Paying for the public sector

 

The debates over this year’s Finance Bill have been predictable and repititious. The Labour opposition has been keen to find new ways of taxing people. Their biggest hope was to move an amendment to bring in a Mansion Tax, trying to tempt the Liberal Democrat backbenchers into voting for what was Liberal Democrat policy. They still want to tax banks more, and wish to add further anti avoidance measures to the Coalition’s tally.

The results were poor, with most Liberal Democrats staying away from the debate, and all Liberal Democrat Ministers happy to support the government line. Even if Labour had been more persuasive and found a few more backbench Lib Dem rebels they would have been well short of victory. The arithmetic of the House is simple. Labour and Lib Dem backbenchers can never win a vote. Labour and enough Conservative rebels can win  and have won a vote.

The Treasury did produce some numbers to give us an insight into a Mansion Tax. Labour wish to raise £2bn from it, and wish to confine it to properties over £2m. That would mean an average tax of £36,000 each year per property, though Labour stressed they wanted to have a higher rate on dearer ones and a lower rate on the ones near the £2m threshold.

There still seem to be a good many MPs who think the UK’s problem is too little tax rather than too much spending. Though all three parties now give voice to the idea that the deficit has to be brought down and the rate of increase in cash public spending cut, underneath lies an urge to tax more. Parliament devotes too little time to exploring how parts of the public service could do more for less, or thinking about which parts of public spending are less desirable or necessary. The PAC is busy running campaigns over companies and institutions which pay too little tax in their view, rather than highlighting waste, fraud and over the top spending.

MPs often quote the figure that the Coalition has made 80% of the adjustment to the deficit by cuts in spending and only 20% by tax rises. Yet the cash figures show a very different picture. The Coalition so far has relied entirely on higher tax revenues to cut the deficit, as cash and real terms current spending is up, and they increased the capital spending figures a little from the deep cuts Labour announced whilst still in office.

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57 Comments

  1. lifelogic
    Posted July 3, 2013 at 5:34 am | Permalink

    As you say “the Coalition so far has relied entirely on higher tax revenues to cut the deficit”. But such an approach will not work, we are already at the point where higher tax rates just tend to kill the economy and decrease the actual tax take.

    In addition we have back door taxes where Landlord and Employers are forced to do the governments job of checking immigration status. This in a pathetic attempt for Cameron to pretend he is doing something on the immigration issue. Even some Libdems and Labour realise this is mad.

    Just get rid of the 50% over remuneration in the state sector and the 50% of them who do little of any use or do actual damage, reduce payments for fecklessness and the problem is solved at a stroke. Start at the BBC where the payments are often 300% of the going rate.

    Also it would not be a good idea to increase MPs pay by circa £10,000 and this time, and their pension pots by £150,000 as a result. Even though perhaps 20% of them are worth more. At least 80% are clearly a total liability, they keep giving away their powers to the EU. Anyone who voted for the ruinous climate change act is clearly totally unsuitable to have any role in decision making, let alone receive any pay for it.

    • Bazman
      Posted July 4, 2013 at 7:55 pm | Permalink

      The NHS are also forced to check immigration status and backbench MP’s who’s views will never get them elected to get a pay rise? I will never get bored of driving buses through you and the likes of yourself arguments. Just thick.

  2. lifelogic
    Posted July 3, 2013 at 6:22 am | Permalink

    The best way to pay for much of the public sector is to charge the public on the (admittedly rather rare) occasions that the state sector actually delivers some useful service to the public. Now when I was in the UK what did I get? Well they took my rubbish away rather inefficiently and selectively, took my appendix out rather incompetently, inoculated and delivered my children (in a rather filthy hospital as I recall) and they blocked all the roads in London with islands, bus lanes, bike lanes and endless red anti-car traffic lights, they went to pointless wars on lies and forced me to do lots of pointless things like HIP packs and provided a hopelessly inefficient, civil court system, poor and expensive public transport and a few good museums, music concerts and galleries.

