Season Of Goodwill

The Major has made his view very clear:

"Why the bloody hell should we law-abiding taxpayers tolerate a bunch of freeloading welfare scroungers smashing up London? We spend God knows how much on these revolting students - and will still do so even after the fees increase. But just look how they thank us! Why should we give them anything?! If they want to spend three years dossing around and rioting, let them pay for it themselves. And I'll bet half those scum desecrating the Cenotaph yesterday aren't even students at all - they'll be anarchists. And we'll be paying them! Housing benefit, child benefit, incapacity benefit... you name it.

It's time to draw the line - anybody convicted of violent disorder should go to jail - hard labour - and then lose all their welfare benefits for ever. Period. In future, if they want to eat they have to work like everyone else. And if they think they can rob instead, we'll lock them up somewhere where they will have to work. I'll get my mate Gomulka to organise something with the Soviets out East - that'll soon wipe the smile off their faces."

Now, of course, nobody objects to peaceful protest. No, indeed.

Well, that is, nobody objects to peaceful protest as long as it doesn't inconvenience us. And as long as it doesn't require us to pick up some huge tab for police overtime. So long as it takes place on a Sunday afternoon in say, a field somewhere outside Milton Keynes, and so long as the protesters pay for the policing, like in a football match, then everything's cool. In fact, under those circs, we might even allow a little recreational effigy burning - a weekly bonfire night for young people to let off steam. Kind of idea.

But who exactly are these rioters, and who is paying to keep them alive?

According to police hunting down those involved in the previous riot - the one last month at Tory HQ in Millbank - they are mainly teenage students of one kind or another. They say:

"We are finding that many of these people are young students who do not seem to have been in any trouble before. It appears they may have been provoked by more anarchist groups.

From a parent's point of view it must be very concerning. These are young people committing really serious offences which I suspect may result in prison sentences for some." (The maximum sentence for violent disorder is 5 years)

Provoked by anarchists? Certainly when you look at the wanted poster, one or two do look older than teenage:

.
But who are these anarchists exactly?

Google's anarchist UK trail leads straight to the Anarchist Federation. But can they be in any way credible? Are real anarchists allowed to participate in such a restrictive and preposterous construct as a federation? It sounds more like the Mothers' Union. Besides, there's something seriously hollow about an organisation that wants to abolish oppressive government on the one hand, while maintaining Big Government spending on the other.

Googling Operation Malone - the police man-hunt for November's rioters - gives some far more promising leads.

Ian Bone (great name) is a veteran anarchist of 63. During the 80s he ran a newspaper called Class War, featuring pix of beaten-up policemen. And here he is addressing a Class War meeting in 1985 (parental discretion advised - some of his opinions are seriously juvenile - precisely the kind of thing which might appeal to disaffected teenagers at the University of Neverpay):



Anyway, Bone has some blogposts on the current riots that simply blew the Major away. For example, under the headline What a magnificent inspiring day - the London mob is fucking back Mr B writes:

"I salute everyone who atacked the police, the treasury, the Supreme Court, the Royal family, the tax avoiders today – a quite heroic and brave acievement. Full report tomorrow – ALL HAIL – IT’S THE POLL TAX RIOT MARK 2 – ‘we come from the slums of London……"

Now that's more like it. According to his own autobiography, Bone is the son of a butler and a housemaid (no, really) and obviously carries deep psychological scars from his parents' life below stairs:

"It is fucking phenomenol. the rich are targets whether its the Bullingdon Club, the Royals or Sir Philip Green... Yesterday was reminiscent of both the poll Tax Riot and the Gordon riots as a rich hating mob stormed through the streets... Organise and celebrate yesterday comrades…but theres more coming the way of the fucking rich…..much more.’WE COME FROM THE SLUMS OF LONDON’

All of which is absolutely fine.

Well, fine except for any incitement to riot bits obviously.

But what we need to know is how does Bone support himself?

He has published three books, including the carefully nuanced "Bash the Rich". But given that B the R is currently standing at 76,361 in the Amazon best seller list, you'd have to guess he has some other source of income. And his website gives no other clues.

One of those oldies' jobs in B&Q? At 63 it's possible.

A family inheritance? Seems a tad unlikely.

