A budget to end private sector austerity?

 

          The Coalition’s policy in the first two years in office was to expand current public spending. To pay for this and cut the deficit, they decided on private sector austerity, requiring large increases in tax payments. The extra tax revenue was  to result from higher rates of tax (VAT, Income Tax, CGT, Stamp Duty, fuel duties etc), from economic growth, and from higher levels of compliance with tax law in a crack down on  gross avoidance. As the public sector was still growing, the private sctor ended up  shrinking  to pay for the public sector.

             They said they could bring  this about whilst growing the private sector, thanks to an easy money policy agreed with the Bank and inherited from the outgoing Labour government. Unfortunately, the easy money policy has not generated the private sector led growth they sought.  This is partly because the banks are still stressed and under  regulatory pressures, and partly because the tax and inflation squeeze on the private sector has been too hard. Real incomes have continued to drop, as they did in the later Labour years.

            The next budget should lift the squeeze on the private sector, to encourage the private sector led growth the economy needs. This in turn could increase the amount of tax revenue brought into the Exchequer at a time of high public spending.

          The aim should be to set tax rates that maximise the revenue. 50% Income Tax cuts the revenue. 28% CGT cuts the revenue.  Pushing too many into the 40% tax rate cuts consumption in the economy. Setting rates of 40% for Income and 20% for  CGT would boost growth, transactions and activity and increase revenues from richer people. Taking more people out of the 40% tax band, as well as continuing to take people out of Income Tax altogether, would boost private sector purchases.

          There is also a case for temporarily suspending Stamp Duty to get the residential property market moving more quickly. This would then promote more housebuilding, by helping make homes more affordable and removing some of the current blockages in the market.

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94 Comments

  1. Steve Cox
    Posted February 11, 2013 at 6:53 am | Permalink

    How about normalising interest rates and monetary policy so that savers get a decent rate of return on their nest eggs? The Chancellor will automatically get at least 20% of this interest in the form of the withholding tax, which will help to reduce the deficit. Plus most older savers are likely to spend the money on extras that they have found it hard to afford under the ultra-loose monetary/ZIRP regime, thereby boosting private consumption and so the economy. Then perhaps Mr Osborne could give some long overdue attention to the high levels of inflation that we have endured these last 5 years, and that look set to get worse under Mr Carney. Inflation erodes real incomes and reduces people’s spending power, so damaging economic growth. Mr Osborne should order Mt Carney and the MPC to target a 1% RPI level, +/- 1%, with strict sanctions in place against the Bank if it fails to meet the target.

    • Nina Andreeva
      Posted February 11, 2013 at 8:45 am | Permalink

      Fat chance of that happening, the name of the game at the moment is defend the housing market at all costs. You can see it with the amount of forebearance going on between lenders and borrowers at the moment. There are lots of people still in their homes, where if this had been the early ’90s say, due to their inability to service their debt they would be out on the streets. Carney’s ability to create a property bubble in Canada was probably a plus point in getting the job in the first place

      • zorro
        Posted February 11, 2013 at 9:59 am | Permalink

        Indeed, protect nomonial prices in the housing market and soft inflationary default on the debt are their two main strategies…..

        zorro

      • Jerry
        Posted February 11, 2013 at 3:57 pm | Permalink

        @Nina Andreeva: “You can see it with the amount of forebearance going on between lenders and borrowers at the moment. There are lots of people still in their homes, where if this had been the early ’90s say, due to their inability to service their debt they would be out on the streets.”

        I find the above comment by Nina astonishing, most people would say that keeping people in their house is good, you seem to want people/families turfed out on the street “like they were in the early 1990s”. I wonder why, is it because your heart is either missing or made of stone or because you see property ‘opportunities’ from bank/mortgage lenders fire-sales and see these properties you talk of as possible acquisitions to a property portfolio?…

        • Nina Andreeva
          Posted February 11, 2013 at 9:22 pm | Permalink

          Jerry please read the post again nowhere do I say people should be thrown onto the streets. These are simple current observations from my job in financial services about what happens if you go into arrears and its an established fact that repossessions hit a peak in the early 90s. You might also like to read my reply to LL the other day about why I do not invest in residential property.

          • Nina Andreeva
            Posted February 11, 2013 at 9:33 pm | Permalink

            The banks are being soft on their delinquent borrowers at the moment, not because they have moral qualms about throwing a family into a grotty B&B , but because they are concerned about the strength of their balance sheets being effected by forced sales. They are presumably also being encouraged by the government too, as any outright collapse in the housing market would push the UK into some sort of economic black hole. Remember the average homeowner is being given some sort of protection here by Georgie in that the people who are coughing up most are the “rich” (see JR’s article of the other day) and those on those on benefits.

          • Jerry
            Posted February 12, 2013 at 9:54 am | Permalink

            Sorry Nina, so just what was your “point”, an rant to nowhere? You made it quite clear that you disagree with the current policies by your opening comment “Fat chance of that happening, the name of the game at the moment is defend the housing market at all costs”.

            Of course like so many whose only concern is the bottom line figure once the hard reality of what you say is pointed there is frantic back-peddling…

          • Jerry
            Posted February 12, 2013 at 10:36 am | Permalink

            @Nina Andreeva: “The banks are being soft on their delinquent borrowers at the moment, not because they have moral qualms about throwing a family into a grotty B&B , but because they are concerned about the strength of their balance sheets being effected by forced sales.

            Total bunkum, the banks were and still are very much in moral qualms considering just how many banks are owned, to some level, by the UK government on behalf of the UK population. Had the banks/lenders started to throw these people out in to B&B’s or on the street the vast majority of the population would have been even more outraged. I really do think that you need to get away from your trading-desk, go smell the coffee, get out in the real world some more…

            As for fire sales, as much as some would have loved to see them (due to the ‘opportunities’ such a sale would give) most banks/lenders would have likely opted to simply sit on the property title and rent it out due to the very depressed market.

