Monday, January 07, 2013

Hard Tacks

The emerging debate on the nature of 'Fairness' is leaving me rather confused and appears to be rushing towards some outdated notion of communism, fueled gleefully by the BBC at every opportunity.

Over the last couple of weeks I've attempted to share some of the inescapable economic facts facing our welfare-heavy society and yet millions of people remain in denial over the reality of having a deficit close to that of Greece but with an outstanding national credit card balance, which still obscures most of the pain.

To place taxation in perspective, The top 1% of income earners in the UK already pay 28% of the total income tax. As they earn 13% of all the income, that means they pay twice as big a share of the tax as their share of the income. The bottom half of all earners in the UK pay 10% of the total income tax. The sum they pay in total is less than the amount paid out in Housing Benefit, which goes to this very wide group. The total welfare bill is presently £220 Billion.

According to the independent Office for National Statistics, when it comes to the top 10%— which is made up of 2.6 million households , including all those with a disposable income of more than £55,675 - they are already contributing 57.6% of the total tax revenues.

With a rapidly ageing population, we are also facing a care, health and public sector pensions crisis that nobody quite knows how we are going to pay for in future, on top of the bill for defense, the NHS and education budget to name but three.

Under the last government, our welfare system spiralled out of control with the welfare bill rising by 60%, costing every household in Britain an extra £3000 a year. So with benefits rising faster than wages and expenditure on the welfare state outstripping income from taxation - or simply all income - by an order of magnitude, we have two clear options. We try and exist within our means, by rapidly bringing down the debt and with it the interest. This means a radical reevaluation of our generous welfare state; attracting attracts migrants, both legal and illegal, from across the world or we borrow money to the point that Greece has now reached, when its economy approaches total collapse and public sector salaries aren't paid.

As for 'Squeezing the rich", Harold Wilson tried it as a desperate tactic in the seventies, when the effective income-tax rate on top earners reached 83%, a punitive level that turned our country into the sick man of Europe. Doing it today under Labour's proposals, would only raise 1% of the total welfare bill.

The unavoidable truth, unless you sit on Labour's front bench, is that 'squeezing' the wealthy is empty rhetoric. Why? Because thanks to the last Labour Government, we've developed the western world's champagne and caviar benefits lifestyle on a beer and sandwiches budget fuelled by credit. Now we have to pay for it, having woken-up to the fact that China has eaten all the cheese while we were having a nap over the last twenty years.

Changing the subject away from the economy, which will be a relief to many readers, one of my readers, Mr R.King, noticed my complaint about spam text messages and kindly sent me the email below. His advice should be useful for everyone:

 "I have just read an article on your blog site concerning PPI calls/text messages on your mobile. I don't know if you are aware of the following: If you text 7726 forwarding the message together with the number leaving the text message/call to you, you should find that the incident is looked into and the messages cease. I personally used to receive these PPI text messages. Since forwarding the message together with the number. All of this type of messages have stopped. I gained this information from a Radio 4 program."

Finally, I predicted Labour in Thanet might resurrect a local weblog in 2013 as an online fight-back but I never expected this to be Cllr David Green. I've now added "Ramsgate Rumours" to the sidebar.


Anonymous said...

Champaign and caviare lifestyle not us Guv. Its the city and the banks that created this paper wealth that went up in smoke. Maybe if everyone paid their taxes instead of hiding behind clever accountants then the problem would be solved.
You talk of fair play yet the government will not name the corporations that are making money in this country and not paying tax so we can at least boycott these companies.
If we owe all this money to who do we owe it to. There must be some rich dude somewhere reaping the benefit of our misfortune?

Simon Moores said...

I'm afraid that's complete self-deceptive rubbish. You might as well claim the moon is made of green cheese or that 2+2 =6.

Read my earlier column. The paper wealth was largely a myth built on clever financial transactions. Governments borrowed against the value of paper rather than gold, which they had done in the past and were surprised when they discovered the paper was valueless!

Countries all over the world have discovered that welfare is unaffordable given the size of the non-working and dependent populations they now support.

Simon Moores said...

One problem which is a global one and undeniable, is that wealth is becoming increasingly concentrated among a smaller proportion of the population. This is common to all nations, some more than others and reflects the global village where one chooses to domicile where the tax regime is the lightest.

If you won the Euromillions tomorrow, would you choose to stay in the UK? Many people would not.

I know several non-doms who have left this country, simply because there is a limit to how much tax they are prepared to pay, when it's measured in millions. When other states are prepared to accept them with open arms at a lower tax rate, one can understand why.

Anonymous said...

There was once, some thirty odd years ago, a well run country with a flourishing agricultural economy backed by an expanding and vibrant light industrial sector. It had food in abundance and was able to export, in some cases give, it surpluses to its neighbours.

It also had what was once the largest man made lake in the world feeding a hydro electric plant that supplied power to it and its neighbour. Health and educational standards were the best on its continent.

