COMMENT

A global archive of independent reviews of everything happening from the beginning of the millennium


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Comment reviews:

An Alternative Hypothesis

Mutt's Dinner

Margaret Thatcher

Arbitration and the Press

Public Speech

The New Faustian Pact

Strands of Change

Winning the Sweepstakes

Piketty and the Polar Bear

TUC Blues

General Election 2015

Restrictive Practices

Learn Rate

Lane Markings

Sentience

The Flood

NHS 1948 - 2018

Inheritance Tax




1 May 2018

The recent case of a girl expelled from a British Film Institute cinema for laughing too much at the instigation of a stranger who was reported on the BBC to have used abusive language to her is an example of a trait that we would do well to attempt to eliminate in Britain: busybodying at an individual level.

Willingness to come to the help of strangers in difficulty or distress, asking for nothing in return and instantly enjoying the new friendship or comradeship, is a trait of public spiritedness in Britain that should never go but busybodying under the pretence of being public spirited is reprehensible.




6 May 2018

The potential political reward of raising the inheritance tax allowance, lowering the rate or replacing it with a gifts receipt tax is great. When David Cameron's opposition proposed raising the inheritance tax limit to £1 million per person the Conservatives gained 10 percentage points in the polls and never really lost most of the uplift.

When Labour's secretary of state for health proposed an additional death tax, wise Tories knew that Labour could not get a majority at the upcoming general election.

Conservatism has always been about individuals. Listening to treasury gurus on how to raise tax never won elections.

Time to honour the promise. If we got David Cameron's referendum promise we need to get the inheritance tax one.

The local elections show that Labour is not on the march. Peak socialism has been past.

It is time to get a North-South Crossrail approved, too, to match the East-West one, in time for a new Conservative mayor in London.







9 September 2018

Snippets from The Sunday Telegraph:

* Don't replace inheritance with another levy - get rid of it altogether.


* Editorial headline: Pull the plug on HS2.

* Last night Cheryl Gillan MP, who campaigned against HS2, said: "Is it right that such large capital expediture should have only a quarter of people supporting it?

It is a deeply unpopular project that has not caught the imagination of the country in any way. I fundamentally question whether HS2 is good value for money and this suggests taxpayers may be of the same view. People want to spend money on the health service, which benefits everyone, rather than something like HS2, which will benefit only a few."




13 September 2018

One must be deeply suspicious of proposals by social democratic politicians to tax wealth on the basis of asset valuations.

If a corporation's profits double in a decade and the stock market also chooses to rate it at 30 times earnings rather than 20 times earnings, at the end of the decade, then the owners' stake is worth 150% more.

If the profitability of the company falls by half and the stock market also chooses to rate it at 10 times earnings because it is poorly performing then the owners' stake is worth 25% of what it was.

If you profess concern about inequality, did you take adequate action to reduce the profitability of companies that were, say, overcharging consumers for energy when you might have been Business Secretary and your colleague Energy Secretary? If not, why not?

Likewise, a studio flat in Oxford is a studio flat in Oxford even if it worth 3 times as much after 20 years. Labour is much exercised about council housing. Did it build enough to counteract supply shortages of accommodation when it had the opportunity? If not, why not?

One can be concerned about inequality but why not take actions that alter valuations and make inequality diminish as a by-product rather than get evangelical about taxing every middle-class beneficiary of uplifts in asset prices? Are tax refunds on offer to the same people when stock markets or property prices fall?

Taking from people is uphill work, especially if it is to pay for pet projects. Why the refusal to take the low-hanging fruit?


*****


Social democracy is unelectable. The bald truth is that the electorate will not trust any government now with schemes for more personal taxation. If pet projects, including inequality reduction, are to be financed they have to be done within the margin of deficit financing that the markets do not take fright at - say 3% of GDP - or by tackling corporate profitability based on excessive exploitation, which is by no means universal.

*****

Who was the most successful Chancellor of the Exchequer in reasonable living memory?

Despite a property downturn underway at the time: Kenneth Clarke.

The tax rules were reasonably fair - not overburdened with technical exceptions - and did not strive to take from particular segments of society.


New Labour had not yet introduced neoliberalism - the conspiring of government with big business to exploit the citizens - which it learnt from the Clinton administration.

Competition policy still allowed small companies and unincorporated traders to compete within a free market.


