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

Severe Shortage Of Millionaires

Wrong message - we need more millionaires

With Red Ed at the controls, we can expect Labour to target the undeserving rich just as stridently as they ever did back in the day. But the middle class, no, they won't be squeezed. Labour under Ed will cherish and protect the middle class. It's those rich bastards who'll have to pay.

But who exactly are those rich bastards, and are there enough to go round? Robbing from the rich to give to the poor is one thing, but robbing from the rich to give to the teeming middle class requires the rich to have an awful lot of riches in the first place.

If we define the rich in terms of income, then the official stats tell us that the top 10% of households get 30% of the income (ie gross market income going to the personal sector before taking account of government transfers - welfare etc). Which at first blush might sound like an ideal target for Ed's Robin Hooding.

But he needs to understand a couple of key points. First, the top 10% are already paying more than their share of the taxes - 27% at the last count - and they might not take kindly to paying even more (like, they might down tools and leave). And second, the gross income level that takes a household into the top 10% is around £50,000 pa, which in London and the South East at least is viewed as a middle class income - certainly not "rich".

If instead we define rich in terms of wealth rather than income, we find an even greater concentration in the hands of the top 10%. According to the ONS, immediately pre-Crash, total household wealth amounted to £9 trillion. And of that, nearly £4 trillion (well over 40%) was owned by the top 10%:

A concentration like that looks much more promising for Ed. Taxing wealth is arguably less damaging to growth than taxing earnings, and those rich bastards would surely not miss the odd trillion.

Except that when we look closely, we can see that the biggest single chunk of this wealth comprises the value of pension entitlements, a golden pot that already took a severe walloping from Ed's mentor, the Great Helmsman. With occupational pensions now a thing of the past (at least outside the public sector) it has become a wasting asset.

What's more, the second biggest chunk of wealth comprises property assets, which again, have taken a serious walloping since the ONS compiled its numbers.

In fact when you focus in on the actual cash and other readily realisable assets owned by the rich - ie the financial wealth that Ed could actually grab and redistribute - you find it is very much smaller, at around £0.5 trillion. What's more, because it is so liquid, any attempt by Ed to grab it would swiftly result in its disappearance out of harms way.

The real problem is that there simply aren't enough millionaires to go round. According to the 2010 World Wealth Report, the UK has around 450,000 so-called High Net Worth Individuals (HNWIs), which sounds like quite a few. But a HNWI is defined as a dollar millionaire in terms of cash and other reddies, and these days even the average punter earns more than that over his lifetime. In terms of robbing the rich , it's pretty slim pickings.

No, whatever Ed may claim, robbing the idle rich could not possibly raise enough cash to protect the middle class from the squeeze. The reason that successive governments rob the middle class is simply because that's where the money is.

In  the real world outside Ed's fantasies, the only way the middle class can even hope to escape is if Cam and George push on with their spending cuts.

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www.gudanggrosiran.com Categories: politicos, politics of envy, tax

New TPA Vid

To coincide with this Year's Tax Freedom Day - the day when Britain stops working for the government and starts working for itself - the TPA has launched a new vid showing how the tax burden grinds down one young worker.

Starting work at 9am, it isn't until 1.21pm that he's earned enough to pay off the government. Only then is he free to work for himself.

PS Don't believe the TPA's numbers? Tyler is 100% confident they are spot on - largely because he was the one who calculated them. And in truth, he'd have gone further. Because if you add in the government's borrowing - which after all, is nothing more than deferred taxation - you find that our typical worker is still working for the government right up to 3.10pm (assumes 30 mins lunch break). Is it any wonder everyone's so stressed at work?

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www.gudanggrosiran.com Categories: tax, TPA

Cardiac Arrest On The Forecourt

Change like cutting fuel tax back to 80s levels

This afternoon Tyler suffered a cardiac arrest on the forecourt. A credit cardiac arrest. For the first time ever, the price of filling his fired up gas guzzling Quattro topped 80 quid.

80 friggin quid!

Tyler can still remember being shocked when the Iran Iraq War sent the price of a gallon soaring to the exhorbitant level of £1. But that's a dream compared to today's all-time record price of £5.46 per gallon.

Fuel prices have now reached record highs. Is the problem greedy oil barons and speculators, as Bishop Snow preaches, or our hippy eco-wibbling government?

Here's a chart based on the official price series from the Department of Energy and Climate Change. It shows the pump price of unleaded petrol, and the amount accounted for by tax (duty and VAT):

The impact of tax jumps right out: of today's average £1.20 per litre pump price, just 42 pence actually pays for the petrol. The other 78 pence (65%) is duty and VAT, going to the government. Which means that of Tyler's 80 quid, a staggering £52 went to the government. Or to put it another way, without tax, Tyler could have filled up for £28.

So we can be quite clear - when it comes to the level of pump prices, it's the government that's squarely to blame.

However, when it comes to the 28% increase in pump prices over the last 12 months, it turns out that tax only accounts for just over one-third of it (despite the 2.5% hike in VAT and this week's increase in fuel duty). The rest is down to market fluctuations.

Driven by the realisation that the Far East is still growing, and commodity hungry, the dollar price of crude oil is up two-thirds over the past year:

Which brings us back to sterling. Oil is priced in US dollars, and as sterling gets weaker against the dollar, our forecourt prices automatically rise.

As it happens, sterling is a little higher against the US dollar over 12 months, but it's still down a whacking 25% since 2007. And unless we tackle our fiscal problems with convincing determination, sterling will soon be heading down again.

At which point, you'll get a load of old timers like Tyler saying "I remember when we could afford to run motorcars. Why, petrol was only £1.20 a litre".

So take this as a warning.

And fill up tomorrow.

Oh, and if you find a candidate who doesn't subscribe to the eco-wibbling idea that fuel taxes should be increased for ever, you might let me know.

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www.gudanggrosiran.com Categories: green taxes, tax

Throttling The Goose

Wake up Polly

According to the Office for National Statistics, the richest 10% of households pay a quarter of all personal taxes (including income tax, National Insurance, VAT, Council Tax, and sin duties).