Money from Putin? In the 80s, Class War and its ilk were widely thought to have been financed by the KGB, so that has to be a runner.

But the Major reckons Bone and his like must be on some kind of welfare deal.

Unfortunately we have no way of finding out.

In this season of goodwill to all men, let's hope someone round at the DWP is looking into the entire question right now.

****

Meanwhile on an altogether more seasonal level, we've just updated the TaxPayers' Alliance Tax on Christmas paper.

We reckon that taxes on Xmas spending this year will cost the average family £283. The overall bill will be £7.2bn, an astonishing 40% increase on 2008, when we last did the calc.

Part of the increase has been driven by the growth in Xmas spending, 2008 coming immediately after the Lehman crisis. But the majority of it reflects higher tax rates - the hike in VAT from 15% back up to 17.5%, plus increases in various fuel and excise duties.

And the really bad news is that VAT increases again on 4 Jan to 20%. According to Treasury forecasts, the rise will cost the average family nearly £500 pa, taking the average family VAT bill above £4000 pa for the very first time.

Happy Xmas everyone.

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www.gudanggrosiran.com Categories: riots, tax, vat

Is There An Alternative To TINA?

What happens when government debt goes bad

On the morning after the head of the OECD likened the Greek debt crisis to an Ebola Virus sweeping across Europe, Tyler took part in a radio discussion with Stuart Wallis, the head of the New Economics Foundation. All agreed that HMG's deficit must be tackled, but at issue was whether we could avoid painful spending cuts by increasing tax revenues instead.

The NEF has just published a report which argues that precise case. It says:

"... the public deficit could, in fact, be substantially offset by a range of progressive measures on tax...

...the Green New Deal Group estimate that more than £100 billion a year is lost because of abuse of loopholes in the tax system, tax bills remaining unpaid and from illegal non-payment of tax...

This is not about new taxes, simply collecting taxes that are due, closing loopholes in the tax system and clamping down on illegal non-payment of taxes. In addition, as the Green New Deal group show, there is an enormous range of additional taxes available that would make the UK’s tax system fairer. Those with the greatest capacity to pay tax could carry more of the burden."

Which all sounds much easier than cutting schools, hospitals, and welfare. So is it an alternative to TINA?

To start with, raising revenue painlessly by cutting down on tax abuse sounds like a no-brainer. It's an argument the Lib Dems have already deployed, and we will be hearing a lot more of it over coming months.

We've blogged this so-called Tax Gap - ie the gap between what the taxman should get and what he actually gets - many times (eg see here, here, and here). Of course, in reality it's very difficult to know how big it is, because, like the man said, we don't know what we don't know. But we came up with a total in the range £60-80 bn pa, largely attributable to the black economy. That's some way short of the £100bn quoted by the NEF, but still a big chunk of potential revenue.

So we can all agree there are uncollected taxes out there, and they should be collected. The problem is that governments have been trying to collect uncollected taxes ever since the Emperor Caesar Augustus invented modern taxation back when Jesus was born. And while they always have to keep trying, there is no reason to believe we will now suddenly discover how to do it better. Especially when you understand that compared to tax collecting authorities elsewhere - eg Greece - HMRC actually does reasonably well.

Which means the NEF approach ultimately has to fall back on raising tax rates. And their paper makes a number of suggestions.

First, they'd completely abolish the earnings cap for National Insurance Contributions (NICs), which would mean anyone earning over £44000 pa would face a tax rise. They'd also make investment income subject the NICs, which would mean for example, increased tax on pensioner savings income. And they'd impose a range of extra bank taxes, including a tax on all payments you make from your personal bank account.

But their main focus for higher taxes would be the rich, whom they define as anyone with an income above £100k pa. So all incomes above £100k would be subject to the new 50% tax rate (instead of just incomes over £150k, as now), and tax allowances would be limited to £5000.

BOM readers will be quite familiar with the problems here.

For one thing, only 2% of incomes are actually higher than £100k pa, which means that whacking those incomes will never raise nearly as much as an increase in broader taxes.

Also, as we've blogged before (eg here), people faced with higher taxes invariably change their behaviour, cutting their liability by working less or finding some new workaround. So the tax take is always a lot less than the number the government first thought of. For example, even on the government's own numbers the new 50p tax rate will only raise just over £2bn pa, and most independent analysts (eg the IFS) think it will raise a good deal less - maybe nothing at all.

