Author: johnredwood

A wealth tax is usually targeted at people with substantial assets. In the UK there is discussion of charging people with total assets of more than £10 m an annual levy of say 2% of the assets. This is a kind of income tax surcharge. If someone is managing to earn the current 4% return you could get on a bond it is effectively a  50% income tax on top of the 45% tax the rich are already paying. It means lower risk investing ceases to produce any return for a well off saver. How long before that saver goes somewhere else or at least stops  financing the spendthrift UK government.

Wealth taxes elsewhere have led to the exit of rich people, as in France.They can lose the state more total tax revenue from departing  millionaires than they recoup from those who stay to pay.When Labour last squeezed the rich in the 1970 s with a 98% tax on savings income there was a big exit called the brain drain. The state ran out of other peoples money to spend and had to beg a loan from the IMF. They imposed some spending cuts.

Charging on total wealth is complex and expensive to enforce and complex and expensive for the taxpayer. Much wealth owned by the very rich is in the form of property assets which generate no income and impose substantial costs on the owner. Many have a large home which is expensive to maintain, heat and run. Annual revaluation could be expensive and would be a matter of judgement as these properties are usually one offs with no ready market. People who own art or other valuables get no income from them and have maintenance and insurance costs.  Some of the wealth is the consequence of someone now on a modest income or pension living in London house  which they bought years again when they were more affordable. A wealth tax could force them to sell their family home as they may well not have the income to pay the state 2% of the value of their property.  Enforcement will be difficult with smaller items of wealth like stamp and coin collections, gold, furniture  and smaller works of art.These would all become more popular with the rich if more measurable and visible  things were taxed, especially if they are left out of the wealth  tax demands.

Some of you tell me some things like water are too essential to leave to a competitive market. Bread – and food generally – must rank as crucial to life yet I am pleased to say no-one so far has told me food supply needs to be nationalised.

My last two shops for food at two Wokingham national food retailers where I belong to their loyalty schemes tell me just what a good job the competitive markets for food manufacture and retail do. There was great quality and range of choice, and plenty of attention to keeping prices down. They both  offered discounts and provided cheaper variants to the great brands for those who want them. The first store gave me a total discount of 30.6% on my bill from a combination of a voucher to get me to shop more and from  in  store promotions on products. The second store gave me a 20.3% reduction in my bill from similar sources. I was delighted with the choice and quality and thought both shops had worked hard on pricing. Food manufacturers have to battle to keep their places on the shelves, aware that they are being price compared the whole time in  the stores. The helpful shelf edge labels often show you the price per unit of liquid or solid to make comparison of value easy when comparing different sized packs and bottle. Customers can keep the food manufacturers honest through the retailer who is on their side when it comes to getting a good deal from the producer.

Compare that with our experiences of government and nationalised industries.  I get no discount on my tax bill for honest and timely reporting and paying. There is no choice over which nationalised industries I want to support or over which government follies I have to help pay for. Most of the government bodies you deal with threaten you with penalties and legal action  if you do not behave exactly as they demand. They often conspire to make life as complex and uncomfortable as possible as you strive to comply. There is no loyalty scheme, only the threat of prosecution.

It was a pleasure to be interviewed by Peter who was interested in my views and past actions and was willing to let me explain my thinking without wishing to debate trivia and caricature points.

I was able to set out why I have been a long standing critic of Treasury/Bank/OBR policies. I criticised Heath’s Competition and Credit Control boom/bust, Labour’s over spend and over borrow in  the mid 1970s, the Conservatives adoption of the official European Exchange Rate Mechanism boom/bust of the late 1980s, Labour’s banking excesses and then great recession policy of 2005-10, and the Bank’s excessive Quantitative easing then Quantitative tightening of 2020-25. It was easy to see each of these policies would generate a nasty boom/bust cycle that was both foreseeable and avoidable at the time.

You Tube Peter McCormack

The nationalised portfolio’s financial impact is dominated by the excessive losses of the Bank of England, which I have long commented on. All the time the Bank sticks with its OBR costed plan  to lose £257 bn running off its bonds  since 2022  the nationalised portfolio will be heavily loss making.The Bank split three ways over what to do with the stagflation it has helped the government create. It couldn’t even be bothered to comment on why it is selling all those bonds at a loss.

Labour is adding Scunthorpe Steel, Great British Rail, Great British Energy and British Nuclear to the lists.

