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

[Martin Coxall]

@Adrian Peirson:

I was wondering whether we'd see the appearance of the Ron Paul tendency this side of the Atlantic.

You know, I didn't necessarily agree with everything Paul suggested, but you can't fault a man for Thinking Different.

Paul's idea of allowing the treasury to issue their own commodity-backed notes in competition to the Banking system, and allowing the market to decide between fiat and real money is one of the most fascinating ideas I've heard.

I'd love for us to borrow that idea. If the treasury could issue its own gold or silver sterling notes, I imagine that the Bank of England's inflationary fiat currency would lose its destructive power over the British economy very quickly.

[Tony Makara]

On Adrian Peirson and Ron Paul, social credit theory works on paper and I think it would take a totalitarian system to impose it. The current banking practice certainly isn't perfect but it would be far better to fine tune that than to overthrow a system that has worked well for the most part over hundreds of years.

[James]

I'm starting to feel like I've stumbled into the Socialist Students' Debating Society.

Firstly >Adrian Peirson...I'm not sure if you're for real, but I don't think conspiracy theories based on the Rothschilds owning the bank of England and starting wars so they can sell depleted uranium is really that helpful in the current debate.

And dear old Tony Makara - I have to agree with Stuart that your proposals sound like some sort of 1970s socialist nirvana of the type that sounds great in theory but is utterly impractical.

"If we can get most people back into work the level of revenue at hand will increase as people start paying tax..." But where is this taxable wealth coming from in the first place? You seem intent on creating a closed system with huge barriers to wealth creation. You plan to hamstring the economy, but make money by taxing the people who are working in inefficient protected industries that can only survive because of an effective ban on imports and massive government subsidies (or tax breaks as you've called them). I just do not believe that this is the making of an efficient way to use our resources.

There are so many holes...hmm, let's see...this new homegrown industry of yours is going to need to import raw materials, which will now be hugely expensive because of your cheap pound policy. We cannot sell goods abroad to pay for these raw materials (thanks to the Makara Trade Wars, as they'll be known to future generations), so our balance trade in the long run could be worse than it is now!

Inflation would miost definitely not be stable. The high cost of imported raw materials would be one problem. And the inefficient domestic manufacturing base will forever struggle to produce what the economy needs (I take back what I said before about domestic productino not necessarily being less efficient - under your protected and subsidised economic model it will be woeful - leading to inflation, shortages and a black market in smuggled imports (smuggled to avoid your exorbitant import tariffs). Picture a cross between the Soviet Union and North Korea.

"On trade wars, it would benefit all nations to become more self sufficient." Right. Free markets 101. I can make widget X more efficiently than you can. and you can make widget Y more efficiently than I can. So we can maximise our efficiency and our resource use if I make all the widget Xs and you make all the widget Ys, and we swap some of them. We both end up with more of both. THAT is how wealth is created.

Under your system of isolated economies, how do we get the iron ore that we need? Or the oil? Or the bananas? The olives, the wine, the uranium, the timber, the pharmaceuticals, the... everything that we nned to import, but can't afford thanks to the end of global trade and the high world tariffs and the weak pound you advocate? And believe it or not, wars are more likely under your system (if you can't buy the natural resources you need from your neighbour, you have to take it - and global trading nations go to war with each other far less frequently than non-trading nations, because they have more to lose).

And I love your anding...that "a natural order of trade will develop in the world, one based on mutual benefit rather than chaotic undercutting...". Um - that's what we keep trying to tell you. trading with another nation IS mutually beneficial!! (And if you disagree, then what is to stop your new, enlightened, nirvana type of trade from turning into the very thing you are arguing against...globalization?).

You ask how to create the million plus jobs needed to end wlefare dependency. Iwill admit, I do not have a magic bullet...but neither do you. Under your system, we would be considerable worse off. Free trade has lifted more people out of poverty throughout the world than protectionism. And there is a difference between unemployment and welfare dependency. (wait - hear me out). In a dynamic job market, people should be coming out of work and into work all the time. There will always be a natural rate of unemployment. That is good - otherwise how could you start a new business? There would be no one to hire. The key to ending welfare dependecy is to ensure that the same people are not stuck in that group of unemployed. People should bounce into it, and out again. They are not in this country, and that needs to be addressed.

But your socialist solution of fake jobs, paid for through state subsidy and protectionism is not the answer. It would be devastating.

(And George Soros did not make money from a floating pound - hemade money precisely because of the insane concept of the ERM which tried to fix the pound!).

[Hayekian]

Martin Coxall wrote "Paul's idea of allowing the treasury to issue their own commodity-backed notes in competition to the Banking system, and allowing the market to decide between fiat and real money is one of the most fascinating ideas I've heard."