And more generally, as we've blogged to death, higher taxes cut economic growth. And given our current dire situation, cutting economic growth is not something any of us should feel comfortable about. Growth is the only way we can get out of this hole, and lower taxes are just about the only reliable tool at our disposal to deliver that growth.

So we have to disagree with the NEF.

Sadly, there is no painless alternative to TINA. In reality, there is nothing for it but to grit our teeth and cut public spending - exactly as recommended in the TPA's most excellent new book, How to cut public spending (and still win an election) - available for all good book stores now.

And if we don't?

We'll simply run out of road, and find ourselves facing our own anti-IMF riots, just like the ones in Greece (pic).

PS This morning's discussion took place on Colourful Radio, a new DAB digital station for London. It specialises in soul music and current affairs - a fantastic combination. But the best bit is that it was set up and runs with no taxpayer support whatesoever - nothing from the government, nothing from the Mayor, and nothing from some obscure media engagement quango. This is private enterprise in action, and they will sink or swim by meeting the needs of their customers. May we wish them the very best of luck.

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www.gudanggrosiran.com Categories: cuts, debt, riots, tax and spend

So You're A German Taxpayer...

They took away your DM, and now they want your wallet

So you're a German taxpayer and right now you're not happy.

Not at all happy.

It's all very well for lefty Nobel laureate economists to pontificate on TV saying that you should pick up the tab for those crazy Greeks, but WTF?

It wasn't you who ran up all those debts. It wasn't you who employed legions of civil servants and then paid them so extravagantly. It wasn't you who let the public finances kereer out of control, failed to take any remedial measures, and then cooked the books so nobody would know. It wasn't even you who elected the clothead government that did this. So WTF should you pay?

WTF indeed.

It would be like, say, some bunch of clowns who you didn't vote for coming to power in this country. And then they splurge shedloads of money they don't have on a wild expansion of the public sector, and let the public finances kereer out of control. And then they cook the books to hide the damage. And then, when the damage can't be hidden any more, they come to you and say you've got to pay off the humongous pile of debts they've accumulated.

Thank God that couldn't happen here.

*****

And thank God we're not in the Euro. As we've blogged before, the only thing Gordo has ever done that's been any use was to stop Imperator Bliar taking us in.

Because if we were in the Euro, we'd now be on the spit alongside the Greeks and the other PIGS. Sure we'd be forced to make the spending cuts pdq - which would be A Good Thing - but we'd have no opportunity to earn ourselves out of penury via a currency depreciation. We'd be looking into a long dark tunnel of jobless joyless despair, with no glimmer of light much before 2030.

Not that being outside the Euro means we're out of jail free. Yes, independent free floating sterling gives us the chance to earn our way back to health - a chance denied to the Greeks - but we still face a huge risk that weaker sterling will spill over into higher domestic inflation. And although the Bank of England has finally stopped printing all that surplus money (aka Quantitative Easing), we remain wholly unconvinced they have a grip on the inflation risk.

So should you switch your savings into Euros? The traditional pre-Euro investment rule for continental currencies was "buy on a strike: sell on a riot", and I fancy I hear the sirens of the sell signal coming from Athens right now.

No, for security of capital, your best savings bet is anything that looks like this:

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www.gudanggrosiran.com Categories: debt, riots

In Their Heads But Not Their Souls

The fire last time

Yesterday Tyler had a chat with one of Britain's few sound MPs. We naturally touched on our fiscal crisis, and the risks of a 70s style market meltdown. Tyler wondered if MPs understand the need for urgent and painful action?

"Well, on one level, yes... but it's in their heads, not their souls."

Which seemed a pretty good summary of the entire problem, from the top down.

Brown/Darling have acknowledged the need for some kind of fiscal tightening, but not until way off in the medium-term, well beyond the next election. And even then, they've kept the details hidden, and their numbers only add up on the basis of wildly optimistic assumptions about future economic growth (eg see this blog).

Cam/Os have talked much more of the tightening talk, but their announced measures deliver less than £10bn of the £50-100bn cuts required (eg see this blog). St Vince ditto (see this blog).

The hope seems to be that once again, we can somehow muddle through. Unfortunately, our fiscal hole is now so big, that is most unlikely.

