Shortly after taking office in May, Britain’s new chief secretary to the Treasury discovered a note from his predecessor, Liam Byrne: “I’m afraid to tell you there’s no money left.”
Tomorrow, to help address that mounting fiscal crisis, Chancellor George Osborne will release an emergency budget. It is expected to include an array of spending cuts and tax hikes to reduce the £156 billion deficit he inherited from the previous government. In all likelihood, it will call for a dramatic increase in the capital-gains tax.
Such a move would be disastrous for the economy. Raising the capital-gains tax would discourage Britons from creating new businesses, and scare off investors. The government should instead focus on leaving money in the hands of entrepreneurs. It is their hard work that’s going to create the jobs and wealth needed for full economic recovery.
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For readers seeking further analysis of the Capital Gains Tax proposals, I recommend this post by Steve Baker.
I have just listened to the Budget Debate and quite frankly am growing more and more tired of the political point scoring arena that Parliament has become. It was unbridled electioneering, totally populist and I am sure none of us are fooled.
The implied nonsense that Belize are now cooperating with UK tax authorities to ensnare Michael Ashcroft when he has done nothing contrary to current tax laws was pathetic. Do they think we have forgotten that the Labour Peers Paul and Cohen are also non-domiciled for tax purposes? To use the Budget which should present a sober look at the Nations books for such gerrymandering is an insult to the shareholders/electorate they purport to serve.
I therefore exercise my right to express an opinion and to look objectively at how the current ‘management’ are looking after my interests; after all I have been obliged by them over the years to contribute lavishly to their misguided vision for our wellbeing!
Quite simply if this was an AGM and I was a shareholder with voting rights I would back a motion to sack the lot of them based on performance. In that sense I cannot wait for the forthcoming election to register my vote of no confidence. I am particularly unhappy at the parlous state of our benefits-driven society. The Conservatives are at least offering some reasonable solutions to tackling the welfare state thanks largely to the excellent work undertaken by Iain Duncan Smith’s think tank the Centre for Social Justice. The Party are undoubtedly more compassionate than they were in the Thatcher era and, unlike Lord Tebbit’s solution for the unemployed “get on your bike and find a job”, contemporary caring Conservative Policy prime facie is to ride alongside!
I watched Channel Four News last night and was captivated by John Snow interviewing some of the good folk of Luton; a large number of his interviewees stated that they wouldn’t vote. How many times do politicians need to hear that people don’t bother voting because of the mess they have made of our democracy before they listen to vox pop and try to understand our frustrations with politics and politicians? Our Cobden Centre colleague Douglas Carswell MP sets out the reasons why people have disengaged in ‘The Plan’ the book he co-authored with Daniel Hannan MEP. They correctly deduce that voter apathy is mainly due to the inability of politicians to effect change. Carswell quotes doorstep comments such as “you’re all the same”, “it doesn’t matter how I vote, nothing changes” and “you make promises but you never deliver”. Carswell and Hannan go onto unpack the route that led to this apathy and make some sound policy recommendations to effect rapid change but, sorry chaps, this is not rapid enough for me so I have decided to go one step further motivated in part by the following:
(updated)Approximate UK Income Tax receipts £146bn versus welfare payments £196bn. However well the Chancellor spins these numbers this shareholder ain’t happy!!
Benefits saved Tax and NI gained per person returning to work >£8000 per annum (source CSJ). ((NI – National Insurance is a clever idea that helps citizens save for benefits, retirement and other social needs. It is run by the Government in much the same way as Bernie Madoff ran his quaint little investor scheme except, as it is run by the state, it is entirely legal. Therefore none of the people running it will be held accountable and go to jail for 150 years when the shareholders realise that all of their money and more is being spent straight away and not invested for their future benefit.))
NHS cost per capita £860 per annum this doubles for the unemployed perhaps because they constantly need to prove they are sick to continue receiving benefits as well as the inherent problems some genuinely face to their wellbeing by being unemployed. For a thorough evaluation, read the CSJ reports.
