The Patron Politician of Lost Causes

A recent report from the Institute for Fiscal Studies has pointed out that the 50p top tax rate is—from the point of view of raising money—worse than useless.

The 50p rate of income tax is costing the Treasury up to £500 million a year as high earners shelter their money abroad, a leading think tank has warned.

Yes, the Laffer Curve really does exist. Naturally, Timmy elaborates...

The argument is that this rate is increasing the use of (entirely legal) tax mitigation strategies plus some people are buggering off.

Yes, I know, there are those who insist that we should just make it illegal for people to bugger off out of the tax system but we’ve signed a number of international treaties that say we cannot do that.

But here we have it, at least some independent and non-politically partisan experts state that 50 p on income tax is over the peak of the Laffer Curve: even in this short term.

Not much point in having it then really, is there?

Quite so. The 50p tax rate decreases the amount of money that the Treasury gets and—as an extra special Fuck-up The Country bonus—it drives capital abroad rather than it being spent or invested in the British economy.

All of the above was reported on the 14^th September: so, as a follow-up, what was reported today (the 17^th September)? Yes, that's right...

Nick Clegg has said axing the 50p top income tax rate too early could "destroy" public support, as the Lib Dems gather for their conference.

So, despite the fact that the 50p rate of tax is costing the Treasury some half a billion quid a year, Nick Clegg supports it because he thinks the British people are entirely motivated by spite. Well, he may be right but...

The coalition agreement drawn up between the Conservatives and Mr Clegg's party says the government will work towards increasing the tax-free personal allowance to £10,000 - a Lib Dem policy - and that would be prioritised "over other tax cuts".

Yes, fine. Except that if you abolished the 50p rate of tax, you fucking moron, you would have another half a billion quid to put towards your—admittedly, very worthy and entirely correct—policy of letting the poor keep a little more of their cash.

Casting himself more and more in the role of the Patron Politician of Lost Causes, Nick Clegg really is a silly sod, is he not...?

UPDATE: JohnB presents an alternative view (or, rather, an additional view)...

The Telegraph piece is bullshit laundering, and it's at least as bad as anything you've had a go at climate journalists for.

Here's some digging into the source of the data—the new IFS report says nothing about effects of the 50p rate at all. Rather, the Telegraph has dug up the IFS's *projections* about the effects of the 50p rate *from before it was introduced*, and presented them as if they were an assessment of what's actually happened.

Which is shoddy journalism. It'll be an interesting test of the IFS's integrity to see whether it complains to the Telegraph about being misrepresented in this way...

Moron of the Week: Edward Leigh MP

Via Dick Puddlecote, I find this discussion on the proposed Employment Opportunities Bill in which we see Philip Davies MP questioning the wisdom of the National Minimum Wage*.

Surely one of the most outrageous interventions ever sees some fuckwit arsehole Conservative named Edward Leigh spouting the following offensive crap.

My hon. Friend is making an important contribution and it is important that we have this debate, but let me ask him a question as a critical friend. Let us forget the fact that there is a minimum wage at the moment. Why should a disabled person work for less than £5.93 an hour? It is not a lot of money, is it?

First, no, £5.93 per hour is not a lot of money—so why the bloody hell does your government tax those earning that small amount of cash?

Second, someone has to create that job for that person—disabled or otherwise. And that "employer" (as we call them, Edward), actually has to pay 13.8% on top of the £5.93, bringing the rate of pay up to £6.75 (plus, of course, sundry other costs—most of which carry other large taxes).

Third, who the hell are you to decide what wage someone is willing to work for? If a disabled person wishes to work for less than the minimum wage (because the alternative is no work at all) then why the fuck should you be able to intervene in a mutually-agreed, private contract?

And, fourth, the real point is that a great many disabled people—and, indeed, a great many non-disabled people—do not work because of that minimum wage, and they never will.

Why?

Because their labour is worth less than £6.75 per hour: and these people will never, ever get a job (not, I'll grant you, that someone of your background will appreciate). And, as Jackart so rightly points out (in a detailed post on this subject), that means that they will never get the training or the experience that might lead to them ever earning more than a pittance.

So, with all due respect**, Edward (and with reference to your attitude on gays), why don't you take your "question as a critical friend" and shove it up your arse?

* It's national. That makes it completely fucking stupid before we even consider its other iniquities.

** Inevitably, none.

Oh look—a free lunch!

It's one of those great truisms that there is no such thing as a free lunch in economics—only trade-offs. However, over at the Adam Smith Institute blog, Timmy highlights the fact that—like most truisms—this particular aphorism is not always true.

Our usual method of describing this is to mutter about the debt to GDP ratio. As reasonable rules of thumb, below 30% it's irrelevant, once it starts going over 60% we see future growth being constrained, above 100% something really must be done and over 150%, unless you're something very strange like Japan, you're bust.

So, in all our talk about how we're going to deal with the national debt yes, there's room for cutting spending so as to avoid adding to the debt and thus make everything more difficult. But there's also room to increase the size of the economy so as to reduce the ratio. No, not by simply borrowing more and splurging in some hope that the Keynesian Fairy will sprinkle growth dust. But a change in the tax system.

Here's the growth, the extra growth, that could come from a simple change in the way we raise taxes:

Clean income tax is flat rate no allowances, standard flat is with an allowance, transition relief means don't do it all at once.

No, we're not raising any different amounts, we're raising the same amount of tax in a different way. This doesn't mean cutting anything, this is purely the extra growth we'd get by changing the method, not amount, of taxation. As you can see, simply changing the method of taxation could give us a lovely little bolus of growth, one that reduces the national debt as a percentage of GDP and thus reduces the overall problem we face.

We can still do all the other things, or not, as the mood takes us, but this is a free lunch, that rarity in economics. And free lunches, given their rarity, really should be eaten.

As Timmy also gleefully points out, the ASI have been advocating a flat tax for some time...

Sub-prime students

Your humble Devil appears to be a fixture on various low-rent media lists and, as such, receives a large number of unwarranted but occasionally hilarious press releases. Today's little gem is from UCL Occupation—"students occupying University College London in protest at fee rises and cuts".

At 2pm on Monday 21st March students occupied the UCL registry, the main administrative wing of the university. We stand against all cuts and for free education.

We are occupying in solidarity with our lecturers and support staff who are taking part in the UCU strike to defend their jobs, pay and pensions. We as students are taking the direct action denied to our lecturers by anti-union legislation.

UCL management are meeting on Thursday 24th to decide whether to increase tuition fees—we call on UCL management to not raise tuition fees and to lobby against the government cuts.

Management will also discuss the restructuring and outsourcing of estates and facilities. We stand in solidarity with the staff whose jobs and wages are threatened, and continue to demand the London Living Wage.

We call for no repercussions or victimization...

I'm sorry—what? Oh, do you mean "victimisation"?

Well, can I suggest that you capable little intellectuals either learn how to spell your own language, or use those colossal brains of yours to figure out how to switch your MS Word Dictionary to "British English" or "International English"?

... of any students or staff involved in industrial action and associated protests.

We hope that the UCU strike and the nationwide university occupations it has inspired encourage a wave of strikes, occupations and protests leading up to the March 26th national anti-cuts demonstration and beyond. We are all in this together.

Naturally, I sent a reply to these eager little revolutionaries; I thought it best to keep it short and sweet...

We are all in this together.

Um. No we're not. You want me to pay for your education through my taxes, even though the greatest beneficiary of your education will be you.

You want something that's going to benefit you?—you pay for it.

Regards,

DK

Do you think that they'll be able to decipher that message?

Ever since I read Nick M's post at Counting Cats, I have been considering the following proposition: subsidising students is, in fact, utterly sub-prime—where sub-prime is defined as laying out a considerable sum of money which you have almost no chance of recouping.

This is especially true when such a large proportion of the population now goes to university; how many of those who go to university will ever repay their student loan—let alone contribute enough tax over their lifetime to repay the taxpayer for the rest of the cost?

I reckon that the proportion is pretty small, frankly.

Some people would say that society benefits from having an educated workforce: that may be true, but does society benefit over and above what it costs to pay for these people?

If students are unwilling to pay £9,000 per year in fees, then I think that we could easily conclude that said degree is not worth £9k to the prime beneficiary of this education—what is it worth to those of us who currently have to pay?

So, no: we aren't in this together, frankly.

