The missing tax revenues


           In June 2010 the OBR/government forecast a big rise in tax revenues, based on increases in CGT, top Income Tax and Stamp Duty rates, Fuel duties and much else. The country could afford to increase cash public spending, and cut the deficit, thanks to buoyant tax revenues. (All the figures here come from the official  June 2010 Red Book, and the December 2012 Autumn Statement  Green Book)

          They said self assessment income tax, running at £22.5bn in 2008-9, would rise to £29.2 bn by 2012-13, thanks to the higher rate of tax on top incomes and growth.  This autumn they are forecasting just £22.6bn for this year, almost the same as four years earlier. That is 23% below the 201o forecast.

          They did say  CGT would fall heavily from the £7.8bn recorded in 2008-9, to just £2.7bn this year, a fall of  65%. The December 2012  forecast is for a smaller decline to £3.7bn. This is still a fall of 52%. The higher rates have not raised additional revenue compared to pre crisis.

           They said Stamp Duty Land Tax would double from £4.8bn in 2008-9, to £9.3bn in 2012-13. Instead this December they forecast £6.5bn. That still does represent a useful rise on 2008-9, a year of low transactions in the property market, but a fall of 30% compared to plan.

           They forecast Fuel Duties at £30.3 bn for this year in 2010. The latest estimate is for just £26.2bn, the same as 2009-10. The government has been forced to cancel some of the rises, and the rises have made people economise more on amounts of fuel used.

            Total Income Tax is running £13bn below the 2010 forecast, but VAT is up a little and National Insurance around estimate.

             It looks as if the government has reached tax saturation point with many of these taxes. High Stamp duties impede transactions in the property market, where the number of sales of properties over £1m fell by 11% in the first half of 2012 compared to 2011.  Fuel duties have stopped people using so much fuel, making it difficult to get more money out of fuel buyers. Capital Gain Tax receipts are forecast to fall following the rise in rate. Income Tax receipts have suffered badly from the attack on top incomes, and from the general lack of growth in pay and the economy.

          Governments of all persuasions have previously kept tax below 40% of national Income.  As the government nears this point it encounters substantial resistance from taxpayers to paying more. In some cases it seems the tax rates set reduce the amount of revenue collected.

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  1. lifelogic
    Posted February 21, 2013 at 6:38 am | Permalink

    “In some cases it seems the tax rates set reduce the amount of revenue collected” – well in many cases it very clearly does. Why did no government “experts” or ministers predict this? It was very obvious.

    That also does not even take account of the other taxes lost caused by high tax rates in the initial tax concerned.

    If you increase, say fuel duty, people may choose not to work at all because of the of the high costs of getting to work. If you take £400K in IHT off someone they do not have it to buy a house or to expand their business.

    The problem is spending running at more like 50% and moreover the fact it is so badly spent on pointless or even damaging things. Wind farm and PV subsidies, pointless regulations, the green deal, electric charging points, empty bus lanes, road blocking traffic lights, absurd planning restrictions, spitting fine issuers, the EU, loans to the Pigis (any profits yet Osborne), HS2, 50% more pay/pension for the state sector workers, transfers to augment the feckless, idiotically managed banks, the Olympics, many very poor schools, University courses (like Oxford PPE perhaps) and many other nonsense courses, a dis-functional, hugely over expensive, legal and litigation system the dis-function NHS with its vanity treatments and Homeopathy etc. ………..

    • uanime5
      Posted February 22, 2013 at 4:25 pm | Permalink

      If you take £400K in IHT off someone they do not have it to buy a house or to expand their business.

      If someone is paying £400K in IHT then they’ve obviously inherited a lot more than £400K, which they can use to buy a house or put into a business.

      • Edward
        Posted February 22, 2013 at 5:48 pm | Permalink

        As usual Uni, you show little understanding of estate law,IHT and the process of probate.
        IHT is paid by the deceased estate before distribution in cash.
        This can mean assets of the deceased having to be sold or loans taken out by the beneficiaries before the tax can be paid so probate can be granted and the remaining money paid to those named in the will as beneficiaries.
        Most wills leave their estate to numerous relatives and charitable causes all of whom receive much less after tax at 40% is paid.
        So in your example there is still a good chance that after tax the recipients would not have enough to buy a home.

  2. Nina Andreeva
    Posted February 21, 2013 at 6:53 am | Permalink

    Well you would not need so much revenue if you did not deficit spend to provide welfare recipients with the wherewithal to buy a horse or entice the population of SE Europe with free money. Instead of trying to put them off with claims about the British weather (which should not worry them if you have a nice warm comfy flat), you simply tell them that there is nothing here for them, just as the Germans do as per the Der Spiegel article I posted here the other day.

    You could also stop the QE and allow those with the building society mentality to get a decent return on their savings. No more QE will also enable people to spend more (and increase the tax take) because the price of commods will drop and will reflect eventually in cheaper prices at the shops and the petrol pumps.

    For those of us in the capital markets, QE provides us with no real wealth. As Kyle Bass has pointed out Zimbabwe, through its money printing, has one of the worlds best performing stock markets, though if you held XZIM your wealth would stretch to have the ability of buying three eggs.

  3. lifelogic
    Posted February 21, 2013 at 7:00 am | Permalink

    So first they need to get spending (usually wasting) down to the 40% of GDP about the maximum they can ever raise. Then perhaps they could act in the interests of the electorate for once, by getting it down to somewhere between 20-30% which is the level that in general produces the best outcomes on balance for the electorate.

    But of course we have Cameron and Osborne – government by the state sector, for the interest of the state sector – the other 80% are just cash cows to be lied to at elections and milked the rest of the time.

  4. Steve Cox
    Posted February 21, 2013 at 7:09 am | Permalink

    The government has frittered away and wasted its only opportunity to get the public finances under control, and now it’s too late to do anything substantive. In 2010 every sane person, whatever they party they had voted for, knew that public spending had to be cut and the deficit reduced. The Coalition had a clean slate to be as draconian as it wanted at that stage. People would have moaned more, but the BBC and the Guardian would have produced much the same headlines as they did anyway. Instead they threw this opportunity away by sharply raising taxes, especially VAT, which has depressed spending. Together with persistently high inflation, itself a by-product of deliberate government policy, it’s no wonder that the economy has been going sideways for the last few years. To add insult to injury, we were treated to the nauseating spectacle of Mr Cameron announcing huge increases in overseas aid, as if money was of no concern whatsoever. This government, and the people it so poorly represents unfortunately, are heading for a nasty fall this year.

