George Osborne promises simpler and flatter taxation

A little earlier we reflected on George Osborne's defence of his spending pledge during his address on tax reform.  Summarised below are the main messages from the Shadow Chancellor's speech:

Labour is using tax policy for party politics: "Last Spring’s Budget, for example, attempted to present an increase in income tax on the lowest paid as a reduction in headline income tax rates. The con trick lasted all of three hours before it was exposed.  Last Autumn’s Pre Budget is still unravelling.  The ill-judged increase in capital gains taxation and the clumsy changes to the tax treatment of non-domiciles have resulted in a toxic mix of complexity, uncertainty and negative signals to the rest of the world."

Conservatives have a tradition of being tax reformers: "British tax policy led the world with Geoffrey Howe’s shift from direct to indirect taxation.  Our tax policy led the world again in the second half of the 1980s, when Nigel Lawson demonstrated that reductions in income tax and corporation tax rates could over time boost both economic performance and increase revenue.  And Britain led the world in the 1990s with environmental tax reforms such as the landfill tax.  I hope that the next Conservative Government will continue this proud tradition of leading the world when it comes to tax reform."

The Liberal Democrats have also been taking sensible steps on tax: "I am happy to acknowledge that both ourselves and the Liberal Democrats have looked at the future of aviation taxation and come to the similar conclusion that it makes environmental sense to move from a passenger-based tax to a plane-based tax.  This will incentivise fuller planes and cleaner engines and I am glad the government, having fiercely opposed our plans, now want to adopt them."

Adam Smith will be our tax adviser: "I believe that Adam Smith’s four principles – efficiency, certainty, transparency and fairness – still provide an excellent guide for the design of tax policy today."

Lower corporation tax is good for the economy: "Ireland is the poster-child country that has reaped huge rewards from attracting foreign investment with a lower rate of corporation tax.  The Netherlands has led the way with reforms to corporate taxes that helped encourage Shell to tax headquarter there rather than in Britain.  And the new EU member states have also added to the competition on our continent, with countries like Slovakia and Estonia introducing flat taxes.  Meanwhile Britain, which was a pioneer for lower business taxes in the 1980s, has been left behind.  Ten years ago we had the 4th lowest corporation tax rate in the EU.  We now have the 19th lowest.  It is time for Britain to set the pace again.  The evidence on the positive economic impact of lower corporation tax rates is strong.  The work of leading academics such as Jim Hines from the University of Michigan has shown that capital and investment are extremely sensitive to tax rates.  The evidence is not conclusive on how large this dynamic effect is.  The consensus is that it is not large enough to make cuts in corporation tax self-financing in the short run, but over a longer period the returns are likely to be large.  There is also overwhelming evidence that multinational companies shift profits around the world to take advantage of low headline tax rates, however hard tax authorities try to enforce transfer pricing and thin capitalisation rules."

Conservatives will establish a new Office of Tax Simplification: "Our tax code is probably the most complex in the world.  It is certainly the longest – we overtook India for that dubious honour following last year’s Finance Bill.  The size of Tolley’s tax handbook has doubled over the last ten years.  Complexity is also incredibly costly – a survey by the Institute of Chartered Accountants found that the total cost to UK businesses of implementing new legislation is £10.2bn.  That is why we are working with the experts to do the long term thinking on simplification. With PWC on simplifying corporation tax.  And with Grant Thornton on simplifying income tax and National Insurance, and the administration of VAT.  And it is why the final aspect of the proposals being examined by Geoffrey Howe’s group will be so important – the establishment of a new Office of Tax Simplification with a remit to examine the existing tax system and make proposals for simplification.  With a permanent staff of tax specialists aided by secondees from the tax professions, this will create a powerful institutional momentum towards a simpler tax system."

Our proposals for the taxation of non-doms are the right ones: "In order to strike the right balance between a competitive tax system that attracts international talent and a fair tax system that commands public support, I proposed last year a flat rate charge on non-domiciles in return for a promise not to change other aspects of their tax status for at least five years.  The reason why we designed a flat rate charge was precisely to avoid the need to pry into people’s bank accounts and try to assess their offshore income.  It was a good deal and it was broadly welcomed by the City as striking the right balance between fairness and competitiveness."

Download a PDF of George Osborne's full speech: The Principles of Tax Reform.

Comments

[Moral minority]

As I posted on the earlier thread, Osborne has had time to digest Lord Forsyth's Tax Commission Report and the Report by John Redwood's Economic Competitiveness Policy Group. They told him how to cut and simplify taxes so why does he need Lord Howe to chair another review of taxation policy?

