All we need is growth

 

              Growth is the key to the government’s strategy. Let’s begin with a reminder of what the government forecast in its Budget Book  in June 2010:

2010-11   1.8%

2011-12    2.4%

2012-13     2.9%

2013-14    2.8%

2014-15     2.7%

Total:      13.23%

         The March 2011 Budget book raised 2010-11 to 1.9%, cut 2011-12 to 1.8%, cut 2012-13 to 2.7%,  and raised each of the last two years to 2.9%. This left total growth at 12.8%, with much more of the growth coming in  the second half of the period.  The loss of growth between Budgets One and Two would mean £6.5 billion less output and £2.5 billion less tax revenue in the fifth year. This forthcoming downwards revision might have to cut another 1% off the total, losing around £15 billion more output and £6 billion of tax revenue by year five. Even such a cut would still leave the growth rate from 2012-13 onwards at a high level for current conditions.

         This week the Chancellor has told us he is likely to face a downwards revision to the growth forecasts for this year in the autumn. The OBR  may well have to revise down next year as well, given the international background. I do not think the OBR  could  revise subsequent years up to make up for the loss.

          As so much of the government’s deficit reduction strategy is predicated on extra tax revenues from growth, accelerating the current growth rate is the government’s overriding priority. In addition the government’s politcal strategy presumably relies on getting real incomes rising again after a nasty period of decline in recent years. This too requires decent rate of growth in the next three years to bring it about. The government is currently reviewing its opitions to induce stronger growth. They are looking at tax, regulation, and banks.

           Allister Heath yesterday added his voice to the economists who think the government does need to cut the top rate of Income  Tax from 50% to 40%. Politicians are wary of this, as taxing the rich is always popular with many voters. The problem the government  faces, as Allister points out, is the best way to tax the rich is to set a competitive rate. In 1981-2 when the top rate of tax was 83% the top one perecnt of earners only paid 11% of the total Income Tax. By the end of the last century with a settled top rate of 40%, this figure had shot up to 21.3% of the total Income tax raised. The rich were paying lots more, and a much bigger proportion.  This rose further   in the last decade.  

                 The Chancellor is awaiting a Treasury study into how much revenue loss or gain there is from a 50% rate. Meanwhile, expect other studies showing that  we could tax the rich more by reverting to the rate that Gordon Brown thought was correct throughout his period as Chancellor.

 

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

136 Comments

  1. lifelogic
    Posted September 9, 2011 at 6:29 am | Permalink

    Why does Cameron expect any growth when his policies are so clearly very anti growth. If they want growth they need to get the banks lending, reduce regulation, halve the state sector, reduce taxes on the productive, get some sensible bank lending going, inspire confidence that they are heading the right way and might win the next election and get rid of the green energy nonsense.

    Cameron just saying we are pro-business and are going to have a bonfire of the quangos will do nothing if all his actions are in the opposite direction. (Save the partial abolition of HIP’s).

    I do how ever applaud the decision, reported today, to get rid of introduction fees in the no win no fee litigation racket but very much more is needed here to.

    • lifelogic
      Posted September 9, 2011 at 6:48 am | Permalink

      Class Ceiling on radio 4 yesterday continued its absurd “BBC think” agenda with statements like:-

      “People used to claim that money trickled down from the rich to benefit the poor but in the last few decades it has become clear the money has been sucked upwards.”

      So it seems in the “BBC think” World the rich no longer employ gardeners, cleaners, builders, accountants and other staff they just somehow rob the poor. They clearly seem to confuse “trickle down” with “everyone must have the same size bucket of money”. Be they drug addicts, criminals, lottery winners, top BBC executives or hard working individuals – I assume.

      If money has been sucked upwards it is surely through the tax system and the bloated state. The BBC and the licence fee being a prime example of this bloated parasitic state and sucking process.

      Still at least the BBC has an endless line of these “great thinkers” like Prince Charles Polly Toynbee and nearly all the visible BBC staff to keep us all amused.

      • lifelogic
        Posted September 9, 2011 at 8:15 am | Permalink

        I see Prince Charles wishes to continue castigating people for their lifestyle and personal energy use.

        Might is not be better, perhaps, if the message were delivered by someone who did not spend £1.08 million, of these people’s taxes, on air and rail travel in 2010-2011, a rise of 56% from the previous year.

        Also, perhaps, not from someone who clearly believes in quack medicines, wishes to “defend all faiths” (including the green one I assume) and clearly seems to have some contempt for evidence based science. Though he does not seem to use homeopathic helicopters I note.

        • Bazman
          Posted September 9, 2011 at 7:28 pm | Permalink

          What about Prince Charles ‘Trickle down’?

      • Iain
        Posted September 9, 2011 at 12:22 pm | Permalink

        Perhaps you would care to enlighten us as to how much wealth actually trickled down in the 10-15 years of growth we had? From my understanding it was very little, if any at all, your gardeners, builders, truckers, saw their wage levels fall, I believe Directors on the other hand saw their remuneration packages increase by 170-700%. The trickle down effect doesn’t happen when we have uncontrolled immigration.

        • lifelogic
          Posted September 9, 2011 at 1:55 pm | Permalink

          The money (not really “wealth”) is still trickling down and is a very considerable sum. I agree much goes to recent to immigrants and that keeps wage levels lower than they would be which is perhaps unfair.

          Nevertheless the workers are better off than they would be without the rich employers. Taxing the rich more and having fewer of them – then letting the government waste it as they surely would it is far worse for everyone. Other than a few overpaid government officials perhaps.

          The problem is that they are under cut by East Europeans and others perhaps with lower overheads who are prepared to work for rather less. That is what needs to be addressed. You can be sure that government intervention will not sort the position out it will just drive the jobs away.

          • Bazman
            Posted September 9, 2011 at 7:27 pm | Permalink

            If the lower and middle classes get any benefits at all. I am more of a believer in the Horse and Sparrow effect that says if you feed enough oats to a horse. Eventually the sparrows will get some oats. The lesson being that the largest beneficiaries of the trickle down effect are the rich. Cheers Guv! Cough! Hack.

        • Bazman
          Posted September 9, 2011 at 7:34 pm | Permalink

          There is also this idea of not sharing any of the profits. Certain people are not allowed to have a high rate of pay no matter what the circumstances. The idea that there could be more cleaners than cleaning jobs is Lifelogics fantasy that he is unable to escape.

      • Kenneth
        Posted September 9, 2011 at 4:17 pm | Permalink

        I heard the same programme. It was not only propaganda but was at the wrong end of the stick.

        It would make me feel glad that the BBC wasn’t running the country if it wasn’t for the fact that it effectively does.

        • lifelogic
          Posted September 9, 2011 at 6:45 pm | Permalink

          All arguments on the BBC start by at the wrong end of the stick even when they, rather rarely, have non lefty, Toynbee think type contributors – the debate is nearly always framed (by the BBC staff) in an absurd way before the discussion can even begin.

          Thus “reduced taxation and less government spending” is “taking money out of the economy”. Laying of people off in state sector who were doing nothing useful is “Cutting too quickly and causing a double dip”.

          All differences in pay (or indeed anything) are, to the BBC, clear evidence of “blatant discrimination” against one group or another. They are driven by envy, the labour party, state sector trade unions and the lefty and environmental charities.

          If I have to listen to squatters going on about how they always improve the properties they have stolen the use of. Or how delightful and clean gypsy caravans always are I shall scream (even if they actually are it is not really relevant to planning laws).

          The BBC seem to have a big thing about rich people wanting to pay more tax at the moment. Why do they not just pay more rather than boring us all on the BBC with it – If, that is, they really are so unimaginative that they cannot think of anything better to do with it. It is not very difficult to come up with millions.

  2. Public Servant
    Posted September 9, 2011 at 6:34 am | Permalink

    The decision on whether to keep the 50p rate should be evidence based. However, we all know that there are difficult political considerations involved. But assuming that the top rate reverts to 40p the threshold for paying it seems ludicrously low. Does it make sense that some of the people receiving means tested benefits like child tax credit are paying tax at the top rate. £35000 is hardly a high salary these days.

    • lifelogic
      Posted September 9, 2011 at 9:13 am | Permalink

      £35K in London will not go far, perhaps just cover the rent after tax. But in many places it is a good wage perhaps double the average for some northern areas.

      Maybe we need some system to tax people on what they have left (that is disposable after costs such as reasonable housing, travel to and from work, child care, energy and food are covered). Some people (who have the same disposable income after such essentials are deducted) pay £30K PA in tax yet others just £2K (net) in tax (with subsidised housing and tax credits).

      Can that really be right and fair.

      Consumption and luxury taxes perhaps on exotic holidays and cars perhaps. Combined with a reduction in income tax or some sensible reflection of these essential costs of living and working in the income tax system.

    • Botzarelli
      Posted September 9, 2011 at 1:54 pm | Permalink

      It makes little sense to bring the “top” rate in at its current level. It is paid by people who were considered by the last government (and this) to be sufficiently modestly paid to need tax credits if they had families.