Magaret Thatcher always wanted to give small enterprise a chance. John Major sought a classless society.

Today, with neoliberalism rampant, individuals and small companies cannot safely put themselves on the line commercially and so economic growth will remain insipid.

In retrospect, a golden age of economic management.







COMMENT 2018


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15 February 2018

Running a country according to an economic theory is a distinctly tricky business as no economic theory particularly holds true in practice.

So it is often best to rely on rule of thumb observations drawn from the country's past economic history.

No industrial policy adopted and publicly announced - and there have been a lot announced - in Britain since 1965 has worked. There are only three times I can recall industrial intervention by the government having worked. They are as follows:

- Edward Heath's government's rescuing Rolls-Royce in 1973;

- John Major's government's encouragement of Japanese manufacturers, particulary car manufacturers, to come to Britain;

- Some discreet help to the car industry after the 2007-8 financial collapses, under Peter Mandelson's auspices.

Light, high-tech industry has, however, flourished west of Heathrow and in the Cambridge area quite well in the same period, perhaps because government has stayed at arm's length.

Other areas might have done a little better if industrial funding had been devolved regionally without central control.

Long term 'support', however, just produces flabby, greedy, oligarchical groupings with internationally uncompetitive players within them.

The idea of clusters is that there are many competitive players within a cluster who stimulate one another to do better. Industrially, they do not need directing by government. Government can help by preventing oligarchies developing.

In some cases private monopolies are proving better than private oligarchies because they have an interest in sidelining oligarchies in their quest of monopoly and as they do so the smaller, innovative companies find themselves freed from gatekeeping oligarchs.

*****

Quantitative easing is monetising government deficit spending by another name. This does not mean it is undesirable but it does mean that inflation will come through somehow. It has come through only gently in the price of goods, services and labour but it has found expression in rising global residential land prices in nearly all major cities.

There is no point in blaming the owners of residential property for rising prices. There is no point in taxing them either. It is axiomatic that you cannot really spend the aggregate capital in this case. When a government borrows from its country's population in wartime it is reducing the latter's current consumption. When you tax a home that will not be sold you are reducing the occupants' potential for current consumption. Only when you restrain quantitative easing and other monetary creation and - very important - release more land for building will you readily restrain property price inflation. If you only build higher buildings you must face the probability that you are only raising the cost of all neighbouring residential land because the plots become more valuable.


*****

If you reduce government expenditure to reduce personal tax you usually get increased GDP and the tax take then recovers.


If you increase personal tax to fund increased government expenditure the reverse is likely because of the inefficiencies of government spending - increasingly typical is the feather-bedding of oligarchical companies like Carillion or spending more on initiatives to devise industrial policies that will not work, neither of which does much to increase output.

In Britain currently, though, the option is not going to be a real terms reduction in government spending that permits personal tax reductions yet because some cost overruns are already in the pipeline - on HS2, on defence, on the NHS and, possibly, on exiting the EU.

So what choices are to be made? Deferring reductions in corporation tax to the end of the parliament might be one. However, if it is a choice between personal taxation and deficit financing, the second should be the choice despite the risks. Too little of GDP is staying with the household sector and as a result, though families are the best venture capitalists, business recovery, as opposed to specifically industrial recovery, is not being adequately generated from below, from individuals through to small companies through to medium-sized companies and beyond.
Insipid growth in the economy may be more due to this than to Brexit factors.

Of well-known companies that have made it through from medium-sized to international stature in the past decade I can only readily think of a few - ARM, Ineos, Dyson and Virgin.

Los Angeles or San Francisco probably each have more.

*****

Regulatory restrictions in the U.S. in the sixties and seventies led to the growth of the Eurodollar market in London. This was one of the innovations that propelled London into the top two financial centres in the world.

If the EU becomes determined to repatriate regulated business away from the City of London to the Continent after Brexit even a non-financier can conceive of innovations that could take place in London equivalent to the Eurodollar market. Does the EU want the City in its camp or not? The rest of the EU has a large surplus with the U.K. in traded goods. The U.K. has a smaller surplus in services. For both parties the logic is no tariffs, no barriers. Britain's industrial sector has its dynamism but its makeup suggests it is going nowhere hurriedly .... except perhaps behind a temporary tariff barrier that allows small companies to become medium sized with the government restraining oligarchies.



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18 May 2018

It is time to abandon the attempt to balance the budget.

