Would tax cuts stimulate demand and pay for themselves?

 

            Whilst I believe some tax rates are self defeating, raising less revenue than lower rates, I do not think cutting the main rates of Income Tax or even Corporation Tax would lead to a surge of revenue in the first couple of years. Clearly VAT cuts would lose us revenue, just as a VAT increase was the one rate rise which did bring tax revenue gains. A lower tax economy will in the longer run be more successful, and will bring in more revenue as the growth accelerates.

          Mr Cameron in his recent economic  speech argued that the 50p to 45p tax change will bring in more revenue. I agree. I suspect lowering the rate ot 40p would bring in more as well. The current CGT rate is clearly counter productive, with a forecast fall in revenue this year. It is the most easily avoided tax, as people do not have to sell and realise gains, or they can sell something at a loss as well to offset. Why impose rates that lose revenue?

          This leaves the government and its tax cutting critics at odds over the main case. “Cut tax rates”, say the radicals, “to energise the economy. In due course it will pay off, but in the meantime we might have to borrow more”. Keep rates high, counters the government. We need to show “we are all in this together, so we need to tax hard anyone who does work and invest. Try to keep the borrowing down, as otherwise we might lose the markets confidence”.

           There is a mid point between these two. The tax cutters are right, that lower tax rates would stimulate more growth and create more private sector demand. It is tempting to try it. Give tax cuts to all. However, state  borrowing is too high and it would seem perverse to want to increase it. The government is right that it needs to get the deficit down.  So find some popular cuts in public spending that would pay for the tax cuts in the early stages, before the growth generated the extra revenue. I have often set out here easy or popular cuts. Start with getting our troops home, cutting overseas aid,  sell some state owned banking assets and stop Network Rail dealing in derivatives for starters. Cutting out expenditure abroad by the UK state is doubly helpful, as the money spent does nothing to stimulate UK demand at the moment, and having to buy foreign currency when exporting the money is another force selling the pound and driving up UK inflation.  I will look in more detail at this in due course.

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103 Comments

  1. lifelogic
    Posted March 14, 2013 at 6:44 am | Permalink

    The problem is the best taxes to cut are not the popular ones to cut. You want to attract money and business not push it away as currently. So you need to benefit the rich.

    IHT should just be got rid of instead of ratting on it, CGT needs to be about 20% and only after inflation adjustments, turnover taxes like stamp duty and SDLT need to go and income tax should never be above 40%, and then only for people earning £60K +.

    Currently we have the message of bring your cash to the UK (or keep it here) and the government (and government organised inflation) will take 80%+ of your capital off you, over just a few years. It is not very inviting to many (other than some non doms to who it does not apply). The low tax nondom activity (and the state sector) are the only booming areas of the economy – just copy these low taxes for many more.

    But the real problem is the Libdems that Cameron has saddled the party with, the many Libdems in his party (like himself) and in the Cabinet and at the BBC.

    This is what happen when you have a pro EU, high tax, borrow and waste socialist agenda to the country as Heath, Major and Cameron all found out. You should do what works and is right – not what you think the people want. The people will like it when they see it works.

    Alas too late now for Cameron, he has wasted the open goal he was presented with and all his excellent presentation skills all due to a defective sense of direction. He needed the opposite of a high tax modernist agenda, no pre-election EU ratting, no fake green tosh and no letting Clegg have equal tv billing and a deal with UKIP.

    If only he had asked my advice at the time it was all so obvious.

    • Dan
      Posted March 14, 2013 at 7:43 am | Permalink

      Excellent presentation skills?

      You’re kidding. He looks shifty.

      • Nina Andreeva
        Posted March 14, 2013 at 8:32 am | Permalink

        Yeah and he is bad loser too. Have a look at the video of him getting the result at Stafford (his first shot at becoming an MP). I wonder what he will look like in May 2015?

      • lifelogic
        Posted March 14, 2013 at 1:54 pm | Permalink

        It is quite hard presenting a policy direction as daft as his. Imagine if he were saying we are go to stop all subsidies, halve the state sector, abolish IHT and cut other taxes, make energy cheap and abandon the discredited renewable religion, grant the EU referendum I promised (Cast in Iron) now, get rid of EU banker bonus controls, gender neutral insurance, all people to be retired, kill energy certificates, simplify employment laws, control our own immigration and halve the number of lawyers in the process.

        Still he is the best we have alas. All we need is a deal with UKIP and a minor miracle otherwise we get 1-3 terms of Labour. But will anyone trust him after all the ratting?

    • uanime5
      Posted March 14, 2013 at 2:15 pm | Permalink

      Given that IHT only takes effect when people die why would removing it attract more rich people? Are you suggesting the UK tries to attract elderly entrepreneurs?

      Also how will you make up the loss of tax revenues from all your tax cuts? How many decades will there need to be extra borrowing until growth has made up the difference.

      • Richard1
        Posted March 15, 2013 at 10:25 am | Permalink

        IHT is a major deterent to entrepreneurs. The desire to provide for ones children or other heirs is a powerful motivator. IHT, especially at 40% on income and gains already taxed, sends a very negative message. It also raises very little and is expensive to enforce, as there are so many ways round it (especially for the very rich). Thats why countries such as Sweden have simply got rid of it.

        • lifelogic
          Posted March 17, 2013 at 12:53 am | Permalink

          indeed

    • John Moss
      Posted March 14, 2013 at 6:48 pm | Permalink

      Capital Gains do not need indexing if they are relieved over a sensible period.

      Take any gain and carry it across to either personal income or corporate profit. If it is made within 2 years of acquisition, regard it as trading income and count the full amount. But then relieve it at 20% pa for the next 5 years, so any sale after 7 years is tax free.

      The quid pro quo would be to apply it to principal residences and to assets on death, allowing CGT and IHT to be scrapped almost entirely as separate tax regimes.

    • Bazman
      Posted March 14, 2013 at 9:05 pm | Permalink

      A state that puts the interests of the wealthy above all other citizens in the hope that wealth will trickle down in classic sparrows and horses theory? Still waiting to hear you views on self employment, umbrella companies, short term contracts, and agencies and where they fit into easy hire and fire? Or the fact that cars will be self driving in twenty years and where all the driving jobs will be replaced from the pope of free market capitalism? (words left out ed) No reply? Wonder why?

    • Mark W
      Posted March 15, 2013 at 7:02 am | Permalink

      I think you’ve nailed it with when the 40% tax rate should kick in. I hate to say it but Labour have got away with their trap on the 50% rate. No slob of a journalist challenges the absurd tax cut for millionaires claim. Osborne could side swipe labour here. Raise the 40% threshold a long way. Reintroduce things like child benefit but tax it and all other benefits like pensions are. Scrap the 60% notional rate at 100k (tricky to attack by labour as complex) and put top rate back to 50% but move threshold up to about £300,000. I don’t approve of the last bit but I can’t stand the sight of smug lefties with their tax cut for millionaires nonsense.