          • Rob
            Posted February 12, 2013 at 7:15 pm | Permalink

            Jerry, you seem to think that theft from people who have not overborrowed to fund the lifestyle of those who have is ok. I wouldn’t like to see anyone kicked out of “their” houses (although the houses aren’t really theirs are they especially if they are mortgaged to the hilt), but at the same time I don’t want to see the government steal from others via inflation from already taxed income from those trying to save up themselves to buy a house.

            My brother is a nurse who has been trying to save up to buy a house through working long hours. Some years back fifteen flats were built and he along with some other nurses thought that they may be able to buy a place of their own. In the end they got to hear that a “property developer” had bought all fifteen. His savings are being stolen to help out those who have overborrowed and the BTL’ers. You seem to think that this is ok so that others can have a property of their own funded from his hard work (he regularly does 12 hour shifts). Why?

            More houses should be built to help those like my brother. I told him years ago to get out of the UK like I did and take his skills with him, but unfortunately he didn’t listen. He is finally starting to listen now though.

          • Jerry
            Posted February 12, 2013 at 9:13 pm | Permalink

            @Rob: “Jerry, you seem to think that theft from people who have not overborrowed to fund the lifestyle of those who have is ok. [..//..]”

            What utter hyperbolic nonsense So you want these people kicked out and then what… Thus we now have an empty house that either won’t sell in the current depressed market or will need to be sold at a fire-sale markdown for a loss and the share holders in many of these banks then will likely have to also fund the (socail) re-housing of the family – most likely in one of those BTL properties you condemn….

            All I’m saying is that the people should be allowed to stay in the house, I have never said the title of the property should be given to them, why not convert the mortgage into an affordable rent? Take of your retribution tinted-glasses off and find a clue.

            But I agree, people on low(er) wages should not mortgaging themselves up to the hilt, nor should the banks and government have been encouraging them to do so.

          • Rob
            Posted February 13, 2013 at 11:59 am | Permalink

            Jerry,

            Stop making things up. I never said that people should be kicked out of their houses. My point was that you only seem to see things from one side. What about the view from the side of the people like my brother? Why should he be forced to rent (due to BTL landlords buying up all of the available properties) as well as subsidise the mortgages of people who have overstretched themselves? He now has large debts because of this and is works many 12 hour shifts to try to get on top of his finances, so why should he be in effect forced to rent while others get a property in their name that his wages are also paying for? That is what is currently happening.

            The solution in my view is for more houses to be built and limits put on BTL’ers to prevent them buying up all of the properties for essential workers like nurses. Better still, stop current policies which seem biased towards BTL’ers. Current government policies seem to be helping out the BT”ers too much. The buyer of the 15 flats was apparantly non-UK based, so all of that rent money proably leaves the UK shores.

            Having said that I do hope that my brother does decide to leave the UK for Australia or Canada as I can’t see things getting any better in the UK for workers like him for a long time.

            I agree with the last part of your post regarding people on low(er) wages mortgaging themselves to the hilt. The problem now is that the government is still trying to encourage this behaviour. It looks like they are trying their best to kick off another housing bubble with ideas like the Funding for Lending scheme.

        • David Price
          Posted February 12, 2013 at 8:41 am | Permalink

          Are you for real Jerry?

          People work hard for themselves and their families to realise their dreams and aspirations. Then you come alone and thieve their assets under pain of fine and imprisonment so you can then give that money to those (who over borrowed) you deem needy because it makes you feel “good”. What about the family whose dreams and aspirations you have destroyed, or don’t you worry about them and the debt youv’e laden on their children?

          The net taxpayer doesn’t count for anything in your socialist paradise, we are merely sources of cash for you and your saintly breatheren/sisterhood to filch and redistribute.

          • Jerry
            Posted February 12, 2013 at 10:01 am | Permalink

            David, you seem to be replying to something neither Nina nor myself have said, I don’t think anyone has suggested that these people should be given the home, title will be with the mortgage lender.

          • David Price
            Posted February 13, 2013 at 8:20 am | Permalink

            @Jerry: Nope, you are chosing to be obtuse. At the “heart” of your comment on the OP is that you are happy that the borrower who overborrows must be protected at all costs to the lender, regardless of who the lender actually is or what impact it might have on them.

            A promise is a promise, a contract is a contract, you can’t expect to break one without consequences.

          • Jerry
            Posted February 13, 2013 at 11:18 am | Permalink

            @David Price: I’m not being obtuse at all, what I am doing is thinking the problem and issues through – unlike some…

            So David, you would be happy to see these families kicked out on the street by the (mostly) state [1] nationalized or subsidised banks, and you want the Tory party to be re elected in 2015? Think again, what you and Nina seem to be proposing would be a great recruiting sergeant for the left and even hard left!

            [1] the same state that would most likely have to spend further money to re house these people

          • David Price
            Posted February 13, 2013 at 12:40 pm | Permalink

            Read your replies where you label any counter opinion as a rant, a person as heartless or seeking only a profit motive…

            You are not thinking the problem through, you are fixed on one perspective. Anyone who does not believe in and support your blank-cheque approach to welfare is an enemy and must be misrepresented and labelled as heartless, money grubbing, happy to throw families on to the streets yadda yadda yadda.

            Read the comments, you are the only one proposing to throw people on to the street.

          • Jerry
            Posted February 13, 2013 at 9:26 pm | Permalink

            Mr Price,. you are a prime example of a pot calling the kettle black, do as you preach, try reading my comments without your own fixed perspectives.

            If you are not going to evict these people who have defaulted on their mortgage then what the hell are you arguing about when I say they it is OK -and probably best- that these people are allowed to stay in the property, at least until both the economy and housing market have stabilised (obviously they would have to pay an agreed rent)?!

        • A different Simon
          Posted February 12, 2013 at 9:27 am | Permalink

          Jerry ,

          The only answer is to build more houses and be more selective with immigration ; and provide rules to prevent accommodation being monopolised by the BTL crowd .

          It is hard to imagine anything more traumatic that losing your home . The effects on any children must be devastating .