UPDATE: in the comments, the Fat Bigot makes the point rather more eloquently than I could, rushed as I was...

On the substantive point it's worth observing twenty-odd years ago the student grant scheme was workable and affordable because, generally speaking, there was a pretty good chance that the recipient would pay it back in spades through taxes during his or her working life.

There are only so many people for whom university education can add value. That many jobs now require a degree is a reflection of the fact that degrees from many institutions are seen as the modern equivalent of A-levels.

The lower you set the bar for university entrance, the less likely it is that the additional students (that is, those who get in now but wouldn't have got in when entrance standards were higher) will be net (or you might prefer "nett" [I do—DK]) contributors to the public coffers.

Once the bar is lower you either have a two-tier system of funding whereby the best get tax-funded support and the lesser qualified do not, or you have the same system for everyone. Practical politics requires the same system for everyone. What you cannot have is everyone being paid by taxpayers because

1. there are too many of them for it to be affordable and


2. only relatively few are of the quality that will repay the gift with a profit for future generations of taxpayers.

This is all basic common sense. Unless you believe in the magic money tree, of course.

Quite.

These people are morons

On Friday night, your humble Devil highlighted the fact that—as Wat Tyler pointed out—we do not actually calculate household income through the tax system and, as such, enforcing the cut in Child Benefit was going to be a bit damn difficult.

It seems that, belatedly, Our New Coalition Overlords™ have realised that they might have made a bit of a boo-boo and they are taking steps to remedy the problem.

Now, which route do you think that they have taken? Is it:

1. the government has decided to approach it in a different way, or
2. the government has decided to use the threat of violence in order to get its own way.

If you answered "2", then give yourself a pat on the back: the super Coalition has, indeed, decided to use the threat of violence to back up their stupid policy.

Higher rate taxpayers could be fined if they fail to declare they have a partner receiving child benefit, when cuts are introduced in 2013.

The Treasury has confirmed that "penalties" would be issued in cases of non-disclosure of earnings.

It follows reports that Treasury sources have said a plan to stop child benefit payments to couples with one higher rate taxpayer is unenforceable.

What the hell...?

Look, cutting benefits is the right policy. Cutting child benefit absolutely right: why the hell should I be taxed to pay for other people's lifestyle choices—especially when those people are earning multiples of my salary? And, apparently, Child Benefit is paid out for "children" up to 19! 19! For fuck's sake.

But, equally, the law in this country quite clearly states that any citizen has the right to organise their affairs in a way that minimises their tax liability; by extension, this also means that any citizen has the right to organise their affairs in such a way that they maximise their benefits receipts.

Whether you think that the withdrawal of Child Benefit is right or wrong is irrelevant: it should be done in such a way that citizens can comply with the law—this nebulous crap is stupid and wrong.

These people are idiots.

UPDATE: your humble Devil would like to apologise for the general incoherence of this post, but I find myself literally speechless at the crass stupidity of Our New Coalition Overlords™. Everything that they touch turns to shit.

NuLabour might have been incompetent, authoritarian bastards, but this lot are not much less authoritarian but, more pertinently, seem to be attempting to win an award for being stunningly, unbelievably incompetent.

The taxman cometh...

I know that I am somewhat late to this party (because, as usual, real life has been intruding on my blogging time), but there are a few pertinent points that I would like to make about the monumental tax fuck-up that has been doing the rounds over the last few weeks.

Almost 1.5 million workers face demands to pay back an average of £1,400 in tax after an error was found in calculations over the past two years.

HMRC has admitted that 5.7 million people have paid the wrong amount of tax due to errors in the tax code system.
The figure includes 1.4 million who have paid too little and will face demands for repayment as well as 4.3 million who paid too much and should receive rebates.

None of this is a surprise, really; many of us have been banging on for ages about the complexity of the tax system and, given that HMRC are a bunch of complete numpties, it was only a matter of time before something like this happened.

The Coalition blamed the last government for the fiasco. A senior Tory source said: “This happened because the last government failed to comprehensively reform the PAYE system. We are now dealing with that mess.”
...

A Treasury source said: “A decade of meddling and intervening made the tax affairs of millions of families and businesses across the UK extremely complicated.”

Yes, yes: so what are you going to do about it?

George Osborne, the Chancellor, has said he will introduce a fairer and simpler tax system. He is certain to use the meltdown at HMRC to push for further and swifter reforms to the way tax is calculated and collected.

Good. Just for the record, because it bears repeating yet again, here is how I would like to see the tax system operate (given a similar paradigm to the current one. Naturally enough, my preferred system is rather different, and involves consumption taxes as the primary tax source):

• A Personal Tax Allowance of around £12,000. Not only is it deeply immoral to tax the poor and then make them beg for a few nuggets of their money back, twelve grand is roughly the earnings of a full-time minimum wage earner. Further, the Rowntree Foundation have, oddly enough, calculated that the absolute poverty line is about £12,000 minus tax: if we don't tax low-earners, then we have raised thousands of people out of absolute poverty—result!


• A Flat Tax of around 22% on all personal earnings. Rather than worry about the source of the earnings (there are different rates of tax for salaries and dividends, for example: for more details, ask Richard Murphy), let's just tax what people receive—it's much easier to administer and we can remove some of the distortions from the market. And, for the record, Timmy agrees with me.
  

  Better by far to abolish corporation tax altogether and simply tax the income/returns when they arrive with people.
  
  After all, companies don’t pay tax, only people do: and we also know that 70% or so of the corporation tax burden is carried by the workers in the form of lower wages.

  
  There should be no exemptions (except possibly for pension, healthcare and unemployment contributions. Let's get people used to paying into these as soon as possible, in order to soften the blow when we finally abolish the National Insurance Ponzi Scheme).

All of this will make life far simpler. It will also make collecting tax far more efficient, reducing fiscal churn and enabling the money that is collected to have far more purchasing power.

However, I don't expect George Osbourne to be anything like this radical because he's a weaselly little bastard with no balls—and the same applies to his massively-foreheaded twat of an organ-grinder.

Although, there are a couple of rays of hope that maybe—just maybe—George is thinking of something slightly radical. The first is the fact that, only a few days after the news of the mistakes were reported, the Treasury came out with this utter toss.

HM Revenue and Customs could take direct control of every worker’s monthly pay cheque under plans to overhaul the error-prone income tax system.

Instead of employers deducting income tax then paying gross salaries to employees, the gross monthly payment would go to an HMRC-run tax “calculator”, which would then pass the net salary to the worker.

So, let me get this straight: HMRC—which has proven its colossal incompetence by not only fucking up the PAYE tax assessments of millions of people but was also, lest we forget, responsible for one of the biggest data losses of all time—thinks that it can make things better by taking on the monthly (or weekly) pay assessments of every single worker in the country.

Are these bastards insane?

Not only that, of course, but it undermines the fundamental point that it is our fucking money—earned by our hard work. It doesn't belong to the fucking state, and these absolute cunts should be absolutely fucking ashamed that anyone—anyone—could seriously suggest this measure (even were these incompetent bastards actually capable of administering such a mammoth system with any degree of competence).

Brian Stenhouse of Armstrong Watson, which runs payroll services for more than 2,000 companies, said people should have “deep concerns” about the central deductions plan.

He said: “Are people going to be happy to give HMRC their bank details and trust HMRC to make the right deductions and pass on their salary every month?

“Given they’re not going to have a complete monthly payslip any more, people are going to be in dark about what’s been deducted. And if there is an error, they’d be reliant on HMRC to correct it.”

Anyone confident in HMRC's willingness to correct mistakes in a timely manner? No, I didn't think so.

Oh, and don't forget it has been ruled that HMRC are not responsible or liable for any errors that they make—so good luck trying to pursue any damages claims against them.

My rage, contempt and indignation is, of course, shared by Timmy...

Concentrate instead upon the moral logic of this. All of our money isn’t really our money. It’s the State’s, all must be reliant upon that beneficient State for every penny of whatever dribble of income they might allow us.

Err, no. “Treasury ministers” who are advocating this can fuck off and die: and the Coalition they rode in on.

... and my impecunious Greek friend (whose peripatetic ways mean that he would not be currently affected—a fact that does little to dampen his ire).