Good thing too, you say - they're rich, so they can afford it.

And you do have a point. Especially when you consider that this richest 10% get 30% of all the income (ie households original income, before taxing account of tax and welfare benefits).

But then again, these rich households contain the very people we're going to need to drag Britain out of the mire. The contain the entrepreneurs, the high skill professionals, and yes, the bankers, on whom we will depend to create the wealth of the future. Which means we need to be very careful before whacking them with yet higher taxes.

Unfortunately, as you may know, yesterday saw the introduction of the new 50p tax rate for everyone getting over £150 grand pa. It also saw the abolition of the tax-free persconal allowance for anyone getting more than £100 grand (the allowance is progressively clawed back as income rises above £100k, imposing an effective 61% tax band between £100k and £113k).

It's certainly not the way to get the economy moving again. But the really stupid thing is that it's most unlikely to raise any additional tax revenue (see this blog). Indeed, by encouraging high earners to rearrange their affairs in order to avoid the tax, it could easily reduce revenue.

Just as a reminder, when Thatcher's government cut the top rate of income tax, it substantially increased payments from top taxpayers. In 1979, the top rate was cut from Labour's lunatic 83% down to a somewhat saner 60%, and then in 1988 it was cut again to 40%. And the share of income tax paid by the top 1% of taxpayers virtually doubled, from 11% in 1978-79 up to 21% by the 1990s.

For future reference here are the figures (including the proportion of tax paid by the top 10%):

To summarise, history tells us that cutting top income tax rates increases the amount of tax paid by the rich.

HMRC estimates that nearly three-quarters of all income tax last year was paid by the richest 25%. We have now put that in serious jeopardy.

So why hasn't multi-millionaire Dave Cam pledged to reverse Labour's top tax increases?

Don't be daft - you know why.

We'll just have to hope that really he does understands the damage it will do, and somehow finds the courage to reverse it as soon as he gets his feet under the desk.

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www.gudanggrosiran.com Categories: 2010 Election, tax

Cutting The Jobs Tax

A Big Blue Tick

Well done George.

As we blogged here, Labour's planned double-dose increase in the jobs tax is one of the most economically destructive measures even these clowns have managed to cook up. Work by Policy Exchange suggests it could cost up to half a million jobs.

And as we attempt to crawl out of the deep jobless recessionary pit Labour has dug for us, George's promise to rescind at least part of the increase in National Insurance Contributions is what we would describe as common sense economics.

Not that you'd have gleaned that from most of today's media coverage (the irreplaceable Jeff Randall aside). The BBC and C4 News both took the Labour line that George is spending money he doesn't have. Notwithstanding that the £5.6bn pa cost is fully funded by a £6bn cut in Departmental Expenditure Limits (DELs).

They variously commented either that George should put all his savings into cutting the deficit, or that increasing the jobs tax is somehow less destructive of jobs than cutting public spending - ie the traditional socialist view - or that the spending cuts can't be achieved by efficiency savings.

Normally of course, we too are highly sceptical about any government's ability to achieve efficiency savings. But in this case, George is concentrating his efforts on procurement spending (ie the £200bn pa HMG spends on outside suppliers), and that is the one area where the public sector has had some success in the past.

And even if he fails to achieve the promised procurement savings, in the context of £700bn pa public expenditure, a £6bn cut is hardly swingeing. As we blogged here, Darling's budget left us with public spending set to increase by 2% in real terms next year. All George's announced cuts have done is to halve that increase to 1%.

So a Big Tick for George. And some clear blue tax water. Excellent.

*****

No time for further reflections just now - got to do some homework. Tomorrow I'm attending a discussion on what we should do about the banks, featuring John McFall (retiring chair of the Treasury Select Committee), St Vince, and various other notables. Homework comprises today's Treasury Committee report, which turns out to be a mind-crushing 250 pages. We will report back.

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www.gudanggrosiran.com Categories: tax

Destroying Jobs

It seemed like a good idea at the time

A very interesting new report from Policy Exchange today. Andrew Lilico and Hiba Sameen have been looking at the effect of various different types of tax on economic growth and employment, and have come up with some striking conclusions.

They've used the Oxford Economic Forecasting model - which is very similar to the Treasury's model of the economy - to analyse the impact of various tax changes. And they raise a big red flag over Labour's planned increase in National Insurance Contributions (NICs).

Now as we all know, National Insurance Contributions are a tax on jobs - pure and simple. They make it more expensive for companies to employ people. When Labour came to power, the standard rate of employers NICs (contracted in) was 10%, but after a string of increases, as from April 2011, they will be 13.8% - one percentage point higher than now.

So Policy Exchange has run the model, and discovered that a 2 percentage point increase in employers' NICs after three years produces a one million increase in unemployment. Which would imply that the planned increase of one percentage point next year will cost half a million jobs.

Now, sure, you can argue with the detailed assumptions built into the model, but this must be pretty close to what HMT discovered when they ran their own model. And yet Brown went ahead with the NICs increases anyway.

When Darling gets up on Wednesday and tells us how they don't need to increase VAT because they've already taken the tough tax decisions, you want to remember this. Labour's planned tax increases are just about the most jobs destructive of all.

PS The Policy Exchange report also has a good summary of the increasing volume of research showing a link between the tax burden and long-term GDP growth (see page 20). For example, a 2008 study of OECD and EU countries over the period 1970 - 2004 found that a one percentage point increase in the share of total tax in GDP reduces output growth by 0.12 percentage points.

PPS Several correspondents have drawn attention to today's report that UK government spending has now reached 52% of GDP, as opposed to the 48% quoted on BOM's sidebar. The 52% comes from the OECD and differs somewhat from HMT's definition of public spending - the source of the 48%. But we're investigating further and will report back.

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www.gudanggrosiran.com Categories: fiscal policy, tax

Tax And The Tories

Wanted: a shaft of sunlight

Once upon a time we all knew where the parties stood on tax. Labour stood for increases, and the Tories for cuts.