      The government should
      – get rid of the 50p rate and raise the top rate from 40% to say 43%
      – raise the higher rate threshold to £60k in combination with a rise in the personal allowance to £12.5k (taking all minimum wage earners out of income tax)
      – remove the withdrawal of personal allowances for those earning over £100k
      – abolish tax credits
      – remove employers’ NI from salaries below £25k and exempt employees who have 33 years of NI contributions (other than from periods of benefits claims) from employees’ NI.

      These measures could be revenue neutral ignoring the impacts that the changes would have on behaviours in the future. They would also involve substantial savings for tax simplification and deliver big boosts to lower income working and “squeezed middle” (ie above average but not “rich”) families. They’d also provide benefits to people approaching retirement, particularly those who may be adversely affected by increases in retirement age, reward the lowest paid for taking work rather than requiring them to pay tax to be redistributed to those who do not work and reduce employers’ wage costs enabling them to protect current employment levels, recruit more staff and increase wages.

      All while reducing the incentive for avoidance by the very highest paid by reducing their marginal tax liabilities.

      • uanime5
        Posted September 10, 2011 at 9:11 pm | Permalink

        Why not just replace the 50% tax rate with a 10% tax rate so the rich have even less incentive to pay no taxes?

        • Caterpillar
          Posted September 11, 2011 at 9:38 am | Permalink

          Non-monotonicity in rates, brilliant idea, how about going one step furthe and having non-monotonicity in absolute amount of direct tax paid. Reduce your direct ax bill by generating more wealth rather than by accounting tricks, but I’d like to see a politician argue for this.

          Has any county try non-monotonic (absolute) tax?

          (BTW why do tax rates have threshols ratehr than a smooth curve? We have had spreadsheets for a few years now, and since there is always a discussion on optomising thresholds, couldn’t the whole tax returns curve be optimised?)

  3. Single Acts
    Posted September 9, 2011 at 6:37 am | Permalink

    2010/11 UK projects 1.8% growth and will now miss this pitiful ambition. Meanwhile Singapore on course to achieve 6%. We don’t even aspire or pretend to be able to achieve this in the whole term of the government.

    We are utterly failed by our inept leaders and their useless failed politics and kept much poorer than we need be.

    • Javelin
      Posted September 9, 2011 at 9:03 am | Permalink

      There growth is so much higher because they are starting from a much lower point – that is to say

      1) there is room for new services and good (whilst the West is Saturated)

      2) there are lower costs, such as land and wages (which make it cheaper to produce goods than the West)

      3) there are relatively wealthy competitors with high costs (i.e. the West, whom they can take business from)

      So whilst you cant really criticise the Government for having lower growth -because the devloping countries have to do so little. You can criticise the Government for not making the economy more competitive.

      For example they should have done the following: –

      1) lower costs – such as wages and taxes – this means setting expectations. Its appalling that the Government have given the public sector such high wage rises when they knew this threat was coming from the developing world.

      2) encourage more value added, high end design and competition to stay ahead of the curve. This would have meant tax breaks for entrepenurs – especially design and those taking business from developing countries.

      3) Keep the immigration of highly skilled people from developing countries, and discourage low skilled, high cost individuals. If you encourage this you will take talent from these countries and leave the less skilled workers.

      But the Government sloth footed because of the burden of a hugh rule bound civil service, the Eu red tape and laws, expectations of free services, rights and compensation and a lack of entrepeneurial spirit set up by the Labour Party.

      • Winston Smith
        Posted September 9, 2011 at 10:10 am | Permalink

        I agrre with your sentiments, but you can hardly describe Singapore as a low cost base nation. Land is a premium and its people are well paid. However, its people are almos to a man, hard-working, financially astute and entrepreneurial. Its a low tax regime, with a subsidised mortgage system and contributory private health schemes for all. It also selfishly and correctly manages immigration for its needs, importing cheap labour for services and construction on a temporary basis only.

        We need to face reality. The UK is in decline. It has peaked. The children of those that enjoyed the peak times are more interested in socialism than creating an environment, such as Singapore’s, where hardwork and entrepreneurial spirit can prosper. They are happy to consign aspiring Britons to the scrapheap for their political and ideological.

        • Mike Stallard
          Posted September 9, 2011 at 11:49 am | Permalink

          They are based on hard working hungry Chinese.
          We aren’t.

          • Winston Smith
            Posted September 9, 2011 at 1:41 pm | Permalink

            They left China 3 generations ago to take advantage of the old colonial entrepeneurialship. They have not been hungry since WW2. Temporary cheap labour mostly come s from India. No wefare State either. Tough on crime and very safe and clean.

      • forthurst
        Posted September 9, 2011 at 2:40 pm | Permalink

        From wiki:

        Singapore – Nominal GDP per capita $43,867 (2010 est) PPP GDP $62,100
        UK – Nominal GDP per capita $36,120 (2010 est) PPP GDP $35,844

        Singapore is a world leader in several economic areas, it is the world’s fourth leading financial centre,[49] the world’s second biggest casino gambling market,[50] the world’s top three oil refining centre, the world’s largest oil rig producing nation and a major ship repairing nation.[51][52][53] The port is one of the five busiest ports in the world.[50] The country is home to more US dollar millionaire households per capita than any other country.[50] The World Bank also praises Singapore as the easiest place in the world to do business [50] and ranks Singapore as the world’s top logistics hub.[54] Lastly, the country is also the world’s fourth largest foreign-exchange trading centre after London, New York and Tokyo.[55]

        (Possibly combining finance with gambling (essentially the same in the UK) might place us higher in the rankings)

        On education:

        National examinations are standardised across all schools, with a test taken after each stage of school. After the first six years of education, students take the Primary School Leaving Examination,[132] which determines their placement at secondary school. At the end of the secondary stage, GCE ‘O’ Level exams are taken; at the end of the following pre-university stage, the GCE ‘A’ Level exams are taken. Of all non-student Singaporeans aged 15 and above, 18% have no educational qualifications at all while 45% have the Primary School Leaving Examination as their highest qualification. 15% have the GCE ‘O’ Level as their highest qualification and 13% have a degree.[137]

        The exams a set by Cambridge/Singapore:

        the Singaporean A-level is a different version of the international A-level. It is known to be more challenging, in terms of the depth of its syllabus and the level of difficulty of its questions, compared to the international A-Level.

        In other words, Singapore has an education system similar to that that existed in the UK before Grammar School destruction and exam trivialisation, but more challenging.

        Importing ‘highly skilled’ people from abroad is not the answer to our existing skills shortage: it is devisive and extremely unfair on British people with higher IQs than those imported, typically from the sub-continent, but have not been offered the appropriate education for their abilities.

        • lifelogic
          Posted September 9, 2011 at 6:47 pm | Permalink

          Indeed

        • A different Simon
          Posted September 9, 2011 at 9:08 pm | Permalink

          “Importing ‘highly skilled’ people from abroad is not the answer to our existing skills shortage”

          I worry sick for British kids and agree our education system needs to improve dramatically .

          However , where is this skills shortage you claim exists , can you give us some examples please ?

          Even the official criteria for bringing people in from overseas on a long I.C.T. Visas is that they must be paid £40K ie £20k wages + £20k expenses (no need for receipts) .

          In practice even this is ignored and people are not even being paid the UK minimum wage .

          £40k is the approximately the package for a met police constable on completion of their induction course and before they receive overtime , meals allowances etc .

          You are damn right that importing people from overseas is not the answer for the UK as a whole but it is for big business and that is what comes first in the eyes of our Govt .

          • forthurst
            Posted September 9, 2011 at 10:30 pm | Permalink

            I think the skilled shortage was implied by Javelin’s post otherwise what is his point; I’m merely arguing as to how any putitive skill shortage should be met. Something has gone very very wrong though when so many of our medical staffs are third world born, often taking intermediate exams set in this country at a level of difficulty pertaining to ours 50 years ago but certainly not today.

            A truly academic examination system and ‘all shall have prizes’ are mutually exclusive because of the world wide phenomenon of the Bell curve.

        • uanime5
          Posted September 10, 2011 at 9:16 pm | Permalink

          The rich would never approve of this system if it meant that the poor but bright would get all the places at the good schools.

      • uanime5
        Posted September 10, 2011 at 9:13 pm | Permalink

        So the best way to complete with China is to pay the employees the same wages as the Chinese. Will this apply to the management or do they still need massive wages for some reason?

  4. norman
    Posted September 9, 2011 at 7:01 am | Permalink

    While I’m all in favour of scrapping the 50p tax rate far more important is to get more people up and out of the middle rate and into the top rate and there is precious little being done to remedy that.

    In fact the exact opposite has happened with a hike in regulations and taxes, capital gains tax foremost in this situation.

    I’m also baffled as to why George Osborne needs a study into this, doesn’t he believe in allowing people to keep more of their money or is the role of the state now to squeeze every last penny out of every last tax payer to help grow the leviathan? Going on the evidence of the last year the answer, sadly, is yes.

    • uanime5
      Posted September 10, 2011 at 9:17 pm | Permalink

      Don’t forget getting people out of the lower rate and into the middle rate.

