How high taxes killed our belief in helping others

Posted on January 08, 2013

When all factual and economic arguments have failed, Britain’s proponents of high taxes fall back upon philosophical justifications for their position. “Tax is the thing that makes us civilised”, they declare, “It brings us together as a society”.

Such arguments are dragged out to perform again and again, like those 1960s pop acts who were fleeced of their retirement pots by unscrupulous managers. Of course, there’s no actual evidence for them – that’s the point, they are declarations of conveniently unmeasurable truths.

But even such intangible claims are starting to look shaky. As the debate about cutting benefits for the better off intensifies, it is increasingly clear that high taxation has killed our national sense of helping others, of the well to do making sacrifices to help those less fortunate than themselves.

Just look at the row over Child Benefit. There was a time when people recognised that if they earned a good salary, they didn’t really need welfare to top up their income – whereas others who were barely getting by did.

Now, the letters pages and radio phone ins communicate a very different world view. Those who have been squeezed over and over again by successive Chancellors grabbing at their earnings, their savings, their pensions, their petrol bills and their pasties want something back in return. The idea that just because they might be earning £50,000 a year then they shouldn’t get Child Benefit enrages large numbers of people – the payment is one of the few things they get back from the large amounts they have to pay to the Exchequer.

That is a remarkable shift from the widespread sense of “middle class oblige” that once existed to the far less attractive sight of well-heeled parents defending their right to be welfare recipients.

But people who want to hang onto their payments cannot be blamed for feeling that way. It’s a natural reaction to want to get at least a bit back when you are shelling out a small fortune every year through constant, multiple taxation. It is our politicians, and particularly the high tax lobby, who are responsible for the near-total erosion of that sense of sacrifice for the greater good.

Of course it is an absurdity to pay welfare benefits to the well-off. It is a perverse interpretation of a welfare state that was intended as a safety net – particularly at a time when there are plenty of families who can only dream of earning £50,000 a year. Worse, it means cycling cash through a wasteful tax collection and benefits payment system, only to return some of it to the pocket where it originated.

The welfare bill must be brought down, and the just way to do that is to withdraw benefits from those who need them least. High taxation has driven out the sense of responsibility which would once have made that the obvious and natural thing to do for most Britons. Far from making us “civilised” or “bringing us together”, overfeeding the tax man has made us selfish. Taking more and more money from workers has made them grip what they have left all the tighter.

The moral case against high taxes must be made or – counter-intuitive as it may seem – the moral case for helping others will continue to fall on deaf ears.

Econ Carols

Posted on December 13, 2012

EconStories, the people who brought us the brilliant Hayek vs Keynes rap battles, have done a Christmas special – “Deck The Halls With Macro Follies”:

Abolish the Sunday Trading laws

Posted on August 14, 2012

As readers will know, I don’t normally feature my day to day work on this blog. However, occasionally there are exceptions where the libertarian aims of Crash Bang Wallace and the output of my day job overlap.

One of those is the article I have written for today’s City AM, making the case for our outdated Sunday Trading laws to be abolished entirely following their successful trial during the Olympics. You can read it (and join the debate) here.

 

Mehdi Hasan airbrushes the Stasi from history

Posted on June 21, 2012

To say the new edition of the New Statesman gives Angela Merkel both barrels would be an understatement. At the hands of Mehdi Hasan, the outgoing Political Editor, the German Chancellor gets the full Rasputin treatment – poisoned, shot, beaten and then thrown into a freezing river to ensure the job is done.

The cover splash describes her as “Europe’s most dangerous leader”, while inside the magazine Hasan’s article is headlined with the claim that her “mania for austerity is destroying Europe”. The piece itself takes the verbal assault even further, arguing that Merkel’s refusal to support a Keynesian solution to the sovereign debt and Eurozone crisis “has brought the continent, and perhaps the world, to the edge of a second Great Depression”.

Strong stuff, but not necessarily a surprise – I doubt I will ever be surprised to learn that Mehdi and I don’t always agree on economics.

(The one element of their coverage that I sympathise with is their portrayal of her as the Terminator – though while this is intended to imply she’s destroying everything, I prefer to interpret it as saying she has been sent by the children of the future to stop 2012’s politicians running up crippling debts that they will have to pay off.)

But he then goes further, shifting from hyperbole to the downright ridiculous.

“Merkel is the most dangerous German leader since Hitler.”

Yes, let’s read that again: The. Most. Dangerous. German. Leader. Since. Hitler.

To Hasan’s credit, he does acknowledge the risk of fulfilling Godwin’s Law (“As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1”) up front.

But that’s not what bothers me – it’s the historical ignorance, wilful or otherwise, involved in making such a claim.

Let’s consider the proposition: who were the other German leaders since Hitler?

