Day 5190: A Budget of Signposts and Pitfalls

Wednesday Budget Day Election Day Minus Forty-Nine:


So, for the last time in the first fixed term Parliament, Master Gideon did a thing.

Liberal Democrat policies once more featured strongly (and anonymously) in the form of future rises in the personal allowance towards the minimum wage and a promise of an end in sight of austerity.

But most of what he did was mess things about. A little. He cut some taxes a little; cut some spending a little less; made the tax system a little more generous to favoured industries/more complicated with more loopholes. And made several bad jokes. Mostly about the unfortunate Mr Milipede's kitchen arrangements.

When he wasn't cracking our sides with his rib-ticklers, he gave us not so much substance as a full meal, more a sort of taster's trolley to whet our appetites for the shape of Parliamentary things to come.

Most of the actual tax arrangements are, of course, post-dated, setting the sort of traps for a future Labour Chancer– in the decreasingly likely event of there being such a person – just as Mr Allstar Darling did for him, with the "for one month only" 50% tax rate (which did indeed successfully blow up in Gideon's face). The promise of a little less squeezing of the pips on higher rate taxpayers (in the assumption that the Venn diagram of higher rate taxpayers and Tory voters is quite a large overlap) gives a sweetie to his base today that might reward a second time if incoming Hard Labour have to reverse it to make ends meet after the election and post Financial Review. Likewise, the £1000 tax free interest is a giveaway to the "haves" that makes the tax system yet more needlessly complicated (with interest rates at ½% you can "have" up to two-hundred grand in the bank before paying any tax on the interest). And aside from the Chancer's personal delight in being able to string two catchphrases together do we really need yet more money injected into the housing bubble? I'm just surprised he didn't rename the newly in-out-shake-it-all-about ISA his "long term economic savings plan"!

Meanwhile he sketched out a – suspiciously "Coalition flavoured" – direction of travel, adopting that Liberal Democrat pledge to bring an end to austerity and offer a promise of better days to come. His compromise of beginning to increase spending on public services "after four more years" falling mid-way between the Lib Dem position of "after three more years" and the Tory one of "after hell freezes over". Cutting the lifetime allowance for payments into a pension was also a Libby Demmy way of raising a few more tax dollars from the richer end of the spectrum.

This is, as we know, typical Tory strategy: use the Lib Dems as a sort of THINK TANK from Planet Nice to generate socially acceptable policy and use this to detox the brand (while pretending to smile and nod along to the wingnuts, and occasionally unleash a "Go Home Van" to keep them drooling happily).

Just because he's EXACTLY as scary-right-wing as his Romulan haircut suggests, don't ever think Gideon isn't PRACTICAL.

(And, in many ways, another Coalition is actually the best way for GIDEON to keep his own job: if they lose, he'll have to come third to Boris and Theresa in the ensuing leadership bloodbath; if they win on their own, then he might have to think up some policies of his own without Danny to hold his crayons for him!)

And look at how he did bang on about how the Coalition had brought economic success.

Obviously that's a GREAT advert for letting the Tories RUIN it by running the country off the rails on their own!

Being in Coalition has given him GREAT COVER for making it all up as he went along (or in fact letting Nick and Vince and Danny make most of it up for him, and then copying their homework). For all that Gideon the Chancer is a man who's made much political capital out of sticking to "Plan A", it should be apparent that we are by now on something like the "F Plan" (the diet nobody sticks to) or the "G-Plan" (given his wooden delivery). Whatever, he's in danger of running out of letters!

"Plan A" only lasted about a year. That was the "stick to Alistair Darling's disastrous plan to cut all capital spending" Plan. Fortunately the widely underrated Mr Danny managed to persuade Gideon to go on an Obama-esque Keynesian spending spree. That would have been Plan B. Plan C was the disaster of the OMNISHAMBLES budget, quickly walked back to Plan D. The REAL disaster being that budget had contained some attempts to simplify some of the tax system, and there's no way Gideon was going to try THAT again! And even last year we were still on Austerity Eternal of Plan E, but it appears that that didn't test well with the voters.

The only thing "Long Term" about the Conservatories "Long Term Economic Plan" is how long they've been ramming the stupid message down our throats!

Not that Hard Labour have much to crow about.

(It won't stop them. That Mr Allstar Darling was on the radio last weekend crowing about his own last budget – because, as he himself admitted, nobody else would – and saying that the Coalition's plan has arrived us exactly where he predicted the economy would be… slightly overlooking the fact that this must mean his own plan would have missed the target by miles and landed us in much worse straits! And also rather undermining Hard Labour’s case that they’d have done anything at all DIFFERENT!)

But in the absence of having bothered to pay any attention to what Gideon was saying, Mr Milipede delivered the speech he'd memorised anyway. I KNOW it's the hardest job in politics, replying to the budget with no notes or notice, but do you think he could at least TRY to remain on topic?

And if "long term economic plan" is becoming the most BORING big fib in British politics, then surely there's some sort of mutant hybrid of Godwin's Law being spawned on the other side: "the longer a debate goes on the closer to 100% gets the probability of Mr Milipede claiming it will lead to the privatisation/dismantling (the meaning of these terms being indistinguishable to his audience) of the NHS".

So today Mr Milipede invented the Tories "secret plan to fight inflation"…

No, sorry, that's "secret plan to wreck the NHS"; it's just he's so clearly and painfully obviously been watching too many episodes of his "West Wing" box set. It's all that free time he has not doing any work on actual policies.

But PLAGIARISM, Ed? Again?

I mean, bless him, he's only got one trump card, but he does keep playing it… in fact, it looks like he's only got one card AT ALL, at least only one that doesn't say "the same as the Tories but, er, nice" (see also what Rachel the Reever wants to do with welfare and Tristram the, er, Hunt wants to do with Education.) But it's clear that his schoolboy debate club tactics are no good when the country is calling for a STRATEGY.

The worst part of his day was probably the moment where you can see the dawning realisation creep into his sad eyes that the Conservatories are going to win, to beat him, beat him probably quite a lot. It was probably the time when he laughed at the second or third second kitchen joke.

Even until recently I had expected Labour to improve, and the Tories at best to hold their ground in numbers of seats. How could the Conservatories do anything OTHER than go backwards after the PAIN and the AUSTERITY and the BEDROOM TAX? But today, Miliband looked like a loser. No, worse, he looked like HE believed he was a loser, and that sort of thing is INFECTIOUS.

And Gideon looked like HE thought he was a WINNER.

Because Master Gideon's real talent is luck. The sort of luck that lets him get away with it.

Because this recovery isn't really a result of ANY plan – long term or otherwise – by this Government. It's mainly driven by the Saudis response to American fracking, pumping oil like it's going out of fashion (because it is!) driving down energy prices.

What the Coalition has actually done is a series of smart economic tacks across the wind, sheltering most people from the worst of the storm of the recession, while the rest of Europe has been battered by the ongoing Euro crisis, and while the rise of China and India drove a huge spike in energy prices and food prices, all of which delayed any chance of real recovery. We’ve been keeping more people in work – at the price of depressing earnings; keeping down homes repossessed; shifting the burden of taxation a few notches up the income scale. When the Lib Dems were stronger, we also kept benefits rising with inflation.

That doesn't mean that the austerity was WRONG or didn't work. If nothing else, thanks to the Coalition Britain was at least in a position where we COULD take advantage when the wind changed in our favour.

But what we've also done, again largely Lib Dem policies, is laid the groundwork for FUTURE economic strength: the pupil premium, and add to that free school meals, already giving kids a better education; the apprenticeships scheme, not just getting young people into jobs, delivering two million more quality training places, but kicking off a total reappraisal of the worth of vocational verses academic further education; even the hated tuition fees cum sort of graduate tax has delivered more young people from less well-off backgrounds into higher education.

You can, as Cap'n Clegg is fond of saying, still do a lot of GOOD with a bit of goodwill and three-quarters of a trillion pounds!

All of which means THIS is where the fight gets DESPERATE.

Liberal Democrats, we might have thought that we could go quietly into Opposition, sit the next Parliament out, lick our wounds – which will be many – and rebuild our tattered reputation under the cosy leadership of Saint Tim, while enjoying the no-doubt-hilarious spectacle of a minority Labour administration giving new definition to being propped up with a (lack of) confidence and supply (of demands) from the SNP.

WE MAY NOT HAVE THAT OPTION.

The Tories are already planning how to wreck democracy: that infamous "black and white ball" they held, that wasn't to raise funds for the General Election. They've already GOT the funds to fight the General Election. THAT was to raise funds for the SECOND General Election.

Remember, our slogan is "Stronger Economy; Fairer Society; Opportunity for All".

It's NOT because we'd deliver a fairer society than the Tories and a stronger economy than Labour. (Though we would. But that's OBVIOUS.)

It's because we'd deliver a FAIRER society than LABOUR and a STRONGER economy than THE TORIES!

Labour: the Party of I.D.iot cards, 90 day detention, dog whistles on immigration, cutting benefits for young people, introducing ATOS, introduction Work Capability Assessments, introducing tuition fees (yes, that burns), cash for peerages, cash for Bernie Eccleston, Iraq… no WAY are Labour the Party of "fairer society".

But equally, the Tories: the Party of throwing our relationship with our single biggest trading partner into doubt, the Party of toying with GBrexit, the Party of slashing immigration and all the benefits that come with it, the Party of slashing benefits(!), the Party of tax cuts for Dead Millionaires (promised again, this week), the Party of blowing dirty great wads on Trident… no WAY are the Tories the Party of "stronger economy".

People, if you DON'T want the LUNATICS to take over the asylum, if you don't want the drawbridge pulled up and the curtain run down on five centuries of Britain being the greatest trading nation on Earth, we CANNOT let the Tories win! Labour are about to surrender. It's up to the Liberal Democrats.

No pressure, then.

In this post:

Master Gideon = Gideon known as George Osborne, Chancellor of the Exchequer
Mr Allstar Darling = Alistair Darling, his Labour predecessor
Rachel the Reever = Rachel Reeves, Labour Shadow Welfare Minister
Tristram the Hunt = Tristram Hunt, Labour Shadow Education Minister
Mr Milipede, reverting to Mr Miliband = Ed Miliband, probably-doomed leader of the Labour Party
Cap'n Clegg = Nick Clegg, Deputy Prime Minister and Leader of the Liberal Democrats
Mr Danny = Danny Alexander, Liberal Democrat Chief Secretary (i.e. second in charge) at the Treasury
Mr Vince = Dr Vince Cable, Liberal Democrat Secretary of State for Business, Innovation and Skills and widely respected as Lib Dem economic spokesperson and stand-in leader

Day 4587: A Liberal Tax versus The Problem of Inheritance

Tuesday:

The arrival of a BABY* who is going to receive the entire United Kingdom in spite of not even writing a FAMOUS DIARY begs the question: is it RIGHT that so much of the wealth of this country is bound up in a few families and handed down generation after generation?

