If you look at the self assessment income tax receipts which include much of the top rate tax collected, you see that over the four years of 50% top rate self assessment income tax came in around £20.5bn a year. This was £2bn or 10% lower than the levels of 2007-8 and 2008-9 when the top rate was 40%
Last year was the first year that self assessment income tax has gone to higher levels, reaching £23.6bn at the 45p top rate. This July saw further strong upwards movement in self assessment income tax, with growth of 17% over July the previous year.
Success in getting more tax revenue in means that so far this financial year the government is making decent progress in getting the deficit down. The public accounts showed a surplus for July, a good month for collecting tax. The amount of borrowing needed so far this financial year is down by £7.3 bn to £24 bn.
The EU has increased the deficit, not just by its own demands on UK finances, but also by requiring a change of accounting to increase the amount of depreciation the government has to charge itself. This has raised the deficit by a further £1.1 billion this year.
September 1, 2015
Those in power seem to think that whenever they pass a law about money, everybody continues behaving in the same way without looking at the new consequences.
This seems to be doubly true of taxes (and conversely, welfare payments). No consideration is given to the possibility that people will notice the marginal rates and react accordingly. Even those on on PAYE have the option to refuse overtime or a notional pay-rise when they calculate how little extra they are left with once Mr Osborne has finished digging through their pockets.
Those of us who are self employed feel this keenly when we are relieved of such a large chunk of cash twice a year. You can’t survive self employment without being aware of the cost/benefit ratio, and it’s easy to see how little return we have on rather a high payment.
Raising the minimum wage when there are such generous benefit payments doesn’t make the low-paid richer – even if you ignore the possibility that there will be fewer jobs at the bottom, any increase in pay will be offset by the reduction in benefit income.
They justify higher taxes on alcohol, tobacco and road fuel by saying that it “saves us from ourselves”. Perhaps they also think that they are protecting us from the perils over-tiredness with high taxes on employment (and other earnings, see ZIRP), but who is actually going to do the work when it’s no longer worth while?
September 2, 2015
I had hoped, that, in May 2010 when Britain ousted (Gordon Brown ed), and we extricated ourselves away from the party of
borrowing to wasteastronomically expensive but beyond stupid public ‘investment’, high taxes and profligate socialized costs otherwise known as big state welfare spending and an open ended cheque to whosoever fancies a mosey over to this side of the channel.Hmm, it’s all still going strong now and even stronger under Gideon who now avers, he wouldn’t have offered a referendum – wow and wow again…….and with friends like that, even though you’re off, watch your back David.
And at the last – in hope though not expectation………….just how wrong can you be?
September 1, 2015
How about instead of extracting more money from the tax cattle the government could actually cut it’s own spending? I remember the Conservative party was once the party of low taxation and a small state. Now the only difference between any of the parties is in degree.
September 1, 2015
Indeed, and so much is spent pointlessly, negatively, hugely inefficiently and much of it leading to entirely negative outcomes (through inconveniencing and distracting the productive from their real work).
Complex & high taxation leads to lots of bright people in management plus their advisers doing essentially pointless & largely unproductive jobs in tax planning. It also leads to contrived, expensive and inefficient legal structures.
September 1, 2015
Mainly on negative things or cuts where you need to have control – i.e. immigration control
zorro
September 1, 2015
I would have thought that 2007-8 2008-9 were hardly good years to use as a base line for tax income given the low profits and earnings of that time.
I do however agree that sensible rates of taxation will mean that many people will be rather more honest with their returns, than punitive rates.
10 years to balance income against expenditure is a very long time though John, but that is what happens if you do not get to grip early on spending, and rely almost totally on so called growth (debatable) and tax increases.
Meantime over those 10 years the debt will have almost tripled !
As for the EU I simply ask, why is it so many of our politicians seem to like being dominated by an outside organisation, do they feel safer and more comfortable being able to blame someone else and use them as a scapegoat, or is it something to do with their own upbringing and mindset.
I simply cannot understand why anyone would want to put themselves up for high office, and then not want to be in control.
September 1, 2015
You could say that, being altruistic, they put the good of the country above their own ambition. No, I don’t believe it either !
September 1, 2015
“Why they like being in the EU……” It’s because they know they are utterly incompetent and incapable of really making our lives any better so the EU is a good cop-out!
They are terrified of Britain leaving because then they will have to try and govern this country without their hands being held by the Germans, Greeks, French etc.
I wonder how they managed it in the fifties before they had that excuse ?
September 1, 2015
Further definitive evidence – if we needed it – of the working of the Laffer curve. We don’t know where the revenue raising levels of taxation are, but clearly far lower than we have in the UK. We should have a trial period of 15% like Hong Kong or 20% like Singapore, neither of which run deficits. The data for CGT are even more striking – the raise from 18% to 28% has decreased receipts despite soaring asset prices. Could there be a clearer example of the folly of high rates of tax?
We better get used to the costs of the EU as I see UKIP are unable to agree with other eurosceptics and prefer to squabble with them. The putative Yes campaign will be very pleased to hear this!
September 1, 2015
Richard – I don’t think a cohesive Out campaign is at all necessary.
The bad news on the EU just keeps coming and coming.
Staying In seems a truly terrifying prospect.
September 1, 2015
I agree. Mr Cameron helps by being totally useless. I’ve changed my mind on wanting him and George removed. M’s Merkel leads every day and calls the shots, imposing German will on the people of Europe. The immigration crisis here and elsewhere will focus the electorates minds.
September 1, 2015
The lefts dislike of the rich is chilling as they are obviously unable to comprehend that what they are advocating by setting draconian tax rates for those people is to kill the geese that lay the golden eggs. Like most of their policies and practices they are based on envy and intellectually challenged thinking. Common sense is not an attribute that any of them appear to possess.
Imposing a 50% tax rate is a prime example of how daft their policies and practices are and how they use envy to gain them voters.