Pure and simple, ‘helping one another’. do you remember that old-fashioned and now outdated idea ‘neighbourliness’?
It is entirely correct that a caring, prosperous and civilised society should look after those unable to fend for themselves but when in 1945 Atlee’s Post War Labour Government began implementing the recommendations of the 1942 Beveridge report they weren’t up front about this creeping socialist agenda that has led to an unacceptable reliance on state handouts sadly not by the deserving in society but the most devious who often exhibit brilliant cunning and guile at exploiting our overly complex system. Oh that those talents could be harnessed elsewhere for good! Others newly unemployed soon see how they work the system and join their ranks. “Up to three generations of some families have never worked and are entrenched in economic dependency” this is oft rolled out, well known and needs proactive solutions. We can trust some politicians like Iain Duncan Smith, Philippa Stroud, Steve Baker, Douglas Carswell and Frank Field amongst others to make their voices heard in the corridors of power but we should not sit back and wait for them to legislate a way out of this mess.
I have come to the conclusion that instead of raging at the machine we should attempt to solve our own problems in our own communities and not rely on politicians and the state.
Why? Simply because problems like unemployment are corrosive not just to those going through the process but to communities, society in general and we as ‘shareholders’ cannot afford to fund it anymore.
This thought process and the closure of my own business due to the downturn allowed me the time to set up a Job Club in my home town Edenbridge, then neighbouring Oxted, now Richmond Borough and soon Sutton. I have also founded a charity GB Job Clubs to train and resource other volunteers to set up clubs in their own communities. This was all inspired by a Conservatives Social Action seminar on ‘How to Start a Job Club’ in March 2009.
Remember David Cameron’s speech to the Open University on May 26th 2009 advocating localism? The Conservatives have been very proactive in encouraging social action as this doesn’t require legislation or an election to implement. Iain Duncan Smith encapsulated this when he said,“Our approach is based on the belief that people must take responsibility for their own choices but that government has a responsibility to help people make the right choices.”
Well said Sir, however, I come from the viewpoint that the Government is not there to provide everything for us; if we take control of our own destinies then we might actually wrestle some control back from the state who continue in their desire to nanny us from cradle to grave. If we serve ourselves more and rely less on state provision we can shrink Government, yep that’s right fewer politicians, dismantle quangocracy, reduce red tape oh boy the list goes on! Maybe in time we can insist on a reduction in the funds we are required to invest to keep UK Plc afloat!
I recently compared notes with some fellow Job Club leaders and between our six clubs discovered that we had helped 105 folk back to work over the last six months. If the cost/saving benefit is £8000 per annum per person we have saved the exchequer and more importantly ourselves as tax payers/shareholders £840,000 per annum. That is the result of only six Job Clubs run voluntarily at little or negligible cost to anyone. That’s right there is hardly any cost involved in setting up and running a Job Club and we don’t want ‘government funding’ or put it another way some of our tax bucks back! Why not? It would probably require our application and subsequent performance to be assessed by one of those quangos or an army of civil servants wrapping us up in red tape and emasculating our ability to deliver.
GB Job Clubs now has 25 ‘Get Britain Working’ inspired Job Clubs listed on the Directory page of its website, www.gbjobclubs.org. If the success rate of our six clubs is replicated in all 25 , we would save ‘ourselves’ £3,500,000 per annum. How about 500 clubs up and down the country each succeeding to get just one person per month back to work that equates to a saving of £48,000,000.
Now I like numbers like this and, as a shareholder, they excite me! Detractors will point out that finding people jobs is reliant on the economy and that £48m is a drop in the ocean in an overall spend of £185bn. I know, but every single person we have helped is worth much more than money. We are seeing lives transformed by opportunity and communities in a small but visible way impacted by helping one another and this is undoubtedly great for social cohesion. This can spread like a virus. Just imagine that, instead of aspiring to be in gangs and earn illicit money from delivering drugs, the new role model is someone in a community who has set up his/her own business and can legitimately employ someone.