    Oh well I would be happy to pay at the time of use for the rubbish, the childbirth, the museums/music/galleries and the inoculations I suppose. Also some defense and law and order, not much else of much value delivered. Why should I have to pay perhaps £500,000 PA just for that? Then I am expected to watch the IHT ratter Mr George (Morally Repugnant) Osborne waste it all. Surely far more moral to prevent them wasting it just by moving abroad. Far better hospitals and public services too.

  3. Andy Baxter
    Posted July 3, 2013 at 6:33 am | Permalink

    A responsible individual’s solution to any fiscal problem: think about what caused it in the first place (too much expenditure? not earing enough?) and then spend less, economise, make do with less and/or go out earn more by finding another job or start a business.

    Government’s ONLY solution to any fiscal problem: tax more and more, borrow ever more and more AND spend more and more.

    You see its simples really, ‘it’s not OUR money we are borrowing and spending it’s taxpayers money’ and there’s an almost limitless supply of cattle to milk in ever more ingenious ways and if they bleat, moan and refuse to pay we can demand it under menaces. Let’s NOT be responsible, prudent, economic and responsible with other peoples hard earned wealth, lets take ever more and then spend it, waste it, fritter it away on futile gesture politics and vanity projects (looming energy crisis anyone?)

    “The worst evils which mankind has ever had to endure were inflicted by bad governments.”

    Ludwig von Mises


    My reading of history convinces me that most bad government results from too much government.”

    Thomas Jefferson

    • wab
      Posted July 4, 2013 at 8:20 pm | Permalink

      “My reading of history convinces me that most bad government results from too much government.”

      According to a website (which I’m not allowed to link to), this quote is 1913 (John Sharp Williams) and the earliest known date attributing it to Jefferson is 1950. Another example of pseudo-attribution which evidently has done the Tea Party email rounds.

      At least the von Mises quote seems to be from von Mises (not that he had anything useful to contribute to the world).

  4. Gary Gimson
    Posted July 3, 2013 at 6:35 am | Permalink

    Hi John
    I agree, but the deficit is not being cut. In fact it has remained stubbornly high at around £120 bn for the last financial year over the previous 12 months.
    I continually hear the ministers saying we are dealing with our debts. But we are not, nor are we even starting to deal with our debts.
    Let’s get cutting; starting with the bloated and totally wasteful overseas aid budget.
    I’m sure that if you were in charge (and you didn’t has the LibDems as “partners”), then this £120bn figure would be much lower – as indeed it should be.

  5. lifelogic
    Posted July 3, 2013 at 6:56 am | Permalink

    I see Vince Cable is looking into zero hours contracts. He should conclude that this is the inevitable result of the daft current employments laws, the no retirement laws and all the rest of the nonsense lumped on employers. He should make employment laws more sensible as it would clearly benefit all to do so.

    • uanime5
      Posted July 4, 2013 at 3:08 pm | Permalink

      Removing employees rights will only benefit employers and immigrants who are desperate to do any job. It won’t help anyone who’s unemployed.

    • Jerry
      Posted July 4, 2013 at 4:31 pm | Permalink

      @Lifelogic: Indeed, zero hours contracts are being used to circumvent the law!

      Funny, as I said the other day, how Germany has both stronger employment laws and trade unions than the UK but the German economy is in far better shape than the UK’s…

    • Bazman
      Posted July 4, 2013 at 7:34 pm | Permalink

      Which employment laws will that be and how should they be made more ‘sensible’ for cleaners who are the ones mainly on this type of employment contract. Ho. Hum..Do tell us? You can’t? What does this tell us again.?

      • Jerry
        Posted July 5, 2013 at 8:05 am | Permalink

        @Bazman: I think it might be better to have said that cleaners are commonly on this type of contract, zero hours contracts are not solely used in the service sector nor were pay is low, some quite well paid jobs can be zero hours – assuming one is able to get enough hours to earn the stated possible earnings!…

        • Bazman
          Posted July 6, 2013 at 7:46 am | Permalink

          Yes. Many companies tell us they are a unable to fill jobs that pay tens of thousands of pounds and have been unable to for years. Look closer and you will see they are talking about sales jobs with no pay and zero hours. Employees are not buying in effect and they are being told to ram it. They then have the cheek to advertise these jobs via the local paper by telling us how lazy the unemployed are!

