...a blog by Richard Flowers

Thursday, January 20, 2011

Day 3672: No More Tears – So Farewell Then, Mr Johnson & Johnson


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.


JohnM said...

His successor, Balls, will attempt to surf Labour's decade and half, economic tsunami which will hit hard this year. He wrongly believes that he will be able to continue to use the rhetoric of 'no cuts' - as he did throughout the leadership campaign, without scrutiny; wrong!

Millennium Dome said...

Dear Mr John,

I very much fear that you are RIGHT when you say Mr Balls is WRONG!

His "no cuts" position in the Labour Leader contest was one of the most frightening - as well as nakedly opportunist - bits of denial seen in a good long while!