          I’ve got relatives who were spending like crazy during the credit boom despite every member of the family telling them to stop . Their children are suffering now . They have however learned more about money by the age of 10 than their parents know at age 45 .

          Unfortunately many other children in the depressed town have learned a lot from their own situation ; that working is for mugs and that if you know how to do it you can screw the system . The future for that career choice is looking bleaker by the day .

          By keeping people in houses you also penalise those people who are trying to buy their own house who have perhaps been more responsible .

          As I say , I’d like to see a surplus of housing in the UK to accelerate the innevitable and unavoidable reduction in accomodation prices .

          Yes people are going to get hurt and many are going to commit suicide . That became unavoidable the day the credit super cycle got into full swing .

          • Jerry
            Posted February 12, 2013 at 10:21 am | Permalink

            @ADS: “Yes people are going to get hurt and many are going to commit suicide . That became unavoidable the day the credit super cycle got into full swing

            Sorry that is not unavoidable, it is quite avoidable in fact, it just needs a less “Me! Me! Me!” society and one that has a little more compassion, not everything should be judged solely by the bottom line figure.

      • Bazman
        Posted February 12, 2013 at 1:33 pm | Permalink

        Good point Nina. How long would any government last if it pulled the plug on the housing market? Accommodation is always the problem for everyone accept the wealthy.

    • Disaffected
      Posted February 11, 2013 at 9:53 am | Permalink

      20-60% income tax (including NI), 20% VAT, 67% fuel tax, 20-40% tax on savings, 20-40% inheritance tax. Add Community charge, obligation to environment on electric and gas bills for wind farms subsidies; Cameron claims to be a “low tax conservative”.

      Surely there is not anyone stupid enough to believe word he says or anything written in a manifesto? I do believe his claims to be “Heir to Blaire”, I do believe he is a Liberal Conservative with an emphasis on Liberal. I do not believe he is Eurosceptic, all the evidence to date demonstrates otherwise.

      It appears to me the Lib Dems are ruing the roost. Owen Patterson says that we cannot put a moratorium on EU meat, I thought this was done when the Uk had CSG and foot and mouth?

      • Denis Cooper
        Posted February 11, 2013 at 11:12 am | Permalink

        But in those previous cases that was done by the EU, and the snivelling UK government is terrified of taking unilateral action in this case. And to think that Owen Patterson was once being represented as a strong “eurosceptic”, when it seems that he is just another Tory “pseudosceptic”.

        • forthurst
          Posted February 11, 2013 at 2:44 pm | Permalink

          The Conservative Party is mainly Eurocryptophile like Cameron; then there are those who are genuinely Eurosceptic at heart but are perfectly willing to lay down their country for their own political careers. There are those, A listers, with no genuine political views at all, just naked ambition, a bit like John Major.

  2. Nina Andreeva
    Posted February 11, 2013 at 7:02 am | Permalink

    How about allowing us to contract of NICs and take a substantial cut in income tax too in return for becoming ineligible for state benefits? I would quite happily sign up for this because whenever I have lost a job I go out and find another one, I do not have any kids than I cannot afford to raise and I do not believe the state can deliver me a pension at retirement (see the existing state pension liabilities against the UK’s GDP if you think otherwise)

    Most benefits today are non contributory so just call national insurance contributions what they are, which are state enforced charitable donations to the feckless and those who essentially just want to ride on the backs of others

    • Jerry
      Posted February 11, 2013 at 9:36 am | Permalink

      @Nina Andreeva: “whenever I have lost a job I go out and find another one, I do not have any kids than I cannot afford to raise and I do not believe the state can deliver me a pension at retirement”

      Until the time you don’t or can’t of course, then people like you will expect the state to look after you (or your closest and dearest) with comments like – “I’ve paid my income taxes, I should have a right to claim XYZ” etc etc etc…

      • Nina Andreeva
        Posted February 11, 2013 at 10:42 am | Permalink

        Sorry Jerry but you are wrong there. There is no way the state can afford to be so genrous in future just look at the immediate state pension liabilities I mentioned earlier. I do not want to be forced to pay into something that will fail to deliever ( I do have private provision out of taxed income e.g. PHI) or be forced to subsidise now the wasters I went to school with. You also being ethno-centric with regard to LTC as in the multi-culti Andreeva household it would be considered barbaric to put an infirm parent in a home

        • Jerry
          Posted February 11, 2013 at 6:32 pm | Permalink

          Nina Andreeva: “Sorry Jerry but you are wrong there. There is no way the state can afford to be so genrous in future

          Sorry Nina, in any CIVILISED society it does…

          You call others like to call others “Feckless” (even those you have no idea why they are (out of luck) but it only takes one -uninsured- accident for someone like you to find their luck gone and with no shirt on their backs and perhaps even living in the Poor-house or on the street in Cardboard City, better people than you have had such falls from their high-horses,, you would be well to remember that fact – “Me! Me! Me!” to “Feckless” in one move…

          It’s people like you Nina who give Capitalism a bad name, next you’ll be telling those who can’t afford bread to eat cake instead!

          • Nina Andreeva
            Posted February 12, 2013 at 10:46 am | Permalink

            Jerry you obviously were not very good at comprehension at school. On the the “fat chance” comment there is no backpeddling on my behalf it is just an acceptance of reality that low interest rates are here to stay. If you push up the cost of a mortgage at the moment you will put the housing market into a tailspin which will pull the rest of the economy down with it. With regard to the “feckless” I clearly identify them as some of the people I went to a bog standard comprehensive with, though with a name such as Jeremy you probably had the good fortune to avoid. Remember civilised societies can print money to provide benefits ad finitum whether the recipients will eventually be able to buy anything them is questionable

          • Jerry
            Posted February 12, 2013 at 9:44 pm | Permalink

            @Nina Andreeva: Some people, as they enter adulthood acquire a moral compass, some acquire a political compass etc, but others acquire no compass what so ever but acquire an unmovable fiscal bottom line that often manifests its self as bouts of “Me.me.me-itis” (especially when under financial stress), fortunately I understand that treatment is available, it usually involves volunteering with the Salvation Arm and the like…

  3. Andyvan
    Posted February 11, 2013 at 7:35 am | Permalink

    Every time I get a little bit of cash I’m hit with tax. I’ve just had to pay my self assessment and accountant, then my council tax, then road tax in addition to fuel tax, VAT, insurance tax and all the other taxes/ tributes that local and central government can think up. The aim should not be to set rates at levels that maximise revenue. It should be to minimise expenditure so that the long suffering tax cattle get a break from being milked so hard they’re drying up. Government regards the people as a resource that they can exploit to the limit of endurance. Well they’re doing that and have been for quite a while, no wonder the economy is dying on it’s feet.