    • livelogic
      Posted February 22, 2013 at 6:57 am | Permalink

      Indeed a huge wasted opportunity firstly he would have won outright had he not broken his cast iron promise, not give Clegg equal billing and not push quack green soft socialism.

      Secondly had they cut hard the government spending/waste and released the private sector we would now have some growth and some tax revenues.

      In fact RBS/Natwest, a bank the government own, has be causing much of the recession like a leach sucking blood back from businesses.

      Pathetic and now too late to do much. Particularly as both Osborne and Cameron have ratted on promises and can never be trusted again.

      • Bazman
        Posted February 23, 2013 at 2:50 pm | Permalink

        Are you livelogic or lifelogic? Even that is getting silly.

    • paul
      Posted February 22, 2013 at 11:28 am | Permalink

      exactly correct -he should have taken a machette to public spending in 2010,I was saying the same at that time ,too lilly livered .However t he wavered ,and failed, the country at large and certainly all tax payers have missed a golden opportunity

  5. Boudicca
    Posted February 21, 2013 at 7:21 am | Permalink

    I am a taxpayer who is resisting paying more. Not because I can’t – I am employed, I have savings, I am reasonably well off – but because I won’t.

    I will not see my savings eroded by this Government’s policies; be overtaxed by a greedy Government machine and just carry on regardless. Deprive the Beast and it will wither. If we all did it, the Government would HAVE to spend less.

    All the time the CONservatives prefer to overtax the working classes in order to shower money at the EU, the IMF, in International Welfare, on foreign wars, on welfare-claiming immigrants – and all the time they refuse to seriously cut the Quangos and the size of Government – I will limit my expenditure, and therefore the amount of discretionary tax I pay, as much as possible.

    Cameron is running a Continuity Blair Government and Osborne is running a Continuity Brown Treasury. We might just a well have a Labour Government. At least we didn’t expect anything different from them.

    • lifelogic
      Posted February 21, 2013 at 9:11 pm | Permalink

      “We might just a well have a Labour Government. At least we didn’t expect anything different from them.”

      Indeed, and if we had Labour now instead of Labour light, then we might have had the prospect of a real conservative party in 2015 – instead of the virtual certainty of Miliband and the politics of envy and theft.

      • Disaffected
        Posted February 22, 2013 at 8:02 am | Permalink

        As it has been demonstrated, the Tories have increased taxes more than Labour did. 299 tax rises, and as JR regularly points out, no substantive cuts. Alexander, says there is no more need to cut welfare!!

        Also disgracefully HMRC now naming and shaming, I cannot see the MPs who swapped their homes to avoid tax or the 302 who fiddled their expenses. Alexander ought to lead by example.

        Reply It was far fewer than 302 who “fiddled” their expenses. Many of the repayments were a retrospective changing of the eligibility rules for expenses honestly incurred.

    • uanime5
      Posted February 22, 2013 at 4:28 pm | Permalink

      If the Government has less to spend they will either borrow more or print more. It seems you’re cutting off your nose to spite your face.

      • Edward
        Posted February 22, 2013 at 5:52 pm | Permalink

        I know this may come as a shock to you Uni, but the other option for Government is to reduce their spending to match the revenues they receive, rather than printing funny money, increasing taxes and borrowing.

      • Leslie Singleton
        Posted February 23, 2013 at 4:24 am | Permalink

        unanime–So according to you, if the Government has less to spend it is not even one of the possibilities that it should spend less. Do I have that right? This is the mentality that has caused the problem.

        • Bazman
          Posted February 23, 2013 at 2:51 pm | Permalink

          The problem being Leslie. Austerity for who? Not you that’s for sure.

          • Edward
            Posted February 24, 2013 at 4:41 pm | Permalink

            Who mentioned austerity Baz?
            The problem for you is that your solutions to todays problems is more of the things which have got us into trouble.
            More taxes, more State spending and more borrowing.
            Ever considered that less tax, leaving people with a little more money to spend and a reduced State size might be Plan B?
            And dont just come back with stories of no nurses and teachers because we had loads in the sixties and seventies when the Stae was half its current size.

          • Leslie Singleton
            Posted February 24, 2013 at 5:40 pm | Permalink

            Bazman–You know nothing about me or about much else, best I can tell, and you might be surprised. In any event, spending more than we earn year after year after year and the sheer degree to which this has occurred and unfortunately is occurring, can never be a solution.

          • Bazman
            Posted February 25, 2013 at 8:41 pm | Permalink

            I know something about you from the way you write and what you write Leslie can’t hide that. Frugal are we? So are many of the poor as they have to be. Where will the Austerity lie as there must be some for somebody. The market will not magically fill the gaps for the woman with 11 kids I suspect, but not one of you right wing fantasists can come out with what you believe can you? Whats up? Ashamed? You should be and in reality know your arguments based on mean minded middle class ideals will be crushed if flouted openly. This is even more shaming and embarrassing. Not being able to stand up for what you believe as you know its wrong.

  6. davidb
    Posted February 21, 2013 at 7:45 am | Permalink

    Why exactly is expenditure still rising? There is falling unemployment – apparently. Defence spending is being pared back still – apparently. Controversial limits are beimng set on Housing Benefit/ landlord subsidy – apparently. The interest rates are being artificially kept down, so it cannot just be interest payments. Wages are apparently being squeezed in the public sector.

    So why are we still managing to raise expenditure? I cannot believe it is solely Education and the NHS which are responsible.

    Would it not be an idea to just freeze spending? Everyone knows we are in a hole. Stop digging.

  7. Mike Stallard
    Posted February 21, 2013 at 7:50 am | Permalink

    ” As the government nears this point it encounters substantial resistance from taxpayers to paying more. ”
    The tipping point comes suddenly.

    Allow me to ask two questions:
    1. Why should I pay for a woman who has had 11 children on the dole to have a larger house than my very rich friends who have earned their mansion? Why should I pay for my relatives to be on the dole when they have every single opportunity to earn their own way? She is not a one off. We all know of similar cases.

