The TaxPayers' Alliance publishes four popular spending cuts

By Tim Montgomerie
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As George Osborne struggles to bring Britain's budget deficit under control the TaxPayers' Alliance have identified four extra savings that the public would support:

Matthew Sinclair, Director of the TaxPayers' Alliance, said:

"The public support alternatives that would blunt the need for some particularly painful measures and make room for lower taxes. There is strong support for cutting expensive projects like high speed rail, which they don’t see as the right use of their cash. And they would happily freeze international development, a change they rightly think is compatible with still helping the world’s poorest.”

He also said that it was vital to cut public subsidy of the trade union movement at a time when they are planning massive disruption.

“There is no way taxpayers' money should be supporting thousands of trade union activists who are planning strikes and fighting very necessary cuts to public spending. The unions' actions will disrupt the services they claim to want to protect and make it harder to get government borrowing under control. If someone is working for a union, they should be paid by them.”

More information about at the TPA poll here.

Nick Clegg recommends the Centre for Policy Studies plan for bank re-privatisation

By Matthew Barrett
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As the BBC reports today, the Deputy Prime Minister, Nick Clegg, has written to George Osborne to ask him to consider the plan for re-privatising the public holding of shares in Lloyds and RBS by distributing shares to all British taxpayers - a policy created by the Centre for Policy Studies in their report "Give Us Our Fair Shares". 

The advantage of the plan is that long-term public ownership of the banks is undesirable, and by distributing shares to taxpayers, the Treasury would receive full value from their shares that would not otherwise be realised if shares were sold in a conventional privatisation. The plan would give all taxpayers a windfall estimated at between £500 and £1000 each. 

When individuals sell their shares or some of their shares, a fixed amount (the "floor price”) will be payable to HM Treasury. The floor would be deducted upon sale. The report explains the floor price:

"For illustrative purposes only, let us assume that the price of the share is 1000p on the day of distribution with the floor set at 850p. When an investor sells, Treasury receives the first 850p and also CGT on the difference between the floor and the sale price. The investor receives the balance. In our example, if the investor were to sell immediately at 1000p she would receive 123p with Treasury receiving 877p. However if the investor waited and sold at 1500p his return would rise to 533p per share, with Treasury receiving 967p."

Continue reading "Nick Clegg recommends the Centre for Policy Studies plan for bank re-privatisation" »

Civitas offers Government a growth manifesto

Matthew Barrett

Civitas recently set out some recommendations for George Osborne to boost economic growth:

• Reduce company taxation
• Eliminate unnecessary workplace regulations
• Reduce the cost of energy
• Cut personal taxes to make it easy to start new businesses
• Focus on manufacturing for export-led growth
• Intelligent procurement - give more government tenders to SMEs
• Reduce imports, to lessen the the import-export deficit
• Bank reform
• Focus on the manufacturing sector as a whole, not just research and development
• Apply a public interest test to all foreign direct investment
• Be more selective in giving government assistance to companies, based on clear tests

To read the whole report, click here. 

What is fairness? What is poverty? Policy Exchange asks the voters...

By Tim Montgomerie

Over at ToryDiary I look at the PX Poll's implications for the Conservative Party but pasted below are some key findings:

MOST IMPORTANT VALUES IN A POLITICAL PARTY

• Economic responsibility: 59%
• Fairness: 50%
• Family values: 32%
• Traditional values: 29%
• Equality: 21%
• Liberty: 20%
• Patriotism: 17%
• Environmentalism: 11%

FAIRNESS IS ABOUT GETTING WHAT YOU DESERVE, NOT EQUALITY

• 63% of people say that “fairness is about getting what you deserve”, while just 26% say that “fairness is about equality”.
• By a margin of 73%-18% people agree that society can be fair even if it is unequal – as long as there is equality of opportunity.

WHAT WILL DO MOST TO TACKLE POVERTY?