The PROBLEM isn’t whether this is SELF-EVIDENTLY WRONG (it is) but that the people who HAVE all the wealth have a VERY GOOD trump card when anyone dares to suggest taxing them:

“People who’ve worked hard for their money should be allowed to give it to their children!”

It’s a CLEVER and TRICKSY argument, which tries to hide the fact that very often these people have NOT worked “very hard” for their money, but have – like the young princeling – merely got it because of who they were born... and from people who merely got it because of who they were born... who got it from people who… Laziness, cascading down the generations. Instead they CO-OPT the hopes and aspirations of millions of people who DO work hard for their children to provide cover for their own enormous unearned benefit.

However, I have a suggestion that would neatly get around this: the Inheritance Tax rate should be ZERO for all money earned, but 100% on all money inherited during your lifetime.

That way, people who DO work hard, and improve on what they start with – whether that is a fortune or nothing at all – will have money to leave, but those who receive great good fortune and fritter it away or even just sit on their laurels, will see the taxman claim the lot of it.

Inherited wealth and privilege are strong barriers to equality of opportunity, and as such traditional Liberals should be opposed to them instinctively. Additionally, economic Liberals will tell you that wealth bound up in portfolios of property and stocks is money that is not circulating in the economy and therefore losing us opportunities for growth. Keynesians will say that the receipts from such a tax can be used to pay down the national debt or invest in capital assets. And Christians will tell you that this is 100% in keeping with the Parable of the Talents.



*Meanwhile, a Happy NOTHINKTH Birthday to George Alexander Louis – named for three emperors... or did your parents secretly want a G.A.L?

Day 4394: The Turn of the Tide

Friday:

Never give up hope.

Would I personally have celebrated the halfway point of our shackling to the Nasty Party by voting for a 1% cap on most working age benefits, another miserable compromise, watering down slavering Tory attacks on the less well off, because something is better than nothing?

Would I want to be in a place where anyone has even heard the phrase "triple dip"?

Would I call the first half of this Coalition a SUCCESS? After TUITION FEES, the NHS bill, the AV debacle, Lords Reform failing, and just Jeremy Hunt...

But Hard Labour want to ban FROSTIES.

The considered response of Her Majesty's Loyal Opportunists to the economic crisis and the health of the nation is... to outlaw a sugared breakfast cereal*.

Ladies and gentlebums, things could CLEARLY be a WHOLE LOT WORSE!

I wouldn't be QUITE so smug if I were the Labour Party on 40% in the polls given their historical propensity for dropping 10% between their mid-term and polling day, often just over the course of an election campaign.

At the moment, if you want to voice discontent, or even just grumble about the state of things, then as opposition goes they're the only game in town.

But if you look at what they're OFFERING it's just MORE OF THE SAME – more borrowing, more PFI schemes, more borrowing, a temporary VAT cut, did I mention more borrowing – another meal of reheated TURKEY, leftovers from the Mr Frown era, based on the assumption that NOTHING HAS CHANGED (except a few banks are not so popular anymore) in a World where EVERYTHING is different.

Their answer to the question raised by the 1% benefit threshold – "how would you tackle the alternative of a three billion pound overspend on the benefit bill?" – is the simply fatuous "we would have more people in employment". If Governments could DO that, do you think the Coalition wouldn't? (Actually, some people DO think that, but we'll take sane commentators only, please.) Governments of all colours have shown again and again that they are VERY BAD at creating jobs (except by directly employing people which, by simple maths, costs MORE than any possible "savings").

Labour's NEW policies have not yet been tested because, well, (banning Frosties aside) they haven't GOT any new policies. Mr Balloon tried the tactic of having no policies and springing "the Big Society" on us during his manifesto launch. History tells us this that is NOT the strategy of a WINNER.

HINDSIGHT makes it SO easy to score hits off the Coalition, and off Cap'n Clegg (now on Pirate Radio!) in particular. No one has EVER done this before, a Coalition in the era of Presidential Politics, and Parties considered to be monolithic rather than the fluid pre-War groupings. I don't remember ANYONE mapping out a way to do this, let alone a BETTER way to do this.

So if you think we should have gone for DIFFERENTIATION sooner (from Day One)... you're forgetting that we were OPTIMISTIC, we wanted this government to be SYNTHESIS, a great reforming government, the best of Liberal AND Conservative traditions, and that the Coalition Agreement looked like it could deliver that. AND we were OPTIMISTIC that the voters would see what we were doing and approve of it as "grown up politics" – kind of like the voters always SAID that that was what they wanted.

OPTIMISM isn't WRONG. OPTIMISM is what you need if you are to be creative; it's the power you need to drive great change and to carry people with you.

DIFFERENTIATION is a strategy for when SYNTHESIS isn't working. DIFFERENTIATION is for when voters are BLAMING you for compromise rather than AGREEING there must be give and take. To have adopted DIFFERENTIATION from Day One would have been to abandon any chance of greatness for this Government.

Of course it DIDN'T WORK. It's a classic PRISONER'S DILEMMA – the optimal strategy is for BOTH SIDES to work together. But GAME THEORISTS tell you your PERSONAL STRATEGY is always better to SHAFT your partner. There were a determined band of Tories (up to and including Master Gideon) who WERE practising differentiation from Day One. But that wasn't down to us.

Did they "outplay" us? That depends on whether you think being in Government is a GAME or a serious attempt to make things BETTER for people. And that's not to say that certain parliamentarians (up to and including Master Gideon) DO think of it as a GAME.

In those terms, in the short term, the answer is yes. Obviously yes. They set out to destroy Lib Dem policy after Lib Dem policy (or, still more accurately, COALITION POLICY after COALITION POLICY) and won quite a lot.

Mind you, the price is that they have made the Conservative Party unelectable FOREVER. At least as it is presently constituted. There will never, ever be another majority Conservative government. Too much of their Party now will not come in from the RIGHT. Up to and including Master Gideon and his lust for a tax cut which, by giving handouts to the rich, broke the Tories in the opinion polls. And EVERY Tory Prime Minister of the Twentieth and Twenty-First Century from Balfour through to Lord Blairimort will tell you you can ONLY win from the Centre.

Which doesn't help build a Liberal Agenda for the SECOND HALF of this Coalition.

It is hard to remain OPTIMISTIC.

That's not to underplay the areas where we ARE making a big difference: in GREEN ENERGY and GREEN ECONOMY; or the work Mr Dr Vince is doing to create APPRENTICESHIPS and support and invest in British success industries; or the prospect of EQUAL MARRIAGE.

But we see ever more BARKING MAD policies being brought forward by our Conservatory uncivil partners – this week: "let's privatise the probation system!" – while constitutional and institutional reform founders.

(And the Prime Monster tosses us a bone of "fixing primogeniture" – our process for picking a Head of State may be undemocratic, promote privileged and the corruption that goes with a fixed establishment, and strangle innovation with nostalgia, but at least it will no longer be inherently sexist! The inclusion of persons married to a Catholic, who would formerly have been barred, does not WIDELY increase the pool of potential candidates. Prince Charles – more in sorrow than anger no doubt – declares his opposition to even this little reform lest, get this, some future second child should try to take the country to the European Court because HE thinks HE should have inherited ahead of his SISTER. As though a court case like that wouldn't end the whole monarchy problem for us right there and then. Charlie has always been a big one for his PRIVILEGES and, unlike his mother, never really grasped that it's actually about his DUTIES.)

As a Party we are not immune to the voices of complaint and the "I told you so" tendency. It's all too easy for us to fall back on scorn and mockery when the Party hierarchy try to suggest a "message".

We NEED a "message" if we're going to be heard at all when the LANGUAGE of the national debate has become increasingly STRIDENT and DIVISIVE, with the Parties on BOTH sides of us seeking to DIVIDE and CONQUER. If it's not outright CLASS WAR, setting poor against poorer, then it's taking INFLAMMATORY ANTI-IMMIGRATION rhetoric right up to the edge of borderline racist... and sometimes jumping right over. And if this is an age of UNREASONABLE debate, let us not ever forget Labour's contribution: screaming "TRAITOR" without rhyme or reason for two years solid. How exactly was THAT going to lead to nuanced comment?

To be halfway fair to Hard Labour, in the IMPOTENCE of OPPOSITION and the ABSENCE of POLICIES, all they've GOT is NAME CALLING. The Conservatories however are discovering the IMPOTENCE of being in OFFICE – taking the BLAME for EVERYTHING and able to change NOTHING. And last year's Budget put them fully in the frame, no longer having us as their lightning rod.

In part because we're "centrists" but more because we encourage DIVERSITY – including in opinion – Liberal Democrats are HILARIOUSLY BAD at this sort of SLANGING MATCH politics. ("Alarm Clock Britain" anyone?). We, far more than the one-idea-fits-all Parties, need to be able to EXPLAIN ourselves. Hopefully Cap'n Clegg's half-hour-a-week broadcasts – talking in SENTENCES – will do more good than any number of silly SOUNDBITES.

We need to EARN ourselves a hearing and – very gradually – we ARE winning back the right to be heard.

And then we need to have something WORTH hearing.

Far too much of what our MPs and especially our Ministers come out with is TECHNOCRATIC and MANAGERIAL. Let's have something to say that is a wee bit POSITIVE. It doesn't have to be EXPENSIVE; just LIBERAL will do.

For example:

Our parliamentarians need to be more OUTSPOKEN in OPPOSITION to the creeping SECURITY AGENDA – it's not just about the taking of liberties, it's EXPENSIVE too, and we can really make a case for NOT wasting millions and billions on security theatre.

We need to say that our aim of FAIRER TAX also means aiming for SIMPLER TAX – fewer loopholes, harder to dodge. Master Gideon has proved himself as much of a TINKERER as Mr Frown. We want to be saying we will cut through all the complex rules and make a tax system that people – not least the people at HMRC who have to run it – can actually understand.

And we need to speak more positively about FREEDOMS – freedom of speech, pushing the changes to libel laws much further; freedom to exchange and innovate on the web, reforming copyright laws to encourage creative talent, not monolithic rights holders, and supporting open-source programming though government and civil service choices; freedom from conformity, so let's talk more about ROLLING BACK the things that are illegal and less about making more crimes. The law should be there to PROTECT people, not INTRUDE on and PUNISH them for being different.