  2. Nina Andreeva
    Posted March 14, 2013 at 6:54 am | Permalink

    Having just received a sub rate of inflation “pay rise” (and I bet many here will say they have received none and for many years on the trot). I hope Osborne will not be expecting me to shoulder yet another cost of living increase for the benefits class out of my tax payments. You can cut tax effectively by no longer requiring those who work, pay their taxes and obey the law to make enforced “charitable” payments to those who do not. Now before all you public school boy revolutionaries call me a heartless so and so, I was brought up on a sink estate on Tyneside and went to an even crapper comp and I can only say the generational dependancy has gone from at least the ’60s. If you do not believe me have a read of the works of the late Prof Norman Dennis who taught sociology at Newcastle University, welfare is effectively money down the drain

    • uanime5
      Posted March 14, 2013 at 2:17 pm | Permalink

      Unless you can magically create 2.5 million jobs for everyone who is unemployed , along with magically healing all the millions of sick and disabled people so they can work, you plan isn’t viable and will result in huge riots.

      • Mark W
        Posted March 15, 2013 at 12:21 pm | Permalink

        2.5 million jobs, err that’d be the ones the East Europeans are doing. Face it, some people are idle. There are jobs. And before your predictable left wing fantasy gains traction I have worked in the street with a brush and shovel in my time because I wouldn’t lower myself to scrounging. However it seems not too long ago that some smug 20 something on Question Time referred to stacking shelves as something he wouldn’t be “relegated” to doing. Yet as recent as the late 80s in the height of the Thatcher era I was happy to take Norman Tebbit’s advice and wasn’t so up myself I saw scraping puke off the ground in the freezing cold as beneath me.

    • John Moss
      Posted March 14, 2013 at 6:49 pm | Permalink

      Benefit increases are capped at 1% from this April and for each of the next two years after that.

    • Mark W
      Posted March 15, 2013 at 6:54 am | Permalink

      I think you’re about right. Being on benefit is the only growth industry to be in. And I do like the “public school boy revolutionary”. It’s usually a guilt thing cause mummy n daddy bought too many toys for them. Personally half these champagne socialists I’d stick on a one way flight to eastern Dem Rep of Congo so they can see real poverty.

      • uanime5
        Posted March 15, 2013 at 1:54 pm | Permalink

        You don’t need to go to the Dem Rep of Congo to can see real poverty, you can witness it in London by seeing how the homeless live on the streets.

        • Mark W
          Posted March 15, 2013 at 3:48 pm | Permalink

          I don’t dispute the terrible conditions of some homeless poeple in the UK, although I would not put it on a par with somewere like the DRC.

          However the few genuine cases of poverty in the UK are not helped but the army of scroungers in the UK. Nor are those made redundant who do seek to get back to work asap. The term relative poverty is nonsense. This country is in danger in some years to come of becoming top heavy and the workers will not be able to keep the shirkers any longer. Why do we have to break many people before we recognise this. The DRC is one of the most mineral rich countries in the world and is in ruin by our standards. Why do we wish to emulate it?

          As you are clearly capable of thinking things through why stick to the point scoring and avoid the real argument. UK borrowing is high. This is normally cyclic and has been this high before and may be again. But in the last decade it was high when it should have been on a pay down part of the cycle. And before the crisis hit.

          I’m sure you acknowledge that you can only squeeze so much fat out of the rich (I don’t like that term but I don’t want to quibble over semantics). If we could make the rich stay here and come here and be happy with penal tax, and our borrowing continued to rise, as it would, (pits never cease their ability to absorb more cash), what would be the plan of the left next? At some point the state spending would need to be curbed. Most likely we would have to have totalitarian government too. Most left wing state corporatist countries need secret police, armed border guards to keep people in etc etc. How many more examples does this world need that the left fails, every time.

          Why do lefties not follow their desire and move to Cuba, North Korea, Venezuala or Eritrea. I just don’t underdtand the need to alter a country that has done ok out of capitalism.

          • Bazman
            Posted March 15, 2013 at 9:11 pm | Permalink

            How would a fifty five year old man made redundant with three children move to London and live five to room/car from a northern area of high unemployment and why should he do this to satisfy you ideological wet dream? You are not serious and if you where would get crushed as soon as you come out from your ranting fantasy. Give it a go and see how far you get before you ram it.

  3. JimF
    Posted March 14, 2013 at 7:18 am | Permalink

    “Keep rates high, counters the government.”

    So you do finally concede that this is your party’s line?

    As so many of us agree on this site, LibLab and Con are all in this together, keeping tax rates and spending high. The remainder of us in the real world would rather be with a tax cutting, spending-reducing party, thanks.

  4. Mike Stallard
    Posted March 14, 2013 at 7:27 am | Permalink

    You are so right!
    We cannot afford to do tax cuts at the moment as the national debt and the national deficit are so scandalously high.
    We need to cut back the burgeoning State.

    What is so surprising about your post is that you mention four quite sensible, cheap and easy ways to do this. Ways that would be really popular.
    I wonder myself if we could’t get rid of quite a lot of Ministries completely as well. If the ship is foundering, perhaps it is time to chuck stuff overboard.

    • Edward2
      Posted March 14, 2013 at 9:46 am | Permalink

      I agree Mike, “….chuck stuff overboard”.
      We should look at the numbers of ministries of state and the numbers of quangos we have today, compare it to those we had just 20years ago and decide if we really need them all.
      Its what any company would be doing faced with the figures the state is showing.
      Concentrate on core activites and prune the rest starting at the top.
      And I dont mean doctors, nurses, teachers school crossing patrols and emergency services etc.
      Pass half the total savings on towards reducing the defecit and half towards tax cuts.

      • Mark W
        Posted March 15, 2013 at 7:11 am | Permalink

        Ah, I remember the bonfire of the quangos that was promised. Could have generated so much power from those pyres.

        The sad point is that the stuff the govt should cut, it dare not. One day this will happen by force of bankruptcy. Then we’ll all be sunk cause no one has the guys to tell a few wasters on grey track suit bottoms to do a days work.

        I think the concept of being bust should be discussed. The value of our pound and the price of petrol / diesel are linked. Maybe when fuel is £3.50 a litre some one will demand their wages gross and stick a finger up to Whitehall.

    • Nicol Sinclair
      Posted March 14, 2013 at 12:45 pm | Permalink

      Mike Stallard: The DECC might be an appropriate place to start the cull.