These days it's not so easy. Two years of sharing the proceeds blurred the old clearcut Tory tax brand beyond recognition. And now a full-on fiscal crisis has swept away all hope.

The dismal result is that voters no longer associate the Tories with tax cuts, or it seems any clearcut tax policies at all. Last week, ICM asked voters which party has the best policies on setting taxes, and on this vital touchstone issue found the Tories actually trailing Labour. For those of us who are desperate to see Labour out, it's nothing short of tragic.

It's especially tragic when we recall that in between the fog of sharing the proceeds and the cataclysmic onset of fiscal Armageddon, we briefly glimpsed a shaft of brilliant sunshine.

At the Tory Conference in 2007, George transformed the political landscape with a single tax pledge - to abolish Inheritance Tax on all estates of less than £1m. At the time, the Tories were facing electoral anihilation at the hands of the Big Clunking Fist, but that pledge changed everything. We were actually there in the hall, and it nearly brought the roof down. You knew immediately it was a game changer (see this post), and within days Brown had bottled the entire election.

What's that? There's no money left to cut taxes?

Hmm. The point about the IHT announcement was less the amount of the tax cut that it represented (IHT will only raise £2.2bn this year), and more the fact that it was a clear and convincing declaration of intent - a declaration that the Tories were returning to their traditional faith in low taxes.

In truth, everybody knows our fiscal position will not permit big tax cuts any time soon. But we need to know that the Tories will make cutting taxes a higher prority than public spending. We need to know they will resist the pressure to balance the books with higher taxes next year. And we need to know that over the next five years, tax cuts will be delivered ahead of any return to higher spending.

PS One other thing to remember is the lesson of history. As we blogged here, successful programmes to cut big fiscal deficits like ours have always emphasised spending cuts above tax increases. According to research by Policy Exchange, successful consolidations (as squeezes are known in polite company) have typically placed around 80% of the burden on spending cuts and only 20% on tax rises. Consolidations based on tax increases almost always prove to be unsustainable (like Labour's ultimately failed attempt following the 1967 devaluation).

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www.gudanggrosiran.com Categories: fiscal policy, tax

Debt And Taxes

An alternative to emigration

[NB If you find A Level economics an insult to your intelligence, skip this post]

How much is this wretched government costing us?

For many years our politicos wanted us to focus on taxes, including the famous tax bombshell that nuked Labour in 1992, and the NuLab pledge not to increase income tax that helped them win in 1997. But taxes are only part of the cost of government. As we have all surely come to realise by now, we also need to consider the debt government runs up in our name - the costs that will hang round our necks for years to come.

Consider the following two charts. The first shows taxes as a percentage of GDP - the traditional measure of the cost of government:

On that basis you might conclude that our current spendthrift government hasn't done too badly. In fact, they've managed to keep the average tax take more or less in line with the average achieved under Thatcher/Major - 35% of GDP.

But when we add in borrowing we can see just how shocking Labour's performance has actually been. The government's total take of 46% has already soared beyond anything we've seen in the last half century, even in the benighted 70s*:

What could be clearer?

Except we've recently heard a number of Labour apologists telling us that conflating tax and government borrowing is like adding together apples and pears. Whereas we have to pay £100 of taxes out our incomes right here and now, we only have to pay around £5 of interest on £100 borrowing. So there's a huge difference, and people like Tyler shouldn't get so steamed up about "short-term" government borrowing.

But the point about borrowing is that we either have to repay it - in which case we have to reach into our pockets for £100 - or we have to go on paying £5 a year for ever. At the end of 20 years we'll have paid out £100, and at the end of a century we'll have paid out £500. It's no different to borrowing on a credit card.

Think of it in terms of your wealth rather than your annual income. Sure, you can borrow on a credit card to finance your holiday. But in terms of your overall wealth - ie the sum of your lifetime income and all your current assets - you're no better off than if you'd paid for it out of this month's salary cheque. Indeed, at current credit card rates you'd have been much better off saving up for it.

The truth is that whether the government taxes us today, or borrows and taxes us tomorrow, our overall wealth suffers just as much. And when we're judging how much this government is costing us we need to look not just at current taxes, but also at current borrowing.

Of course, as the Major keeps reminding me, when it comes to paying future taxes, there are a couple of loopholes. First, there's emigration to a low tax domicile, as currently planned by the Major, the Golf Club Committee, and most of Tyler's acquaintances. And second, there's the tax optimised shuffling-off option (see ad above).

(For 5 extra A Level marks, see also this blog on Ricardian Equivalence, the 200 year old idea that government debt is no more than deferred taxation, and that debt funded tax cuts fool nobody).

*Footnote - Our figures for the total government take comprise taxes and borrowing. They therefore exclude various minor items like the government's receipts of interest and dividends. They also exclude the trading surpluses of nationalised industries.

PS Talking of low tax domiciles, how much longer are the BBC and C4 News going to headline the latest twists in the sorry Ashcroft saga? Yes, it's bad that rich non-doms fund our political parties, and it's bad that rich guys can buy peerages - we'd stop both tomorrow. But since all three parties are up to their necks in the self-same pits of shame, why are our mainstream broadcasters picking on the Tories? Anyone would think they were biased, and we know that can't be true.

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www.gudanggrosiran.com Categories: debt, tax

The T Word

"And it came to pass in those days, that there went out a decree from Caesar Augustus that all the world should be taxed." (Luke 2:1, King James Bible, 1611)

"At that time the Roman emperor, Augustus, decreed that a census should be taken throughout the Roman Empire." (Luke 2:1, New Living Translation, 2007)

Just like NuEverything, New Bibles don't like to mention the word tax. Much better to call it something else, like census*.

NuLabour have been absolute shockers at this, deploying all manner of weasel words to disguise swingeing increases in taxation. Stealth taxes have been at the very heart of their approach to public finance.