September 1, 2015
Many it seems would rather kill these rich geese that lay the golden eggs and have everyone equally poor (and far poorer still). Spite, envy and the moronic pursuit of forced “equality” is what has always driven the left. It seems this fake Tory government largely agrees with this strategy.
September 1, 2015
Antisthenes, high tax rates are not the exclusive preserve of parties on the political left. The highest marginal rate of income tax under this current government is 60%, unless you are a Buy-to-Let landlord, when the highest marginal rate is effectively unlimited.
George Osbourne’s BTL interest change will result in some BTL landlords paying more than 100p in the £ tax on any BTL income they generate.
September 1, 2015
Indeed so why are we still stuck with 45% income tax, 28% CGT (& not even on real gains), absurd stamp duty rates on moving home, 40% on death (with Osborne having ratted on his £1M threshold), high taxes on insurance, high energy taxes with absurd “green” energy regulations.
Plus now landlords cannot even deduct legitimate interest costs before computing taxable profits. One assumes he want them to build fewer homes as they will have less money to do so?
Is it true that the essentially socialist, tax borrow and waste, IHT ratter Osborne tried to persuade Cameron not to promise a referendum?
A simpler tax regime with lower tax rates is needed. Osborne is generally heading in the wrong direction.
September 1, 2015
Plus now landlords cannot even deduct legitimate interest costs before computing taxable profits. One assumes he want them to build fewer homes as they will have less money to do so?
Why should landlords be able to buy houses with buy to let mortgages and get other people, unable to raise a mortgage, to pay their mortgages off for them.
September 1, 2015
I think there is a very good case for limiting the size of mortgage for BTL properties to a maximum of 50% of value, which would reduce the ability of landlords to gear up their capital and outbid other buyers, and leave more of the rent available to keep properties maintained. Increasing taxation merely leads to higher rent demands to pay the tax, and is not such a good idea.
September 1, 2015
@Mark
Perversely, much of the BTL debt is funded by housing benefits.
September 1, 2015
Well why should car or plant hire companies be able to borrow to buy equipment to rent out. If you want cheaper properties to rent (Or buy) you need more supply (or fewer people) not to choke off supply.
People need rental properties especially for the short term. Not much point in buying for less than say 4 years or so, as in and out costs are far too high. Especially with Osborne’s absurd SDLT taxes.
Current Yields on buy to lets rarely pay off the full debt especially with current bank fees and margins. Plus landlord has repairs, insurance, void periods, tenants who fail to pay, agents cost, management time, tenants who wreck the place and much else to contend with – perhaps you should try it?
September 1, 2015
It all depends on whether you see a BTL house as a business. If it’s a business then loans to support it are a legitimate expense and should be deductable. I see BTL as a business – you are making a commitment and taking a risk that hopefully leads to reward. It just happens to be a business I don’t want to be in.
The problem is that it all crosses the border between domestic and commercial. If you own the whole housing estate then you’re obviously a business, but an individual who buys and rents out just the one house is apparently there to be shouted down; you’ve “stolen” a house that someone else could have bought more cheaply if you hadn’t “forced the prices up”.
September 1, 2015
It is still a business be it a small one or a large one.
Not allowing deduction of legitimate bank interest costs is just economic illiteracy from Osborne. The interest paid is clearly taxed on the bank who actually received it from the landlord anyway. Taxing the landlord on it when his has paid it over to the bank is clearly bonkers. Osborne seems to be lacking in logic once again.
September 4, 2015
Perhaps a tax deduction for interest paid should be restricted to ‘newbuilds’ and proportionally for ‘major refurbs’ for a set time and restricted to the property itself not the investor.
That would add to supply and create fair competition and a level playing field between non-business and business interests?
September 1, 2015
The same could equally apply to the commercial sector or any rental type business. The Government has demonized private landlords purely for opportunism. Where is the 80% cuts to 20% tax rises?
This is the Government that gives away £26 billions in EU and foreign aid, more billions in free health, housing and education to anyone who comes here whilst cutting the police budget when we have never been at such risk from many different sources!
September 1, 2015
Headline in The Times today: “Cameron to punish low-pay employers”
Why not:- Cameron act to destroy and export jobs, reduce the tax take, increase unemployment & benefit costs, reduce the UK’s competitivity and create more parasitic jobs hounding the productive.
Or just: Cameron acts to shoot the economy in the foot again.
September 1, 2015
Lifelogic
“Why not…”
If the law says the minimum wage is x, then x has to be the minimum paid, otherwise absolutely no point in having a law.
But
Clearly self employment is not covered with this form of legislation, so you can still sell your time for what you want in return.
Thus expect more companies to want people to become self employed. although self employment is compounded by IR45 status or whatever, etc, etc, etc.
More complication, more confusión, more arguments.
September 1, 2015
I agree with you, taxes are still too high. But criticising the chancellor, and Inland Revenue over tax rates is easy. What is not so easy is proposing a better system, in any detail, without using the vast amount of income and expenditure data that exist in this country. Only the Treasury has the data, and one has to assume that there are good reasons why a better income tax system hasn’t yet been introduced.
September 1, 2015
One has to assume there are good reasons! Well that would be almost a first for recent government. On their record that would be the last thing I would assume.
They seemed to think there were good reasons for joining the ERM and the EURO I recall.
September 1, 2015
On any £1000.00 I earn that is subject to 45% top rate tax I actually receive £550.00. Note that before I get it the company will have paid 19% in Corporation Tax unless they are wise enough to incorporate in Lichtenstein. The Company and I will have also paid National Insurance (TAX) at 25.8% between us.
Almost everything I spend on the residual rate of £550.00 will be taxed at 20% VAT leaving me with a spending power of £440.00
For the abysmal service we get from government and their profligate spending I conclude we are being ripped of royally. We should all be investigating how we can become None Doms, or just leaving and taking our talents where they are better appreciated.
