Category: Uncategorized

It’s good news that most of the old planning framework has been dumped. It was complex, unwieldy, and suited few. I had hoped to enjoy its replacement more than I did on first read through. It 65 pages and 207 clauses is a great improvement on what went before, but it’s not a clear and snappy read.

The five principles of sustainable development that overarch the whole are far from precise. As others have pointed out, this is a hand me down from the last government. It’s not clear how important they might be in any individual case, or how they will be interpreted.  The three aims are unexceptional. The economic aim is to allow all the building we need for a growing economy. The social aim is to make sure we have enough homes and other facilities. The environmental aims are various, including  protecting and enhancing the natural and built environment. The large question is how the possible conflict between protecting the countryside and finding enough land for new homes, offices and factories is to be resolved in case after case.

The government has listened to criticisms of its first draft. Brownfield sites are now usually to  be preferred.  Green belt protection is reaffirmed. Local communities can designate  land as local green space, giving it Green Belt like status within their communities for important smaller areas, as long as they do this through an approved plan.  There are new tighter  rules on traveller sites in another document, following recent controversies.  Car parking ratios are relaxed so new developments in areas where people need to use cars can reflect the reality of car ownership after years of artificial restriction on car parking. Town Centre lovers now learn that new shop development should occur in the centre, or on its edge, with out of town only if all else fails.

The big issue at the heart is how many homes should be built? This  still has  a plan led answer, where Councils have to assess demand for many years ahead, state a figure for the annual need for new homes, and then ensure five years supply of land plus a reserve is continuously available.  Planners find this notoriously difficult. Recent years have seen huge disruption to the plans on the downside, as mortgage money dried up in the Credit Crunch and as housebuilders reined in their activities. England will divide into those places which already have local plans, where the local plan will guide and restrict development as long as the five year supply of land is available, and the rest where the presumption in favour of sustainable development will dominate in decisions.

Existing local plans were of course often drawn up under the past government’s guidance, requiring higher housing targets.  I do not buy into the criticism of the document that it will restrict new planning permissions.  The aim is clearly to expand provision in places where there is demand by appealing to the presumption in favour of sustainable development in the absence of a plan. In the areas with plans, they anyway have quite high housing targets in them reflecting the past government demands.

I do not think housebuilding need to  be held up by a shorttage of land under this regime.  Local communities will need well crafted local plans in order to assert their own views on development, and in order to restrict development to acceptable locations. The issue for the housing makret, at least temporarily, is not land but is prices and mortgages.

               The resignation of the Conservative Treasurer has highlighted once again the vexed issue of money and politics. He had to go, as what he said was unacceptable. His departure poses a series of questions for all parties, who need to resume discussions over a reformed regime for party funding.

                I would start with a much tighter limit on how much each party can spend on its national General Election campaign. Strict spending control limits on constituency races works well, and means an individual MP in the UK does not have to spend the five years of each Parliament worrying about how to raise the money to fight the next election. In the USA politicians are much more preoccupied with fund raising for themselves.  It also means in the UK  that it is quite cheap for a serious challenger, allowing good contests. Tougher limits on national expense would cut down the amount a party needs to raise.

               A possible deal which the main parties  will be relucant to strike would  say that shareholders of public companies and Trade Union members should be asked to give any money they wished to give personally. Some think  public companies and Trade Unions could both be banned from sending money on behalf of members. Others simply want a limit on the total size of any donation, whether it comes from an individual or from an organisation.

                    I hope in all this discussion we will not ignore all the other ways people and organisations spend money to gain access . Of course it is wrong for any individual or organisation to think it can send in a party donation and secure a change of policy. A rich individual should no more be able to donate to the Conservatives and  get the Prime Minister to change his stance, than should a large Trade Union be able to send in a donation to the Labour party and then dictate policy to the Labour Leader. However, we should also look into the world of cash for access more widely.

                         Under the last government the public sector increased its lobbying of itself at taxpayers expense. Public sector organisations would invite MPs and Ministers to receptions, lunches, dinners and events to put over their need for more cash, or to explain what they were doing with all the cash they were getting. They sent the bill to the taxpayer. Is this a good way to spend public money?

