If Britain Were Greece

Each Sunday, I open my Sunday papers and rush straight to page 4 of The Sunday Times Business section. David Smith never fails to provide a clear, factual analysis of the most pressing economic issue of the moment. He has a great blog too.

He was asked by Broadcasting House on BBC Radio 4 to compare the UK and Greece and explain what the difference is right now in economic terms. A piece of fascinating brilliance from my favourite economic journalist:

http://www.bbc.co.uk/news/magazine-17202274

Council Homes for Life

In advance of the Budget, fascinating pieces of information are dribbling out through Government leaks - presumably placed leaks - concerning rich Council house tenants, see here and here.

Apparently, 25% of Council tenants (720,000 of them) earn more than the national average wage - £26k. Even more amazingly, there are 15,000 Council tenants that earn over £80,000 and 6000 of those earn over £100,000. Apparently, Labour MPs, union leaders, academics, senior public sector and NHS staff etc are on the list. At the same time, 1.8 million people are on Council waiting lists.

Un-fucking-believable.

You and I are paying for people in the top 10% of earners to live in taxpayer-subsidised housing. Franks Dobson’s comment shows this dislocation from reality:

“Market rents in our area are phenomenal. I wouldn’t be able to afford it.”

And I cannot afford to live there either, Frank, so guess what? I don’t live there and I don’t expect people earning £20k to pay for me to live there either. Join the reality based community, Frank.

Lords Reform

Lords reform is back on the agenda. It was in the Coalition Agreement and Cleggy banged out his proposals last year which are now coming up for discussion. After their abject failure to win the referendum on voting system change, this issue is the next one the Lib Dems are hanging onto desperately hoping they can say they have actually changed something by the General Election in 2015.

Of course, this has been an issue for ever and a day. Since the Parliament Act 1911, the Byrce Commission in 1917, the next Parliament Act in 1949, through to the establishment of the Salisbury Convention in the 1940s, the arrival of life peers in the Life Peerages Act 1958 to the Peerages Act in 1963. In recent times, Tony B-liar established a Royal Commission in 1999 which led to a Joint Committee in 2000 and then a White Paper in 2001 followed by a further consultation in 2003 and then another White Paper in 2008. All of which went nowhere.

And it is topical again now: see here, here and here.

The problem with Lords reform, as demonstrated by all the previous failed attempts at coming to a generally agreeable solution, is that people always start looking at the issue from the wrong end of the question. They start by fretting about ‘who should sit in it’. Wrong question. The start point should be ‘what do we want it to do’. Seems to me, this is simple:

First, we want it to be Bagehot’s ‘revising chamber’ - ie we need it to be packed full of people who ‘know’ stuff (experts) rather than people who ‘believe’ stuff (politicians).

And, second, to forestall any future constitutional problems, we want it to be very clearly the junior chamber to the Commons - ie we don’t want the intransigent battles for future supremacy between the Lords and the Commons as has happened in the past (which is what you get if you stuff it full of egotistical politicians).

Both these two statements very much seem to mitigate against having it elected, with all the attendant cost, fuss and nonsense. Of course, this is anathema to all our elected politicians who continually promote the idea that only ‘pure’ people like them should be involved in politics. Utter bollocks of course. As we continually have seen, elected politicians have severe drawbacks, principally that they often know fuck all other than how to work their party’s system to get them selected to a winnable seat, a skill that is totally useless in a revising chamber.

So my suggestions would be:

1. 300 members.

2. 100% appointed, annually topped up to keep it at that number (transitional arrangements would of course be needed initially and for the first few years).

3. Hold rights to your seat for 10 years and then automatic resignation.

4. All members get life peerages on appointment.

5. A balance should be maintained between differing professional backgrounds – we want doctors, lawyers, teachers, union leaders, architects, town planners, social workers you name it, but as few professional politicians as possible, ie normal people not political party hacks and retired Commons 'seat blockers' put out to grass (it's a legislative chamber, not a retirment home for old politicians).

6. Give them an MP’s salary but you only get it if you actually attend, reviewed quarterly, and if you don’t attend enough for two quarters, you lose your seat.

7. Keep the principle of crossbenchers.

8. Clear out all the clergy but the leader of each established religion gets a seat whilst they hold that office.

Job done.

Top Tax Rates

In the last 50 years, which politician actually wins the title of ‘The Greatest Redistributionist’, ie who achieved the greatest increase in the amount the rich pay? Tory B-liar? Gordy? Mrs T? Nope. Nigel Lawson. ‘Really?’ I hear you say. Yup. Why so?