George Osborne has been Shadow Chancellor for two and half years. Kicking tax policy into the long grass by having another review is not acceptable. The last thing we need is another Tax Simplification Quango. A strong, principled and capable Chancellor would not need one.

If Osborne really wants Adam Smith to be his adviser, he should ask the Adam Smith Institute and the Taxpayers Alliance to draft his policy but they are too radical for the Cameroons.

[Gospel of Enoch]

Given he is happy to acknowledge where they agree with the Dim-Libs on tax, perhaps he could also acknowledge that UKIP is pro-flat-tax - indeed their abolish inheritance tax policy is even better than the Tory one!

[Veritas]

Ok, hands up, I work in the City and I get a bonus. Will someone please tell me whether I shall pay less if Dave and Gideon are at no. 10 and 11 respectively? Then I'll decide how to vote.

[Tories to stupid to understan taxes]

Maybe now the tory morons will be able to understand taxes enough to add them up proplely. LOL. Oooo help me I cannot understand this it tooooo complicated Ho Ho Ho.

[Martin Coxall]

Scrap Income taxes, national insurance, savings taxes, stamp duty, capital gains, council tax and VAT, and replace them with a single tax on consumption, with rebates for those who fall beneath a generous threshold.

Abolish HMRC.

Look how much simpler that is now!

[Stewart Geddes]

"I believe that Adam Smith’s four principles – efficiency, certainty, transparency and fairness – still provide an excellent guide for the design of tax policy today."

Define Fairness....... Gordon Brown thinks that only Government can guarantee fairness.

[Tony Makara]

Rather than looking to encourage foreign investment we should be encouraging home-based investment which will prove to be more secure over time and less open to flight to more lucrative pastures should they open up elsewhere.

[Martin Coxall]

@Stewart Geddes:

Adam Smith defined 'fairness' in taxation as one which is neither regressive nor creating of a deadweight loss.

Both of these have clearly-defined economic meanings, so it is easy to to verify which of our taxes meet this description.

For example: VAT is fair, Income Tax and National Insurance are not.

Essentially, taxes seek to discourage that which they are applied to. Thus, taxes should only be applied to those activities that consume wealth (consumption) rather than those that produce it (income, savings).

[David]

Of course the EU is increasing its grip in this area. Outside the EU we could even get rid of the ridiculous VAT!

[Matthew Barker]

If George Obsbourne is guided by Adam Smith, his inheritance tax policy is slighlty illogical : The ASI supports inheritance tax because it makes economic sense - If people know they cannot leave money behind they spend it instead ,which is rather handy.

[Martin Coxall]

@Matthew Barker:

Indeed, Inheritance Tax is another fair tax according to Adam Smith, not only for the reason you give, but because it also offsets the huge deadweight loss the economy incurs after somebody inherits.

Every time somebody inherits money, it increases the chances of that person stopping work, and thus that person's future economic productivity is lost to the economy- a deadweight loss.

Still, surely we all know that Osborne mentioned Smith as a sop to us, not because he actually *means* it?

[Martin Coxall]

@David:

Repeat after me: TAX ON INCOME AND SAVINGS BAD, TAX ON CONSUMPTION GOOD.

[Tony Makara]

Although Adam Smith wrote some very interesting observations, his eighteenth century thinking is as out of date as the nineteenth century thinking of Karl Marx and even the twentieth century thinking of John Maynard Keynes. Why do people keep looking back for old-age solutions to modern-world problems? We need to think beyond the confines of these old sages and create a new economic epoch, one that learns from the past but isn't a slave to it.

[Martin Coxall]

@Tony Makara:

I might suggest that perhaps the reason why the thinking of Marx is no longer especially credited is because mankind tried it and it didn't work out too well.

On the other hand, when we tried Adam Smith's ideas, we got the Industrial Revolution.

I'd love to find a way to extricate ourselves from the corporate welfare oligarchical neoliberalism of New Labour, but absent any 'brave new world' economic theories, we should aim for what we already have some evidence works well.

[Paul Oakley]

In order to save Geoffrey Howe some time, it would help him if he read "Flat Tax - Towards a British Model" by Allister Heath (published by our TPA friends)

Only 155 pages too.

[SG]

No, No, No, No, No. Creating more bureaucracy is NOT the way to simplify taxation!!! Maybe the Shadow Chancellor has spent too long under a Labour Government.

[Martin Coxall]

If only we could find some way to surgically remove all of Mike Huckabee's economic populism and borrow it, without it getting tainted by all the Young-Earth Creationist fruitloopery.

Because I think that the FairTax is a brilliant idea, and the number of UK taxes it could replace would be, well, almost all of them.