  5. Julian
    Posted September 9, 2011 at 7:08 am | Permalink

    It would be interesting to see a graph of income tax rate actually paid against income. I suspect it would start at zero, rise to about 50% at incomes of a few hundred thousand, then drop off rapidly as incomes rose further. The real issue is how to get the rate at the very top up to what the bulk of the population pay. Increasing the notional rate, or decreasing it, is unlikely to have any effect.

    • Robert
      Posted September 9, 2011 at 12:44 pm | Permalink

      I think it would be more illuminating if we recorded all the forms of taxation that we pay (suffer) and I think you would be surprised how high it is as % of our incomes. Alot of the so called consumption related taxation is also not discretionary! In my case, for the record, total tax paid as % of my income is 67% !

      • sm
        Posted September 9, 2011 at 4:15 pm | Permalink

        I can only assume your income is very low and you receive no means tested benefits or similar.

        • lifelogic
          Posted September 9, 2011 at 6:57 pm | Permalink

          Not really – NI and Employers NI about 22% combined, (20%/40%/50%) income tax, council tax, 20% VAT on most purchases. Petrol about 70% is tax, Gin 70% is tax, stamp duty up 5%, VED road tax, BBC tax, IHT 40%, CGT 28% and then there is your personal time they waste filling in forms and tax returns, keeping records for 6+ years, trying to understand the absurdly complex system.

          • sm
            Posted September 10, 2011 at 1:42 pm | Permalink

            You would need to give a worked example.

            Most of the taxes kick in above certain levels of income on that extra slice NOT the whole income.

            Its not that i disagree with the sentiment of too much tax but what is incentive at the top applies at the bottom.

            I suspect lower incomes or those on suffer much higher withdrawal rates and indirect taxes. Their employers pay NI too.

  6. Mike Stallard
    Posted September 9, 2011 at 7:36 am | Permalink

    How about this for a real growth strategy?
    1. Hand over the growth forecast initiative to thousands of Civil Servants and Local Government Officers who can see that the Equality Laws and Gender Fairness is complianced. Adapt the Education System to provide suitable workers.
    2. Give governance of our economy to the Commissioners in Belgium who will make sure that growth is maintained equally throughout the different countries that make up the Union. Especial resources should, of course, be diverted to underperforming countries like Greece and Ireland.
    3. Instruct the Police not to interfere when the poor of the inner cities demonstrate about the racist murder of one of their fine young men.
    4. Increase the number of Civil Servants. Severance pay and golden handshakes will attract Managers to run this system. Bonuses which equal those in the Private Sector will factorize this.
    5. Tax the rich who are only in it for the money.
    6. Arrange it so that the Opposition Party is paid for almost exclusively by the Trades Unions.
    7. Give everyone who does not want to work a decent salary and suitable other means to maintain his or her lifestyle as they deserve while they are engaged in JobSearch.
    8. Get rid of the greedy bankers. Frankfurt is the proper place to handle European money anyway.
    9. Tax housing and gas guzzling vehicles so that richer people and the privileged pay more.
    10. Make a plan based on economic growth.

  7. lindsay McDougall
    Posted September 9, 2011 at 7:53 am | Permalink

    Back in the late seventies / early eighties, there was a worse rate that than 83%. High earners paid 98% on ‘unearned income’ – if they were mad. Nearly all of them hired lawyers and tax advisors to avoid paying it.

    ‘Taxes should be low and everybody should pay them’ – Nigel Lawson.

    It works!

    • Mike Stallard
      Posted September 9, 2011 at 11:52 am | Permalink

      I was a young teacher at the time. I asked my (Labour) Head of Department why he didn’t do evening classes like me.
      He explained that it just was not worth it for a shilling (old money for you whippersnappers) an hour.

    • uanime5
      Posted September 10, 2011 at 9:19 pm | Permalink

      The rich won’t pay taxes no matter how low they are.

  8. Peter Campbell
    Posted September 9, 2011 at 7:55 am | Permalink

    Growth will not accelerate all the time that taxation and regulation are so weighted against entrepreneurs. Just yesterday I talked to two business owners that are intending to shut their doors as the profits were just not worth the effort and risk. A total of 12 jobs will go.
    Governments seem to think they can create jobs when the reality is the best thing they can possibly do is stay out of the way of people who actually can create employment.

  9. A.Sedgwick
    Posted September 9, 2011 at 8:10 am | Permalink

    The growth figures would have been achievable with the right growth policy. Cameron and Osborne are trying to grow prize winning vegetables without feeding and working the soil, metaphorically speaking. It was clear to most that these figures were a wing and a prayer job in the best Brown tradition.

    • lifelogic
      Posted September 9, 2011 at 8:52 am | Permalink

      “Without feeding & working the soil” – more like spraying it all with herbicide and vandalising the roots and stems just leave it alone and get out of the way.

  10. Electro-Kevin
    Posted September 9, 2011 at 9:08 am | Permalink

    It’s certainly not popular with me to tax the rich. I think voters are generally fairer than given credit:

    – We did not embrace Leftism – it was foisted upon us

    – We did not resort to voting BNP when provoked

    This notion that we are jealous and would rather wreck someone’s Porsche than work for our own is nonsense. Footballers and pop stars are worshipped and encouraged as no-where else. We’re more Australian in our attitude to wealth than we are American.

    The banking fiasco has done us great harm. Deep offence taken at the situation where bankers who wrecked the country getting record bonuses.

    This anger and desire for punative taxation absolutely justifiable were it not for the fact that it would drag true entrepreneurs and risk takers (personal risk I might add) into the mix. It would also be too early for our stricken economy for a cut.

    40% is where the taxation system is causing greatest pain and disincentivisation.

    We can’t afford to pay for school meals for our own kids but are buying them for other people.

    We can’t afford our own proper pension provision BECAUSE we are paying for someone elses’.

    I could go on about how we are so not rich in this tax bracket. And how we’d be better off not taking that job.

    • APL
      Posted September 9, 2011 at 3:26 pm | Permalink

      Electro-Kevin: “Deep offence taken at the situation where bankers who wrecked the country getting record bonuses.”

      Without attempting to mitigate the opprobrium rightly heaped on bankers. I feel the politicians must not get a free pass, if they had done their job as they should have, then the bankers would have been unable to unleash the next depression.

      • Electro-Kevin
        Posted September 10, 2011 at 1:49 am | Permalink

        Point taken

        • Electro-Kevin
          Posted September 10, 2011 at 1:52 am | Permalink

          We are talking about levels of taxation on salaries of £150k plus being ‘popular with voters’ – this includes few politicians.

  11. A different Simon
    Posted September 9, 2011 at 9:14 am | Permalink

    Exponential growth of the aggregate is only possible over a finite length of time .

    Many people in this country were convinced that house prices could enjoy exponential growth forever . They were wrong .

    The politicians are convinced Briton can support ever growing population levels . They are wrong .

    There is potential for Britain to increase her productivity massively because she is in the doldrums and there is so much untapped potential . If she becomes more efficient that growth must eventually slow down .

    Don’t let yourself be fooled by the myth that continual “growth” is the norm in any system .

    On an individual level if you are servicing all your bills and saving the surplus you only need to continue to do it . This is a sustainable situation and you don’t need to increase your earnings above inflation to survive .

    On top of this we have limiting factors like a decreasing supply of cheap energy and more pressure for food .

    • Electro-Kevin
      Posted September 9, 2011 at 2:30 pm | Permalink

      “The politicians are convinced Briton can support ever growing population levels .”

      I don’t think they believe this. They’re just trying to ignore it and hoping for the best.

      The recent riots were about overcrowding if you want to get to the nub of it. The unwitting creation of an underclass ignored and kept out of view by means of a new class imported to do their work and to keep things going.

      They’d sooner dismantle our armed forces than welfarism and so it is coming to pass.

      ‘Growth’ is the only way to keep welfarism going. Chiefly because welfarism is growing.

      • A different Simon
        Posted September 9, 2011 at 9:21 pm | Permalink

        I reckon you are right about the overcrowding .

        They certainly picked an easy target with the armed forces .

        The BBC gravy trainers are hardly going to call them on fake cuts elsewhere .

      • davidb
        Posted September 10, 2011 at 6:55 pm | Permalink

        Mmm. That population question was the answer to the housing/planning issue brought up on Any Questions last night. I hoped some caller would point out the fact on Any Answers today, but instead that program was hijacked by the perennial supporters and deniers for/against Israel ( we have heard it all before Mr Dimbleby ). We should really have a population policy on this little overcrowded island.

        As to taxes, everyone who earns more than me should pay 100 percent of their extra income in taxes. I’m going to call it champagne socialism.

  12. Alex
    Posted September 9, 2011 at 9:21 am | Permalink

    Starting with a credible level of growth, say 2.75% pa, let’s add a guess of the impact of this government’s policies.
    For ‘green’ energy policies, especially offshore wind, knock off 1%
    For the new EU regulations on temporary employees, and Cable’s gold-plating of them, knock off 0.25%
    For the failure of this government to address over-regulation, knock off 0.5%.
    Result = 2.75% – 1.75% = 1% growth. That’s my forecast.

    • lifelogic
      Posted September 9, 2011 at 11:09 am | Permalink

      I would take a bit more off for a lack of confidence in Cameron and prospect of Labour quite soon, perhaps for several terms. A bit more off for the failure to control public expenditure and the failure to reduce taxes. Then a bit more off for failing to allow new runways at Stanstead, Gatwick and Heathrow and failing to sort out the banks, lending the health system and planning system in general.