    • lifelogic
      Posted March 14, 2013 at 1:58 pm | Permalink

      chuck stuff overboard:-

      Indeed start with the EU, the climate change (75%?) of the Climate Change and Energy dept, most of the free at the point of rationing & disfunctional N… H…. S… that Cameron so loves in speeches and about 50% of the rest.

  5. Andyvan
    Posted March 14, 2013 at 7:39 am | Permalink

    Any cut in taxes or expenditure is good as all spending by government is unproductive and a dead weight on the struggling productive sector but unfortunately it’s not happening. Conservatives point to some cuts but in reality they are minuscule compared to what really needs to be done. George should take a knife to government department but don’t just cut budgets – close them altogether. Actually start the bonfire of the quangos, don’t just talk about it. Eliminate subsidies for uncompetitive businesses, banks especially. Cut NHS budgets (the sacred cow). Cut fuel taxes, income tax, CGT. Get radical. It’s the only way anything will change before the eventual collapse. The flaw in this is we have Dave and George in charge.

    • lifelogic
      Posted March 14, 2013 at 10:54 pm | Permalink

      Not quite all government spending but about 75% is pointless much is worse than pointless it is positively damaging to the economy.

      • Bazman
        Posted March 15, 2013 at 9:14 pm | Permalink

        Like infrastructure, welfare, the health service and defence. That only costs 25% or should not be spent on? More quackery from you that you thought would go unchallenged as good right wing think.

  6. Ben Kelly
    Posted March 14, 2013 at 8:02 am | Permalink

    Cutting taxes collected through PAYE will never repay themselves as the extra money put into the economy needs to be recycled too many times to really pay for itself unless there is a tangible effect on benefits claimed as a result of the impetus.

    Government should still be aiming to cut taxes and reduce spending as after all it is our money not government’s.

    A tax cut that would pay dividends would be to reinstate the previously universal child benefit. The earnings level before cut off means that this tax cut would be at the 40% rate and would need to be recycled fewer times before paying for itself. The political implications for suggesting that the percieved rich (£50K in London?) are not being tapped are far outweighed by the £1000 to £3000 each household with children in this earnings category would be able to inject into the economy. The first quarter retail figures after the introduction of this tax increase will show that spending has been hit as those affected either lose the cash or save it to pay their tax bills.

    For those who disagree it is a tax PAYE codes are being amended to reclaim the money, and child benefit was devised to offset a tax break in the beginning.

    • Mark W
      Posted March 15, 2013 at 7:14 am | Permalink

      Here here

  7. JoolsB
    Posted March 14, 2013 at 8:04 am | Permalink

    How about saving £12 billion by scrapping the unfair Barnett Formula which enables the Scots to enjoy free & the Welsh heavily subsidised tuition fees, free prescriptions and hospital parking and free care for the elderly – no £75K care home fees for them. All denied to the people of England on grounds of cost despite their taxes paying for it for the rest of this anything but United Kingdom. So much for us all being in it together.

    The Tory party put there by the people of England should be ashamed of themselves for not only continuing this blatant discrimination but by also refusing to address the English Question. BIG mistake!

    • Wokingham Mums
      Posted March 14, 2013 at 12:49 pm | Permalink

      JoolB
      Well said

  8. John B
    Posted March 14, 2013 at 8:26 am | Permalink

    It is time for politicians to stop seeing tax cuts as a cost. It is of course a cost to them and their play money fund.

    Tax cuts are a saving to the people who are having their money confiscated and squandered.

    Since when are savings a cost and have to ‘pay for themselves’?

    Stop taking money from people to pay for things they can pay for themselves like health insurance, unemployment insurance, pensions… for example.

    Not spending is not a cost. At worst it is a case of make do with less or do without.

    And we could start by doing without the EU.

    As for the violin section – the poor, the underprivileged, the disadvantaged and vulnerable – if the cost of supporting this amorphous sub species, Ace in the hole of the political class really is necessary, then it is possible to socialise this cost without socialising the cost of everyone.

    The National so called Health Service costs every individual £3 000 pa. Of course only taxpayers pay depending on how much they pay in direct and indirect taxation, the amount kept carefully hidden by all Parties otherwise if people knew the true cost, they would riot over how little they are getting for their money and realise despite all the lies, private insurance would be quite affordable.

    Only when the focus moves from taxation to spending and how to reduce both, will the free market get the opportunity to right our economic fortunes and make our futures prosperous… all without the ‘help’ of politicians.

    • Vanessa
      Posted March 14, 2013 at 10:41 am | Permalink

      Well said! I think the NHS should be broken up. We should go back to cottage hospitals run by charities or rich people with altruistic feelings to give back a bit to society. It is time in these austere times to radically shake up our society and get rid of the dross (people on life benefits) and immigrants being paid millions and never having contributed a penny to our economy. It is blatant discrimination when it would never happen to the British, we have to pay first. It may even be time to get rid of politicians. Switzerland only has 7 !!! The rest is done by local government WITH the people.

      • uanime5
        Posted March 15, 2013 at 1:57 pm | Permalink

        I think the NHS should be broken up. We should go back to cottage hospitals run by charities or rich people with altruistic feelings to give back a bit to society.

        Given how ineffective these were at curing anything more complex than a cold replacing release hospitals with ones where you’re lucky if you don’t die during an amputation will result in a huge revolt against the Government.

      • Bazman
        Posted March 15, 2013 at 9:15 pm | Permalink

        Regressive nonsense.

    • Jerry
      Posted March 14, 2013 at 12:29 pm | Permalink

      @John B: “As for the violin section – the poor, the underprivileged, the disadvantaged and vulnerable – if the cost of supporting this amorphous sub species

      John B (and anyone born with silver spoon in their mouth), you would be well to remember this – “and there, only for the grace of God, would go I”. Many better people that you have fallen from their high horses…

      • Mark W
        Posted March 15, 2013 at 7:29 am | Permalink

        It’s all well and good knocking the comment but you fail to address that poor in the UK is not poor. It’s this daft relative poverty nonsense dreamt up by millionaire journalists at the guardian. Why should we all subsidise their guilt. People on sub Saharan Africa are poor. Our chavs are not. Yes by all means have a safety net for falling on hard times but not a lifestyle choice. Maybe the first part of benefits should be non essential items like cars, TVs, sky boxes, Xbox etc being pawned to the benefit office.

        • Jerry
          Posted March 15, 2013 at 9:25 am | Permalink

          @Mark W: Make all the assumptions you like, for example “Sky Boxes”, do you realise that you can get a Sky TV Sub that includes both phone and broadband [1] than a phone+broadband account with BT (bundling of services is not the issue), also what if these people bought or contracted to these items and services before they lost their jobs. Also, the mere presence of a dish or STB doesn’t in its self indicate the presence of a valid viewing card.