And while were' about it, we should be much more positive about how HUMAN RIGHTS are a GOOD THING. And that they are GOOD RIGHTS to HAVE: the right to NOT BE KILLED; the right to NOT BE LOCKED UP without a fair trial and a good reason; the right to HOLD OPINIONS; the right to MEET OTHER PEOPLE. They're all very simple. And people DO NOT lose their human rights – not even very bad people, in fact ESPECIALLY not very bad people – because YOU wouldn't want to be in IRAN or KOREA or RUSSIA or GUANTANAMO and suddenly told that you've lost YOUR human rights! ALL humans have human rights, and if you say otherwise, you're saying people are SUB-human and, well, there was a WAR about that.

Basically, we need to say why Liberal Democrats will make things BETTER!


So let's play FLUFFY NOSTRADAMUS for a second.

Mr Stephen Tall says we shouldn't count on TOTAL Liberal Democrat Wipe-out at the next election, so what MIGHT happen?

The election of 2015 becomes increasingly interesting. Or rather the electionS of 2015. Because I think there's every chance that we will see at least two if not THREE(!) elections next time.

We and the Tories WILL lose seats, no doubt about it. But Labour won't have done enough to achieve a majority on their own. And they'll play SILLY-BUGGERS about doing a deal with surviving Liberal Democrats. So they will try and run a minority Government (what they secretly – and not so secretly – wanted all along). And it will collapse, possibly as soon as they try to get a Budget through the House and it triggers a Sterling crisis.

Repeat THAT a couple of times over the Summer and people might just start to get the message that Coalitions are better than Hard Labour's monomania too.



*Cornflakes were, of course, invented as a cure for... well, never minds that; "They're Grrrr...ievously contributing to the obesity crisis!" says a Labour spokesperson.

Day 4119: Shock and Snore – Master Gideon versus the Tax System

Wednesday:



It's all about tax returns, this week.

Apparently, the Treasury HM Revenue&Customs*+* have been SHOCKING Master Gideon with some of the ways that rich people run rings around the taxman.

Plus, we've now gotten infected by the American habit of politicians releasing their tax affairs to prove what good citizens they've been.

First it was the candidates for Mayor of London, sparked off by Mr Ken Newt saying that anyone who avoided tax didn't deserve a vote. Apparently overlooking that this included himself.

Now the contagion seems to have spread to Mr Balloon, Master Gideon and the rest of the Cabinet.

"Hands up who in benefits from the 50p tax cut," demanded Mr Milipede in the Budget debate. Repeatedly*. "Come on come on own up who's been naughty then," he could have added, since he was already behaving like the milk monitor in the reception class.

Of course he was taking advantage of PARLIAMENTARY ETIQUETTE that meant that none of them could reply, knowing that the CAMERAS would show them having to sit there like a bunch of LEMONS.

The simple answer, though, ought to have been: "NONE OF THEM", since the Coalition Cabinet took a pay CUT on entering office so that they, unlike when Mr Milipede was in the Cabinet, do not earn more than £150,000 for their duties. And since Mr Balloon also banned Cabinet ministers from moonlighting that ought to be ALL they earn.

(OK, possibly NOT what with trust funds, investment income, property portfolios and all the other ways for WEALTH to make money...**)

But a somewhat overlooked fact is that Cabinet ministers are actually WORSE OFF because of the changes in allowances and thresholds. Remember that "withdrawal of personal allowance" that Daddy keeps going on about? Well, because they earn more than a hundred thousand squids, that affects the Cabinet. So, they DON'T gain from the increased personal allowance that takes millions out of tax, but they DO have to pay more of their income at the 40% rate because of the reduced 40% threshold.

The changes mean that they will be paying more than a grand MORE in tax next year than they were when the Coalition formed in 2010.

The net effect of the tax changes mean that it's actually people earning more than a hundred and fifty AND eight-and-a-half thousand squids actually get a tax cut.

So you would have to be earning TWENTY-FOUR GRAND ON TOP of your Cabinet salary (not fifteen, as the Grauniad thinks) in order to benefit from the upper rate cut from 50p to 45p.

Yes, I'm SURE that your heart BLEEDS for them; it's not EXACTLY like they'll be short of sticky buns. But it IS worth remembering this whenever Hard Labour are bleating about "Do you benefit personally"; a fair reply would be: "No, and we're paying more than YOU did!"



*Actually, speaking of people who repeat the same line over and over without listening to the reply, Ms Rachel Reeves – robotic Shadow to Mr Danny – likes to bang on over and over that reducing the 50p rate to, er, a higher tax rate than Hard Labour had for all but FOUR of the SIX-HUNDRED and SEVENTY-NINE weeks that they were in government, amounts to an "average tax cut of ten thousand pounds".

How do you get "an average of ten thousand pounds"? Well, there are three hundred thousand people in the 50p-as-was bracket, so you take three billion squids and divide that by three hundred thousand.

Hang on, where did those three billion squids come from? That's half a billion squids MORE than even the two-and-a-half billion that Hard Labour claimed would be raised by the 50p rate. (Or THIRTY times more than the hundred million squids that the figures checked by the Office for Budget Responsibility agree that the upper rate ACTUALLY raised.) How is this MATHEMATICALLY possible?

After all, she could not have just MADE UP a big-sounding number, could she?



**Actually, this manages to get oh so close to an important point while still managing to miss it entirely.

Mind you, Mr Milipede does like to BLUR the difference between BEING a millionaire – which means HAVING a million squids – and EARNING a million pounds a year which makes you a CONSIDERABLY FATTER cat-monster.

(Certainly, we'd none of us say "no" to having a million squids... unless they were ACTUAL squids... ew! But the days when a million pounds could buy you a "millionaire lifestyle" are in the past. You'd be MODESTLY but not LAVISHLY well off for the rest of your life – you don't get much that interest at the moment, but the capital at least would last forty years if you gave yourself the equivalent of the average salary. In fact, thanks to the house price boom, a lot of people, especially in the south-east, are millionaires on paper without having a lot of ready cash for buying champagne and yachts.)

But if you are REALLY WEALTHY then it's quite possible to arrange your affairs so that you only get a SMALL INCOME. If you've got pots of cash, then there are all sorts of SAVINGS you can make – you don't need to pay for a MORTGAGE 'cos you can just buy a house with capital; you don't need to pay into a pension 'cos you've got a tidy pot already; you don't have to pay a fortune for a ticket for your daily commute 'cos you don't actually have to have a job; and so on.

So it's is a whole lot more complicated that JUST knowing what someone's "taxable earnings" are OR knowing that on paper they're worth "a million". To see the WHOLE PICTURE you need to have an idea of their earnings AND their total WEALTH (and probably the WEALTH of their immediate family, like spouses, parents, children, that great aunt of a distant cousin who just happens to let them live in her castle and fly about in her plane etc).

People who are PAID millions of squids are at least DOING SOMETHING (even if you cannot credit that they actually EARN a salary larger than the GDP of a small country***!). People who just SIT on piles of cash are actually WORSE 'cos they're not just not contributing to the country, but their wealth is actually locked away from the economy when it could be being invested.

That is why shifting tax from INCOME to WEALTH actually MAKES SENSE.

Though of course Liberal Democrats prefer to pass the tax cut on to the millions at the bottom end, rather than the Conservatories preference for giving a bung to a few chaps in the city City.



***Actually****, the country with the smallest GDP is Tuvalu, with a GDP of thirty-six million dollars, which is still more than Bingo Bob Diamond of Barclays gets paid. Shush, don't tell him.



****Too many "actuallys".

PS:

*+*Actually, not the Treasury, but Her Maj's Revenue and Customs, thanks to Hon Lady Mark for correction. Arrgh "actually" overload!!!!!
.

Day 4100: The Shocking Truth – Who is Worse Off under the Granny Tax

Friday:



It warms my fluffy heart to see the great and the good of the left (La Pollyanna Toytown and chums) manning the barricades on behalf of those who don't earn enough to benefit in this week's budget, who face more cuts to welfare and tax credits and who...

Sorry, what's that?

They're ACTUALLY kicking up a fuss about people who ALREADY get extra benefits being told they're getting even more on top?

Riiiiiiiight.

From the HOWLS and CARTOONS you'd think that Gideon was PHYSICALLY removing tenners from old ladies' purses and stuffing them into the thongs of passing Fat-Cat-Monsters.

(And why GRANNIES not GRANDDADDIES, I am not alone in asking. And does this only apply if you have offspring who have offspring?)

The truth is the rather-more-nuanced: "He's not sticking an extra tenner INTO the Grannies' (etc) purses".

(Something that the Hard Labour HYPOCRITES were doing for YEARS on the sly, but when Gideon is naive enough to TELL people what he's doing, they go all SHOCKED MITTENS.)

So who IS going to have to pay MORE because of this "mugging"?

(This is the SCIENCE BIT – you can tune out for the next few paragraphs if you want.)

It's not QUITE nobody.

No one over 65, not one single person, will be worse off because of the changes to personal allowances.

In fact, better-off older people, those earning between thirty and forty thousand pounds (those people still in work or with REALLY good pensions) will be even BETTER off because they don't get the age-related bonus either (one of those iniquitous "withdrawal of personal allowance" stings that we have talked of before), so they WILL benefit from the Liberal Democrat tax cut that raises EVERYONE'S personal allowance.

HOWEVER, in an example of the World's Smallest Inter-generational IniquityTM, people who are sixty-THREE now, would have gained an extra allowance when they turn sixty-five in 2013/14 and they now WON'T get the EXTRA allowance. So if they are earning more than nine grand (and many will be relying on a retirement income that is less than that) then, because they'll be starting to pay tax at the new higher personal allowance of £9,205 instead of the age-related personal allowance of £10,500, they could be paying up to £259 of tax that they would not have had to pay.

People who are sixty-TWO now would have gained the extra allowance in 2014/15. It is a reasonable guess, in fact a near certainty, that the personal allowance will go up to £10,000 in that year (a year faster than planned thanks to Liberal Democrats negotiations over the budget). They will miss out on £500 of bonus personal allowance, so, again if they have enough income, they will pay £100 in tax more than they might have done. Current sixty-three year-olds with similar incomes will also have to pay this £100.

(There is a similar effect on people who are SEVENTY-three, who – if their income is above ten-and-a-half grand – will pay an extra £32 in each year that they would not have done if the system hadn't changed, and people who are SEVENTY-two – likewise, earning more than £10,500 – who will miss out on that £32 tax cut in the second year.)