The basic idea is:

Calculate your total income for the year: I
Calculate your total increase in savings over the year: S

Your net consumption for the year is then:

C = I - S

There is a consumption threshold C0, which shall be set to the half male median consumption for the entire population.

Your taxable consumption is then (C-C0), and assuming the FairTax rate is R, then the tax you pay, in twelve monthly installments is R x (C - C0).

Of course, it's entirely possible for C-C0 to be negative, in which case the state pays *you* twelve monthly rebates at the identical taxable rate. Such rebates count towards your income for the following year's calculation.

I think it's brilliant.

[Martin Coxall]

I should add that big-S also includes increase in equity as well as savings, so money invested in property also doesn't count as consumption.

[Tony Makara]

Martin Coxall, yes, Marxism is a system that has to be imposed, which shows that it isn't a natural way of living. Capitalism is a natural way, built on incentive and reward, but at the same time capitalism leaves certain people behind. Thats why I was encouraged by David Cameron's comments about extending prosperity to all, the question is how best can we do that. As we know under the capitalistic system prosperity is for the most part earnt, either intellectually or by physical labour, but some cannot take part in this process through unemployment, disability and other circumstances. We need to make the economy work for everybody and that means government setting full employment as a priority objective. Not through creating a bloated public sector but by structuring the macroeconomy to promote job creation.

[Martin Coxall]

@Tony Makara:

I absolutely agree with you. The one thing I desparately don't want to be is doctrinaire about such things.

Indeed, it's one-size-fits-all thinking that inevitably leads to failure as we try to impose homogeneous economic models on a heterogeneous society.

There's nothing in what you said that I disagree with at all, save to point out that we were explicitly talking about taxation. And here, I think that Smith's notion of fairness has a lot going for it.

Marx had remarkably little to say about taxation, since he envisioned a scenario in which the state would eventually evaporate, rendering tax a moot point.

[Alex Swanson]

his eighteenth century thinking is as out of date

Most of calculus was developed during the 18th century (although it was only truly rigourised a few decades ago) and it still works remarkably well.

[James]

@Tony Makara: "Rather than looking to encourage foreign investment we should be encouraging home-based investment which will prove to be more secure over time and less open to flight to more lucrative pastures should they open up elsewhere"

But the UK is the second most international economy in the world. We have more foreign direct investment in the UK, and more UK direct investment overseas, than any other country bar the USA. You would be talking about a fundamental change in our economy, and one that would tie UK investors to UK growth levels, and prevent us from benefiting directly from growth elsewhere, such as India and China. Do you really not want British businesses and entrepeneurs to invest in China?

@Martin Coxall: "For example: VAT is fair, Income Tax and National Insurance are not"

I'm not sure that's the case. It's a long time since I did my economics degree, but I'm sure that VAT is considered to be a regressive tax, because lower income groups pay a higher proportion of their income in VAT than higher earners tend to. The reverse is true of income tax, which is not regressive.

[Martin Coxall]

@James:

VAT is not a tax on income at all, so the proportion of 'income' spent on it is irrelevant, it's the proportion of consumption spent on it.

And the poor spend the same proportion or somewhat less of their consumption as the wealthy. It also creates no deadweight loss, because it only applies to wealth-consuming activities. So it would be fair according to Smith's definition.

Nonetheless, Huckabee's FairTax proposal is far better, because it allows a generous non-taxable consumption allowance and rebates for those below it. I don't wish to be seen as standing up for VAT, as to me it is one of the taxes I'd like to see abolished.

[Tony Makara]

James, the fact that we have little by way of a manufacturing base means we will be exporting little to China beyond financial services. There is great danger when a nation relies on foreign powers to generate employment infrastructure. The investment that is here to day could just as easily be gone tomorrow. A more autonomous infrastructure is less likely to re-locate and cost jobs. Government should always be thinking of the long-term consequences, even as far forward as the next generation.

Martin Coxall, the ultimate objective of Marxism is a state without money, without quantifiable values to measure achievement, in effect reducing the value of every person to zero. The Marxist aim to bring about the ultimate recessionary economy, one that reverts to primitivism.

[James]

I'm not sure I agree with you that the proportion of income spent by the poor on any tax is irrelevant. The definition of a regressive tax is one in which the effective tax rate is higher for lower incomes, and lower for higher incomes. A progressive tax is the reverse.

If someone on 10,000 a year spends 30% of their income on VAT, and someone earning 100,000 a year sopends 15% of their income on VAT, it is a regressive tax. And it is generally the case that higher earners do spend a smaller proportion of their income on VAT.

I'm not necessarily on some campaign against VAT, I just thought I'd mention that when I did my economic degree several years ago, VAT was considered to be an example of a regressive tax.