I have used GB Job Clubs as a launching pad for a microfinance and mentoring project named the Jericho Programme where we incubate small ventures in communities up and down the country. The first pilot scheme is now underway in Edenbridge where we have backed two heroes from the Job Club to start their own garden maintenance business. It takes guts to wean yourself off state support especially when you have three children as is the case with one of our entrepreneurs but they are going for it with gusto. All it has taken is encouragement, support from a mentor, a small loan for equipment, a van donated by the local council and the goodwill of a community. Cobden Centre founder Toby Baxendale has joined me in funding six such projects in the UK and once we can prove they work we will set about raising funds and recruiting fellow mentors to empower these latent entrepreneurial heroes that exist in our midst.
We can’t cure all our problems ourselves but we must take more control of socio-economic issues where we are able. We will reap great dividends and that has got to be great news for all shareholders!
Via Sean Corrigan and Toby Baxendale, “The tab from LEH/AIG so far? Around about $2 trillion if we look at trend US federal debt trajectory before and after that fateful weekend”:
See also this video, “Stop Spending Our Future”:
Could it be time to stop and question the ethics of all this deficit spending, quantitative easing and tax?
I see the panel of economic experts that is the acting industry have latched onto the Tobin tax, now re-branded the ‘Robin Hood Tax’. Never mind that Robin Hood fought against unjust taxes by tyrants: the modern day bogey man is the banker.
Now funny thing is, I do agree with a lot of the sentiment expressed by the morally indignant of Primrose Hill.
Yes, the financial world has grown out of all proportion to the real world
Yes, the rewards for participation in this job seem ludicrously high
Yes, bankers have been bailed out by tax payers and are now furiously spinning the wheels of casino capitalism faster than ever before.
Yes, we should do something about it.
But. Not this.
Firstly, why financial markets are important. The good that these things do is provide a price on the future. They allow us all to insure ourselves against the unknown, whether that be a fixed rate mortgage to buy your house, or a bond issue that allows a company to grow.
Financial markets provide sellers for the shares you want to buy, insurers for risks you want to avoid and lenders when you need to borrow.
Attack the market, and you attack its ability to do this job efficiently. The price will be paid by you.
It is said that the market will absorb the Tobin/Hood/Luvvie tax. Anyone who says this clearly underestimates the ability of a bank to pass on its increased costs. You will either pay directly by higher fees, or indirectly, as the cost of everyday things get more expensive.
And more expensive they will be as the Luvvie tax will infect its way through the whole system. At every stage of production, financial markets are used to quantify and reduce costs. Commodity futures allow manufacturers to fix input costs, freight derivatives allow shippers to control cash flow, forward foreign exchange allows import/export companies to insure against wild market swings, credit insurance allow insurance against default and so on and on.
But surely a tiny transactional tax would pass unnoticed? Well, it may seem tiny, but to many market participants this Luvvie tax will be huge. What people fail to understand is that a regular and competitive price in many instruments come from institutions that are prepared to turn over huge volumes in order to make a net margin often much smaller than the Luvvie tax. In one fell swoop, you make a huge proportion of this trading unprofitable, therefore you take away the ability of the market to provide a price. It’s always the way of ill thought out taxes: unintended consequences. Some arbitrary decision is made, and a myriad of economic activity suddenly becomes futile.
So what? Who needs them? Well, you do. Every time you want to invest in your pension, you will (indirectly) need to buy a bond or some shares. Where do you think the seller comes from? Charity? No, it is the myriad of active traders that act as the buffer between ‘real’ buyers and sellers of these things.
In the end, you will pay by being poorer as a pensioner, by paying more interest on your mortgage and by generally being gouged more by the banks.
And so, we turn to the banks. The true villain of the piece.