It looks pretty likely, though, that in 2015/16 the personal allowance will go up to MORE than £10,500... in fact ideally to more than £10,660... and the advantage of the age-related allowance will cease to exist.

(And I appreciate that there is a fairly subtle difference between not getting a benefit that you've never had BUT THAT OTHER PEOPLE HAVE HAD, and not getting a benefit that no one has ever had.

So, current sixty-three-year-olds (who earn between roughly nine thousand pounds and twenty-six thousand pounds) will be worse off by £359 (or less, and most by nothing).

Current sixty-two-year-olds (earning likewise) will be worse off by £100 (or less).

Current seventy-three-year-olds (you get the bit with the earnings by now) will be worse off by £64 (or less).

And current seventy-two-year-olds (earnings blah blah blah) will be worse off by £32 (or less).

And no one else.

No one else will be worse off.

Of course they'll not be BETTER OFF either. But that's because they're BETTER OFF ALREADY, and the effect of these changes mean that everyone else is just CATCHING UP.

All of the wheezing and groaning that we hear on this issue is coming from people who already HAVE more benefits than younger people AND EXPECTED TO GET EVEN MORE ON TOP OF THAT.

The IFS study has shown that actually, pensioners have contributed LEAST to the austerity.

So maybe, just maybe, it is RIGHT to ask them to shoulder a little of the burden too by GETTING EXACTLY WHAT THEY ALREADY GET and NOT PAYING MORE.

Which is SO harsh.

The big surprise is that it was the CONSERVATORIES who put this change into the budget mix. The Liberal Democrats' preferred option – as voted at Conference – was to restrict the benefit of paying into pensions for higher rate tax-payers.

You'll not be surprised to hear that Daddy Richard actually PREFERS the Budget's option, because it means that people will pay the tax on their income WHEN THEY GET THE MONEY, rather than when they are putting it into the pension fund.

What you might NOT expect, thought is that, even though pension contributions are NOT to be included in the Tycoon Tax limit of 25% of earnings being put into legitimate tax avoidance, we're not so sure that we would mind if they were!

We've had a LOT of discussion with Count Packula (...and, er, had a chat with Mr Danny... and, er, passed the word to Cap'n Clegg...) about how much paying into a pension is LEGITIMATELY providing for an independent retirement and how much is MANIPULATING the tax system by shifting income to a time when you are in a lower tax bracket. The evidence seems to be that a LOT of people dodged the bullet of the 50p rate by dropping extra income into pensions. It's persuasive that this – like many other tax-advantageous schemes – is being used as a DODGE.

And so we've come to the conclusion that LIMITING how MUCH of your income you can defer like this – and 25% seems like a FAIR amount – is a BETTER way to stop ABUSE than asking people to pay contributions from their taxed income.

Anyway, that's neither here nor there when it comes to THIS budget.

There's still plenty to be OUTRAGED about in the budget...

...although, as with MOST of the WRETCHED COMPROMISES that we have to make in this Coalition, it's possible to feel a bit better about our bits when you've looked at the details – e.g. we may not have got a mansion tax NOW, but that doesn't mean it's off the table; the Conservatories still want to get rid of that 45p rate. Never mind what you hear in the papers about Gideon being in two minds about whether or not they should get rid of the 50p: it was the first thing the Conservatories slapped on the table and their number one red line. They were GAGGING for it! So we've got a LOT of leverage left with the 45p, which will cost more and need a more significant wealth tax to pay for it. HINT HINT.

And the tax incentives for creative industries are very much to be welcomed, as they are in line with Mr Dr Vince's leaked letter about how the Government should have an industrial strategy that supports British winners. A BIG difference between us and the Conservatories is that a Liberal government would INTERVENE to help, as opposed to Conservatory LAISSEZ-FAIRE (or Laissez-FAIL more often than not). We can and must be the Party of the VISION THING!

On the other fluffy foot, Master Gideon talked about taking another ten billion away from welfare. It might not be what he meant, but it's certainly what he SAID. Which is terrifying!

And the politics of the 50p rate remain just AWFUL. And the mathematics looks quite risky. The 50p rate may only have raised around a hundred million because the high-earners avoided the tax (through contributions to pensions and other legitimate schemes and wheezes), but that DOESN'T mean that they won't similarly duck the 45p rate, and we could end up with a substantially larger hole in the finances that Gideon predicts.

And even if he's got his sums right, the effects of the Tycoon Tax and the extra Stamp Duty don't really start to be felt until year THREE of this plan. This year the budget shows what is called a "fiscal tightening" or LESS MONEY IN of nearly two billion pounds, and next year one billion. That's a gap that's got to mean accelerated restraint on the spending side. Or FASTER, DEEPER CUTS.

So get angry, if you have to get angry, but get angry about the RIGHT THINGS.

Get angry that the Liberal Democrats fought their corner WELL and got a tax cut for MILLIONS but still couldn't stop the Conservatories giving a bung to billionaires.

Get angry that there is less for those in poverty, and remember whose FAULT that is.

Get angry about the GREED of the Labour years that RUINED the economy and that the poorest, as always, have to pay for Labour's folly.

But if you REALLY want to get angry, get angry at the FAUX outrage of MILLIONAIRE lefties cynically playing politics with Grannies, scaring them that they'll be taxed into the poorhouse when really they'll pay NOT A PENNY MORE.
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Day 4098: Oh What A Lovely Budget. Apparently.

Wednesday:



A letter arrives. It's from Captain Clegg! He seems unnaturally happy about Master Gideon's latest budget. I'd better check the POSTMARK – ah yes, he appears to be writing from CLOUD CUCKOO LAND...

Dear Millennium, We can be proud that the biggest tax cuts in today's Budget go to millions of working families.

Well, the most EXPENSIVE tax cuts, perhaps. 'Cos with only 330,000 people paying 50%, it costs LESS OVERALL to give them a bung.

But anyone earning more than £155,000 has had a tax cut of more than £250, and that's MORE than the £220 a basic rate taxpayer will get.

As a result of this Budget, someone working a full week on minimum wage will see their income tax bill cut by over 50% compared to under Labour.

Increasing the personal allowance to £9,205 takes us within touching distance of our number one manifesto pledge – ensuring no one pays any tax on the first £10,000 they earn.

Successfully not benefitting EITHER of my Daddies, because one earns too much and one earns too little. Congratulations to the households of TWO top-end basic rate payers, though. You earn more than both Daddies put together AND get two tax cuts. Plus you keep your Fluffy Child benefit! Hooray!

Thanks to our changes, a basic rate taxpayer will be paying £45 a month less in tax than they would have been under Labour.

Although strictly speaking, that's £45 LESS the extra that they are paying in VAT and duties on fuel, beer and ciggies. And yes, Hard Labour WOULD have put those things up too (especially the VAT) but you're not comparing a fictional Labour budget with Gideon's actual figures – you're comparing the actual tax rates they had in 2010.

We can be proud that we've ensured the richest in our society will be paying more, much more.

The Tycoon Tax, an increase in stamp duty for high value properties and other new taxes on wealth...

Oh please! At Conference you were implying that the Tycoon Tax should be a tax on INCOME, some sort of minimum percentage that billionaires like Mitt Moron ought to pay. Today it's a hike in stamp duty. STAMP DUTY?! This just looks like spin. And not very good spin.

And Stamp Duty is a tax on BUYING property, not on HAVING property – it's not really a wealth tax, more a barrier to entry to the Tory Toff circles.

Or maybe it's just misplaced punctuation!

To be fair, some of the more EGREGIOUS get-out-of-tax-free loopholes have been, well not closed but made considerably more modest and that DOES gain us back a sizeable whack more tax, clawing back about a BILLION quid over five years.

So if you take the Tycoon Tax to mean the capping of some of those tax avoidance schemes PLUS a similar amount from the Stamp Duty then you might get to...

...will raise five times as much as the 50p tax rate. Those with annual incomes of more than £150,000 a year will be paying on average an additional £1,300 a year in tax, as a result of this Budget.

How?

Of course, this is a Coalition Budget and we did not get our own way on everything.

Well, it IS true that the budget has been an obvious case of a Liberal Democrat tax cut at the bottom and a Conservatory tax cut at the top, and that's GOOD, we can work with that. But the question is WHERE DOES THE MONEY COME FROM. And it looks very like it's come from FASTER and DEEPER cuts.

And then we see ANOTHER TEN BILLION off Welfare payments.

Conservative priorities are not ours. But as on so many other issues...

We rolled over and let them have their way?

...we have made sure that there is a real Liberal Democrat stamp on this Budget.

And a real Conservatory kick in the badwords.

Lower taxes for more than 20 million working people; effective new taxes on the rich.

This is a Budget we can be proud of – a Budget for the many, not the few.

Really, Cap'n? Proud?

Thanks for all the support you give to the party. Best wishes,

Well, I support the Party because we're supposed to be BETTER than this. We ACCEPT that we cannot do the ALL things we want to do, nor that we can stop the Conservatories doing many bad things we'd rather that they didn't.

But that DOESN'T mean taking pride in a Budget that basically tickles the Tories' tummies and gives us one concession and sending us off with a pat on the head.

How did we manage to let them NOT put up any serious wealth taxes?

How much* of that ten billion welfare cut goes towards mitigating the cut in BENEFITS for RICH PEOPLE?

And how about we STOP trying to OWN the whole Government, take CREDIT for what we HAVE got (a basic rate tax cut) and ADMIT to where we DIDN'T get our way (oops, no mansion tax!).

I'll be PROUD when we HAVE a Lib Dem budget. Until then, I'll stick with being thankful for small mercies and APOLOGISING for shaf... bad-word-ing the poor. AGAIN!

PS:

*It's about two-thirds of a billion a year, actually. Look, I LIKE universal benefits, they're simple, unbureaucratic and get to the people who need them, but that doesn't mean I'd choose child benefit for duchesses over employment support for the disabled.


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Day 4078: Why Don't We Just Tax Chutzpah?

Thursday:



Warming up to take a pop at our own tax policy, I'm reassured to see that the Conservatories continue to be driven into conniptions over the 50p tax rate, this week with another group of concerned businesspersons contacting the Hello-o-graph to express their anxiety that rich people contributing to the coffers and not being driven to leave the country is in some way bad.

Still, you've got to be impressed by their CHEEK!

"We believe the richest should help the poorest in society..." they say. Before demanding to help just that little bit less.