      So growth which I think could easily be as high even as 5%+ will due to Cameron be zero or even negative.

  13. Acorn
    Posted September 9, 2011 at 9:30 am | Permalink

    You may be aware that the CPS calculated the real marginal tax rates are much higher, when you include employer plus employee National Insurance tax (NICs); personal allowance reduction. Moving from benefits to work can currently leave you with a 96% effective marginal tax rate. “Universal Credit” will reduce that to 79% … whoopee.

    “It’s time for the tax system to be radically overhauled to make it simple, transparent and honest. Britain’s tax system now is none of those things: impossibly complicated, disgracefully opaque and public debate that borders on downright dishonest. It needs fundamental change.” (TPA / CPS)

  14. oldtimer
    Posted September 9, 2011 at 9:37 am | Permalink

    There was a time, c1997, when the UK enjoyed competitive tax rates. Then it was ranked about 4th in the world. Now it is ranked about 80th to 90th in the world. The problem rests with personal tax rates. corporate tax rates and a tax code that requires more pages to print than just about any other in the world. This is not a sound basis for a world class competitive economy.

    The 50% tax rate is but a part, but an important symbolic part of the problem. It sends a message about national attitudes to “taxing the rich” to those in the outside world thinking on investing and employing people here. I was very struck by the response of the man who said that most of those earning enough to fall into the 50% tax rate bracket had probably spent the last twenty years working their socks off to get to that position. If you are going to be taxed at that rate, why bother? They are also unlikely to be rich. It is more likely that their assets are more than offset by mortgage debt.

    • Javelin
      Posted September 9, 2011 at 12:22 pm | Permalink

      Agreed the tax system needs radically overhauling – but the time is not right. Within a few years when the people in the UK have been burnt badly by overspending Government defaulting and overtaxing Goverments shrinking their economies then the people will be ready.

      The good news is that the pain we are about to face cant be controlled by the politicians and civil servants – they can’t soothe the public into higher tax and spend. I am expecting a sharp correction in the perception of the civil service once the soverign debt shock hits – whatever its form.

      • Electro-Kevin
        Posted September 10, 2011 at 1:58 am | Permalink

        “I am expecting a sharp correction in the perception of the civil service once the soverign debt shock hits – whatever its form”

        Parliament too. Much decision making is done by the EU and there is potential for huge savings.

  15. Iain
    Posted September 9, 2011 at 9:43 am | Permalink

    What type of growth do you want? Debt fuelled consumption growth where people cash in on their property speculation to buy more goods from Germany, China and Japan?

    • Brian Tomkinson
      Posted September 9, 2011 at 10:31 am | Permalink

      Iain,
      I agree there is too much simplistic talk about growth from the media and politicians.

      • Iain
        Posted September 9, 2011 at 11:51 am | Permalink

        Yes it really irritates me to hear politicians prattle on about growth, but not care what type of growth. You might have expected to have the Conservatives slap down Balls’ plan for growth , which by cutting VAT rates would just in the medium to long term help German, Chinese, and Japanese manufacturers, and all we would be left with are a few more BMWs, Mercedes, and Plasma TV’s, no sustainable growth, and more debt; but they don’t, probably because it never crosses their mind to care about the type of growth for a consumer led binge growth is as good as any other as long as it gets them over the next election.

  16. Javelin
    Posted September 9, 2011 at 9:45 am | Permalink

    As I’ve said before we are only PART way through a major readjustment in the Wests’ attitudes to the economy. The banking crisis was only a pre-shock to what is coming next. Life has pretty much carried on as it has before – with the addition of banker bashing. Any economist will tell you that the fundemental underlying global economics have changed drastically. Today it’s like having severe subsidence in your house but having elastic wallpaper – the wall paper being the Central Banks ability to bend money. Unless you are prepared to put the effort in you simply do not see the crazy situation.

    The ground that has shifted underneath us is that the developed countries are now challeging the West at such a fast rate that Adam Smith’s model of Global economics has broken down. His belief that everybody benefits from growth is simply not true in the current global economy – because the pace is so rapid that growth, resources, profit and debts are accumulating disproportionately in favour of developing countries. It’s like the Japanese economic revolution is happening in 20 countries at once. We are not prepared to react – at all.

    So just as attitudes to banks changed drastically after the credit crunch – so the attitudes to Government Overspending will change drastically when we start to see Governments defaulting because of their overspending and lack of growth. The current distribution of GDP has shifted strongly to income redistribution (under the disguise of ‘fairness’) – underskilled people are paid tax money, such as immigrats who are not net tax payers, single mums paid to work more than 16 hours per week, huge numbers on able people on disability payments, high taxes for high earners, high red tape, high public sector wage expectations etc, etc, etc. The developing economies do not have these issues on this scale. With the cost of container freight and information transfer being so low, revenues and profits (and hence taxes) are simply falling in real terms in the UK as they are distributed abroad.

    Attitudes will change drastically over the next 5 years – and you will see the popularist view shift from the left to the right as people realise their way of life is having to change because of GOVERNMENT OVERSPEND. Because the British public have not been readied for this change we are going to see a ‘snap’ change in opinion this will catch politicans on the left off guard.

  17. A different Simon
    Posted September 9, 2011 at 9:50 am | Permalink

    Perhaps we can also stop subsidising companies to encourage them to bring cheap labour in from abroad ?

    • Electro-Kevin
      Posted September 10, 2011 at 2:04 am | Permalink

      Or make them contribute to local benefit payments.

      The local refuse dump where Little Johnny at-the-back-of-the-class might have found a useful place in society is worked by Polish contractors.

      Is this really a saving for the local tax payer when the costs of local unemployment are included ?

  18. English Pensioner
    Posted September 9, 2011 at 10:03 am | Permalink

    We should have a simple flat rate tax in this country. Simple to administer and we would all know exactly where we stand. No allowances of any kind, you simply pay a percentage of what you earn in tax. No more errors because even the tax people don’t understand the system, no need for accountants to optimise the figures. Think of all those civil servants which could be fired.
    Although I’m retired, I was offered some occasional part time work, but in the end I declined as the hassle of filling in tax forms again was a total disincentive. It would have been far easier with a flat rate system, the employer would merely retain a fixed percentage and send it to the tax man.

    • Bob
      Posted September 9, 2011 at 9:38 pm | Permalink

      Agreed. And instead of punishing high earners with punitive tax rates we could just give them a good thrashing with a large stick once a year to keep the lefties happy.

      • uanime5
        Posted September 10, 2011 at 9:27 pm | Permalink

        Or better yet make a law that says they can only earn 10 times what their employees earn. So whenever they give themselves a bonuses the employees get a tenth of the bonus.

  19. Steve Cox
    Posted September 9, 2011 at 10:39 am | Permalink

    John, you make a presumption, “…the government’s political strategy presumably relies on getting real incomes rising again after a nasty period of decline in recent years”, that is not supported by its actions or policies. As well as growth, rising real incomes will require low and controlled inflation, something that this government does not appear to be in the least bit interested in. Given that the bulk of government debt is linked to one inflation index or another, the idea that King and Osborne are happy to inflate their way out of the debt and deficit problems does not seem to me to hold water. Many people say that they are now so focussed on achieving growth that controlling inflation is regarded as a minor issue, and one that would impact negatively on the much-desired growth. So as far as I can see, most of the evidence at the moment points towards your presumption being incorrect. In other words, if we are to achieve the targeted growth without also controlling inflation, then Joe Average will pay for it by seeing his real income continue to decline, while the benefits of growth will end up in the pockets of the usual suspects: the taxman/Treasury, the big corporations, and the financiers. This is all starting to sound very 1984, I am afraid.

  20. Martin
    Posted September 9, 2011 at 10:43 am | Permalink

    I can’t but continue to think that the near 0% interest rate is part of the problem. It makes folk think that money has no cost. If the supreme masters of the universe (BofE monterary folks) raised the interest rate to 2% savers would be happy, borrowers would pay sensible rates and inflation would be fought. More importantly money would flow into the country to be hopefully used for growth.

    • lifelogic
      Posted September 9, 2011 at 2:04 pm | Permalink

      It is not 0% if you want to borrow – the banks want at least 3.5% over libor with large fees too. Best to lend secured to a friend and cut the robber banks rather than lend unsecured to rather dodgy banks.

      Companies I have need £2M at the moments secured on good property and the banks want to charge a fortune for it. Any offers please let me know!

      • Electro-Kevin
        Posted September 10, 2011 at 2:11 am | Permalink

        Plus growth is low. High streets complain of low spending.

        People are understanding the importance of money alright.

      • Caterpillar
        Posted September 11, 2011 at 9:43 am | Permalink

        Isn’t 3.5% over LIBOR about zero in real terms at the moment, maybe a little less than zero?

