to the problem by fighting any attempt to make it less monopolistic). The result: the country will be poorer than it would have been and people less well cared for when ill.

2. He took a pension system which was amongst the most successful and well provided for in Europe and has put it in crisis. Result: more people will be poor in old age.

3. He has increased the prevalence of means testing - with all its disadvantages (see The Welfare State We're In and previous postings. One of the results: reduced savings (which will, again, cause more people to be poor in old age).

4. He has dramatically increased red tape, waste and errors through complicated systems - such as tax credits - instead of using much simpler methods (such as higher thresholds for tax-free income). By wasting public money, he has made us poorer. Through red tape he has cost us money again and wasted our time.

Here is some of the coverage of the problems Mr Brown created through tax credits:


Hundreds of thousands of families have suffered because of flaws in Gordon Brown's £13 billion system of tax credits, a watchdog says today.

Ann Abraham, the Parliamentary and Health Service Ombudsman, says poor families are particularly vulnerable because of the way they have been forced to pay back money given to them in error.


Posted by James Bartholomew • Indexed in Reform • Tax and growth • Waste in public services • Welfare benefits

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June 20, 2005
Monday
Watch out, the government intends to tax your property.

If you own property, the government is on your tail. The idea of increasing taxes on property has been building up for several years. Now the election is out of the way - and there is a big government budget deficit to fix - it won't be long now.

Posted by James Bartholomew • Indexed in Housing • Tax and growth

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May 24, 2005
Tuesday
Being a middle class Briton is not as good as it used to be

There used to be a time when being middle class meant you had worked hard and done well. You established your financial independence and achieved what Tony Blair would like more of : some respect.

But now it seems to be a different matter. The middle class seems more and more put upon.

The latest example comes from the government commission on pensions which has come up with the bright idea that people who go to university - typically from the middle class - should have a later retirement age than everyone else. They would be expected to work an extra five years before getting a state pension. Meanwhile the government has announced a new scheme to use taxpayers' money - raised largely from the middle class, of course - for the state to part-own properties alongside first-time buyers.

Being middle class is still preferable, of course, to being poor. But one has an increasing sense of life becoming more difficult for its members. It starts from early in life.

Posted by James Bartholomew • Indexed in General • Tax and growth

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May 14, 2005
Saturday
Do mothers work so hard partly because of the tax system?

A lot of women now work incredibly hard. The interesting question is whether this has something to do with policy changes made by governments.

Posted by James Bartholomew • Indexed in Parenting • Tax and growth

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April 23, 2005
Saturday
Mr Brown taxes the poor (another angle)

How much have the poor been taxed under Gordon Brown (see also posting below)? He portrays himself as a great friend to the poor and has created complicated tax credits to help them. How big has that help been?

I have just been directed to some figures published by Reform which were based on the Government's publication, Economic Trends.

In 1997/98, those people in the bottom income quintile had a very susbstantial 39.2 per cent of their income removed in tax. But after five years of the generosity of Mr Brown, in 2002/03, how much was removed? 39.0 per cent. So the poorest gained 0.2 per cent of their incomes. That was less than the average gain of the other four quintiles.

Posted by James Bartholomew • Indexed in Tax and growth

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April 22, 2005
Friday
Mr Brown taxes more of the poor

An extra half million people will be liable to income tax as a result of Mr Brown's budget last month (according to Revenue and Customs estimates reported in the Daily Mail). That is because, as usual, Mr Brown did not increase the tax-free personal allowance with earnings.

During his time in office, the numbers liable to income tax will have jumped by 4.7 million. In the final year of the Tories, 25.7 million were liable to income tax. Next year, 30.5 million are expected to be liable according to the government.

Mr Brown talks about the poor and talks up his tax credits. It is true that many of the people who are liable to income tax will claim tax credits, but not all - either because they are not entitled to them or they fail to claim them. It is simple fact that Mr Brown has made millions more poor people liable to income tax.

Posted by James Bartholomew • Indexed in Tax and growth

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April 20, 2005
Wednesday
The coming hike in National Insurance that is deliberately omitted from Labour's election manifesto

As Gordon Brown has remarked, it is impossible to believe a word that Mr Blair says. He is going into this election with the knowledge that he will raise National Insurance, or other taxes, afterwards. But he won't admit it.

This is from the BBC online coverage of tonight's interview with Mr Blair by Jeremy Paxman:

...he was not about to confess to having misled voters about his intentions on taxation at the last election.

Four years ago, in a similar interview, he had rejected Mr Paxman's suggestion that it was clear from all he had said that he would raise National Insurance contributions if he was re-elected. (Which is what happened. JB)

There is another well-rehearsed answer to this one - he was only led to increase NICs after a post-election report indicated such levels of extra spending were necessary for the health service. (Surely nobody believes that.JB)

So couldn't he do the same again, if he wins a third time, when, for example, the Turner report into the pensions black hole is delivered.