    2. When did you, personally, exchange even a greeting with anyone in the Quad?

    • Bazman
      Posted February 23, 2013 at 2:59 pm | Permalink

      Not a one off, but there is not many and who would choose such a life? Money is still very tight for her. No rent or council tax, but the food clothing and utility bills for 11 children on 1400pm? Her bragging of wealth and your belief of her wealth are both not real. It’s like the Daily Mail story of the woman who saved 2000k from her benefits. When examined financially, she was rather frugal. Not what Daily Mail readers want to hear unless it involves the middle classes. How would the daily mail write this story if she was a middle class accountants daughter? Bravo! Good work! Etc and you know it.

  8. Andy Baxter
    Posted February 21, 2013 at 7:58 am | Permalink

    It’s called The Laffer Curve and its not rocket science. However Governments of all hues are addicted to OUR money…..

    until WE the people can have control over such largesse and the ability to control how much is raised and what it is spent on it will never change

    • Bazman
      Posted February 23, 2013 at 2:59 pm | Permalink

      Another one Laffing without cause.

  9. Ben Kelly
    Posted February 21, 2013 at 8:06 am | Permalink

    Despite other tax revenue’s not hitting forecast and including additional increase in the threshold before which tax becomes payable, I see that the take from the easily targettable 40% tax band payers is up and many of them have lost the previously universal child benefit.

    If the recovery is to be privately led this sector needs to have the taxman’s boot removed from its throat.

    • Ben Kelly
      Posted February 21, 2013 at 8:10 am | Permalink

      Of course as per your previous post in order for the tax take to be intentionally reduced first spending needs to be put under control.

  10. Nick
    Posted February 21, 2013 at 8:31 am | Permalink

    There’s no missing tax revenues. There are just fiscally incontinent MPs pissing money away.

  11. Andyvan
    Posted February 21, 2013 at 8:55 am | Permalink

    Tax is just theft by another name and people can only be mugged by the tax man so much before they change their behavior. If working hard, building a business or just doing a couple of hours overtime merely means you pay more to the thief why do it?
    In a previous business I had 15 people working for me and I ended up earning no more than they did. With current regulations I would be working 75 hour weeks and getting less than my lowest paid employee. I have deliberately kept my current business small to avoid becoming an unpaid VAT collector and having to employ people. I’ve talked to two other business owners that are thinking of getting rid of their business and downsizing. What is the point when all you do is work to pay bills? The only people making money easily these days are the parasites that benefit from the tax robbery.

    • Bazman
      Posted February 23, 2013 at 3:00 pm | Permalink

      Get a job andy and stop (mess-ed)ing about.

      • Edward
        Posted February 24, 2013 at 4:47 pm | Permalink

        Typical comment from someone who has never ever employed anyone nor ever run a business.
        Try it Baz, put your house on the line borrow up to the max, risk everything you own, to start a business employing people and see how you get on.
        You would be just the kind of person who would make an ideal boss.
        How much would you consider you would be worth versus your best paid employee for the risk you would be taking?
        Same, double, treble or even more?

        • Leslie Singleton
          Posted February 24, 2013 at 5:49 pm | Permalink

          Edward–Spot on but also don’t forget the work Bazman would have to do for the Government for his employees. Hardly believable, but for this major work (Pensions, including now a compulsory boss’s contribution best I understand, Maternity Leave, Tax Collection etc etc), instead of being paid as he obviously should be, he has to pay the pernicious Jobs Tax of Employers’ NI. I write not from a bleeding heart on behalf of the Employer but because it is bleeding obvious that this is a huge brake on employment, investment and much else, to the enormous detriment of the country.

          • Edward
            Posted February 24, 2013 at 6:16 pm | Permalink

            Indeed Leslie,
            I used to employ 2 people out of 50. one did nothing else other than deal with compliance requirements and the other full time on tax administration and collection duties for the Government.
            People who are employed do not know what goes on in businesses behind the scenes.

        • Bazman
          Posted February 25, 2013 at 8:54 pm | Permalink

          Again you are confused with the over class claiming to be middle class. Big business masquerading as the struggling small business and the self employed person struggling with taking on a few extra people to fulfill a contract they have secured often to have it removed by the larger supplier at a whim costing them a fortune You are a gift. Apparatchiks no less. Ram it.

  12. Richard1
    Posted February 21, 2013 at 9:04 am | Permalink

    Can there really still be any leftists who, reading this overwhelming evidence, still deny the truth of the Laffer curve? Our experience in the UK in recent years as set out above provides yet another piece of evidence – if one were needed – that only by setting low, competitive tax rates which incentivise economic activity, can revenue be maximised. Politicians need to stop using tax policy for political posturing and social engineering and start thinking about economic impact and maximising revenue.

    • Bazman
      Posted February 21, 2013 at 9:09 pm | Permalink

      As pointed out to you the Laffer curve does not say low taxes produces more revenue. It says there is an optimum point with a number of factors relating to this point. Stop fantasising theory to fit you own views. If there was little infrastructure due to low taxes how would you Laffer curve fantasy work then?

      • Leslie Singleton
        Posted February 23, 2013 at 4:27 am | Permalink

        Bazman–That’s a big if: we are light decades away from low taxes

        • Bazman
          Posted February 24, 2013 at 11:01 am | Permalink

          Some jobs that pay real wages for everyone would have to happen first.

          • Edward
            Posted February 24, 2013 at 4:51 pm | Permalink

            Start your own company Baz, or become self employed like me, and you could pay these real wages to you and your staff
            Be interested to see how you got on.

          • Bazman
            Posted February 25, 2013 at 9:04 pm | Permalink

            Self employed working for a larger business or through an Umbrella company as I am now doing? I am certainly not self employed in any way despite the legalities. Fortunately the company owner is OK and equipment, especially safety is freely and gladly given out. From my experience many are not and you have to put up with their weird ways often revolving around petty costs. Milk for the tea petty enough for you? Biscuit? Out of date ones. Taking the biscuit. I would just tell then to ram their milk and bring a flask, but the milk is clearly something else. With the employes magnifying the weirdness and the issues. Thank you Labour for allowing me to have no debts..