  21. Mactheknife
    Posted September 9, 2011 at 11:08 am | Permalink

    There needs to be some bold moves on taxation. The 50p rate is an easy target to reduce. Of course there will be the usual suspects who will object – Labour, LibDems, Guardian readers, BBC etc etc. The real bold move would be to adjust the starting point for the 40% rate, where a significant proportion of the population could see some real money back in their pockets and feel at liberty to spend it. Lets be honest the people paying 40% are carrying the biggest burden in the tax system, and yet are the ones who have been squeezed by Labour and Conservative alike.

  22. startledcod
    Posted September 9, 2011 at 11:11 am | Permalink

    If ever there was an opportunity to be bold it is now.

    Whether it is a real slashing of regulation (not just talking about it) or an energy policy that addresses what the country needs not a questionable ‘green’ agenda (I have yet to hear a remotely cogent argument about why we are building so many wind farms and what happens when the wind doesnt blow) to postponing any increase in overseas aid to reducing payments to the EU and so on.

    Real boldness would be rewarded, with real growth and a real majority at the next election.

  23. Javelin
    Posted September 9, 2011 at 11:25 am | Permalink

    IS GREECE ABOUT TO GO CRITICAL ??

    I posted recently that on the 11th (Sunday) – that a review of Greek finances could stimulate a default. I also posted that it might be possible that the Greek Government pays its salaries using an internal currency. I was closer than I thought.

    It now appears that the Greek Government will not be able to pay its own bills internally, and has “frozen all disbursements apart from salaries and pensions.”

    The review will be very uncomfortable this Sunday. I wonder whether this freeze has been done to preempt the review?

    It also appears Greek banks are no longer willing to bail out their own Government – by buying their bonds. Bank only stumped up 150 million of the 300 million for Tuesdays T-Bill auction. All year, including July and August Greek banks stumped up the cash. They have now stopped supporting their own Government.

    Do I think Greece will default ? – Probably not until they hear the ECB terms. It appears the Greeks are about to become the first country the ECB will try to colonize. The ECB must be rubbing their hands together at the thought of negotiating with the Greeks for soverigntity. The ECB will then have some serious (negative) assets to threaten the rest of Europe with.

    The Question for me is how will the Greek Prime Minister react to negotiations with the ECB? Will he walk away or accept their Soverigntity over his people? Just as in War terms of surrender will have to be negotiated very shortly.

    Here is what was published today in the Greek newspapers.

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_08/09/2011_405503

    I will give the translation in full ….

    “The government is facing the possibility of not being able to pay wages and salaries in October if its international creditors do not approve the pending 8-billion-euro sixth installment immediately.

    The country’s foreign lenders have made disbursement conditional on the government’s adoption of new measures that will target the collection of at least 1.7 billion euros. Without the sixth tranche, the public purse will be 1.5 billion euros short on October 17.

    The prospect of a freeze in payments appeared even more serious on Thursday, after Greek commercial banks failed to cover the sum of 300 million euros of supplementary, noncompetitive bids for Tuesday’s auction of T-bills, providing only 155 million. The shortfall is interpreted as a clear message by banks to the government that they are unwilling to fund future issues of T-bills.

    The gravity of the situation is indicated by the fact that the government has frozen all disbursements apart from salaries and pensions.”

  24. Mark M
    Posted September 9, 2011 at 11:57 am | Permalink

    “Politicians are wary of this, as taxing the rich is always popular with many voters”

    Only among leftie voters. Cameron is not going to win these voters over by keeping the 50p rate, nor will he lose them by reducing it to 40p. Stop worrying about ‘political difficulties’ when making decisions.

    Have you not learned yet that voters care little about the petty squabbles in Westminster? They want a government to make the right decisions, not one that frets about what Ed Balls will say on the Andrew Marr Show.

    • lifelogic
      Posted September 9, 2011 at 5:33 pm | Permalink

      Quite right it is what works in time for the next election that matters.

      Osbourne today says he will not be diverted from his deficit reduction plan. Perhaps he could finally start on the plan then! Or is the plan just close his eyes and pray for growth – despite all his anti-business, anti-wealth, big government and anti-growth policies.

    • uanime5
      Posted September 10, 2011 at 9:32 pm | Permalink

      If Cameron reduces the 50% tax rate Labour and the Lib Dems will heavily criticise him for this at the next general election. This will sway many undecided voters to vote against the Tories because the Tories will become synonymous with only favouring the rich.

      Cameron is already has several unpopular policies involving tuition fees and the NHS, he won’t risk angering any more people.

  25. Geoff not Hoons
    Posted September 9, 2011 at 12:16 pm | Permalink

    Mr. Redwood, If growth comes from consumption how can we do that when we are up to our necks both as individuals and as a nation? Your visit to Wokingham CAB (all credit to you) will have underlined the position and how severe it has become. As a director/trustee of a similar CAB undertaking we ourselves are having to cut back at a time when demand, particularly for debt matters, is at an all time high. The pursuit of growth to us seems like a doctor telling a full blown alcoholic he needs to think about drinking more.
    Local Authorities fund the lions share of most CAB’s across the UK and with them facing cut backs it doesnt take a degree in economics to guess where the cuts get passed on. Any input you have as a result of your visit to Wokingham CAB will benefit the service nationally I feel sure.
    Thank you.

    Reply: Whilst personal debt remains a serious problem for a minority, there are many individuals and companies with the ability to spend more, to create extra demand.
    One of the strengths of the CAB is the main cost, professional advice, is kindly provided free by volunteers.

    • Geoff not Hoons
      Posted September 9, 2011 at 1:00 pm | Permalink

      Mr.Redwood, I agree, of course there are folk who can and do spend despite some in society suffering. The problem in my view is that the people who got into debt and require the help of bodies like CAB are the result, dare I say victims, of business’s and of course banks who lent wrecklessly, regardless of the clients ability to repay. Credit cards, store cards, catalogues all linked directly or indirectly to banks who should have not been lending such crazy sums, but there was and still is none to stop them despite million upon million of fine words from all the various government and quasi government bodies involved. Within 10 years or less it will all occur again but we have short memories unless we ourselves are directly affected.

      • Mactheknife
        Posted September 9, 2011 at 2:40 pm | Permalink

        Unfortunately we are back to the “victim culture” arguement, something that Labour and left wingers introduced. Where is the individual responsibility in all this? It seems everyone who has got themselves into probelms is a “victim” of somebody else. Nobody asked them to borrow large sums, take on 100% mortgages, buy on store cards etc etc. Whilst I’m sympathetic and we should try and help people via CAB’s, lets be honest about it and tell it like it is. It really angers me when people abdicate their personal responsibility. My general rule in life is that if you can’t afford it – dont buy it !

        • Public Servant
          Posted September 9, 2011 at 6:35 pm | Permalink

          Quite right too and I have one other rule. If you buy a share in a bank and the bank goes bust you lose your capital. That is capitalism.

          • uanime5
            Posted September 10, 2011 at 9:34 pm | Permalink

            Don’t forget that if your bank goes bust because of your mismanagement you lose your huge salary and pension.

      • Electro-Kevin
        Posted September 10, 2011 at 2:21 am | Permalink

        Victims ?

        Savers and pensioners.

      • Bazman
        Posted September 10, 2011 at 9:29 am | Permalink

        Many younger people believed that the party would never end and other older ones were just stupid. One man I talked to in his fifties who borrowed against his house and now will not pay of his mortgage until he is in his seventies, if he now has a job that is. said: “I just never thought house prices would stop rising” The money spent on cars and the like.

  26. Neil Craig
    Posted September 9, 2011 at 12:29 pm | Permalink

    And we know exactly how to achieve growth, indeed growth at least matching China’s 10%, any time the politicians want to do it.

    Cut parasitic regulation and to quote Professor Peter Cameron, professor of international energy law and policy at the University of Dundee, wrote,

    “Energy is at the heart of modern life”

    and

    “In modern times the main driver of economic growth has been, and continues to be, energy”.

    (quoted favourably by SNP Minister Jim M<ather, whose party is doing the opposite – proving that all the politicos who know anything know this is true, but the number who actually care about the country is far lower.)

    • lifelogic
      Posted September 9, 2011 at 5:39 pm | Permalink

      Many countries have petrol at below 20p a gallon and electricity below 4p. That might be rather good for growth in the UK perhaps. But Huhne prefers to buy “super green” electricity at 40p+ per KWH with your money.

    • sjb
      Posted September 9, 2011 at 10:32 pm | Permalink

      For those of you fixated about wind turbines, what do you make of the claim that a Japanese innovation may double or triple their power output?
      http://www.geekosystem.com/japanese-wind-power/

      • Neil Craig
        Posted September 10, 2011 at 12:54 pm | Permalink

        That if it were to actually work, much more difficult than saying something may happen, we would look pretty stupid forwasting £10s of billion putting up thousands of the current design, wouldn’t we?

        • lifelogic
          Posted September 10, 2011 at 8:21 pm | Permalink

          Indeed I only object to wind and pv cells because they do not work – cost effectively. If they can be made to work fine. Certainly do not install the current design then it would be insane if working ones are on the way.

      • sm
        Posted September 10, 2011 at 2:00 pm | Permalink

        Indeed. Any extra wind capacity is just that extra capacity which can displace coal/gas when the wind blows and quick relatively to build. The marginal increase in systemic intermittency can be managed by retaining older plant at lower burn levels (using weather forecasts) .

