Author: johnredwood

Taxing the rich is extremely popular with the main political parties. It is based on two propositions. The rich have more money to tax. Taxing the rich is popular with many who are not rich. So what could go wrong?

Most of us agree the rich should pay more, and that income tax should go up with  income level. The problems come about because the very rich have more scope to decide where to live, where to work, and where to pay taxes. If a country overdoes its taxation of the rich, as France did recently, many of them go and live, work and earn somewhere else. The ones who stay employ better tax lawyers and accountants to minimise their bills.

Nor is heavy tax on  the rich  popular with everyone who is not rich. Some aspire to be richer later in life. Others are not jealous and see nothing wrong with people having more money if they are better footballers, singers, business people or whatever and earn more as a result.

Labour under Blair and Brown decided they needed more rich people in the UK, and needed more rich people to work, risk and venture. They decided to continue with the outgoing Conservatives 40% top rate of Income tax. They brought Capital Gains Tax down to a more  competitive 18%. They allowed Non Doms to come and live in the UK, paying full UK tax on all their earnings, savings and ventures in the UK but avoiding tax on assets and income they had elsewhere. This Labour system worked well, and the rich made a substantial contribution to tax revenues as a result.

The last days of Gordon Brown, followed by the Coalition, changed this approach. Mr Brown put Income tax up to 50%. Mr Osborne brought it back down to 45%, where more money is collected than at 50%.

CGT was put up by the Coalition to 28%, where it collects far less revenue than at 18% before the crash. This is despite share and property values now being back above the pre crash  levels.

Mr Brown introduced a Non Dom tax or payment to allow people to live here and only pay on their UK income and assets. Mr Osborne increased that payment substantially.

Mr Osborne changed the rules over the payment of Stamp Duty on homes bought through companies. He also imposed large rises in Stamp Duty on the more expensive properties. Income from Stamp Duty as a whole has risen.

The art of taxing the rich is to choose rates which bring in large sums without triggering an exodus from the UK, or without allowing too many ways to pay less, often by earning and doing less. This election is seeing an auction of promises by parties of the left to tax the rich more. There are promises to raise Income Tax to 50%, to increase property taxes, bring in a  Mansion tax, and now the abolition of Non Dom status. They run the risk of taxing the rich less, as there will be fewer rich people to tax, and the rich who stay may generate less income and venture less of their wealth for higher returns.

The abolition of Non Dom status was opposed by Mr Balls throughout his government years, and condemned by him quite recently, stating that it might cost the Treasury lost revenue.The first round effect of abolition is to cut revenue, as the Treasury loses all the Non Dom special payments for Non Dom status. The second round effect depends on how many people decide to leave rather than pay tax on their non UK interests, and how many deciding to stay can rearrange their non UK assets and income to minimise UK tax. The scope to lose revenue out of this change is considerable.

This Easter I have been re reading the Anglican Bishops letter for the General Election. It doesn’t make better reading the second time round. Rather it does now seem even more unfair and inaccurate  given how the economy has developed.

The Bishops main case is that all the political parties have failed, hence the need for their intervention. They tell us “The problem is no-one in politics today has a convincing story about a healthy balance between national government and global economic power”. “Our democracy is failing because successive administrations have done little to address the trends which are most influential in shaping ordinary people’s lives”.

I thought one of the big arguments in this election is just that balance between the state and the private sector, with different visions and versions from Conservative, Labour and SNP/Green. All the main parties think they are addressing the issues that most worry people, in their own way. Conservatives have put through a change to get multinationals to pay their fair share of profits tax. Labour wants to place further controls and taxes on big business.

This aggressive attack on all politicians and parties may be popular, but as I expected there is no evidence that the Church is going to put up candidates to show us how to do it, and little evidence that the Church has found an agenda which can unite electors and get them enthusiatically going to the polls where the parties in the Church’s words  “fail”.

So what are these trends in “ordinary people’s lives”, as the Church somewhat disdainfully calls us?

The first is rising unemployment which the Church says we have been experiencing since 2010 (p46). It is a pity they were unable to read the official figures which show great progress in cutting unemployment since 2010, and a pity they seem unaware that tackling nunemployment has been a central priority of the last government. Nor did the Opposition disagree with the aim. The argument is over how best to carry on cutting unemployment, and over how to ensure the jobs are well paid.

The second is their allegation of rising inequality.On page 49 the Church says we need to halt the move towards more inequality of wealth. On page 33 they wrongly state that material inequality continues to widen. Once again they failed to read the national official statistics. The Gini coefficient, a recognised measure of inequality,was at 34.7 in 2006-7 and has fallen since then under the coalition, where a lower figure means less inequality. The richest have made the biggest contribution to getting the deficit down through a substantial rise in the tax they pay.

The third is the Church’s belief that we need to share a cultural identity with the EU, not with the Commonwealth or other global groupings. Page 30 seems to be an attack on Eurosceptic opinion. There is no mention anywhere in the tract of the huge damage being done by the Euro,  by the EU austerity policies and the high energy costs that come from Brussels. Nor is there any sympathy for the unemployed on the continent or anger about the mass unemployment in some continental countries, and the especially high youth unemployment, let alone any suggested remedies.

I do think  Bishops  should set themselves higher standards of drafting and evidence before sounding off on these very sensitive issues. Have they yet had time to research the true trends of unemployment here and on the continent? Have they yet checked their facts on inequality and who is paying the extra taxes?  Will they correct their mistakes?