[James]

@Tony

You say that investment here 'could just as easily be gone tomorrow'. Well, not if we maintain the UK as an attractive place to invest. We have been top of the EU countries in attracting FDI for a very long time.

You also say 'a more autonomous infrastructure is less likely to re-locate and cost jobs'. But what exactly do you propose? What autonomous infrastructure? We are not going to rebuild a manufacturing base in competition with China et al given our unit costs for so many inputs (labour, transport, red tape, rent costs etc).

The fact that we have such a strongly international economy, trading with the rest of the world on a greater scale than all of our European rivals, is a good thing. To turn inwards, and think that investments within the UK are somehow better than investments overseas would be extremely counter productive.

[Iain]

"The fact that we have such a strongly international economy, trading with the rest of the world on a greater scale than all of our European rivals"

Having a £80 billion trade deficit would suggest much of the trade is going one way.

"To turn inwards, and think that investments within the UK are somehow better than investments overseas would be extremely counter productive."

And I would question the balance of our investments, when many of our assets have been flogged off to foreign buyers, who would seem to value the opportunities here more than we do , and where many of the assets flogged off will mean the development of these concerns will now be limited, and the income they generate now destined to be exported to other countries. Like P&O, like BOC, like Westinghouse, like our electricity generators etc.....

[John Leonard]

Interesting debate on taxation and generally I welcome George Osbourne's proposals.

Furthermore, I am generally supportive of the idea of consumption taxes over income taxes.

However, I do see one difficulty here in that if the reliance is on consumption taxes what happens in periods of relative economic decline when consumption slows or even falls? Surely in such circumstances it is likely that Government revenue will also fall relatively just at the time when demand for public services might possibly increase.

Of course there are some obvious answers such as 'putting money away for a rainy day'. However, how achievable realistically are such remedies?

I also see some risks in the Huckabee style plan where tax is only paid after the fact.

My understanding of the payment proposal is that it is not paid at source but delayed for 12 months.

How will those who in the year they are due to pay the tax ensure that they can? There are all sorts of unexpected factors (especially during an economic decline) that could leave people in the situation where they cannot pay and whilst the answer is on the face of it 'tough - payment is required'.

With all the potential unpleasant associated consequences for the individual in such circumstances, that will hardly provide the Government that adopts such an approach with a popular image.

As an economic layman its very possible there are satisfactory explanations to these points, in which case I'd be interested to hear them to improve my understanding?

[Tony Makara]

James, those who hold the global economy in such high-esteem don't look beyond the glitz and gloss of the multinationals, they need to look at the reality of the mass unemployment and resulting welfare burden that we have been saddled with since we moved from being a manufacturing economy to being a service-sector economy dependent on imports. There is no way that we can generate the million plus jobs we need without a large manufacturing base and without producing the goods for our domestic market that we are currently employing. Unless we restructure the economy to serve itself rather than living off the backs of other nations we will never cure the social ills of unemployment and resulting welfare dependency. We cannot rely on credit to fuel demand indefinitely, a higher standard of living and the purchasing power to drive it has to come out of productivity borne out of a large manufacturing base. The economic self-sufficiency of the nation has to take precedence over free-market ideology. We need to be thinking ahead in terms of generations rather than living for the here-and-now. Unless serious thought is given to this issue we will decline as a nation and become little more than a pitstop for other more powerful economies.

[Tony Makara]

Typo:

Should read

"There is no way that we can generate the million plus jobs we need without a large manufacturing base and without producing the goods for our domestic market that we are currently importing"

[Martin Coxall]

@John Leonard:

However, I do see one difficulty here in that if the reliance is on consumption taxes what happens in periods of relative economic decline when consumption slows or even falls? Surely in such circumstances it is likely that Government revenue will also fall relatively just at the time when demand for public services might possibly increase.

Of course there are some obvious answers such as 'putting money away for a rainy day'. However, how achievable realistically are such remedies?

Well, it kinda forces the government to run at a surplus during the good times, and then use that money up when things get a bit tighter. I'd like to tie such a tax to some kind of fiscal constitution that would make balanced budgets, low debt and deficits and running surpluses during growth periods a legal requirement of the office.

I also see some risks in the Huckabee style plan where tax is only paid after the fact.

My understanding of the payment proposal is that it is not paid at source but delayed for 12 months.

I believe it is mitigated against by the fact that the payments and rebates *only* apply whilst you're employed.

If you become unemployed, you become exempted from payment until you find new employment. There's also a provision where, on becoming re-employed, you can have payments for the remainder of the tax year adjusted proportionally if you suffer a significant fall in income.