  4. Mike Stallard
    Posted February 11, 2013 at 7:37 am | Permalink

    Do you know what?
    I know this.
    You know this.
    Every single person on this blog knows this. (Although your crystal clear analyses and Replies really do help a lot.)

    Do you ever even catch sight of Mr Osborne? Does he ever stop for a chat? Do you take tea and toast together in his study or ever have elevenses together without making an appointment?
    Does anyone?

    Ditto Danny Alexander.

    Reply: Yes, MPs do see and talk to Mr Osborne.

    • zorro
      Posted February 11, 2013 at 10:01 am | Permalink

      Reply to reply – when you stop by for some tiffin what is his stock reply to the type of exhortations that you produce on your blog?

      zorro

      Reply The formal replies are published in his speeches. The conversations are private.

  5. lifelogic
    Posted February 11, 2013 at 7:39 am | Permalink

    Indeed tax rates about 40% income, 20% CGT (after inflation allowance too), stamp duty 0-1%, (and IHT should be abolished or at least put up to the £1M threshold as promised). The least we should expect is not having % rates above maximum revenue raising rates. NI tax on jobs is way to high too at 23% is it combined.

    After that we could move to rates that maximise the good for the people. These rates are about VAT 20%, income tax 20%, CGT 10%, no stamp duty and no IHT.

    The the easy money policy has not generated the private sector led growth as the private sector has still found it hard to borrow as sensible rates the banks have just increased margins hugely. Many banks RBS/Natwest have treated good customers with complete contempt. “Helpful Banking” as their advert call it. It has been further squeezed by taxation, a lack of demand, more over regulation, lack of confidence in government direction, expensive energy (by mad government policy) and a lack of bank lending again due to government capital rules.

    Also relax planning the country can be littered with pointless wind turbines hundred of feet high yet making a window six inches larger or a roof six inched higher can be banned.

    • lifelogic
      Posted February 11, 2013 at 7:44 am | Permalink

      It is, alas, too late now for the next election and the fact that the next election is clearly lost is destroying confidence too.

      Cameron had a huge opportunity and has blown it. First by loosing the sitting duck election. With his silly, lefty campaign, then by his over tax, borrow, regulate, waste and hid mad quack energy policies. Also his cast iron lies and now Osborne’s on IHT too.

      • zorro
        Posted February 11, 2013 at 10:02 am | Permalink

        Indeed, with these types of policies, anyone might think that they were deliberately stopping any growth taking root what with the strict capital rules and high taxes……

        zorro

        • M.A.N
          Posted February 11, 2013 at 11:01 am | Permalink

          The infiltration of the state mechanism by ‘lefties’ or whatever you wish to call them, is pretty complete. This was probably started in the 70′s. the biggest problem is that they wish to be ‘right’ rather than do what is best for the country. The biggest surprise is this new breed of rich socialists, one can only assume its fashionable within thier crowd to be a progressive leftie. Obviously thier wealth insulates them from the negative aspects of thier own policies. I include cameron and osbourne here, I don’t think I have seen even one conservative policy implemented since the election.

          • Jerry
            Posted February 11, 2013 at 6:50 pm | Permalink

            @MAN: “The infiltration of the state mechanism by ‘lefties’ or whatever you wish to call them, is pretty complete.”

            Is that compared to the right-wing infiltration that existed before the 1970s [1] when only people from certain schools or sons of existing civil servants could ever expect to work in the state government mechanism or Military? Some on the right still seem to think that the Tory Party have been chosen by God to govern the UK…

            [1] assuming that any such “infiltration” has ever actually taken place, rather than just a gradual changes in society and its values that then also gets reflected in both the civil service/Military and their political master who they serve.

          • lifelogic
            Posted February 12, 2013 at 8:02 am | Permalink

            “one conservative policy implemented since the election”

            Well they got rid of the absurd M4 bus lane.
            They changed the law on squatting – in residential property anyway – why on earth not commercial?
            They got rid of the absurd hip sales packs – but kept the equally mad energy certificates alas.
            They have reduces some electricity feed in tariffs – a little – just get rid of them all and all the house bling grants for heaven’s sake

            Cannot think of much more, can anyone else?

            The other side – socialist policies implemented and tax increases is a huge pile alas – the “gender equal” insurance and annuity rules are perhaps the daftest of all.

            Still I will profit from the latter I suppose – it is an ill wind.

          • lifelogic
            Posted February 12, 2013 at 8:08 am | Permalink

            ‘lefties’ or whatever you wish to call them

            ‘state sector, parasitic, others money grabbing, rent seeking, quack energy science, leaches’ – perhaps?

          • Bazman
            Posted February 12, 2013 at 1:39 pm | Permalink

            Rent seeking? Now there’s a thing from lifelogic! I thought you believed society should be founded on this principal. In your case rental of property and in the defence of the rich to rent anything and everything. We as serfs should know our place in the scheme.

    • A different Simon
      Posted February 11, 2013 at 2:28 pm | Permalink

      Lifelogic ,

      I didn’t think CGT was inflation linked anymore .

      Does this or a tapering system still remain for certain classes of asset ?