Take National Insurance. The very term is a serious misnomer, because whatever the original Beveridge intentions may have been, these days National Insurance is simply weaselspeak for Jobs Tax. And whereas Labour inherited a combined employer and employee NI contribution rate of 20% (contracted in), as from next April (2011), the rate will be 25.8%, an uplift of well over one-quarter.

Combining that with their stealth changes in NI contribution bands, by next year Labour will have increased the Jobs Tax by around 120% since coming to power. And to put that in context, money GDP will have increased by only 85%.

Or take the issue of charging for services that were once "free" or heavily subsidised. From passports, to planning applications, to dentistry, charges have been soaring.

As we blogged here, local authorities have been prime movers in this. Over the decade to 2007-08, Council Tax in England rose by 80%, more than four times the general rate of CPI inflation. Yet at the same time, councils increased service charges - for everything from parking to pest control - by 120%, about seven times the general inflation rate. And the revenue from charges is big - it's now equivalent to over 50% of that raised from Council Tax itself.

Now, as a matter of principle, we actually applaud charging for services - as far as possible, users should pay for the services they use. But what sticks in our craw is that we're effectively being charged twice over. Charges have risen but taxes haven't been cut. In reality, there has been a disguised increase in taxation.

And now we've got this row over the new Death Tax, or compulsory levy as Health Secretary Burnham wants us to call it.

What exactly is meant to be the difference between a compulsory levy and a tax? Presumably it's the same sort of difference that distinguishes the Telly Tax from a tax - ie in economic substance there is no difference (which is why the ONS now categorises the TV licence as a tax).

Of course, we all know why Burnham doesn't want to call it a tax - it's the same old stealthy tax spin that won Labour three elections.

But in these final dying days, he's surely lost the plot. Because to us "compulsory levy" sounds even worse than the good old English T word - it sounds more like the kind of thing the Sheriff of Nottingham used to impose on the oppressed villagers of Sherwood, right alongside other abominable foreign practices like droit de seigneur.

PS Despite all the flak he's taken, Lansley was quite right to walk away from the supposed cross-party consensus stitch-up on this new tax. We all understand that care for the elderly is a growing problem, and it's getting increasingly expensive. But why should it always be taxpayers who have to step into the breach? Why can't we say that individuals and families have to find ways of funding this care for themselves? Of course, there will always be some people who will ultimately need taxpayer help, but we must draw a line that says people are expected to help themselves. Taxpayers cannot be loaded up with yet another long-term funding disaster. And there needs to be an open political debate about this, not some back room deal.

*Scriptural authority note Yes, yes, we know it was a census. But the only reason Augustus ordered a  census was so he could tax everyone more thoroughly. He'd got fed up with being ripped off by sub-contracting tax-farmers, and wanted his own tax collectors operating on a properly documented accountable basis. He was in fact the man who invented modern taxation, including a death tax, which was set at 5% to fund retirement pensions for Roman soldiers.

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www.gudanggrosiran.com Categories: pensions, tax

The East Is Red

New sky-scrapers: old fears

You may have missed Piers Morgan does Shanghai last night, but the message was pretty clear: not for the first time in our history, we 're about to succumb to the yellow peril. The Chinese can now do pretty well everything we can, except 100 times bigger, 100 times better, and 100 times cheaper. We are well and truly Pek Ducked.

By a strange coincidence, the Governor of the Bank of England also spent last night fretting about our relations with the East. Only he presented it as "Soduku for Economists", which proved a tad less gripping than Morgan's glitzy high-rolling version.

The Governor's basic point will be familiar: because China now produces virtually everything we in the West consume, and because they save virtually all their incomes rather than spending it on our overpriced stuff, there is now a huge imbalance in the global economy. The only way we can survive is by borrowing from them and hoping they don't want the cash back any time soon. Sort of idea.

Specifically, whereas we and the Yanks are running massive current account deficits (ie we're still spending way more than we're earning), the Chinese are running a near $400bn pa surplus. And  the western economies are now in hock to the Chinese government for a staggering $2 trillion plus. For us, the Great Account Ledger in the East is most decidedly red.

To be fair to the Governor, he pitched the problem as a global one. We may be in hock to the Chinese, but they need us to buy their goods. And if the whole teetering stack of international debt should somehow topple over, we'd all be in trouble. So we'd better find some global solutions pronto.

But however you spin the global issue, the Governor is in no doubt about the UK's grim future - we are going to have to stop eating and tighten our belts by seven or eight notches. Or in Governorspeak:

"The need for a rebalancing of our economy has been apparent for some time. The proportion of our domestic output that we save has fallen by around a third over the past decade, as the share of consumption, especially public consumption, has risen sharply. Looking ahead, monetary and fiscal policy together must help to bring about a switch of demand from private and public consumption to net exports and business investment as the recovery takes hold.

A key element in raising the national saving rate is the elimination over time of the structural deficit in the public finances. Of course, there is a perfectly sensible debate about the appropriate timing of the withdrawal of the temporary fiscal stimulus... but uncertainty about how and when fiscal policy will respond has a direct bearing on monetary policy. And markets can be unforgiving."

And just to make sure we all get the message loud and clear, he added:

"The patience of UK households is likely to be sorely tried over the next couple of years. There is little scope for growth in real take-home pay, which may remain weak even as output recovers. It is clear that inflation is likely to pick up markedly in the first half of this year."

Patience sorely tried - I'm afraid that's spot on. And the Governor's bleak warning was heavily underlined this evening on Sky, when the ever excellent Jeff Randall interviewed HSBC's CEO, Michael Geoghegan.

Geoghegan is one of the few top British businessmen who really do bestride the world, and can talk authoritatively about the UK, China, and all points in between. Which is why it's so alarming that he's about to pack his bags and relocate HSBC's HQ back to Hong Kong. He told Jeff the UK has recently become much less attractive to banks like his:

"I think when you start moving taxation for political reasons, the trouble is that it is an industry that can move. I know a large number of bankers are moving out of the UK... they are moving out possibly for personal reasons. They can move because they have opportunities in Switzerland and other places to set up their businesses... the UK because the City has all the rights to win and it would be a terrible shame for it not to benefit from all the expertise that is in our industry...