          Also, if you think £71, that will not now even keep up with inflation, is a “Lifestyle” for the choice unemployed then you are very deluded, perhaps if you spent a little more time with charities such as the Salvation Army or your local Food Bank and less time thinking up excuses to make yourself feel better about the state of the country…

          [1] the latter all but a now a requirement for JSA claimants since the introduction of UJ

          • Mark W
            Posted March 15, 2013 at 4:05 pm | Permalink

            I saw this post later than the second one.

            To feel good about myself I merely try to provoke people to be sanctimonius as it makes me laugh. Thank you.

            Much obliged on talking me through the Sky offers. It would be more interesting to debate the point you clearly knew I was making but I suppose avoiding it is as satisfying as wearing a badge to publicly show what you do for charity.

            This is simple really but it’s Friday afternoon and what’s the point in trying to discuss a point you will wilfully miss. It’s not that particularly clever. Win the battle lose the war. One day this country will be bust, the poor will suffer harder and sooner. I can figure out that I will be old and weak by that time so would rather it was addressed now but hey ho, my plan has been to stock pile assets to retire to the USA. Shame really that my country has become foreign around me.

          • Jerry
            Posted March 15, 2013 at 5:00 pm | Permalink

            @Mark W: You ‘point’ seems to have been a rant about what you describe as “relative poverty”, which in reality is just a way of excusing the turning of a wilfully blind eye – non so blind as those who care not to see…

            my plan has been to stock pile assets to retire to the USA

            Well, well, why am I not surprised to read that! But of course, you will do so from within a gated community (no doubt in a GOP supported area), not in the parts of town that “Average Joe” lives, where even the GOP (and Fox News) admit that the USA has never had so many people on ‘Food Stamps’ and/or on Medicare…

            I just hope for your sake that if you do fall from that high horse of yours that it happens before you reside State-side, but of course if that happens you will be pleading with the UK consulate to fly you back to Old Blighty (and then expect your socail in the banks each month) ‘cos you have paid your UK taxes – which of course many people on JSA have also done.

            Yes indeed it’s Friday Mark, I suggest your spend the weekend thinking and reflecting, ‘cos you never know, Monday might be the day you fall off your horse…

        • Jerry
          Posted March 15, 2013 at 9:30 am | Permalink

          @Mark W: Oh and cars tend to be essential for getting a new job, how out of touch you are perched up on your high horse with that gold spoon in your mouth, next you’ll be telling the hungry to eat cake if they can’t afford bread!…

          • Mark W
            Posted March 15, 2013 at 12:31 pm | Permalink

            Cars essential?? Possibly in your nice quiet corner of this green and pleasent land but not everywhere. I’ll concede.

            What about TVs, nice of you to employ ad hominem to avoid the actual point. My tax bill would be lower if benefit for the idle left their conditions worse, obviously after a period before that old chestnut rears its head. Anyone can be out of work for a period.

          • Jerry
            Posted March 15, 2013 at 3:06 pm | Permalink

            @Mark W: “My tax bill would be lower

            Says it all really, that really is all you care about, “I’m all right, sod the others”….

            To think people wonder why the Tory party is called the Nasty Party whilst the UKIP are called Crack-pots, with friends like “Mark W” these political parties do not need enemies!

          • Mark W
            Posted March 15, 2013 at 6:08 pm | Permalink

            It’s not I’m alright sod the others though. I believe the government has no right stealing too much money from me. Simple as that. Why should I have to retire to the USA when people like your good self could move to North Korea and live in your left wing paradise and leave us evil selfish capitalists to wallow in our own mire.

          • Jerry
            Posted March 16, 2013 at 11:43 am | Permalink

            @Mark W: There you go again with your hyperbolic political nonsense, it’s got nothing what so ever to do with the extremes that are the USA and North Korea, it’s simple Christian compassion, as I said, be careful on that high horse of yours, low branches are everywhere, just waiting to catch the wilfully blind rider…

        • Bazman
          Posted March 15, 2013 at 9:19 pm | Permalink

          You can’t be a peasant living off the land in Britain Mark. There are minimum levels of living standards to which people are entitled to have and we are all entitled to enjoy. How will creating more desperation create more jobs? How old are you? Twelve?

          • Mark W
            Posted March 17, 2013 at 7:19 am | Permalink

            Bazman, the point was left wing paradises are always anything but.

            Jerry. Maybe my stockpiling assets was the wrong description. It’s sounds too grand. I mean save the best I can to gain entry. And after our heavy taxes saving is almost impossible. But there’s the problem, my attitude is to save and not spend and that is negative to the economy. I’m sick of paying 40% tax at such low levels. Sick of it being used to subsidise an advertised way of life. And before the croc tears of £71 per week crop up, I’m on about benefit being capped at £26k per year. The fact that it was above that is a joke. And I’d say the people struggling on £71 per week are suffering cause of these absurd levels too.

            I really couldn’t give two hoots how much abuse I get from you two, its rather charming you care. You also don’t consider that some posts here are wrote at speed in spare moments. You both with your stock off the shelf left wing nonsense fail to address the point that our high benefits bill for the lifestyle choice merchants that do exist is breaking us.

          • Jerry
            Posted March 17, 2013 at 1:12 pm | Permalink

            @Mark W: You seem to think that anyone who actually cares must be of the left, well that would make Mrs Thatcher a “lefty” in your book! Sorry Mark but you come over as a very selfish person, the worst of the Me! Me! Me! generations of aged-Yuppies (if judge your age-group correctly) who are the ones actually giving the Thatcher years such a bad name. Mrs Thatcher might not have said that there is no such thing as society but to judge by some people it could be said that is exactly what she left the UK without…

        • Bazman
          Posted March 17, 2013 at 1:38 pm | Permalink

          A lifestyle choice being the basis of your argument? How much ‘choice’ do you really think they have. Like most of us we are victims of circumstances and the poverty you say is often a poverty of ideas and a lack of opportunity. Their upbringing brings them down. Your regressive ideas of causing them further hardship will will not help this. On the other hand winning the lottery would probably kill them. When you have something sensible to say apart fro punishment do let us know.

    • uanime5
      Posted March 14, 2013 at 2:22 pm | Permalink

      As for the violin section – the poor, the underprivileged, the disadvantaged and vulnerable – if the cost of supporting this amorphous sub species, Ace in the hole of the political class really is necessary, then it is possible to socialise this cost without socialising the cost of everyone.

      They tried this in the USA and it doesn’t work because making the poor more desperate just results in them committing more crimes, not getting jobs that don’t exist.

  9. Brian Tomkinson
    Posted March 14, 2013 at 8:53 am | Permalink

    Just testing if this doesn’t appear just like my last 3 comments!