      • lifelogic
        Posted February 12, 2013 at 8:14 am | Permalink

        No sorry, I was saying it should be index linked and at no more than 20%. Index linking still applies to gains within companies I believe, but not to individuals.

        So currently a 28% tax on gains you have not even made. You need your assets to go up in value by about 5% PA just to keep their value after tax and inflation.

  6. Martin
    Posted February 11, 2013 at 7:56 am | Permalink

    I note you are concerned about the tax take. Well if the banks paid real interest rates on savings then savers would pay more tax!

    In recent months even holding Euro notes has been a better return than “investing” in UK bank deposits!

    Are tax rates the real problem or is it lack of liquidity caused by starvation level interest rates?

    • zorro
      Posted February 11, 2013 at 10:05 am | Permalink

      It looks like a liquidity trap a la japonaise to me…..

      zorro

    • lifelogic
      Posted February 12, 2013 at 8:16 am | Permalink

      You have to cut out the middle man banks to get any return. Take good security too.

  7. Ben Kelly
    Posted February 11, 2013 at 8:39 am | Permalink

    Of course reducing the burden of tax will increase consumption. But all governments are now in fear of the shrill voices from the liberal left which shriek “privilege” and “unfair” whenever the pressure from the jackboot of tax is eased from the throat of those earning enough to be comfortable.

    Society needs different levels, I have no wish to work but I must to provide for my dependants, my capability to provide for them more productively than some others ( and less so than many) should not be subject to an ever increasing proportion of tax. The ever lowering threshold for 40% tax rate which is used as a tool to subsidise taking voters out of tax is a most pernicious and mendacious strategy followed by the treasury.

    Tax is a necessary evil but the state should shrink to reduce our burden. After the real terms cut in the EU budget how about looking closer to home our coalition? It could start by issuing welfare vouchers rather than cash and cease subsidising employers paying a pittance to immigrant labour through the tax credit system.

    • uanime5
      Posted February 11, 2013 at 3:56 pm | Permalink

      It could start by issuing welfare vouchers rather than cash and cease subsidising employers paying a pittance to immigrant labour through the tax credit system.

      The tried using food stamps in the USA instead of welfare and found that people were selling these stamps for real money. I suspect a similar thing will happen in the UK if the Government ever tries to introduce this idiocy.

      All removing tax credits will do is make working in the UK pay less. However it will hit the natives far more than the immigrants because the immigrants will still be earning far more in the UK than they can in their home country.

      • Jerry
        Posted February 11, 2013 at 7:29 pm | Permalink

        @uanime5: “They tried using food stamps in the USA instead of welfare and found that people were selling these stamps for real money. I suspect a similar thing will happen in the UK if the Government ever tries to introduce this idiocy.

        Indeed, but in the UK some are talking about welfare-cards (prepaid debit cards that get topped-up by the DWP each month), what is to stop someone on welfare benefits from buying their Baked-Beans or what ever and then exchanging them for cash, and what about payments that are either small change payments (who the hell would pay for a single loaf of bread or local newspaper by debit or credit card, 99% of the population and shops would expect the use of cash) or need to be made as cash or even cheque [1] – and if people are going to be allowed to draw either cash or cheque on the cards account then what is to stop the claimant from saving up or using a cheque to buy either “Fags or Booze”, with neither what was bought would show up on the statement. As you say uanime5, this welfare Stamp/card nonsense is idiocy, thought up by people who do not live in the real world.

        [1] remember that debit cards do not have the same online security as Credit cards and thus some poeple will not want to use them for online or over the phone payments. Nor does every trader have the ability to accept ‘plastic’ in any case

      • Ben Kelly
        Posted February 12, 2013 at 7:48 am | Permalink

        If the vouchers were sold they would need to be at a discount so those who are using them for reasons other than that for which they are issued will end up paying a price so it will be less attractive.

        Lower pay throughout the land will reduce the cost of living for all. Yes the immigrants will be better off than the natives but I would advocate one step at a time.

        In both cases the means are a single measure to an end not the entire solution. Both instances of “idiocy” are merely step changes in making this country an easier place to exist for all not just recipients.

        I would rather all taxpayers benefit and a few suffer than all taxpayers suffer but the few are looked after. My ideals protect one set of “masses” and your protect another. All claimants must be presented with hoops to jump through.

        • Bazman
          Posted February 12, 2013 at 1:28 pm | Permalink

          Hmmm? A packet of fags or a bag of potatoes? Let me think…You are putting you middle class ideals on people who neither want them or care. I would buy the potato vouchers as I do not smoke. Lower pay throughout the land will reduce the cost of living for all this country and easier place to exist for all not just recipients. Really? Where do you get this fantasy from? Prices have risen three times and pay has stopped the same. You think that you can just reduce the pay of millions of working poor and taxpayers who are often one and the same with no consequences. Another silly one post fantasist.

          • Jerry
            Posted February 12, 2013 at 10:00 pm | Permalink

            @Bazman: No need to buy the vouchers (which might also need either a PIN or photo ID if they are introduced), just get the voucher holder to buy the spuds, you by the fags, do the swap at the trolley-stand!

          • Bazman
            Posted February 13, 2013 at 2:45 pm | Permalink

            Pin and photo with a hologram on the dole spuds bright orange bag in the special dole area of the supermarket. You could be right. It’s not about money it’s about ideology and dogma. The making fathers pay for their offspring was never about saving money as it cost the state a fortune and the feckless didn’t pay anyway as they are feckless.
            Best to back the cars up together anyway Jerry with the woman keeping watch. You never know what could go down in their fantasy police state. A Sweeney type swoop on the tabs and spuds deal due to the cheap spuds being used to make illicit alcohol which funds cloned benefit cards. Benefits cut to pay for tighter security.

        • uanime5
          Posted February 12, 2013 at 3:19 pm | Permalink

          Who exactly is going to benefit in your plan to make “this country an easier place to exist”? It’s clearly not for the benefit of anyone claiming benefits or working in a low paid job. I suspect you only wish to protect the wealthy from higher taxes, rather than protect the poor from poverty.

