Blog 2023 Malcolm Blair-Robinson

One of the challenges of being Chancellor of the Exchequer is the torrent of advice from many economic experts who think they have better ideas and City lobbyists who have interests to protect. None of these people present a rounded picture. Osborne and his team have to do that for themselves.

At present they are under pressure on two political fronts. The first is the argument of the 50% tax rate. Lobbyists allege it is causing the clever to flee the country. The figures are something like this. If you earn £ 1 million per year, you have to pay an approximate extra £85,000 tax. That is on top of the £340000 you would have paid on the excess over £ 150,000 under the old regime. In a national emergency the patriotic should not up sticks and go, but these are not insignificant figures and the greedy, the extravagant and the dual nationals might. Clever tax specialists will deploy measures to reduce the burden. It will be interesting to see from the current study whether this new tax does, in fact, produce more revenue. It is known that if the rate is too high, the revenue falls. It is also known that if the rate is too low, as in the U.S., the public finances become chaotic. This was a Labour tax and is politically popular in the country as a whole and with the Tories’ coalition partners in particular.

The second is the plan to reform the financial structure of the banks and the need to protect ordinary depositors from loss of their money and taxpayers from providing bailouts when banks do silly things which bust them. This will curtail banker’s activities and individual earnings of their traders and they will be at risk of calamity if they make a wrong call. This is how it should be and what is needed. Osborne and his team must not bow to pressure to delay implementation. This is an issue which could cause the coalition to fail. An election fought on this issue  by the Tories on the side of the bankers would be lost.

Meanwhile there were misplaced celebrations yesterday when the German Supreme Court ruled that it was within their constitution to bail out Greece etc. The court also ruled that any such future bail outs must be subject to a parliamentary vote. This is critical because if this had happened over Greece, the bail out would not have happened and Greece would now be bust. So would a number of banks.

The biggest problem for Osborne is that the two economies upon which the prosperity of Britain and its recovery depend, America and the Euro-zone are in a political turmoil over how to manage their money. Nothing meaningful is happening in either to get to grips with the problems. It is not too late to turn more and more to the East, although we should have done so a lot sooner.

It is not too late either to start working towards a single tax rate for income, with those earning less than £20,000 removed from income tax altogether. This should have happened long ago. There is little mathematical logic ( though a lot of political mileage) in several rates. Even with one rate the rich pay more tax.  What is important is not the rate but the revenue stream and with a single rate it is much easier to gain equilibrium between rate and volume. It is also a matter of fact that those earning up to the average wage cannot afford to pay 20% income tax and 20% again on what they buy. Reducing their tax on income increases their spending power. These are the people who flock to the High Streets.

This entry was posted on Thursday, September 8th, 2011 at 11:52 am and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.