An insight into Westminster.

[davywavy]

Running your own business really makes you aware of just how iniquitous the tax regime in this country really is; the government sneaks it’s hand into your pocket using any pretence – except, of course, by using the word ‘tax’ directly. It can be bloody frustrating to hear the wide selection of politicians claiming just how much less you’re paying to HMG in real terms, when it’s bloody plain from even the briefest of perusals of your finances that nothing could be further from the truth. How this has come about was something of a mystery to me until it came to me in a flash of realisation; at some point in 1998-1999 Tony Blair must have realised that he couldn’t actually afford to pay for all the stuff he’d promised, and so he and Gordon Brown sat down and had a conversation which will have gone something like this:

TB: Gordon, I need more money. I was wondering if perhaps you could get the gnomes to dig a little harder? There’s lots to pay for; new quangos to create, a big tent to get put up, Peters friend Pablo needs a new flat, and Prescott’s Jaguars won’t drive themselves, you know.
GB: Gnomes, Tony?
TB: Yes, the gnomes. In the gold mine.
GB: Gold Mine?
TB: Why, yes. Where else would all this money you have in the exchequer come from? I always assumed that there was a big gold mine under Westminster and it was just being dug up. After all, there always seems to be lots of it!
GB: Och, Jings! Ye Bampot! There’s nae gold mine! It’s all taxes, Tony, taxes.
TB: Taxes?
GB: Aye, Taxes. Everyone in the country gives some of their money to the government.
TB: Do they, by God? I never thought of that. Does this mean I have to give all of them knighthoods and positions too?
GB: Och, no. Ye only have tae do that if they give voluntarily. Most people have tae pay tax or else we send ‘em to prison!
TB: Well, I have to say it seems very generous of them all the same. Certainly more generous than I’ve ever been, and I’m a pretty generous kind of guy.
GB: Aye.
TB: It doesn’t really seem very fair that we send them to prison if they don’t pay, don’t you think?
GB: Ye disnae understand. If ye add up aal the tax they pay, they have tae work seven months of the year to pay it aal! If we get it up tae twelve then that’s true socialism!
TB: So who decides how much of this ‘tax’ they give us?
GB: Why, Tony, ye and me. Ye and me.
TB: Why, there are simply lots and lots of people out there, so if each of them gives us just a little bit then we've get a great big amount of money?
GB (Smugly): Aye.
TB: So if each of them gave is a bit more, then it'd all add up to lot's more money! Gordon. I have a radical idea which I will call "raising" the "taxes." It's brilliant! It can't fail!
GB (Goes white as a sheet): Hoots! Ye Sassenach eejit! Ye caanae do that or else they’ll vote us oot!
TB: But I’ve got to have more money to give to the European Union? Where will it come from? There are only so many more army divisions I can disband you know.
GB: Aye, well, I’ve had a braw canny idea, if’n ye’re interested.
TB: Go on?
GB: Well, there’s this tax called ‘National Insurance’ that everyone thinks pays for health and pensions and so on – but it disnae. The bawbees we get from that just go into the exchequer, same as everything else. But the public dinnae know that, on the whole – we can raise that.
TB: Sounds good. Any other ideas?
GB: Crivvens, aye. We can lift tax relief on pensions. Naebody will notice how much this’ll impact on them for years – and by then we’ll be long retired to Mustique and wilnae have to worry about getting re-elected!
TB: But what about my pension? I can’t ask Cherie to pay for everything, you know.
GB: Dinnae fash. Oor pensions are index-linked so we wilnae feel the pinch.

And that’s the way it happened.

Comments

[davywavy.livejournal.com]

I did start out rather liking Brown - I'd been advocating the independence of the Bank of england for some years and when he did it I nodded shrewdly and muttered 'smart lad'. What worries me about his subsequent competance is that he drew up a long-term spending plan based on the economic growth figures derived during the biggest bubble market in recent history - and now, rather than adapt his plans to changed conditions, is doggedly sticking to his plans which requires a higher percentage tax take - and he's achieving that with what is essentially outright theft from pension funds, amongst other strategies such as banning tax avoidance as well as tax evasion (an iniquitous strategy to say the least).

[ex-boog351.livejournal.com]

Everyone said when he based those spending plans on high growth that he failed to take the fluctuation of the business cycle into account.

Of course, politically he was stuck between a rock and a hard place. Socialists have been demanding higher public spend for years and had been disappointed Labour hadn't fleeced the rich as soon as it came into power. On the other hand, Labour had been elected by re-establishing its credibility with the electorate as a moderate party that wouldn't go on a tax and spend rampage and would instead like Kinnock and Foot always threatened to do.

To give Labour credit - they have ended the boom and bust cycle (and we have overtaken most of Europe in GDP / capita) - but they are in danger of blowing that achievement if they don't re-impose hard fiscal rules. Under the current plans they will be OK as long as the world economy remains relatively buoyant - but a recession in the US or a really huge leap in oil prices could put pay to that.

Taxing pension funds is a pretty stupid move, but I don't see the problem with cracking down on tax avoidance - unless you mean they are being disingenuous.

[davywavy.livejournal.com]

The legal principal which tax avoidance worked around, until recently, was "There is no legal or moral requirement upon anybody to so arrange their finances to allow the tax inspector to take the biggest possible slice". This how now been changed.

I doubt they have changed the boom & bust cycle. Two points on interest rates and we'll see another bust as the credit boom comes to a screeching halt and a lot of people will suffer on the back of that.

[ex-boog351.livejournal.com]

Its possibly true that the debt bubble will pop and the subsequent house price crash (I hope thats what will happen, anway) could see us slip into a recession. However, this is not the same as earlier boom and bust cycles. There, low prices and government intervention built up inflationary pressures so that high growth meant that instead of investment in new resources and production techniques - existing resources were over-utilised and so inflation had to be controlled by hiking interest rates. This time things are slightly different, low inflation has led to greater investment and helped us overtake the French economy. The concern is that consumer spending has expanded on the back of a growth in debt. Part of this may be a sustainable increase due to greater certainty and stability in the business cycle. A debt-driven recession wouldn't necessarily mean a return to boom and bust through the business cycle as long as the government maintained its discretionary monetary policy. Real interest rates are actually still lower than they were during boom and bust, and economic growth is hardly galloping out of control.

Actually, what is needed are some constraints on the consumer credit market