TONY Blair last night gave away another £1.4 billion of the British rebate, trying to buy a European Union budget deal that carries no guarantee of any cuts in European farm subsidies.

Following the fresh British concessions, EU leaders meeting in Brussels yesterday were poised to agree a budget that was larger than the one the Prime Minister had vowed to fight for.

Mr Blair was effectively forced to spend his way out of a diplomatic impasse by the intransigence of Jacques Chirac, the French president.

And Mr Blair’s EU presidency was only saved from a humiliating summit collapse through the mediation of Angela Merkel, the new German chancellor.

She moved to break the deadlock by proposing the budget for the period 2007-2013 should be increased from Mr Blair’s suggestion of 849 billion to 862.5 billion.

A significant part of the extra spending will come from more cuts in the 20-year-old British rebate, currently worth about £3.5 billion a year.

Mr Blair had already offered to forego £5.6 billion from the rebate over the next budget period. Last night’s deal could increase that to £7 billion, a concession that means £1 billion be will lost to the British exchequer every year.

Perhaps, but everyone else, the financial institutions, Western governments, homeowners, consumers did the opposite, so I guess you’re swimming against the tide in terms of majority interests.

Deflation might leave you sitting pretty on your nest egg (and it would boost what little savings I’ve managed to accumilate I guess) but it will just serve to magnify the massive debts this part of the world has accumilated.

Don’t make the mistake of thinking for one minute the powers that be give two hoots about whether you ‘did the right thing’.

Having said that I’m still planning on trying to save as much as I can this year.

The threshold for 45p tax and the claw-back on both the basic personal allowance & age related allowances should be set at £250,000 p/a with the 40p tax rate ended altogether. At a stroke the economy would be more competitive as you could have a taxable income of up to £250,000 p/a and only pay 17% income tax. The basic personal allowance should be £12,000 p/a and the age related one £20,000 p/a allowance for all people aged over 60 – with claw back restricted to incomes exceeding £250,000 p/a. Capital Gains Tax could be ended with capital gains taxed as income for the first two years & then be tax free thereafter.

These measures could be phased in over six years with public sector reforms designed to stop the £100 billion p/a of waste that the Tax Payers Alliance have highlighted . I am sure that the Center For Policy Studies could devise some ideas and you could always look at my proposed public spending cuts that I have suggested on this site recently.

These bold plans for ending the Big Government-High Tax agenda of Gordon Brown which has caused this malaise would send productivity through the roof by sparking a new enterprise culture on the back of tax changes that provide incentives for hard work , saving , investment , share ownership and wealth creation. We need more dynamism and innovation – by countering the brain drain we can do that. The spending cuts would in the longer term stop a permanent cut in income tax to 17p adding to the national debt.

But in view of the gathering threat of deflation and depression I would have one last throw of the dice as regards fiscal stimulus . Basic rate taxpayers should all get a £1,000 cheque in April 2009 . Under my plan with the VAT reduction ending then people might spend more money between now & April knowing that a) VAT would be going up so they would avoid higher prices in a few months time & b) That they would have extra money in April via a £1,000 cheque & a cut in the basic rate so spending a bit more would be affordable. So by ending the VAT reduction in April while cutting income tax from then might prevent the next few months being a terrible time for retailers by using the tax system to bolster sales figures. People would spend if they knew they could avoid higher prices and could afford to do so with a lower basic rate of tax & a big stimulus cheque from the government being a few months away.

The rebate cheque would add £22 billion to government borrowing but with dole queues getting longer , retailers under pressure , people losing their homes & businesses , disposable incomes under pressure and the housing market & credit market getting tight in the context of deflation clearly something must be done. The mortgage market needs deregulating so that cumbersome & inefficient rules are axed and that we have smarter & more effective rules to prevent abuses while boosting liquidity. We cannot have panic induced over regulation that might further choke of credit which is the life blood of a capitalist economy and thus stifle the innovation needed for an economic recovery. Smarter & more flexible regulation to deal with a 21st Century economy rather than a overall increase in the regulatory burden is what is needed . Why keep regulations that have failed ? They need to go to stop new rules leading to an increase in banking regulation that could drive up costs & harm competitiveness.

The Bank of England needs to have members appointed to seven year non-renewable terms after being vetted by the Treasury Selected Committee and approved the House of Lords to ensure that we get the best people and that they are not there to serve the government of the day by keeping interest rates too low for too long but rather to keep prices stable. The inflation target should go back to RPI-x as it is more reliable while the FSA needs to be scrapped as it has failed and the system was too unwieldy and no one knew who was supposed to do what when. In short the Central Bank must regain the powers it lost in 1997 so that debt & the banking sector can be properly managed to ensure that there is no more insane lending but equally no more bank runs either. An inflation target of 2% would be good for people on fixed incomes and long-term business planning. The Bank of England should have the powers of the Fed so that it can get liquidity into the banking system if needed and so it can stop banks going bust with the same effectiveness as it did in 1992.

I think that this package would ensure financial stability , low inflation and a faster economic recovery via a short term boost and longer term cuts in taxation & the size of government.

The UK goverment should print the money therefore not incure interest that must be passed on to the people (indirectly done through tax and the banks)
they could put into action regulations restricting money production therefore negating the need for inflation (we didn’t have it at on time!)

The banks would not have to give interest on savings as what ever is put in would retain it’s value (unlike nowdays were it constantly devalues even with the interest added)

Restricting banks to only being able to loan out money from investers (where both bank and invester gain a share of the profit) and you then cut out the problem of banks magicly creating money, hence cutting out inflation.

Not only that but you would slowly be able to cut down on the ridiculous amounts of tax needed just to repay the irresponcible borrowing of individuals in goverment.

(i have other ideas as well John if your interested)

The solution will only come in parts from different places. The Tories must give confidence in a change of government as part of that solution.

This can be done by persuading the leadership to announce that the only way to get Britain working again as it should would be to introduce a radical revision in the tax, NI and benefit regime that will get the lowest paid off benefits and motivated to work because a Tory Gov’t will take them out of tax altogether annd introduce incentive to work at all levels. By low paid I mean those on up to about 80% of average income.

The banks have a specific problem and ultimately the solution will be setting up new banks to replace those that have no chance of recovery – RBS, HBOS to name a few. Ultimatel ythey have to be let go. There is nothing that can be done as you have effectively said above. The taxpayer cannot afford it.

I have the honor and confidence to introduce to you an business opportunity for the british people in view of the fact you are trustworthy and reliable.

Please allow me to introduce myself, I am Mr Seymour Swag I work as the Chief Executive Officer in Insolvobank plc. There are assets on our books relating to the mortgages of hardworking british and american citizens. I know the value of these assets to be realised in excess of $1 trillion due to the fact you are a truely outstanding steward of the world economy.

However, following my investigation, my colleagues in our accountancy management department only recording the value of these assets as $ 500billion.

It is my wish and my intention to share with you and the hardworking british people the sum of 500 million USD unrealised at this moment in time as a reward for all you have done in your tremendous and honorable stewardship of the world economy.

I will bring my position and influence to transfer this realisation to you nd the british people by legal means. When these assets are transferred into your account I will require the sum of £50 billion in cash in order to meet regulators capital adequacy requirements and keep this transaction both honorable and withing the banking institutions regulations.

Of this £50 billion I will share with you 50% for for your treasury department and debt mangement office in order to complete our transaction and save the world.

Please contact me urgently Gordon, time is running out to save the world and we know what will happen to your poll ratings if I have to switch off the atm machines.

Best wishes and regards to you and the british people,

Seymour Swag,
CEO,
Insolvobank plc.