...Hong Kong has surpluses... it raises enough taxation every year to pay for running Hong Kong and it makes surpluses. I think one has to look at how money is spent in a country, if taxation is being raised because the expenditure wasn’t correct, that then is going to impact on the UK as a financial centre."

So does it worry him that the UK is facing the growing challenge from the East already laden down with debt?

"It does and it disappoints me. People talk about China, the excesses of China, the excesses of Asia and then you see the savings rates of Asia. People save first, they educate their children and then they spend. If you want to go and see where consumer goods are least used and bought, it’s in Asia. If you want to see where the most money is spent on education and health, it will be in Asia. You’ll see the people, the hours they work and the products they produce and I know that the UK can produce a lot more products. People say well the renminbi [Chinese currency] should be stronger. No, actually we should be more efficient. If we could be as efficient here in the UK as other manufacturers are around the world and cut away a lot of the government bureaucracy that makes it very expensive to do manufacturing in the UK...

I think there has to be a full understanding that we cannot have the style of living that we’ve had in the UK on somebody else’s money. The government can’t spend more than it actually collects in taxes, people can’t really live without savings and to do that, there has to be a mindset change and maybe the politicians and the electorate will say we actually want this to happen in this country."

Ah yes, a mindset change.

The trouble with mindset changes is they're a great idea, but they don't happen unless there has been pain. A lot of pain.

And right now, as we've blogged before, most of us have simply not had that pain. Mortgage rates are low, house prices are sailing on as if nothing ever happened, even the job losses somehow seem to have stopped.

You and I may believe we're in cuckoo land, and that the longer we leave the belt-tightening, the worse it will be, but why should the average punter listen to us? Life's not so bad... maybe the Great Helmsman was right after all... maybe he has saved us... maybe we can just keep calm and carry on.

Right, that's it - enough depression for one evening.

PS I realise we've said it before, but Randall's 7.30pm prog on Sky News is streets ahead of anything the BBC broadcasts on business and the economy. Now, what was that about needing a tax-funded broadcaster because otherwise we'll lose all our quality news coverage?

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www.gudanggrosiran.com Categories: cuts, debt, slump, tax

Victims Of High Taxation

2am: 8 September 2009 - thieving scum help themselves from a shop in Huntingdon

The Village Postmaster and his family are still recovering from their 1am encounter with the robbers who smashed into their shop. Needless to say, the police have yet to apprehend anyone.

The gang were after cigarettes, and it turns out this was one of a huge number of such robberies taking place right across the country. Just in the last few months, small shopkeepers have been hit in Croydon, Oxfordshire, Glasgow, Sussex, Devon, Gloucestershire, Liverpool, Yorkshire, and back in Sussex again. AND THAT'S JUST THE FIRST PAGE FROM HUNDREDS OF GOOGLE RESULTS.

This is a massive crime wave.

WTF is going on?

The VP has already blogged his own highly plausible theory. Just like back in the eighteenth century, extraordinarily high taxes on tobacco have nurtured an extensive black market. And as before, this market has been supplied principally by smugglers bringing in untaxed stock from overseas.

It is a highly organised business. As described here, it has progressed way beyond a few amateurs loading up their white vans in Calais. Indeed, it is no longer driven by the difference in duty between the UK and our EU "partners", such differences having been largely eliminated (tax now accounts for 70-80% or more of the retail price right across the EU).

No, what's driving this is that organised criminal gangs have found ways of obtaining large quantities of cigarettes and tobacco without paying duty at all.

Of course, some is counterfeit. But much is the genuine article, manufactured and branded by the big international tobacco companies, and reportedly sourced from their legitimate factories in countries such as Ukraine. Here's a graphic summarising one estimate:

Obviously, the customs authorities all over the EU are working to clamp down, and over the last few years, HM Revenue and Customs have stepped up their efforts significantly. Quite right too.

But every success means that black market distributors in pub carparks and bootsales across the country find themselves short of product. So as the VP points out, the market has come up with a neat solution - stealing from legitimate suppliers here in the UK.

We've blogged the black market in tobacco before (eg here and here). Fundamentally, with tax now accounting for three-quarters of the price of cigarettes, even normally law abiding folk like the parson and the clerk can convince themselves such taxes are onerous and unnatural, and that it's reasonable to resort to the black market. After all, it isn't as if the black market is real crime, like murder or something.

We have moved beyond the realms of workable taxation. High taxes become the excuse for criminality.

And tobacco is such a great product for criminals. It's both light and high value (cf the mobile phones used in VAT carousel fraud). In one recent case, customs officers "found 74,000 cigarettes in the luggage of a Newcastle couple travelling from the Canary Islands". Something that easy to smuggle is very difficult to stop.

So what to do?

Well, since Tyler doesn't himself smoke, he strongly supports taxing smokers to buggery. Let 'em pay, says Tyler - less taxes for the rest of us to stump up.

But as we can see, that approach has opened the gates to a crimewave. And whatever the buyers of black market ciggies may tell themselves, it's not a victimless crimewave - just ask the VP and his family.

Worse, the black market in tobacco is just one part of Britain's burgeoning black economy. As we blogged here, most serious estimates have put the size of our black economy at 10% of GDP or more. But those estimates were made pre-recession and pre-Polish plumbers. Our guess is that it's now much bigger, and our forthcoming tax hikes will make it bigger still.

Which is very worrying.

High taxes fuel the black economy.

And the black economy fuels crime.

Yet another reason why Cam and Oz need to get a lot more serious about cutting spending rather than raising taxes yet further.

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www.gudanggrosiran.com Categories: crime, fraud, tax

Who Pays Our Taxes?

Following our post on whacking the middle class, we've refreshed our memory on who actually pays our taxes.

We can get some idea from the latest ONS analysis of taxes paid directly by households. They account for around three-quarters of total taxes, the remainder mainly being paid by businesses of one kind or another.

In 2007 (the latest data available), of the government's £500bn total tax revenue, £360bn was paid directly by households (including income tax, national insurance, VAT, duties, and council tax).