Reply There is also additional NI
September 1, 2015
Much of what you spend will be taxed at up to 80% petrol, alcohol and the likes. Plus you have council tax, vehicle duty, Insurance premium tax, flight taxes on top. Then stamp duty (should you move house) and at the bitter end the 40% of your wealth IHT theft too.
In the years you move home you are quite likely to pay far more than 100% of your total income to the government!
September 5, 2015
Lifelogic: “Much of what you spend will be taxed at up to 80% petrol,”
pedant mode on Given that petrol can be sold at the pumps for £0.60 ( wiki @ 2012 ) your tax on petrol is north of 100%, that’s without taking into consideration the income tax, corporation tax and National Insurance big oil companies pay.
Tobacco is a similar rip off, you can buy 20 cigars for £100 at European Union prices, the same 20 cigars retail for £200 on the UK high street, if you can find a high street with a tobacconist these days. If you buy your tobacco out side the EU the price falls again.
Still, I suppose someone has to pay an MPs salary, pension, expenses and general graft.
September 1, 2015
You have summed it up in a nutshell.
And just as Cameron is the heir to Blair, so Osborne is, and seeking to be in his Prime Ministerial ambitions, the heir to Brown. The last budget offered plenty of evidence: rabbits out of the hat, excessive taxes on savings and investment, overly complex rules and his latest stupidity – the new very high taxes on larger, more expensive cars.
September 1, 2015
No company pays corporation tax and then pays salaries out of what is left. You pay corporation tax on profits – after the company’s expenses – like staff costs – have been deducted.
September 1, 2015
This is true except not all expenses are tax deductible rather like Osborne’s landlord interest now! They do however pay about 12% in NI before wages.
September 1, 2015
Adendum.
Is there a correlation between rates of Corporate taxation, Individual taxation and calculated/ perceived quality of life. I use figures gleaned from Wikipeadia which seem as good as any available.
Country Corp Tax Personal Tax Where to be Born Index
Hong Kong 16.5% 15% 10
Singapore 17.0% 20% 6
Switzerland 17.9% 13.2% 1
UK. 19% 45% 27
As Lifelogic has so eloquently pointed out, personal tax in the UK is only the tip of the iceberg. UK citizens take a hit every which way.
I would suggest that the above figures are indicative of the way we should head once we are clear of the EU yoke. It will not be possible under this heir to Blair government we currently have, which masquerades as a Conservative administration.
September 1, 2015
Please try to sort out the lack of tabulation on your site.
September 1, 2015
What’s Corp Tax in America again?
September 2, 2015
Just be glad you’re not paying the 9% student loan repayment from earnings over £16,000 (which is a graduate tax) too. You didn’t mention NEST pension either from 1 to 5% employee, 1 to 3% (for now) employer contribution.
September 2, 2015
Especially if it is for one of the many pointless degrees that amount to virtually nothing.
September 1, 2015
Your last paragraph brings home to me the truth that we don’t really govern ourselves.
Perhaps a more cool judgement would be that the struggle to maintain self-government of any kind is going to belong and bitter.
Don’t I remember that income tax was introduced as ‘temporary measure’ to pay for the Crimean War?!
September 1, 2015
Few things are so permanent as those that were initially sold as being temporary.
September 1, 2015
Napoleonic wars, I think.
September 1, 2015
It is usually wars which start off the Income Taxes – The French Revolutionary Wars in 1799 initially with a short hiatus with the Peace Treay of Amiens (1802) – then reintroduced a year later – then abolished after the Battle of Waterloo, and reintroduced by the dreaded Tories 😉 Sir Robert Peel in 1842….. The US brought there Income Tax in to pay for the US Civil War in 1861.
zorro
September 1, 2015
Just like higher benefits payments can reduce the benefits bill if they incentivise the right behaviours. For instance if you pay more to those who have worked the majority of their adult life then folk can see work pays.
September 1, 2015
agreed – but my life shows the govt don’t believe in that. Born and bred here, paid in 40+ yr, retired early injured. Was awarded £3.01p per day -for one year – then nothing. Have to exist on my works pension. All bills to pay, full council tax.
On the other side, illegally here foreign criminals are put in hotels, no bills at all – and given £35 a week spending money. etc ed paid for by the govt throwing our taxes away like confetti.
Why work – -when the whole world can walk in and take – housing, money, NHS – -ALL on the English taxpayer. will the govt tell us how many have come here – -and NEVER contributed a penny – -I doubt they would ever DARE.
September 1, 2015
It is worse than that. My dad worked every single day of his adult life to be left to die of a condition that would have been treated early in every single other European country, and he would still be alive today. Our fantastic NHS has decided that people like him should be allowed to die. Meanwhile we have people here on student and work visas, and their families, being given multiple hundreds of thousands of pounds of operations when they had those conditions before they even arrived in this country. The whole place is a madhouse.
The whole debate is skewed. The media portray the political class as the normal views of the people when they are not. Anyone raising any normal day to day concerns is manipulated to look like a nutter. There is no balance. At least in the US they have politicians prepared to say things like “immigration without assimilation is an invasion”, all too scared and conformist here.
And I consider myself pro immigration broadly, just not the way its organised by the ruling elite.
September 1, 2015
Big Neil
“I doubt they would ever DARE”
I doubt if they even know.
September 2, 2015
There must be jobs that claimants can do for the State that wouldn’t affect other state full time jobs employees. We have terrible litter problems in small parks without rate payer funds to pay for picking them up. Our hospitals need people to help to look after our elderly patients, feeding, fetching drinks, cleaning to free up nursing staff (police checks could be carried out). Fly post removing, whitewashing walls. Dead-heading flowers, basic jobs that could be overseen by the regular staff, an assistant on the minimum wage for their £35 per week subsistence allowance instead of giving money away for free while their application is being processed.
September 1, 2015
Why doesn’t my income tax work like this? Tax rates go up and the tax paid goes down. Tax rates decrease and the tax paid increases. So, we just lower all taxes and that’s the end of the deficit? Lower them some more and we are in surplus. Marvellous!