Well it was he who in 1988 reduced the top rate of income tax. Back then, the top 1% only paid about 14% of all income taxes. And once he began to ratchet down income tax, the money flowed into the Treasury at speed. From my post last Sunday, you will recall that this has now steadily climbed so the top 1% now pay over 25% of all income taxes.

And this is always a fact studiously ignored by the left. Lower taxes, and tax collection soars. It’s obvious. If there is no need to avoid or even worse evade tax, you just pay it. If you want to squeeze more tax from the rich, cut their tax rates. As JFK once said: "It's the soundest way to raise the revenues in the long run".

So with that lesson, where do we stand right now in the top income tax league table:

Sweden - 56.6%
Belgium - 53.7%
Denmark - 52.2%
Netherlands - 52.0%
Japan - 50.0%
United Kingdom - 50.0%
Austria - 50.0%
Finland - 49.0%
Germany - 47.5%
Ireland - 47.0%
Australia - 46.5%
Canada - 46.4%
Iceland - 46.1%
Portugal - 45.9%
France - 45.8%
Israel - 45.0%
Greece - 45.0%
Italy - 44.9%
Spain - 43.0%
United States - 41.9%
Switzerland - 41.7%
Slovenia - 41.0%
Chile - 40.0%
Norway - 40.0%
Luxembourg - 38.9%
Korea - 38.5%
Turkey - 35.7%
New Zealand - 35.5%
Poland - 32.0%
Hungary - 32.0%
Mexico - 30.0%
Estonia - 21.0%
Slovak Republic - 19.0%
Czech Republic - 15.0%

Hmmmm. We're not doing too well are we? Particularly as the soon to be announced HMRC and IFS research into the 50p rate concludes that it doesn't really raise anything significant and may actually reduce HMRC's income!

Which brings us nicely to flat taxes. The first time I really thought about flat taxes was when Steve Forbes ran as a Republican candidate in the 1996 and 2000 US Presidential races. He was a flat tax fan. But the Left hate flat taxes as they don’t satiate their class war desires to soak the rich and, as Forbes was and is very very rich, his campaign was a ‘red rag to a bull’.

But of course, since then lots of countries have adopted flat taxes: Albania, BIH, Bulgaria, Czech Republic, Estonia, Faroe Islands, Georgia, Guernsey, Hong Kong, Hungary, Iceland, Iraq, Jamaica, Jersey, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Macedonia, Mauritius, Mongolia, Montenegro, Romania, Russia, Serbia, Slovakia, Trinidad and Tobago and Ukraine.

Now, notice something about this list? Yup, they are all countries which had struggled to collect taxes as the rich had avoided, evaded or just buggered off. They had to adopt flat taxes to entice them to stay and pay.

Now what happened to their tax income? It soared. Obviously. Lesson there for Lefties and Greeks, no?

The P Word

Why are the words profit and healthcare so repugnant for Lefties?

Or profit and education?

Seems bizarre. The most profitable healthcare organisations - private hospitals - are the places that the vast majority of the British population would like to visit if they were ill. And the most profitable education establishments - private schools - are the education establishments that deliver the best education outcomes.

Those of us in the reality based community will never get our head around the Left’s visceral dislike of capitalism. That’s the problem with Lefty ideology. Gets in the way of the facts.

Workfare or Slavery?

The multimillionaire, three home owning - London, country, Tuscany, obviously - private school user Polly Tithead always talks shit. She is one of the most egregious examples of waffly, factually wrong, muddleheaded, hypocritical Lefty bullshitters. She always manages to come to a wrong but ideological conclusion. I am constantly bewildered that anyone takes her seriously. Her recent diatribe on Workfare is a wonderful example. Read it first.

Crikey. Where to begin? Putting aside the incredible hypocrisy that she loathes lobbyists but Lefty protesters are to be admired - surely they are lobbyists too, but no, ‘her’ lobbyists are I suppose good lobbyists, so that’s OK then - she makes three points that are just ludicrously wrong:

“Workfare is Government sponsored slavery for rich companies”.

Putting aside (a) the ridiculous hyperbole, (b) the factual inaccuracy and (c) the insult to the memory and hardship of real slaves - beaten, raped, tortured, butchered and killed in their millions - what we are actually talking about is people on benefits volunteering to do work experience in top end companies whilst they are trying to get back into the workplace, where the results abroad and in the UK pilots have delivered a more than 50% success rate. Note I wrote ‘volunteered’. Yup. Not forced. They volunteer.

She is wrong on sooooo many levels. Her beloved party’s ideology has increased underlying unemployment through overly expanded employment rights (see yesterday’s post), trapped people in unemployment through over indulgent benefits where they earn more on benefits than working, absolutely fucked over the economy and spent gazillions on work programmes that manifestly failed on almost every measure. This policy works. She suffers from NIH (Not Invented Here) syndrome.