Last week, Tyler attended a session to launch of Politeia's latest paper Booms, Busts & Fiscal Policy - Public finances in the future? (unfortunately not online). It was written by one of BOM's heroes - Ludger Schuknecht, a senior economist at the European Central Bank and co-author of a seminal study on the inefficiency of Big Government (Public Spending in the 20th Century).

Disappointingly, Mr Schuknecht himself wasn't actually in attendance - that's because ECB rules apparently require him to clear anything he ever says in advance with his bosses (Soviet institutions didn't trust their senior staff to go out alone without minders either).

Anyway, Schuknecht reviews the deterioration of public finances across the major economies, and says our fiscal situation is the worst:

"The worsening in fiscal balances [is] staggering... within only three years, public debt is projected to increase by 40 per cent of GDP in the UK [against 30% in the US, and 20% in Japan and the Euro area]...

The first challenge must be the ambitious correction of fiscal deficits so that the debt dynamics do not explode... Given the higher deficits in the UK... their dynamics could be even less favourable..."

So debt dynamicwise, our position is even less favourable than an explosion. Does it get any worse than that?

[Debt dynamics? We've blogged about this before under its everyday label - the Doomsday Machine - and it's the simple idea that once debt gets beyond a certain point, the interest on that debt starts to cumulate faster than the borrower can pay down the debt... leading to all of us having to turn off the central heating and live on baked beans for the next 30 years]

HTF did we get here? Schuknecht highlights something we've blogged many many times on BOM - Brown spent far too much. Either deliberately or recklessly, Brown assumed a temporary boom in tax revenues from the finance and property bubbles was permanent income for him to spend as he wished. Which, coupled with the increase in welfare spending from this recession, means that in 2010 public spending will exceed 50% of GDP. And over the decade of the noughties, public spending will have increased by a pant-wetting 16% of GDP, far more than any other major economy (Germany's increase is 1.4%).

So what to do?

Mr S has a familiar prescription - spending must be cut substantially.

As he points out, deficit reductions based on tax increases are not only damaging to economic growth, they are unlikely to be sustainable from a political perspective - ie people won't tolerate them for long. And as he further points out, there is now considerable evidence (including that gathered by he himself) that government spending much above 35% of GDP is increasingly inefficient - ie it does little to achieve its objectives:

"A ratio below 40% of GDP and ideally 30-35% should be sufficient and allow good outcomes in areas judged to matter in western economies: functioning markets, equal opportunity for market participants, essential public goods and services, infrastructure, economic stability, and income distribution.

The evidence is that ambitious reforms that reduce government spending on public employment and other public consumption and on transfers and subsidies, is the best and most successful way to bring down public spending at little cost to economic cost and wellbeing."

So we need an axe, but the axe needs to be combined with a serious programme of public sector reform... something like school vouchers and competing social health insurers, say.

Oh, and one other thing - the state pension age needs to be increased much further and faster than we currently plan. The truth is we cannot afford it any more, and people are going to have to support themselves for much more of their lives (thereby of course, boosting economic growth and improving the fiscal arithmetic still further).

All very sensible stuff, fully supported here on BOM.

But as it happens, there were a couple of very senior MPs at this Politeia event, and while one of them seemed to get it, the other observed that cuts are all very well but we must not push them so far as to foment social unrest.

Presumably, he was thinking of the riots in Toxteth, Brixton, etc back in the early 80s (pic). And you have to say, you could imagine it happening again - especially given the tensions over mass immigration and British jobs for British workers.

But on the other side, TINA is heading back towards us. And this time she looks mad as hell.

As we've blogged many times, we are standing on the fiscal edge. Buoyed by the Bank of England's massive gilt purchases, and the belief hope that Cam/Os will get a post-Election grip, the markets have so far given us the benefit of the doubt. But if that slips, we are in real trouble. As spelled out in yesterday's report from investment bank Morgan Stanley:

“Growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK's AAA status...

In an extreme situation a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery.”

Hung parliaments... MPs with weak souls... Cam/Os faffing around... TINA looking mad... a long hot summer...

Sounds like it's time to follow the Major and lay in some fire extinguishers. And a shotgun.

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www.gudanggrosiran.com Categories: cuts, riots