  27. Paul H
    Posted September 9, 2011 at 12:37 pm | Permalink

    Piled on top of which, graduates will have to pay an additional tax in the form of fee repayments on the specious grounds that they will earn much more by having a degree. Ignore the fact that – these days – degrees are hardly a passport to riches, being two-a-penny (but not in terms of cost, of course) and hence needed just to be considered for so many jobs. However, if they earn more, graduates will already pay more due to our “progressive” taxation (an adjective apparently designed to make it sound virtuous).
    Pile on top of that means-testing of child benefit and goodness knows what else is up the Chancellor’s sleave, we will have in aggregate a taxation system with even more complexity and high marginal tax rates – probably above 100% in some cases – than that left behind by Brown.
    And now the government is said to be considering additional fees for graduates who have the temerity to pay off graduate debt early. After all, we really mustn’t possibly encourage people not to have any more debt than they really need …
    What the heck is the matter with Osborne and Cameron?

    • uanime5
      Posted September 10, 2011 at 9:36 pm | Permalink

      What’s worse is that if the graduates can’t get a job or emigrate this debt will cripple the Government in 30 years time.

  28. KRodgers
    Posted September 9, 2011 at 1:03 pm | Permalink

    The best way to increase growth is to raise the higher rate of taxes, not lower them.

    History has proven this time and again:

    for the 1950’s – 1970’s Britain had a far higher top rate tax (up to 98% in the 70’s) and standards of living for the average person improved immensely.

    Similarly in the US, like Britain they had high taxes in this period and also had their longest period of sustained growth – 1946 to 1964 top rate of tax varied between 80% to 90%. And in 1993 when Clinton caused the ‘Clinton Boom’ by raising the top rate from 31% to 39%.

    Higher taxes for the very wealthy are not just morally right, they are proven by history to be good economics.

    Unfortunately many of you seem stuck in the 80’s thinking we can just keep selling things off to pay for the Tory tax cuts, it would be nice but we no longer own anything worth selling (unless you want to flog off the Royal family next?)

    Reply: Not so, the 1970s was a very poor decade for growth, with two b ig recessions, and a big brain drain exodus of talent.Clinton’s top rate was below our lowest top rate of recent years

    • KRodgers
      Posted September 9, 2011 at 3:38 pm | Permalink

      You Replied: “Not so, the 1970s was a very poor decade for growth, with two b ig recessions, and a big brain drain exodus of talent.Clinton’s top rate was below our lowest top rate of recent years”

      I like the way you focus on the 70’s when I clearly said between the 50’s and 70’s (to make it clear for you I specifically meant from 1950 to 1970, I apologise for ambiguity)

      As for the brain drain, I take it you are suggesting that increasing taxes will send wealthy (or brainy) people abroad? That is a myth that has been exposed many times, here is just one link to an article which proves it – http://www.progressivestates.org/news/blog/don%E2%80%99t-be-fooled-the-millionaire-migration-myth

      Yes, Clintons top rate was below our top rate, but there was no American brain drain when he increased the top tax by 8%.

      I repeat “Higher taxes for the very wealthy are not just morally right, they are proven by history to be good economics.”

      I shall expand that, if someone takes a lot out of our society they should be prepared to put a lot back in – whilst it would be nice if people were naturally altruistic we find that in some cases altruism must be enforced, we do this with taxes.

      • lifelogic
        Posted September 9, 2011 at 8:59 pm | Permalink

        By what mechanism do you think that taking money off the rich (who clearly are fair good at managing money) and giving it (after large, direct and indirect collection costs) to governments to waste (as they clearly would) on buying votes, employing their relatives and friends, doing favours for consultancy fees, green energy nonsense, giving away to the PIGIS and the EU, Edinburgh trams and parliament buildings, propaganda, encouraging the feckless and employing yet more people doing largely pointless things (or just inconveniencing the productive).

        What do you think that the rich, in general, would do with the money that could be worse for the economy than that? Most would invest it, expand their business and employ more people, spend it or give it to charity what is wrong with that surely far batter than the above?

        • Bazman
          Posted September 10, 2011 at 9:43 am | Permalink

          I know you cannot stop heaping praise on the church, but many of the mega weathy in the past invested their money in property via banks who starved industry of funds due to their short term thinking whilst ripping off business with high fees or hid the money offshore in tax avoiding foreign bank accounts making money with money contributing very little to the greater good.

      • zorro
        Posted September 9, 2011 at 10:13 pm | Permalink

        If someone earns money, what gives you the right to demand the government take more from that person to support someone else who doesn’t want to work? That is the end result of your high taxation.

        If we didn’t pay people not to work, taxation would not need to be so high. There is no moral case for high taxation. In any case, it is also ineffective at getting more money from rich people.

        Punitive rates of taxation do not contribute to an atmosphere of freedom and liberty, and harm people’s ability to earn money to support their families.

        zorro

        • Bazman
          Posted September 10, 2011 at 9:51 am | Permalink

          Taxation is need to fund infrastructure and health enabling wealth to be created.Charity motorway? I’ll turn up on Saturday with my tools and a bag of cement. Wife/ weather permitting. Toll road? Don’t be silly. To expensive. The argument that the working person should not fund the idle is obvious, but if there is an deserving poor than by default there must be an undeserving rich?

          • lifelogic
            Posted September 10, 2011 at 8:28 pm | Permalink

            Undeserving rich – indeed plenty of them – Lottery winners, Blair, many lawyers, many bankers, some royals, some who inherit large sums. But on balance even they probably spend the money better than the Government would -so what is the problem.

          • Bazman
            Posted September 11, 2011 at 9:12 am | Permalink

            The point being that if the undeserving poor need punishing then so do the undeserving rich.

      • Electro-Kevin
        Posted September 10, 2011 at 2:41 am | Permalink

        KRodgers:

        “I shall expand that, if someone takes a lot out of our society they should be prepared to put a lot back in ”

        Can someone else please explain to him ? I’m too exasperated.

        And what is meant by ‘growth 1950-1970’ in these comments ? You don’t specify which type occured.

        Was it sustained … or did deep recession follow ? Hmmm ???

        • uanime5
          Posted September 10, 2011 at 9:40 pm | Permalink

          “I shall expand that, if someone takes a lot out of our society they should be prepared to put a lot back in ”

          This means if you pay yourself a huge salary by giving your employees a poor salary you should lose most of your salary so that you employees can actually afford to buy the things you make.

          In short if you don’t want your salary to go towards tax credits pay your employees a reasonable salary so they no longer need them.

    • davidb
      Posted September 10, 2011 at 7:29 pm | Permalink

      I was born in ’61 and grew up through the 60’s and 70’s. We scraped ice off the bedroom windows in winter – and I was the son of a middle class household. The growth in the world after 1945 was because the world wars had destroyed vast swathes of the assetts and the economies of Europe. The US Marshall Plan provided the capital. You must be very young to be unaware of the difficult lives lived by people in this country before the oil was struck and Mrs Thatcher got the bolshy unions off our backs.

      I remember reading that cases of sunburn in Cornwall rocket whenever sales of icecream rocket. Surely therefore it must be true that icecream causes sunburn?

  29. outsider
    Posted September 9, 2011 at 1:16 pm | Permalink

    The UK’s long-term trend rate of growth is about 2.3 per cent. Given that we were consuming unsustainably more than we produce, it seems rash to budget for more than this after a forced structural cut in GNP. The OBR is as firmly stuck in the old “reinflate the bubble” thinking as the MPC because they are beholden to the same purely cyclical economic model.

    As you rightly imply, there is nothing much an over-indebted Government can credibly do to raise supply-side growth in the short to medium term (let alone demand), with one big exception.

    You can try to rebuild confidence. One way is to stop ANY compulsory redundancies in the public sector and instead rely, as you have so often argued, on natural wastage to cut costs. Any recruitment should be confined to young people finishing their education/training or drawn from and the ranks of the registered unemployed. This would send out a good message.

    The other way is to stop talking about an emergency and emergency measures. The MPC is by far the worst culprit here. We are no longer in an emergency. We are where we are. There is no banking emergency (because we know how to deal with failures in the interbank market and capital needs). There is no emergency in the housing market, only a new reality. Confidence can only be rebuilt by trying to re-establish a sober climate of stability and normality.

    You are right that effective marginal tax rates well above 50 per cent will drive jobs abroad. But what is true at the top is also true at the bottom. Tax and benefit withdrawal rates above 50 per cent are a not just a disincentive to work. They divert jobs to newcomers who face much lower marginal tax rates (I am trying to avoid the I word because this is about tax). Mr Duncan-Smith is doing his best but is not being allowed to go fast or far enough. Meanwhile, with the best of intentions, your Government is reinforcing the benefits trap in areas such as education.

  30. Rebecca Hanson
    Posted September 9, 2011 at 1:30 pm | Permalink

    In ‘The Audacity of Hope’ (p188) Barak Obama writes about how GW Bush’s tax cuts impacted on the US public. 47.4% went to the top 5% of earners. 36.7% went to the top 1% of earners (typically those earning over 1.6 million dollars a year). On the next few pages he writes about his conversation with Warren Buffet about this issue. Well worth a read.