You have to be fucking yanking my baws. Giving the state all my money and then petitioning them to tell me how much they took? No, no, I think not, you dickless fucking cretins. You've just demonstrated that you can't even add up correctly; I'm certainly not giving you my wallet while you count off the tenners you plan to leech off me. I'd be better off throwing it into the fucking sea.

Indeed, the angry baby describes a tax system that would, I feel, be rather better than the current one.

No, I propose the exact opposite. Every year, I propose that each taxpayer receive an itemised statement from HMRC, providing a detailed breakdown of how every penny of your taxes has been spent—£431.20 on the NHS, £193.31 on the police, 59p subsidising MPs' booze, 2p on duck houses, etc. etc.—and countersigned, for good measure, by your local MP. Is it value for money? Does it reflect my priorities to some minimal degree? Am I happy with the political representative that nodded it through? If so, then I may - generously, if through gritted teeth—cut you a cheque; and yes, you can just fucking wait three days for the money to clear like the rest of us, you fucking bastards.

You work for us, you unspeakable cunts, not the other way round. Don't forget it.

So, given the predictable outrage, either this is a bunch of disgruntled Treasury Civil Servants attempting to direct some fire at their Coalition masters, or something rather more subtle is going on.

And this brings me to the second point—one which was rather well articulated, over a beer, by Simon Goldie (the kind of libertarian LibDem that I could see myself working with, by the way).

Simon's contention, and it is one that I was mulling myself, was that all of this was softening up the various vested interests for a massive simplification of the tax structure by Our New Coalition Overlords™. Tax simplification has been opposed by many barking fucking loonies, arrogant and ignorant ne'er-do-wells, and evil arseholes (both of them); however, it would be difficult for even those tits to oppose something with a massive groundswell of public opinion.

So, the announcement of the balls-up in PAYE taxes plus the absolutely insane solution proposed above might get people thinking that maybe HMRC is not people by fluffy bunnies and do-gooders and that, just possibly, there might be a better way of handling this whole tax thing.

With Osbourne's Spending Report coming up soon, now is the time to start agitating for a simpler system that doesn't involve us begging the state for our money.

Let us hope that George has something good for us—frankly, Our New Coalition Overlords™ have not impressed me yet (and they certainly haven't made my life better by even one iota) and I'm getting slightly tired of waiting...

Julian Le Grand is still a twat

(nb. I am not the Devil's Kitchen)

Julian Le Grand, let me count the ways in which I hate thee.

You don't have to be rich

Rather than relying on billionaires why not yoke philanthropy to tax, and nudge us all into giving?

Sir Francis Bacon once said that money is like muck: no use unless it is spread. This is a view presumably taken by the American billionaires who recently proposed giving away half of their fortunes to charity. But these in some ways rather admirable proposals have nonetheless been attacked.

By some pricks in the left-wing press, perhaps. And Dominic Lawson has already slapped those bitches down.

Some have argued that the very rich should pay their taxes instead (or as well) – through not engaging in tax avoidance schemes. 

To be fair, it's not just the "very rich" who get out of paying taxes by engaging in "tax avoidance schemes." Is it Richie?

But perhaps the biggest problem with the idea of leaving philanthropy to the billionaires is that it lets the rest of us off the hook. In fact people in Britain are not notably charitable. Overall we give a far lower proportion of income to charity than do people in the US, for instance, although the American figures are inflated by large donations going to well-off churches and universities. 

Britain not notably charitable—is that so? Well, far be it from me to distrust the word of a former favourite of Tony Blair, but I wonder what the Charities Aid Foundation has to say about that? 

Perhaps my tired eyes deceive me, but this graph shows that Britain is second only to the USA in charitable donations. And since the USA's figures are, as has already been established, "inflated by large donations going to well-off churches and universities", that would make the UK a very charitable country indeed. Which, in turn, would make anyone who describes the UK as "not notably charitable" a lying, manipulative fucking weasel who should have been stomped on the moment he wrestled his way out of his mother's feculent growler. No?

This is perhaps because we prefer to redistribute money through the tax system.

Yeah, we really prefer it, Jules. We much prefer having our money taken by force for the government to spend on 'good causes' like prohibition fanatics and eco-spastics than being able to give it to a charity that might actually help someone. Or, in the case of the millions of people on low incomes who the government continues to tax, spend on ourselves.

In fact many of the middle classes say they would pay more in tax – if the system allowed them to do so...

The middle classes said that? Would it be too much to ask for a source for that little claim? Perhaps they were unaware that the tax system already does allow them to pay more in tax. The Inland Revenue will happily accept over-payment. Any dribbling, state-loving philanthropist who believes themselves incapable of spending their own money more effectively than fat-headed, corrupt bureaucrats is free to send a cheque for any amount to HMRC, Alexander House, Southend on Sea, Essex, SS99 1AA. Don't all rush at once. 

 ...if they knew where the money was going to, and if they knew others were doing it too.

But others are not doing it too, and for the same reason we're not doing it—because they know exactly where the money's going. It's going on ill-advised foreign wars, gold-plated public sector pensions, lazy scrounging twats and porn vids for the frustrated husbands of home secretaries. 

So here is one idea that combines these concerns with the recently fashionable "nudge" agenda (after the book Nudge, by Richard Thaler and Cass Sunstein – where the aim is to allow people the freedom to make choices but to change the context in which they make them so as to nudge them in a socially desirable direction).

Here, we need a little background information. Julian Le Grand, at one time, suggested that people be forced to buy smoking permits if they wanted to buy cigarettes. That's the kind of blue sky thinking that got this unutterable cunt where he is. Through Le Grand's warped eyes, this constitutes 'nudging'. He said at the time:

"Suppose every individual who wanted to buy tobacco had to purchase a permit. And suppose further they had to do this every year. To get a permit would involve filling out a form and supplying a photograph, as well as paying the fee. Permits would only be issued to those over 18 and evidence of age would have to be provided. The money raised would go to the NHS."

I know, I know. Truly this man is not fit to live amongst decent people. And this is his new scheme (note, again, the use of his favourite words 'suppose' and 'further'):

Suppose in your tax return you were given the option of paying 1% extra income tax on condition that the extra revenue went into a poverty or inequality reduction fund. My personal favourite for this would be a restored child trust fund for low income groups, but others may have their own ideas. 

Others do have their own ideas, such as giving money to real charities who will help those in need and those who are, properly defined, in poverty. That, however, would not be Julian Le Grand's definition and we should, therefore, be 'nudged' away from it in favour some spurious goal of reducing inequality in the UK. Inequality, as Jules well knows, could be achieved by having the middle-classes set fire to their money, which is pretty much what they would be doing if they 'opted' to hand over another 1% of their income to the state.

Further, this extra payment would happen automatically – unless you ticked a box in your tax return that said no.

So not really being "given the option of paying 1% extra income tax" at all, is it? More being given the option of not paying 1% extra income tax. Which would be an academic distinction if it were not all to be done under the watchful eyes of a baying mob...

The "nudge" would be more powerful if tax returns were publicly accessible, as they are in Sweden. The fact that the decision to tick the refusal box could be public knowledge, and that those who did so would be named and perhaps shamed, might persuade more to contribute.

How quickly 'nudging' becomes 'naming and shaming'. How quickly 'shaming' reverts back to 'persuading'. How quickly charity becomes appropriation by force.

However, even in the absence of overt public pressure of this kind, many middle-class people would find it hard to tick that no box. For that would mean admitting to yourself – and to the taxman – that one's professed concern for redistribution had an element of hypocrisy in it: a cognitive dissonance that would not be easy to accept.

I'm quite happy to admit to myself and—if asked—the taxman, that my "professed concern for redistribution" withered to choad-like proportions shortly after New Labour started spunking money up the wall like a randy, socialist spider-monkey. Without any element of hypocrisy whatsoever, I'm telling both you and the fucking taxman to search under my mattress and suck my balls. I have nothing left to give you and, even if I did, I would sooner give it to a shameless heroin addict than let you bastards feather your nests.

Taxing Richard Murphy

Most of us would like to minimise our tax burden and, indeed, the government actually provides a number of ways in which one can do so. One of the single best ways in which one can do so is to incorporate, i.e. to become a company.

How does that work?