      • Richard1
        Posted February 24, 2013 at 12:42 pm | Permalink

        I am aware what the Laffer curve is. what the data above show is we have rates above the optimum level, and rates need to be cut. The best way to finance infrastructure is privately, let the private sector then run it. Government funded infrastructure is normally a waste.

    • livelogic
      Posted February 22, 2013 at 7:04 am | Permalink

      We need taxes well below peak tax collection rates on the Laffer curve. We do not want to maximise tax revenues we want to maximise the general benefit for the population and growth.

      The first is perhaps about 38% of GDP the second perhaps just 20-25% of GDP.

      Borrowing/Spending then wasting circa 50% of GDP, as Osborne does, is just completely mad and immoral.

  13. Brian Tomkinson
    Posted February 21, 2013 at 9:45 am | Permalink

    A sensible government would note your comments – particularly the final paragraph. However, we don’t have sensible government, we have three party leaders wedded to tax, spend and waste. Will they realise that they are taxing too much? Of course not, they do nothing but look for other areas to tax on top of the 254 tax rises already brought in by the coalition, with a further 45 planned before the next election. They won’t be happy until they have confiscated all our money. They are not the servants of the people, their liberty and freedom, but servants of an overbearing state machine.

    • lifelogic
      Posted February 21, 2013 at 9:16 pm | Permalink

      “They are not the servants of the people, their liberty and freedom, but servants of an overbearing state machine.”

      Exactly. They are totally contemptuous of voters – as Cast Iron and Osborne, with his IHT threshold (ratting on) have shown to the full.

  14. oldtimer
    Posted February 21, 2013 at 10:11 am | Permalink

    This outcome was predictable and predicted by you and others. Historically the state has not succeeded in raising taxes more than about 38% of GDP. People switch off at that point. It can be observed in those on benefits who face high marginal tax rates when they start to work again. It can be observed in the wealthy able to vote with their feet and wallets to exit these shores for more tax friendly regimes. It can be observed in those in between who choose to stay, or who are unable to leave, who decide to sit on their hands if the alternative means the imposition of some swingeing tax on either their earnings or on their spending. On present tax policies the UK is not even playing a zero sum game; it is a negative sum game after devaluation and inflation. The bankrupty of the state is matched by the bankruptcy of the thinking of those supposed to be in charge of it as well as of those who want to be in charge.

  15. Timaction
    Posted February 21, 2013 at 10:19 am | Permalink

    Your comments are right on the money. Most people have had flat incomes for 5 years whilst taxes have been rising. Something has to give and its the list you mentioned. Perhaps the Government should look at its spending and revise that down instead of relying on tax rises. Three big savers would be as always, EU and foreign aid (£22 billions). Similar to ALL revenue raised by self assessment income tax. So we’re taxed for foreign causes. Billions in costs of mass immigration and its public services, particularly health, housing, education and tax credits for the low paid and well as sending family allowances back to Eastern Europe. All subsidised by native Britains. The politics of madness will come to an end through straight affordability and we have reached that point. If I don’t have it, I don’t spend it. The Governement should do likewise!

  16. MajorFrustration
    Posted February 21, 2013 at 10:39 am | Permalink

    Why do we always learn the bad news at the end of the period – surely these shortfalls should be managed ongoing. The old maxim – Creditors 100% debtors 70%

  17. ian wragg
    Posted February 21, 2013 at 10:40 am | Permalink

    I think I must be much like the average Brit taxpayer. Fed up with the sheer waste and incompetence of this and the last government. I will do all I can to minimise my taxes. Having just had extensive work done at home all paid for in cash as I do not see what business it is of the state if I decide to paint my house or fit a new boiler.
    I have useful skills and will use them in exchange for goods and services etc etc.
    Please don’t roll out the money is required for skoolsnospitals lineas there is enough money going to the state but it is badly spent.
    Tax avoidance is a right as it is MY MONEY.

    • uanime5
      Posted February 22, 2013 at 4:39 pm | Permalink

      If the builder you hired doesn’t declare the full amount you paid them that’s tax evasion, not avoidance. Also doing your own DIY isn’t tax avoidance, especially if you pay tax on any of the materials you use.

      • ian wragg
        Posted February 22, 2013 at 5:09 pm | Permalink

        Your obviously mot familiar with the barter economy.
        Probably not familiar with any economy. Do you have any skills???

        • Bazman
          Posted February 23, 2013 at 3:03 pm | Permalink

          You are obviously not familiar with the laws on shoddy workmanship and the costs being in writing. Good luck with you ‘bartering’ you might need it. I’ll barter he won’t be around if it goes wrong.

    • Jerry
      Posted February 22, 2013 at 7:26 pm | Permalink

      @ian wragg: “it is MY MONEY

      It isn’t your money if the law says it is owed as tax, so just be dammed sure that what you are doing is tax avoidance and not tax evasion…

  18. Jerry
    Posted February 21, 2013 at 10:41 am | Permalink

    It looks as if the government has reached tax saturation point with many of these taxes.

    Or, more likely, the economy is just stagnant, thus people are just not spending (other than on essentials and even that hasn’t been helped by the 20% VAT rate), preferring to save any spare income in case the economic stagnation becomes even worse…

    Osborne et al are certainly looking after those who have already reached the dizzy heights when people start calling them “Millionaires” OK, but for the rest he and the rest of the government are doing nothing but killing such aspiration – the government talk about the lifelong learning of new skills (Mr Willetts only yesterday), working for ones self, starting a company etc. but it is only talk because the rules and regulations so often stay the same and thus say otherwise.

  19. Peter Davies
    Posted February 21, 2013 at 11:28 am | Permalink

    Its a stalemate which is not helped by the rhetoric that comes out many politicians mouths – they really need to drill into figures before they open their mouths and try to mobilize one set of the public against the other.

    • Jerry
      Posted February 22, 2013 at 7:30 pm | Permalink

      @Peter Davies: Indeed, they [politicians] and the press also need to start telling the full story, selective quoting of figures just won’t wash any more as much the same raw data is available to any who are so inclined, with just a few mouse clicks.

      • Bazman
        Posted February 23, 2013 at 3:09 pm | Permalink

        The internet is the devils work giving access to the population on how much of what is wrote or said is lies and fantasy. There is now an app that checks the facts in real time called Truth Teller. Interesting idea.