And of that £360bn, getting on for a quarter (£81bn) was paid by the richest 10% of households (meaning household incomes over about £60 grand pa). Which just goes to prove once again how very grateful we should be to the rich.

In contrast, the poorest 40% of households paid "only" £54bn between them.

Which means that the 50% of households in the middle - the people who probably think of themselves as middle class - ended up paying 63% of all the taxes paid by households.

PS I know what you're thinking. You're thinking that companies don't actually end up paying taxes at all because companies are just legal constructs. Any taxes they pay are passed onto their customers in the form of higher prices, or passed onto their shareholders in the form of lower earnings. So really we need to attribute the £140bn taxes they paid back to their customers and their owners. And you're quite right. Unfortunately we don't have the information to do it.

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www.gudanggrosiran.com Categories: tax

Whacking The Middle Class

The middle class isn't so docile everywhere

To paraphrase Willie Sutton, the reason Chancellors rob the middle class is because that's where the money is.

Sure, politicos like to wave their arms and pledge to tax the undeserving rich, but in reality that never raises enough cash. For one thing, there aren't enough undeserving rich to go round, and for another, the rich have an anti-social tendency to move their cash out of harm's way. For example, the new 50p tax on incomes over £150 grand may show we're all in this together, but in reality it's likely to reduce tax revenue (see this blog).

So as Darling/Osborne run through the options for closing our £100bn fiscal gap, the middle class finds itself right back in the crosshairs.

Much of the action will be on tax. The middle class can expect to see income tax allowances and thresholds frozen (just like Howe did in his famous 1981 budget), and you certainly wouldn't rule out Darling extending his 50p tax rate further down the income scale (nicely stitching up Cam and Oz in the process).

The middle class will also be whacked by the forthcoming increase in VAT to 20% (watch this space). The VAT net may even be extended: the National Institute calculate that abolishing the reduced rate of VAT on fuel, and extending VAT to cover everything except food and childrens' clothing would raise £28bn pa by 2015. True, VAT is highly regressive, so proportionate to income, the poor will suffer most. But it's the middle class who will pay most.

The same goes for the planned further increases in eco-taxes, which also tend to be highly regressive. However with a little hippy ingenuity, such taxes can be shaped to hit the middle class especially hard: today's proposal to impose a £3,300 tax on new cars (heavily promoted this morning on the good old BBC) shows the way.

And then there's the sharp hike in business rates facing many small business owners after the government's recent revaluation exercise.

But of course, it isn't just through higher taxes that the middle class can expect to see their incomes cut. There's also the thorny issue of cash benefits.

Last week Tyler attended an interesting session organised by the ever-excellent Reform to launch their new paper on welfare reform - The End of Entitlement. Its key proposals include handing benefit rules and operation to social enterprises and companies, flexible Personal Protection Accounts modelled on ISAs, and replacing social security benefits with private provision.

But the headline item was a further refinement of Reform's proposal to abolish middle class welfare.

According to Reform, £31bn pa is currently being spent on welfare benefits for people who are not in need. Which is a quarter of the entire cash welfare bill.

They define the need threshold on the basis of every adult having an income of £15,000 pa and every child £5,000 pa, so that for example, a two adult two child household needs an annual income of £40k. On that basis they identify the following benefits as being the least well targeted, with high percentages of the benefits spend going to those above the threshold:

As well as pushing up the state pension age to 68 more quickly than currently planned, they recommend eliminating a raft of benefits for those above the needs threshold, including:

• Scrap Child Benefit and streamline the Child Tax Credit - net saving £7.2bn pa after increase in means tested child support
• Scrap the Child Trust Fund, Employer Supported Childcare Schemes, Health in Pregnancy Grants, the Healthy Start Scheme and the Sure Start Maternity Grant - saving £1.3bn pa
• Abolish winter fuel allowance and free TV licences for pensioners - saving £3.2bn pa
• End concessionary bus fares - saving £1bn pa
• Charge student loan borrowers at the market rate - saving £1.2bn pa
• Abolish the Educational Maintenance Allowance - saving £0.5bn pa

In other words, Reform propose an end to Beveridge-style universal benefits, and a much greater reliance on means testing.

Now, whatever you think about more means testing - and several people in Reform's meeting were aghast at the idea - this proposal means a £31bn pa cut in middle class incomes.

As it happens we like Reform's idea. But that's because the state should not be in the business of churning money from tax to benefits for people who don't need the help. It should cut both benefits and taxes (eg see this blog where we estimated the deadweight cost of fiscal churn at £5-6bn pa). .

But unfortunately, that's not where we are today. We have a huge fiscal hole to fill, and while benefits will be cut, there is no immediate prospect of a corresponding tax cut. For the middle class, their benefits cut will come on top of all their tax increases.

So are they going to sit there and just pay up? Put country before themselves?

Or are they going to shout and scream and demand that government cuts its own spending first? Like our middle class American cousins have long done.

Your call.

But you can join the TaxPayers' Alliance here.

And unlike Big Government, it's free.

PS Talking of the TPA, their latest research report is published this morning. Snappily entitled ACA-to-YJB: A Guide to the UK Semi-Autonomous Public Bodies, it's a comprehensive guide to what you and I know as Britain's 1,152 quangos. Here are the key facts:

• Direct cost to taxpayers - £90bn pa (2007-08)
• Additional fees and charges levied by quangos - £32bn pa
• Staff - 534,000, which is more than the entire civil service

It is a fantastically useful survey - everything you ever wanted to know about the cost of these unaccountable, crony-stuffed excrescences. Well done to Ben, John, Katherine, and James for wrestling the facts to the ground. We'll be keeping a copy at our bedside for easy reference.

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www.gudanggrosiran.com Categories: cuts, quangos, tax, welfare

Having A Laff

Not enough jokes, but still interesting

Mr Cam is reportedly thinking about rescinding Gordo's tax rise for those earning over £150k pa.