    • Bazman
      Posted February 11, 2013 at 6:34 pm | Permalink

      What would replace the tax credit system. Higher wages? The vouchers would cost a fortune to administer and would be bought and sold. I would quite happily buy them. The business of what the benefit money is spent on is none of your business I might add.

    • Jerry
      Posted February 11, 2013 at 7:05 pm | Permalink

      @Ben Kelly: First you need to define “comfortable”, people can be just as comfortable earning £15k pa (or less) as someone earning £100,000k pa, in fact there are many wealthy people who feel neither comfortable nor happy.

  8. Alte Fritz
    Posted February 11, 2013 at 8:41 am | Permalink

    The headline today is about IHT so that perhaps says where we are going on tax.

    We are locked in a struggle between the state and the small man, and the state seems to be winning. Some of yesterday’s comments on horsemeat seemed positively ecstatic that they had found justification for further state intervention.; that less might mean more (and better) in terms of food safety would be beyond them.

    The state is an insatiable beast which will, if it can, devour us all.

  9. Bill Poster
    Posted February 11, 2013 at 8:47 am | Permalink

    Mr. Redwood – hugely disappointed to read: “The aim should be to set tax rates that maximise the revenue”. Do you really mean this? You want to maximise the absolute size of the state?

    Reply: NO, I do not want to maximise the size of the state, but to get the deficit down the government does need more tax revenue, and this cannot be done with rates that are above the level that maximises the tax take of that tax.

    • Simon
      Posted February 11, 2013 at 1:24 pm | Permalink

      BP, tax rates and revenue don;t have a linear link. You can actually increase revenue by lowering taxes, and there’s very good evidence from many nation states that achieved that.

      It’s counter-intuitive I know, but a combination of lower taxes and a huge simplification of the tax code can indeed bring about an increased tax revenue, but you should read that as relative tax collection efficiency, not an absolute amount. I would wish an overall reduction in the size of gov’t and the tax burden, as businesses and individuals are far far better at deciding how to spend their money than any gov’t or bureaucrat.

      • Bill Poster
        Posted February 12, 2013 at 9:28 am | Permalink

        Hi – for the avoidance of doubt, I’m a libertarian economist. My point was that Mr Redwood was advancing a Laffer curve argument that, quite rightly, points out the stupidity of being to the right of the maximum.

        But that argument shouldn’t be left standing on it own – it might be taken to imply support for the revenue-maximising tax rate. Which does in fact maximise the absolute size of the state (though maybe not the relative). There should always be a further argument, as you suggest, for further reductions in tax, and a smaller state.

    • Bill Poster
      Posted February 11, 2013 at 4:26 pm | Permalink

      Thank you for taking the time to reply. Keep up the good work

  10. Jerry
    Posted February 11, 2013 at 9:05 am | Permalink

    I’m not sure that encouraging another cycle of bubble, boom and bust is the best thing, when will people realise that -like in so many western countries- the UK has been living beyond its true worth and status, fuelled by cheap debt and even cheaper imports that have done nothing to support our own economy – heck we even now import “beef” even though there are more than enough farmers in this country who could produce the beasts given a level field. Why do we need to get the housing market moving by cutting Stamp duty, for example, if all it does is create another housing bubble were the banks start offering or first time buyers start demanding silly mortgage loans and rates that are unsustainable.

    A good opinion piece in the Telegraph yesterday. I have to agree, this is a crisis of confidence but it has been since before 2010, not a crisis of debt as Mr Osborne keeps insisting and has done since before 2010. Will Mr Osborne only finally start listening once the UK has both lost the confidence of the markets and that converted triple “A” rating?… Perhaps not the answers but at least Roger Bootle seems to be thinking the problems through in the correct order – not starting with a desired solution and then attempting to make the problems fit that desired solution as seems to be the case with so many on the political right.

    BTW John, the site is still not setting site wide and persistent Cookies, any news from your webmaster?

  11. Brian Tomkinson
    Posted February 11, 2013 at 9:43 am | Permalink

    JR : ” The Coalition’s policy in the first two years in office was to expand current public spending.”
    You identified the problem in your first sentence. Why on earth did the coalition embark on a course of higher public spending when they knew the parlous state of the economy and when, before the election, they had been critical of Labour’s economic mismanagement? They have shown themselves to be no different from Labour; just like them they want to spend, spend, spend. The debt burden is rising inexorably – £1,143 billion today. Interest on that debt is rising with it. We are heading for disaster and half of this parliament has been wasted. No one ever says what level of private sector growth is needed to reverse this. Perhaps that is because it is so high as to be unachievable? In the meantime the tax payers’ alliance report that there have been 254 tax rises already with 45 more planned before the next election. The size of the overpowering state must be reduced. Few MPs seem to have the inclination or ability to tackle this and those who do are sidelined.

    • Jerry
      Posted February 11, 2013 at 11:56 am | Permalink

      @Brian Tomkinson: “Why on earth did the coalition embark on a course of higher public spending when they knew the parlous state of the economy and when, before the election, they had been critical of Labour’s economic mismanagement?

      Because the oppression is paid to oppose, the problems come when the oppression then paid to ‘solve’, when faced with the fact that is to much of the rug is pulled not only will the glasses fail over but table cloth and all will be on the floor. The political right might not like Labour’s chant of “To hard, to fast” but that doesn’t automatically make people like Ed Balls wrong, and in fact the more those on the right attack him personally the more it suggests that they are having to play the man because the ball is already in the net between the goal posts…

      But perhaps you are correct Brian in your latter comment, perhaps the (worlds) economy is in such a mess that we face a Great Depression Mk2 what ever is done – the question then is, should it be all hand to the pumps or only the fittest to the lifeboats.

  12. oldtimer
    Posted February 11, 2013 at 9:55 am | Permalink

    All excellent ideas – but the chances of them being implemented are zero. The defining characteristic of this coalition`s tax policy is bungling incompetence. I expect no change in behaviour.