Here's a DIFFERENT taxing idea instead: LOWER the threshold of the 50% band to £140,000 as we raise the personal allowance to £10,000 and get rid of the withdrawal of personal allowance – a tax cut for the rich paid for by the richer, and a more HONEST and TRANSPARENT way of raising the tax from the most well off.

Day 3992: Tobin or Not Tobin: Why Paddy Ashdown is Wrong and We Need a Robin Hood Tax like an Arrow in the Head.

Tuesday:



Time to take a leaf out of Daddy Alex's book – and take my life in my fluffy feet – by picking a fight with Lord Paddy!



Look, for starters Robbing Hoodie ROBBED the taxman; he didn't work for him! A "Robin Hood Tax" is a CONTRADICTION IN TERMS!

People say "it's an itty bitty little fraction of a percent but it raises oodles of dosh." Well, it's either one or the other. If it raises a lot of money then that's got to come from SOMEWHERE.

And here's the real kicker: it comes from YOUR pensions and insurance. It doesn't come from "the rich" or from "the bankers". It comes from YOU.

The RICH do not, on the whole, spend their time buying and selling their assets over and over. They leave their wealth invested – in bonds or shares or in gold or oil paintings or racehorses or whatever. That's your problem right there: money being locked away in unproductive assets instead of being made to work creating business and jobs. A tax on capital transfers WON'T TOUCH THAT.

The capital transfer tax or Tobin Tax is usually said to apply to buying and selling shares and bonds, although some formulations suggest that it might be applied to ANY transfer of cash (yes, including moving your own money from your current account into your savings account).

The Tobin Tax mostly affects the HIGH VOLUME of stocks and shares traded on stock exchanges, particularly in LONDON.

But Bankers, you may somehow not have noticed this, do NOT play the city casinos with their own money. They invest money on behalf of clients, and mostly that is money from the huge funds controlled by pension funds, insurance firms and other financial institutions. And THAT money comes by and large from ordinary people paying in money to their pension plan or insuring their health, home, holiday or the rest.

If you're going to take fifty billion quid in extra tax then THAT's where it's going to come out of. Pensions and insurance firms will make less profit on each transaction. It doesn't matter that it's only a little bit less per transaction; if it's going to add up to a LOT of tax raised then it's going to be a LOT less profit overall. So they will need YOU to pay that extra bit in to cover it.

We've been here before.

When Mr Frown raided the pension funds back in the days when he was Mr Pay Down the National Debt (following Fatty Clarke's plan for repaying the tripling of the national debt the Conservatories ran up under Mr Major Minor, oh those heady days), what he did was to abolish a little tax giveaway called the Advance Corporation Tax Credit or ACT.

What ACT meant was that when company dividends were paid, 20% of the dividend was sent to the treasury. Ordinary shareholders would pay tax on their dividend, but the ACT was like a payment on account, so some or all of the tax they owed was already paid. But Pension funds didn't have to pay tax, so they could reclaim ALL of the ACT credit. It was only a little thing, an itty bitty amount per dividend. But it added up to a BIG amount in total.

And through the effect of compound interest, that amount could be snowballed to really build up the value of the pension fund.

So when Mr Frown took the ACT away, that REALLY hit the long-term growth value of the funds in which pensions were invested. And that's a big factor in the way that pensions suddenly became HUGELY more expensive to fund. People with private pensions had to pay in a lot more. Many companies decided that they had to stop offering final salary pensions because they were just too expensive.

(Ironically, Mr Frown STOPPED using the pension money to pay down Britain's debts and instead started using it to pay lots more public sector workers. Which is another reason why some people are a LITTLE bit resentful about those public sector workers who are demanding EVEN more from tax payers to fund all the extra pensions that all the extra workers are going to need. It would be easier to believe "we want decent pensions for everyone" if Mr Frown had not explicitly funded public sector pensions – and salaries – by raiding the private sector pensions for the money!)

The government and the Liberal Democrats in particular say that people who are paying into pensions are doing the RIGHT THING.

Now we could have a great big debate about whether they are or they aren't – pensions are of course more tying up wealth in unproductive savings rather than spending or investing money in a business – but since we have made a retirement, and a COMFORTABLE retirement at that, not merely an ASPIRATION but an EXPECTATION for most people then someone has got to pay for that.

Until the Seventies, that someone was always the government, but since the Eighties successive governments have made it abundantly clear that they are not going to pick up the tab and people had better make their own arrangements.

So it's a bit bloody cheeky to then keep eyeing up the savings of those people and going "we'll have a chunk of that, thanks".



(And the same thing goes for the so-called Higher Rate Pension Credits too. As I Twittered last week: that's not £40bn GIVEN to private pensions; that's £40bn NOT TAKEN from them. There IS a difference. Payments into your pension pot are supposed to come from your PRE-TAX income, because you are deferring that income until later in your life and you are going to get TAXED on it when the pension pays out. So it's somewhat NAUGHTY to tax it going IN as well.)



Anyway, the WORST thing about Captain Paddy's article is that he doesn't just want to raise yet more tax, but that he already has a wishlist of things to SPEND it all on.

Yes, of course it would be wonderful to end child poverty, or to reverse climate change, or to meet our Millennium commitments. But we are ALREADY spending more than we raise in tax. And we are already taking more than half Great Britain's GDP. Somewhere between none of it and all of it there has to be a limit to how much of what the country produces the government can take in tax. Adding a new tax burden and then hypothecating it to causes, no matter how laudable and worthy, just makes it more difficult to close the gap between what we are getting in and what we are forking out.

And, at the last election, the country made the choice to go for LESS tax and LESS spend.

That's the truth about the "ideological" cuts, incidentally. The country chose to accept the need for cuts. Just as in 1997 when the county accepted the case for more spending on public services, and so the largest vote went to the party "ideologically" inclined to SPEND, so OF COURSE in 2010, knowing that there had to be cuts, the largest vote went to the Party "ideologically" inclined to implement them. As opposed to the one which promised fiscal prudence and then spent like there was no tomorrow. Which in the end, there wasn't! And then promised us fiscal prudence again. And also promised us "Cuts deeper than Thatcher's". And now deny everything.



But never mind that Paddy is having a fit of the TAX-and-SPENDS; all this austerity is bound to give even the best of us a funny turn. But I want to say why this tax is WRONG no matter WHAT you spend it on.

You see, Paddy suggests that the Robbing Hoodie Tax will have a "calming" effect on the markets, as though it will act as an automatic regulator.

The logic behind this is that people will make choices about whether or not to do transactions if there's going to be a cost involved, so there will be fewer "unnecessary" transactions. The assumption here is that FEWER transactions is necessarily BETTER.

That's because people think that more trading means that the market is more out of control.

And there have been a good few occasions now where we have seen huge drops in the stock prices allegedly driven by computers chuntering away at huge volumes of trades and getting themselves stuck into automatic selling spirals.

But a free market isn't SUPPOSED to be "under control". And those incidents stand out because they are the EXCEPTIONS; they are NOT the way the markets behave day in day out almost all year round.

There're plenty of things wrong with Free Market Theory – like the assumption that investors will always behave RATIONALLY (have you SEEN the stock market?!) or that everyone has the same access to INFORMATION (have you HEARD of insider dealing?!) – but there being TOO MUCH trade is NOT one of them.

More transactions OUGHT to be MORE stable.

This is the most basic of those things called "market forces". A famous man called Mr Adam Smith wrote a book about it called "The Wealth of Terry Nations" (clue: invent the Daleks). Mr Adam Smith called this "the invisible hand" of the market, which "guides" people to find the right price.

If you happen to be a left-wing critic of liberal economics, you might talk about "the invisible hand" as some kind of crazy right-wing belief in MAGIC or WOO.

In which case, you need punching in the head, because it's NOT belief in magic; it's A GREAT BIG FLUFFING METAPHOR.

There isn't a REAL "invisible hand"; there isn't a magic pixie who "knows" what the proper price should be and "guides" the market to it. It just means that the market reaches a consensus without everyone having to sit down and agree on what it will be.

The theory of market forces isn't a made up belief like crossing your fingers for luck, or praying to Mercury for a safe journey, or the dialectic imperative of history. It's based on the way people really behave (or at least the way they behave a lot of the time).

It's like a weight on a spring. Let the weight go and it will bounce up and down as gravity tries to pull the weight down and the spring tries to pull the weight back up. At some point the weight will settle down and stop. No one has "decided" the height it stops at; it's just the point where the downward force and the upward force BALANCE.

So, somewhere there is a fair price; no one knows what it is. BUT if some people are charging more and some people are charging less then buyers will go to the people who are charging less. The people who are charging more won't sell until they drop their prices. Prices will fall. BUT (again!) if there are limited supplies, the people who are selling might chose NOT to sell if the price is too low, so the people who are buying won't be able to buy until they raise the price. Prices will rise. Between them, these two forces will reach a BALANCE point and that is the "market price".

The ACTUAL price you might pay at any one moment will wobble up and down around this level as the market is constantly adjusting and readjusting. INDIVIDUALLY people don't "know" the market price but they can see from the trading around them what SORT of price it should be and can either squeeze a good deal out of a seller or pay over the odds if they're in a hurry to buy and so strike their own deals accordingly at ABOUT the market price.

Now if there's a REAL change to the supply in the REAL World – like frost destroying the broccoli crop or a new oil strike – then the balance of the forces CHANGES and the price goes up or down.

(That's true of demand as well – e.g. it is thought that when the Roman Empire was turned CHRISTIAN by the Emperor Constantine all the temples had to stop making sacrifices to all the other gods so there was a big fall in demand for INCENSE, and as a result the price of Frankincense collapsed, wiping out the economy of Yemen. Which, frankly, has never recovered!)

The bigger the market, the more trades there are, the better this works.

Think about it: if there's just you and a farmer, then she can offer you a price and you can only take it or leave it. But if you are at the farmers' market, then she can offer you one price and you can either take it OR go and see what several other farmers are offering for their goods. So she's less likely to quote you over the odds. And the more farmers there are at the market, then the more the market forces will work to balance out the price.

This, incidentally, is another reason why MORE TRADE is ALWAYS BETTER.

A Tobin Tax would have a CHILLING effect on the financial markets, maybe not much of a one, but a little bit and that would make them LESS efficient.

A proper REGULATOR, like the controller of a steam engine, depends on a NEGATIVE FEEDBACK mechanism. That's CYBERNETICS. If the machine goes too fast, the controller starts to slow it down; but – and this is what the Tobin Tax doesn't do – if it slows too much the controller ought to speed it back up again. Tax just takes money out; it doesn't put anything back if the market grinds to a halt.