It is not Ron Paul's idea. It was proposed by Hayek in his paper "The Denationalisation of Money" for the IEA over 20 years ago. Most Conservatives desperately need education in free market economics!

[James]

(apologies for the endless typos - I'm trying to keep this debate up while multi-tasking three other things, so I'm rushing!!)

[Andrew Lilico]

Martin@19:44

Regarding (b), I didn't say that being attractive to foreign investors is the main aim of policy. I said that having a current account deficit is irrelevant, and simply implies that Britain is an attractive place for investors.

Regarding (c), you assert that "From the perspective of eliminating deadweight losses [Consumption taxes are better than income taxes]". On what basis do you assert that deadweight losses associated with consumption taxes are lower than those associated with income taxes?

The argument for consumption taxes belonged to an era in which we thought there were significant imperfections in Labour markets (i.e. the 1970s), and hence in which rises in income tax interacted with the monopsony power of unions to create distortions and inflation. It is also true that the opportunities to create distortions "at the top end" by distorting the decisions of the very wealthy are probably greater with income taxes - though one could, perhaps, duplicate the distortions created by having an 85% tax on income over £200,000 per year by having high rates of consumption tax on Porsche's, cappucino's, private education, and other high-earner goods, it would not be straightforward.

But with today's fairly simple income taxes, there is little to be said for cutting the basic rate (say) and raising VAT. The age for that kind of thing has passed. Today there is little reason to suppose that distortions in labour markets are any worse than elsewhere.

[Iain]

"where a company employing 20 people can turn over £2.5Billion in a year"

You don't need 20 people to do that all you need is one, a phone, and a scretary, I suppose the other 18 people can be burger flippers.

[Tony Makara]

James, I've got to give you 10/10 for having a creative imagination but like many commentators you try to attach your own frenzied scenarios to my suggestions. I think its unfair of you to try and equate economic self-reliance with a Korean type autarchy. I can't see how my saying we should have forex stability can be equated with wanting devaluation either. I disagree with your statement that there will always be a natural rate of unemployment, that is a cop-out argument employed by politicians who are afraid of the task of curing unemployment. James, I ask you, are you happy to condemn millions to unemployment and live with the knock-on effects of joblessness in terms of cost and social decay?, or do you think politicians should try to do something serious about ending the nightmare of welfare dependency? You may not agree with my ideas on job creation but surely you must see that something must be done, if we just leave this problem to right itself it will only get worse and the social entropy will continue for millions of our people. We need a plan. We need to do something.

[Tanuki]

Iain@20:59: You don't need 20 people to do that all you need is one, a phone, and a scretary, I suppose the other 18 people can be burger flippers.

Or they go back to Poland and set up businesses of their own?

[Andrew Lilico]

Oh, yes. Tony's latest post has reminded me that at 19:06 I should have written

g) Unemployment in the UK is very low, not very high. That is true in terms of benefit claimants, in terms of ILO measurement, and in terms of overall participation in the labour force (in the last of which we are among the highest in the developed world). The claim that we have mass unemployment in this country and that "Something must be done!" is, not to put too fine a point on it, utter rubbish.

[Martin Coxall]

@Andrew Lilico:

I'm really not certain that I fully understand your point, and you'll have to bear with me here, because as you may have guessed I'm a software developer not an economist.

Are you saying that, essentially, deadweight losses are an irrelevance, don't exist now or something else that I'm not grasping?

The Chicago School tendency and club for growth types still seem to be innately in favour of taxes on consumption.

What do you make of Stewart Geddes's idea that we have one rate of income tax, and set the threshold at 110% of the minimum wage?

[Jon Gale]

James @19:38,

1. Britain was protectionist until about 1840, then switched to free trade. by 1890 protectionist USA and protectionist Germany had overtaken us. The USA was protectionist from its founding until 1970, during which time it became an economic giant. Japan industrialised (twice, pre-war and post war) under protectionism. Modern China is industrialising under protectionism. Protectionism isn't neccessarily harmful!

Brazil didn't become a major power because it was free trade - exporting coffee and raw materials and importing industrial goods.

2.
a. Trade wars are a major problem with protectionism, so should be introduced on a case by case basis. Some goods are easier to "fight over" than others.

What got me thinking about tariffs was farming - If it costs a british farmer £1.50 to produce a pound of pork, but can only sell it in Britain for £1.40, why is that?

Because supermarkets can buy foreign pork for £1.41.

So tariffs should be introduced to at least equalize the price (quality would then win out). If Nation X puts a tariff on British pork in return, it shouldn't matter because our domestic market is now profitable for our farmers, and surely nowhere in the world is importing expensive British pork when they could be getting the cheap £1.41 pork we were eating?