  10. Martin
    Posted March 14, 2013 at 8:57 am | Permalink

    I can’t understand the government’s logic on 45p top tax rate. If 50p is bad and 40p is good why on earth have they gone for the halfway house? At 45p the government gets the criticism it would have got anyway and yet if its own analysis is correct not all of the benefits!

    • Paul H
      Posted March 14, 2013 at 10:03 am | Permalink

      A lot of people made this point at the time, especially given the claim that the extra 10p didn’t actually raise more money.

      The answer, as in so much of what Mr. Cameron and Mr. Osborne get up to, is simply political ineptness. How else do you explain that they have allowed a narrative to get hold of evil Tory cuts, when in fact public spending has continued to grow?

      • uanime5
        Posted March 14, 2013 at 2:25 pm | Permalink

        Given the short period of time the 50% tax rate was active and the amount of income that was deferred, it’s no surprise that it raised very little extra money. Had the Conservatives not stated they would cut this tax so soon after being elected there would have been less deferred income and more tax revenue would have been raised.

        • Edward2
          Posted March 16, 2013 at 4:43 pm | Permalink

          Uni,
          I think you know that during all the 13 years of the last Labour Govt the top rate was 40%

          It was just in the last few months they put it up to 50%.
          It was done quite deliberately and cynically to put a political obstacle in the way of the next Govt.

  11. MajorFrustration
    Posted March 14, 2013 at 8:59 am | Permalink

    All good stuff but we are now in the run up to the next election and to make suggestions such as these does seem to be shutting the stable door assuming anybody in Government is listening to you. What current Government spending could actually be swirched off PDQ? All your other money saving examples could be worth a try but why not also start limiting what the NHS provides.

  12. Leslie Singleton
    Posted March 14, 2013 at 9:57 am | Permalink

    One doesn’t need to hunt around for a reason or an excuse to cut taxes, it is simply intrinsically right to do so: the tax take has kept rising and rising and that cannot go on and should be brought back much closer ideally to the mediaeval tithe of 10%. Taking much more tax than the likes of Hong Kong is a recipe for and a demonstration of failure. We should try and investigate and understand why we are so resentful of successful people unlike say America. Look what friend Hollande, with his “I don’t like the rich”, is doing to France.

    • uanime5
      Posted March 14, 2013 at 2:28 pm | Permalink

      In the USA they admire wealth no matter how it’s gotten. So Americans are more willing to tolerate people who became billionaires by overworking their staff and paying them a pittance than in the UK.

      Also a medieval tithe of 10% isn’t viable in a developed country where people expect to receive free education, healthcare, and welfare.

      • Leslie Singleton
        Posted March 15, 2013 at 12:22 pm | Permalink

        unanime–It is the fact that people over here expect so much even when they have provided so little that is the core of the problem. I have lived in America and the people there do not (unlike here) regard themselves as downtrodden. They might, like everyone else, wish they were paid more but that’s no surprise. And America as a whole is much more successful (and Americans know this and hate what they call “Liberalism”) so please stop talking as if Americans themselves are being forced in to anything against their will. Given that you apparently speak fluent Yank with your “gotten” I take it you have lived there too so I am surprised you could argue with this.

        • Bazman
          Posted March 17, 2013 at 9:57 am | Permalink

          Some areas of America have third world levels of poverty, the south in particular. Bush gave massive tax cuts to the rich putting the country into deficit for little gain. Your idea of impoverishing and dragging down the country for dogma is a non starer and I notice it will not effect you or so you think. You seriously think that the poor in this country will just take homelessness and poverty lying down? As I have pointed out to you before it is not possible to live in this country for less than £500 a month. When this is taken away then what? Silly fantasy of which you have no reply to.

  13. James Reade
    Posted March 14, 2013 at 10:09 am | Permalink

    I’m wondering whether today you might go back to one of your previous posts where you describe one of my comments as “nonsense”, but as yet, more than 24 hours later, haven’t approved my response, which just happens to include links to economic data which really rather indicate it isn’t me that’s talking the nonsense.

    One of the interesting points I refer to in that is that back in 1994 when the UK economy was back growing strongly again post 1992, the deficit just happened to peak at almost 6% of GDP, where it is currently. So is state borrowing really too high?

    • Edward2
      Posted March 14, 2013 at 1:03 pm | Permalink

      James, you pose the question “is state borrowing too high”
      I think considering that we have high overall levels of taxation and the state is still borrowing £140 billion, that the answer is yes.
      The state needs to reduce this annual deficit quickly and get back to a 40% not 50% sized state.
      Actually the real question I would ask is if the huge rises in state spending since 2000 has resulted in huge improvements in health, schools and public services generally.
      It certainly has not brought about a huge improvement in the standard of living for us all and yet you call for even more of the same borrowing by an ever growing state as a solution.

    • Nicol Sinclair
      Posted March 14, 2013 at 1:28 pm | Permalink

      @James: “which just happens to include links to economic data”. JR has already said before, and has repeated today, that checking links are too time consuming for him. Perhaps that’s why “more than 24 hours later, [he hasn’t] approved [your] response”? Work it out… 🙂

    • Richard1
      Posted March 15, 2013 at 10:31 am | Permalink

      In 1994 we had an economic policy very clearly directed towards reducing the deficit. It was very successful, ending with a balanced budget – even a brief surplus – along with consequent strong non-inflationary growth. Unfortunately we then got Gordon Brown who, after 2 years of sticking to his election pledge to stay with the Major-Clarke spending plans – engaged in a huge unfunded public spending increase. Where were all the Keynesian economists then? You guys should have been shouting from the rooftops that Brown should not have been running deficits during a period of (reasonable) economic growth.

  14. Brian Tomkinson
    Posted March 14, 2013 at 10:15 am | Permalink

    The problem is that your colleagues in cabinet are spending junkies just like Labour and the Lib Dems. Three years have been wasted pretending that there is austerity (which is taken to mean reductions in government spending) when it has been increasing along with taxes which have been increased 254 times already with more planned. Vote Conservative? Why?

  15. Ralph Musgrave
    Posted March 14, 2013 at 10:16 am | Permalink

    Why on earth does JR assume that tax cuts involve government borrowing more? As Keynes, Milton Friedman and numerous other economists have pointed out, additional government net spending can simply accumulate as extra monetary base rather than as extra debt or “borrowing”. In short, the government / central bank machine can simply print money and spend it.

    As long as the amount of printing is enough to reduce unemployment, but not so much as to send inflation thru the roof, where’s the problem with printing?

    • Denis Cooper
      Posted March 14, 2013 at 12:57 pm | Permalink

      I think this is something that should be thoroughly debated and decided by MPs, certainly the next time the Chancellor wants to authorise another tranche of QE but preferably before then so that he doesn’t present them with another fait accompli without having sought their prior approval.