                         Trade Associations, Trade Unions, large companies, charities all now have budgets to spend on contacting Ministers and MPs, arranging events to meet these decision takers. They  spend on adverts and  email, letter, postcard and web based campaigns. Is this cash for access and cash for influence, or just a necessary part of a flourishing democracy? Where does legitimate spending on getting your point of view across end, and undue influence and purchase of advantage begin? People who give money to political parties have always expected to meet the leaders and hear directly from them. They are not the only ones, as there is a whole industry in seeking access through spending. The beauty of the UK system is that you can secure access without spending a penny. Anyone of us has the right to access through our MP. Like the NHS this is a free service at the point of use.

       There are rumours that the government is thinking of selling a portion of its RBS shares at a loss. The danger of doing this is it will make it much more difficult to sell it off in pieces later, so we will not get the boost to competition and a better structured banking sector we could get if only the government would require RBS to split itself up. UKFI should not allow or encourage the management to do this. Taxpayers deserve a better banking industry for all the money they have been forced by the previous government to tip into it.

                  The Coalition economic strategy always proposed a squeeze on the private sector for the first half of the Parliament, brought on by tax rises and relatively high inflation, followed by more of a squeeze on the public sector in the second half as a backdrop to planned private sector growth.

                 The latest figures show just how big is the contrast between what has gone so far, and what is proposed in the second half of this planned 5 year Parliament.

                 Let’s take public spending first of all. The years 2010, 2011  and 2012 are estimated to show growth in real current public spending of 1.5%,0.3% and 0.5% or 2.3% over the three years. 2013  and 2014 are forecast to bring a real decline of 1.1% and 2.1%, or 3.2% in total for the two years. This produces a total five year figure of minus 1%.  This as I have said before is an unusual approach, with the increases put in up front, and the cuts left for the last year, an election year.

                 Then there is economic growth. The economic estimates say that the UK economy will grow 0.8% in 2011 and 0.8% in 2012, but will accelerate to 2.0% in 2013, 2.7% in 2014, and finally to a lively 3.0% in 2015.  The main driver will be a pick up in real household income, as more people get jobs and as wages start to go up faster.  After a fall of 0.2% in the first year, 1.4% in the second  and small growth of 0.2% in the third, real incomes are forecast to rise by 0.5% and 1.9% in the last two years.

               This welcome return to faster growth is also forecast to bring in a surge of extra revenue. Particularly interesting are the forecasts for Self Assessment income tax, where the top payers are well represented.  In 2010-11 this brought in £22.1 billion. This year a fall to just £20.1 billion is forecast, and next year a return to £22.3 billion. The following year they estimate  £22.9 billion, with a massive rise to £28.5 billion in the final year, when the full effects of the lower 45p rate will be felt and the better growth helps. I think they will be lucky to sustain  higher levels next year at the continuing  50% rate.

               Overall, Income Tax receipts stutter along for the first three years, with totals of £153.3billion, £152.6 billion and £154.8 billion. It takes off in the last two years, rising to £165 billion and then an impressive £179.4 billion.

               When I have helped turn round near bankrupt companies I have always taken the toughest actions at the beginning. I find people like to know how bad it is, and get the bad news out of the way. In the first few weeks you need to stop the money flowing out of the door. You need to stop hiring people, stop buying anything other than the essentials, defer the capital spending and  stop the daily deficit as quickly as you can.  You look for assets to sell if  the bank manager is knocking on the door for money. You can always spend more if you overdo the parsimony, but going back for a second round of cuts after the first treatment is not so easy and is bad for morale.

             I appreciate turning round a country’s finances is different, and coalition politics greatly complicates the management task. However, we do need to ask how strong are those forecasts of cuts to come, and how realistic are the estimates of much faster growth in the closing months of the 60 month plan?

              The first half has shown that carrying on spending and borrowing does not produce faster growth. It will be interesting to see if reducing the rate of increase in spending and borrowing is a better mix.  I certainly agree with the official forecasters that we should get more income tax paid once rates  are down a bit and thresholds up a bit. Curbing growth of spending in the public sector could be fine if at the same time the tax, regulatory and banking policies are really going to deliver fast private sector growth. It could all work well, but it will require strong action on banks, regulations, and government approvals for new projects to get things moving.