Something like steel though would cause much more problems, because it goes into so many different products that our steel mills may benefit from tariffs, but our widget factories would lose out.

b. The tariffs would raise some money. If we put a 25% tarif on all imports we could almost abolish income tax - until imports fell of course. The difficulty is finding the point of the bell curve to maximise tax income. As countries have abandoned import tariffs income taxes have gone up, isn't that odd?

c. Inflation is another major problem. I dont know how to solve that (yet! I'll think about it :) ). We cant raise interest rates, because we will need to borrow money to rebuild our factories.

Inflation and trade wars are the only things keeping me undecided, otherwise (big otherwise I know) I would support protectionism. Free trade also has downsides - service jobs pay less on average than manufacturing jobs - one of the reasons families now need two bread winners, the drive to compete with cheaper countries encourages the use of immigrant labour, we were promised that we would keep our high-tech jobs but making computer chips, then software, then R&D, have gradually followed the heavy industry to India. The Chinese stock market is booming and will start stealing City business...

I would like protectionism, but it would be very difficult to introduce.

re your 20.49 post,

Protectionism isn't socialism the Conservative Party has alternated between protection and free trade, the Republican party was the party of protection, Abraham Lincoln was a champion of protectionism.

Phew, long post.

[Martin Coxall]

@Hayekian:

I stand corrected. It's still an interesting idea, whosever it was.

[James]

Tony - As I said, unemployment is not the same as welfare dependecy. The latter is an evil that we must seek to eradicate, you and I agree there. Where we disagree is that I think the best way to do it is through a dynamic economy in which new jobs are being created all the time (and yes, some are disappearing all the time) - the important thing is not that there are unemployed people, but how long on average they remain unemployed. I was unemployed last year, but then I found another job - I nounced into and out of the unemployed pool. Without an unemployed pool, where does the new business find staff.

I admit to being a bit provocative in citing North Korea, but I really do think that your vision is a starry eyed, utterly impractical utopia that would lead to collapse and widespread poverty. I have to put it that strongly! It is like the utopian Soviet ideal that, had it worked, we would all be copying now.

And you did state that you disagreed with what you called the 'storng pound' policy. You implied you wanted monetary relaxation, and you specifically called for lower interest rates. I'm afraid the result would be higher inflation and a weaker pound.

Plus, in your model, we do not 'earn' much foreign curreny due to our isolationist economy. Plus, there is little international demand to buy pounds, as a)we don't sell anything, and b) we don't let foreigners invest in the UK economy. I'm afraid that all points toa weak pound.

By the way, in your economic scenario, how DO you envisage we get hold of the raw materials we need to create this glorious domestic manufacturing economy?

Cheers
J

[Jon Gale]

But a very interesting debate - more ConHome threads should be like this!

[John Leonard]

James:

Thank you, I hardly needed the history lesson (rather condescending I thought). However, I did not appreciate that your definition of Globalisation was so simplistic. From your perspective then, there has been no change in this concept (other than who's up and whose down) for milleniums?

That said, it doesn't explain the great hubbub about Globalization over the past 25 years. Is there anything at all new about it in your view?

Furthermore, your response does not provide any view of how this country will be affected in the medium term given the growth of the new industrial nations in our 'Global Society'.

So I will rephrase my question, given the current circumstances why should Britain continue with the same economic and business approach?

What are the benefits and what risks do we avoid by doing so and what risks remain in the current and likely future circumstances?

How will your approach insulate this country from the growth of the new industrial powers over the rest of this century and ensure that we remain an independent prosperous free state?

It seems to me that your sole arguments are that cheap foreign goods are essential for this country and so is having a seat at the top table. Can this scenario exist ad infinitum or is there a point where you will concede that there are other considerations?

Personally, I would have thought a trade surplus, knowledge that we couldn't be held to ransom by external forces (we have seen a wee bit of this behaviour by Russia and other major Oil Producing countries already) or seriously impacted through supply loss by natural or human disasters caused on the other side of the world is what would be good for this country?

[James]

(I have to go - sorry. I was enjoying this debate),

John - sorry didn't mean to be condescending, and yes, I was simplifying globalization for the sake of a discusion about concepts and principals, when in practice of course it is far more complex than I have suggested.

If this is still raging later on, I'll be back. In the meantime - Andrew Lilico, come on, stick up for global free trade!!!

Cheers
James

[Tony Makara]

Andrew Lilico, the fact that you can claim that 1.6 million unemployed is 'low' just goes to show how far the goalposts have been moved. I'm just about old enough to remember the uproar when unemployment reached one million and it made for banner headlines in all the newspapers. Now politicians of all parties see 1.6 million as being a success compared with figures of three million plus from the early 1980s. Its an attitude that shames our political classes. 1.6 million jobless is 1.6 million individuals who are living a life of alienation. They exist but they don't have a life.

[Adrian Peirson]

So instead of the Crown Coining our own Money, you think we should Borrow it into Existance from a Private Bank at Interest which currently costs us 40 Billion Per year.

