Blog 2023 Malcolm Blair-Robinson

The £10 Trillion Debt  and Flat Tax.

PwC has just published the result of an in depth financial survey which confirms what I and others have been saying since the start of the financial crisis, except their figures which are worked from scratch, are worse than mine, which came from the IMF. I have stated that the total of all debt, private, public and commercial for the U.K is 450% of GDP against a world average of about 92%. PwC say that in 2009 it was 540%.

They go on to say that this will reach £10 trillion by 2015 and be a millstone round the neck of the economy for more than a generation. Servicing it and repaying it will inhibit growth and, as interest rates rise, as they will, more and more will be sucked out of the economy to pay the rising bill. This is stating the obvious and it is the most significant underlying issue with which we will for years have to grapple.

There can be no recovery by increasing long term debt either at a government, private or personal level. The natural tendency for pople and companies to reduce borrowing which has reduced demand for loans is, in this context a good sign, as are the much tougher criteria for mortgages. Not only do we have to gradulally reduce this debt mountain; we have also to reduce by a margin the cost of housing relative to earnings and we have to expand the economy without another borrowing binge. There are signs that this is what is slowly happening, part due to government policy but a good deal because people at all levels are coming to their senses. Oddly there are signs that some bankers, politicians and economists are slow to grasp all this, but I suppose if they had understood we would not have had the crash.

Another problem yet unresolved is that income tax was allowed under Labour to drift too low from the sounder rates of the Thatcher era (she was the arch tax cutter but she knew when to stop) and putting them back up will be difficult. There then comes all the argument about rates versus volume about which there is a lack of informed consensus, though no shortage of emotional outpouring.  In my book,  2010 A Blueprint for Change,I advocate a switch to a single flat rate of income tax which is operated in conjunction with higher personal allowances and the rate of vat. Having determined the total revenue required to pay for government spending, using these three elements, there is almost an infinite variation of how to achieve it. This provides the opportunity to apply stimulus or restraint, wherever adjustment is needed, in a joined up fashion unknown hitherto. 

Politicians have not yet managed to get their minds around this opportunity yet, but the pressure for something on these lines is rising. Sooner or later it will come to pass. Meanwhile the need for economic re-strucure becomes ever more apparent. Recovering from the unsustainable borrowing binge which took off at the millennium, which fed into not just asset inflation but assets without credible value, will take as long to pay off as the whole of WWII. We paid the last tranche of that in 2006.

The Falklands and the Retired Admirals

A group of very distinguished retired Navy grandees, one an ex- minister, have written to the Times complaining that the scrapping of the out of date Harrier force places the Falklands at risk from invasion. There are two issues here. One political, one military. They are wrong on both.

Let us deal with the politics first. I have never, having examined the history, been convinced that the Falklands areBritish beyond challenge, or that Argentina’s claim is without merit. Many people across the world think likewise, especially and crucially many Americans. I supported the war to take them back following Argentina’s ill judged invasion of 1982 and joined in the celebration of a hugely successful campaign, which showed British forces at their heroic and ingenious best. I did so, however, with a caveat. It was that we should use the victory and authority that it gave us to find a resolution to the dispute which recognised both the interests of Britain, but also those of Argentina. Sadly none of that happened. We just put our heads in the sand. Thus another invasion by another weak Argentinian government in trouble at home is always possible, though after the last one, unlikely.

If it comes we will have few allies, though one or two critical ones in South America. This brings us to the military point. That war will be fought by different weapons in a different way. It will surprise readers to hear that out of the shambolic muddle which is our Ministry of Defence, we are emerging as one of the top military powers on earth, not on land but on the sea and not by mass but by technological stealth. We are also a cyberpower.

The age of the giant carrier group is not over to project political power, but it is over to fight a sophisticated war. We now have the Type 45 Daring class destroyers, which are the world’s most advanced surface warships with an unmatched air/missile defence cababilty. They can detect and track simultaneously every airliner taking off at any time from every airport in Europe and can engage nearly 40 targets simultaneously. The Astute class submarines can hear from home waters a ship leaving New York harbour and are themselves undetectable. They can listen to all forms of spoken traffic, whether mobiles or whatever and carry advanced cruise missiles which can hit land or sea targets. Put bluntly they could penetrate the defences and sink an entire U.S carrier battle group.

Argentine planes would be shot down before they left their own airspace, all their airfields and military installations would be destroyed and any troops who did manage to land because of surprise, would be isolated and cut off. All Argentina’s communications would be disabled by cyber attack, its economy, power and utilities shut down. In all of this ageing Harriers, not without losses last time, would have no part to play at all. The Admirals are hopelessly out of date and out of touch. They also seem to be out of the loop. I wonder why.

As I have already said we are not, and never have been, a land power. The difficulties in Iraq and Afghanistan testify to this. But we are and remain a sea power. We are a sea power most as a force on the sea, not a naval ancilliary to an army. This is how we built our empire and how we could not be beaten by the Spanish, by Napoleon, by the Kaiser or by Hitler. More by luck than judgement and by a leap of technology, we are again a sea power and that is the power which will defend us and our interests. The Coalition has cherry picked the key projects which sustain that power and, coupled with the continent frying capacity of Trident, make it awesome. Those silly new aircraft carriers are irrelevant. Hopefully we will flog them to the French. Or even to Argentina. They will be very easy for us to sink.

At the end of the day we have to reach an accommodation with Argentina by negotiation. These islands are on their doorstep but are the most far flung survivors of the defunct British Empire. There may be oil in volume offshore. Argentina is fundamentally an ally and friend with close family, cultural and business ties with Britain going back generations. A way forward can be found if we try and it is in our interests to do so and especially if we want to protect them. It is no longer a military issue. Let us not dwell so much in the past that we make it become one again.

President Bush

George W. Bush has published his memoirs. All of this is designed to improve his image. It might do this if we caught a glimpse of a wiser man, who could see that things did not work out as planned. Instead we saw self  justification for a range of bad judgement calls and flawed decisions. People across the world are dismayed at his enthusiasm for torture, or cruelty that he thinks is not torture. The picture revealed is not the one intended. What is revealed is a fool. A fool who cannot even see when the plate is broken, is the biggest fool of all.

The tragedy for George W. Bush is that he became President. Without the dynastic connection to his father and the help of the deluded neo-con lobby he would not have. He is a decent man, a loyal friend and was an effective governor of a conservative and traditionally independent state. The Presidency was way above his pay grade.

It is a tragedy for America that he was in the White House to respond to 9/11. Though a spectacular attack with an appalling death toll, its purpose was to goad. This it did. To thwart the purpose of terrorism is to defeat it. To confront it is to nurture it. What Bush needed to do at that point was to be measured and subtle. He was bombastic and aggressive. He stoked his nation’s anger and played into the hands of AlQaeda. The outcome is three wars, on Afghanistan, Iraq and on Terror. Ten years on, all have failed. None are yet totally lost, though Iraq is pretty close, but none can be won.

If John Kennedy had been in the White House on 9/11 we can only speculate, with some confidence, in a better outcome. If Bush had been President at the time of the Cuban missile crisis we do not have to speculate upon the outcome. We know it. We would not be here. The civilised world would have been obliterated in a massive nuclear exchange. Looked at that way we all got lucky.