It would be good if the Bishops recognised  that Conservatives set out to create the conditions in which the economy generates  more jobs and better paid jobs, as we wish to tackle poverty vigorously. Their absurd caricature of the Thatcher years is too wrong to be able to rebut in a sensible space. I want to live in a prosperous society where there is opportunity for all and decent state support for those in need.

There is nothing new in UK politics about some people wanting to vote for parties that are mainly about regional and national identity and related financial isues rather than about the main choice between major parties of the Union. Our Union has been the object of major debates in many decades. In a way that is very healthy, and has led to political change in the shape of our union and to the various powers held under the UK Parliament by different parts of the Union.

The 1974 October election saw 11 Scottish Nationalists,10 Ulster Unionists, 3 Plaid Cymru, one Social Democrat and Labour and one Independent elected to a Parliament with no overall majority for Labour or the Conservatives.  There were 39 MPs from  parties other than Labour or Conservative, and the Speaker.February that year had also seen 37 MPs other than Labour or Conservative and the Speaker elected for seven different parties, with no overall majority for anyone.

On that occasion those two Parliaments produced  Labour minority governments which presided over economic calamity, the country running out of money, a trip to the IMF, and major cuts in public spending forced by the economic circumstance of a country whose government was unable to control its budget properly.

On current opinion polls there could be more MPs from nationalist parties than in 1974, if the present popularity of the SNP is sustained until polling day. This will require some justice for England in the next Parliament, something which seems to be in small supply from most parties. We will need the Conservative policy of English votes for English issues.

It also means paradoxically that the people of England will be able to choose who governs the UK with less help from outside England, if enough English voters can agreee on which of the two main parties should win. Only if English voters remain very evenly split between Labour and the Conservatives, or if a large number of English voters themselves want to vote for other parties do we end up with a situatlon where there is no majority government. I find it fascinating that Labour still does not see the need to offer fairness to England in such a situation, at a time when many English voters do want a new settlement for them.

Free enterprise capitalism is the parent of higher living standards and better lives for the many. The luxuries of the few of the previous generation can become the norm for most in the next. Today we can enjoy service and facilities that we could not even dream about twenty years ago.

In the 1950s, many homes  had no tv, no fridge, no car, no telephone.  These middle class luxuries arrived gradually in the 1960s as people  got pay rises and as these luxury products became cheaper relative to wages. The financial system also found new ways to help people of modest means to buy them. Many tvs were rented. Car finance took some of the waiting out of wanting. More mortgages became available, so  many  could buy their first home.

The progress of many in the UK from blue collar to white collar work, from working for someone else to running your own business, from renting to owning a home,from living without phone or tv or fridge to having those former luxuries which became necessities reminds us just how much free enterprise has delivered. It also reminds us that sensible borrowing by individuals and families was an important part of the road to owning property and having better equipped homes.

Today many take for granted the fridge and tv. Most expect a mobile phone and a home or hand held computer with more power than many company computers enjoyed in  the last century. These advances are good news. As technology expands, so our idea of the good life and of what is possible expands. The world I wish to live in recognises that allowing sensible borrowing in the private sector,cutting taxes to allow people to spend more of what they earn, and always making it worthwhile to work are the central policies to banish austerity. There is a new generation to help into home  and car ownership. There has been too much private austerity thanks to the banking crash. We now need a stable banking system capable of allowing and financing growth, and a tax system which leaves people with enough money to buy goods and services from each other in a growing economy.

We have had too much austerity in this country – in the private sector in the period 2007-9. I opposed it at the time. I now support policies to give us private sector prosperity again. That’s more prosperity for every individual and family. I want to see more jobs, more better paid jobs, lower taxes and better living standards  for the many.

The absurd political debate between the parties of the left argues about austerity in the public sector. Look at the figures. Total managed public spending was just£629 billion in 2008-9, and was £732 billion in 2014-15. The severe cuts, the reductions in income and spending power, took place in the private sector, mainly between 2007 and 2010, thanks to Labour’s great recession. Real incomes fell, many people were thrown out of work and lost all their earned income, there were pay cuts, the end of bonuses and reduced overtime.

Why did this happen? Because a Labour government helped by the FSA, the banking regulator it set up, and by the Bank of England, put interest rates up too high, starved the banking system of cash, and forced the banks to lend less and slim their balance sheets. They did  this because in the preivous period they had allowed the banks to expand too much, lend too much, and had not required them to hold sufficient cash and capital. Their asterity policy was too extreme and too fast acting, so it brought several banks down, and with it private sector credit, jobs and incomes.

I urged them not to overexpand bank balance sheets and not to allow mega mergers on the way up, and urged them to be less severe and allow longer for adjustment on the way down. When the coaltion came into power they caried on for a bit with the extreme bank slimming policies for RBS andLloyds/HBos they inherited from Labour, which  kept the economy from growing. The economy started to perform much better when the government changed its approach to RBS after a couple of years, and started to build a decent UK bank that could help finance a good recovery.

The UK had too much austerity inflicted on it by Labiour at the end of the last decade. For the last couple of years we have seen growth resume, with many more people in jobs and with some growth in pay, overtime and bonuses. That is what we need. Tax cuts for the many will also help drive a rise in living standards and more jobs and activity.

Can the debate please concentrate on where we have suffered from austerity, and what are the best policies to banish austerity from the homes of the UK?Higher taxes and more public sector borrowing will not promote greater individual wealth and income.