“…absurdly calling objectors "job snobs.”

Well Polly, my darling, job snobbery (ie I’m not prepared to do that job, it’s beneath me) is what comes of:

a. promising 50% of the population degrees, and

b. having to expand and dumb down universities to cope with the increased numbers, thus

c. needing to invent nonsense degrees for those who aren’t really up to it, and

d. giving people job aspirations that the employment market cannot possibly satisfy as it simply can never generate enough graduate jobs for them, whilst

e. almost dispensing with immigration controls allowing in huge numbers of immigrants who then take all the lower end jobs,

which leaves a generation of workers caught out in employment no-man’s-land.

“...Stephen Hester can probably blame them (Occupy) for the loss of his bonus.”

Er, no, Polly. Banker bashing has been a blood sport since Northern Rock (Feb 2008) and Lehman (Sep 2008). And you have been at it regularly since then. Occupy (since Oct 2011) has achieved nothing. Other than fouling various public places across the UK.

And she ends: “…all praise to UK Uncut and Occupy”.

She is either unkowingly wrong, so an idiot, or purposefully spreading lies and untruths for political advantage, just like the Socialist Workers Party who are running the campaign against Workfare, frightening good businesses from taking part - who needs the crap - and helping the unemployed back into the labour market.

What an utter fuckwit. Again, how can anyone take her seriously? Try this or this instead.

Why the US Economy Grows Faster Than Ours?

Ah, those ‘green shoots’. Early indications are that, putting aside Eurozone meltdown which has been delayed not slayed by the latest bailout of Greece, things are perhaps beginning to turn around for Boy George. Forecasters are being more positive, inflation is coming down as promised and the FTSE has been on an upward trend. We’re not out of the woods by any stretch. There will be more ups and downs for sure. But the strategic trend is that one by one, key long term indicators are looking decidedly better.

Mr Yvette Cooper will of course doom and gloom away because he has to. That’s what Oppositions do. But despite these long term indicators looking better, growth is still anaemic and may well technically show us in recession shortly. God, that ‘growth’ thing is hard to come by! Meanwhile, with way more debt - the next big problem for the global economy after the Presidential election is over - the good old US of A is doing growth much better than us and always seems to. Why so?

Now, before all you Lefties out there say it’s because Obama’s stimulus is working better than Boy George’s ‘too far, too fast’ austerity - which isn’t true by the way - let’s look at why the US always does growth better than us.

First, let’s get the easy answer to the question out of the way. The US economy is big. Almost as big as the 27 countries that make up the EU. So who would bet against that enormous engine of an economy; once it's motoring, it powers along. Check.

Then we get to the second answer, which is tricky because no UK government can do anything about it. The USA has a very 'can do' business culture. Now that's a very glib statement but having recently worked for an American company for six years I can vouch for the fact that Americans have the absolute opposite attitude to us on all matters business. We see all the problems, take refuge in lawyers ironing out all the wrinkles before we do anything and then behave cautiously thereafter. Call it British ‘reserve’. Americans only see opportunity, don’t worry about the downside and charge at every deal foregoing heavy lawyering safe in the knowledge that they’ll sue each other to death if the downside arrives. Call it ‘pioneering spirit’. Now that’s just a cultural difference. Bugger all anyone can do about it.

But number three on the list is something our Government can tackle with the right political resolve: the dead hand of employment law. (Calm down, Lefties, calm down). You see, for Lefties, suggesting that we reduce employment rights is the most heinous right wing Tory sin second only to saying we should reorganise the NHS.

But here’s the rub: higher unemployment and slower private sector growth is the price for all those employment rights we have. Here’s why…

When I worked for my Americans, I was always mesmerised by how keen they were to recruit more staff. Before the income was in place, they were off recruiting more staff. Conversely, when the shit looked like it was going to hit the fan, they just ‘let people go’. And US staff were much more sanguine about being ‘let go’. Running the European operation, I always resisted my part of their empire taking on staff until we were drowning in income and then held off redundancies until we really had no alternative when the income went down.

As the only European and non-American at the top of the company, it took a while for me to spot this and for the penny to drop.

You see all US staff are employed ‘at will’. And I mean all staff, from the CEO downwards. They have virtually no employment rights. No notice periods. No verbal warnings. No written warnings. No industrial tribunals. No such thing as redundancy. (The redundancy word does not exist in American English in the way we use it. In fact, my Americans used to laugh and joke about redundancy - ‘Melvin, what’s that thing you guys have over there called? Ha, ha, ha!’ And if I wanted to give a room full of Americans hysterics, I would then explain ‘gardening leave’).