When an economy is overheating or there has been an unrestrained splurge in government spending there is a case for it but not for over a decade.

Economies need some modest inflation and monetary creation to function at their best and this is best delivered by government deficit.


This is especially so in Britain where 80% of its economy is services, most of them traded domestically. Without a little monetary fuel to keep the wheels turning the whole vehicle can easily slow down.

The budget deficit is well within the 3% limit recommended by the EU and might temporarily disappear of its own accord if years of economic growth are maintained going forward. If it stays within this limit there is little cause for concern.

It is mythical that future generations of taxpayers will have to pay off the budget deficit.

Purchasers of government stock know the deal. For many years, even decades, they get a guaranteed income. Then a year or two of high inflation comes along and the value of the stock they hold is devalued in real terms.

In the game of musical chairs, if they are holding the stock in that year or two it is they that pay off the deficit, not taxpayers.

In financial markets you cannot eliminate risk nor should you attempt it.

At the heart of conservatism is that you do not penalize individuals for what they own. You let people keep their wealth, especially because most people make it themselves. The corollary that justifies conservatism is that you do not insulate them unduly from losing it themselves, only from sharp practice.

Opportunity gives rise to change and change should not be seen as bad.

That is why the failure of Northern Rock was handled right - the shareholders and bondholders took the hit but the depositors and borrowers did not - but the near failure of, say, HBOS was not. Its shareholders and bondholders were saved and its dodgy loanbook saddled a more viable bank with problems that required it to accept state assistance.

Had change happened, in most likelihood, we would have had a greater number of internet banks by now, robustly capitalised, competing with the bricks and mortar variety.




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8 September 2018

There is no majority in the Commons for increases in personal taxation, Brexit or no.

Rising tax revenues are partly due to previous failed attempts to raise taxation on individuals. The multiplier effect on the economy of cuts to personal taxation are greater than those to the corporate sector. Even the Liberal Democrats know this or they would not have pressed so hard to raise income tax thresholds.

The Treasury should implement the Dilnot report into social care with amended limits that suit it. It does not require increases in personal taxation and the report is better thought through than subsequent proposals.

If there is a gap in finances come the budget, which there may not be, the solution is clear: put Northern Powerhouse Rail and Crossrail 2 ahead of HS2 in the order of rail projects to be executed. If Carillion had been left to build a part of HS2, chances are a nightmare of escalating costs would have ensued. Finding a replacement contractor that can bolt down costs will take time.

It is not that we would not be proud of HS2 if it is built, just as we were of Concorde. It is just that it stops nowhere except termini and so benefits fewer than it should.

No private sector investor ever wanted to go near it. If the HS2 board thinks it is viable, let it sell it to a foreign sovereign wealth fund to build. The government can guarantee Northern Powerhouse Rail instead.



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10 September 2018

Today Boris Johnson is calling for much the same thing: an end to HS2 and lower taxes, including capital gains tax.


Conservative political philosophy is more about practice than theory.

Here we act as de facto Conservative philosopher.


*****

The introduction of a 28% capital gains tax was like Nelson going through the French fleet at Aboukir. Much larger revenues from income tax and VAT, that most turnover generates, were sacrificed for a pittance.

Every government wants more homes built but there has to be someone to build them. After this, and restrictions on bank lending, the small builders and developers decided not to venture out at all. They have since withered on the vine. No matter that there are loopholes and incentives, just as there are ways to run a blockade; you do not take unjustified risks.

British manufacturing can be bold but it is not going to be the main motor of the economy, as so many would-be industrial strategists wishfully make out. Britain would be better off making markets for the world, in art, antiques, bloodstock, securities, commodities and everything else but to do so it cannot have frictional costs like capital gains tax get in the way.

It used to be bad form for a major art work to appear on the market more than once every 40 years. That is nonsense. We would be delighted to see them traded in London every 7 years; we would get to see them, even if only on the television news.

All that British entrepreneurship waits for now, for its Trafalgar, is for a socialist government to introduce a Tobin tax.

The Netherlands has no capital gains tax but, as it happens, is more prosperous and a trading nation par excellence.

Australia and Canada have no inheritance tax. How much money would come back to Britain if there were no inheritance tax - £100 billion? - and could those bringing it back, some being entrepreneurs, not resist investing part in the real economy? For the most part they are paying no inheritance tax now but would they really pay no VAT or income tax once here?