      They could discuss whether the vast sums that the Treasury has already indirectly borrowed from the Bank of England will ever be repaid out of future taxation, or would MPs be content to see our national central bank go bust?

      That is, will the huge stock of gilts now owned by the Bank, a quarter of all the gilts in issue, still be honoured, or could the Bank be persuaded to allow the Treasury to cancel them even if that left the Bank with negative net assets?

      And would the Treasury then be allowed not only to renege on its bonds but also on the indemnity it gave to the Bank in February 2009, that it would make up any losses arising from the Asset Purchase Facility?

      Because there would be no point in the Treasury reneging on the gilts held by the Bank unless it also reneged on the indemnity it gave to the Bank against losses arising from their purchase; that would just result in transfers of taxpayers’ money to the Bank to cover its losses rather than transfers of taxpayers’ money to the Bank as the payments of interest and capital due on the gilts it owns.

      Today the Telegraph reports that the Bank could end up making an overall loss if/when it sells the gilts back to private investors:

      http://www.telegraph.co.uk/finance/economics/9928814/Taxpayers-face-8bn-bill-from-QE-admits-Bank.html

      “Taxpayers face £8bn bill from QE, admits Bank”

      Well, that wouldn’t be too surprising because the intervention of the Bank as a major new gilts investor pushed up prices, and by propping up/rigging the gilts market in that way the Bank by definition will have paid more than other gilts investors would have been prepared to pay without its intervention, and it’s quite likely that if/when it reverses that intervention then it will take losses.

      The central fact is that while the Bank was buying up previously issued gilts from private gilts investors the Treasury was selling new gilts to much the same set of private investors at much the same rate; the money it borrowed has been spent paying the government’s bills; it cannot avoid repaying the money directly borrowed from private investors, and nor can it avoid repaying the money indirectly borrowed from the Bank without the Bank going bust.

      • Nicol Sinclair
        Posted March 14, 2013 at 1:32 pm | Permalink

        @ Denis Cooper: “http://www.telegraph.co.uk/finance/economics/9928814/Taxpayers-face-8bn-bill-from-QE-admits-Bank.html” See my comment above. Leave the links OUT…

        • Denis Cooper
          Posted March 16, 2013 at 3:44 pm | Permalink

          So then you will take my word for the accuracy of everything I write, without ever wanting to see any supporting evidence?

          I wouldn’t proceed like that.

      • Mark
        Posted March 14, 2013 at 5:16 pm | Permalink

        I have had a reply from the BoE to my query about the treatment of losses under QE. A key sentence is this:

        The difference between the original acquisition cost of the redeeming gilt and the redemption value does not represent a loss, as this calculation does not take into account the coupon i iome the Bank has received since purchasing its holdings of this gilt.

        That implies they are considering each gilt together with its coupon income separately from the others for accounting purposes. In turn they use that to justify spending £6.6bn on further gilt purchases, rather than the £6.1bn redemption proceeds of the 2013 4 1/2% Treasury Gilt that was redeemed on March 7th. In the case of that gilt, all the purchases were in QE round 1, between August 2009 and January 2010, so the three years of coupons (worth about £820m) will have covered the capital loss (£493m).

        I also had an answer from the ONS, who say that national accounts exclude any profit or loss on the QE portfolio that can be considered a contingent liability. Therefore there is no recognition either in the BoE accounts or the national accounts of the real position.

      • Mark
        Posted March 14, 2013 at 5:26 pm | Permalink

        The BEQB article is here:

        http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2013/qb130103.pdf

        There is also a ready reckoner spreadsheet available that requires a modern copy of Excel here:

        http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2013/APFcashtransfers.xlsx

        I shall analyse both carefully.

        I am still awaiting responses from the Treasury and the ONS on QE accounting. I guess they’re too busy until after the budget.

        • Mark
          Posted March 14, 2013 at 8:11 pm | Permalink

          Not ONS (already have their answer) but OBR…

        • Ralph Musgrave
          Posted March 15, 2013 at 9:52 am | Permalink

          Mark,

          Thanks for those links. I’ll have a look at them. I suspect they are going to be interesting and perhaps I’ll do a post on my own blog on the subject addressed.

        • Denis Cooper
          Posted March 15, 2013 at 12:34 pm | Permalink

          Thanks, I’ll read the Quarterly Bulletin with interest.

          Of course the Bank could lose money on its gilts transactions even if it held all of the gilts to redemption, because they were not newly issued gilts bought direct from the Treasury – forbidden under EU law, as well as too transparent – but previously issued gilts bought from private investors through the secondary market.

          At least the Bank will never be forced into selling them at low prices, which may happen to private investors if they need to raise cash and can’t wait for the gilts to mature.

          Naturally we all know that behind this facade of laws and formal documentation all this money is really being syphoned off to the shadowy figures who are the secret owners of the Bank …. 🙂

          In connection with another myth, yesterday the pound “soared” again for the second day, with the sterling trade weighted index “leaping” by another 0.7%, so that it is now higher than before the Telegraph had it “crashing” earlier this week …

      • Ralph Musgrave
        Posted March 15, 2013 at 9:50 am | Permalink

        Thanks for the link to the Telegraph article. Looks interesting and I suspect the Telegraph has got it wrong. I’ll read it and mull over it, and perhaps do a post on my own blog in that.

    • Nicol Sinclair
      Posted March 14, 2013 at 1:29 pm | Permalink

      @Ralph: what about the reduction in spending power of pensions etc.?

      • Ralph Musgrave
        Posted March 15, 2013 at 9:46 am | Permalink

        Nicol,

        You’re assuming that money printing has an excessive inflationary effect, aren’t you? As I said above, as long as the amount printed and spent is NOT EXCESSIVE, then “print and spend” is a perfectly reasonable way to bring stimulus. An alternative, for those with Tory or right wing views is to “print and cut taxes”.

    • Bob
      Posted March 14, 2013 at 2:58 pm | Permalink

      @Ralph Musgrave
      “where’s the problem with printing?”

      It’s not so much about whether you borrow or print money, but rather what you do with the money.

      If it’s just being used to keep a load of non-jobbers in situ, then it’s not going to do us much good.

      I think Mr Osborne should step aside and allow Mr Redwood have his turn.

  16. behindthefrogs
    Posted March 14, 2013 at 11:29 am | Permalink

    The one tax cut that would stimulate growth is employers’ NI contributions. It has the following possible effects.

    1) Stimulating employment.
    2) Improving cash flow particularly in small companies
    3) Reducing the price of internal manufactured items compared with imports
    4) Reducing the price of exports
    5) Attracting foriegn companies in the same way that is claimed for corporation tax reductions, to which it is preferable due to the above.