HS 2 has always been nationalised. It will be a  big spender and borrower for the next few years. It is likely to be a loss maker when it does open for business, unless all  its capital is written off.

The Post Office has been making large trading losses in recent years. It is now sending a further large bill to taxpayers to compensate   all the staff it so badly mistreated. Where is the business plan to get into profit?

Great British Rail takes over the subsidies needed by currently nationalised Network Rail and will probably want additional subsidy for operating the trains from the old franchise companies.

Great British Energy will be a spender and borrower in its early years, backing higher risk higher cost projects

British Nuclear will spend a decade working up plans and pilots for smaller nuclear and building out Sizewell. It will be all cash out and more borrowing.

Scunthorpe Steel will present big bills for losses to keep open uneconomic furnaces, and then to sack people and out in new steel recycling facilities

With all these big spenders and heavy loss makers it is no wonder public spending and borrowing is running far too high.

Queen Mary College London conducted a large sample neutrally worded poll to find out if people want international lawyers, Agreements and institutions to play a bigger role or if they want a UK government  to be in charge. Asking about 20 big areas of decision the average score  was 60% wanting the UK to control things and just 7% wanting a UK government to  be bound by international rules and institutions. People could  also vote for a UK government deciding after seeking international agreement voluntarily, or for Don’t  Know.

In every area the most votes were cast for UK independent decision. In 17 out of 20 that commanded more than 50% with 83% thinking we should set our own VAT. AI Regulation was at 47% for independence but only saw 10% want it settled internationally. Trade  rules decided by the UK stood   at 44% compared  to 7% wanting it imposed, with some wanting it negotiated by agreement. Data Protection saw 46% want it set by UK with 16% favouring international.

All this goes to show people do not think Brexit was wrong. They are angry because Brexit has not been used by the UK government to control our borders or promote growth. The government is now  busy trying to lock us back into the EU.They are misreading the mood. The public wants UK government to be in charge of all 20 of these areas where the EU used to have important powers.

We want this because we want a better policy with better outcomes. EU trade policy gave us a huge  trade deficit with the EU and big barriers against rest of the world imports. It charged us a lot, insisted on VAT and Customs duties, allowed many migrants to enter the UK and stopped us doing trade deals with friendly  countries . The present government who wish to recreate much of this through an EU re set misunderstand the public’s wishes.

I am not letting you off the arguments about nationalisation, as they are central to getting out of the financial mess the government is in. Most of you agree government is spending and borrowing too much.  Many commentators openly worry about how the government goes  on borrowing so much, and official sources talk of more tax rises to come. I have talked before about migration control and benefit changes to  help curb spending.

Your wish to reduce spending and borrowing makes it odd  that many of you want more nationalisation. Nationalisation means more public spending and borrowing . Heavy loss makers like the Bank of England and the railways  send huge bills to government who have to borrow more  to pay  these bills. Profitable  nationalised industries usually need access to state borrowing to pay for their large investment programmes.

Privatisation cuts public spending and borrowing in two main ways. There is a capital receipt, accounted as negative public spending. There is the removal of all the costs of capital investment and any losses from public accounts.

I agreed with the current government selling the remaining Nat West shares. It was an obvious way to cut spending and borrowing I had long recommended. If there is no follow on asset or share sale this year the spend and borrowing level goes up to adjust for this on top of all the planned spending increases. Tomorrow I will look at the high costs and financial risks of the growing nationalised portfolio.

Border Force has a large day to day budget with more than 10,000 staff and capital investment this year of £154 m. It has a fleet of 11 vessels, 5 cutters and 6 coastal protection vessels.  Its prime tasks are to prevent illegal smuggling of people and goods across our borders.

At least 1 cutter and 2 coastal protection vessels are in continuous use to pick up people on overcrowded illegal small boats in the Channel, and 1 cutter is provided for the EU’s search and rescue missions in the  Med under Frontex. This leaves Border Force short of vessels for the 12,000  miles  of exposed UK coast not close to France and the small boat routes.

Border Force helps Customs enforce against goods smuggling as well as acting against illegal entrants to the UK. The difficult thing to understand is why they do not do more to smash the gangs and implement stated government policy to stop the small boats.