[Martin Coxall]

@Tony Makara:

I agree with you, I really do. I thing any flag-waving globalization nuts in this party really need to spend some time looking at the immense damage organizations like the IMF and World Bank have done.

I'm a Joseph Stiglitz fanboy.

I'd really like to rebuild this country's lost primary and secondary industry base, whilst paying due regard to the doctrine of comparative advantage.

It does seem like your ideas are rather more a wishlist than workable proposals, however.

[Alex Swanson]

"There is no way that we can generate the million plus jobs we need without a large manufacturing base and without producing the goods for our domestic market that we are currently importing"

Oh Tony, how often does this have to be explained to you? Service jobs are not inferior to manufacturing jobs, and there is nothing wrong with importing goods paid for by exporting services.

[Iain]

"Oh Tony, how often does this have to be explained to you? Service jobs are not inferior to manufacturing jobs, and there is nothing wrong with importing goods paid for by exporting services."

But we aren't doing that, for we have balance of payments deficit which at around 6%, is larger than the US's.

In addition the contribution from services is £30 billion, the trade deficit is £80 billion, with an economy that's already got one of the largest service sector in the world, there is no way we can grow it to fill the gap in our balance of payments deficit.

PS in a recession, what's the first sector to get the chop? The service sector isn't it?

[John Leonard]

Martin Coxall:

Fair enough although I'm not sure about the legal requirement aspect of this. If a Government failed to Fulfil its legal economic requirements what would happen?

However, given the current high expenditure on public services it would suggest to me that there is much to do in making the provision of public services efficient (relatively reducing tax spending) before we can make any significant jump to a consumer tax led approach. Furthermore, it would also suggest that much needs to be done to reduce the public debt in advance of such changes.

It also seems to me that the optimum time (in terms of risk mitigation) to implement such a solution would be when the economic outlook was optimistic rather than uncertain ,as it is now, or pessimistic.

From that perspective I wonder whether now would be the right time to move forward on such an agenda?

On the Huckabee plan again that seems fair enough. However, I would qualify that with the more general comments above about the need to rationalise public expenditure and maintain public services at a level acceptable to the electorate. In a situation where there is a notable increase in non-working people, Government could risk a situation where there are shortfalls in the public purse again affecting their ability to provide accepted levels of public services.

Given the economic mess that Labour increasingly seem to have created it seems to me that the first term of a subsequent Conservative Government would have to focus on consolidation and stabilisation rather than implementing quite radical changes in the tax system. If they can achieve these first goals without significantly antagonising the electorate then in a second term they could look forward to advancing more radical tax changes?

I would also agree with Tony Makara's comments that another important aspect of this would be to stabilise the supply of goods and services by making the country more self-sufficient. The idea that large consumption tax increases were being caused by large increases in costs of off-shore supplied consumables and goods could undermine such a tax system. I realise its already true of VAT but by expanding consumption taxes it would only further exacerbate such issues.

[Tony Makara]

One thing I would like to do is create a real debate on the question of free-trade and whether globalization is the great panacea that people believe it is. There is a certain amount of political correctness in Conservative ranks when it comes to questioning the merits of free-trade. Of course we shall always need to import, but why import goods that we can produce ourselves? If there is a market for goods here at home then we should be supplying it rather than allowing the work and our purchasing power to go to other countries.

On the question of manufacturing versus Services the two can live together and work in tandem to supply our economy. Manufacturing by its very nature would employ people in greater numbers than services and will end the welfare dependency that can only be cured by getting people into waged work. My theory is that many in the Conservative party fear manufacturing because they fear the problems that can come with large concentrations of organized labour. However the trades unions need not become a problem if they are de-politicized.

The main thing is we need people that will stand up and dare to question the god of globalization. We need iconoclasts prepared to question whether running the economy to suit multinationals is in the national interest. We need people who will stand up and say that they prefer to buy British goods rather than imported ones. The more we produce for ourselves the more jobs we create for ourselves and the more wealth we keep in our country.

[James]

Tony - good idea.

I'm not any sort of flag waving globalization nut. Nor do I think it is any sort of panacea.

I consider myself to be pragmatist realist. Globalization is a reality, and we can either work with it, or against it.

I am genuinely curious to know just what it is you are proposing? Are you advocating banning imports? Punitive import tariffs? Government subsidies for domestic manufacturing?

Do you feel that inefficient domestic manufactured goods would be preferable to efficiently produced foreign manufactured goods? (I'm not suggesting that domestic goods will automatically be less efficient, but it is an important question? British Leyland?).

I'm not aiming to be provocative, I am genuinely curious as to how you see your vision being implimented in practice?