Simple question , should we coin our own money free of charge, or Borrow it at Interest from a Private Bank..

[Tony Makara]

"Free trade also has downsides - service jobs pay less on average than manufacturing jobs - one of the reasons families now need two bread winners"

John Gale, this is a very important point because the greater the service-sector the more the nation has to rely on credit to drive demand because wages cannot be boosted in the way they can through increased productivity in manufacturing. Of course when the credit dries up those consumers who work in the service sector are also no longer buying from the retail service sector and sales slump reducing further the potential for increasing purchasing power through better wages. Its a dead-end. We need a balanced economy, the shift from manufacturing and into services has be more costly than most people imagine and relies on the oxygen of credit to a dangerous level.

[Andrew Lilico]

Tony@21:43

But the "one million = clamour" that you remember was the number of people claiming benefit. That figure was 794,600, around 2.6% of the labour force. This would have been considered a very low rate even in the 1950s, when the inflation rate averaged a tad under 3%.

The figure you quote, 1.6 million, is for the wider ILO definition, which wasn't used in the past. On that measure UK unemployment is again very low, just 5.2%, only a little above what most economists would consider the minimum sustainable level of unemployment for a dynamic, growing developed economy.

Martin@21:23

I don't deny that there are deadweight losses - how could I, since they are simply a mathematical artefact, existing by definition!

Concerning the proposal to raise the income tax threshold, that is what I myself proposed in my post@19:06, point (e). I would aim to have it quite a bit higher than 110% of the minimum wage, though I appreciate the concept of linking them. The way to reach one rate, if that's what we want to do, would be to raise the basic rate to 25%, hold the higher rate threshold, and phase out the basic rate out by having band shrink, until we were left with just the 40% higher rate. But my guess is that, in fact, two rates of 25% and 40% are a fairly elegant solution.

[Adrian Peirson]

It's not Ron Pauls Idea, the founding fathers of the US and UK Constitutions Knew about Money, they specifically declared that ONLY the Country should Issue Money and it should have real Value (IE be backed by Gold Silver )
The Bank of England and the US Fed Are Private Companies.
Our Banking system is a Massive Fraud, it siole Purpose is to Lower Interest rates, ensnare Borrowers then raise interest rates to trawl in their assets, sell them off for worthless Paper money then convert this to Gold. Or Stocks.

When a Bank reposesses, what exactly did it lose,

If the Bank had lent you real Money IE Gold or Silver then yes, the Bank has a legitimate claim, but credit is thin air, Paper money cost only pennies to print..

http://www.healthfreedom.info/Federal_Reserve_Fraud.htm
http://www.propagandamatrix.com/makow_banking_cartel_is_the_cause_of_humanitys_woes.html
http://www.prosperityuk.com/prosperity/articles/monftp.html
http://www.planetquo.com/The-Law-Is-An-Ass-And-You-Are-Made-Of-Straw

[Tony Makara]

Andrew Lilico, if unemployment is so 'low' why are politicians turning blue over the cost of welfare? Politicians often claim that many of the people on incapacity are on the wrong benefit. If the Conservative plans for a thorough system of testing show this to be true then many more people will be claiming JSA instead of IB and will be designated as unemployed. People estimate this could could mean between 200,000 and even a million switching benefits. So how on earth are we going to move all these people off benefits and into work if there are only 600,000 vacancies at the better end of the economic cycle? What would you suggest? Labour have tried to solve this dilemma by promoting the half work/half benefit system of job-sharing culture topped up by tax credits, but this is clearly papering over the cracks. We have a serious problem with lumpen-unemployment no matter what sophistry is applied to the figures. We need a plan, a big idea to deal with this problem once and for all. Just sitting back and explaining unemployment away as being 'natural' or 'low' isn't going to make the problem go away. What can be done?

[Andrew Lilico]

Adrian@22:09

So your view is that, since its value is created only by a command, all of your money is valueless - indeed, a con. That being so, I'd be very happy to take your valueless waste-of-time money off your hands. If you fancy sending it all to me, I can supply an address...

[anthony scholefield]

Regarding globalization both sides must gain from trade or they would not engage in it. The question of which side benefits to what degree has rarely been addressed but both John Stuart Mill and Paul Samuelson have addressed it and both concluded that the distribution of the gains can be very unequal. Trade is thus always beneficial but the gains can and do change .

[Mike A]

The key differences between Tony et al and Andrew Lilico are:
- Andrew knows what unemployment is.
- Andrew knows what free trade is
- Andrew knows how the tax system works, and he gets tax incidence

However (and this is something which comes up perennially) I don't think raising tax thresholds is any bloody use (I'm not sure Andrew is too hot on distributional economics, which is my little patch of turf).

Editor, I hope you don't mind this, but Adrian Peirson...