  6. Narrow Shoulders
    Posted July 3, 2013 at 7:02 am | Permalink

    Mr Redwood,

    Would it be possible to get a breakdown of civil service (and council) wages showing how many staff in bands of £10K and what the total cost is (with separate columns for pension payments to pensionable staff from those bands) ?

    From these statistics I am sure we would glean that the civil service has too many lower paid staff, a hiring freeze is needed (not redundancies, natural reorganisation) and there are too many “managers” doing too little for too much within the public sector.

    Having identified the issue it can be addressed alongside a ground up analysis of what government should be delivering at what cost?

    I despair of the number of overpaid civil servant middle managers and above who are little more than glorified administrators but get paid as though they were rainmakers accelerating through the ranks and pay scales as pension time draws near (let us be thankful for average weighting to be introduced to mildly mitigate this phenomenon).

    A back bench conservative could also bring the a private member bill to reduce the number of MPs, let us see the Lib Dems actually vote against a coalition agreement rather than just block it. 50 fewer MPs plus associated costs would save £25 million over the life of a parliament I expect.

    Reply Lib Dems have voted against a reduction and would do so again

    • wab
      Posted July 4, 2013 at 8:21 pm | Permalink

      “50 fewer MPs plus associated costs would save £25 million over the life of a parliament I expect.”

      Unlikely. The remaining MPs would get a large pay increase to make up for the increased work load.

  7. Leslie Singleton
    Posted July 3, 2013 at 7:05 am | Permalink

    Please try and say in all cases not “tax more” but tax “even” more, which gives a much truer and fairer picture. Also, it cannot be said often enough that literally by definition tax avoidance is absolutely and 100% legal so talking in effect about being more legal in this way is odd to say the least. If the meaning is “convert some avoidance in to evasion” that is what should be said. The moralising is nauseating and hypocritical.

  8. margaret brandreth-j
    Posted July 3, 2013 at 7:09 am | Permalink

    There are many people who could easily afford mansion tax and ‘land tax’ , yet there are some who have worked hard all their lives, bought at the right time and struggle to even keep their property maintained.
    The Robin hoods of this world seem to take from those who appear to be able to afford and subsequently waste their booty.
    Then there are those who take out loans and large mortgages and lie about the steadiness of their income in the knowledge that all assets can be removed elsewhere , then others can be left to pay at the commencement of liquidation and when they go bankrupt the spoils are somewhere unrecoverable.
    I think most should wise up.

  9. alan jutson
    Posted July 3, 2013 at 7:10 am | Permalink

    John

    You must get as absolutely fed up as many of us out here do, when you have to constantly keep on reminding your fellow MP’s that there have been very few cuts in the last 3 years, and a huge amount of tax rises for the last 15 years (fiscal drag excluded).

    I know 80% cuts 20% tax rises was the original Conservative idea, but are they absolutely clueless as to not realise that this has not been the case so far.
    Do they not read the Red Book ?
    Do they not add up figures, or do they even bother to look at them ?

    How can they vote for more tax rises, when they do not even understand how much has be raised and spent.

    Perhaps we should consider re-adjusting the way Mp’s are paid !
    £25,000 basic salary with a £50,000 bonus whenever the account (year on year) is in credit.
    That gives you all a £10,000 pay rise and may concentrate the mind (if you all know what you are doing) it may also want a few more to want to get get a few more powers back from the EU, so that you can all have some sort of control over spending.

    On the Mansion tax idea, is that for a £2 million property with a mortage, or mortgage free ?
    Will those on housing benefits also have to pay this tax if renting such a property (it has happened in the past) or will this suggested tax be paid for by the taxpayer as well as the rent ?.
    Looks like another policy fiasco idea that is full of holes to me !