He was not about to be drawn into mapping out budgets at this point, he declared.

Posted by James Bartholomew • Indexed in Politics • Tax and growth

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The day in the year on which you stop paying tax

From the Adam Smith Institute

TAX FREEDOM DAY HAS COME. Well, at least in the United States, where it occurred last week. Thanks to the Bush tax cuts, Tax Freedom Day this year was 18 days earlier than it was in 2000, under Clinton.

Posted by James Bartholomew • Indexed in Tax and growth

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April 01, 2005
Friday
How much better off would we be if Gordon Brown had never existed?

The Institute of Fiscal Studies has now established that average incomes fell in 2003/04 because Gordon Brown took so much more of our money in income tax and national insurance. We obtained higher salaries, but Gordon Brown more than wiped out the benefit.

Gordon Brown did not only increase our taxes in that one year of 2003/04. He has increased our taxes in most of the years he has been in office. They have been slipped in so that they don't get noticed on budget day.

Where would we be if Gordon Brown had never existed? Let us just imagine for a moment that Labour did not come to power in 1997 or, at least, that Labour kept to what Tony Blair told the Financial Times that year: "we have no plans to increase taxes". How much better off would we, as individuals, be if Gordon Brown had kept to that?

Posted by James Bartholomew • Indexed in Tax and growth

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March 22, 2005
Tuesday
What Patten did to Hong Kong

Lunch with a senior official of the Hong Kong government. Hong Kong still has a relatively low burden of government, but the weight has got a lot heavier since John Cowperthwaite's day. (Cowperthwaite is the hero of the chapter on tax and growth in The Welfare State We're In). Whereas government activity used to account for 14 per cent of gross national product. It is now up to 22 per cent. Of course, that is still miles better than our 40 per cent and rising.

The official admitted that the big rises in spending happened in 1993-1996, when Chris Patten, the Conservative politician, was there. Mr Patten played a strong political game in Hong Kong. But he was, of course, a British centrist. Under him, Hong Kong welfare state spending rose. It comes as no surprise that unemployment after Patten has been higher than it was before he arrived.

Posted by James Bartholomew • Indexed in NHS • Tax and growth • Welfare benefits • Welfare benefits

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March 19, 2005
Saturday
And another thing about Mr Brown

Gordon Brown claimed in the budget that he was going to cut back the regulatory burden on business. I have visited two small businesses that were infuriated by the mound of extra work created by his tax credits. The idea of Mr Brown genuinely cutting any kind of burden of paperwork is grotesquely absurd. In Thursday's Daily Mail, Edward Heathcoat Amory did a superb job of demonstrating why Mr Brown is the last person to be believed when he claims he is going to do any cutting of regulation, waste or excessive paperwork.

This, after all, is the same Mr Brown who last year publiched the longest Finance Act ...in history, with 328 section and 42 schedules.

This is the same Mr Brown whose tax credits system has become a byword for complexity. His new pension credit....expects claimants, the elderly and the poor, to wade through a 16-page claim form and 18 pages of impenetrable notes.

This Mr Brown has also been a key member of the Labour government which has imposed a total extra regulatory cost on business, measured by the British Chamber of Commerce using the Government's own figures, of £40 billion since 1997.

That involved 23,222 new regulations - 15 for every working day.

...This is the Mr Brown whose ministerial colleagues have insisted that every horse in Britain must have a passport, that anyone wishing to replace a window must become a member of the Fensa (the Fenestration Self-Asessment Scheme), who won't let you change a light fitting in your kitchen without permission from the council.

Now they claim to want to cut regulation. This has something of a familiar ring to it. In 1997, Mr Blair set up a Better Regulation Task Force. In 1998, Mr Brown launched a Better Regulation Guide. In 1999, the Government passed a Regulatory Reform Bill.

Along the way since then, we've have red tape czars, check lists, action plans, panels and reviews. None of them has made the slightest difference.

Nor do the specific proposals in the Budget inspire any confidence at all. First of all, in a move typical of New Labour, the Government plans to set up two more new quangos, a Better Regulation Executive and a Better Regulation Commission, both within the Cabinet Office.

There they will join the Strategy Unit, the Delivery Unit and the Office of Public Services Reform, all created by the Prime Minister, all providing jobs for expensive civil servants.

I would like to offer a link to the full article but sadly I have not been able to track it down on the Mail website.