So US companies can hire and fire with ease. And do. Which means that when businesses grow, they grow fast and load up on staff. Good for growth. By contrast, we Brits are really cautious, putting off the cost of hiring and employing new staff with all the attendant long term cost of getting rid of them until we really, really have to.

So Lefties, don’t compare US fast growth with UK and wider European slow growth, and realise that all your much treasured employment rights have a cost. More power to Steve Hilton and his agenda for starting to attack this.

The Left's Tax Problem They Dare Not Mention

I have a friend. He was a non-dom. When NuLab started taxing non-doms, he simply moved abroard. He now lives in Italy and is enjoying the sun. That policy worked well then.

I have another friend who’s a Top 1% type. When the 50% tax rate came in, he believed that it was unreasonable for him to be forced to hand over so much of his very hard-earned income (a marginal rate of 61%, ie he got to keep only 39%) so he re-structured. And now he’s only paying 32.5% tax. So, in fact, less than the 40% he was paying before NuLab’s 50% tax rate was introduced. Yup, that policy’s really helping things.

And therein lies the problem with taxing the rich. They either just fuck off abroad or they restructure themselves so they pay less, whatever the rules. That is just reality and nothing’s going to change it, a fact that our Lefty social engineers in Parliament can never seem to get their heads around.

So what is the Left’s tax problem then?

The problem is not that the rich are paying too little. As demonstrated in my post on Sunday, they are paying considerably more than perhaps they really ought to.

Nor is the problem that the rich are evading tax. HMRC are onto that 24/7.

No, the real problem is that there is a huge, national tax evasion operation in progress. And who is carrying out this enormous scam on honest law abiding taxpayers?

Those who work in cash.

A massive number of people at the lower end of the tax pile ‘do it for cash’. Taxi drivers, hairdressers, cleaners, plumbers, electricians, decorators, garage mechanics, builders - you name it. They all ‘do it for cash’. And many of us merrily help them. As we saw from HMRC’s data in my Sunday post, there’s many, many millions of these people and thus a large chunk of HMRC’s potential revenue never actually makes it into the tax system in the first place.

Now I’m not suggesting that we, as a nation, are evading tax on anything like the scale that Greece or other tax basket cases do. But millions of Brits are at it. And the amount they don’t declare utterly dwarfs the amount not making it to HMRC by that very small number of rich people who are legally minimising their tax bill or illegally evading it. Those HMRC stats just put things into perspective.

Now you never hear the Left moaning on about that, do you? Nope. All they want to talk about is how the rich need to pay more tax.

I say again: the main problem I have with the Left is that so much of its rhetoric is anchored in populist, mythical ideology rather than cold, hard and rather inconvenient facts.

The Eurozone Veneer

Sometimes, someone writes something that is so spot on it simply cannot be bettered and it is pointless trying. This from Sky News today:

"Greek finance minister Evangelos Venizelos was right in his claim that Eurozone ministers would finally agree a second bailout for the country - but the deal still leaves questions unanswered.

The crunch summit could prevent the country from missing a 14.5bn euro (£12bn) coupon repayment this time next month, in turn avoiding a messy un-negotiated default. The deal should plot a path for Greece to bring its national debt back down towards 120% of gross domestic product. What is not at all obvious is that this does anything to remove the uncertainty hanging over the Greek economy. Yes, it will essentially be saved from having to raise cash in the private capital markets, for the time being. But what will be left of the Greek economy, or indeed society? And what lessons does this provide about the euro project? The omens are not promising.

Here are six questions - or problems - that will not be answered by the deal.

1: First, and perhaps most worryingly, the Greek economic collapse has now reached almost unprecedented proportions. The country's economy shrank by 7% last year. Before the crisis, the country's annual economic output was about the same as Switzerland's. By the end, it will be barely bigger than the Czech Republic's. In all, economists expect it to shrink by as much as 25-30%. That would be the biggest single recession ever - by far worse than the US experience in the Great Depression, worse even than the collapse of the Argentinian economy during its own default crisis. An economy cannot collapse by this much without causing direct erosion of families' incomes, particularly given the particular variety of contraction opted for by the euro ministers is austerity. So do not be surprised if those riots we are seeing so regularly in Athens continue. The real worry, of course, is not just riots, but the prospect that the Greek people eventually lurch towards a more extremist government, or the military take matters into their own hands. That, after all, is precisely how many economies reacted to austerity in the 1930s, as this recent paper from Barry Eichengreen shows.