Well, you can arrange your affairs in a number of ways but, broadly speaking, one of the best ways is as follows:

1. incorporate
2. pay yourself, as a director, a minimal salary (a little under £5,000),
3. at this level, you still accrue National Insurance credits, i.e. you get money put towards a state pension, but you don't actually have to pay any National Insurance Contributions,
4. pay your corporation tax
5. pay the rest of the money out as dividends to shareholders (yourself),
6. on which you will pay less tax than on ordinary income.

Well, that is the gist of the thing. Obviously, it's not so easy unless you have figures to illustrate the above.

Luckily, Richard Murphy wrote just such an article for The Observer, back in 2005 (so, obviously, the figures will have changed: your tax accountant (should you have one) will be able to update these).

The way that the saving is achieved is fairly straightforward. An individual in self- employment pays three taxes on profit. They are income tax, class 2 national insurance and class 4 national insurance. On £30,000 of profit the income tax is £5,354 this year, class 2 national insurance is £104 and class 4 national insurance is £1,777, a total of £7,235.

If a limited company makes the same profit it can pay its owner in one of two ways. If it paid out all £30,000 as a salary then there would again be three taxes, being income tax (£4,764), employer's national insurance (£2,679) and employee's national insurance (£2,271). That's a total of £9,714, which is £2,479 more than the self-employed pay.

But, if the company is run with strong discipline, and keeps good accounts, then dividends can be substituted for most of the salary paid in the previous example. Just enough salary is still paid to make sure that the director is credited with paying national insurance - currently £4,615 - although no national insurance (or tax) is actually paid on this. That leaves a profit of £25,385 in the company on which corporation tax of £3,654 is paid. This is low because the first £10,000 of profit generated by a small limited company is tax-free.

That means a dividend of £21,731 can then be paid. Because that level of dividend does not take the recipient into the higher rate bracket, he or she does not have to pay any additional income tax on the dividend. The only tax paid will be the company's corporation tax bill of £3,654, which is £3,581 less than the self-employed person pays.

All of this is perfectly legal, of course. And, personally, I'd go further—I'd describe it as perfectly laudable.

After all, arranging your affairs so that the government can steal as little of your money as possible not only leaves you with more cash (which you will spend far more wisely than the state) but also ensures that our lords and master have fewer resources with which to oppress the rest of us.

The trouble is, you see, that Richard Murphy would not agree with you.

Richard, apparently, thinks that you have a moral duty to pay as much tax as you can and that tax avoidance is just as bad as tax evasion.

And the operative word in that sentence is "you". Because, as Timmy reports, Richard Murphy does seem to believe in minimising his own tax payments.

So, what do we find from Companies House about the directorships of one R. Murphy?

Fulcrum Publishing Ltd:

“Publishes original written materials”, seems to have been his old vehicle for paid writing.

Jointly owned 50:50 by Ritchie and Jacqueline Murphy (same address, born 1963, presumably his wife).

Hasn’t traded since 2003, but when it was trading it paid out all of its profits as dividends. Incorporation and taking dividends from the company instead of a salary is a classic tax/NI avoidance strategy—as he set out in his Observer article.

I wonder how much of the company’s work his wife did, or whether giving her shares was just a device to save tax by transferring half of the income to her? Did “the rewards paid [to her] match the underlying economic substance” (Ritchie’s own test of whether incorporation is “abusive”)? It seems unlikely that she was generating 50% of the profits from his writing.

It’s difficult to see what legitimate non-tax reason he would have for incorporation, and (as he said in his reply to you) he regularly argues against incorporation—for other people.

(Via email, so no link).

Yes, yes: but this all stopped in 2003, didn't it. So the author of The Missing Billions [PDF]—a report on the tax gap authored on behalf of the Trades Union Congress—is definitely not doing any of this stuff now, eh?

What? What did you say...?

But wait, I hear the call. This all stopped in 2003 didn’t it?

Well, yes, with Fulcrum, yes, it did.

The Tax Gap Ltd (formerly Tax Research Ltd):

Carries out “social science research”. Shares owned 90% Ritchie, 10% Jacqueline.

Paid out small (£3-4k) directors’ salaries in 2005, 2006 & 2007 (another classic tax/NI avoidance strategy, keeping the salary under the personal allowance).

Paid out a £12,000 dividend in 2006 (classic NI avoidance strategy, to take money out as NI-exempt dividend rather than salary).

Profits of nearly £13,000 retained in the company (another classic tax avoidance strategy, to delay paying dividends until a year when your income is below the higher rate threshold).

Oh. If we are to continue our speculation about GPs and maternity pay, we might assume that income shifting is now not a useful strategy. For why shift income to someone who is already in the higher tax band? But we do note the other parts of the Observer technique. Low directorial salaries, enough that the director is credited with having paid NI (ie, that State pension accruals continue) without having to actually pay NI and then the rest of the profit being paid out as dividends.

And do note again, the tax free first £10k of profits was abolished in 2006, so at least in 2005 the first £10k of dividends would have been entirely free of either corporation tax or basic rate income tax.

Oh.

Now, one might think that all of this might reveal Richard Murphy to be a colossal hypocrite but, of course, you would be wrong—as darling Ritchie makes absolutely clear in his reply to the "torrents of abuse" [sic] that is Timmy's article.

I note the right wing blogosphere is seeking yet again to question my integrity...

Well, I think that it probably started out as just Timmy in this instance—although I am sure that others have joined in since then. Although, I am glad to add my voice to what is, quite literally, the entire "right wing blogosphere"—after all, I have regularly questioned Murphy's sanity and intelligence, since October 2006.

The substance of Ritchie's rebuttal is that he has changed his mind since those dark days when all he wanted to do was to keep his earnings out of the taxman's grip. Alas, he does not elaborate on what caused this Damascene conversion—although I suspect that it has less to do with a soft heart than it has to do with raking in the ackers.

The rest of his post is basically an ad hominem against the entire liberal blogosphere for "seeking to play the man".

First of all – as I’ve often said the issue is one of intimidation – they seek to propagate the message that if anyone stands up to their vicious form of capitalism they will seek to crush them. So much for a belief in liberty! It takes courage to stand up to such behaviour. They know that. They want to stop others entering the fray by behaving as they do.

Ah, yes: we occasionally use some bad behaviour. We do, also, expect people to practice what they preach—and we will tend to look at evidence as to whether they do or not. This is all very intimidating.

But here's the rub, Ritchie: it is central to our philosophy that you be able to do what the hell you want. Sure, we might lob some nasty names at you—for avoiding tax whilst trying to ensure that no one else can, for instance—and we may even point out that, if you think tax is so wonderful, you might like to donate some extra money to the state.

But what we do not do, Ritchie-poppet, is work to ensure that you are forced to do what we want. We don't attempt to influence the state to take more money from you; we don't spend our time lobbying and encouraging others to use force, violence and extortion in order to satisfy our personal philosophies.

Whereas you do, Ritchie—and that is why you are so very dangerous. And it isn't only that your philosophy is, at root, fundamentally evil: it is that you and your kind are pushing at an open door—money is power, and politicians do not need any excuses to give themselves more power.

You see yourself as some sort of crusader, eh? One of a small band of brave warriors making a stand against the evil liberals who would "crush our current democratic way of life in the UK, Europe and beyond".

You deluded fool.

The only things being crushed are the hopes and dreams of individual people who find that, try as they might, their lives are less and less theirs as the months go on: with every passing year, the liberty of individuals is removed as they find themselves more and more slaves of the state.

But I don't expect you to understand this, Murphy: I don't think that you have the intelligence to understand it. But more than that: I think that you are ideologically capable of understanding it.

Because, as far as I am concerned, people (like you) who venerate the will of the demos over the freedoms of the individual—those who believe that the tyranny of the majority always justifies the oppression of the few—are rather more than "flawed like the rest of us": they are evil bastards.

Lending, inflation (and why I'm not a gold bug)

Charlotte Gore has posted an excellent article about lending, and the crucial difference between "good" debt and "bad" debt.

The point of this post is to attempt to tackle this idea that it doesn’t matter whether it’s the public sector borrowing money and spending it, or the private sector borrowing it and spending it—it’s all just cash and it all goes around just the same, creating demand for food and clothing etc. But there IS a difference, and that difference is everything. It is the difference between real growth—increasing wealth—and simply trading other people’s ability to create wealth in the future for short term political gain.

Now, this should be obvious but why does it mean that I am not one of those who constantly bang on about gold-backed currency? The clue is contained in the beginning of Charlotte's post...