Good. And let's hope his thinking doesn't take too long. Because the point about Gordo's new 50p tax rate is that it will almost certainly cost the government money.

Why?

Well, it's a textbook example of the famous Laffer Curve - the idea that beyond a certain point, increases in tax rates will reduce tax revenue, as individual taxpayers change their behaviour to escape the higher rates. In the words of the Institute for Fiscal Studies, higher income tax rates incentivise taxpayers to "work less, retire earlier, emigrate, contribute more to pension or charity, convert income to capital gains, incorporate, and invest in tax avoidance".

Now, according to the government's own forecasts, the new 50p rate will raise £2.4bn pa, even after taking account of those behavioural responses on the part of taxpayers.

But according to the independent and authoritative IFS, it "could actually cost money".

For one thing, the IFS points out that the government's figures exclude the impact of the higher income tax on consumer spending. That will undoubtedly fall, cutting VAT and other indirect tax receipts "by up to £1.5 billion". Which slashes the government's £2.4bn revenue figure by over 60%.

The IFS has also done its own analysis of experience during the 1980s when the Thatcher government famously cut top income tax rates and saw a substantial rise in income tax revenues from higher rate taxpayers. They identify a much stronger response than the government assumes.

Indeed, they estimate that the revenue maximising marginal income tax rate for those on incomes of £150k and above is just 41%.

Cutting the gobbledigook, the IFS is saying that Thatcher/Lawson's existing top 40% rate is more or less spot on the peak of the Laffer Curve, and any increase is likely to cost the government money.

Here's the IFS's stunning picture:

As we can see, whereas the IFS places the peak of the Laffer Curve for high earners at a marginal income tax rate around 40%, the government places it at well over 50%.

Now, who are you going to believe?

So given that Gordo's new tax is going to make his fiscal black hole even blacker and even deeper, you may be asking why he's going to do it?

You're not? Well, I'm going to tell you anyway.

You see - and brace yourself because this may come as a shock - our leader is an unreconstructed socialist. He not only believes that government is better at spending our money than we are ourselves, he also believes that high incomes for the few are A Bad Thing.

So although this measure will end up costing all of us, and although we'll all have to pay more taxes, and although we'll all be poorer as a result, we will benefit from knowing that the rich have been whacked good and hard. According to the IFS, there are only 350,000 of those bastards, and we all know they've got it coming. Think how much better we'll feel as we pay our own eye-watering taxes.

The thing is though, Mr Cam is not a socialist. If reports are to be believed, he's a Tory. And Tories... well, they're supposed to believe in prosperity and individual effort and enterprise and all that other stuff.

Aren't they?

Mrs T and I are off this weekend for a few days sunning ourselves on the glittering promenades of Manchester. Wouldn't it be great if George stood up and gave us another of those game changing speeches of his.

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www.gudanggrosiran.com Categories: tax

More Wishful Thinking From The Left

Fab gear, but Jezz not so hot on government debt

The Jeremy Vine Show on BBC R2 is not something Tyler usually tunes in for. But yesterday, several BOM correspondents emailed to say they'd nearly exploded with rage over an item on government debt. Nick N says:

"I was working, and didn't hear it all, but what I did hear was terrifying. The JV show is perhaps the most insulting bilge ever broadcast. It seems to believe that it can make problems go away by simplifying everything to the level of a two month old foetus. Aaaaaarrrrgh!"

Naturally we had a listen (here, just over 1 hour in).

It turned out to be Jezz interviewing BOM's old friend Richard Murphy, the left-wing campaigner for higher taxes (eg see here). Not that you'd know that from Vine's introduction, which positioned Murphy as a tax expert who would explain why we don't need to worry about our massive government debt burden.

Murphy put the left's case very clearly:

1. Our government debts are not nearly as big as some other countries
2. They are manageable, especially when you remember that a substantial chunk comprises the debt of our nationalised banks, which will eventually pay itself down
3. We should not panic - we are not bust
4. Anyway, the Bank of England is riding to the rescue by ensuring we have higher inflation, which will slash the real debt burden
5. Our problem is not too much public spending, but too little tax revenue
6. We can and should increase tax revenue via a substantial increase in the taxation of banks and anyone earning more £100K pa - "middle England will not be hit"

Let's take the points one by one:

1. Debt level - while it may be true that we are only eleventh in the latest ranking of outstanding government debt relative to GDP, our annual borrowing rate is adding to that debt much more quickly than our principal competitors. The OECD forecasts a UK government deficit of 12.8% of GDP this year, and a staggering 14% next. In both years we will be borrowing more than any of the other 28 developed economies the OECD forecasts - higher even than the basket cases of Iceland and Ireland. Here's how we look against the G7:

Moreover, these official debt figures exclude the massive off-balance sheet Enron liabilities we've blogged so often (eg see here). In terms of the future burden on taxpayers, they are just as real as borrowing via gilts. But when a listener phoned in to ask about our £1 trillion plus public sector pension liabilities, Murphy answered as if he hadn't heard the question. Instead, he talked about how government debt interest is A Good Thing because it pays the private sector's pensions.

2. The debt is manageable - yes, it is manageable... but only so long as the markets retain confidence that we will not default via inflation (as we've blogged many times). And only so long as we don't mind coughing up increasing amounts of debt interest (ie paying ever heavier taxes without getting any public services in return). In reality, the markets have us on credit watch for a possible downgrade and subsequent stampede for the exit (eg see this blog).

As for the notion that the debts of our nationalised banks will somehow pay themselves down, we presume Murphy has overlooked the constant stream of write-offs on the Crock's putrid loan book (eg see this blog). In total, the IMF reckons bank write-offs will end up costing UK taxpayers $200bn, and we reckon it will be even higher.

3. We should not panic - we are not bust... as the Captain of the Titanic famously observed.

4. We will be rescued by higher inflation - ah, the true agenda of the left in all its magnificent and brutal simplicity. As we've blogged many times (eg here and here), the left hates private savers, and so for them, inflation is a positive blessing. Murphy, along with much of the Labour Party wants nothing more than a good dose of inflation, not only to erode some of the government's debt mountain, but also to redistribute wealth from the undeserving rich (or at least the widows, orphans, and pensioners who've been foolish enough to keep their savings in the post office, or a fixed pension annuity).