  13. wab
    Posted February 11, 2013 at 10:06 am | Permalink

    “There is also a case for temporarily suspending Stamp Duty to get the residential property market moving more quickly.”

    This is an extremely bad proposal. Stamp Duty is one of the least important factors in terms of why there is not enough housing in the UK. The tax on housing transactions is pretty low in comparison to other countries. The one and only problem with Stamp Duty is that it is absolute, not relative, in terms of the bands.

  14. Mark
    Posted February 11, 2013 at 10:14 am | Permalink

    Suspending Stamp Duty is unlikely to do anything to make housing more affordable. The previous SDLT holiday at the lower tax bands simply meant that buyers on average paid the difference to sellers rather than to HMRC. There was a small uptick in volume as a few extra first time buyers were led to believe they were “saving” rather than committing to purchase at inflated prices – storing up problems for the future when perhaps mortgage interest rates are no longer so benign.

    That is not to say that SDLT shouldn’t be reformed or abolished. Its peculiar structure creates artificial price points in the market. It would be justifiable to have a fee for the state’s guarantee on good title and registration of new title (including mortgage charges) on property. Taxing the transaction seems an odd way of injecting sand in the economic gearbox: perhaps there might be a case for taxing non-British buyers as a contribution to the taxes they haven’t paid before they came to the UK, but even that is easily avoided by renting.

    The best way to make housing more affordable is to sort out the banks. That means encouraging them to recognise the problems with their mortgage lending, rather than cross subsidising it with harsh terms on other lending. It means imposing a low LTV cap on mortgages for BTL purchases to reduce the gearing of BTL portfolios and the purchasing power advantage of landlords over potential owner-occupiers. Highly geared BTL portfolios are a risk for tenants, as they will be the ones losing a home should negative equity and repossession loom for the landlord and high mortgage payments reduce the proportion of rent available to keep property maintained: better protection for tenants in these circumstances, including extended notice and a right to match price on a repossession sale would be appropriate.

    Further help towards lowering house prices would be if a cap on Housing Benefit were properly applied. At present, HB subsidises rents, and creates a floor rent for private renters not entitled to the benefit. It generally pushes rents higher, in turn encouraging landlords to bid higher prices for property.

    Mortgage lending is the only category that has seen an increase in the stock of lending (now at a record £1,265bn), while other lending to business and industry, and for personal loans (e.g. car purchase) and credit cards has shrunk.

  15. Denis Cooper
    Posted February 11, 2013 at 11:21 am | Permalink

    “Unfortunately, the easy money policy has not generated the private sector led growth they sought.”

    The bigger the boom the bigger the bust – and in this case it was not restricted to the UK, but affected much of the world – and the longer it will take to climb back even if the UK government adopts the optimum policies to generate recovery.

  16. behindthefrogs
    Posted February 11, 2013 at 1:09 pm | Permalink

    You seem to be listing the wrong targets for tax reduction. What is needed is reductions that will increase the cash flow of smaller companies and increase employment. The major target should be reducing employers’ NI contributions. The government should have the aim that no-one working a 40 hour week on the minimum wage should cause employer or employee to pay NI. This should also have the effect of reducing the number of underemployed people. The current NI levels are a disincentive for employers to employ people for more than about 20 hours a week.

    Similarly any tax reductions for individuals should be aimed the working population. Raising the starting level at which NI contributions are paid will once again be the fairest way of achieving this.

    • Jerry
      Posted February 11, 2013 at 8:09 pm | Permalink

      @behindthefrogs: Can’t argue with any of that, if tax rates have to be cut then it should be at the company rather than at the higher individual income levels, the only fly might be if company (directors) actually increase employment or investment and don’t just sit on the saved money or worse – thus there would need to be suitable safeguards and locks to any such tax reductions or exemptions brought in under the rationale you set out.

    • uanime5
      Posted February 12, 2013 at 3:26 pm | Permalink

      That’s a terrible idea. If employers don’t have to pay NI for employees on minimum wage then these employers will never offer these employees any pay rises to avoid paying NI.

      Withdrawing benefits for those working over 20 hours per week is the main reason why people don’t want to work more than 20 hours per week, not the level of employer’s NI which is the same no matter how many hours their employees work.

      • Jerry
        Posted February 12, 2013 at 10:16 pm | Permalink

        @uanime5: What would you prefer; Either, two people to be in employment at the NMW or one person to be employed above the NMW and one claiming JSA at £71 pw? Please give reasons with your answer.

  17. Mark
    Posted February 11, 2013 at 1:18 pm | Permalink

    I made a comment here that appears to have disappeared – previously it was just held in moderation. I think this is the second time this has happened in the past couple of days, and I suspect a problem with the site software as there was nothing controversial about either post.

    • Mark
      Posted February 11, 2013 at 1:19 pm | Permalink

      Post now visible as “in moderation”. Is this something to do with cookies?

      • Mark
        Posted February 11, 2013 at 5:14 pm | Permalink

        I note that I am having to re-enter the Name and Email fields on the “Post a Comment” form any time after I go to the site home page and refresh it.

        • Antisthenes
          Posted February 11, 2013 at 5:49 pm | Permalink

          Me too.

  18. Posted February 11, 2013 at 1:21 pm | Permalink

    Agree with all of this. Trouble is will the Chancellor and/or the LidDems go along with it???

  19. Simon
    Posted February 11, 2013 at 1:29 pm | Permalink

    John,

    Two things stand out here:-

    1. That the balls-up for the tax mess that we continue to suffer, following Labour’s spend spend spend like there’s no tomorrow (which there obviously wasn’t, for them in power) is entirely the LimpDumb’s fault. They paralysed any recovery planning GO or the Conservatives could have put into place.

    2. Why are you still in the Conservative party, where UKIP stands for everything you believe, which plainly Cameron doesn’t? Why?

    • Jerry
      Posted February 11, 2013 at 8:21 pm | Permalink

      Simon, the mess was caused buy the banks lend, lend, lend, manta in the first 8 years of this current century and the last ten-to-twenty years of the last, or did we all dream the property booms-to-busts and international banking crises?!