So how is wealth created? Wealth isn’t merely cash. You don’t simply print bank notes and announce yourself to be wealthy. Wealth, real wealth is measured by value.

We all know that when a bank lends money, it conjures most of the cash out of the thin air, which sounds alarming… but it is hopefully repaid in full with interest in due course. The loan is supposed to be spent on things of value that generate—or save—more than the amount of the loan plus the interest.

In this way, wealth is created. Simple, right? A loan represents future wealth, future value. You borrow money to buy a car, you’re left with a unit of value—the car itself.

So, say a bank conjures money out of thin air for me, I spend it on a machine that allows me to make bottle caps, I then sell the bottle caps which eventually pays off the loan and then the rest, for me, is profit. Wealth has been created—represented by the existence of the machine and the bottle caps it produces.

The very point of a currency backed by gold—or so goes the theory—is that there is a very limited amount of gold in the world and, therefore, it is extremely difficult to create much more money. The government, for instance, would not have been able to print £200 billion of "quantitative easing" if the currency were backed by gold because there would be no gold to back that £200 billion. The point being, of course, that if the government cannot print more money, then you can reduce inflation significantly.

And here we'll take a swift diversion into the nature of inflation (as I understand it, at least)...

DK's terribly simplistic guide to inflation

Roughly speaking, the British economy is a little like a publicly listed company on the stock exchange. But whereas those companies have shares, we have pounds. Each pound in your pocket is a share of the wealth of Britain plc.

The wealth of Britain plc. is estimated by its GDP, its assets, its future earning power, its level of debt, the confidence that people have in its current and future potential, and hundreds of other factors. As such, the value of the pound in your pocket is affected (to a tiny degree) by the total worth of the economy of Britain plc.

More importantly, if the managers of Britain plc. decide to issue more pounds, then the value of your pound will be less because your share of Britain plc. has been diluted.

Just of the purposes of illustration, imagine that the value of Britain plc is £100, and there are 100 shares—of which you have one. Your share is 1% of the company, and is worth £1.

If, however, Britain's management decide to issue 100 more shares, then you will no longer hold 1% of the company—you will only hold 0.5%. Assuming that no more money has been raised, your share is no longer worth £1, it is worth 50p.

However, the reason that most companies issue more shares is in order to raise more money (for expansion, or whatever); thus, the chances are that your share is still worth at least £1, even though you do not own as much of Britain plc. in percentage terms.

Having issued 100 more shares, if Britain plc. managed to persuade the investors that the company was worth £200—or would be worth £200 in the very near future—then your share will still be worth £1.

However, if the investors decide that Britain plc. is worth £100 or less, then they will pay considerably less than £1 per share; now, not only do you own 0.5% less of the company, your share is also worth less than £1. Which is quite obviously not nice for you—not least because you will need to have more than one share to buy £1 worth of goods.

In other words, twice the number of shares have been issued, without Britain plc. being worth twice as much; your share is now worth less than it was before.

This is, roughly speaking, what inflation is.

Eh?

At the beginning of the year, Britain plc. issued 200 billion new shares, whilst the value was decreasing. Your share is now worth a lot less than it was before. And with your share being a pound, the pound is now worth a lot less than before.

This inflation process particularly destructive to savings, ensuring that the pound that you put away twenty years ago is now worth a lot less than a pound. Indeed, the total inflation rate since 1900 is 9348% (calculated here)! £1 now has less than one tenth of the spending power that it had just after decimalisation, in 1971.

Enter the banks...

Now, as we all know, the government is not the only agency that increases the money supply: the banks also do it, through a system known as fractional reserve banking. Broadly speaking, if I put £100 into the bank, the bank can lend out roughly £90 of that.

The full £100 is still theoretically in my account, and can be spent by me; but £90 has now been lent out to someone else, and can be spent by them. So, an extra 90 pounds has been put into the economy.

And this, of course, should cause inflation. And often does.

What the bank is doing—or should be doing—is advancing money that will, eventually, be backed by wealth (or worth). In other words, if the bank lends it to Charlotte's bottle top factory, the money gets repaid but, more importantly, that extra £90 is now backed by at least £90 of created worth.

The trouble was, as Charlotte so elegantly articulates, that the banks had forgotten that all of the money swilling about needed to be so backed.

It works because the people in the banks try to make good lending decisions. They want to be sure that the money they lend creates value, creates real wealth, because this is how they’re certain they’ll make their money back. They lend money to make it, and people borrow money to make it. Typically loans are ’secured’ against some real existing wealth—property of some kind—so that if the loan is not repaid there is still real wealth to show for the cash.

Now, in the credit crunch, when the banks were (and in some cases still are) refusing to lend, you can see how this causes a major problem for any economy that depends on it—and why it caused such a catastrophic contraction in our economy.
The reasons for their non-lending boil down to demands from the Government to increase the amount of cash they hold in their reserves and uncertainty that the wealth against which loans are secured have any real value at all. Housing that no-one will buy, for example, is very poor security indeed.

The credit crunch itself was caused by banks neglecting this most basic duty of theirs: Lending only when they are certain to get the money back, to take only good, well calculated risks. It turned out that too many loans were secured against very bad risks that other people had taken, resulting in everyone realising there was no security in the system at all whatsoever—and it nearly brought down our entire economy.

Indeed. Putting aside the banks' stupidity in this regard, the real and continuing problem is the unwillingness (or inability) to lend.

Let's say that I need our putative £90 in order to buy new bottle-top making machinery; obviously, I could save some of the profits from the company but it is going to take ten years to save enough.

But without being able to buy this new machinery now(ish), my competitors' cheaper but more exciting bottle-tops will put me out of business. As such, I need a big capital sum now, and I can then afford to repay it through my profits over the course of ten years.

Of course, I'll end up paying more (because there will be interest on the loan) but I will still be in business; and if I run the business well, and squeeze the most out of my bottle-top-making machine, I will even be able to increase my profits and therefore be better off than before. And, of course, I have increased the value of Britain plc., hopefully ensuring that the extra money that has been created is backed by real wealth.

Which is nice.

Interested?

Of course, lending puts more money into the economy now, and it is usually not backed by worth now. As such, there always tends to be a low level of inflation (at the very least).

When inflation gets higher, the usual method to try to reduce it is to raise interest rates. Why?

Because if you raise interest rates, you should reduce borrowing—for some people, that extra percentage on inflation will ensure that it is not viable for them to borrow the money and they will find another way around the problem (hopefully).

Or, of course, they will put off buying that 42" plasma TV because the World Cup actually doesn't look too shabby on the 30" flat panel anyway.

Gold

In a gold-backed currency, the gold represents the worth of the currency. So, if you want to print more money or lend some out, then it needs to be backed with actual, physical gold. Over a century ago, most of the developed economies operated in this way, and used the international Gold Standard as a calibration.

The upside of a gold-backed currency is that inflation becomes almost non-existent. Taken from this government PDF, the chart below shows retail price inflation since 1900: Britain left the Gold Standard in 1914 (to fund the vast monetary expansion required to fight the First World War).



The downside is that you cannot lend in the same way—as such, economic growth is, necessarily, a lot slower. From the same PDF as above, this chart shows economic growth over the same time period.



Now, one hopes that the growth in wealth will always outstrip inflation and that, as a result, everyone is considerably richer at the end of the exercise. As a general rule, this has been the case over the last century or so.

This process of getting richer, of course, is also helped by the rise in productivity which is driven by competition. It is self-evident that TVs are far, far cheaper than they were even half a century ago, and computers and other labour-saving devices have also become cheaper and cheaper.

So, you have to make a choice...?

Do you prefer near zero inflation, or a far faster enrichment of the general population. Broadly speaking, I prefer the latter because, ultimately, it delivers the most utility. In other words, more people getting richer more quickly is better than zero inflation.

On the other hand, saving for old age is rather harder, since you have to contend with inflation.

Which is why the Libertarian Party policy allows for multiple currencies—one backed by gold, one by the government and then others by the banks themselves. In this way, you enable the lending that drives growth, but also allow a store of currency that maintains its value.

Importantly, you also put currencies in competition with one another, allowing for fluctuations within and between those currencies, whilst maintaining a base currency that holds its value over time.

Perhaps we really could have it all...?