        • Jerry
          Posted February 23, 2013 at 6:08 pm | Permalink

          @Bazman: All very true but only your own hard research will ever tell you if it’s lies or not, how do we know that “Truth Teller” is telling the truth its self – think about it!…

  20. acorn
    Posted February 21, 2013 at 11:33 am | Permalink

    This is a good trick the EU Quants have come up with in Ireland. Do you think our new BoE governor would go with it? It’s a bit complicated for the present Treasury plus Monetary Policy Committee; and it does hit the profits of the Banksters.

    “The Irish state has issued very long-term bonds, at very low interest rates, directly into the capital of the restructured bank, which then refinances it with the Irish central bank. The state thus skirts appealing to markets; this is monetary financing, albeit indirectly so. In any case, it would have had a hard time raising capital on such good terms with the public. And Mario Draghi’s apparent nod to this operation, limiting himself to stating the ECB board had unanimous taken note of the deal, augurs well!” (HT: Mosler)

    A sovereign currency state like the UK, does not have to issue debt to the private sector matching its deficit pound for pound; it chooses to do so, making itself look like a currency user, such as a household. This allows politicians to use phrases like “wasting taxpayers money”, a process that does not actually occur in a fiat money system. Tax payments disappear back into the ether from whence they came. The government always spends brand new money, created out of thin air instantaneously.

    BTW. The great UK labour productivity conundrum gets two good explanations at “thecurrentmoment” (Google it). 1 Europe’s internal adjustment. 2 BRITAIN’S DRUDGERY ECONOMY: Economists Puzzled by Falling Productivity. “With all the talk of competitive currency devaluations and international currency wars, less attention is being paid on the arresting fact that some countries within the Eurozone are achieving what many thought they could not: an internal devaluation via wages and other production costs” In the UK it looks like we will just use inflation to relatively reduce cost per unit of labour against the cost per unit of capital investment. More jobs with lower wages; just like the old days.

  21. John Maynard
    Posted February 21, 2013 at 12:04 pm | Permalink

    No/low growth, partly due to Euroland recession, (against the forecast of a slow recovery).
    Not only lower fuel duty than anticipated, but raising income tax thresholds, lowering corporate income tax rates, declining real purchasing power, massive hit to pensioners and savers income from paltry returns, thanks to negative real interest rates, “funding for lending” etc. (Contrary to what most of the younger generation seem to believe, pensioners, of course, also pay income tax).

    Shouldn’t be a surprise really.
    We are undergoing our own “internal devaluation’ to accompany the external one !
    Ironic, that in almost any year since the war (until 2009), wage inflation of less than 2% and a steady increase in employment, would have been hailed as an economic ‘miracle’

  22. frank salmon
    Posted February 21, 2013 at 12:18 pm | Permalink

    So the increases in car fuel tax are bringing £4 billion less in revenue. Surprise surprise. By the way – the majority of the the increased price of car fuel is tax – not the cost of the fuel. Untaxed, fuel would be dirt cheap and we would see it for what it is – vastly cheaper and more economic than public sector provision through trains, tube and bus!

  23. Max dunbar
    Posted February 21, 2013 at 12:58 pm | Permalink

    Perhaps if the Conservative Party had been true to it’s principles then the tax take would have been higher than it is currently.
    After the 2010 election there was relief and optimism. From one aspect this was reflected in the strength of Sterling. It strengthened quickly. Unfortunately, that optimism was short -lived and we soon realised that Cameron was just another “managed decline” Tory leader. He and his cabinet have not been prepared to tough it out as Thatcher did. They are not interested in toughing it out because they have no strong political convictions. We know that if the right decisions are made then things may get worse before improvements become apparent. That thought gives us hope.Presently, there seems to be no prospect of light at the end of the tunnel. Also, the LibDems have effectively been treated as equals rather than as subordinates. With the LibDems holding the whip-hand Britain is not open for business. This has proved most damaging to the credibility of the administration and specifically to the Tory Party. The Party is perceived as being weak, clueless and indecisive with no clear doctrine or direction, except ever leftward – and that path leads to extinction.

  24. Pleb
    Posted February 21, 2013 at 1:41 pm | Permalink

    Cap public and council pay to a max of £100k
    Cap public and council pensions to a max of £80k per annum. Excess is taxed at 100%
    Scrap HS2
    Scrap Trident
    Privatise the BBC.
    Cut quangos, as many as possible.

    • lifelogic
      Posted February 21, 2013 at 9:19 pm | Permalink

      Private sector pensions are capped at about £65K by the new £1.25M pension cap. Special rules for the, mainly state sector, ones though.

    • Jerry
      Posted February 22, 2013 at 8:01 am | Permalink

      @Pleb: No one is forcing you to watch TV so privatising the BBC will not actually save any money because it will cost most people twice as much to subscribe to a television service. More idealogical nonsense born out of a hatred rather than any logical argument, and by such pettiness you actually make the case for the BBC stronger!

      Also, you missed two important areas were taxes can be saved, cut all “Green” taxes and cut 75% of international aid, and then only spend the 25% on ‘security’ (as suggested by Mr Cameron) and educating the nationals as to how they can help themselves – as the saying goes; Give a man a fish and you feed him for the day, teach him how to fish and you feed him for a lifetime.

      • Max Dunbar
        Posted February 22, 2013 at 6:16 pm | Permalink

        Most people would probably agree that the BBC needs to be overhauled. It has become vast and unmanageable and it has been argued by some that it is a state within a state.
        A much reduced BBC that concentrates on non-commercial programmes such as the arts and wildlife documentaries would be an acceptable compromise. Take away the news and current affairs element which is it’s core activity. Leave that to the commercial stations where political bias is at the discretion of shareholders and subscribers who have choice.
        The BBC needs to be apart from politics. It is funded by the taxpayer and must be seen to be apolitical and it must provide value for money.

        • Jerry
          Posted February 23, 2013 at 10:01 am | Permalink

          @Max Dunbar: Two of the most difficult types of programming both commercial and subscription broadcasters (both here and in the USA) have justifying and funding is news and current affairs [1], also like it or not, the BBC WS is a respected service. This is a problem of regulation and what the BBC is expected to do, not one of genre, many of the problems are being caused by the regulation that expects the BBC to be popular and compete for ratings and is why I keep calling for a more pure PSB service and less of the “Strictly” style of ratings populist programming – saying that if the BBC wish to make a series on (proper) Ball Room Dancing or a proper competition like the old ‘Come Dancing’ then both would fit such a PSB charter.