At the moment we want MORE transactions, specifically in the form of more BANK LENDING. So, sorry Captain Paddy, but a tax that is specifically designed to make FEWER transactions is EXACTLY the WRONG prescription.
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Day 3902: Let's Tackle Britain's highest tax rate… no, it's not the 50p band

Wednesday:


The Conservatories want to abolish the 50% higher rate tax band.

Master Gideon and Mayor Bojo want it, because tax cuts make Tories feel all MANLY and POWERFUL, and tax cuts for RICH PEOPLE will make them POPULAR with all their RICH FRIENDS.

Now twenty "high-profile economists" (or "rich people") have written in to say they think it should go too because it makes Britain LOOK like a high tax country (that's LOOK like, not actually BE a high tax country, 'cos we're not).

But 50% ISN'T the highest rate at which people can pay tax on their income. Some people – they're still PRETTY WELL-OFF people actually but they're NOT the richest earners, so, you know, Mr Potato Ed would still call them part of the "squeezed middle" – pay a HIGHER rate of tax only it's a STEALTH TAX and it's down to the "withdrawal of personal allowance".


In the UK, if you earn more than £150,000 then you pay tax at 50% on each extra pound that you earn. Well, actually, you pay tax at 52% because of National Insurance, but that's a different dishonesty.

However, thanks to the stealthy thieving fingers of Mr Alistair Dalek (who's been plugging his memoirs "Gordon was a big fat bully" all this week), if you earn £100,000 then your personal allowance starts to get taken away at a rate of 50p for every extra pound you earn.

This means that if you earn £1 more, your TAXABLE earning go up by £1.50. You pay 40% tax on that extra £1.50, which is 60p of tax, or really a tax rate of SIXTY percent.

So, to the Conservatories, if you think that the 50p rate is iniquitous, why are you not kicking up a bigger fuss about this (assuming you actually UNDERSTAND the tax system)?

And to the progressives, if you think that the tax rate should be higher the more you earn, why are you not complaining that the super-rich pay a lower marginal rate than the merely very nicely off?

But the REAL problem is that it is COMPLICATED and DISHONEST. It is a HIDDEN 60% tax band.

If you want to raise more tax from the better off, then do it by LOWERING the starting threshold for the 50% band.

And it is DIVISIVE – typical Hard Labour – it says that rich people someone "don't deserve" the same personal allowance that everyone else gets. As though people who've worked hard and earned more are somehow LESS deserving.

(Talk about "deserving and undeserving poor" we've managed to invent the "undeserving rich" – yes, I'm sure Lefties will have no problem with that term, but hello we're Liberals and we should be feeling uncomfortable about it. Particularly when this definition of "undeserving rich" is so focussed on EARNINGS (where people at least have to do SOMETHING for their wage, even if you think they are overpaid) and MASSIVELY IGNORES people whose wealth, often inherited, is all in land and investments and grows fatter WITHOUT them working for it – see, THIS is why Liberal Democrats have plans to tax mansions and land and have already delivered higher taxes on capital gains: because it's MORE FAIR, but see also Hard Labour CUTTING the tax on capital when they were in power.)

So, before anyone even THINKS about abolishing the 50p band – yes, I know, Master Gideon "thinking"; it's laughable, isn't it – they should FIRST talk about abolishing the withdrawal of personal allowance (and say how they're paying for it; I'd suggest by having the higher rate start at, say, £140,000 rather than £150,000), otherwise they're NOT seriously addressing tax inequality; they're just GRANDSTANDING.

And while we're tackling the UNFAIRNESS caused by the withdrawal of personal allowance, we need to think about the UNFAIRNESS caused by the withdrawal of BENEFITS.

Because the poverty trap is such that some people at the VERY BOTTOM pay an EVEN HIGHER marginal rate than the squeezed-nearly-super-rich (or, as Mr Potato Ed would say, very very slightly upper middle) – but that means REFORMING the way that benefits are paid and withdrawn as people get into work AND increasing personal allowances for EVERYONE not taking it away from your favourite hate group.


Remember, there isn't actually any money to PAY for a tax cut.

And even if there WERE money, it would be BETTER for the economy to give that money back to people who are more like to SPEND it than to people who are more likely to SAVE it (or invest it in the stock market or in gold or in Swiss bank accounts etc.)

Which is EXACTLY what the Coalition IS doing.

We are giving a tax cut to lower and middle income earners by raising the personal allowance year on year up to £10,000.

But these are the LIBERAL DEMOCRATS' tax cuts and because the Liberal Democrat's tax cuts are going to LOWER paid earners then for Master Gideon they just doesn't quite hit the spot. And by "spot" I mean "the City".

As Daddy Alex has pointed out, the Conservatories are being driven OUT OF THEIR TINY MINDS by just how LIBERAL DEMOCRAT the Coalition's policies are.

For them, abolishing the 50p rate would be something big and visibly CONSERVATORY.

So let's not pretend that it's about fairness or even Britain being "competitive"; this is about the Conservatories wanting to WAVE THEIR WILLIES about because they need to look BIG and IMPORTANT and not in any way IMPOTENT!

So let's try and take the MACHO POSTURING out of the tax debate and try and put in a bit of honesty and transparency.

The highest tax rates are NOT borne by the highest earners and some of the wealthiest avoid income tax on their land and estates altogether, And that's WRONG.

And if we're going to give a tax cut to the rich, let's make the RICHER pay for it!
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Day 3819: If Mr Balls Wants a Tax Cut So Bad… Why Doesn't He Propose Cutting LABOUR'S NI Rise?

Thursday:


When Mr Bully Balls, Labour's master of monetary mayhem, performs a complete U-TURN from "spend more!" to "tax less!" the real question is: why don't people just LAUGH?


But, okay, let's look at tax changes this year:

The Conservatories COST you £390(*1) a year by putting up your VAT.

The Liberal Democrats GAVE you up to £200(*2) with a rise in your Income Tax Allowance.

and

Hard Labour COST you £188(*3) by putting your National Insurance up. Oh yes they did. Mr Alistair Dalek did it a year in advance.

So who's REALLY "putting money back in your pocket"?

Look, just SUPPOSE that we had twelve billion quid to burn, and that completely reversing all the pain of narrowing the deficit we've done so far wouldn't panic the markets, terminate our triple-A credit rating and kick interest rates through the stratosphere…

Would the BEST way, if you want to boost spending by "putting money back in people's pockets", would the BEST way REALLY to be cutting a sales tax that – particularly in a time of high inflation – may or may not be passed on to the customer, rather than, say, a DIRECT tax cut.

LIKE THE ONE WE DID!

The IDEA of a short-term VAT cut to stimulate the economy is supposed to work like this: first, things cost less, so people buy more, which means more production in the economy for the same amount of money going around, which means more jobs and so eventually more money going around; second, and according to the IFS possibly more important, the KNOWLEDGE that prices NEXT YEAR are going to go back up again encourages people to spend money NOW rather than saving it till next year.

The only REAL problem with this theory is… it DIDN'T WORK.

(And even supposing that it HAD worked, then it's not a trick that you can KEEP doing, is it – if you encouraged people to spend more in 2009 because the VAT rate was going back up in 2010… and then encouraged people to spend more in 2010 because the VAT rate was going up AGAIN in 2011 – which it did – then how are they supposed to have any spending LEFT to "bring forward" in 2011 for when the VAT goes back up yet again in 2012?)

But studies showed that when Mr Dalek cut the VAT rate back in 2008 that most people DIDN'T bring their spending forwards.

Add to that the evidence that, after INITIALLY cutting prices, retailers put them back up on the sly and that it actually COSTS businesses a whole lot of money if you make them change all their pricing at the drop of a hat (it may not seem like much but changing all those price tags and reprinting all those price lists and altering all your advertising… it does add up), then you have to ask, HOW is this "stimulus" supposed to stimulate ANYTHING?




…Actually, what I suspect is that Mr Balls announcement is a pretty CYNICAL attempt to provide a STIMULUS for media coverage of the Labour Party.

Hard Labour had had a fairly DODGY week: the "Balls Papers" were pretty much the SMOKING GUN that revealed that Hard Labour KNEW that they were spending too much – but carried on spending anyway; Mr Potato Ed Millipede's leadership was called into question after a year of doing nothing; and Mr DAVID Millipede's "leader's speech" was leaked to the press by persons unknown (aka Mr David Millipede) furthering rumours of a poisonous fraternal rift. Or, since this is the party of Lord Blairimort and Mr Frown, ANOTHER poisonous fraternal rift.

The REAL cause of Hard Labour's apparently-sudden crack-up is the dawning realisation in the media that they are in fact IRRELEVANT. Any SERIOUS debate about policy is between the Conservatories and the Liberal Democrats. Hard Labour have NOTHING to say!

Apparently Mr Potato Ed has been complaining that no one pays attention to his speeches. Well, in if he wants people to LISTEN, he ought to have SOMETHING to SAY.

(Take this DRIVEL about Labour "being seen to be the party of bankers and scroungers"… when he talked about the SQUEEZED MIDDLE who'd have guessed that he meant to blame the recession on the rich AND the poor!)

So Mr Bully Balls, a NINJA of the black arts of spin, was after a quick headline-grabbing stunt to hastily re-establish the cover-up and make it LOOK like they are contributing to the national conversation. When the truth is, for the moment at least, they are full of sound and fury. And signify NOTHING.

Workings

*1: according to Mr Potato Ed's claim that average families would be £7.50 a week worse off

*2: a £1000 increase in the personal allowance is worth £200 a year to a taxpayer on the basic 20% rate

*3: based on average earnings of £26,000, a 1% rise in National Insurance costs you £188

NB: NOT comparing like with like – Mr Millipede was taking about HOUSEHOLDS; the other figures are based on INDIVIDUALS. Adjust your thinking accordingly.
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Day 3672: No More Tears – So Farewell Then, Mr Johnson & Johnson

Thursday:


Mr Alan Johnson & Johnson, Mr Potato Ed's appointment to the role of blocking Mr Bully Balls career Shadow Chancer has resigned.

I've been meaning to write a piece about Mr Johnson & Johnson for a little while now.

Let's not dwell overmuch on his showing himself up by not knowing the Employer's National Insurance rate .

(Although it's worth reading Mr Mark Reckons on why this is important.)

But instead we should go back to Mr Evan Davis' forensic interview on the The Today Programme for teasing an actual statement of policy out of him.

That COULD have given us something worth talking about.