  10. frank salmon
    Posted July 3, 2013 at 7:44 am | Permalink

    The fact that we are in the worst recession for 200 years and employment has been rising says it all. We never felt the full effect of the recession and continue to feather-bed public services and public sector pay and pensions, and the below market rate of interest feather-beds failing companies. When we come to face economic reality, we might wish we had done more, earlier.

  11. Roy Grainger
    Posted July 3, 2013 at 7:46 am | Permalink

    The mansion tax is an absurd idea, but there are other ways to extract tax from property. For example, flats in new developments in my area get bought by overseas buyers in Hong Kong and other places (despite this being a familiar Labour claim it happens to be true). This inflates local house prices and excludes first-time buyers. My understanding (and someone may correct me) is that the attraction for such overseas buyers is that when they come to sell the flats they pay no capital gains tax at all (in UK) on their profit, irrespective of how many properties they own. Of course a UK buyer would pay capital gains tax on any disposal of property other than their main residence. Imposing capital gains tax on overseas buyers would then be both fair and beneficial.

  12. Brian Tomkinson
    Posted July 3, 2013 at 7:49 am | Permalink

    Thank you for at last confirming what I have been asking for the past two years viz. what happened to Osborne’s pledge of reducing the deficit 80% by spending reductions and 20% by tax increases. It was of course consigned to the waste bin as soon as he walked into No11 Downing Street. The reality has been that he has ” relied entirely on higher tax revenues to cut the deficit, as cash and real terms current spending is up”. What trust can anyone have with such a betrayal? As for MPs how easy it is to just agree to confiscate more of other people’s money than get down to producing real value for money. I shall keep repeating that we have three main parties in parliament with one shared economic policy – tax, borrow, spend and waste.

    Reply In fairness to Mr O, he did the 80/20 relative to inherited plans for much higher spending.

  13. Roy Grainger
    Posted July 3, 2013 at 7:58 am | Permalink

    The tax structure in the UK is an absurd mess. Just as a small example, if I drive in my car from London to Aberdeen I will pay a fuel duty of tax of about 43% (I’ll pay VAT too but that is separate). However if I fly there in a scheduled BA flight then the fuel duty tax paid (by the airline and so by me) is zero. If I go by train I’m not sure what fuel duty applies – is there a railway finance expert in the house ?

  14. Andyvan
    Posted July 3, 2013 at 8:29 am | Permalink

    What we need is more tax. The fact that virtually all the spare money I would have to pay for the little luxuries like a car that works, or a CCTV system to protect my premises from the thugs that the council provides a drop in centre across the road from me, is already taken in taxation for services that don’t work at best or kill you at worst (NHS hospitals) is irrelevant. What I really want is to pay more taxes so that MP’s can have an extra £10k salary to continue wrecking the country with stupid and pointless policies that do the exact opposite of what they are supposed to. Better still the money can be sent to the EU who will dream up yet more ridiculous regulations to make it even harder to find the smallest amount of profit in any business you are daft enough to set up. Thanks Public Sector for making Britain what it is today.

  15. Acorn
    Posted July 3, 2013 at 8:59 am | Permalink

    For the technician, extending English Council Tax band to I, J, K etc, would be the easiest way to introduce a “mansion” tax. Council tax averages circa 0.6% of the current value of residential property; about 1.8% of its 1991 CT banding value. But, a politician can’t risk votes by even hinting at increasing “council” tax to catch the “mansions”. You have to call it something else, so the Daily Mail can’t use the word in a front page headline.

    At least the £2 million mansion would then pay circa £12,000 a year rather, than its current twice band D £3,000.

  16. Alte Fritz
    Posted July 3, 2013 at 9:07 am | Permalink

    There you go again, Mr Redwood, letting facts get in the way of a good story.

  17. ian wragg
    Posted July 3, 2013 at 9:44 am | Permalink

    Today I have made a small stand against funding the public sector. I’ve cancelled my quarterly payment of the tv license.
    The gigantic payoffs’ to senior staff and the £100 million IT fiasco are the last straw. No more watching live tv only catch up and DVD’s.
    I know there will be people who think the BBC is not the public sector but I believe it personifies them exactly. Tax, waste, tax more and waste more.