          [1] another, in the UK, is local news as we do not have proper Local TV, just very large regional broadcast areas. ITV/ITN would love to forget about regional news & magazine programming but are forced to provide it as part of their ITV1 broadcasting licence, at one time if I remember the ‘gossip’ correctly ITV once seriously mulling the possibilities of handing back their ITV1 licence!

    • David Price
      Posted February 22, 2013 at 9:08 am | Permalink

      The defined benefit component of public sector pensions should be capped at the PPF limits of around £30K. These apply in the private sector when a company is bankrupt and has a hole in it’s pension fund. If they want a bigger pension then employees should contribute to a defined contribution scheme.

    • Jerry
      Posted February 22, 2013 at 11:29 am | Permalink

      @Pleb: “Privatise the BBC.

      I must say, judging from first reports regarding the evidence released from the “Pollard Review” and the amount of redacted content [1] doesn’t bode well for the BBC at all, so perhaps not a privatised BBC but I see a need for a much slimmer BBC (thus lower TVL fee) in both what they do -a more pure PSB commitment, less orientation towards winning ratings battles – and overall management structure.

      [1] and this criticism was from within the BBC’s own, not some competing channel or news-wire!

  25. Winston Smith
    Posted February 21, 2013 at 2:24 pm | Permalink

    Another consequence of high taxes is the drift away from PAYE to self-assessment. The latest figures show another increase in the self-employed, who can manipulate their earnings to reduce their tax bill, gain State benefits and gain advantages for their children, where they are deemed ‘low income’ families. I know someone who has done this to gain a public school place for their son. They actually own 3 properties, expensive cars and a lucrative business. This is the way forward. When the system is corrupt and corrosive, opt out.

    • Bazman
      Posted February 23, 2013 at 3:13 pm | Permalink

      Or bogus self employment to deprive the working poor of their rights and pay.

      • Edward
        Posted February 24, 2013 at 6:20 pm | Permalink

        Its plain you have no idea just how closely HRMC investigate if your claim to be self employed is genuine or not.

        • Bazman
          Posted February 25, 2013 at 7:24 pm | Permalink

          Pity they do not investigate employers more closely though.

  26. John Wood
    Posted February 21, 2013 at 3:18 pm | Permalink

    The simple answer is: Buy more British goods to keep the money circulating in the UK, export more goods and services to get more money into the UK economy and thereby import fewer goods and services to stop the money leaving the UK.

    There is only one difficulty with this and it comes in two letters EU.

  27. uanime5
    Posted February 21, 2013 at 4:25 pm | Permalink

    It looks as if the government has reached tax saturation point with many of these taxes.

    It’s only tax saturation when increased taxes don’t result in increased tax revenues, not when taxes don’t raise the level of overly optimistic predicted tax revenues. So just because self assessment income tax didn’t raise the predicted £29.2 billion doesn’t change the fact that these tax revenues are higher than they were in 2008/9.

    It anything the current problems are due to a lack of growth caused by the poor management of the economy by the Government, not because taxes are too high. So even if you cut taxes any improvements will be minor because taxes aren’t the real cause of the UK’s problems.

    In other news one of Gove’s aids is being investigated for breaching the ministerial code for advisors by launching a personal attack on a journalist.

    • David Price
      Posted February 23, 2013 at 7:30 am | Permalink

      The numbers John gives are for self-assessment only.

      According to the latest (22-Jan-2013) HMRC Tax & NIC receipts analysis the total contribution from Income, CGT and NI was approx £251b in 2011-12 compared to £approx £254b in 2008-9. This is a decrease not an increase.

      During those periods the bulk of the increase came from VAT, approx £79b in 2008-9 rsiing to approx £97b in 2011-12.

      So it looks very much like the saturation point might well have been reached for Income tax, CGT and NI.

      Also, as I know you strive to ensure everyone uses the correct spelling, please note that the word is “aide” not “aid”.

  28. ian wragg
    Posted February 21, 2013 at 4:36 pm | Permalink

    Where have all the comments gone John.

  29. Pleb
    Posted February 21, 2013 at 4:41 pm | Permalink

    Is my comment not to be published?

  30. Leslie Singleton
    Posted February 21, 2013 at 4:55 pm | Permalink

    As Jeremy Warner wrote recently we haven’t a clue what’s going on and I of course was 100% behind what Daniel Hannan had to say yesterday, in particular about Danny Blanchflower and his incorrect predictions and his having been a member of the MPC. I have never had any faith whatsoever in GDP numbers regarding them as seriously flawed, in particular because they include all Government expenditure even when said expenditure is totally and unarguably unproductive (the classic example being the government building a pyramid). Also of course the underground economy is not and cannot be included nor any activity (larger in hard times like now, I’ll bet) that is not traded in some some of market. GDP may say the experts be the best we have got but if the best we have got is actively misleading then it’s worse than useless, especially when such big decisions hang on such risibly small changes. The chances of economists saying they haven’t got a clue is like asking a climate change wallah to agree there is no such problem. All I can suggest is that we make real and significant changes (shoot a few Government departments, negative Employer’s NI on a per caput employed basis, that sort of thing) and pay much less attention to the entrails of modern Economics.

  31. Leslie Singleton
    Posted February 21, 2013 at 4:59 pm | Permalink

    John–I am worried about you–Are you OK?–Normally you warn us when you go AWOL. Where would we be without you??

    Reply I went to Manchester and back today – the travel was very time consuming

    • Jerry
      Posted February 22, 2013 at 8:12 am | Permalink

      @Reply: So rather than HS2, what we actually need is WiFi on all trains! 🙂

      In fact such is the expense of HS2 not only could all trains have WiFi but a rural ‘high speed’ fibre based IP networks could be installed in all such communities – especially as DfEFRA, HMRC and DWP are making it very difficult for anyone without a decent broadband connection now.

      • David Price
        Posted February 22, 2013 at 9:16 am | Permalink

        GSM and it’s descendent mobile services were designed to work on high speed trains. Passengers have always been able to access data services and the internet, they just need to pay for it themselves.