You're mental. Your website hosts a video which starts with the words:

"This is the crypto Jew who controls the Zionist disinformation site known as "TakeOurWorldBack.com"...".

This apparently Jewish man is referred to - charmingly - as "hookbeak" and your site states that "Zionists" carried out the Sept 11th attacks. You have a string of flat-out anti-semitic videos.

You'll have to forgive me if I think you're absolutely crackers.

It's incredible how loony you can be whilst retaining the ability to write HTML
http://www.planetquo.com/

[Adrian Peirson]

As long as People do not wake up I'll keep hiold of it to buy food.

Bernanke of the Fed Agrees With Ron Paul
http://www.youtube.com/watch?v=7SLuXBMOKYc

Debt = Slavery
http://www.youtube.com/watch?v=ydGvgcccQok

Who Owns the Media
http://www.youtube.com/watch?v=Xn_LTy4TIpc&feature=PlayList&p=654AD63A40D818F9&index=1

http://www.youtube.com/user/Rassisten

[Tony Makara]

Anthony Scholefield, individuals involved in specific transactions may benefit from global free-trade but we need to look at this question from a national perspective, particularly its effects on unemployment, imported inflation, etc.

Mike A, as much as I enjoy reading Andrew Lilico's economic breakdowns I fear that Andrew puts too much focus on small economic details and isn't setting the focus on the wider picture and most importantly putting forward a strategy on what is to be done. Economics cannot be compartmentalized in the way that orthodox economists believe, economic policy is interwoven with social and political policy and the bad effects of economics ripple through everything.

I am not a professional economist, most of my life has been in security work, that line of work has taught me a lot about people and human behaviour, about what makes some people violent, what makes people reject social norms. I know that people without a structured lifestyle can drift into activities that they would never have contemplated if they had been working and had a more socially connected lifestyle. Unemployment and poverty change people and create a sub-culture, one built on alienation and one that can easily manifest into anti-social behaviour. This is especially true of the under 25s, this is a time in a young mans life when he needs to have a structured life. So looking to solve unemployment is more important than just saving money for the treasury, its real value is social, the economic climate of the day effects the social climate of the day, people must understand this, governments must understand this, and the era of do-nothing government must end.

[Tom M]

I have to agree this is one of the most entertaining CH threads I've read in a long time.

Tony - the issue you have to address before you'll get anyone to take your idea of national economic autonomy seriously is, as several people have pointed out, Ricardo's law of comparative advantage.
Free trade isn't important because its trade but because its free - that is people are free to buy goods and services from whatever producer, in whatever country, can supply them most efficiently. The minute you introduce restrictions on the freedom of producers and consumers you also, inevitibly, restrict the efficiency of the economy. For a modern case study of how that usually turns out have a look at what Chavez is doing to the Venezuelan economy with his price controls.
Thats not to say government can't or shouldn't impose some restrictions on the economy - simply that you have to account for the repercussions of your actions if you do so.

And Adrain....please stop posting. You're giving us monetarist's a bad name.

[Andrew Lilico]

Mike A@00:03

What negative distributional consequences do you envisage from my suggestion of raising the basic rate of income tax (to 25p) and raising thresholds? I'm sure you will be aware that such a scheme reduces taxes for the poor (better to pay no income tax than to pay 20% on a bit), at the expense of higher taxes for those towards the top of the basic rate band (i.e. reasonbly well-heeled, though by-no-means rich, middle class people). Does that seem like a negative distributional consequence?

[Martin Coxall]

You know, one of the most upsetting things about the Paultards is how often they turn out to be completely mental, because I think that Ron Paul potentially had some interesting ideas, but they've become tainted by association with his fruitloop supporters.

The thing that Tony Makara seems not to be getting is that there is an important difference between unemployment and long-term unemployment.

A pool of short-term unemployment is vital for the efficient functioning of our economy, otherwise new jobs could not be created.

The long-term unemployed are in a rather more difficult bind, because they're trapped on incapacity benefit for all eternity in Gordon's benefit client state.

That costs the economy billions, but it buys Labour votes, so he probably doesn't care.

[Martin Coxall]

@Andrew Lilico:

You still haven't explained why most club for growth types seem to prefer taxes on consumption than income, if there's no real economic benefit to them.

Is the fact that, as forced labour, income taxes are a form of state slavery and therefore thoroughly immoral, especially for those who believe in freeing people from the state?

[Andrew Lilico]

Martin@09:10

Apologies - Too many posts = bound to miss something.

I don't know much about the club for growth, but my guess is that they buy the argument that my incidence case presented above was overly static, focusing on working today to consume today. They would say that once we take account of the possibility of saving, consumption taxes come out ahead because savings income will be taxed later, reducing the future consumption fruits of labour.