  18. Vanessa
    Posted July 3, 2013 at 9:46 am | Permalink

    Those MPs who think we are taxed too lightly seem to forget how much local Councils tax us in so many ways on top of ordinary tax. And there has always been an understanding that if you set a “sweet” level of tax which the people feel is a decent level, the coffers fill up with money as though you have opened a tap. With local and central government thinking up new evil ways to steal from us we do what any normal person does and button down the hatches against burglars or move countries !

  19. behindthefrogs
    Posted July 3, 2013 at 9:47 am | Permalink

    Instead of a mansion tax why can’t the government adopt the simple solution of introducing two or more higher council tax bands. If the money is needed centrally then a corresponding reduction in government grants to councils would solve that. The initial cost would only involve councils reviewing properties currently in the top band and there would be no extra cost in subsequent years.

    There is a need for other changes to council tax that should take place at the same time. For example the discount for single person occupancy should be changed to a fixed discount for all properties probably equivalent to the current band C discount. Similarly private TV licences should be abandoned and replaced by a £12 per month increase in council tax on all properties thus saving collection overheads and he cost of chasing non-payers.

  20. lifelogic
    Posted July 3, 2013 at 11:11 am | Permalink

    I see that Downing Street has indicated there will be no ban on Chinese lanterns, despite a huge fire in the West Midlands being attributed to one.

    Why on earth not? How many large fires, loss of jobs or even deaths will it take? When will he finally act on 4000% APR payday loan “industry” too?

    • behindthefrogs
      Posted July 4, 2013 at 10:09 am | Permalink

      Chinese lanterns should be banned as soon as possible not just because of the fire hazard but because this would be a valid excuse for banning a line of imports and thus making a minor contribution to improving the UKs economic position

    • Jerry
      Posted July 4, 2013 at 4:45 pm | Permalink

      Farmers have been calling for such a ban for years, these stupid “toys” can be lethal to farm animal if the remains of these lanterns find their way into the animals food stuff (for example hay). The government should not only place a ban on sale or use but mere possession.

    • Bazman
      Posted July 4, 2013 at 7:46 pm | Permalink

      What an absurd and pointless point of view. If a person cannot set of a small firework because another person decides to leave tons of flammable material outside then who is to blame? Whatever next? The banning of barbecues at petrol stations and waste of MP’s and officials time passing and enforcing this law? Maybe we should just ban any Chinese imports on the grounds of improving the UK’s economic position? Both these lanterns and loans to buy them are legal and within a persons choice.

      • Jerry
        Posted July 5, 2013 at 8:09 am | Permalink

        @Bazman: Chinese lanterns are NOT fireworks, they are totally different.

        • Bazman
          Posted July 6, 2013 at 7:47 am | Permalink

          They use fire and they work. End of. Are you a solicitor or something?

  21. uanime5
    Posted July 3, 2013 at 1:04 pm | Permalink

    Well if wouldn’t be accurate to say that there haven’t been any cuts. For example there’s clear evidence that the trebling of people needing food banks since the coalition was elected is because of the coalition’s benefit cuts; despite the Work and Pensions minister trying to claim that his cuts aren’t causing these problems.

    Reply I have always said there have been cuts in some programmes – benefits have been increased in cash terms.

    • lifelogic
      Posted July 4, 2013 at 9:18 am | Permalink

      The number of food banks have increased and if you give valuable things away for nothing people will always queue up. It is not an indication of anything beyond that.

      • uanime5
        Posted July 4, 2013 at 3:35 pm | Permalink

        The huge increase in families going to food banks, along with the increase of Poundland and similar shops, indicates greater financial problems for an increasing number of people in the UK.

        Also can only use food banks if you’re referred to them. Try to guess why referrals are going up.

      • Jerry
        Posted July 4, 2013 at 4:54 pm | Permalink

        Lifelogic: “if you give valuable things away for nothing people will always queue up. It is not an indication of anything beyond that.