Be careful who you screw, George

Blue Eyes writes an open letter to George Osborne, asking him to consider carefully those whom he targets for tax rises and spending cuts. In doing so, he writes a splendid articulation of my own thoughts.

I have barely touched a public service in recent years. I left the state education system when I was eight years old. I did go to University, but I paid tuition fees and if you check my payslips I think you will find I have repaid my subsidy many times over since I left. I have had a couple of of vaccines and been to seen the GP about twice since 1997. I have benefited from the state’s recent unsustainable largesse by approximately fuck all.

I have never claimed a benefit or a handout. I have repaid my student loan. I am not in debt. I pay my own way. I do not depend on anyone. I save a good chunk of my salary. I create wealth and export services. I pay my taxes. I expect and receive little from the state in return. So basically, George, I am asking: why I should pay more?

Before you hit me hard I want to see you hitting those who have benefited most from Labour’s fiscal disaster. I want to see the quangistos hit hard. Those six-figure morons who have made things worse. I want to see regulators and industry bodies slashed and burned. I want to see the advertising budget set to zero. I want to see the interfering busybodies who tell us how we should live queuing up at the Jobcentreplus before I pay a single penny more in income tax. I want those non-job wasters – who have had pay and pension rises while those of us who work in real industries have seen our real incomes drop by 5% a year or more – hurt first. How about those so-called professions which have seen huge gains under Labour’s watch. I want to see all those bureaucrats who think it’s their job to say “no” to the developers and investors axed before a single tax rise is announced.

The couple who live above me have three children, a PT Cruiser, Sky TV and no job. I have no kids, no Sky, no car, no debt. Why should I be hurt first? I want those who can work but choose not to to have their standard of living chopped before I should take a hit. That may sound selfish to some, but I do not ask the state for assistance. I do not lean on anyone. Why should I fund for them a more lavish lifestyle than I afford myself? Benefits have gone up by 5.3% this year, most in the private sector have not had a raise in years. How is that “progressive”?

Of course, BE's last sentence echoes the recent words of Lord Myners, a NuLabour apparatchik, who seems to have suddenly... er... regained his senses. [Emphasis mine.]

"The government can't create jobs. The government can create the environment which is conducive to the creation of jobs, but it cannot create jobs and we mislead ourselves if we believe it can."

He added: "There is nothing progressive about a government that consistently spends more than it can raise in taxation and certainly nothing progressive that endows generations to come with the liabilities incurred with respect to the current generation."

I quite agree. But I can pretty much guarantee that the "progressive Left" still won't admit it to anyone else, even if they can admit it to themselves.

And that, of course, is why we are in the hole that we are in...

Setting the regions free

Following on from my last post—in which your humble Devil advocated splitting the UK into federal "states"—Wat Tyler has evidently been thinking along the same lines. He notes, as I did, the disparity in the voting trends, but also provides some figures for just how much the Greater South East (GSE) actually contributes to the rest of the UK. And please note that these figures are after that public spending on that infrastructure which is meant to give this region such an unfair advantage.

We haven't got time right now to crunch the very latest numbers, but in 2006-07, Oxford Economics estimated [PDF] that the GSE contributed nearly £40bn to the rest of the country (ie tax payments less public spending received by the GSE). Or getting on for £2000 per capita.

Here's their picture (the GSE comprises Eastern, Greater London, and South East regions, and note that in this analysis all North Sea taxes have been attributed to Scotland):



Bottom line?

If we're going to open the issue of electoral reform, we need a proper look at the entire shooting match. As well as PR, we need to look at the structure of government. A separately elected English Parliament is clearly on the agenda, but we also need to return fiscal power to local communities.

The people round our way are sick of getting outvoted by the beneficiaries of socialist fantasies elsewhere in the country. It just ain't fair.

Of course, life, as they say, isn't fair. But the trouble is (lest you think that I'm entirely motivated by spite) that it isn't only the South East that suffers—it is the enterprising people in those other regions that also suffer. As the state spends more and more on various services and pet projects, they crowd out the businesses that would have been able to generate some real growth through providing said services.

Without a strong culture of enterprise, there can be no growth. Big businesses do not, in general, create jobs—the number of people that they employ remains fairly static (although the type of people that they employ may change over time). It is small businesses that provide around 80% of new jobs in the economy.

The state hand-outs are not actually helping the rest of the UK to prosper: they are simply postponing that day of reckoning that will come when the money runs out—a day that is coming rather sooner than most people hoped.

In the end, we return to the problem that those in receipt of state largesse tend to vote for whichever party is going to increase the supply of "free" money, and that is entirely unfair. Because, as I have noted innumerable times, that money isn't free: someone had to work bloody hard for it, and then have it extorted from them under threat of violence—so that the government can hand it out to one of their favoured supplicants.

Various solutions to the problem of certain people voting themselves more of other people's money have been proposed: perhaps we should disbar anyone who is in nett receipt of state money from voting—that would wipe out anyone who lives on benefits and anyone who works for the state. It's certainly an option, but people tend to be sensitive about restricting the voting franchise.

Ideally, of course, the government simply wouldn't pay out any benefits at all, and the number of people that it would employ would be so tiny as to make no difference. But that isn't going to happen anytime soon.

So, I propose a federal system instead: a system that fits in with the Tories' localism plans, and which brings power—in the form of raising taxes—far closer to the people.

Something needs to be done.

Election 2010 fall-out

Northern Ireland, Scotland, Wales and the North of England wait for mummy South East to get home.

Your humble Devil wandered along to the Election Night Party at the Sports CafĂ© on Haymarket on Thursday night—the only time that I would ever enter a bar called "The Sports CafĂ©". There were a number of amusing people there—it was excellent to catch up with old friends, including (but not limited to) various fine members of the TPA, Dizzy, Tory Bear, Guido, Gawain, Trixy and others—but I was seized by a certain ennui throughout the night.

You see, whilst the Tories and LibDems (I met no Labour people) were thrilled when their parties took their respective seats, all that I could think was "they're all crap: I don't want any of them to win". For although I was happy when Labour got kicked—and was most especially pleased when Jackie Smith and that jug-eared thug, The Safety Elephant, lost their seats—simply being against something produces remarkably little pleasure, even to a perverse little git like myself.

As the course of the night continued, and the result looked ever less decisive, I could barely be bothered to continue watching. Only the continuing supply of half-decent booze (and it was only half-decent) could keep me on my feet.

The next morning, I wandered along to the post-election drinks reception hosted by Julia Hobsbawn's Editorial Intelligence, at which the drinks were at least free—and I was introduced as a "blogger extraordinaire" (I think that I have mentioned before that I am a vain man). There were also a collection of entertaining people there—covering the cross-section of business from finance, media, PR, as well as other Involveds—and there was a general consensus that no one quite knew what was going to happen. Most thought that my opinion—that the LibDems would ally with the Tories—was probably mistaken, many of then believing that the Lefty aspects of that party would block any coalition.

They may, of course, yet be right. Still, I enjoy these events since I am usually asked, and able quickly to articulate, what Libertarianism is all about (something that I was, of course, not given the opportunity to do when subjected to our "impartial" national broadcaster's tender attentions). Although most seemed astonished that I ascribed my party to neither the Left nor the Right, but a described it as the best of all options.

In any case, I stayed until the end came at about 2pm, then wandered out onto the sunny streets of London. Strolling along Regent Street, I met a member of the cricket team that I play for and suborned him into joining me in a pub for a swifty. I am very much looking forward to our first match of the season tomorrow. Anyway, this last has little to do with the election, so I shall move on...

The question is, of course, what happens now. Charlotte Gore, amongst others, is excited by the possibilities of combining the most libertarian bits of both the Conservative and Liberal Democrat parties: indeed, your humble Devil would—and did—hope for just this kind of combination.

For some of us it’s all about that Freedom Bill, or some Great Repeal Act, rolling back 13 years of odious authoritarian legislation. The Conservatives have the biggest mandate, but not a comprehensive one. The Lib Dems can hold the Conservatives to their pre-election noises about civil liberties, ensuring the Digital Economy Bill gets thrown out, ID cards get scrapped etc.

It’s also about being practical about the desirability for a majority Government if we’re going to deal with the deficit properly.