      The Budget Red Book not only forecasts a rising growth rate in the second half of the present Parliament, but also forecasts rising inflation and rising interest rates.

           The forecasts for the Retail price Index, the older view of inflation, says that this measure of inflation will hit a low of 2.3% in 2013, will rise to 3.6% in 2015 and to 4.0 the following year. Wages will also be rising , reaching a growth rate of 5.6% in cash terms by 2016.

            Against this background the forecast also assumes rising interest rates. Gilt rates are estimated to rise from a low of 2.3% in 2011-12, to 3.5% by 2014-15 and 3.8% the following year. The CPI stays on target despite these changes.

          Many politicians think of taxes as being a way to tax behaviour they do not support, or to tax people they dislike. There is a competition in the Commons to think up more and more groups of people – bankers, fat cats, the rich,polluters, company directors, etc – that ought to be taxed because they are not liked. It’s also popular  to think up conduct MPs dislike in  others.   Drinking, smoking, travelling by car, getting on a plane ,creating carbon dioxide,dumping waste,living in a big house, are also thought by many MPs to be a good case  to justify higher taxes. This does not stop many MPs themselves  liking a drink, driving, getting on planes whenever possible, or even living in a big house.

          So I thought it was time to ask how are the enthusiasts for tax  getting on? Are they now taxing the “bads” enough? What do they think is bad that ought to be taxed?

          On this analysis, which I understand has its limitations, the results are very surprising. The biggest bad according to the tax system is going out to work. If you dare to work hard and be successful you are commiting the biggest crime of all.  Income Tax and National Insurance on employment accounted for 46% of all taxes raised in 2011.

         Next on the hit list is spending. Almost 19% of tax raised comes in the form of VAT on purchases. Do not be a shopper.

         Third on the list is property, accounting for 10.5% of tax raised. The taxes are higher if you dare to buy a bigger home or live in a favoured district.

         Fourth is making a profit by running a company. Corporation tax pulled in 8% of the total.

         Fifth was going to work or the shops by car, or flying to sell goods abroad or take  a  holiday. This accounted for nearly 7% of taxes raised.

         Drink is sixth, at just 1.8% of tax levied in 2011, and tobacco seventh, at 1.7%. Environmental taxes including the climate change levy came well below 1%, though this popular source is destined to go up in the years ahead. There are also plenty of surrogate taxes in the form of higher consumer prices to tackle people’s love of “bads”.

            Some will respond by pointing out that tax has additional aims to stopping bads. Its main aim, in my view, ought just to be to raise necessary revenue to pay for public services. Others will say the central aim of taxation should be to make people more equal. Nonetheless, many who like taxes see them as a way of influencing conduct and admit they do just that. If they think higher taxes on drink deters drinking, higher taxes on tobacco deters smoking, and higher taxes on motoring deters driving, why don’t they see that higher taxes on earning and working hard deters working, and higher taxes on profits and enterprise deters job creating investment ventures?

            Last week there was a break through. I was phoned by a Dail Mail journalist. He had read my website and wanted to write a piece about the overall increases in public spending in 2010, 2011 and 2012.

             He wanted to know where he could verify my statement about the government’s own figures. I told him they were all in Table 1.1 of the OBR 2012 Report, p11. ( as well as elsewhere) He looked it up and expressed surprise that it was so close to the front and so prominent. I suggested it showed that most media commentators and journalists do not  read the original documents. He duly wrote the piece, and the Mail on Saturday included comment on it in their leader, saying spending is too high.

            At 10.35pm  last night (11.35 adjusted) the BBC rang and asked me if I could appear to review the papers on the Marr show. I said I was committed in the  constituency on Sunday morning so that was not possible. They said they wanted me to be able to repeat that spending is going up, in my view. I said the point it is it has been going up according to the government, so all they had to do was read it out and apologise for consistently implying that overall current spending was being cut. They said they were interviewing Danny Alexander in the morning. I bet they did not put to him that spending was going up – they still can bring themselves to admit what is obvious and fully reflected in the official documents.  I would be interested to hear from anyone who saw their show.