        You really think that the charities etc. who run these Food Banks are that naive! Nice day out at the fantasy factor again was it…

      • Martyn G
        Posted July 4, 2013 at 6:15 pm | Permalink

        I agree. There is always a ready consumer base for anything that looks like being free. Sadly, this often hides the truly needy, who simply get lost in the noise and sometimes disadvantaged by those merely looking for a free lunch.

        • Bazman
          Posted July 6, 2013 at 7:52 am | Permalink

          You are right. Its like loan companies handing out free money to the poor and blaming these companies for the poors fecklessness with money, who hardly need food banks as most are so fat. Their money is obviously just spent from benefits and loan companies on flat screen TV’s and fast food. The real food is then just scrounged from food banks. The outlawing of food banks might in some cases be a good thing giving the recipients less calories and a more healthy lifestyle.

      • Bazman
        Posted July 4, 2013 at 7:49 pm | Permalink

        If you believe that you believe anything and the real reason the banks are not lending is because the private sector is ineffective and wastes money as you well know. They are queuing up for free cash.

    • Jerry
      Posted July 4, 2013 at 4:49 pm | Permalink

      @JR Reply: “I have always said there have been cuts in some programmes – benefits have been increased in cash terms.

      Indeed, technically on paper, but when inflation levels (real, not statistical) have caused high street prices to outstrip such increases, and let us not forget the circa 2% real cut in future benefits, having been frozen to a below inflation amount of 1%.

  22. Peter
    Posted July 3, 2013 at 1:05 pm | Permalink

    Timely post!

    The government is still taxing and regulating far too much. Hence the flat economy.

    The worrying thing is that if this is the best that a mostly conservative government can do, what will it be like when, as seems dangerously likely, we end up with another avowedly socialist government…

    • Bazman
      Posted July 4, 2013 at 7:51 pm | Permalink

      Socialism for the rich is what you mean?

      • Bazman
        Posted July 5, 2013 at 7:26 pm | Permalink

        I notice the lack of replys whenevr I write this. WoT dus thZ tel U> ?

        • Edward2
          Posted July 6, 2013 at 9:27 am | Permalink

          It should tell you Baz, how boring you are getting by repeating this mantra of yours which has been replied to many many times before.

          • Bazman
            Posted July 7, 2013 at 1:13 pm | Permalink

            They don’t like up em’ Mr Mainwaring.

  23. REPay
    Posted July 3, 2013 at 1:26 pm | Permalink

    It is very depressing listening to Today in Parliament. As you pointed out recently bashing banks’ balance sheets and getting them to lend is impossible. Bashing bankers and the asset rich is going to achieve little in raising taxes and probably reduce tax take.

    The mansion tax will force a sell off and depress house prices, good news for the really wealthy or those with guaranteed pensions and bad news for my former neighbours in Westminster on middle management salaries or retired. (You’d need over a million in assets to pay the mansion tax.) I know these people deserve no sympathy, they probably vote Tory or even UKIP, indeed they should make way for the public sector elites!

    The worst thing about the debate since the spending review is that we are nowhere near making real cuts or having a debate about the size of the state. Indeed future spending is trumpeted as though in itself it were a solution. I might have been more sympathetic a few years ago when we could have started on infrastructure to get things rolling…power stations, train lines and roads we need, shale gas etc. (I am unconvinced by H2S but don’t know enough to have a firm view.) Labour focused on bloating the payroll and the only infrastructure we got was hospitals and schools on PFI, a scheme that Gordon Brown, surely the worst chancellor ever, attacked when in opposition, but found useful when in power. Endless austerity, or worse, will be the price for not having this debate. It is not just about politics, it is about how much money we need to fund the state we have, and whether this is sustainable in a country with little competitive advantage other than the skills and drive of its people. I am grateful that JR is not alone, but there seem too few who see the world clearly.

  24. Bickers
    Posted July 3, 2013 at 2:12 pm | Permalink

    Spot on JR. Whenever I hear the BBC or some other useful idiot person/organisation spouting off about austerity I’m minded to shout ‘What austerity?’