2: The deal will not necessarily reduce Greece's overall debt to a sustainable level. The target is to cut total debt - as a percentage of national income - to 120%. But there is plenty of evidence that this level is simply too high for an economy with the growth problems Greece is exhibiting. Moreover, that 120% seems to be more of an aspiration than anything else, relying on hopelessly optimistic growth and budget projections for the coming decades.

3: Even if this deal is successful in averting a messy default, it will not necessarily prevent a so-called 'credit event'. Private sector bondholders will take a 'haircut' on their holdings of Greek debt, which will be viewed as a default by credit ratings agencies. It will very possibly be viewed as a 'credit event' which triggers credit default swaps - the kind of opaque financial instruments which caused such fear after Lehman Brothers collapsed in 2008. Now, we are told investors are prepared for this contingency given how much time they have had to dwell on it, but it would be foolhardy to expect the entire process to go smoothly.

4: Greece is still deep in debt. It is just that much of the debt which was previously owed to the private sector is now owed to other euro governments (and the ECB). Gavyn Davies runs through the numbers here. Mr Venizelos will not have any closure until the country reduces that debt-load. That is not going to happen through growth, it is not going to happen through devaluation (unless Greece leaves the euro), so it will have at some point to happen through default - either another, more convincing default or high inflation across the euro area. The latter is unpalatable for the Bundesbank-influenced ECB. But, in the end someone will have to take the hit. It is still unclear who that will be, except that the structure of the current deal imposes all the pain on the Greek people.

5: The euro project is clearly failing. It was supposed to encourage its member states to become more closely aligned economically. As it stands, their competitiveness has diverged. As long as this endures, Greece and its Mediterranean neighbours will have to keep receiving subsidies from the richer euro members. Greece may have been an outlier in that regard, but many of its traits are shared by Portugal, Italy and Spain. Now the Greek crisis is temporarily papered over, expect investors' attention to swing back to them.

6: The ECB has bought the Eurozone nations some time by flooding the continent's banking system with cash through its Long Term Repo Operations (LTRO). It is likely to pump an extra slug of money to add to its half-a-trillion euro total at the end of this month. However, this cash will not last forever (the loans have a term of three years), and does not represent a permanent firewall for the single currency. At some point, investors will lose patience and realise such measures fall far short of a meaningful solution for either Greece or the currency area's woes."

Growth Taxes

March’s budget is important. All budgets are important but this one is more important than usual. Why so?

Well in truth, this is the last budget that will deliver any tangible and demonstrable change during the lifetime of this Coalition with a General Election now fixed for May 2015. And, moreover, with UK plc stuck in economic neutral, this next budget desperately needs to stimulate some growth.

Question - So what can a Government do to stimulate growth?

Answer - Tax cuts.

Thus the debate around tax cuts is going to get louder and louder week by week. But within the Coalition’s economic plan to pay down our huge national deficit ASAP, is there any room for tax cuts? My guess is that there is. What Chancellor does not plan to leave himself room for some popular tax cuts in the run up to a General Election? So with no growth, maybe Boy George will have to deploy that little bit of slack he has up his sleeve earlier than he had planned. But, which taxes create growth?

The Lib Dems have nailed their colours to the mast: reduced personal tax allowances. They want to take anyone earning less than £10k out of the tax system funded by…you guessed it…taxing the rich more, mainly via their loony mansion tax. In the long term, this is a laudable aim - I suggested something similar way before the 2010 General Election - and of course in the short term, very populist. And it seems ‘fair’, which is the new lexicon. But, and here’s the problem, it will not stimulate growth. Because those for whom this makes the most difference - those on fixed low incomes, typically the economically challenged and the old - haven’t got much to spend.

Mr Yvette Cooper, desperate to suggest something populist to raise their sinking ship, has Labour calling for several possible different cuts: VAT down to 15%, or income tax down by 3%, all on a temporary basis, or the Lib Dem personal allowance option again. All unfunded. Just borrow more. To hell with it. Fuck the consequences. Think we’ve all experienced Mr Balls’ economic prowess before haven’t we? But, again, there’s a teency weency problem. None of them deliver growth, because the cautious just save more and the incautious just splurge their extra cash on ‘stuff’, and almost all ‘stuff’ is made abroad and imported. So we would mostly be stimulating China’s economy, not ours to any great extent.

So again, what tax cuts promote growth?

Well, there’s the problem. History has shown us again and again that it’s the tax cuts unpopular with the Left and painted by them as tax cuts for the rich that actually stimulate growth: corporation tax, CGT, and top rate income taxes. (Afternote - And the OECD agrees with me!)

Tricky one for the Boy George.