  20. Barbara
    Posted February 11, 2013 at 1:39 pm | Permalink

    I’m a saver, but accept lower interest rates on my money, in the national interest. Its how money is spent that annoys me. MPs and PMs past and present, don’t seem to be able to accept how they spend money annoys many, for example, foreign aid, we are told we are not well off but keep increasing, without a mandate to do so, how much we spend. We can all have sympathy for these nations, but we are not an international benefactor to the detiment of our own. In fact I’d go as far to say I’m just sick and fed up with money leaving these shores in any shape or form.
    Interest rates have been kept low, I agree about that, I have two who are paying for a mortage and it takes a lifetime to clear it. That might make people rethink taking one out when even in old age you are charged for care, and all the work to pay the mortage is used for care. While those who do nothing still get free care.
    We need a complete rethink on how money is spent in this country, and perhaps an insurance based scheme for the future of long term care. At the moment I’m not happy at all with the present arrangements, the new system proposed does nothing but still rob the elderly from their life’s work and assets. Public spending, well it will go on and on. Its where and how its spent we need to reflect upon, and whom we spend it on and what. Certainly not foreign shores, here at home, or no where.

    • A different Simon
      Posted February 11, 2013 at 8:33 pm | Permalink

      Barbara ,

      I agree with you that insurance is the right way to deal with old age care as only a minority will need it and means testing just discourages saving .

      My opinion is that this should be the existing national insurance scheme so nobody in work can opt out , not another insurance policy .

      That is why I oppose proposals to roll N.I. into Income tax ; it just legitimises misuse of N.I. premiums for general taxation .

      If N.I. was hypothecated for it’s original intended use , one could claim that it’s not even a tax . Politicians and civil servants would no doubt oppose this restriction of their artistic licence .

  21. David Saunders
    Posted February 11, 2013 at 2:01 pm | Permalink

    Is there anyone who still believes a word Cameron says? Any manifesto under his leadership will be ridiculed. Charitably, high office has turned his mind – send in the men in white coats.

    • Jerry
      Posted February 11, 2013 at 8:39 pm | Permalink

      @David Saunders: That depends on if you are living in the present or are in some altered reality time-warp were the Tories gained a stomping majority in 2010 and thus have a mandate for all that was in the manifesto… I suspect it will not be Mr Cameron, our host, or myself who will be visited by the men in white coats should they come calling, ho-hum! :)

  22. David Langley
    Posted February 11, 2013 at 2:39 pm | Permalink

    I thought the deficit is being created by our inability to sell more than we buy, crudely. Taxing us to square the deficit is surely madness. We must export more and trade more robbing Peter to Pay Paul is no good.

  23. uanime5
    Posted February 11, 2013 at 4:02 pm | Permalink

    Unless the tax cuts lead to people spending more money in the real economy, rather than saving it or paying down their debts, then it won’t result in more growth.

  24. Bert Young
    Posted February 11, 2013 at 4:18 pm | Permalink

    Dr. JR . Have you e-mailed Osborne accordingly ? He would do well to take on board advice from someone with very appropriate experience . The Treasury ought to be pressing him toward growth , but , they have a vested interest in keeping things complicated . The Advisers who accompanied Cameron to the recent summit , looked like young boys fresh from University ! .

  25. Antisthenes
    Posted February 11, 2013 at 5:48 pm | Permalink

    Certainly what you suggest would be beneficial but would be more much more so if the rate of cutting public sector spending was faster and deeper. Of course in parallel to really boost growth a quick exit from the EU. Having done that we must then build a caring society that actually works and that is affordable and is in everyone’s interest not that section of society that believe they are entitled to have something for nothing.

  26. Mark
    Posted February 11, 2013 at 7:54 pm | Permalink

    Test to see if this renders original post visible (posts describing problem now moderated and published, but original post not currently visible).

    • Mark
      Posted February 11, 2013 at 7:58 pm | Permalink

      Indeed, original post now visible as “in moderation”. Do not know if it was hidden from JR too by the software quirk. Original post began:

      Suspending Stamp Duty is unlikely to do anything to make housing more affordable. The previous SDLT holiday at the lower tax bands simply meant that buyers on average paid the difference to sellers rather than to HMRC.

  27. Richard1
    Posted February 12, 2013 at 9:22 am | Permalink

    Good suggestions. Unfortunately politicians and commentators on the left – and those Conservatives who wish to curry favour with them – are not focused on maximising revenues, they are focused on ‘fairness’. ‘Fairness’ in the eyes of the left means setting high tax rates because they are perceived to hit the rich and so make society more equal, even if there is clear evidence (as there is in the case of the 50 and 45p income tax rates and the 28% CGT rate) that high rates do not maximise revenues. This line is promoted relentlessly e.g. by the BBC.

  28. Mark
    Posted February 12, 2013 at 10:07 am | Permalink

    My original comment that discussed stamp duty and housing markets has disappeared from view again. I referred to it in a reply to my last comment above described as test, which has also disappeared. I expect that posting this comment will render both posts visible to me as “in moderation”, consistent with the behaviour I’ve been seeing.

  29. Mark
    Posted February 12, 2013 at 10:08 am | Permalink

    Indeed, that is exactly what has happened.

  30. Mark
    Posted February 12, 2013 at 8:19 pm | Permalink

    Still original post on stamp duty keeps disappearing. Have you found it, John?

  31. Wilko
    Posted February 18, 2013 at 11:54 am | Permalink

    Window Tax led to ‘Daylight Robbery’. Tax based on natural, enjoyable things, such as daylight, is errant. People should be encouraged to create and gain wealth. Linking wealth achieved to a penalty obstructs those who seek better.

    Tax should be applied to bad things, such as waste, crime, pollution, unhealthy food and excessive consumption of scarce resources. Cutting needless costs would be better than causing a need to generate a tax to pay for them in the first place.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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