(although at the risk of being a little provocative, I will just note that the only country I am aware of that tried to genuinely isolate itself from the global economy was North Korea...)

[James]

(Good idea as in let's have a real debate on globalization, not good idea in your views on globalization which I disagree with)

[Andrew Lilico]

Two minutes on a zillion-and-one economic errors.

a) Free Trade is good, obviously. (Having debated this more times than it's worth, I'll simply declare it.)

b) The current account deficit or surplus is irrelevant, since we have a floating exchange rate. Indeed, the normal thought these days is that having a current account deficit is, if anything, a *good* thing, not a bad thing, since having a current account surplus means (as something akin to an accounting identity) that we have a capital account surplus. And a capital account suplus means that foreigners think that Britain is a better place to invest than elsewhere.

c) It's far from obvious that consumption taxes are better than income taxes. In a well-functioning economy, raising income taxes reduces post-tax wages, which then rise, so costs of production rise, so prices rise and incidence falls on consumption. That being so, it would make no difference at all whether we tax labour or tax consumption. Either way we make it relatively more attractive to take leisure over consumption. What really counts is the total size of the roast joint, not whether you cut it lengthways or crossways.

d) Scrapping national insurance is a fantasy scheme of those that take no interest in welfare reform. National insurance is an integral part of the benefits system. We pay taxes annually, but we need benefits every week, because eating a really big meal once a year isn't going to stop us getting hungry. We;ve seen recently, with the tax credits scheme, the disasters that one inflicts upon people in difficult circumstances if one tries to over-integrate taxes and benefits. Benefits are not just negative taxes - they serve a completely different purpose and are associated with completely different incentive properties.

e) No-one in Britain would actually want a "flat tax". It's an idea that is only really useful in jurisdictions with low tax compliance where tax simplification considerably increases the tax take by making avoidance more difficult. The Conservatives has (rightly) never given any serious consideration to a truly flat tax. What we *have* given consideration to is the different, though not completely-unrelated, idea of reducing the number of tax rates and special reliefs. The Government's stupid 10p rate, built on Major's daft 20p rate, was a totally unnecessary piece of tax complexity. What would be good would be to raise tax thresholds considerably so as to reduce the number of people paying income tax at all (thereby cutting down on bureaucracy and reducing the invasion of privacy by the State). We should be able to get ourselves down to only about half the population paying any income tax within a Parliament.

f) Adam Smith. Obviously a great man, with a lot still to teach us. His idea that GDP is the key representation of a country's wealth (accepted at his time but not implemented until the 1930s, IIRC) - this was what The Wealth of Nations is about - is, however, an idea whose time might have passed. I think that some of Cameron and Sarkozy's ideas in this area are likely to lead us on to a richer concept, and even now there are those of us that work on adjusting national production figures to take account of environmental impacts, for example.

That's all for now, but it's enough...

[John Leonard]

James:

Perhaps you might like to start us of then?

As I am nearly as global-sceptic as I am Euro-sceptic (and for many of the same reasons) I'd be interested in knowing what the great benefits of Globalization in your eyes are?

[Tony Makara]

James, firstly I am not advocating that Britain isolates itself from trading with the rest of the world. However we should structure our economy at macroeconomic level so it pays our entrepreneurs to supply our domestic market. This could be done by large-scale tax relief for business that supply the British market, of course this would have to be supplemented by a range of protective measures. Any imported goods that threaten domestic production would have to carry a tariff, these goods would still be available to people who wanted to buy them, but they would become more expensive than British made goods, to protect British Business, goods that were not being produced here at home would not be subject to tariff. This would allow British industry to supply the British market and at the same time allow for imports to supply the needs that we cannot supply.

To kick start a re-birth in manufacturing all new business enterprises should be allowed to operate completely tax-free for a given time to allow them to develop the infrastructure needed to create work. Manufacturing would eventually be in a position to supply the service sector and the two would compliment each other.

The end of wide-scale import dependency would take us away from the need to pursue a strong pound policy and the higher interest rates that come with it. This will make life easier for business to borrow and for people to buy property. As demand responds to supply there will be a more stable price environment as we factor out the need to worry about imported inflation due to currency differentials.

[Iain]

"I consider myself to be pragmatist realist. Globalization is a reality, and we can either work with it, or against it. "

Free trade , globalisation call it what you may, but we don't have that when countries from the US, Germany, France to China are all very protective of their interests, which makes the British states masochistic stance on free trade nothing short of a liability to its people and interests, for while anything here is up for grabs, and the state will stand by while key assets are flogged of to foreign buyers enriching US merchant banks as they go, British interests on the other hand would not be permitted to do the same in those countries.