        • Jerry
          Posted February 22, 2013 at 11:32 am | Permalink

          @David Price: I’m I under a misconception then, that such a WiFi/GSM service is going to be provided as part of the ticket price on HS2?

          • David Price
            Posted February 22, 2013 at 4:36 pm | Permalink

            I don’t know what they will actually provide as an inclusive service, just that anyone can access the internet on the train already via their phone at their own expense anyway.

            WiFi is a different technology and needs base stations on the trains which I guess would use GSM/UMTS/LTE for the actual network connection.

  32. Edward
    Posted February 21, 2013 at 5:17 pm | Permalink

    This quote below is part of an article in todays Telegraph:-
    “Between 1694 (the date of the foundation of the Bank of England) and 2001, national borrowing grew from zero to £307 billion.
    Over the following 10 years it more than doubled, standing at approximately £750 billion when Gordon Brown left office.
    Between 2010 and 2015 (when the next general election is scheduled) it is due to rise to £1.365 trillion.
    During the five years of Coalition government – a period of cuts, retrenchment and falling living standards – the national debt is expected to grow by £600 billion, twice the amount it stood at in 2001. ”
    This is the result of Government overspending, over borrowing and the powerful effect of compound interest.
    And still some people call for even more Government spending and even higher tax rates to get us out of this position.

  33. Jon
    Posted February 21, 2013 at 8:05 pm | Permalink

    Read something about the government changing the emphasis of the 0.7% aid budget to war torn areas where perhaps we have a commitment. Seems a good idea if we are to have that aid budget. Could work in conjunction with our military humanitarian spend.

  34. NoTrophyWins
    Posted February 21, 2013 at 8:06 pm | Permalink

    John as you must know this is another area where politics fail the electorate. There is a taxation sweet spot – cant remember just where it is – about 19% I think – go above the sweet spot and the revenue from taxes declines. But it is a political hot potato. So no government has had the nerve to act sensibly in the interests of the country as a whole. It is no wonder politicians are held in such low regard.

  35. Bazman
    Posted February 21, 2013 at 8:17 pm | Permalink

    What you are seeing is the neo-liberal free market running into the buffers the last 35 years or so have done so much damage to this country. The manufacturing base has all but gone and whats left is foreign owned including the utilities sold at bargain prices to foreign companies. and the railways getting record massive subsidy, but still paying large returns to managers and shareholders and having sky high fares. The amazing financial sector that successive governments put so much faith in do not look so good in the wake of the 2008 meltdown and as we head for a triple dip recession is not over yet. How much of our money has been given to these unrepentant banks? The same governments that have allowed eye watering tax evasion with their business friendly ‘regulations’ if you could call them that. Add to this, and this can hardly be covered in one post, the massive disaster of mass unemployment and mickey mouse training schemes again run by private companies at our expense, and the waste of youth hanging around on street corners. The consumer boom of the 80′ and 90’s was in essence created by a huge house price bubble and who is going to argue their is now no housing crisis? Are we going to commit the NHS to the same free market fantasy that has pretty much ruined everything else? We are always hearing about private health care provision on this site and the media, but notice how they never mention money? These companies desperately want to get in on the money making healthcare market when everyone else just wants the NHS run by medical professionals. All you fantasist need to have a think about these points and not just believe every writer and editorial in the Mail and the Telegraph and wake up with some other ideas to put the mess right other than your free market fantasies which John Redwood points out are running out of cash and credibility. Ram it.

    • Edward
      Posted February 22, 2013 at 11:14 am | Permalink

      Thorugh your eyes the problems of today are caused by “35 years of neo-liberal free markets”
      I have only seen an enormous growth of the size of UK and EU State with its overpending, overtaxing, overlegislating, over regulating and over borrowing during the last 35 years.
      In my opinion the power of the neo liberal free market has been greatly reduced over the last 35 years in Europe and the UK.
      Its been done by a strange friendly alliance of left wing politicians linked to multi national corporations and financial institiutions who have increased their power over the free market greatly at the expense of smaller businesses and ordinary citizens who have less power and freedom.
      Through my eyes the it is this restriction of private enterprise and the reduced freedom of the individual carried out by the State over the last 35 years which is the real cause of the problems you give as examples of.

      • uanime5
        Posted February 22, 2013 at 4:52 pm | Permalink

        Its been done by a strange friendly alliance of left wing politicians linked to multi national corporations and financial institiutions who have increased their power over the free market greatly at the expense of smaller businesses and ordinary citizens who have less power and freedom.

        Actually it’s been mainly done by right wing politicians with financial interesting in these multi national corporations and financial institutions. Also the increase in power of these large companies, at the expense of small businesses and customers, is part of the neo-liberal free markets. Had this market not been restricted the problem would be much worse.

        reply I do not know of Any Conservative politicians with financial interests in large multinational corporations or the big banks.

        • Edward
          Posted February 22, 2013 at 5:57 pm | Permalink

          You say the market has been restricted…by whom?

          Please let us know the names of these right wing politicians in the EU and the UK because I cannot think of any.

        • APL
          Posted February 23, 2013 at 6:00 pm | Permalink

          JR: “reply I do not know of Any Conservative politicians with financial interests in large multinational corporations or the big banks.”

          The caravan has moved on, they are now all involved with the ‘Green’ movement and ‘renewable’ energy.

          These things, wind power, photovoltaic energy are not viable sources of high quality energy, in the first instance. With the parasitic public-private (fascistic) blood suckers attaching themselves to each and every available subsidy, they are several times less viable than otherwise would be the case.

      • Bazman
        Posted February 22, 2013 at 7:57 pm | Permalink

        Through the eyes of the thirty somethings this holds true. They expanded the market is an undeniable fact, but only for themselves.
        Reply: I do not know of Any Conservative politicians with financial interests in large multinational corporations or the big banks. LOL! That hold true as well. Ram it.

  36. not_that_andy_again
    Posted February 21, 2013 at 9:43 pm | Permalink

    If I thought I received any state cover for the tens of thousands in income tax and NI I pay each year I would not mind so much. But the most anyone with some equity and savings can expect on being made unemployed is 6 Months JSA.