In the interview, Mr Johnson & Johnson:

• accepts that the size of the problem is about what the coalition says it is


• agrees that Labour would raise more in taxes than the Coalition's VAT rise


• admits that the tax of choice would be National Insurance.

Now if we could have avoided treating that as just another in a string of embarrassing GAFFES from a man woefully under-briefed for a senior job then it might have been the starting point for a CONVERSATION.

It is possible to have a GENUINE DEBATE about the relative merits of different approaches to taxation, and the balance between the relative impacts of VAT and NI is certainly not cut and dried.

The Conservatories have a well-founded dislike of raising National Insurance, not least because it conceals a DOUBLE tax rate rise, and because the employer's element increases the cost of employing people in a way that is not transparent. It impacts indirectly on workers, particularly the lower paid, because it effectively gives them a pay rise and then taxes 100% of it. And because it makes employment more expensive it reduces the number of new employees that companies take on, hence the Conservatories reactionary name for it "the jobs tax". Also, it's inflationary, as prices are forced up to cover the (hidden) extra cost of wages.

But equally, Labour's (and Liberal Democrat's) objections to VAT are sound and justified. The impact on lower earners – if not necessarily on the LOWEST earners – is disproportionately higher, making it at least as far as most people can tell a regressive tax. Habit and European law (which requires long term convergence of EU VAT rates) mean that unlike taxes on income it has a ratchet effect that only ever increases – Labour's VAT cut was only allowed because it was temporary – and anyway cuts in VAT are often absorbed as super-profits by vendors rather than passed on to customers as we saw when Labour tried it. And of course by putting up prices directly, VAT is very inflationary. There's a knock-on effect on jobs from a VAT rise too. The argument goes that even if spending remains the same less goes to companies in profits so they will employ fewer people, though I think Labour rather overstate this.

Being more open about tax and the different possible effects and outcomes would be highly beneficial. A more informed debate leads to a greater likelihood of a good policy being agreed in the end.

And being able to discuss economic policy in a way that was not reduced to: "you're cutting because you are EVIL" / "you're overspending because you are FAT and STUPID!" would be a blessed relief!

Sadly, the opportunity quickly came to nothing.


I'm sorry to say that Mr Johnson & Johnson was a nasty piece of work when he was Health Secretary and a nasty piece of work when he was Home Secretary and the shock of being ejected into opposition had not improved him. His basic lack of competence in the Treasury brief failed to mask his underlying reliance on distortion, attack and smug oppositionism.

That would NOT have stopped me wanting to TALK to him, though, to see if we couldn't reach a better policy outcome through debate and compromise.

I doubt any such opportunity will arise with his successor.
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Day 3503: Oh God! Have I Turned into a Tory?

Wednesday:


So, here we are, ninety days into the Coalition and life in Government doesn't seem like it's as much FUN as I expected.

Sure if you're actually IN Government I bet it's LOADS of fun, with all those actual levers of power to pull, but for those of us SUPPORTING a Party that's at least kind-of in power, there's a whole load of uncomfortable accommodating to get used to.

Plus we have to put up with being the butt of all the JOKES on "Mock My Week Up" and the "Not Now Show". Yes, play the World's smallest violin.

The problem isn't so much putting up with the jokes – it's not like they've become any less FEEBLE since the "party conference in a taxi" days – it's more finding yourself suddenly shouting at the radio: "no, you idiot, the Government HAS to do this because…" (a sentence that increasingly finishes with a combination of the words: "Hard Labour", "money" and "wasted all the"), and realising with a bit of a SHOCK that you are DEFENDING the Government. Worse still, you actually AGREE with what the Government is proposing!

Case in point:

For a while now, I have been arguing that we should make tax and benefits SIMPLER.

Only blow me if Master Gideon isn't saying we should simply the tax system and if Mr Iain Drunken Swerve isn't saying we should simplify the benefit system.

Oh crumbs, have I turned to the DARK SIDE?!



I think that this is a simple question of FAIRNESS: people should be able to UNDERSTAND what they are being asked to contribute or what they are getting. Firstly, I think that that give people more control over their government if they can see what is being raised. Secondly, I believe that if people can understand their tax more then they are less likely to try and avoid it.

It is well known that UNIVERSAL benefits have a much higher take-up rate: because there is less STIGMA attached (it's something everyone is owed) or perhaps because there are fewer forms to fill in and hoops to jump through. This means that the BEST benefits for reaching those most in need are the ones everyone can get: pension and child benefit.

The DOWN SIDE of a UNIVERSAL benefit, of course, is that there is perceived to be a lot of "waste" spending money on people who "don't really need it".

(Actually, there's a whole road you can go down about "who DECIDES who needs what",; and about how some needs can be disguised by apparent wealth in a partner or family when it's not being shared about; and about inclusivity of treatment if we ARE supposed to be "all in it together" then telling the better off they don't get anything out and have to put everything in is going to alienate your all-important tax base, who in the end have to PAY for the benefits for other people – i.e. you don't want to convince them to vote for something much FURTHER to the right.)

It seems to me that the simplest you can make the system is one called a "Citizen's Income" linked to a "flat tax".

How it works is this: everyone over the age of sixteen gets an "income" from the state just for living here. Then everything you earn, however you receive it whether in cash or shares or moonbeams, is all taxed at a single tax rate. You get NO personal allowances and NO tax credits, but equally you get no withdrawal of the Citizen's Income: you are ALWAYS better off if you do even just a bit of work than if you do none.

You could suggest a system that was something like £100 a week in Citizen's Income, about the level of the current state pension (or 50% more than a lot of benefits), and a tax rate of somewhere in the thirties, let's say 35% for neatness.

Unfortunately I've tried bashing Daddy Richard's calculator and it's just not that easy to make the maths add up.

Hold on to your Carol Vorderman's; here we go:

If there are sixty-two million people in Great Britain, and let's guess that 16% are 16 or under (that's about right), then £100 a week each for everyone costs: (62m x 84% x 100 x 52) two hundred and seventy-one billion pounds.

If the average salary is twenty-five thousand pounds (pdf), and twenty-eight million people (pdf) are in employment, then the total "earnings" of the country is: (25 x 1000 x 28 x 1,000,000) seven hundred billion quid.

So you'd need a tax rate of 39% just to break even.

But what you've got to remember is that the Government DOESN'T just break even on the tax and benefits, it pays for stuff like the NHS and schools and the army out that tax too.

Estimating a bit here, from last year's red book (pdf), let's say the Government CURRENTLY hopes to get in something two hundred and fifty billion from taxes on earnings (income tax and national insurance). It then spends say a hundred and forty billion of that on benefits (which it wouldn't have to do) and a further seventeen billion on tax credits (which would go) leaving it with net money coming in of about ninety-three billion pounds, so that's money you'd still have to raise or else cut something truly eye-watering.

Ninety-three is a bit more than 13% of seven hundred, so you're looking at a "flat tax" tax rate of (39 + 13) more than 52%.

Ouch.

Actually, there IS a bit of a fix for that: those taxes on earnings include the EMPLOYERS' share of National Insurance (that thing that the Conservatories always call the "jobs tax"). Well, if you DON'T abolish the Employer's National Insurance when you create the flat tax, then you can use that to trim the flat rate down a little, to maybe somewhere nearer 45%.

But that's still quite a HARSH tax rate if you are trying to encourage people that work is worthwhile. Almost every other penny they earn goes to the taxman. And it doesn't give you a lot of room for adding a Local Income Tax on top, either.

And I agree, £100 a week DOESN'T sound a lot to live on, either, particularly when you include the cost of housing (although it would be a bit easier for couples who get two lots of £100). Just think about the GRIEF that the Coalition are getting for limiting housing benefit to £400 a week, and then ponder what it might be like to tell people it will be abolished altogether!

Ouch again!

In pure cash terms, almost everyone IN WORK who earns LESS than the National Average would be better off; almost everyone who earns MORE than the National Average would be WORSE off, and perhaps substantially, although ironically the very highest earners (currently paying 50% tax plus 2% NI and with their personal allowance withdrawn) would actually be better off again. A lot of people on benefits could be a good bit better off; but a lot of people could be worse off too – the system is just too complicated to know without a lot of time on the Treasury Master Computer Brain to work it out.

Here, though, is where I think I depart from Mr Drunken Swerve.

If SOME people do not want to work, if they think they can survive on £100 a week… I say good luck to 'em.

My aim is to LIBERATE people. Primarily, I want to liberate them from the ELEPHANT TRAP BENEFIT TRAP that means that it is often worth more to remain stuck in dependency than to go out and better yourself.

What I DON'T want to do is replace one form of TYRANNY with another: to replace dependency on State handouts with some Puritan ideal of compulsory work.

Now, I realise there IS a risk involved in this: if TOO many people decide that work is too much trouble then the whole system will fall to bits. I have to rely on a good half of the population sticking with the British Work Ethic or it all goes kabloohey.

The way I see it, there will always be people who are not able to work: they might be ill or old or pregnant or caring for someone else or any number of things, and it's really not my BUSINESS to make some MORAL statement about whether they should or shouldn't be working.

This system would make sure that they are looked after. A bit.

Equally, there are always likely to be some people who are too lazy to be bothered or clever enough to work the system who want to skive off. And there ALWAYS WILL BE.

So let's not PRETEND that we can devise systems that can stop that. Particularly not systems that are going to have to be run by an underpaid, understaffed civil service. Making the system more COMPLICATED only helps the scammers – if the people OPERATING the system don't understand it (and at the moment it's so complicated that NO ONE understands it!) then how are they supposed to know when they are being conned?

You can't legislate laziness out of existence, nor can you be clever enough to put cleverest conmen off of cadging off the rest of us, at least not without SERIOUSLY penalising the people who really can't work and don't deserve to be punished for the p-taking of a very few others.

So, at the end of the day, I think I've convinced myself that I'm NOT turning into a Conservatory after all.

Which is a relief.

And which can only mean one thing: if I'm not becoming more Conservatory, then the Conservatories must be becoming more LIBERAL.

Maybe there's hope for this Coalition yet.



Now… what do I do with this nice RED LIGHT-SABRE that Mr Balloon has sent me?

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Day 3456: A Tax on Gains is a Capital Idea

Friday:


Must answer my TWITTER correspondence…

@millenniumdome: "#HoTVote Returning the CGT rate to 40% is a sensible way of raising money from the better off to use to increase the personal allowance"

@jazzifull: "Raising #CGT to raise money for any other purpose is simply a way to disincentivise personal responsibility for omes future."

@millenniumdome: "no, it's a disincentive to pretending income is "capital gain"; if people keep more of their income how is that irresponsible?"