So perhaps rather than beating our breasts about free trade and sabotaging our interests as we do, we should instead be looking for reciprocity, of course that would require the Foreign Office fighting for UK’s interest in negotiations, which our chinless wonders there would find too much like hard work, and especially as they had been conditioned to roll over, as they have with the retreat of the British empire, and a way of doing things they have continued in negotiations at the EU, thus our haemorrhage of sovereignty to Brussels.

[James]

Aaargh!! Have we learned nothing since 1945?

1. John Leonard - (I'm going to start sounding like a flag waving globalization nut if I'm not careful). THERE IS NO ALTERNATIVE. It's not a question of 'the great benefits' of globalization, so much as it is the only game in town, as we will be considerably poorer if we try to sit on the sides. But in fact, we have benefited hugely. British wealth was built on globalization (or the early forms of it). Why do you think that this tiny little country has one of the largest economies in thw world? Why should we, with less than 60 million people, be in the G7 when huge countries like Brazil are not? Because of the enormous wealth we accumulated over centuries of trading with the world. NowI know that some people will leap out of the woodwork to scream 'Empire', and to suggest that we stole all that wealth at the end of a bayonet, but that it wrong. The empire was largely a tradingh empire. We sometimes enforced our Imperial right to trade at the end of a bayonet (the less said about the Opium Wars at this stage the better), but Britain was built on global trade. And it wasn't all export driven.

2. Tony. So, we impose high tariffs on imprts of goods that can be produced domestically, and we give large scale tax relief to domestic manufacturers. I don't even know where to start:

a. You will start trade wars with everyone. Tariffs will be thrown on British goods, and sufddenly we will be dependent on those protected domestic markets, because you'll have destoryed our export markets (and just have a little look at our remaining manufacturing industries - quite a lot of it is for export, especially the high value end).

b. Where exactly is the government going to generate tax revenue from to pay for all those lovely schools and hospitals with? You're throwing tax reliefs at our domestic industry, and you've driven away our imports. All those multinational companies that you are so keen to pooh pooh will stay a million miles away from our taxman's grasp.

c. We have a floating curreny, we do not maintain a strong pound policy. We maintain a low inflation policy (which can lead to a strong pound granted), but the purpose of the policy is different (and essential).

You want a weaker pound, presumably you are happy to see higher inflation, and you want lower interest rates (and yet you have already railed against the debt driven consumer culture - just watch it explode even more as you seek to drive interest rates lower) to make life easier to buy property - what will happen to property prices on our overcrowded little island with its structural shortage of houses and increasing number of single person households? You think this will lead to a more stable price environment?

Um...let's stick with that for now - it's dinner time.

[stewart Geddes]

Tony your proposals sound suspiciously like the Labour agenda of the early 1970's. If we start imposing tariffs on imported good it will lead to retaliation and will promote inefficient poor quality businesses (remember British Leyland?).

Let's look at some practical issues shall we? Firstly why in the name of goodness do we expect someone on the minimum wage to pay tax? And then give them tax credits... This is bonkers.

Better to raise the tax allowance to 110% of the minimum wage and then set a realistic single rate of tax.

Offer transferability of tax allowances between spouses in order to encourage marriage and in particular to redress the situation we have where mothers (usually) feel presurised to go to work when their children are still young and in need of parental care.

The cost of these measures would be more than recouped by the reduction in tax credits and the associated beaurocracy.

Finally, and with regard to Adam Smith's call for fairness (and I don't mean Gordon Brown's definiton) why should we have a higher rate tax? Why should someone pay 40% just because they earn more? That is the socialist politics of envy.

[Martin Coxall]

@Andrew Lilico:

Goodness, what a lot of points. I'll address each in turn.

(a) Absolutely, although it seems there can be many different interpretations of what constitutes free trade, and I suspect yours and mine would differ somewhat. I feel it fair to point out that while I am fan of free trade, and the doctrine of comparative advantage, I am most definitely a globalizatiosceptic, it seems along with John and Tony above. In especial, I consider much of the influence of the IMF and World Bank to be thoroughly malignant.

(b) That's all well and good if "being a good place to invest" is the primary aim of one's economic policy. I would, at a guess, think that Tony's more concerned with the needs of ordinary British workers than the needs of ultra-wealthy foreigners, which might provoke a different viewpoint.

(c) From the perspective of eliminating deadweight losses they are. They might be politically a harder sell though.

(d) I'm not sure how you can legitimately view National Insurance as being functionally dissimilar from ordinary Income Tax. If we can abolish one, we can abolish both.

(e) Did the Poll Tax count as a flat tax?

