A great temptation of having a blog is to use it to air the kinds of ideas one used to propound in pubs, just before closing time. In the days, of course, when there were still proper pubs. And closing time.
I almost always resist this temptation, but tonight I feel I cannot – the U. of K. is just about to be witness to an emergency budget, as the new coalition government aims to clear up the legacy of mess and waste left by the last lot. There is of course a great deal of talk about how heavily the cuts will have to fall, especially in the pampered public sector (not that the public sector workforce will see it like that), and the interesting thing is not that the last lot would disagree with the scale of the cuts, only about their timing.
Cuts, cuts, cuts. That’s what everyone’s talking about, and cuts will go hand in hand with rises in taxation, in the same way that Jason goes with Kylie, or, perhaps more appositely, Fannie goes with Freddie. Now, I am doubtless to an economist as is a lentil is to a whale, but I think people are missing something. Yes, cuts need to be made in spending, but also in taxation. If we want to trim spending and get the economy out of the drabs, we should cut taxation, not raise it. This would inject more money into the real economy straight away, which the government would more than recoup through income tax as the economy surges into growth.
But first, let’s identify a couple of cuts that could and should be made immediately.
We should secede from the European Union. Much, if not most, of our legislation is decreed from the EU. There is nothing wrong with that in principle. The reality is, however, that the EU is far from a representative body. Perhaps more serious, however, is its long-standing financial incompetence. Things have gotten a bit better recently, but one wonders why, in such straitened times, we should be throwing good money after bad. A counter-argument is that the EU is our major trading partner. That’s a red herring – China isn’t a member of the EU, either, and does very well, thank you, regulating itself. (Interesting aside – the recent decision by the People’s Bank of China to let the yuan float free from the dollar – at least a little – could be the most welcome news for western economies for a long time).
We should stop fighting other peoples’ wars. Any historian will tell you that wars in Afghanistan are unwinnable. That was as true in the Good Old Days of Empire as it is now. We should pull out now.
Now to the main theme – taxation. If one is (as one should) to restrict welfare payments to the genuinely needy rather than using them to subsidize entire families on council estates who will never, ever do any work, one has to nurture an economy in which there are jobs to go to. The best way to do this, I think, is to make it as attractive as possible for people to go to work and stay there, and for businesses to keep employing them, to thrive, and be competitive. Here, then, are a few modest measures that could be introduced to this end.
A Flat Rate of Income Tax, around 25%. This would apply to all people, rich or poor. Some might think this is unfair, but it’s not – most people fail to understand percentages, not realizing that 25% of a million pounds is a lot more than 25% of ten thousand pounds. Rich people will pay more than poor ones, though not disproportionately more (I regard the current disprorportion as a disincentive to aspiration and success). A flat tax would greatly simplify the currently very complicated system in which there are several tax bands, and in which many people pay tax and then claim money back in various forms of tax credit. It would be simpler to pay less tax to start with, dispense with the unnecessary bureaucracy, and let people keep more of the money they earn to spend on what they like – stimulating the economy with real money rather than increased indebtedness.
Slashing taxation and regulation for business. Many years ago when the world was young I had a small limited company. It was only worth the extra administrative hassle because company directors on a higher tax band could claim dividends at a lower one. Mr Gordon Brown, when he was Chancellor, plugged that loophole, presumably as a sop to his socialist colleagues whose addled minds were filled with champagne-swilling, frock-coated mill-owners out of Dickens. But for a bottom-feeder like me, it made all the difference between having a company and not having a company, so I wound it up.
I could go on – there are so many taxes and regulations that could and should be scrapped entirely. Death duties (kept, again, only as a sop to those whose minds haven’t gotten into the twentieth century. let alone the twenty-first). Stamp duty (introduced in the Napoleonic Wars, I think, as a temporary measure). Large swathes of capital gains tax and corporation tax. And, of course, National Insurance, which is another income tax in all but name, except that it hits employers as well as those they employ.
The general effect of all this might be be massive and palpable leading to a marked upturn in our economy, freeing up businesses to do what they do best; attracting inward investment; creating jobs; injecting real money (rather than more debt) into the economy, and creating wealth for everyone.
What could possibly be wrong with that?