    • lifelogic
      Posted March 14, 2013 at 2:00 pm | Permalink

      Indeed one on the best to cut along with IHT, stamp duty and CGT. But they won’t.

    • Leslie Singleton
      Posted March 14, 2013 at 5:35 pm | Permalink

      behindthefrogs–Great but you don’t go nearly far enough–As I have said a number of times, it is morally obvious and repugnant that so far from taxing employers (which I cannot see one single reason for doing apart from antipathy towards employers, which is odd because so many want to be employees) they should be paid by the State for the work they do for the State (Pensions, Maternity Leave, PAYE and NI collection). On a related track, I cannot find words strongly negative enough without getting edited for the demented Government (Yes, Government! Unbelievable!!) advertisement about the new Pensions provisions apparently sucking up to and encouraging people who resent their employers by saying (from memory) something like, “And the best part is your boss has to contribute”……..this to the employee’s pension, at least I assume so. Does anybody have the slightest idea why an employer should be forced to do this or why the Government should poke fun at employers in this way? I admit I may have this all wrong because verily I do not understand.

  17. Denis Cooper
    Posted March 14, 2013 at 12:06 pm | Permalink

    Only slightly off-topic, in view of the penultimate sentence in the article –

    Largely unreported by the mass media, including most notably the hysterical “pound is in freefall”, “sterling crashes”, Daily Telegraph, the pound soared yesterday.

    Well, it gained 1.0% against the euro and 0.3% against the dollar, and the sterling trade weighted index rose by 0.6% from 77.9925 to 78.4827; but as every small short term downwards movement is greeted by hyperbolic headlines designed to spread alarm and dismay it seems just as reasonable to greatly exaggerate the significance of a small short term movement in the opposite direction.

    Meanwhile the medium term trends which have been running for the past four years since the 2007 – 2008 correction of sterling from its previous serious over-valuation – euro trade weighted index declining, pound rising against the euro but declining against the dollar, overall sterling trade weighted index stable – are still intact.

  18. Neil Craig
    Posted March 14, 2013 at 12:44 pm | Permalink

    While there seems to be no collation of such costs it sems likely that the total of government advertising of the need for more government [money given to “charity” sock puppets who spend it on “raising awareness” of government scare stories, quango advertising, government campaigns such as the obscene TV campiagn with the CO2 monster, money spent by government departments and quangos, such as NHS advertising/Press officers, etc etc) cost about £58 bilion. That is half the deficit, without it we would be down to historic borrowing rates.

    All that is required is to make it a firing matter to authorise any such spending including giving money to any council, quango, or “charity” that does it. (Or if going to be wishy washy about it, to any one that spends mores than 0.1% of what it receives from govenment on PR.

  19. Magnolia
    Posted March 14, 2013 at 1:00 pm | Permalink

    I would cut Child Benefit out completely and replace it with a free school meal for every child.
    It’s not ideal because it would still be a universal benefit but I believe that it could work out cheaper for the government and the value of the spending would reach the children directly.
    It would also encourage parents to get their children to school.
    Free Schools and Academies would be able to be creative with the meals in a way that maximises the enjoyment and wholesomeness of the food for the children.
    Once it catches on I could see pupils involved in choosing the menu.

    • uanime5
      Posted March 15, 2013 at 2:02 pm | Permalink

      What happens during half term and end of term when the children aren’t in school? You clearly haven’t thought your plan through at all.

  20. Bert Young
    Posted March 14, 2013 at 1:48 pm | Permalink

    There are some sensible responses to your blog today but , so far , no mention of a low fuel cost . Many middle class individuals who swim into my view all mention the extent to which their lifestyle and spending habits have become constrained by the high cost of fuel . Surely a relaxation in the fuel tax take could a) be offset by a reduction in Government costs and b) by cutting back ruthlessly on the benefits paid to immigrants .My connections also include a very frequent exposure to undergraduates and post-graduates – all of whom are directly and indirectly dependent on parental support of one sort or other ; if the parents are in a reduced state , how will this impinge on those able to attend University ? There is much of the economic future at stake here .

  21. uanime5
    Posted March 14, 2013 at 2:33 pm | Permalink

    It seems that some people on this blog want huge tax cuts but have no idea how many decades of growth it will take to recover the loss in tax revenues. This doesn’t surprise me.

    Mr Cameron in his recent economic speech argued that the 50p to 45p tax change will bring in more revenue.

    This may work this year due to all the income that was deferred after the Chancellor announced that he was going to cut the top rate of tax. Whether it will raise more money next year is another matter.

    The tax cutters are right, that lower tax rates would stimulate more growth and create more private sector demand.

    This will only work if the Government cuts taxes that effect the majority of people, rather than tax cuts for millionaires. It also won’t work if tax cuts are accompanied by benefit cuts as the poor will almost always suffer more from benefit cuts than they will gain from tax cuts.

    Also wasn’t corporation tax cut recently. What increased tax revenues are attributable to this tax cut?

  22. Peter Davies
    Posted March 14, 2013 at 2:35 pm | Permalink

    How about a round of zero based budgeting on a dept by dept line by line basis highlighting the things that don’t matter or are pointless leaving everything on the table including O’Seas Aid, NHS, EU, Climate Change Act, etc?

    Or are there too many vested interests?

  23. David Saunders
    Posted March 14, 2013 at 4:07 pm | Permalink

    If ‘we are all in it together’ why ring fence the NHS and Foreign Aid budgets? Why should other budgets not only cut back on their own spending but also take an extra hit to featherbed the NHS? There must be areas of NHS spending that could be reviewed and prioritised as other budgets have to do.

    What has happened to the old Tory philosophy of low taxes, small state and freedom? Gone with the Cameroons.

    • Jerry
      Posted March 15, 2013 at 5:48 pm | Permalink

      @David Saunders: “There must be areas of NHS spending that could be reviewed and prioritised as other budgets have to do.

      I have no problems with ring fences as long as the ring fence benefits the UK and all within the UK, thus the NHS ring fence is not only correct but actually pays for its self in the long term – many people, and the old DHSS, learnt this lesson years ago when people were languishing for months, if not years, on sick benefits because they were awaiting (for example) knee or hip surgery when they could have been out of post-surgery rehabilitation and back to work paying taxes…

      What has happened to the old Tory philosophy of low taxes, small state and freedom? Gone with the Cameroons.