I’ve just finished writing a pro-Lib/Con piece for the Guardian’s Comment Is Free and rumours abound of an open “Do the Deal” letter going around that I’ll hopefully get to sign. We might not be a very strong or big voice, but from outside tribal bubbles, with no particular attachment to any one party and as someone who agonised over whether to vote Tory or Liberal (and, in the event, I feel pretty good about my choice), this is almost a dream outcome.

All the usual caveats about neither party being especially libertarian apply, but the two together? That’s a leap into the unknown and one that could, if the Lib Dems play it right, show the British People a very different and radical flavour of Government to the one we thought we’d be stuck with.

Maybe the outcome will be of benefit to the libertarians of this country. Perhaps we would get the LibDems' £10,000 Personal Tax Allowance combined with the Tories' educational reforms. Or maybe we'd just get a mish-mash of half-way-house policies combined out of ideas that were, in any case, merely tinkering at the edges of the problems facing us today.

I most certainly reject the idea that Britain voted for a "progressive coalition of the left". Quite apart from anything else, I am of the same view as Longrider—that anyone who describes themselves as "a progressive" is an odious little shit who should not be trusted with a pari of scissors, let alone control of an entire society.

Then there are the progressives themselves – a term that is becoming increasingly bandied about. When someone declares themselves a progressive, my hackles rise. What they mean in reality is that everyone else must be forced to bend to their vision of society, to conform to the socialist utopia they espouse, to be a good little prole. Progressives have no place for independently minded individuals. Progressives are the enemy of individualism, and are, therefore, the very essence of misanthropy. They choose to forget that society is composed of individuals. Progressives are to be despised utterly and completely. Perhaps, most of all is their mangling of the language. Progressives do not want progress, but regression to the dark days of the cold war eastern bloc style of living – the tractor stats will always be going up, despite the enslavement of the population and the collapse of the economy. There is nothing progressive about a progressive, just as there is nothing liberal about a liberal.

These people are, quite frankly, the worst people on earth and—as I have opined before—they are the ones who expect to be giving the orders: trust them at your peril, but do not ever ask me to approve your choice. But then, were you minded to support them, you would not be asking for my approval and would barely mind my opprobrium.

The other "grand narrative" that has come out of this "unholy mess" is the fact that, once again, England has been denied a Conservative government by the troublesome Celtic fringes—and cries have gone up again for those provinces—and most particularly Scotland—to be cut loose.

"The answer to our woes, is a devolved English Parliament. Let the four constituent nations go their own separate way. let Scotland have independence, let Salmond have his way. Lets the Welsh & the Welsh and Northern Irish go. We moan on this site about the Internal Aid department, well how about we look a bit closer to home. England again has voted overwhelming Conservative, except this morning we are still governed by a party that is led and draws its legitimacy from the huge client state that is Scotland. All the usual suspects will whitter on about the unfairness of the FpTP system, whilst ignoring the biggest unfairness of all."

Written by a character called Paul B, over at the Spectator's Coffee House blog.

I happen increasingly to agree. While I yield to no-one in my admiration for much of what Scotland has brought to Britain and to the wider world - this book is a wonderful description - the brutal fact is that Scotland is now exerting an outrageously one-sided, and disproportionate, influence on British affairs. Its politicians have carefully natured a client state in the big cities such as Glasgow, where a huge proportion of the locals subsist on state benefits. If, as the Coffee House commenter suggests, we were to make it possible for Scotland to operate as an independent nation, then the Scottish Labour Party machine, a profoundly corrupt one and similar to the Chicago Democrat machine that gave the US Barack Obama would no longer exert its malign influence on England's affairs.

It is time to cut Scotland loose, both for its interest, and more to the point, for those who want to see the back of the Scottish Labour Party and its arm-lock on UK affairs for the past decade and a half.

I remember similar arguments after the 2005 election, when more people voted for the Conservatives in England than voted Labour and, once again, the Scots saved the Labour Party's hide. At the time, I was living in Edinburgh and, even so, had some sympathy for the argument (perhaps I am, at heart, an Englishman even though I have never felt so at home anywhere as Edinburgh. Mind you, most Scots would be of the opinion that this confirms me as an Englishman!).

In any case, my argument now is the same as it was then—Scotland should be cut free. But I also believe that this is not nearly enough. For, in most cases (with the notable exception of London), the Labour strongholds are mostly located in Wales, Scotland and the North. This would be of little import, except that these places—indeed, the whole of the UK—are essentially subsidised by the South East. As such, these areas continue to vote themselves more and more state money—money which is only provided by the hard work and profitability of the over-whelmingly Tory South East.

Consider, if you will, these maps of the constituencies of the UK (provided by the BBC).



As we know, Labour's heartlands are in the inner cities which, due to the population densities, also provide numerous small constituencies. As we can also see—most notably in the proportional map—Labour is most popular in Scotland and the North and, of course, in London.

As regular readers will know, I support none of the main parties, believing them to be statist, authoritarians with few redeeming features. I remind you all of this, only because—having couched my argument in terms of the election results—you might believe me to support any one of them in what follows. I do not.

What I would like to propose is simply this: that the entire United Kingdom be broken up into almost completely autonomous federal regions, with the Westminster Parliament handling only defence and a few other "federal" competencies (as the national government in the US was supposed to).

The motivation is primarily economic, of course, but there are vaguely libertarian reasons too. The former is, at first glance, easy to see: the entirety of the United Kingdom is propped up by the tax revenues from the only profitable region—the South East.

But there are other advantages to doing this. Whilst the first, and most obvious, is that the rest of the country would cease to be a drain on the South East, there should be benefits to the rest of the country too. It is to no one's advantage that, in some regions, government spending amounts to more than 70% of the economy: the "free" state services crowd out profitable businesses and thus causes a lack of profitability.

Those "poor" areas of the country which—instead of adapting as heavy industry died, took the option of suckling on the state teat—would find that there was no more state money. They would have to build a viable economy or die—in their thousands. Humans are incredibly ingenious creatures and, of course, extremely industrious when their livelihood is threatened—the people of these areas would have to progress or find themselves in ever dire straits.

Further, these areas would not have a meaningful government centre. Look at the main centres of business in each of the provinces of the UK—London, Edinburgh, Cardiff. All of these places are traditional centres of government, and attract business because of that: more government centres would build more centres of business (much though I would wish it were not so).

These areas might also continue to vote Labour—but the people would soon cease to do so once they found that that party was unable to deliver the free money that they promised, simply because there was none.

There has been a narrative of localism recently—the concept of the devolution of power closer to the people. This is a good thing from a libertarian viewpoint, but also from an economic viewpoint. But it has been rendered pointless in practice, simply because it is the central government that has the power to raise taxes and to disburse said monies.

Let's stop this insane state of affairs and, instead, break the UK up into fiscally autonomous areas—mapped vaguely on the old kingdoms—that contribute small amounts to the central government's defence budget, and see how our prosperity rises.

Anyway, it is late and I am not making the most forceful argument: I should be interested in your comments and then shall return to the fray tomorrow evening—after I have played some cricket...

There's an easy solution to this...

Via EU Referendum, it seems that huge numbers of mysteriously coy adults have been appearing on the electoral role in certain areas of the country.

A dozen voters have been registered to the home of a Labour candidate in an East End of London borough where police are investigating allegations of electoral malpractice.

The number registered to vote at the home of Khales Uddin Ahmed, running to be a councillor in Tower Hamlets, has risen from five to twelve in recent weeks. But a neighbour said that only three people live in the maisonette on a council estate in Bromley-by-Bow.

It is one of several cases where new names have been suddenly added to the voting register as living at addresses occupied by Labour candidates in the borough, which has a history of allegations of voting irregularities.

The Times article goes on to detail numerous other suspected abuses. Whilst some have commented that this type of tactic seems to be most adopted by a certain ethicity, I would not dream of discriminating in any way.

All I would point out is that, for a short time, we had a mechanism that would have seriously reduced the incidence of this kind of... er... creative voter registration.

It was commonly known as the Poll Tax...

The scale of the crisis

"We’re trying to keep a fire going by throwing on £50 notes with one hand, and buckets of water with the other."

The ever excellent Charlotte Gore (who I was most pleased to meet in the flesh at the ASI's Blogger Bash) has a post up about the scale of the debt that this country has established—and which it is still racking up.