• Reducing unemployment: 45%
• Cutting tax on low earners: 45%
• Reducing the cost of living: 38%
• Improve state education: 29%
• Increase minimum wage: 29%
• Reduce crime in poor areas: 23%
• Increase state pensions: 18%
• Reducing tuition fees: 11%
• Banning private education: 4%
• Increasing welfare benefits: 3%

WHY ARE PEOPLE POOR?

• By 48% to 24% people say that people end up poor because of forces outside their control – not their own poor decisions;
• BUT by 71%-16% they agree with the statement that “Some people who are poor are much more deserving than other people who are poor"

SUPPORT FOR SPECIFIC POLICY MEASURES

• By 80% to 13% there is agreement that “people who have been out of work for 12 months or more, who are physically and mentally capable of undertaking a job, should be required to do community work in return for their state benefits.”
• 49% of respondents back the idea that claimants who break their jobseekers agreement should lose half or more of their benefits.  21% backed the idea that they should lose all their benefits “regardless of the hardship it would cause”.
• By 50% to 16% people think benefits are too high rather than too low.
• By a margin of 55% to 36% people disagree with the idea that “People with children should be given higher benefits to compensate for the costs of bringing them up."
• “The government should try to encourage marriage through the benefits system” is narrowly rejected (45% to 40%) but there is support (59% over 31%) for idea that “The government should try to discourage people from becoming lone parents”.

___

See the full results here.

Britain has most anti-family tax system in Europe

Tim Montgomerie

The Daily Mail quotes research from the Christian charity Care this morning, noting that Britain's tax system is harder on single earner families than any other major developed country.

The numbered list below records the tax burden on a one earner married couple with two children as a percentage of the burden on a single person with no children - both earning £33,745.

1. UK 73%
2. Holland 71%
3. Sweden 71%
4. Japan 69%
5. France 62%
6. Spain 61%
7. Austria 55%
8. EU average 53%
9. Italy 52%
10. OECD average 52%
11. Germany 50%
12. Belgium 49%
13. Australia 39%
14. Portugal 39%
15. Canada 39%
16. USA 23%
17. Iceland 13%

The latest Care report does not appear to be online (but previous reports have been posted here) but this is what the authors of the 2009 edition, Don Draper and Leonard Beighton, wrote:

"After taking allowances and benefits into account, the share of income absorbed by taxes has doubled for the average wage-earner with a non-working spouse and children to support. Meanwhile, the tax rate on a single person with the same earnings, but with no family responsibilities, has increased by less than one tenth. The latest OECD figures show that one-earner married couples with children now pay about a third more tax that they would in most other OECD countries. It is difficult to see any argument for penalising this type of family...

Kenneth Clarke, when he was Chancellor of the Exchequer, famously called the married couples tax allowance ʻsomething of an anomalyʼ. Those who question the wisdom or fairness of what has happened are dismissed as reactionaries seeking to turn the clock back to a mythical golden age. To accept their proposals, it is claimed, would put Britain out on a limb and cut off from the common practice of other economically developed countries. Nothing could be further from the truth. As the authors of this paper show, it is modern Britain that is now the exception. The vast majority of developed countries have tax systems that acknowledge family responsibilities towards children and also dependent adults. Many of them also have special tax arrangements for married couples. In some cases, these arrangements are also available for same-sex or mixed-sex couples living in registered partnerships."

Families £4,250 worse off this year as inflation becomes bigger issue than cuts

Tim Montgomerie

According to a report from the Resolution Foundation, and covered in the News of the World (£) Britain is facing a decade of squeezed incomes:

"Struggling families face a decade of despair from rising prices and wage freezes, a report warned last night. Working couples with children will be up to £4,250 worse off this year - thanks to a triple whammy of paltry wage rises, rocketing inflation and cuts in services. They stand to lose £2,750 in public services. The low wage rises, inflation, higher taxes and benefit cuts all add up to leave their pockets another £1,500 lighter."

