Month: May 2010

Some of you took exception to hearing the late Mr Hood described as an armed robber. I did so, as in the accounts and films of Robin Hood that I have seen, taking money off successful local entrepreneurs at arrow point was an important part of what he did.

I freely accept that he might have also been an early member of a foreunner of UKIP, making a stand against European government in the form of the Sheriff of Nottingham, imported by the Norman invaders and given authority from the local castle. Like UKIP in a later age, his stand made no difference to the success and legitimacy of the European government imposed.

I also accept that he might have been an honourable outlaw, resisting unreasonable use of force and abuse of local power by an overmighty local official. Unfortunately there are so many different sightings and records of people who might have led to the legend we will never be able to be fair to the memory of one so elusive.

Today I made a proposal for the form of CGT changes the Coalition government might introduce. As yet there are no government proposals, as I imagine they are thinking through how best to change it.

The Evening Standard expressed interest in the scheme I had outlined. I explained it to them and explained it was a contribution to the debate before legislation and before government proposals. How on earth they think this makes me a “rebel” I have no idea. There is currently no government proposal to rebel against. There does have to be proper debate of ideas and proposals before turning to draft legislation. Newspapers should grow up,and stop making divisions up.

If I were ever to lead a rebellion against a government proposal I would make that clear at the time of marshalling support, and brief the press accordingly.

Let me offer a little marriage guidance to the new Coalition. Tax is something Conservatives and Lib Dems could fall out over. It is, however, an accident that need not happen.

Deep in Lib Dem DNA is the Robin Hood principle – tax the rich and give to the poor. It is superfically popular, and gives believers a feeling of moral superiority.

Deep in Conservative DNA is the belief that society and the economy work better if you allow people to be successful and to pay their own bills. Conservatives do not see financial success as a crime which the state needs to punish.

These two have in the past come to blows over tax. So can we find a way through today?

The most important tax proposal to the Lib Dems is fortunately a tax cut. They want to take everyone earning less than £10,000 out of Income Tax. They claim this helps the poorest. It does not, as the poorest are on benefits and will suffer benefit withdrawal as they enjoy their tax cut.

However, the good news is that most Conservatives are keen cutters of Income Tax, and will happily accept Income Tax cuts through raising the threshold for the sake of the political marriage. One Income Tax cut can serve as well as another.

The problem comes with the other Lib Dem tax proposal, to partly pay for the first. They wish to increase Capital Gains Tax to 50% for the rich, and to higher rates for everyone else. This is anathema to most Conservatives.

So let’s go back to first principles. Although Mr Hood was a common armed robber, I do understand his hero status. I have always said during this crisis we need to tax the rich more, to help us out of the financial chaos Labour gave us.

The best way to tax the rich more is to cut tax rates. If we put up CGT on enterprise, business and investment, it will deter talent, send people abroad, put off new people with businesses coming here, help rich accountants and lawyers with schemes to avoid it. It will change people’s attitude to financial risk, at a time when we need people to venture more, not less.

Last night a group of MPs and peers worked into the night on how we might come up with a solution to the political problem facing the Coalition. The first thing we all agreed was there is a big difference between longer term capital gains on investments, and short term gains made by speculators. We can see the case for a gain made in less than a year being taxed as income, to assist the Treasury purists and the Lib Dem Robin Hoods.

The second thing we agreed was the old CGT regime when the rate was higher included generous reliefs to avoid taxing inflationary and longer term gains to excess. If the new regime is to have no such Indexation relief, and a much smaller tax free amount, then it needs to recognise the difference between a longer term and shorter term gain.

We ended up with the following proposal. Tax gains under one year at a person’s marginal Income rate – this should be no more than 40% but is temporarily 50% thanks to Labour’s last penal phase.

Exempt all gains of over five years from CGT altogether. These are long term investments which are good for the UK. This would make us more tax competitive.

Tax two year gains at 30%, three year gains at 20% and four year gains at 10%.

Robin Hood has the scalp of the market speculator. The UK is a more attractive place for anyone wanting to create jobs, provide houses, make other worthwhile investments. Long term savers for their families and for a rainy day could sleep easy in their beds. It would raise more revenue than the 40-50% scheme currently being mooted, over any reasonable time scale.

I had composed this headline in my mind when I heard on the radio that the government will announce its first cuts next week, following urgent review of the projects and plans the last government approved for spending in the first four months of this year. They are right to do so.

Sterling has devalued by 5% against the dollar since the election. The markets are not in panic, but they are making their point. The government needs to start reducing spending early next week, and to show they are serious about getting on top of the deficit.

There will be some easy cuts to make from the political projects Labour waived through in the last few days in office. If there are cancellation costs, then pay them. It will be much cheaper in the long run, as the state does not have the money to pay all the bills.

The government does also intend to publish its own figures for the off balance sheet items. The debate on this site has seen some suggesting it will be too much to tell us the truth. I think it essential they tell us the truth about the financial position. Some of us have been telling the public to add in large extra sums to the claimed figures for public debt, so it would be silly for the government to think that by refusing to acknowledge it they could fool the markets.

Mr Hammond Transport Secretary) promised to end the war on motorists. That is a great idea for the day job.

He should leave the BA dispute to the management and Unions, and to ACAS when they need professional arbitration or neutral chairmanship.

If he wants something else to do he could see how his Regulator of the skies proposes to keep us safe and keep the planes flying, as there are disputes again over airport closures.

The “black holes” now being revealed should come as no surprise to readers of this site. I have set out many times how the true indebtedness of the Uk state is between £3 trillion and £4.5 trillion depending on how you account for bank liabilities, on normal company accounting. (PPP,PFI, unfunded public sector employee pensions, nationalised banks and bad debt guarantees). I first challenged the old government’s rosy portrait in the Economic Policy Review, then augmented the figures as they borrowed more and bought up bank liabilities.

The new government is rightly going to seek independent judgement on the extent of off balance sheet liabilities. We are also learning of the rush to spend and commit to big contracts in the dying days of the Labour government. What else did you think my UK PLC CEO letters were about? We knew it was happening.

I went out on the doorsteps yesterday, resuming my Saturday morning roving doorstep surgeries.

I was pleasantly surprised by the mood. Most who said they were Conservatives were pleased the Labour government had gone. They ranged from disappointed that we had to be in alliance with Lib Dems to quite positive about it, but all accepted it had to happen. Very few people ever confess to being Lib Dems when I call, but those that did were more positive about the Coalition than the average Conservative. Non alligned voters and non voters – people who did not volunteer their inclinations – seemed relaxed or disinterested .

Today’s polls confirm this, although they say that Lib Dems are less in favour of the arrangement than Conservatives. The government overall has around two thirds support, more than the voting support for the two founder parties. Labour has picked up support at the expense of the Lib Dems. That may be the result of the Coaliton. I suspect it is more likely to be the result of the departure of Mr Brown. Pro European Lib Dems would welcome the more Euro friendly and voter friendly Mr Miliband, the current front runner for Leader.