    If austerity is perceived by the public as spending less then clearly the government is not practising it as it’s spending more progressively more each year on behalf of current and future tax payers.

    At some point government spending has to be severely cut, like the Canadians did some time back, by 20% I believe. Raising taxes will result in lower output & productivity; surely we learnt that lesson in the Thatcher years when reduced levels of taxation resulted in a booming economy.

  25. Bill
    Posted July 3, 2013 at 3:19 pm | Permalink

    All this inability to get to grips the problem leaves Jo Public in despair.

    Reading Chris Mullen’s View from the Foothills (p 67) I see a description of Clare Short at work ‘Now here is someone who has a job she patently enjoys. Indeed what better job has a Labour government to offer than redistributing the wealth of the middle class to the poorest people in the world?…by 2020, she says, there there be nine billion people on the plant. After that there is a chance of stabilising the world population…’

    When I was a child I thought that if I left the kitchen door open I might heat up the world outside. How on earth are the British middle class expected to pay for the poor of this world? Idealistic these people may be…but possessed of economic sense they are not.

  26. Robert Taggart
    Posted July 3, 2013 at 3:41 pm | Permalink

    Public sector spending needs reducing, but…
    Do taxpayer supported citizens – whether parliamentarians, councillors or scroungers – count as public sector ? then…
    More generosity – towards state benefits claimants – would be appreciated !
    Signed, Scrounger.

  27. Richard1
    Posted July 3, 2013 at 3:43 pm | Permalink

    Its interesting how far the consensus is moving towards what would have been seen as the political right. Labour seem to be backtracking from their neo-Keynesian borrow a bit more and miraculously growth will take off policy. Labour can see that people realise the govt needs at some point to raise in future taxes what it borrows today. HS2 is coming under more scrutiny – with the costs up 20% and recognition that the assumptions of its benefits are flawed. People are incredulous that wind power is to continue to be subsidised to produce electricity at twice the market price (three times in the case of offshore). We just need to make sure the Conservative Party finds a way to be on the common sense side of these and other arguments come the next election.

  28. Rods
    Posted July 3, 2013 at 4:45 pm | Permalink

    Once Governments are the wrong side of the Laffer curve and many direct and indirect taxes fall short of expectation, then taxing capital is the next logical step. You have highlighted in a previous blog where the Government have fallen short compared with their Red Book expectations due to taxes being too high.

    The mansion tax, if those political parties that support it get into overall power, will be the start. This over time will be increased in percentage and reduced in threshold as all taxes tend to expand like this. The temporary tax to fund the Napoleonic wars is a good example, where income tax was introduced.

    Unfortunately, long term this will lead to the state owning all property, which I’m sure will appeal to those MPs and constituents that believe that all private property is theft, but not to the rest of us.

    Too many politicians, as you have quite rightly pointed out, don’t ask the question, should we be doing this and if so, how can we do it better and more cheaply, so taxpayers get better value for money. Their who mantra seems to be however much the population is impoverished by ever rising taxes, just give us more, more, more!

    Going slightly off topic, although I think it is highly relevant to the debate on public spending as the wealth has to be created by the private sector before it can be taxed and spent on public services. This is the ever more onerous and increasing costs to UK industry from new regulations particularly EU regulations. You colleague, the Honourable MP Priti Patel has done well with her research to put a price on the last two years of new EU regulation at a cost of £5bn to industry.

    Now the EU’s counter argument is that the UK benefits from more than £95bn of single market business. This raises several questions:

    1. Is this genuine new business or just a scare figure like the 3 million UK jobs depend upon EU membership?
    2. Would we still have had these benefits by being an EFA member but have lighter regulation to make us more competitive globally?
    3. What are the cost / benefits from our current arrangements with the EU. Now as far as I’m aware a figure for this has never been calculated from when we first joined the EU and I think it is an important question, so if you know of any answers I would be grateful if you could point me in the right direction. This is especially true, where the whole of the EU is struggling to be competitive globally and to find any economic growth and many Southern European countries now have a smaller industrial base than when they joined the Euro and in some cases before they joined the EU!