I can say in all honesty that I’m missing out. When tax rates go up I pay more income tax. When they go down I pay less. There was I, thinking it worked like this for everyone!
Maybe I just need a smarter accountant. Any suggestions?
Reply The people who pay less tax when rates go up may 1) move abroad 2) pay themselves less through their own companies or through large companies where they are in charge 3) retain more cash in their business instead of paying out 4) drop one or more of their jobs/contracts 5)sell their company and do a lot less 6) take more time off etc
September 1, 2015
Or not move house, or not sell capital assets with gains, or not bother to work as hard or use good tax planning, or not set up in the UK at all, or not come to the UK at all.
September 1, 2015
7) and most pernicious of all, simply not seek high paying private sector employment or entrepreneurship at all – just accept they are in a high tax, high spend environment and seek public sector employment, as happened until the early 80s when the top graduate careers were perceived to be the BBC, the civil service etc. Industry and business wern’t for ‘talented’ young people.
Petermartin2001’s attitude is of course that baked into the Treasury tax models – which is why we have high tax rates, a complex tax system….and a high deficit.
September 1, 2015
But I’d have thought you’d like to pay more tax so that the government wouldn’t have to make these savage public spending cuts hurting millions of vulnerable people, same as Charlotte Church said.
September 1, 2015
Reply to reply. Exactly right John when you say people can either move or work less to earn less.
My husband is a self employed plumber living in Scotland and depending on Sturgeon’s new policies regarding tax and many other things he will either work less to get under a tax threshold or we will move back to England (preferable) but he will not pay even more tax particularly when we know much of the extra income will be given to those working part time (by choice) and getting tax credits or the feckless who have no intention of working in the first place. Taxing people more is a futile decision.
September 2, 2015
Anyone who has followed my arguments will know that I do accept that increased taxes don’t necessarily bring in more revenue. But we need to consider all taxes, in aggregate, not just one tax or one particular rate of one particular tax. It’s quite possible to shift income into dividend payments or capital gains for tax purposes. That’s not the real issue.
Generally speaking money, starts life as a creation of government ( and its tame central bank) and flows through the economy, being spent and respent on the way. creating one or more transactions on the way to ending its life when it is taxed out of existence by government. That is unless it is saved and protected from its ultimate fate at the hands of the taxman. That saving could be you or I , in piggy bank of NS or whatever, or it could be by the Swiss Central bank who accumulate unwanted currencies like pounds and dollars and give them a home in their coffers.
So the deficit, and the total debt, of government has to equal the surplus or assets of non-government. Government debts are everyone else’s assets to the penny or eurocent.
Changing govt tax rates only changes its deficit to the extent that it changes everyone else’s savings pattern. If we (including the Swiss) stop saving and spend more the government deficit simply disappears. It has to.
September 2, 2015
You must work for the State to think like this, anyone without a public sector pension has to save for their retirement/ill health and that’s the problem. If I knew I had a guaranteed taxpayer supported final salary pension I would blow the lot but unfortunately my private pensions are raped by successive governments and my retirement age for my tiny state pension has gone up, so if I want to retire from work or work part-time I have no choice but to save more now.
September 2, 2015
a-tracy,
No I don’t work for the State! I’m in the same position as many other people. That’s because I’m a user of the currency. I have to balance my books, save and borrow like anyone else.
The big mistake is to think that Government is a user of currency too. It’s an issuer – although there’s some smoke and mirrors involved to make us think otherwise. There’s no real need for the Bank of England for example. That’s just a part of Treasury – to all intents and purposes.
So the economics for the issuer aren’t quite the same as for the user. They may seem a little odd at first – but they aren’t intrinsically more difficult. They just require some lateral thinking.
September 2, 2015
Still confusing money supply management with government borrowing Peter.
September 3, 2015
Possibly. Mind you, I understand the debt theory of money. Government’s financial liabilities are equal to everyone else’s financial assets etc.
I’m always willing to look at other theories though. If you’ve got a better one, maybe you can give me a reference? I’ll take a look.
September 4, 2015
I think I understand it too Peter.
It is one of hundreds of economic theories.
All jostling for supporters.
I’m not taken with it but I realise you are.
I’m more of a monetarist hoping for more market power for small businesses and shareholders and a smaller State.
Less debt less magic money tree nonsense.
September 1, 2015
It was a bit of a sod having sources of income delayed until the time we all knew the tax was going to come down. If it wasn’t for very low interest rates, it may not have been worth it. A bit of what the BoE calls “forward guidance” from Mr Osborne; don’t you just love him? 😉
It was a bit sneaky reducing the depreciation life of our roads from 75 years to 50 years, hence increasing the depreciation amount. (As if a UK road was going to last for 75 years.)
Anyway, we are going to get the VAT on electronic goods at the customer country end rather than the seller’s country end; that’s got to be worth a shilling or two!
PS. Taxes don’t actually pay for anything. They disappear back into thin air the moment they get back to the Treasury; whence they came from thin air, when the Treasury spent them into existence with its keyboard. Taxes are the brake pedal on the economy. Deficit spending is the accelerator pedal. Austerity is left foot braking.
Reply Mr Osborne did not announce the reduction in Income Tax top rate in his early years! If a country tries your theory and just spends without collecting any taxes in what might happen? Could there be some inflation? Might confidence disappear?
September 1, 2015
If all the money received by the Treasury instantly disappears into thin air, how will the Treasury repay the ca £375 billion it owes to the Bank of England?
http://www.bankofengland.co.uk/markets/Pages/apf/results.aspx
£375 billion of gilts, each one saying that the Treasury owes the Bank money, and the Treasury has promised to repay it and ensure the Bank suffers no losses.
First by Darling on January 29th 2009:
http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/ck_letter_boe290109.pdf
and then confirmed by Osborne on November 9th 2012:
http://www.bankofengland.co.uk/monetarypolicy/Documents/pdf/chancellorletter091112.pdf
“As you are aware, my predecessor agreed that the APF be fully indemnified for all losses by the Treasury and hence any gains or losses are due to the Treasury.”