The problem with financial markets is that banks are allowed to actively participate in this trading game. It would be less problematic if banks used the markets merely to reduce their risks, but this is not what they do. They see markets as a lucrative opportunity to enhance their profits, and they seize it with both hands.
Why is this bad? Because they punt their customer’s demand deposits. They take the money set aside to pay your gas bill, multiply it up tenfold, then wade onto the casino floor. What allows them to do this with some level of (misplaced) confidence is the myriad of legislative favours, monopoly rights, tax payer protection and political pressure arrayed to support them.
Here at the Cobden Centre, we’ve bleated on time and time again about how fractional reserve banking conjures money out of thin air, but it is worth repeating. You deposit £100 of notes and coin in your current account, and this becomes the property of the bank to do with as they wish. You sign it over to the bank, who lend most of it out. £100 of cash, becomes £197 of purchasing power. Whomever gets £97 loan, deposits it at their bank, and the same happens again and again.
Are you happy that the £100 you think is being safely held aside for your weekly food shopping is being used to fund £1000 of credit default swaps? I thought not.
At the end of the day, what consenting adults do in the privacy of their own bedrooms is of no concern to you. What hedge funds do with their willing clients’ money does not concern anyone but the investor. What pure trading companies do with their retained capital is of no worry to you.
The problem is the banks. An the best way to put a stop to their nefarious influence is not by taxing them and innocent parties. Not by robbing pension funds. Not by forcing you to pay higher fees to manage your financial affairs (as you surely will). No, they way to deal with the problem that banking has become is simple:
Last year two police women (WPCs) were discovered to have a reciprocal child-minding arrangement. It was initially declared unlawful. Child minders who receive payment for their services must be registered with Ofsted. And receiving payment is not restricted to receiving money. Anything of value counts, including “free” minding of your own child. These unregistered WPCs were wrongdoers.
Public outrage at the absurdity of preventing friends from looking after each other’s children caused Ed Balls, the Secretary of State for Children, Schools and Families, to intervene. He declared that reciprocal childminding was not a kind of payment after all. The WPCs congratulated him on this small victory for common sense.
Which just goes to show that the common sense of WPCs cannot be relied upon. For, despite Mr Balls’ great powers, he cannot by mere proclamation stop reciprocal childminding from being a kind of payment. His decision simply exempts this barter payment from the tax that Ofsted’s rules and registration fees impose on childminding when other forms of payment are used.
If one of those WPCs quit her police job but offered to continue minding her friend’s child for £50 a day, Ofsted’s requirements would reimpose themselves. The child may be cared for by the same person in the same place, but the introduction of money to the deal would bring with it the state’s administrative and financial burdens. Mr Balls’ “common sense” intervention thus encourages a barter economy in childcare.
This is a silly thing to do. Because money is a better method of payment than barter. While the WPCs barter, they can consume the value of the childminding work they do only in the form of childminding for themselves. This means that they will restrict the amount of childminding they supply to the amount they want to consume. If they paid each other in cash, this restriction would disappear.
As all economists know, money increases the opportunities for trade. Limit its use and many potential transactions will not take place; valuable goods and services will not be produced. And, when they are, they will often be produced by the wrong people.
For where money-based exchange is restricted, people must produce a wider range of goods, either for their own consumption or to increase the chance of having something they can swap for something they want. This is unfortunate, because the more things you do, the worse you will be at them.
In short, discouraging the use of money constrains trade, which limits the division of labour, which leads to inefficiency. Politicians ought not do it. Yet they do it all the time. They impose burdens on activities when done in exchange for money that they otherwise leave alone.
Consider the minimum wage. I am not allowed to pay someone £4 to spend an hour shopping for me. According to our government, that would be unfair, even if my employee agreed to it. Yet I am free to add an hour to my own shopping by walking to a distant supermarket in search of a £4 saving.