(f) The nice thing about "general wellbeing" is that it's flexible enough to include any number of indicators that affect people's quality of life that fall outside the scope of traditional economic models.

[Tony Makara]

James, if we can get most people back into work the level of revenue at hand will increase as people start paying tax and stop drawing benefit. The change would be monumental and would benefit the art of government greatly. On inflation, as I've stated price levels would be more stable in a self-supplying economy. On the pound, I'm not in favour of a floating sterling because it prostitutes our currency and invites the ravages of people like George Soros and others who practice arbitrage. On trade wars, it would benefit all nations to become more self-sufficient, once other nations see the great benefits of such a system they would most likely follow suit. That way a natural order of trade will develop in the world, one based in mutual benefit rather than chaotic undercutting.

James, it would be interesting to hear how you would create the million plus jobs we need to end welfare dependency?

[Martin Coxall]

@Tony Makara:

Your proposals regarding tariffs sound like a recipe for one massive, all-out reciprocating trade war, which would benefit nobody.

Rather than penalising foreign trade, surely it's rather better to ask how we can invest and encourage the rebirth of British entrepreneurialism?

The British have historically shown great capacity for reinventing themselves economically as circumstances have demanded, and that's part of what makes Britain able to punch above its weight economically.

Any attempt to rebuild Britain's primary and secondary industry sectors that could cause the entire world to close ranks against us in retaliation is unthinkable.

[Adrian Peirson]

Did you Know that the Bank of England is NOT Englands Bank, it is in fact a Private Company owned by Rothschild (Who also owns 80% of the Worlds Uranium, Hint Depleted Uranium, Brown suddenly announcing we should go Nuclear, Who exactly bought the Gold that Brown Sold Off )

So, Govt Borrows from a Private Bank, AT INTEREST, meaning it's debt can NEVER Be Paid Off and accounts for Why Paper Fiat Monetary Systems Indflate themselves to eventual Collapse, In the Proicessm the Nations wealth is swept Upwards into the Vault of the Elite Bankers.

Credit is simply thin air, Paper Money costs Pennies to Print, yet on the basis of this Fraud, Private Banks get reposess REAL WEALTH of the Nation and People into their Vaults.

Interest rates are loweres to Ensnare Borrowers, then when enough have been ensnared, the rate is raised again.

Those that have overextended themselves have their Property and assets seized, but why, what did the Bank actually Lose....The vendor is the One who Lost out, he is now holding worthless Paper Money, and so the cycle continues over Many decades in an ever more frenzied spiral of Public Borrowing to Pay off Last Yrs Debt which incurs yet more interest charges....Ad infinitum until the Final exponential and inecitable collapse.
http://digg.com/world_news/Paul_Warns_Middle_Class_Being_Wiped_Out_In_Final_Debate?OTC-widget
http://www.fame.org/
http://www.thetruthseeker.co.uk/article.asp?ID=96
http://www.themoneymasters.com/principles.htm

[Tony Makara]

Martin Coxall, as current trading agreements stand it would be impossible to re-build a manufacturing base without having it undermined by foreign competition. A system of protective tariffs would have to exist in some form. We have to look at this from a long-term perspective. We are already suffocating under the burden of welfare dependency and unless we have an economy that produces jobs in significant numbers this problem isn't going to go away and will increase. There are only two ways to create jobs, by an enlarged public sector, which eventually collapses under its own weight, or by generating the macroeconomic conditions necessary to create work. That is by making it pay for entrepreneurs to set up shop. Obviously the public sector option is a dead-end and must be avoided. That means the only route open to us is to build a productive base that will employ large numbers of people. That must be the aim. I ask anyone reading this if they honestly believe that a future Conservative government will be able to put 1.6 million JSA claimants into full-time waged work? I don't see how it can be done if the jobs are not there. Workfare isn't work and people on workfare are still on benefit. There is only one way to get people off benefit, through creating jobs, a million plus jobs, a manufacturing base supplying our domestic market can do this.

[Tanuki]

Personally, I don't fret about issues of 'flatter' or 'simpler' taxation - what we need is *lower* taxation.

As to globalisation, sure - bring it on! Our ability to buy best-of-breed on the global market, at lowest-cost, is utterly, utterly brilliant! We need much, much more of this! it's the best defence against inflation we have. OK, it will stress some old-style producers, but protectionism is the last refuge of the weak and countries which resort to it are doomed to failure.

Evolve, or die: antique metal-bashing industries are really not part of the UK's 21st-century future. We should once and for all embrace the service/financial/technology-based industries (where a company employing 20 people can turn over £2.5Billion in a year) as the true future.