And:
“I am happy to reaffirm my predecessor’s commitment that any future losses incurred by the APF will be met in full by the Government.”
With what, when all tax receipts simply evaporate the moment they arrive?
September 1, 2015
Denis, the Treasury and the BoE are one and the same. The myth that the BoE is “independent” from the government’s Treasury is, basically, for the birds.
Everyone I know at the Treasury; at the Primary Dealers and the Secondary Market Dealers, know how the system works. Fortunately, the other 99% of the population, including you dear Denis, don’t know how the system works. Sad, but true.
September 2, 2015
You’ve used this “the Treasury and the BoE are one and the same” line before, it is self-evidently untrue but you still persist with it as a fixed idea as if you were incapable of reading anything which disproved it, and so there is really little point in me quoting the same passages from the Bank of England Act 1998 once again.
September 2, 2015
a-tracy,
No I don’t work for the State! I’m in the same position as many other people. That’s because I’m a user of the currency. I have to balance my books, save and borrow like anyone else.
The big mistake is to think that Government is a user of currency too. It’s an issuer – although there’s some smoke and mirrors involved to make us think otherwise. There’s no real need for the Bank of England for example. That’s just a part of Treasury – to all intents and purposes.
So the economics for the issuer aren’t quite the same as for the user. They may seem a little odd at first – but they aren’t intrinsically more difficult. They just require some lateral thinking.
September 2, 2015
Denis,
Do you mean this 1998 Act? Section 19 says:
(1) The Treasury, after consultation with the Governor of the Bank, may by order give the Bank directions with respect to monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances.
(2) An order under this section may include such consequential modifications of the provisions of this Part relating to the Monetary Policy Committee as the Treasury think fit.
And what does the “independent” Governor of the “independent” bank do if they disagree? If they have any sense and want to keep their job,they’ll thank the Treasury for taking the time to “consult” them and sign whatever documents they are asked to!
September 3, 2015
Yes, Peter, I do mean that Act and others which regulate the relations between the Treasury and the Bank, and you do not pass an Act to regulate the relations between two entities if they are in fact “one and the same” as acorn insists.
September 2, 2015
Denis,
“If all the money received by the Treasury instantly disappears into thin air, how will the Treasury repay the ca £375 billion it owes to the Bank of England?”
It could resurrect the idea of Bradbury pounds, maybe? Or it could swap the old gilts for new ones at some stage.
But, really, we are just talking about various types of govt IOUs, or State IOUs , if you prefer. If you or I were to have a choice of £170 in cash or say a ten year £200 bond which also had a value of something like £170 too, would it make any difference which one we chose? Admittedly it would be slightly more convenient to have the cash but it wouldn’t be too much of a chore to ask our bank to swap it for cash. To all intents and purposes bonds are money too.
If the Central Bank was incorporated into the Treasury, as it should be, then we wouldn’t have this problem. If the Treasury needed to sell bonds it would just sell them – as now. If it needed to create money it wouldn’t have to go through the pretence of asking the BoE to do it.
All money is just printed or created in a computer. So the discussion should be about numbers and amounts rather than the principle itself. I sometimes think the mainstream thinks that bundles of money are delivered into the economy by the Stork rather than created by government and the central bank.
September 2, 2015
Peter,it would be quicker if you told Denis that the Treasury does not owe the BoE anything. The BoE already had the “reserves” to pay for buying in the Gilts. All the BoE did was shift some numbers in its “securities” account, back into its “reserves” (cash) account.
THERE WAS NO CHANGE IN THE NET FINACIAL ASSETS IN THE PRIVATE SECTOR ECONOMY. THERE WAS NO NEW PUBLIC SECTOR DEBT CREATED.
The BoE can’t increase or decrease FINANCIAL ASSETS in the economy. It can only swap one type of “financial asset” (say cash reserves) for another type of “financial asset” (Gilts or NS&I Income Bonds).
BTW. Understand the difference between “financial assets” and “real assets” (cars; houses; factories).
Only the Treasury can increase or decrease the “financial assets” in the private sector economy. By deficit spending and taxation respectively. The Treasury can spend its own currency whenever it wants. The trick is not to allow too much spending that pushes the private sector beyond its capacity to supply; creating inflation.
When the government spends, it always spends new “money” (ie units of accounting, not real money as you think of it), NOT recycled taxes. Think of it as the government spending twice. When it keyboards your pension into your current account, it keyboards the same amount into your banks “reserves” account at the BoE to balance, balance sheets.
Those two parts float around the economy going from bank to bank until the Treasury grabs both of them back as taxes. When the two parts are reunited on the screen, that was attached to the keyboard that created the two parts originally, they vaporise back into thin air, from whence they came. The only trace of there existence is in the “real” assets they created during there FIAT lifetime.
September 2, 2015
“NO NEW PUBLIC SECTOR DEBT CREATED”
That’s a good point. In fact the conventional view is that government has “bought back the debt”. So, in principle, according to this argument, if the BoE created enough new money, the National Debt could be cleared.
I don’t buy this argument. It just means that, possibly for historical reasons, some types of government liability are counted as part of the ND and others aren’t. That needs another look. IMO.
The Americans have a similar problem. Apparently they don’t count coins as part of the ND there. So, technically if Congress doesn’t raise the debt ceiling as and when required, the simple work around is to create trillion dollar coins.
September 3, 2015
When has the USA Congress ever decided to create a trillion in dollar coins?
September 4, 2015
Edward2,
There’s no need for Congress to create trillion dollar coins. They have the power to vote for an increase in the govt debt ceiling any time they like. The problem arises, or would arise, if they didn’t do that as they have threatened previously.
The idea is that the Treasury then could issue a $1 trillion dollar coin (which could only cost a few dollar to stamp), put it in its account at the US Federal reserve and so avoid running out of money.