The Government, you see, is currently overspending above and beyond what it takes in tax on an epic scale, and all three leaders say they want to sort that bit out. All well and good, but none will address the perversion of Keynesian thought that got us into this mess in the first place. Even Keynes thought the absolute maximum tolerable proportion of Gross National Product to be spent by the state was 25%… and we’re approaching 47%. In parts of Britain the public sector is 70% of the local economy which puts Soviet Russia to shame. We’re trying to keep a fire going by throwing on £50 notes with one hand, and buckets of water with the other.

Quite so.

And no one really really seems to understand just how much trouble we are in.

Just because all three parties are talking about cutting the deficit doesn’t mean economic liberalism is experiencing some kind of renaissance. It just means things are probably much, much, worse than we fear.

I'll raise you a "much" there, Charlotte: things are much, much, much worse than we fear.

The scale of the debt

There are a number of contributing factors here...

• NuLabour's spending splurge has racked up colossal amounts of debt already—near to 70% of GDP. Or, to put it in easier to understand terms...
  
  The government is currently borrowing about £0.5 billion per day. To put it in perspective, that is about what it costs to run Parliament for an entire year.


• Our structural deficit is just less than 10% of GDP—or about £150 billion.
  
  As we know, for the last couple of years, the government has been borrowing more like £170 billion per year. The structural deficit is, basically, the difference between what the government is spending and what it takes in tax that will still be with us when the recession is over.


• Currently, simply paying the interest (at about 4.5%) on this colossal amount of money is about £40 billion per year—more than the Defence Budget.
  
  If the market thinks that there is a high chance that the government might default on its debt or try to inflate it away, then investors will demand higher Gilt Yields (effectively, a higher interest rate).
  
  The higher the debt gets, the more likely it is that the government will try one or both of these strategies, driving interest rates higher. They are currently hovering around the 6.5% mark. In the 1970s, the rate reached close to 18%!


• Not one of the Big Three parties is proposing any plan to seriously mitigate any of this—all of them are proposing cuts of about £50 billion but none of them has set out in concrete terms how they are going to achieve this.
  
  And even if they had, £50 billion is only about one third of the structural deficit. In other words, even if the government makes £50 billion of cuts, it will still be borrowing £100 billion per year.
  
  Which means that not only will it not even be paying off any of the National Debt, it will be adding to it at the rate of £100 billion per year.
  
  As a result, the interest rate on Gilts is going to continue rising unless there are some serious cuts. (And if Labour get in, we going to be seriously screwed.)

"OK. Yeah, sure, Devil," I hear you cry. "But we're pretty big, economically: surely we aren't going to end up like Greece, are we?"
Hmmmm.

Total Fiscal Collapse

A couple of weeks ago, I was talking to the Taxpayer's Alliance's Research Director, Matt Sinclair, who is a very worried man. Matt pointed me towards a post summing up one projection of just how comprehensively screwed we are if something isn't done urgently.

Now a new report shows that the long term problem is even more serious. The Bank for International Settlements has looked at the picture in the longer term and the projections in its new report [PDF] suggest Britain faces the worst long term fiscal position of any of the countries it has looked at.

First, look at their projections for debt as a percentage of GDP. There are three lines on these graphs. The first - in red - is what they expect with present policies. The second - in green - is with a gradual fiscal adjustment, the BIS have worked on 1% of GDP a year for five years. The third - in blue - is with that gradual fiscal adjustment and a freeze in age-related spending as a share of GDP, which would be incredibly difficult given an ageing population.
...

Without policy change debt rises towards 550% of GDP in 2040 and even with the kind of fiscal adjustment the Government is planning (but not setting out a credible plan to achieve) debt will be rising towards 400% of GDP. Even freezing age-related expenditures won't get us off the hook:



The only country projected to run up bigger debts is Japan. But it gets worse when you look at how affordable those debts will be, which comes down to debt interest payments. It's just like a mortgage, people don't have their homes repossessed because they owe too much but because they can't make the payments.

Thanks in part to quantitative easing, we've had a relatively easy ride on that front so far. But this year the Government expect to spend more paying debt interest than they will on public order and safety. And I wrote yesterday about how that could get much worse quite quickly. The BIS present estimates of how debt interest costs could increase. On that score Britain faces the worst position of any country they looked at with debt interest rising in the baseline scenario to an incredible 27% of GDP:



Wat Tyler puts that in more tangible numbers, setting out the scenario we'll face if politicians don't get the deficits under control:

"Or to put it another way, by 2040 the average family would be paying (in today's money) over £10 grand every year just to pay the government's debt interest bill."

To do a quick back of the envelope calculation, our GDP is currently nearly £1.5 trillion. 27% of that is just over £400 billion. There are under 26 million families in Britain, which means the bill will be equivalent to over £15,000 per family today. And of course you would expect GDP to be a lot higher in 2040 which will inflate those numbers further.

The very important point to emphasise is that under the current plans of all parties, we are still heading for a debt of 400% of GDP. And if that happens, by 2040 we would be paying 27% of our GDP every year—some £400 billion at today's figures—just to pay the interest on our national debt.

Of course, as Matt pointed out, this figure is reasonably irrelevant since we would face total fiscal collapse long before that happened.

Whoever gets in at the next election—whether by a majority or in a coalition—desperately needs to get a grip on the nation's finances. And that is going to mean massive spending cuts in all areas of government; if this does not happen, the alternative is stark.

If that isn't done, we are heading for a prolonged and devastating economic crisis.

And simply raising taxes is not going to help either.

Think you can deal with that deficit through tax rises? The BIS agree with us that isn't a sensible way forward:

"Taxes distort resource allocation, and can lead to lower levels of growth. Given the level of taxes in some countries, one has to wonder if further increases will actually raise revenue."

Tax rises might increase revenue in the short term by taking more money out of people's pockets, but by undermining growth high taxation and spending will mean less revenue over time.

The argument is stronger even than that. BIS projections assume a 1% per annum growth in the economy up to 2040. Although savage cuts will still need to be made, one way in which the effect of these might be mitigated is through allowing the economy to grow considerably faster than this.

Going for broke growth

And the single best way to allow an economy to grow is to lower taxes. Via Burning Our Money, a November 2009 report from the New Policy Exchange featured a chart that showed this very neatly.



And to emphasise the point, let's return to Charlotte Gore's post, which spells out the issue very clearly.

No matter which party forms a Government, we’re going to get a very, very similar Government to the one we currently have.

It’ll be largely social democratic in nature, with a huge public sector that’s desperately trying to compensate for the weak private sector to give the illusion of a healthy economy.

Libertarians like me argue that the weakness of the private sector is in no small part due to the overwhelming redirection of national product into the public sector, and so waiting until the private sector sorts itself out before rolling back the public sector is a) Mental b) Wrong and c) Going To End In Tears.

The Government, you see, is currently overspending above and beyond what it takes in tax on an epic scale, and all three leaders say they want to sort that bit out. All well and good, but none will address the perversion of Keynesian thought that got us into this mess in the first place. Even Keynes thought the absolute maximum tolerable proportion of Gross National Product to be spent by the state was 25%… and we’re approaching 47%. In parts of Britain the public sector is 70% of the local economy which puts Soviet Russia to shame. We’re trying to keep a fire going by throwing on £50 notes with one hand, and buckets of water with the other.

And, in short, this is why there’s not enough jobs. There’s simply not enough stuff going on, so we have millions upon millions economically inactive, and an ever smaller number of businesses and people to pay for the ever growing public sector. This isn’t sustainable, or desirable, and truth is that the only choice is stop doing it or be stopped. That’s the choice.
...

The challenge for the next Government (as set by the three leaders) is simply to get public spending down from “let’s just hand the keys to the IMF” to “catastrophically expensive.” But even if the deficit could be reduced to zero overnight, the Government would STILL be consuming too much of the National wealth.

Quite. The more costs that you impose on business, the less business there will be—it's not a difficult concept to grasp.

And it's a concept that the government does understand—after all, why else tax cigarettes? The government (theoretically) wants people to give up smoking, so it taxes cigarettes so that you have fewer smokers. If you tax businesses, you will get less business.

The Solution

In the end, the solution must be something along the lines of that enacted by the New Zealand government of 1984 (the post on which is recreated from the DK archives below): not only a massive cut in government spending and a consequent consciousness of how—not how much—money is spent, but also a massive cut in taxes (and regulatory burdens).

But I fear that only the total fiscal collapse predicted will force the British public to face up to all of this.