When the last government needed to stop lorries bringing illegals into the UK, often endangering their lives, it took strong action. Even if the lorry driver and truck owner knew nothing about the illegal person hiding themselves in or on some part of the truck, the driver/ company was accused of a crime and fined. When Border  Force or some other safe boat  service brings illegal migrants in they are not treated as helping the criminal gangs that offer a trip to the UK for profit.  The illegal migrant often relies on the pick up mid Channel and the profiteer probably tips them off on how to contact Border Force to give them a free ride.

This is a very unpopular way of spending taxpayer cash, and clearly a way to boost numbers of migrants, not a way to reduce them. The last government legislated  to make it impossible for an illegal migrant to be granted asylum, and to send people to Rwanda. This government scrapped those ideas. Its substitute of  spending  more on Border  Force is not working. To break the business model of the gangs, the governments  stated policy, it needs to change the operating guidance to Border Force.

The Home Secretary thinks putting through an explicit offence of advertising illegal migrant boat services could cut the numbers crossing. She will find most of the adverts are outside UK jurisdiction, Meanwhile let  me remind her how many potential offences go unprosecuted in so many cases.

1 Everyone entering the UK illegally is breaking the law. They could be prosecuted for illegal entry.

2. Many of the illegal travellers have knowingly paid money to people traffickers and dodgy boat services. That is financing crime and aiding money laundering.

3. Some make fraudulent claims for asylum based on lies about their identity, past and origins.

4.Some undertake work whilst their claim is being considered which is against the law.

5. Some knowingly work without paying tax or National Insurance

6. Some work for less than the living wage, and some work in illegal activities.

All this shows there is a big enforcement issue for current laws. Why are many illegal migrants exempted from law enforcement?

On arrival illegal migrants should be asked who organised their trip, who they paid, how much and by what means. Their mobile phones should be examined to find answers and to trace where they have come from.

The great twentieth century nationalisations of steel,coal, rail, electricity, telecoms, gas, and vehicle manufacture were meant to modernise these industries, invest large sums of public capital and loans,  and make a profit for the state. They were meant to be better employers. Instead together they sent huge bills to taxpayers, spent investment money on plenty of projects that went wrong, had many bad strikes. Most of them sacked many employees, ran up big losses for taxpayers to pay and offered a bad deal to customers.

Steel for example were treated to major new steel works capable of producing    more steel than they could ever sell. Years under both Labour and Conservative governments were spent driving through closures.

The government portfolio of the 1970 s and early 1980 s was vast and very costly. The government needed to prevent the nationalised industries taking too much money which would have out more of a squeeze on the NHS, benefits, pensions and schools.

Given shortage of money the government felt forced to allocate more  cash to the loss making   parts of the portfolio than to the potential fast growing areas. Steel absorbed huge sums to pay losses and to try to slow the pace  of plant closures and job losses. The railways  losing passenger numbers and market share every year needed ever bigger subsidies to keep running loss making and underused trains. That left telecoms struggling with old technology and limited capacity when telecoms was taking off to handle more data as well as calls. The state gave more money to decline and failure and starved their growth businesses of new money to expand. The state was a dreadful investor, trying to reverse the momentum of the market and changing demands.

If you were the employee of a nationalised industry you were likely to face tge sack,given the large redundancy and closure programmes. If you were a customer you faced high and rising  prices for poor service, often linked to rationing. As a taxpayer you were sent huge bills to pay for losses and “ investment”

Given the enthusiasm of some here I ask why are you in love with nationalisation?

Is it the way the nationalised Post Office  treated many of its key staff, sending them to prison on false charges?

Is it the way nationalised HS2 has not  controlled costs, extended its delays and more than halved the amount of  railway  it will deliver?

Is it the way the Bank of England ( Nationalised 1946) has run its activities to send a bill to taxpayers for an OBR forecast of  £257 bn for losses on bonds from end 2022 to final liquidation of the portfolio?

Is it the way the state has paid remuneration packages  of more than  £500,000 a year to the Heads of HS 2, Post Office and Bank for all their losses  and mistakes?

Is it the way Network Rail and the Transport department have run timetables, created delays and cancellations  and regulated fares for  the last two decades of nationalised Network Rail?

Is it the way the Highways Authority handled allowing motorway hard shoulder use as a new lane and their repairs schedules with slow running and lane closures?

Is it the way a nationalised Scunthorpe steel works will probably close both blast furnaces and sack a lot of staff?

Is it the way the government road monopoly keeps us short of road space and delights in restricting its use?