There’s been a fair bit of brinkmanship but so far the Congress hasn’t carried out its threat. But if it did….
September 4, 2015
Is this mainly your idea Peter?
I have not heard this raised by any USA politician nor treasury official
Perhaps you could enlighten me.
September 4, 2015
Edward2,
No it’s not my idea. There’s a wikipedia page on the topic plus other references which you can easily Google. It only applies to the USA – I think!
It’s just a technical work around, but it does raise the wider question of what we call govt debt. And it’s no clearer in the UK. It is widely accepted that money is an IOU of govt/its central bank but the process of selling gilts is known as issuing debt whereas QE could be seen as buying back debt. So, in principle, we could have no govt debt if the government engaged in enough QE.
This doesn’t make any sense at all. All government liabilities from the smallest issued coins upwards should be classed as debt. Then everything becomes clearer. There’s now no such thing as ‘selling’ or ‘buying’ debt, at least as fas as government is concerned. All these transactions (including QE) then become the swapping one kind of govt debt for another.
September 3, 2015
Well, the Bank, or to be more exact its wholly owned subsidiary, owns gilts valued at around £375 billion, and every one of those gilts says that their issuer, the Treasury, owes money to their owner, the Bank; just as the gilts presently held by other owners say that the same thing, that the Treasury owes them money, and these gilts would still say the same thing if the Bank sold them back to private investors, that the Treasury owed money to their new owners. So self-evidently this is more of your nonsense, on a par with the Bank and the Treasury being one and the same thing when there are Acts of Parliament clearly distinguishing between the two.
September 1, 2015
JR, who said I wasn’t going to collect any taxes? I would replace monetary policy with fiscal policy (taxes and deficit spending). That means we design and apply taxes to put the brakes on sectors of the economy that are starting to bubble (always housing in the UK). Leaving the other sectors of the economy to produce output that the private sector Households and Businesses, want to buy. Taxation should be used to prevent demand outstripping supply in any particular sector of the economy, to prevent inflation. Taxation has nothing to do with raising revenue for the government to spend!!!
Since 1971, we have been using a floating FIAT currency economic system. We are NOT on the Gold Standard anymore! Fiat currency economics allow a sovereign currency nation to operate at the maximum capacity that its private sector economy can supply goods and services, that households want or need to buy. Taxation is used to put the brakes on any sector that shows signs of bubbling.
The use of a monetary, economy-wide, sledgehammer, interest rate control (policy) mechanism by a central bank, belongs to the time when we were dwelling in caves! Interest rate setting central banks, should set interest rates to zero, and let the far far greater effectiveness of fiscal policy, control the economy.
September 1, 2015
Before the election we discussed this issue on several occasions and in particular the situation over Capital Gains Tax.
Firstly Gordon Brown removed Taper relief and reduced the rate and to his shame Osbourne increased it to a penal 28%. As a result the the revenue raised each year has halved costing the Treasury at least £2bn a year in lost income.
I was really surprised that nothing was done about this in the post-election budget. There must be at least a £5bn windfall available thanks to pent-up demand and the reluctance to sell properties while the rate remained at 28% over the last five years. It is far cheaper to raise finance on a let property instead of selling it and paying such a high rate of tax.
I was hoping to see a reduction to 10 or 15% or better still, the reintroduction of taper relief as this encourages investment for the long term. Currently the spiv who makes a quick buck pays the same rate as someone who invests for the long term.
This can’t be right. Ideally a return to a decent rate of taper relief and a more modest rate of tax could easily boost revenue by £5-6bn over the first two years and £2bn every year thereafter.
September 1, 2015
There are very strong arguments for reducing employers NI contributions rather than capital gains tax.
1) It concentrates the savings on reducing unemployment.
2) It reduces the costs of exports
3) It increases the competition with imports
4) It concentrates the tax relief on productive companies.
September 1, 2015
You missed my point entirely, behindthefrogs :
Reducing capital gains tax will INCREASE the tax take not reduce it.
Since the rate was put up to 28%, revenue from the tax has fallen by at least £2bn pa. Reducing the rate will therefore make it easier to reduce NI, not more difficult !
September 1, 2015
Depreciation is not a cash item, and therefore has no effect on borrowing, unless like a business it reduces the accounting profit, which would result in a lower tax bill on profits, and therefore less need to borrow and pay interest on the borrowings.
September 1, 2015
What you say is perfectly true, but is it normal practice to use a longer term loan taken to finance an asset purchase, whose depreciation is current expenditure, to use that loan by default to finance that current expenditure (assuming the company is loss making so cannot finance all or part of the depreciation out of current income)?
September 1, 2015
Off-topic, having announced that anybody who turns up from anywhere in the world on any grounds or pretext whatever will be very welcome in Germany, and they will all be seen as a boon for Germany, why is the German government simultaneously complaining that other countries are not sharing what it seems may in reality be a burden rather than a boon? They should make their minds up about this, and preferably decide that they do not want to share this human bonanza with other countries, they want to grab all of the available migrants just for the benefit of Germany. That may run to hundreds of millions, but so what? Anything less could suggest an element of hypocrisy in their public attitude.
Thank God the UK has an EU treaty opt-out on this; now we just need our government to bite on the bullet and decide that it will no longer entertain any new claims for asylum at all, and that it will only accept those immigrants who it wants to accept and in numbers that the British people would find acceptable, say a few tens of thousands a year.
September 1, 2015
Our government will not bite on the bullet. The decision to open the doors has already been made against the clear will of the people.
September 1, 2015
I note that David Willetts is claiming that we should ignore the immigration statistics that show that immigrant students tend to stay on after their courses in large numbers. Instead, he prefers a survey of students who were granted leave to remain, and remained contactable, to show that they are here legally, while ignoring those who overstayed.
He ignores the fact that we now have a part of the immigration statistics that identifies the numbers of emigrants who are previous immigrants (Table 4 in the immigration release), which shows just 59,000 people who previously immigrated as students emigrating again at the end of their studies or after a further period in the UK – of whom just 41,000 were from outside the EU, with an uncertainty of +/-6,000, compared with over 200,000 students a year who were coming 3 years ago.