Allister Heath at City AM warned on Friday that inflation is, indeed, the much greater danger to incomes:

"Politicians and the media are obsessed with spending cuts, even though these will be worth only one per cent of total state spending in real terms in 2011-12. Yet the impact of inflation on incomes will be three times larger – and everybody is being hit. The coalition would be well-advised to remember the 2000 fuel protests: they almost destroyed Tony Blair, something that not even Iraq could manage... Post-tax, post-inflation, post petrol take-home pay is dropping at an accelerating rate; the tax and price index, an official measure of the cost of living, was up 5.5 per cent in the year to the end of January. Given that average earnings were up just 2.1 per cent, Britain faced a national pay cut of 3.4 per cent over the past year."

Labour are alive to these issues and in an interview for The Sunday Times (£), Ed Balls calls for the end of the VAT rise on fuel. George Osborne has more tax revenue than he expected and is likely to use next month's Budget to bring some relief to motorists. Sadly, however, the surge in oil prices might mean that it goes unnoticed.

IoD proposes pro-growth measures that won't cost George Osborne a penny

Tim Montgomerie

The Institute of Directors has this morning published an important report on how growth can be boosted without costing the Exchequer a penny. Measures include:

• Earmarking proceeds from sale of state-owned banks for key infrastructure projects including transport and energy projects that are unlikely to proceed on the basis of private capital alone (more at the WSJ);
• A new £500 employee deposit in employment tribunals to deter vexatious claims (Boris Johnson examines the industrial tribunal system today);
• Creation of a genuine fast-track planning system for key national projects to boost the construction sector and replace ageing infrastructure;
• End national collective bargaining in the NHS and Education sector to drive up productivity;
• Boost confidence by making an explicit commitment to reduce ratio of public spending to 35% of GDP by 2020.

Miles Templeman, Director-General of the IoD, commented:

“The Government wants to maximise the opportunities for economic growth but it has little or no money with which to do it. Today we have identified two dozen growth boosting measures that will cost taxpayers little or nothing. By adopting these measures, the Government’s growth strategy would be enhanced immediately. We urge ministers to seize this opportunity. The Government’s deficit reduction strategy is central to improving growth prospects and the overall business environment, but the Government also needs to reform the supply-side of the economy to boost the private sector. Many of the measures we have proposed today are long overdue and would improve the UK’s infrastructure and the functioning of its labour market.”

Download PDF of IoD Freebies Report.

PS Via Google the following headlines can be found describing the IoD report:

1. Institute of Directors lays out growth blueprint to Treasury
2. IoD urges employment and planning shake-up
3. UK IoD: Profits On Bank Stakes Should Be Spent On Transport,Energy
4. 'Axe' public sector union rights
5. IoD: reform employment laws to help companies
6. IoD: cut taxes and red tape
7. Institute of Directors put forward growth plan.

Guess which one came from the BBC? Yep, the most negative one. Headline number four. The BBC continues to struggle to understand enterprise.

> The IoD's Graeme Leach is one of the participants in next week's ConservativeIntelligence Going for Growth Conference. Other speakers include David Gauke MP, Iain Martin (WSJE), Mark Littlewood (IEA), John Redwood MP, David Willetts MP and Nadhim Zahawi MP.

Free market think tanks unite against increase in VAT

Tim Montgomerie

Four of London's leading think tanks have all attacked today's increase in VAT to 20%; an increase that George Osborne intends to be a permanent rather than emergency fixture.

Leading the charge has been Matthew Sinclair of the TaxPapers' Alliance. Speaking to the BBC earlier he pointed out that David Cameron had broken a promise not to raise VAT. The Lib Dems even ran a poster campaign against higher VAT (remember this?).  Matt Sinclair said taxes were high enough in Britain and more should have been done to cut spending.

Philip Booth of the Institute of Economic Affairs sets out the alternatives to higher VAT in a powerful piece on Coffee House:

"The NHS has been ring-fenced, even though it has experienced huge budget increases and has a shocking productivity record. Pricey gimmicks given to pensioners such as the Winter Fuel Allowance, free television licences and free bus travel remain in place, whilst the government has promised to increase state pensions in line with the higher of inflation, earnings or 2.5% - the “triple lock”, as the government calls it. This last profligacy is wholly unnecessary at a time when much of the working population is experiencing real wage reductions. A 2.5% trim of the NHS budget, not increasing the aid budget, the abolition of the pensioners’ gimmicks and not implementing the triple lock would enable the government to cancel the VAT increase with considerable room to spare."