    We need to think carefully about these issues and I welcome all perspectives and discussion.

    • Brian Tomkinson
      Posted September 9, 2011 at 4:16 pm | Permalink

      Rebecca,

      Perhaps you and Mr Obama should remember that tax cuts are allowing the people from whom wasteful government took it in the first place to keep more of their own money. On that basis it isn’t too surprising to find that those who had most taken (confiscated) receive the most when the taxes are cut. You may think the government spends your money better than you, do but I certainly do not.

      • Rebecca Hanson
        Posted September 9, 2011 at 10:34 pm | Permalink

        Yes but Brian, I work in education.

        So I’m having to deal with the difference between how this government is spinning it’s own efficient impact on education and the chaotic inefficient vandalism which is acutally going on.

        It wises you up a bit to the difference between what they say and the truth.

        • Brian Tomkinson
          Posted September 10, 2011 at 9:56 am | Permalink

          Do you think the previous government was any better? I don’t. Which is my point – government is poor at running anything. Just be grateful they haven’t nationalised the supermarkets.

          • Rebecca Hanson
            Posted September 10, 2011 at 11:39 am | Permalink

            Brian under the previous government I went through badly botched ofsted interventions and a seriously botched academyisation…..

            Yet it is important to make it clear that yes, this government is far, far worse.

            Previously those involved in education could get involved through the normal democratic routes in working towards reform and improvement and we did and coherent progress was being made.

            But that was all shut down. All the normal democratic routes for the development of policy in education have completely stopped and instead we are being deluged with ludicrously naive policy that’s paper thin and will obviously have hurrendous consequences which those who have developed it have no insight into because they have no experience in either the reality or the theory of education.

            It’s so scary to watch because they break it down into deeply plausible but totatally false soundbites.

            ‘A free market will improve education’

            Don’t be absolutely blooming ridiculous. High quality state education needs to be properly consulted and planned. ‘Free markets’ come at a substantial cost we need to plan for their implication. State education needs a coherent infrastructure within which to operate. Anyone with any experience in planning education knows that as does anyone whose read any of the literature on it. It’s not rocket science. Watching David Cameron spouting this naive claptrap yesterday was really heartbreaking because it makes him look stupid and I don’t want that.

            Some things are best run collectively by society Brian and that includes the education of our most vulnerable children. And if they aren’t being run well we should sort out the problems. Lack of coherent planning in education create worse sink schools for the most vulnerable. A VERY OBVIOUS FACT.

            You may be reasured by Cameron’s claims that we will sort out our disaffected teenagers by ‘considering removing their parents’ benefits’. I’m afraid I’m not because I’ve actually worked with lots of disaffected teenagers and I understand what it actually takes to get them on the right track.

          • Bazman
            Posted September 11, 2011 at 9:14 am | Permalink

            Or the railways.

      • Rebecca Hanson
        Posted September 9, 2011 at 11:24 pm | Permalink

        Also Brian it was not my views I was bringing in here but Mr Obama’s and Mr Buffetts.

        Could you possibly give any insight into which aspects of their views you agree and disagree with?

        • Brian Tomkinson
          Posted September 10, 2011 at 10:35 am | Permalink

          I’m not sure that Mr Obama’s and Mr Buffetts’s views are relevant to what should happen in the UK. In any case, I prefer small government to large government and believe that people should be allowed to keep more of their own money to spend as they see fit, rather than allowing politicians to do it for them.

          Reply: Mr Buffett pays a much lower rate of tax than higher earners in the UK. He is free to send any amount he sees fit to the US Treasury.

          • Brian Tomkinson
            Posted September 10, 2011 at 11:09 am | Permalink

            John,
            Good point. I wonder why he doesn’t.

          • Rebecca Hanson
            Posted September 10, 2011 at 12:55 pm | Permalink

            And he is saying the the US treasury should feel free to raise his tax.

            In the meantime I’m sure he makes much wiser philanthropic decisions than the vast majority of taxpayers would.

            I don’t understand your comment to John Brian.

    • uanime5
      Posted September 10, 2011 at 9:45 pm | Permalink

      How many new jobs did the tax breaks encourage the rich create? I’m trying to calculate how many jobs are created per 1% tax break to determine the optimum level of taxes.

      • Bazman
        Posted September 11, 2011 at 9:17 am | Permalink

        Like the car scrappage scheme most of the money will end up abroad.

  31. javelin
    Posted September 9, 2011 at 2:38 pm | Permalink

    Something is going on over at the ECB … Reuters just reported that the German, Juergen Stark has just resigned from the ECB commitee – there is only one hawk left (Smaghi) on the ECB commitee now.

    I guess a big decision was in the offing with a dovish stance. My guess is that Greece was planning to default this weekend – but the ECB had to offer something that he was unable to accept for legal or ethical reasons.

    http://www.reuters.com/article/2011/09/09/ecb-stark-idUSB4E7K601520110909

    “ECB Executive Board Member Juergen Stark will step down from his post because of a conflict over the central bank’s controversial bond-buying programme, two sources told Reuters on Friday”

    Reply : Your comments are speculative – allw e know is what was said. Clearly there are big issues causing tensions.

  32. Richard
    Posted September 9, 2011 at 3:12 pm | Permalink

    Growth will not come whilst we have one third of our population not working, (retired, unemployed or on disablity benefit), one third working for the state and the remaining third working and paying tax to pay for them.
    We need to reduce the numbers in the first two groups and increase the number who work and pay taxes.

    We need a simple flat rate tax on income and capital gains with very few allowances.
    We need a radical revision of the rules and regulations strangling small companies.
    We need a radical revision of the benefits which trap hundreds of thousands unable to work without ending up considerably worse off, and so many supplement their income by working in the “black economy”.

    Lower tax rates at all levels of earnings would restore incentives, encourage entrepreneurial endeavour and result in much higher tax revenues.

    We cannot hope to compete with the fast growing nations of the world with Government spending around 50% of GDP.
    Until we radically alter this figure,growth will not come and we will continue to get poorer.

    • lifelogic
      Posted September 10, 2011 at 4:32 am | Permalink

      Exactly – and much of this 50% government expenditure spent to further inconvenience business with pointless regulations and higher “green” energy prices to further compound matters.

    • uanime5
      Posted September 10, 2011 at 9:47 pm | Permalink

      So many people are unemployed or in the public sector because the private sector is dragging its heels and refuses to create jobs. It the private sector created more jobs they wouldn’t have to support so many people in the other sectors.

  33. matthu
    Posted September 9, 2011 at 4:59 pm | Permalink

    It would seem there is probably very little growth to be gained by reducing UK taxation if we are simply going to allow this taxation to be replaced by EU taxation.

    Furthermore, taxation should also include the compulsory and wasteful climate levies that are added into our energy bills and disguised as fuel increases. These must over time add another 1-2% onto the average taxation rate – and they affect everybody regardless of income threshold.

  34. waramess
    Posted September 9, 2011 at 5:42 pm | Permalink

    Growth? how can we expect growth when the public sector continues to grow. Growing perhaps at a slightly slower rate than before but growing and, so long as it continues to grow the private sector will shrink.

    Growth in the public sector as we all know comes from taxing the private sector so this is now a self perpetuating downward spiral, as people can afford to spend less and companies can sell less. Budgeting for growth of any kind is not making much sense unless the government can see a source of revenue, such as a big North Sea find, that the rest of us cannot.

    Published GDP figures, if corrected for CPI inflation, and not the sham inflation they insist upon, would show we have been in a recession for the past four quarters at least and so none of this should come as a surprise.

    Maybe the government are whistling to keep their spirits up.

    • Public Servant
      Posted September 9, 2011 at 6:38 pm | Permalink

      Genuine question rather than me being defensive but which part of the public sector is growing? Certainly where I work we have shed a significant proportion of the workforce.

      Reply: Overall current spending rose by 5.3% last year. Growing areas included NHS, schools budget, overseas aid, debt interest, benefits and pensions.

  35. Quietzapple
    Posted September 9, 2011 at 6:28 pm | Permalink

    Better revert to 17.5% VAT. Whatever history shows we know that will expand our economy and increase vital confidence.

    Osborne and Cameron spent so much time running Britain down – principally for the years before the previous election – that the sight or sound of them now turns many to despair.

    A fillip for Britons is long overdue and in the absence of a positive government an inflation cutting growth boosting VAT cut is the ticket!

    • uanime5
      Posted September 10, 2011 at 9:48 pm | Permalink

      Osborne and Cameron won’t reduce VAT as it won’t benefit the rich, it only helps normal people.

  36. zorro
    Posted September 9, 2011 at 6:37 pm | Permalink

    John, are those percentage totals for government forecast from June 2010 and March 2011 cumulative? I guess they must be. Either way, with the Coalition’s current policies, they are total fantasy. I will be surprised to see anything over 1% for a good few years and obviously inflation will wipe out any nominal increase in GDP.

    ”I do not think the OBR could revise subsequent years up to make up for the loss.” – master of the understatement as ever.