    It is disgraceful that, after being a net contributor for for decades, if I lost my job that is all I would get. I would not mind paying in so much if the state acted as a decent insurance policy for me with say 50% of my salary for a year, but as it is, I will continue to avoid all the tax I can. LPG conversion on a older car saves on fuel tax, not moving house saves on stamp duty, large payments into a pension next year will mean I get to keep my child benefit (And pick up £8000+ in tax relief) . I have shares in a private company that might be bought in the next few years, I will be looking into setting up a second company to own those shares so I can then pay myself and my wife the proceeds of a sale over a number of years to minimize tax etc…. etc…

    • Jerry
      Posted February 22, 2013 at 8:32 am | Permalink

      @n_t_a_a: Why is it that so many, on a certain wing of politics, keep telling everyone else that “welfare” is (or should be) nothing but a safety net, that is of course until they think that they should receive it, then it becomes their right because “I’ve paid my NI”. I wonder if they also keep crashing their motor cars, after all they have paid in for the cover so by the same logic…

    • David Price
      Posted February 22, 2013 at 9:32 am | Permalink

      If you are foolish enough to make some provision for yourself you won’t even get JSA regardless of how much you have contributed

  37. Jerry
    Posted February 21, 2013 at 9:44 pm | Permalink


  38. Steve
    Posted February 22, 2013 at 10:13 am | Permalink

    “sales of properties over £1m fell by 11% in the first half of 2012 compared to 2011”

    Why not put a “bedroom tax” on properties over £1m.

    That would stimulate the market in the sector, and bring back revenue.

  39. Terry
    Posted February 22, 2013 at 7:23 pm | Permalink

    Time and time again, John Redwood has proposed sound ideas to help solve the dire fiscal and financial problems of the UK. How does he do it? Because he was in the ‘business’. He’s been there, done it and won much more than the customary tee-shirt.

    So, let’s check who else has been as ably qualified in Number 11 Downing Street, over the past 15 years.
    No one. Not one single Chancellor has been up to the job since Europhile Ken Clarke, who left Brown (a career politician with a degree in History) with a vibrant UK economy, only for that wretch to tear it all apart with his dumb, socialist ideals, all compounded by his arrogance and breath taking incompetence. Spending £Billions to make a £million is not good business, Mr Brown, or didn’t you you realise that?

    His successors, Darling (a Lawyer) and Osborne (an ex-Etonian) , although better, were not qualified, either. BTW, any householder would be better than Brown.

    As a matter of principle, an MD of a company,he/she has a duty to the shareholders to appoint the best persons as Directors on the Board. The MD of GB plc has failed in this for his own shareholders (British Tax payers) .
    Instead, he has decided to utilise a selection process called “Nepotism”.

    Our current MD, David Cameron, also of dubious MBA professional background, has appointed old school friends to important positions within Government, regardless of the lack of any proven record, encompassing the respective subject at hand.

    That is why, Mr Osborne (and before him, A.Darling) has been hogwashed by the BoE for the past 2+ years and is the reason why Cameron MUST now select a Chancellor who knows more than the hopeless MPC and the useless BoE . Furthermore, he must select a Chancellor who will put Britain and British citizens above ALL other considerations.
    So, why hasn’t the aptly qualified Mr Redwood been considered? Simply, because the MD of GB plc does not know how to manage. And that is the most serious problem the UK now faces. Cameron wants “Yes” men rather than “Know, more than you” men. More a treacherous, incompetent Blair than a patriotic, turn around the Nation, Mrs T.

    I fear for my country because the PM suffers from the dangerous infection of nepotism which could prove terminal, for Britain. He trusts his friends more than the unbiased experts he can call upon. Ditto Tony B liar and we all know where that story leads.

    Now, if there is doubt in my independent sincerity, I am not JR’s agent neither am I a resident of the Wokingham constituency he represents.
    I live in a currently Liberal Democrat dominated zone but I do recognise a true patriot and significant talent when I see it.

    Pending the outcome of the Eastleigh By-Election, I hope to see those real Conservatives who can do something, will do something, to better the lot of us, the true Brits. If the conservatives, even with a rebellious candidate, do fail in Eastleigh then it is quite clear that the real Conservatives ,under Cameron, cannot win in 2015.
    He will be a loser and Britain cannot accept a Conservative Party with a loser as its Leader, again. The last time this happened, in 1997, saw the beginning of a catastrophic collapse of the living standards of the ordinary British tax payers. The Conservative Party nor the country cannot afford another similar disaster. Mr Cameron, Act, or face up to your single term legacy of being the worst Tory PM since the treacherous and pretentious, Ed Heath. Oh no, not another, Mr Ed, I thought they spoke in stables or when it suited them, ‘neighed’ for the Labour party in Parliament.

    • Jerry
      Posted February 23, 2013 at 1:10 pm | Permalink

      @Terry: So what are you suggesting, that Ken Clarke [1] should be brought back, after all he has all the qualities that our host has but with one important addition, as you said yourself, he has done the job before with excellent results, leaving the economy in fine fettle – indeed it wasn’t so much economic, nor socail issues that dominated the 1997 general general election but ‘manilla envelopes’ and the simple idea among many that 18 years was enough (for now)…

      So when should we launch the “BRING BACK OUR KEN (for Chancellor)” campaign?! In any case I suspect that our host would be wasted as Chancellor, he needs to either be the top man or stay were he is, advising but with the freedom to speak his mind. 🙂

      [1] why the need to spit out the “Europhile” insult, if you were talking about the member for Stone would you preface his name with the word Eurosceptic or Europhobe?

  40. Lindsay McDougall
    Posted February 24, 2013 at 12:39 pm | Permalink

    It is clear from these figures that Income Tax and CGT are the two taxes that we need to modify.

    The CGT issue is simple – just reduce the rate so as to maximise the revenue. There are no difficult political issues.

    Income tax is much more difficult. By having unnecessarily high taxes on those who can leave the country and unnecessarily low taxes on those who won’t leave the country, the Coalition has wilfully reduced its tax revenue. I believe that increasing the 40% tax threshold to £50,000 and reducing the top rate to 40% would yield more revenue. We are now risking not only the departure of high flyers but of some of the striving professionals (a brain drain).

    It’s political dynamite but raising the standard rate of income tax by 2% for FYR 2013/14 only may be the right thing to, particularly as the income tax starting threshold is being raised. The point is that we are losing our credibility with the credit rating agencies and the money markets not at some indefinite time in the future but right now.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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