5. Too little tax revenue, not too much spending - the OECD says UK government spending will be 54% of GDP next year, compared to "just" 45% in the pit of the last recession. True, it's still higher in North Korea, but the OECD average for 2010 is put at 45.7%. Government spending is absorbing far too much of our GDP for future prosperity.

6. Increase taxes on banks and rich guys - yes, of course, why not? Well, because either they will devise cunning ways to get round the higher tax rates - as they've generally done in the past - or they will simply pack their bags and leave, taking their tax payments with them. That's why not.

Unfortunately, few of these counterpoints got raised by Vine, and Murphy was given a free ride.

But then, this is the BBC. And the big assumption underlying Murphy's arguments is a basic tenet of BBC philosophy - more government is A Good Thing.

For example, according to Murphy, government debt interest payments are A Good Thing because they go towards paying our private pensions. No mention of the fact that someone has to pay taxes to fund those interest payments, or that government borrowing crowds out borrowing by private companies, and therefore crowds out productive investment.

As far as Murphy and the BBC are concerned, we can't trust the private sector and the free markets to do the right thing. From investment, to banking, to healthcare, to education, government always needs to step in and take control (and see this extraordinary anti-market harange of Steve Forbes by the BBC's Steven Sackur on Hard Talk). It is a constant drip-drip-drip of Big Government propaganda.

What can we do?

As we've blogged many times, it's hopeless trying to reform the BBC. The only solution is to break it up and privatise it.

Unfortunately, there's not much chance Cam will summon up the nerve to do that. But he should at least push ahead with flogging off R1 and R2, which by no stretch of anyone's imagination can be described as public service broadcasting.

And then we'll see if there's a commercial market for 15 minutes of op-ed from Big Government promoters like Mr Murphy.

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www.gudanggrosiran.com Categories: BBC, debt, tax

For Richer For Poorer

A previous Tyler family Big Hat Fest

The bride dazzled, the sun shone, the champagne flowed, and our son's wedding was just about as perfect as it could be. The Tylers have gained a wonderful daughter, and have at least doubled the size of their extended family.

Weddings are one of life's great set-piece events, and old-fashioned people like the Tylers think it's important to do them properly.

It isn't just the formal business of the day - the families gathering to bear witness to their children repeating those age-old but always moving marriage vows. And it isn't just the celebration itself, or even the wedding album (the Brag Book as the photographer insisted on calling it) - brilliant though they may be.

No, over and above all of that, there's something even bigger: weddings are a reaffirmation of family ties, stability, and continuity. And at a good wedding, that reaffirmation touches everyone there, as we hope it did on Saturday.

*****

Of course, being an economist, Tyler's mind is never far from money matters. And a wedding in the midst of recession naturally highlights the thorny issue of for richer and for poorer.

We're not talking here about the cost of the wedding itself - these things cost what they cost, and it was worth every single penny.

No, the issue that troubled Tyler was one particular relation whose previously thriving small business has recently folded. He and his family did not come, even though they have attended almost all previous such events. We fear he simply could not face the questions/sympathy/gloating he imagined he'd find. Or maybe it was the cost.

Either way, it was a great shame. But it does underline just how risky it is to be an entrepreneur.

Everybody knows about the entrepreneurs who end up making a fortune, but the vast majority never do. In fact, according to survey evidence, well under half survive even four years. And when we remember that most are dependent for initial funding on their personal or family resources - including second mortgages - we can see that their personal risks are much higher than those of an employee.

As it happens, today sees the publication of a new paper from the TaxPayers' Alliance on just this issue. Snappily entitled Tax and entrepreneurship - How the tax system impedes the creation of new firms and decreases employment, it was written by Matt Sinclair, the TPA's Research Director, and Dr Jonathan Scott, a Fellow at Queen’s University Belfast and a specialist in entrepreneurship and small firms. There's also a forward by a real live Dragon from the scary Den - Julie Meyer.

The paper runs through some of the evidence on what drives entrepreneurs, how they fund themselves, the risks they run, and their vital role in Britain's future prosperity.

It then focuses on our tax system, and how that increasingly penalises entrepreneurs:

"The tax system affects the decision over whether to become an entrepreneur in two key ways:

• It may reduce the amount of capital they can access from their own wealth or their family. In particular, existing research suggests that receiving an inheritance leads to higher levels of self-employment. Inheritance Tax, in particular, may reduce the extent that entrepreneurs can obtain finance without the risks that come with a bank loan.


• The tax system undermines the large rewards that justify the risks attached to starting a new
  business."

The paper points out that entrepreneurial earnings can be taxed several times over.

For example, money that is earned is taxed as personal income. Then, if that net income is invested in a start-up company, any earnings will be taxed at the corporate tax rate. Then, if the company is finally sold, its value will be taxed as capital gain. And finally, any residual value passed on to the next generation will be taxed at the IHT rate.

For most entrepreneurs that currently means 40% personal tax times 28% corporation tax times 18% capital gains tax times 40% inheritance tax. and compounded up over a lifetime, the TPA calculates that comes to an eye-watering total tax rate of over 90%.

We're right back to Denis Healey pip-squeaking territory. It's more than enough to make any rational entrepreneur take the first plane out.

Worse, rather than tackle the problem, this government has actually made it worse. The top personal tax rate is soon to increase to 50%, which means that the overall compound tax rate on entrepreneurs will shift up to 92%.

It's a great pity our struggling relation didn't come on Saturday. Nobody would have been chortling. We'd have been advising him to get out and try again - maybe here. And we'd still invite him and his family back to all the weddings.

For richer or poorer.

PS Many thanks to BOM readers for all the good wishes you sent. The day could not have gone better, and those of a certain age are already counting the grandchildren.

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www.gudanggrosiran.com Categories: economy, tax, the future