Unfortunately, greedy power seekers sought change and promised the people the earth. Eventually a left wing pro-Marxist regime took over, taxed and forced the farmers out of business, neglected the infrastructure and destroyed the economy all to fulfill their impossible promises.

That land now has starvation, out of control inflation, everyday power cuts, water rationing, health and education has declined to lower third world levels, many public sector pensions have not been paid since September 2002 and those who hoped for more now have nothing.

The government is no longer popular but clings to power by force and the intimidation of the electorate. Sadly, the unfortunate people found out the hard way that taxing the wealth and job creators ultimately leads to ruination and oppression.

Anonymous said...

Thank you Simon for that insight into world economics. 2+2+2 borrowed = 6 and this is the root of the problem.

I agree that welfare has got out of control and the blame for that lies with successive governments as they tinker with the system. Whatever happened to the concept of positive and negative income tax.

If I won the euro millions I would not leave the country to save tax there is only so much I could spend in a lifetime.

You appear to be in favour of corporations like Starbucks operating in this country and not paying tax on its profits to our exchequer. Surely that is not fair and does nothing for our balance of payments. I think many people would agree with me on that point having decided not to drink their coffee. I think the basics of taxation appear to have gone out the window.
Your millionaire friends who are now non-dom because of our tax regime I would suggest that they do this out of greed and not because they will be destitute. The fact that we live in a world of greed is that something to support.

Simon Moores said...

Perhaps you could direct me to where I said I'm in favour of large corporations avoiding tax?

They are however acting legally and this afternoon, I was on the telephone to Google which is in the Irish Republic and joys a tax holiday as a consequence.

It's the system of corporate taxation which is not fit for purpose in the 21st century and companies are businesses and obliged to maximise shareholder value and not act as a cash cow for poverty-stricken governments.

I'm gratified to learn that if you won the Euro millions, you would happily surrender a large proportion of your winnings and subsequent interest in tax. Unfortunately, there are many others, human nature being what it is, who would not be so public spirited.

Ren Wood said...

Heard recently of a jobbing builder who has always worked for cash in hand, never paid a penny in tax or NI contributions and has just retired. Because he has no contributions to receive the state pension, he receives pension credit to bring him up to what he would have got had he contributed plus housing benefit on top.

Imagine many of his neighbours who paid tax and national insurance for years, struggled to buy homes whilst raising families and yet, on their retirememnt are no better off than the non contributor.

Just taxing Starbucks will not cover the cost of the abuse of the system that so blatantly exists in this country. It needs a whole change of culture and attitude, but where it will come from when every alternate government goes back down the road of vote buying, heaven only knows.

Yes, if I won millions I would be off, not to avoid tax, but to escape the scroungers that abound in our silly system.

Richard said...

The decline of UK began at about the time we introduced mandatory state education in the 19th century.

Nowadays it is over simplistic to blame dole scroungers. How many are unemployable ?

There are any number of amusing stories in Thanet. Like the floating restaurant development visited by DHSS investigators whereupon the workforce sort of melted away. Security companies paying one night through the books to declare to dole and remaining nights paid pocket money in the hand.

The fact seems to be that entrepreneurs Thanet style were very happy to obtain taxpayer grant aid to subsidize their wage bills via fiddled benefits in payment to their staff.

1 o'clock Rob said...

According to the ONS there are about 500,000 unfilled positions in the UK but there are 2.5 million unemployed, what do you do with the other 2 million?

Simon Moores said...

That's a good question and I believe that if we ever get unemployment down to a million under any government, it will be a miracle.

Eurozone unemployment is no over 12% and wearing my futurist hat, I see very little chance of reversing the damage done to our education and manufacturing sector in time to ward off further displacement of our economy to the far east.

We need either factories pushing out cheap globally attractive goods at competitive prices and wages or we need highly educated knowledge-based workers; ie computer games companies.

We have very few of the first and less of the second.

Richard said...

Re the jobbing builder story above. If the contributor refers to the one I know then, in fact, he who would boast of "Being long term unemployed for Britain" actually now owns his ex council house outright. Having taken work just long enough many years ago to take advantage of right to buy and get a council mortgage. Then going back on dole to get the mortgage interest paid. Gradually paying off the capital from his black economy earnings.

Perhaps he is currently queuing up, in his nomme de landlord, to get a landlord licence for his buy to lets too.

A fundamental problem is that for too long we have over rewarded low risk parochialism (Public sector, police etc) and the comfortable more secure life of the low risk dole scrounger or public sector worker rather kills aspiration.

South Wales Argus in the 70s carried appeals from economic experts (sic) to O and A level students to go on to univerity to study science or engineering. To leave admin and police jobs to the less academically able.

One boxing coach I met down there was appalled when both his sons each with 10 O levels left school as soon as they could and became postmen.

They are now middle aged men with OU degrees. Some of their tenants in their BTLs are the students who stayed on for A levels and went on to uni to study useful subjects.

The boxing coach had to admit that his sons, 10 O levels apiece, had the better economic grasp.