You can see this argument here, for instance:

http://gregmankiw.blogspot.com/2006/06/consumption-vs-income-taxation.html

I suggest, however, that the problem here is not taxing income versus consumption, but, rather, the double taxation of savings income. And in the UK we have all kinds of schemes to limit double taxation problems (ISAs, pensions, and so on). To be sure, these create bureaucratic complexity, but consumption taxes are rather more complex than income taxes, anyway.

The reality, in my view, is that there will continue to be a place for both significant income and consumption taxes.

[Yet Another Anon]

Capitalism is a natural way, built on incentive and reward, but at the same time capitalism leaves certain people behind.
To some extent every system has it's winners and losers - in Communist and Ba'athist countries a party elite emerged who led a life of luxury getting their wishes granted quickly, in welfare states there have been preferred groups who are exempted from many of the conditions and requirements to others and who have higher rates done in a crude way.

The fact is that in every society there will be winners and losers, there is no point attempting some kind of narrowing of income inequality. The best thing is to hold down tax while investing in the Transport & Comunications, R&D, Police, Military; maintain strong social discipline through the Police & Security Services and with low level residence based but primarily universal and simple system of low level benefits, with a deregulated labour market including virtually no employment regulation and Free Trade and allowing employers to use labour they deem fit (subject to National Security vetting) then an economy will flourish and social order and efficiency will prevail. Through a strong economy everyone will benefit.

Job creation is something best left for public, private or third sector employers to do when they need work doing and on their terms, a strong economy is what will generate jobs and with minimal regulation and benefits at a very low level relative to wages.

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.
This is wrong of course, something costing £1,000 attracts the same percentage tax as something costing £1. There are people who have substantial savings, but little actual taxable income and people on holiday in this country from abroad briefly also pay no Income Tax, but they do pay VAT if they buy anything covered by it in this country - I would favour extending VAT onto Childrens shoes (after all many poor families with children with big feet end up having to buy adult size shoes for there children anyway and I have known of adults who have bought childrens shoes because their feet fit them. I was in mens shoes from the age of 10.

I also think that Food should be covered by VAT, and printed material such as newspapers, books etc.... too.

The threshold on Income Tax should be raised significantly and moves should be made to having it at a flat rate at a lower rate than the rates that apply now. Also the allowances for Capital Gains Tax and Income Tax should be unified - there are schemes for assessing what proportion of Capital Gains are taxable and this proportion that is considered appropriate to apply tax to could be added to amounts considered to constitute Income - thus a simpler system as one rate would be applied.

I think to encourage saving that Savings Tax should be abolished and that Corporation Taxes should be cut.

if unemployment is so 'low' why are politicians turning blue over the cost of welfare? Politicians often claim that many of the people on incapacity are on the wrong benefit. If the Conservative plans for a thorough system of testing show this to be true then many more people will be claiming JSA instead of IB and will be designated as unemployed. People estimate this could could mean between 200,000 and even a million switching benefits.
Because they are committed to substantial rises in benefits for the elderly and some severely disabled people, and welfare spending is so high that this means having to cut the proportions spent on other groups and adjust numbers in those groups. So the Pension age is raised and there is an ambition to make it more difficult to claim Incapacity Benefits because they have higher rates of benefit than JSA - if 200,000 people are transferred from Incapacity Benefit to JSA and did no work before and do no work still it is still saving hundreds of millions or billions of pounds potentially because of the difference in the amount of money being spent in benefits. The new benefit the government is creating to abolish Income Support and Incapacity Benefit and integrate them into one benefit with a contributory and non-contributory element like JSA and with a new benefit for more severely disabled claimants had the support from all sides of the house including I note IDS, the main rate of that benefit is £85 for a Single Person which is high compared to the £37.50-59.15 main rates under JSA, if you add in free bus passes for many classed as incapacitated and things such as DLA, more generous allowances on things such as Housing Benefit and Council Tax Benefit etc.... it amounts to a lot of money. It isn't just the rates applicable and cost of non-cash benefits, Incapacity Benefit is claimable on a contributory basis for up to 2 years, JSA for only 26 months - after this the claimant is only able to claim Income Support or Income Based JSA which assesses savings\capital as well. In my opinion the contributory eligibility should be cut to 26 weeks to bring it into line with JSA.

If a million people were switched across it definitely would be Billions of Pounds saved on benefits.

As for an Office of Tax Simplification, I am suspicious of such a scheme thinking it is liable just to add to bureaucracy, far better to build into government departments especially the Treasury a general ethos of producing regulation whether on tax or other employment related issues that is as minimal and simple as possible. Really the Treasury should deal with all economic affairs including any industrial or labour market regulation so that there is minimalisation of the number of organisations government is dealing with, if government does less on the socio-economic side then this should be no problem and would lead to savings in the cost of running government.

[James Maskell]

Over two years of considering what to come up with and they come up with a Tax Simplification Office? My God, the Tories are running on empty already...