I am also allowed to spend an hour cooking my dinner, even if I would be unwilling to pay someone more than £3 to do it for me. Contrary to what you may have read on the Directgov website, working for less than £5.80 an hour is not illegal in Britain. It is illegal only if the payment is made in money.
Taxes have the same effect. Since most are levied on money-based transactions (with the notable exceptions of poll and property taxes), they inhibit trade and, hence, the division of labour. And the greater the rate of tax, the greater this malign effect.
Suppose, for example, that you are willing to pay up to £10 an hour to have some work done, and that the cheapest qualified labourers are willing to work for anything over £9 an hour. Then you should find someone to do the job. But if incomes are taxed at 20 per cent, the most the labourers can earn from you is £8 an hour and they will be unwilling to take on your job. You will have to do it yourself or go without.
Britain’s enormous regulatory and tax burdens on trade lead to an excess of do-it-yourself. People with neither talent nor inclination cook, garden, teach, drive and shop, to name but a few of the more common amateur activities. They are thereby drawn away from doing things they are better at and enjoy more.
What is the cost of such restrictions on the division of labour? Terry Arthur of the Institute of Economic Affairs has estimated that, at current tax levels, the cost is two thirds of every pound of tax collected. In other words, the marginal cost of transferring a pound from private hands into the coffers of Her Majesty’s Revenue is 67 pence.
Mr Arthur may be wrong, of course; estimating such “invisible”, deadweight costs is notoriously difficult. But even if his estimate is three times the real cost, the implications are profound. Taxes, minimum wages and the other regulatory burdens the government places on money-based commerce are far more costly than politicians and voters seem to realise.
Indeed, most do not recognise this cost at all. Some lament the futility of a system in which people are taxed only to receive their money back in the form of government provided services, such as education and healthcare. But they fail to see that the spinning of this money-go-round creates a terrible economic drag.
Alas, there is no prospect of an end to this waste, even if politicians understood it. When invisible costs are incurred for the sake of visible benefits, a politician will never consider them too great.
Occasionally, in this globally interconnected world of ours, one comes across an image that says so much. I was sent this photograph yesterday by that great blogger Donal Blaney. Quite rightly, he thought it would be a hit with the team at TCC!
Financial engineer Gordon Kerr explains how to destroy the British banking system through the use of derivatives which take advantage of the regulatory system, then sets out four measures to solve the problem.
Nine years ago I worked as a structuring engineer in a three-man team within the investment banking unit of a major British bank. One of us was very bright. He stunned me one day with an idea as to how we could:
Produce immediate (but illusory) substantial profits for our bank, thus ensuring that we would enjoy generous personal remuneration;
Generate ‘virtual’ share capital to boost our bank’s capital reserves;
Leave the actual investment risk exposure and profit expectation of our bank almost exactly the same after the transaction as before it.
Was this idea the kind of rocket science derivative engineering that justifies master of the universe labels for the three of us who designed and implemented it? No: it was extremely simple. Here’s how it worked. We transmuted some loan assets into a derivative transaction for regulatory purposes, whilst leaving the actual loan arrangements unaltered.
Here’s a sobering thought. If you are due to pay 50% income-tax in the new tax year, do not be fooled: it will come closer to 80% when you add on a few mandatory extras such as the full 17.5% VAT on most of your spending coupled with the 12.8% National Insurance paid by your employer on your behalf. (I have ignored a few allowances – but also the ’stealth taxes’ pulling back on the other side such as Stamp Duty, Airport Tax, Car Tax, Tax on fuel … it just goes on and on.)
Think about this number for a moment. It means that for 80% of the year you will be working hard for the state and 20% for you and your family plus any philanthropic causes you contribute to. This means you will be working from the 1st of January to the end of September for the State. It won’t be until towards the end of September in to October, November and December that you will truly be working for yourself in any sense.
This is a subtle and pernicious form of modern day slavery, for sure.
Alistair Darling, our hapless Chancellor, tells us that those with the biggest and broadest shoulders should share the largest burden of funding the deficit that his Government – and only his Government – have created over the last ten years.