@jazzifull: "Playing Robin Hood! How do you think capital gain comes about? Money tree in garden? Investment by individuals, it costs!"

Arrgh! Need more characters! Must resort to a diary entry…

I'm going to take this point by point, just not necessarily in the same order because I'll leave the DIFFICULT bit to last ('cos I get a bit PHILOSOPHICAL in reply to Mr Jazzifull getting a bit INSULTING.)

But first, there's an UNDERLYING sense to most of the objections to the proposed rise in Capital Gains Tax of:

"How dare you put up taxes! Lowering income tax? LALALALA CAN'T HEAR YOU!"

IF you want the government to do stuff – and because I'm a LIBERAL elephant, not a LIBERTARIAN kitten, I DO think that there are some good things that governments can do – then you have to accept that you're going to have to raise tax from SOMEWHERE.

(Well, of course, Hard Labour had the idea that they could just INVENT money from somewhere, or at least that they could ALWAYS run up more debts in our name, but at some point we're all going to have to pay back the money that they spent on our credit cards…)

So if you agree that you have to raise SOME tax, it becomes a question of where it is FAIREST to raise that tax from: from everyone, regardless of how low they come on the earnings scale? Or from better off people who are better able to shoulder the burden?

The WHOLE POINT of the Liberal Democrat policy – and we were completely upfront about this – was to REBALANCE the tax system, so that people who are well off pay a FAIR share.

You remember the story that Rich City Slickers are getting a LOWER rate of tax than the people who clean their offices? That's because of Capital Gains Tax.


So…

First point first:

"Playing Robin Hood"

Yup, happy to put my fluffy feet up to that one. It was ALWAYS the Liberal Democrat plan to try to move some of the burden of taxation from the general taxpayer to the better off, particularly with an aim of taking people on the lowest earnings out of tax altogether.

Very few people pay capital gains tax. Almost everyone in work pays income tax. Raising the personal allowance lets more people keep more of their own money and take more personal responsibility.

Thanks to Hard Labour running up a trillion pound overdraft, none of us get the option to opt out; we've got to raise the taxes from somewhere. I'd rather they were raised more FAIRLY.

And with the AUSTERITY budget that is coming, giving a generous tax cut to most workers, paid for by tax rises on those who could afford it, was our way of saying "we are all in this together".


Third point second:

"Investment by individuals, it costs!"

You do realise that Capital Gains Tax is a tax on GAINS, not on Capital, don't you?

You ONLY pay the tax when you have money to pay it. It's not like COUNCIL TAX (or the TV licence) where you have to pay it whether you've got the cash or not; you're ONLY liable to the tax if you make a profit on selling stuff.

It's not a tax on your HOME; your home is exempt.

It's not a tax on SELLING stuff (like VAT); you only pay the tax if you sell stuff for MORE than you paid for it and then you only pay the tax on the bit more that you get when you sell it. Whatever you put in in the first place – like on "Bullseye" – that money is SAFE.

And, in fact, if you know ANYTHING AT ALL about the way that Capital Gains Tax works you will know that there is a WHOPPING great tax exemption called "Entrepreneurs' Relief" that means that if you spend your life building up a business and then sell it, the first ONE MILLION POUNDS of the profit (yes, that's the PROFIT not the sales price) is tax free.

Think about it like this: suppose you've worked hard to build up a business – the people WORKING in your business, they're working hard too, and they get taxed on the reward for their hard work after the first six thousand pounds. You SELL the business and you get taxed on the reward for your hard work after the first MILLION pounds.

And at HALF THE RATE.

In order to raise allowances, if we can, so that we only tax your workers after the first ten thousand they earn, we want to tax you only at the SAME rate that they pay on their earnings.

Is that not FAIR?

So, perhaps a little less BLEATING about how it "disincentivises" people from investing in businesses that will create jobs.

You could by the same argument say that INCOME tax "disincentivises" people from working, particularly at lower incomes where people may even calculate that they are better off on benefits.

A fairer balance between taxing gains and taxing wages could encourage people to take jobs so that employers benefit too.

Capital Gains Tax is a tax that falls MAINLY on people rich enough to be able to buy and sell stocks and shares (or buy-to-let second homes) and taxes them mainly FOR buying and selling stocks and shares (etc).

As we shall see…


Finally, second (and insulting) point last:

"How do you think capital gain comes about? Money tree in garden?"

Well, at the most SIMPLISTIC level, ALL gains – capital or otherwise – come from someone putting something into an opportunity and getting something back.

Now, that COULD be as simple as putting in some of your LABOUR into a JOB and getting PAID.

Or you could put in MONEY into an INVESTMENT and get a RETURN.

Of course, ultimately all MONEY must represent LABOUR at some point. Just not necessarily YOUR labour ('cos you might have INHERITED it).

It could be that was the labour of making something to sell, or growing something to eat or digging stuff out of the ground.

Or maybe the labour could be the labour of calling yourself "king" and killing anyone who objects to paying you protection money.

Anyway…

Most "value" comes by exploiting the Earth somehow – only writers, artists, musicians, poets truly create something of value out of nothing, and even THEY need something to write or paint ON (not to mention something to EAT!) – so in a sense there IS a "money tree in the garden"; the "money" represents how much effort you've put into collecting the "fruit" of that "tree".

Though of course the suggestion was that I thought money came free from nowhere. Which is really only true of rich people with inherited fortunes. The sort of people who are most likely to be paying Capital Gains Tax on their Trust Funds, as it happens.

Anyway…

You get your money (somehow) and put it into a BUSINESS and get a RETURN. Or you could put your money into BUYING SOMETHING that will go up in value and make a PROFIT when you sell it.

That would be something like stocks and shares or gold or land or property or art. Stuff, basically. Because, obviously, MOST of the gains that Capital Gains Tax taxes are made on buying and selling stuff.

Now, you could be UNKIND and call "buying stuff in the hope that it goes up in price so you can sell it for more than you paid" GAMBLING. But even if you are being generous, "buying things to sell them" is really just a SAVINGS PLAN for RICH PEOPLE.

If you put a thousand pounds in a savings account, a year later you still have your thousand pounds PLUS you have some INTEREST. You pay INCOME TAX on the INTEREST at the basic (20%) or higher (40%) or even top (50%) rate.

If you put a thousand pounds into SHARES and sell them a year later, you MAY have your thousand pounds back PLUS some PROFIT (if the price has gone UP; if it went down, then why did you sell the shares?) You pay CAPITAL GAINS TAX on the PROFIT at the capital gains tax rate of 18%.

Basically, both are INVESTMENTS where you put in some money and get a bit more back, and you pay tax on the "bit more" that you get back.

So why is the gain on the stock market investment taxed at a lower rate than the gain on the savings account?


Obviously, there IS a DIFFERENCE between these two kinds of INVESTMENT. And the difference is that the buying stuff plan has MORE RISK: that's why some people call it GAMBLING.

If you put money in the bank, you are pretty certain to get it back again with interest. So the interest rate will be quite LOW. Putting money into shares is more risky because (as the advert has it) the price CAN go down as well as up. But in the long term, so long as you can afford to keep your money parked in the investment, the stock market USUALLY goes up more, so you get a higher "return" than just a savings account.

And remember, boys and girls: RISKY investing is what led DIRECTLY to the credit crunch and worldwide recession. Are you 100% sure you want your government to be encouraging risky investing?

So why is the gain on the RISKY investment taxed at a lower rate than the gain on the SAFER one?



In FACT, Capital Gains have only been taxed at 18% for the last couple of years. Before that, quite sensibly, the CGT rate was similar to the income tax rate. The REASON that the rate was LOWERED was mainly because Mr Frown caused a MASSIVE RECESSION and STOCK MARKET CRASH and so wanted to encourage people to reinvest in the stock market.

I say "mainly" because it was also to do with Mr Frown's messing up the tax in the first place: a long time ago, you USED to get a allowance for INFLATION deducted from any gain that you made so you only paid tax on the money you made "in real terms". But Mr Frown thought he'd ABOLISHED inflation so he got rid of that allowance, and tried to bring in a "taper" relief instead, so that the tax got less the longer you owned the whatever-it-was. But that all got far too complicated and didn't work properly so he abolished that as well and just made the tax lower.

But this creates a massive LOOPHOLE so that if you are rich enough to get paid in ASSETS instead of CASH – like, say, city bankers – you can get your "salary" in shares and then sell them and so only get taxed at 18% instead of 40% of 50%. Which leads to the SHOCKING business of fat cats paying a lower rate of tax than the people who clean their big shiny offices.

So why is there a loophole open to the rich to get their earning taxed at a lower rate than the rate that the rest of us have to stump up?



So, to sum up, the answer is YES, Mr Jazzifull, I DO know where gains come from (possibly better than you); I DO know how they are taxed (probably better than you); and I know why it's FAIRER for the tax – thank you again Hard Labour debts – to fall on the better off, which is why I know we should switch from taxing income to taxing gains if we can (certainly better than you).

Is that what Master Gideon is going to do in his budget next week?

Well, no, I'm rather afraid that he won't. Because I'm afraid he's an idiot probably going to raise the wretched VAT rate.

The Liberal Democrat plan was to cut the deficit by cutting spending; to NOT increase or decrease the total tax taken (except for adding a Bank levy), just change the balance of taxes to try and be more fair.

But we have got to COMPROMISE now, in order to make the Coalition WORK. And the Conservatories plans include cutting the deficit by a MIX of spending cuts and tax rises. They have agreed to use the Liberal Democrat plans for a Capital Gains Tax rise, but I do not think that they will be raising the personal income tax allowance all the way to ten thousand pounds all at once as we had hoped (making this a tax RISE not tax NEUTRAL). And then there's the VAT.

A VAT rise is a MUCH WORSE idea because (a) it is REGRESSIVE, impacting more on people who have less (though the zero rate for food, and rent being exempt – and mortgages outside the scope – means that at least there is protection for the very worst off); and (b) whereas reversing an income tax rise is easy and has a direct benefit to the taxpayer, reversing VAT rises doesn't tend to get passed on to customers – as we saw last year when Hard Labour cut VAT back to 15% – and so you get stuck with a tax that only ever goes UP.

I am SURE that we will have argued AGAINST it, but it is an argument that we may have lost. And so, I'm afraid, we're going to have to LUMP it.

Arguments about Capital Gains Tax may exercise the more frothing members on the right wing. But VAT hits far more people, and so VAT – not Capital Gains – is going to be the REAL first test of the Coalition.

Hang on tight, fluffy chums, this could get NASTY!

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