I think Theresa May has a far better handle on the analysis of the statistics: you can’t possibly hide missing emigration of 150,000 ex students accidentally when you are actually hoping to see net migration below 100,000.
September 1, 2015
How on earth can our kids be worrying about finding university places when there are 200,000 of them going to outsiders ?
September 1, 2015
But Theresa May and the rest of the government are fine with that provided those who stay on have got jobs paying not much less than average wages.
To quote a government minister in 2013:
http://johnredwoodsdiary.com/2013/05/24/mr-harper-updates-us-on-migration/#comment-195948
“There is no limit on student numbers; universities can apply their own language tests; and graduates can stay and work if they get a graduate job.”
An insane policy if the objective really is to restrict immigration.
September 1, 2015
I have checked up on the study I believe Mr Willets is referring to, which can be found here:
https://www.gov.uk/government/publications/migrant-journey-fifth-report/migrant-journey-fifth-report#study
I don’t think he is being very numerate for a former minister for higher education: the report suggests that only a tiny minority of student immigrants are granted settlement, while only a quarter to a sixth of them have valid leave to remain after five years. That directly implies the emigration should have been much higher. As the report points out:
In other words, it offers no evidence to contradict the IPS evidence that shows large numbers of overstayers.
September 2, 2015
And that is a large proportion of overstayers from the unlimited numbers who can come, or at least unlimited by the government even if limited by the capacity of the higher education system to provide something which passes as a place on a course.
September 1, 2015
Once again the EU causes additional burden ; why don’t we just ignore them ?. Since returning to this country in 1961 I have never been able to get my head around personal and corporate taxation and I did not want to waste my time in doing so ; I always employed Accountants to deal with my personal situation and that of my company .
Obviously a low tax regime is bound to attract investment and to retain the presence of talented individuals who add to the well-being of others ; this being the case , it is simple to understand why tax receipts increase with it . It would be very foolish Government policy to increase taxation beyond a competitive level and drive business away . I have always advocated that indirect taxation is the right way to go ; it would be far simpler to administer and much fairer to all – I have lived in a country where such a system was used and witnessed its success and value .
September 1, 2015
People are going to vote for tax decreases. It was always amusing but deeply sad hearing in 1960-1980 so many people on quite humble weekly cash wages saying: “I’m not working any more overtime, the government just takes it all in tax.” They would produce their wage slips which showed more tax paid when they worked 20 hours overtime than when they did not. Of course they were paying exactly the same proportion with or without overtime. Perception is key to election winning. Fortunately for democracy, people are now street-wise and on the whole do not fall for the what I call the Laughing (Laffer ) Curve”.
Mr Laffer apparently does not claim credit for inventing the concept of a nice point in a tax to income ratio ( only ever mentioned when tax is high but never when it is too low ) which creates heaven on earth.
So much of Republican economic theory, miraculously, is a mirror image if not to say a direct copy, of communist economics…that field of economics hardly studied in the West except holistically but always combined with political overtones which, blinds. The Right-wing idea is we should all, irrespective of income, pay an identical percentage of tax…a low one, was in practice in the Eastern Communist Bloc for decades. At one stage Mr Enver Hoxha’s regime in the People’s Republic of Albania actually had a zero rate income tax which Western economists post the Anglo-French Wars have thought utterly impossible.
One should be careful not to use Communist models of economics from regimes which were undemocratic and against freedom.But Puerto Rico has now an income tax of 4%. Again, hardly a good economic model.
Lowering of income tax and we still see notable names in music and sport living in tax havens abroad.Openly declaring they are living there so they do not have to pay the British people and British culture from which their wealth owes its origin and in many ways its continuance.
I believe you are comparing apples and oranges JR in comparing 2008 to 2015. The BoE continually predicted the raising of interest rates and inflation even if it occurs in what they may think as an ideal manner, may not fit into the “Conservative” low income tax idea.
In most political and macro business circles few appreciate that many British people actually engage in non-paid work. A phenomenal amount. No I am not thinking of charity volunteers of which there are thousands. I am thinking of the many small, medium and indeed large scale business people who work 16 hours ( sometimes more ) per day 24/7, with overtime unpaid, because they WANT to. Yes, there are many people who in quite low positions work over and above,many times secretly ( as H & S and company rules forbid it . Low or high tax does not come into their equation.Even one or two MPs do it.
You know who you are.
Reply Conservatives support progressive rates of taxation, not a single rate with no tax free amounts. As soon as you introduce a tax threshold you are setting a wide range of differing average rates of tax, where the lowest paid pay the lowest rates and the highest paid -pay the highest. With a £10,000 tax free amount and a 20% standard rate you pay 0% at £10,000, 10% at £20,000 and 18 % at £100,000, before taking into account all the extra tax the higher paid pays in higher rate tax as well.
September 1, 2015
I see. The idea of £10,000 tax free amount is a good incentive for low paid British tax-payers.However fewer and fewer of us are British. It is also a dream come true to a migrant who can in and out of the UK earning £9,999 each tax year and spend his income in his own country. One wonders how many employers willingly take on such “seasonal” ostensibly lower paid workers to enhance their own albeit taxable profit/income yet avoiding on behalf of foreigners,- tax which would be paid by a British worker who has to pay his rent 12 months out of the year come what may. A special tax on industries and individuals employing non-British, non-permamently resident workers would also be a progressive rate of tax.
An alternative in line with the Human Rights Legislation would be to enable British workers to take a free six month holiday per year in a country of their choice and have a free rent/council tax and standing charges for utilities for that period.
September 1, 2015
“I’m not working any more overtime, the government just takes it all in tax.”
Actually what they were saying was that even allowing for higher overtime rates, they were paid less per hour net, as a result of their marginal tax rate, for working unsocial hours than on their standard working week.