      Was there ever such a time, perhaps in the long distant past, not so much gone with “Cameroons” but the Heathland… But you are correct in the point I think you were making, the UK does seem to have lost the ability to have and allow aspiration, replaced by exasperation at the bureaucracy – not as bad as setting up shop in France but certainly going that way. 🙁

  24. Aatif Ahmad
    Posted March 14, 2013 at 5:30 pm | Permalink

    Laffer curve aside, we could use tax cuts not just to increase overall spending in the economy, but the one type of spending that creates economic growth, i.e. investment. Companies have huge stashes of cash, even when they have old or creaking plant and equipment. How about encouraging them to renew their plant and equipment or even expand by increasing capital allowances or offering a one-off reduction in corporation tax (e.g. down to 15%) to all corporations that carry out capital investment in the UK in a tax year equal to a minimum of 20% of their net equity?

    What about generally reducing CT and funding it with an increase in dividend taxes?

  25. James Barr
    Posted March 14, 2013 at 7:21 pm | Permalink

    John,

    Of course taxes can be cut, and should be cut immediately. Money must be put back into people’s pockets. Government waste taxpayer’s money. Individuals not government create wealth. Government should be ‘small’. It should do no more than set the scene and leave the allocation of capital to individuals. Also, politicians should cease treating the NHS like a religion which cannot be criticized. Ring-fencing it is crazy. It’s a monstrous bureaucracy, full of waste. Tax cuts pay for themselves: borrowing doesn’t. Just wait until interest rates go up and watch the market reaction to the UK’s debt mountain.

  26. Gewyne
    Posted March 14, 2013 at 9:24 pm | Permalink

    Just get spending down –

    Why does Parliament need bars and restraunts ? Yes, yes I know it’s a nice thing to have, glass vino on the terrace during the working day etc, and I know the hours mean you need somewhere to go – but why not just a normal, 1 cheap canteen like most private companies have ? Why does Parliament have a subsidised bar ?

    Why do local councils run own and run golf courses (running £300,000 pa loss to council tax payers)

    Why do we still give school uniform subsidy (Trousers are £3 and shirts £2) there is no reason someone cannot afford to cloth their own kids with the plethora of benefits you can receive.

    Why is the government involved in tourism and arts at all ? Scrap the departments and quangos and let them fend for themselves.

    Get rid of the department for Business innovation….. (whatever they call themselves nowadays) – seriously just axe it – people will cry, scream, come up with reasons not to, but within a few years people will wonder why on earth we spent so much on it when they don’t miss it.

    Call every manager, department head in ask what do you do, why does government do it/need you and start hacking of bits that could – for example do we need the forestry commission as it is ? Could it not just be taken out of Government, made into it’s only charity – give it a lease/remit to manage our forest for x years and be left to get on with things…… there must be 100’s 1000’s of things that could just be sold off / let go out of government hands or just abolished as it has no real reason to exists beyond… because it’s here/there.

    Then we can really star tackling tax – as we will at least only be paying for essentials.

  27. Chris Rickard
    Posted March 14, 2013 at 10:42 pm | Permalink

    The Gov could afford to reduce VAT if it abolished most, if not all of the current expeditions. If the Gov introduced VAT to food and housing ad normalised the rate on utilities (as currently is the case in Germany & France) it could cut the rate. This would leave inflation broadly neutral, mean stamp duty could be scrapped, and because proportionately more disposable income is spent on items currently exempt from VAT raise funds for the Exchequer.

    • uanime5
      Posted March 15, 2013 at 2:05 pm | Permalink

      I doubt people would be happy with the cost of their food and housing increasing based on the promise of cheaper utilities. At best they won’t have any additional benefits and at worse they will be worse off.

    • Jerry
      Posted March 15, 2013 at 3:15 pm | Permalink

      @Chris Rickard: Well that’s inflation tripled in the stroke of the pen, the cost of living being mostly food and housing…

  28. Mark
    Posted March 15, 2013 at 1:29 am | Permalink

    Tax cuts can have a variety of effects.

    Cut tobacco taxes, and smuggling and legal importation from elsewhere are undermined, and very likely tax revenues increase: around a third of all cigarettes are now smuggled, and probably only half pay UK duty. A side benefit would be the extra income for small shops from legal sales.

    Likewise, some taxes that drive away high earners can produce more revenue if they are persuaded to stay by lower rates. The same principle applies to businesses. I was shocked by the figures I posted yesterday on the extent of the UK decline in manufacturing just since 2008. Much of that is driven by taxation and high, uncompetitive energy costs for needlessly expensive forms of energy production. Cut those imposts, and industry might have an incentive to stay rather than close down. That in turn produces more tax revenue from taxes on employment and profits, as well as improving the balance of payments. Taxes that fall under this heading include the carbon floor price, air passenger duty, excessive duty rates on fuels, employment taxes that favour outsourcing abroad and so forth.

    There are also the taxes – and crucially, high marginal benefits withdrawal rates – that act as disincentives to work. Of themselves, they may have relatively little effect on demand, but they have a large impact on the deficit, because they cause welfare spending instead of generating a modest tax income.

    If people are to have more money to spend on the output of the productive economy, then they need to see outgoings on the non-productive elements decrease. That means cutting energy, transport and housing costs, and reducing the burden of taxes.

    • Bazman
      Posted March 17, 2013 at 10:03 am | Permalink

      Labour costs are the main factor in manufacturing going abroad. What do you propose to do about that? Compete with China and India on who can pay the least? Not much tax in that.

  29. David Langley
    Posted March 15, 2013 at 11:38 am | Permalink

    The government will never give us the tax cuts we so desperately need and deserve because its a loser at the polls. What a quandary, you want to tax both directly and indirectly to fund all the wars and the policies you espouse, the state funded organisations and the vanity projects. The Leveson fandango has cost £7M to date and now its going through another ricture before anything concrete appears. The HS2 loss of billions for nothing so far and all the other wasted projects that are running into the ground. Hands off our money is the cry, there is no limits to the thirst for our cash and the continual bribery with our money that passes for governance by all parties.

    • Jerry
      Posted March 15, 2013 at 3:08 pm | Permalink

      @David Langley: Why do you “deserve” a tax cut, for example how many jobs have you created to enable the unemployed to return to full time employment?

      • Leslie Singleton
        Posted March 15, 2013 at 7:34 pm | Permalink

        Jerry–The correlation between creating jobs (as if that were so easy) and “deserving” a tax cut escapes me. Rather it is a question of why anybody, and no less so high earners, should have been landed with a high tax rate in the first place. If you think BTW that I earn a lot, think again, but I do know what’s right and moreover what’s good for the country (of which, again BTW, the poor are a part).

        • Jerry
          Posted March 16, 2013 at 11:54 am | Permalink

          @Leslie Singleton: Job creation is often cited as a reason for giving the wealthy and very high earners tax cuts, the logic seems to be that these people will become the next venture capitalists etc. that the economy needs -hence the reason for the question.

        • Bazman
          Posted March 17, 2013 at 9:59 am | Permalink

          The simple answer is that we live in a democracy and as the rich benefit the most should pay the most.

  • 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.

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