             They do not report news. The report spin, or the world as they imagine it to be.

                   Over the last few weeks there has been a new intensity to demand more and higher taxes. There has been a crescendo in the voices of media commentators, various MPs, and  the left of centre political parties. All they want is tax. Tax is all they want.

                    I have got tired of having to answer endless media queries about my views on a Mansion Tax, a Wealth Tax, an expensive houses tax, another bankers’ bonus tax, a land value tax, a pension savings tax and the rest. Let me anwer just one more time.

                   The UK is not undertaxed.  If you could  tax a country to prosperity our prosperity would be soaring after all the extra taxes and tax rate rises of recent years. You cannot tax a country to prosperity.

                   We are not short of new taxes. In recent years we have had the Carbon Tax, the bankers bonus tax, the Bank balance sheet tax, the landfill tax,  higher Capital Gains Tax,  higher Income Tax rates , Congestion charges, additional oil and gas taxes, higher fuel duty, higher VAT, the aviation  levy, higher car park tariffs from public sector car parks, and a host of others.

                      My view is simple. The UK is now overtaxed. Taxation is now above the optimum level that will contribute to faster growth and rising prosperity in the future. We are overtaxing now in ways which will limit tax capacity in the future, because the economy will be smaller as a result of the current tax levels.

                   I suspect we are also at or above the level of sustainable tax. There are limits to how much you can get out in tax in any given democracy. There is a danger now, as some have written on this blog, that current tax rates are seen as too high by those who have to pay the taxes, and some of them will find legitimate and some illegal means of  not paying all these taxes.

                            My remedy is to set tax rates that maximise the revenue from that particular tax, where the tax needs to be levied. I also think we should return to Mr ( as he then was) Lawson’s admirable approach of regularly abolishing smaller taxes that are expensive to collect but irritating to pay. It would help to improve the mood and raise spirits, if people thought there will be an end to this ever increasing demand for our money, instead of every year making it worse. We will need to get more out of people in the future to pay for the state. It will be easier to do that if we set tax rates now, and a smaller range of taxes now, that speed growth and make collection easier.

                           Sometimes less is more. Grow the cake faster, and then the public sector slice can be larger whilst everyone else is still better off.   The government’s own forecast shows total income tax falling in 2011-12 compared to 2010-11, thanks to the large fall in top earnings and the top tax take. It then shows income tax rising to be just 1% higher in cash terms in 2012-13 than in 2010-11. The government needs to ask itself why Income Tax is in such a poor way with these higher rates.

                           The UK is saturated by tax demands. Some are leaving the country altogether, some are moving savings and assets abroad, some are working less, some are deferring income, some are finding ways round the tax system within the UK.

                     The government has decided to suspend the Sunday trading laws over the Olympic period. Should they go the whole hog and repeal the law for good?

                      Limited Sunday trading was introduced to appease two vocal groups who disliked the idea of shops open on Sunday. The Christian Churches said they wanted to keep Sunday special as the Lord’s day. The Retail unions said they wanted staff to all have Sundays off. How valid are these objections today?

                        There is nothing stopping Christians maintaining Sunday as a special day, as the Church going day of the week. Retail staff who are also Christians can ask to work shifts or on days that do not clash with Sundays. No-one has to go shopping on Sunday if they disagree with it. There are now so many shops open on Sundays that it is no longer possible to claim that Sundays are special, or protected from the claims of Mammon

                         The Unions would have a point if staff had to work seven days a week instead of five. The restrictions on Sunday trading apply now to larger shops, not to the many small stores where there may already be limited flexibility over hours of work and days of employment. If the larger shops were allowed to trade for longer on Sundays they would have to come up with sensible packages of hours and shifts to atract a range of potential emplyees. They should not have to force Christians to work Sundays against their will, and would soon get a bad reputation as an employer if they tried to. Some employees might like to work on a Sunday and have a different week-day off instead, as that might work  better with their other commitments.

                          I think the government should change the law not just for a few weeks this summer, but for the longer future. Does it make sense to restrict the hours of the most successful retailers? Does it help the Higgh Street to close parts of it down on Sundays? Can’t we now find an answer to the objections?