[Tony Makara]

Tom M, those that hold comparative advantage are internationalists and do not understand that a nation and the fate of its people is of more importance that getting goods cheaply. Such people are ideologues who believe transactions and profits of individuals count for more than the collective well-being of the nation. The logical conclusion of comparative advantage is that some nations become active producers and others become passive buyers, or as the Chinese say such nations 'exist to serve the great Chinese economic project' Of course the more goods are imported the less work is available here and we are stuck forever as a middle-man service sector economy, reliant on credit to fuel demand, and with a monumental welfare state to support.

Martin Coxall, unemployment has been a serious problem in our country since the mid 1970s, the figures have been manipulated by all governments but there is now a permanent lumpen core of one million people who cannot work because the work is not available. There are people who join and leave that core, through a revolving door, and there are those rooted to that core for years at a time. Whether the unemployment is short or long term it is still unemployment and as some people break free others fall into joblessness. Another problem we face is that many jobs in the service sector are by their nature transient. There is not enough permanence, not enough job security. It is all to easy to find work and lose it again.

A nation that is producing for itself is going to create jobs, it has a ready-made market to supply, and can plan for the future with training programmes and apprenticeships. Employment then becomes the legacy passed down from generation to generation and not welfare dependency.

[Hayek]

Tony, I'm afraid your views are just outdated. The Conservative party stands for free trade not protectionism. Your views if implemented would lead to less choice at more expense. The people who would suffer the most would be the poor. The unemployment that exists today is caused by welfare dependency and if anything a lack of free trade. We should get rid of all forms of economic protectionism and dismantle the generous welfare state which traps people in poverty.

I do wonder why you are even in the Conservative party. I presume you are a member?

[Tony Makara]

Hayek, there are Conservatives who support protectionism and their time will come. Our country is in economic decline, things will get worse. So the time for protectionism and industrial re-birth will come. As I have stated many times I am not against trade and I am not against importing goods that we need. However I feel it is counter-productive to import goods that we can produce ourselves, why give work and consumer demand to foreigners when we can utilize it to serve the national need.

[Yet Another Anon]

However I feel it is counter-productive to import goods that we can produce ourselves
In sectors where there is good scope for competition this improves quality and leads to lower prices and the best thing for government to do is get out of the way, excepting some areas where for reasons of National Security or because of the nature of the service- railways for example, tapped water , electricity supply and even still in my opinion residential telecommunications cabling and exchanges where to have alternative pipes or rails is impractical for reasons of space apart from anything else and while possible tends to result in wasting money, and also policing and the military where there are national security and order reasons for keeping them under tight control and under a single chain of command, otherwise UK companies have to be given the opportunity in a low tax low regulatory regime to compete in a global market and develop the entrepreneurs that are a major driving force behind any successful economy - the government's role can be purely one of carrying out research & development into technologies that could be considered to have social, technological and economic benefits and then perhaps patent them for the crown and then license use of such patents, costs in Personal Healthcare would be reduced vastly if the NHS switched money from patients to developing medicines - the medicines would then be at a more affordable level and patients could afford to pay for them themselves on a commercial basis.

There are international trading agreements to stop nations restricting their markets, also just because a country can produce something doesn't mean it can do it well - fruits can be grown in this country for example, would you be suggesting for example that the UK should stop importing wine or rum - wine can be mass produced in the south of England, at the Eden Project in Cornwall chillis have been grown. All such moves would do is add bureacracy and leave British people with many expensive goods many in short supply - government would have to divert attention from other things to spend it's time deciding on import quotas for things, and there would be huge trade wars as a result.

[Yet Another Anon]

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 )
The Bank of England was founded in the 17th century, so far as I am aware the Crown was always the largest shareholder and the remaining private shareholders were bought out in 1945. It became the UK Central Bank in 1707 - formerly the Bank of Scotland had been Scotland's central bank (The Bank of Scotland always was a private company).

The Federal Reserve is a hybrid organization - the Reserve Banks are private, but the Reserve itself is a statutory organisation with Federal Government appointees.

The Bank of England too works through private banks, however if the government chose to float the Bank of England on the Stock Exchange there is nothing to stop it doing this beyond getting legislation through to do it.

[Tony Makara]

"would you be suggesting for example that the UK should stop importing wine or rum"

Yet Another Anon, certainly not. Everything that is currently available would still be available to those that one to buy it but would carry a tariff to protect home producers. Anyone wanting to buy a foreign wine could still buy one, but the British produced wine would be less expensive. Of course there would be no tariff on imported raw materials, tariff would only apply to a finished product, that is after it has undergone the process of labour and distribution.