Dalibor Rohac, a research fellow at the Legatum Institute, disputed the idea that a VAT rise was less economically harmful than other alternatives:

“There can be no question about the fact that the British economy would benefit from further downsizing of the public sector, but one can understand how difficult it is implement sizeable spending cuts, especially in the short run. This being said, the Chancellor is mistaken if he believes that a rise in the VAT will have a smaller impact on the economy than a rise in the income tax. For all practical purposes, the VAT and the income tax have the same economic effects and lead to equivalent economic distortions. Even if we were to accept that tax increases were needed, there are alternatives to a VAT hike, which would have a much smaller impact on incentives to work and do business.”

Tom Clougherty of the Adam Smith Institute (which recently calculated that Tax Freedom Day will be three days later this year) argued that the Coalition should be CUTTING tax to stimulate growth and revenues:

“Rather than increasing taxes, government should be looking at making targeted tax cuts to encourage economic growth. Raising the VAT might be the “least worst” option, but it still risks putting a dampner on our economic recovery.”

I have argued against the VAT rise but now regard it as a battle lost and surrender.

Heseltine defends City as think tanks warn that new banking regulations could cause next crisis

Tim Montgomerie

In today's Times (£) Lord Heseltine comes to the timely defence of the City:

“My view is a very clear one, the City of London is a vital part of the national economy. It is a world-class industry and brings huge wealth to this country. The politics [of the City] are very difficult, so skilled political judgment is needed to make sure you don’t throw the baby out with the bathwater, and there are at the fringes difficult things to defend. But the underlying health of the City and the financial world are of enormous significance to us.”

Tarzan's intervention will reinforce George Osborne's efforts to prevent Vince Cable from imposing even heavier taxes and regulations on London's banks.  Mr Cable - now known by Tory MPs as the Anti-Business Secretary - may have lost his battle against Rupert Murdoch but he is determined to pursue his attacks on the City. Cable has compared bankers to “spivs and speculators” and his tough stance enjoys widespread public support. He is also being egged on by powerful newspapers, including the Daily Mail.

Up until now there have been few defenders of the City's importance to the UK economy. Mark Field MP has been an honourable exception. Lord Heseltine's intervention coincides with the publication of a new report from The TaxPayers' Alliance and the Legatum Institute. In a joint piece for today's Wall Street Journal Europe (£) Matt Sinclair (TPA) and Dalibor Rohac (Legatum) warn that the post-crisis approach to regulating the banks could precipitate the next crisis. Their main concern is globally harmonised regulations:

"International rules are supposedly necessary to stop financial contagion and a regulatory "race to the bottom." But harmonized regulatory regimes behave like farming monocultures: both are very vulnerable to disease. International rules will encourage firms to hold similar assets, take a similar attitude to risk and respond similarly during a crisis. The result will be more severe and more frequent international crises."

In their joint paper (available here) Rohac and Sinclair also worry that there isn't a big enough counter-cyclical element to the new banking rules. They also warn that "some measures proposed, like attacks on tax havens and hedge funds, are motivated by other agendas and do not actually address the problems that led to the financial crisis."

Next year, you'll stop working for the state on 30th May

Tim Montgomerie

Tax Freedom Day is the day we stop working for the government and start working for ourselves.

The Adam Smith Institute has calculated that Tax Freedom Day 2011 will fall on 30th May, three days later than this year. The increase in VAT to 20% is the main explanation for these extra days.

Tom Clougherty, Executive Director of the ASI, commented:

"Britons are still desperately overtaxed. The fact that we spend almost five months working for the State – and only seven months working for ourselves and our families – is a shocking indictment of big, wasteful government.”

The table below, from the ASI, summarises the last ten years:

> Last year's ASI page on Tax Freedom Day.