    The study on tax rates is another sop to the Coalition partners. The Conservatives are hopelessly hamstrung and unable to take effective action to sort out the economy. It is a question of understanding whose money tax is and where it comes from. It is our money demanded by the government to allegedly provide ‘services’. The government should take less of its citizens money, then people will be wealthier. If people work hard they shouldn’t be penalised, because, believe it or not they spend it in the economy to provide jobs more effectively than the state.

    “To tax the community for the advantage of a class is not protection, it is plunder.” (Giving this Disraeli quote some universal application!)

    ”The best way to put more money in people’s wallets is to leave it there in the first place.” (Edwin Feulner)

    zorro

    reply: I have given you each year’s growth figure and the 5 year total

    • zorro
      Posted September 9, 2011 at 10:47 pm | Permalink

      Yes thanks, I’ve just done the calculations, they are cumulative, year on year growth. So with 100 as a base for April 2010, they initially reckoned that we would be at 113.23 by March 2013, and now they reckon 112.8…..unfortunately still a total fantasy based on current policies and the international economic picture.

      Let’s say they manage to get growth to 107.5 (generous?) over the term. In that case, how much money would they have to raise in taxes to meet their target for deficit reduction by 2015?

      zorro

      zorro

      Reply: if growth falls short by 5% then roughly we lose £75 bn of output in 2014-15 compared to plan, and around £30 billion of tax revenue (per year). Mr Osborne, encouraged by the Head of the IMF, says he will not increase taxes to make up the shortfall but regard this as cyclical” requiring use of the “cyclical stabiliser” – i.e. more borrowing.

      • zorro
        Posted September 10, 2011 at 11:22 pm | Permalink

        Ouch! I think that even my growth prediction might be optimistic but certainly more realistic than the official one! That’s a lot of money to make up for not pursuing policies to stimulate economic growth…

        ‘Cyclical stabiliser’ – that sounds like ‘Crash’ Gordon talk with his ‘golden rule’ of claiming to balance the budget over the economic cycle but never quite knowing when the economic cycle started or ended…and never actually balancing a budget once he was off the Tory strictures of the first two years under Labour.

        Oh dear….

        zorro

  37. Susan
    Posted September 9, 2011 at 7:51 pm | Permalink

    Gordon Brown introduced the 50p tax for political reasons to wrong foot the Conservatives should they come to power. He knew full well that should the Conservatives form the next administration they would not be bold enough to immediately cut the 50p rate due to public opinion, who favour overtaxing Britian’s high earners. Therefore, it was mere spite by the Labour Party that drove the 50p tax not economic needs. Unfortunately the Conservatives then formed a Coalition with the Lib/Dems who think exactly the same way as the Labour Party about taxing the high earners, thus making the sensible decision to cut the 50p rate as far away as ever.

    I refer to high earners because this tax penalises the highly skilled, which Britain needs far more than it does the significantly rich. These people just leave Britain as soon as possible and take their money with them. With the loss of their personal allowance over £100,000 and higher National Insurance rates, the tax take far exceeds just the 50p. Add to this the new pension rules for higher earners and there is no reason to remain in the UK.

    There are already reasons for those who could, not to invest in the UK such as too much red tape and lack of a skilled work force, high taxation is the final nail in the coffin for growth.

    I also believe the low interest rates are not helping the economy, inflation is no good to anyone. It is not the BofE’s job to prop up toxic mortgages which will eventually fail when interest rates finally rise, or to help the Government with growth policies. The BofE’s remit is to control inflation which it is not doing. Furthermore, there is something fundamentally wrong with the integrity of a Government that punishes those who have worked hard and saved and done absolutley nothing wrong in this financial crisis, to favour those who have. It sends out entirely the wrong message to parts of a society already addicted to credit.

    The only possible way to even have a chance of growth in the UK economy is to make deep cuts to the public sector and lower taxation, especially for high earners. The public sector in the UK is now larger than the private sector that is unsustainable.

    I wish people would also stop blaming the banks for all the UK ills. The banks account for very little of the UKs overall debt. The concern should be the public sector in Britain which is sucking the life out of the private sector and high tax rates which makes the UK uncompetitive.

    • Bob
      Posted September 9, 2011 at 10:19 pm | Permalink

      The left control the narrative these days (thanks to the BBC), and unlike yourself the Tories are unable or unwilling to articulate a counter argument to all the banker bashing and tax the rich ideas. Maybe the Tories have been nobbled by the lefties.
      In any case, parliament has stagnated and it needs a good clear out if our children are to have any future in this country.

      Reply: it had a good clear out in 2010. Sometimes you have to try to make work what we already have!

      • Bob
        Posted September 10, 2011 at 11:55 am | Permalink

        John, We cleared a bunch of lobby fodder and replaced them with another, what’s changed? You’re just fiddling while Rome burns!
        The two party system just gives an illusion of choice, and the BBC will keep it that way because of their hatred for UKIP is as palpable as their devotion to statism.

        I would go as far as to predict that abolition of the licence fee system would have a profound and positive effect on British society, and possibly the world.

        Reply: I seem to remember lots of parties stood at the last election – it is only a two or three party system if that is what people vote for. The BBC seemed to want people to vote for a different voting system but it didn’t win.

        • Bob
          Posted September 10, 2011 at 4:40 pm | Permalink

          And I seem to remember only Lib/Lab and Con appearing on the BBC election debates!

          UKIP fielded a full list of candidates but received no recognition from the BBC. And of course, that’s how the establishment like it. What a stitch up!

    • Public Servant
      Posted September 10, 2011 at 1:26 am | Permalink

      The problem is Susan that you make no suggestions as to which parts of the public sector to dispense with. I would personally take health and education out of the public sector. If people desire healthcare let them psy for it either directly or through insurance. If they want to educate their children they should pay for it.

      • Bazman
        Posted September 10, 2011 at 10:03 am | Permalink

        No health care or education unless you can afford it and tax cuts for the rich. What if you can’t what should you do? Why not just privatise everything and the ones that cannot afford anything can just live like peasants off the land? This just shows how many like you and susan are so far out of touch with reality.

    • uanime5
      Posted September 10, 2011 at 9:54 pm | Permalink

      “I refer to high earners because this tax penalises the highly skilled, which Britain needs far more than it does the significantly rich.”

      Since when have teachers, nurses, social workers, scientists, or engineers earned over £150,000? These are the highly skilled people this country needs, not bankers and over paid managers.

  38. Bazman
    Posted September 10, 2011 at 10:19 am | Permalink

    Assuming tax cuts for the rich would produce more tax revenue. What would this revenue be spent on? Infrastructure and health or tax cuts for the rich. I suspect under a Tory government the latter. Tax cuts for the rich would have to be offset by an increase in benefit spending as the trickle down effect is largely false and even if it where more true creating millions of jobs paying minimum wage, or if some people had their way even less is no use. Blaming immigrants for taking these jobs is only part of the story many are young, clever, adventurous and a little desperate for cash. The ones who are not stay in Eastern Europe being utterly desperate on benefits. Like here in fact. It’s like beating a bar of gold so thin as to be worthless for most people other than the people doing the beating. The self trimmers and middle aged middle class victims of circumstances often of their own making who any attack on their lifestyles squeal like stuck pigs.

    reply: More tax from the rich is needed to pay for the state spending that is already in the budget. We are not talking here about either extra spending or lower tax takes. The UK is still borrowing around £12 billion extra every month.

  39. uanime5
    Posted September 10, 2011 at 9:06 pm | Permalink

    “In 1981-2 when the top rate of tax was 83% the top one percent of earners only paid 11% of the total Income Tax. By the end of the last century with a settled top rate of 40%, this figure had shot up to 21.3% of the total Income tax raised.”

    John I’m going to assume that you’re not deliberately trying to misleading people. The top 1% only paid 11% of Income Tax in the 1980’s due to the low income disparity between the salaries of the highest and lowest paid workers. As the disparity has increased in recent years so has the proportion of tax the richest pay. Given that the richest 1% now have 21% of the wealth it’s no surprise that they pay 21.3% of the income tax.

    A recent treasury study showed that taxing the rich at 45%, rather than 50% would lead to a loss of £2.1 billion, so it’s clear that the 50% rate generates money rather than costs money. Also tax cuts for the rich don’t create jobs. Bush gave the rich huge tax cuts over 10 years and they barely created any jobs.

    The public will not forgive the Government for giving the rich a tax cut while their earnings decrease in real terms.

    • Bazman
      Posted September 11, 2011 at 9:23 am | Permalink

      The ideology is that the cake gets bigger and everyone gets more due to the trickle down effect. In the in the last ten years this has not been the case. The gulf between have and have nots getting ever bigger. The answer being more of the same from wealth worshippers whose church has turned out to false.

  40. Andrew Gately
    Posted September 11, 2011 at 12:44 pm | Permalink

    The government has a massive hole between it’s tax receipts and it’s expenditure.

    So far despite the huge amount of debate very little has been done to reduce the expenditure whilst taxes have been raised to reduce the size of the hole.

    Unfortunately these taxes have been levied on the productive part of our economy and have damaged their ability to deliver growth to the economy.

    Whilst we have this weak government I cannot see this situation improving and feel that the UK economy is going to stagnate until the government solves the problem by cutting expenditure rather than raising taxes.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page