[Mike Ainsley]

Andrew:

"What negative distributional consequences do you envisage from my suggestion of raising the basic rate of income tax (to 25p) and raising thresholds? I'm sure you will be aware that such a scheme reduces taxes for the poor (better to pay no income tax than to pay 20% on a bit), at the expense of higher taxes for those towards the top of the basic rate band (i.e. reasonbly well-heeled, though by-no-means rich, middle class people). Does that seem like a negative distributional consequence?"

To be fair, I didn't note the 25p element. However, raising thresholds is a daft way of helping the poor.

It means we spend billions on a very small tax cut which doesn't really help those poor people at the bottom but reduces the rate of return for marginal investments higher up the scale..

If you were to uprate child benefit, or focus on reducing withdrawal rates for tax credits, you'd do far better distributionally.

Income tax is not a tax paid by the poor. In some years fag duty isa big burdn on the average lower decile household than income tax!

[Mike Ainsley]

p.s. we agree on 99% of things, Andrew, especially on this thread... And your argument about tax incidence is a very important one.

[Yet Another Anon]

Of course there would be no tariff on imported raw materials, tariff would only apply to a finished product, that is after it has undergone the process of labour and distribution.
Raw materials still have to be extracted, there is no reason to treat them any differently than things that have been processed.

in my opinion there are no justifications for import tariffs or quotas on raw materials, foodstuffs or artificial products.

[Tony Makara]

Yet Another Anon, look around your home, take note of how many items have been imported but could have been made here, producing jobs for our people and wealth for our nation in terms of profit for business to re-invest and taxable revenue for our treasury. As I sit here now I see a German made PC, two loudspeakers made in China, a mouse made in China, the PC rests on a wooden cabinet made in Sweden, to my left is a biro pen made in China, a notepad printed in the Netherlands, a pair of scissors made in China, a stack of blank CDs made in China, all this and I haven't even moved out of my Swedish made chair. In fact looking around my room the only British made product that I can see is a 36 year old British made radiogramme which works perfectly, has stunning radio reception, a beautiful wood finish and huge booming speakers that produce a rich sound to shame the best superwoofer. If I walked into my kitchen I would certainly find many more foreign made items and foodstuffs. Most of which could have been produced in our own country giving our own people work. Importing what we can produce for ourselves is just crazy.

[Andrew Lilico]

Mike@13:17

I don't think I suggested that "helping to poor" was the point of raising the income tax threshold. Presumably in a sense the poor wouldn't be helped at all, because the truly poor would be on means-tested benefits anyway, and the means test would adjust to reflect the fact that their post-tax incomes were greater, leaving them broadly unaffected.

I see the point as twofold:

a) First, it saves on bureaucracy. It is bureaucratically inefficient for us to tax people and pay benefits to those same people to a greater extent than we can (simply and effectively) avoid doing so.

b) I do think that in another sense of "helping the poor", it's better if people are not any more dependent on benefits than is absolutely necessary. If we can cut their taxes and cut their benefits, then they are more self-reliant - which is good for their honour.

[Mike Ainsley]

a) The difference between assessing people and taxing them at 0% is negligibly different to assessing them and taxing them at any other number. There is an IFS report on this whole issue which races through these things. If you're not helping lower income families, why touch thresholds at all? Cut rates.

b) Fair enough - but the maths of this make me sceptical about the size of this effect.

Tony: your plan is what Salazar tried in Portugal, and was the Latin American policy of choice for decades. It is called "import substitution industrialisation".

It is potty.

[Mike Ainsley]

Tony - so you know, I'm following your advice and am going out this afternoon to shear a sheep. I'm then going to spin the wool and make my own jumper. When I've done that, I'm going to kill the sheep, hang it, gut it and cook it. I've got a gas fitter coming in tp fit a new boiler, but I've told him not to bother. I reckon I can do it as well as him, so I'm doing that myself.

After all, if I can do it myself, I should. I'm giving up a well-paid job in the City to do it, but screw that. It's more important that I, you know, do it myself.

[Andrew Lilico]

Unfortunately, Mike@18:02, wasting time you could be spending earning money in your City job is not the only loss you are likely to find from this arrangement. I fear you may find that your own boiler design is not quite so efficient as that of someone else...

(For anyone missing the irony, in trade, we gain twice over - by getting better stuff cheaper, as imports, and by freeing up our own time to concentrate on doing what we do well.

I have argued these matters out with Tony before, but there's so little to be said in favour of protectionism that it's barely worth bothering any more...)

[Andrew Lilico]

Mike@17:57

Back when I used to work at the IFS in the early 1990s, the line was precisely that raising thresholds *was* a superior way to help the poor to lowering rates. Dilnot, in particular, used to be very keen on this.

I don't agree with you that, psychologically and in terms of personal honour, there is no difference between being taxed £10 and given £10 of benefits and simply neither paying taxes nor receiving benefits. I prefer a society in which the government interferes with our liberty by no more than is required.