Posted by James Bartholomew • Indexed in Tax and growth

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March 17, 2005
Thursday
The most overrated Chancellor of modern times

I made a return visit to Canary Wharf on Wednesday after being asked to write a leader on the budget for the Daily Telegraph. An editorial is, of course, the view of a newspaper, not of the individual who has written it. Nevertheless, I agree with it. In doing the research, I was struck most of all by the figure for the current income tax allowance in Poland. Unlike the British government, the Polish does not seem to believe in taxing the poor. The leader is here.

What astonished me yesterday - and again today - is the respect in which Gordon Brown is held. The Daily Mail, a newspaper I generally admire, is against the Labour Party yet still is in thrall to Mr Brown. The leader in it yesterday called him "awesome" while at the same time being highly critical of the statist society he stands for. Very curious. Meanwhile the poll in today's Telegraph show that Mr Brown is widely respected and admired among the populace. Yet this is the man who, in 1993, said he wanted to end means-testing for the elderly and has proceeded to make half the pensioner population entitled to means-testing. He has undermined saving, thus reducing the incomes of millions of people in their old age. He has increased welfare dependency. He took a country with the some of the best savings for old age and destroyed that inheritance. His social security policies have been ignorant and damaging. Beveridge would have scorned him. Frank Field does - and wrote a book to that effect, comparing him unfavourably with Lloyd George.

Yes, he had one big success in handing over control of interest rates to a monetary policy committee. But he has been wholly inconsistent. He came to power thinking he could improve the public services without extra spending. That was the mandate and the promise. He failed. So he resorted to the Old Labour technique, in 2000, of throwing more and more money at the public services. This sudden infusion of money has not been used efficiently and productively. Brown opposed the reforms in the NHS which have had some modest success. In the course of his spending, he has increased the taxes on the poor. The personal allowance next year will still be less than £5000. If it had been increased in line with earning, it would be over £5,500. So more poor people are liable to tax on more of their income. True, there are tax credits. But by definition they have three disadvantages:

1. People have to fill in forms to get them which, at best, is a waste of their time
2. A large minority - usually the most vulnerable and least literate - don't fill in the forms and so don't get the money.
3. If you are not entitled to one of the tax credits, you get taxed. For example, a non-pensioner who does not have children. If you are poor, bad luck. Under Brown, you are not one of the favoured groups. You are taxed heavily even though, according to Brown himself, you are in 'poverty'.

The spending goes on, pushing public expenditure as a percentage of national income back towards the level it was in the early 1980's and before. Public spending is less productive than private spending. Huge amounts of money are wasted. He is gradually undermining Britain's capacity for growth, just as the socialists did in Germany.

He is the most overrated Chancellor of the Exchequer of my lifetime - and that is saying something considering we had Lord Barber setting off the inflation of the 1970s.

Posted by James Bartholomew • Indexed in Tax and growth

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March 15, 2005
Tuesday
How Gordon Brown does it.

Each year, it seems that Gordon Brown has little room for manoeuvre and yet each year he manages to convince many journalists that he has dished out money and pulled off a triumph. He always seems to have some extra money to spend.

Where does the extra money come from?

It comes from various places, but nearly always from two places in particular.

First, he does not raise tax thresholds in line with the growth of the whole economy. He just raises them with inflation, which is less because it does not include economic growth. This means that - as the country becomes richer - he takes a higher proportion of national income in tax. Through his failure to raise income tax thresholds in line with the economy, he has made an extra 1.35 million people liable to higher rate income tax. A higher proportion of people's income has become liable to standard rate income tax (the personal allowance for next year will be less than £4,900 whereas, if it had been increased with earnings since 1997/98, it would be over £5,500). Although he has doubled the stamp duty allowance in this budget, throughout his time in office until today, more people have become liable to stamp duty on their house purchases - and it continues to be the case that many have crossed the thresholds to higher stamp duty rates. So it goes on and on. Inheritance tax is another one that has had the Gordon Brown treatment. All these failures to raise threshold in line with the economy, amount, in reality, to tax increases. They are increases in the proportion of national income that the nation pays in tax.

His second technique is to raise welfare benefits, too, in line with inflation - not in line with the economy. So gradually, he has cut welfare benefits in relation to the whole economy.

That is how he gets extra money every year. He taxes us more, without declaring it, and he pays out lower benefits, without declaring that either. To some, he seems clever. But all he is doing is giving us back some of the money he has taken. Most commentators have no understanding of what is going on and therefore cannot pass on a true understanding to the public.

Does it matter?

Yes, it does rather. It is much better to avoid taxing people in the first place than to require them to fill in forms to claim tax back. The latter method involves an expensive bureaucracy and many of the people who are entitled to tax credits do not claim them. Often these are the poorest, oldest or least able. For him to paint himself as acting for their benefit verges on the obscene.

Posted by James Bartholomew • Indexed in Tax and growth

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