    I recently came across this paper by two US economic professors, which I haven’t had time to read and analyze in detail yet (too busy with work). But the paper has looked at the macroeconomic effects to growth of increasing US regulation from 1949 to 2005 and came to the staggering conclusion that the US economy was only 28% of the size it would have been in 2005 had regulations stayed the same as they were in 1949.

    http://www4.ncsu.edu/~jjseater/regulationandgrowth.pdf

    The next question is how accurate and valid is the paper and what would the results be for a whole of the UK’s (or for that matter all EU countries) EU membership period and the extra regulation and costs v single market and other benefits. Where you are in a better position than me with your contacts, perhaps you could ask the question and maybe get the relevant research done by a body such as the OECD (who have done some limited research on this as mentioned in the paper) or maybe the Bruges Group, the Adam Smith Institute or other research group or think tank. Maybe this will be your next book?

    I think this question is partially important with a possible referendum in 2017 and would help people to make an informed decision, where we need as many relevant facts as possible to be available.

    • uanime5
      Posted July 4, 2013 at 3:52 pm | Permalink

      EFTA members don’t have lighter regulation. They have to follow almost all EU laws (though they’re exempt from CAP and CFP).

      Studies showing that countries would have made more money without regulations are usually flawed because they don’t take into account that people would migrate to countries where they had more rights and better living conditions. They also don’t take into account the higher level of employees who would have been injured.

  29. Credible
    Posted July 3, 2013 at 6:01 pm | Permalink

    Talking about waste, fraud and over the top spending
    My tax is going to:
    Private landlords
    Subsidised train companies
    Private healthcare
    New private owners of new build houses
    Private schools ………
    It’s a nice little earner for them, but lets keep banging on about cutting benefits for the vulnerable instead

    • Bazman
      Posted July 4, 2013 at 7:50 pm | Permalink

      Lifogic. I’m afraid this is 1 4 U.

  30. Dan H.
    Posted July 4, 2013 at 5:17 pm | Permalink

    As all the comments on this blog demonstrate, we are most certainly heavily over-taxed. The net effect is similar to hitching a geriatric donkey to a fully-laden HGV and expecting it to pull the vehicle along; all the stimulae in the world will not make this happen.

    Worse than this, we are over-regulated. The UK tax code currently stands at 17, 000 pages long; the statute books are worse by far and whilst the EU’s deluge of regulation is responsible for much of this, the legislative diarrhoea of both the current and the previous parliaments also make significant contributions. At a rough guess, about 95% of the statute legislation is not needed. Common law and courts actually work quite well in respect of keeping Britain honest and free of criminals.

    At some point in the future, this will change. This is not mere wishful thinking but fact; at some point taxation will get so punitive that economic activity will collapse and at this point the government will go bust. I would prefer not to see this happen, so let us draw back from the brink, reduce public spending and go on a repealing binge; let us also have a very deep and insightful debate on the Statutory Instrument and whether it is doing much good for us.

  31. Lindsay McDougall
    Posted July 5, 2013 at 5:12 pm | Permalink

    The public sector is too big. Our main focus should be on shrinking it, not on paying for it. As Mr Redwood says, the 80%/20% split between public expenditure reductions and tax increases has certainly not been met in cash terms. I suspect that it has not been met even in terms of constant prices. The air is full of talk of this target being dependent on economic growth that has not occured, and of automatic stabilizers. This neo-Keynesian crap should be thrown in the rubbish bin. I think that the government should reduce its annual deficit by £20 billion per year (as it did in its first two years) until total State debt maxes out at a reasonable (i.e. not utterly catastrophic) level.

    Everyone in the House of Commons should ask themselves whether the recent half year of economic growth has been induced by a sugar rush of easy money or is sustainable. The market clearly believe it is the former, hence the drop in indices like the FTSE whenever the USA hints at an end to their QE. I wish I knew the answer, and I wish that the Chancellor did too.

  • 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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