I am reminded of Ayn Rand’s great novel published in ……. Atlas Shrugged, Part 3, Chapter 7. Here is John Galt speaking:
If you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down on his shoulders — what would you tell him to do? To Shrug.
Ayn Rand’s prophetic warning – that it is the businessmen of the world who create the wealth in the first place, which allows what a ’statist’ like Darling wishes to do to advance his Party’s vision of social progress – will, one day, if pushed far enough, cause this country’s wealth creators to just shrug their shoulders and move on and away. At worst, what will be left is a society bereft of those who actually make money – or such a diminishing pool that the state will implode, consuming itself to death with no new wealth to replenish it.
In Capitalism: The Unknown Ideal, Rand reminds us:
Businessmen are the one group that distinguishes capitalism and the American way of life from the totalitarian statism that is swallowing the rest of the world. All the other social groups – workers, farmers, professional men, scientists, soldiers – exist under dictatorships, even though they exist in chains, in terror, in misery, and in progressive self-destruction. But there is no such group as businessmen under a dictatorship. Their place is taken by armed thugs: by bureaucrats and commissars. Businessmen are the symbol of a free society – the symbol of America.
Well, the UK State has run out of money. It will borrow £200 billion next year to pay its ever-ballooning payroll. Meanwhile we, here in the UK, are relying on the good will of our lenders to bankroll our state workers on a week-by-week basis. Yes, the UK is existing on a hand to mouth basis only. This is what it means to have a £200 billion deficit to fund. The government takes £4 in tax and spend £5 on its programs. It does not have the political courage to take immediate efforts to make this £4 in and £4 out, as any prudent family must budget.
When human beings began to peacefully exchange goods and services, civilised society was created. Money is the medium that facilitates this exchange to our satisfaction. Society, and its closely associated derivative, money, which facilitates peaceful exchange, is arguably the greatest invention of mankind. All other things flow from the basic functions of exchange being enabled to be fulfilled: it is, quite simply, this that has lifted us up from primitive existence. We should be glorifying those, like Ayn Rand’s fictional John Galt, who – far from being labelled fat cats – are a shining beacon of hope in desperate times. Rand goes further:
“So you think that money is the root of all evil?” [leaving it aside that this is a common misquote: St Paul suggests that the love of money is the root of evil, a distinction lost to those who damn the rich out of hand.] “Have you ever asked what is the root of money?” continues Rand. “Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?
“Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns–or dollars. Take your choice–there is no other.”
A modern day John Galt is none other than Michael Spencer, who I have the good fortune of knowing. He is the billionaire founder of ICAP, the largest inter deal broker on the planet. He employs 4,500 people, transacts £1.4 trillion of trades per day, has 50 offices world wide. His charity day at the office raises half of he total amount that the whole BBC Children in Need raises. Glory to the forces of free market capitalism, that most potent wealth creating force known to mankind.
Michael Spencer was interviewed by the Daily Telegraph on the 5th of December and said: “If the Conservatives are not elected and if Labour continue to increase taxes as they probably will then, regrettably, we would presumably have to reconsider moving domicile.”
The prospect of working 80% of the year for the State, like the Titan Atlas holding up the world is becoming too much for the likes of Spencer. We are approaching the tipping point. We need our Spencers and the whole army of entrepreneurs more so now then ever to create the wealth to get us out of the Labour Party induced mess we are in today.
For some time now it has been possible to see the four horsemen of the apocalypse on the horizon. Most economic commentators ignore their existence and the potential damage that could be inflicted on our economy if they all swept through at once.
Horse one symbolises the ruinous state of public accounts. [...]
Horse two is the harbinger of inflation. [...]
Horse three warns of a rapidly collapsing tax base. [...]
Horse four sounds a jobless recovery. [...]
The economic and political outcome is too grim to describe if all four horses of the apocalypse swoop down at once.