September 1, 2015
For the well-off it’s a simple matter, is the increase in tax sufficient to justify employing a tax accountant to minimise my tax?
For people like my daughter, where the family is comfortable with its present earnings, when she was offered a rise, she negotiated a shorter working week in lieu.
For my other daughter & son-in-law where not only are they fed up with the higher tax, but the poor education of their son, the solution looks as if it will be emigration to Australia, where a cousin’s child of the same age is doing far better at school that their own son, the class in Perth seems to be about a year ahead.
Taxation and government policies make people react, but not necessarily in the way the government expects.
September 1, 2015
My understanding is that some universities are complaining that they are ‘doing the government’s work for them’ in the sense that the duty of monitoring students is placed firmly on the universities and not on the Home Office. Students, then, are at the centre of government immigration policy because students can be identified, managed and controlled. I was told that some universities actually have to give the flight number on which a student will leave the country.
Students, the universities think, are the least of our problems. We are simply driving highly able students into the arms of our competitors. Thus already it is cheaper to take a postgraduate course (delivered through the medium of English) in Oslo or Amsterdam and the qualification gained is just as valuable as one gained in the UK and, in any case, British have an advantage abroad since they are native English speakers.
The real problem is that the Border Agency does not know anything about people who leave the country – apart from students on visas.
September 1, 2015
If the main reason for a “student” to come here rather than going elsewhere is the prospect of staying on as an immigrant after completion of his course then it seems to me that doesn’t reflect well on the quality of the courses being offered.
September 1, 2015
Since universities were shown to be quite willing to sponsor (and in effect issue) visas to large numbers of bogus students, I don’t think we can have much confidence if they are supposed to be the ones verifying the departure of foreign students after their courses. I don’t suppose for a moment that there is any mechanism to check that students have actually boarded a flight. We don’t have any exit controls that offer such guarantees, except on forced repatriations which are usually reserved for criminals.
September 1, 2015
If the government is really serious about our national debt and collecting taxes is the only answer if they are not prepared to be mega serious on waste is to tax those things that are immovable.
Land owners with turbines and solar fields over the life of the project they earn millions. When near to the end of the life of the original windfarm they negotiate for replacement larger turbines and the whole roundabout goes round and round.
Any land with more than 5 turbines or covered by 30% panels is redesignated for tax purposes as a power station and removes the forestry/farming handouts.
Apply taxes that ensure that the landowners only get 20%net profit. They only have the opportunity because they own the land and governments have not thought the whole renewable process through and did not look forward into the long term implications of being green and abiding by the Climate Change Act which should be repealed forthwith. A load of tosh turned into a religion by previous heads of the DECC. Now it seems that the President of the USA has fallen for it hook, line, sinker , rod and the boat. You cannot make it up.
September 1, 2015
The idea that cutting the deficit is an end in itself is a popular bit of nonsense. The deficit needs to be whatever gives us full employment. Since unemployment is not yet down to where it was pre-crunch, a deficit continues to be justified.
Government budgets are in no way comparable to household budgets.
Reply If large deficits and high state borrowing produce full employment why does Greece have such high levels of unemployment?
September 1, 2015
Penalising people for what they produce, by taxing wealth creation (income/capital/transactions) is unfair, thus causes massive deadweight losses.
Allowing land rent to become capitalised into selling prices merely represents a transfer of wealth/welfare from producers to non-producers, again is unfair, and again causes deadweight losses.
Thus the only sane way of paying for public services that produces optimal economic efficiency and wealth creation is from land rent, and other monopoly privileges.
Only this is the very last thing fake-capitalists like John Redwood would ever want. Because it would mean a level playing field in which wealth and welfare no longer trickles up from the poorest to the richest.
All John can do is duck the issue by hiding behind the skirts of poor widows in mansions.
Cowardly.
September 2, 2015
The statistical base for your argument is a bit thin because:
(1) The 50% rate came in in the 2010 budget and was replaced by the 45% rate in 2013. During those 3 years, many financial bonuses were postponed because people knew a lower rate was coming.
(2) Self assessment income tax does not come entirely from the top end.
(3) The 40% threshold has been virtually unchanged in nominal terms while incomes have started to rise again. The results contain some fiscal drag effects.
Still, the way I look at it is that the burden of proof lies on those who want to keep the top tax rate high.
Janet Daly wrote that Ronald Reagan reduced the top rate of American income tax from 72% to 28%. “Now that’s what I call a tax cut.” What was the effect on yield?
Reply People did not know the top rate was coming down!
September 2, 2015
Will be interesting how the tapered annual allowance for pensions works out reducing to £10,000. I understand the reasoning but think offshore whill get a boost.
I’m irritated by criticism of us about the refugees. We spend 0.7% of GNI on foreign aid and tale 300,000 immigrants a year as we have a working economy. Other major nations spend 0.4% so they should take more refugees to contribute the same. Of course its about a countries demographics but I don’t hear on TV about our contribution on foreign aid right or not.
September 3, 2015
“requiring a change of accounting to increase the amount of depreciation the government has to charge itself. This has raised the deficit by a further £1.1 billion this year.”
I don’t understand this. If I charged myself £1.1 billion for depreciation I wouldn’t be any worse or better off!
But if I depreciated my car by an extra £1000, or whatever, then I would be worth slightly less on paper but it wouldn’t really mean anything.
This is just a very minor issue by comparison. There’s all kinds of examples of governments “borrowing” from another branch of government which seems to cause all kinds of unwarranted concerns. I’d put the £375 billion swap of bonds for cash with the BoE at the top of the list.
Reply Public spending goes up but cash is unaffected in year
September 4, 2015
Its about making sure the values of assets on your balance sheet fairly reflect market values.
If you wish to use those assets to borrow against or at least refer to in order to encourage confidence of potential investors and lenders then assets which have had sensible levels of depreciation applied to them will be appreciated.
I always watch out for companies who are already highly geared but have regularly revalued their assets upwards yet still want to borrow more.