To be charitable, we’ll start by assuming he really meant “The most dangerous German leader since the Nazis”, given that Hitler’s two immediate successors were Josef Goebbels and Admiral Donitz, who even Mehdi must surely recognise were pretty dangerous. I guess “since Hitler” simply sounds catchier.

And after Donitz? Well, there were the Chancellors of West Germany – Adenauer, Erhard, Kiesinger, Brandt and Schmidt – all a rather inoffensive bunch overall.

Then there was Helmut Kohl, who oversaw the reunification of East and West Germany.

He was followed by Gerhard Schröder, not a dangerous man per se (though if the New Statesman thinks Merkel is dangerous for her attempts to solve the Euro crisis, surely some blame should be allotted to the man who led Germany into the Euro in the first place?).

If we accept Mehdi’s core belief that austerity in the face of a sovereign debt crisis is dangerous, then perhaps Merkel is indeed the most radical of that list. But that list is only half the story.

Somewhere along the way he seems to have forgotten (or ignored, or absolved?) the leaders of the entire other half of Germany between 1949 and 1990. That is to say, the GDR, commonly known as East Germany.

Those men – Erich Honecker, Walter Ulbricht, Egon Krenz and plenty of others in the confused hierarchy of single-party East Germany – were truly dangerous.

Under their authoritarian regime, the Stasi spied on East Germans on a scale and with a rigour that even the Gestapo never reached, with some estimating that they gathered over 1 billion pages of information on a population of 16 million people. Thousands were tortured, murdered, kidnapped, beaten and even allegedly irradiated to induce cancer for the simple “crime” of not supporting the regime.

They attempted to run a prison state, constructing the Berlin Wall and killing those who tried to flee to freedom.

If domestic terror and oppression isn’t enough to qualify them as more “dangerous” than Angela Merkel, perhaps the run-down of their international activity might bolster the case. Among their crimes abroad you can count: setting up Idi Amin’s secret police, funding neo-Nazis in West Germany, providing supplies and a safe haven to Carlos the Jackal, and sponsoring the murder and bombing campaign of the Baader-Meinhof terrorist group. There are plenty more crimes where those came from, too.

So it seems Mehdi’s charge against Merkel is just plain wrong.

This isn’t a flippant point, it matters that these crimes are remembered, rather than brushed aside for the convenience of bringing a shocking-sounding charge against someone the New Statesman disagrees with on economic policy.

Stop Funding Argentina

Posted on June 11, 2012

The new campaign from my former colleagues at the TaxPayers’ Alliance looks good:

As someone once said, there’s no money left – so personally I struggle to see why we are lending billions to a serial-defaulting country that seems intent on undermining our sovereign territory and trade?

I’ve signed the TPA’s Argentina petition, and I hope you will do the same here.

Finally the Barnett Formula comes in handy – for allocating Scotland’s national debt

Posted on January 25, 2012

A lot of thought’s being put into the practical implications of Scottish independence – I suspect that if the country doesn’t become independent this time (which more English voters support than Scottish voters), it probably will in the next decade or two.

It’s the practical ramifications which are increasingly causing Alex Salmond touble. The problem being that the SNP likes to have its cake and eat it, too. Take fiscal devolution – when the TaxPayers’ Alliance proposed full fiscal devolution to the Scottish Parliament (an SNP manifesto policy), SNP spokesmen blew their lid because the report also called for an end to English Barnett Formula subsidies for Scotland.

So it has been with Alex Salmond’s plan for full independence – he wants to take as many powers and assets as possible, but leave the nation’s debts squarely on the shoulders of English taxpayers.

For example, he thinks that North Sea oil and gas should be allocated geographically (giving the Scots over 80% of the revenue) but national debt should be allocated on a per capita basis only (giving the Scots just over 8% of the total bill). This is particularly relevant when you start to consider where the debt and liability for RBS would fall in you took a geographical approach to where debt should be allocated.

Happily, someone on the Government E-petitions site has come up with an elegant solution. When we calculate the share of the national debt to be allocated to an independent Scotland, why not use the Barnett Formula?

Yes, is means each Scottish person would have 22% more debt than each English person, but if it’s fair for dishing the cash out then surely it’s fair for sharing the burden of our debts, too?

I’ve signed the e-petition here – I hope you will, too.

The benefits cap debate – a win for Ministers, and an economic fail for critics

Posted on January 23, 2012

The furore over Iain Duncan Smith’s proposed benefits cap was predictable, and Ministers have merrily sailed into it for two reasons – because a high profile fight on this topic brings them an electoral advantage, and because they knew the Left would swallow the bait in one great, unthinking gulp.

The idea that no household should get more than £26,000 in benefits – equivalent to a pre-tax salary of £35,000 – is overwhelmingly popular. British voters subscribe to a strong idea of fairness, particularly when it comes to the idea that working should be more rewarding than not working, and they have been outraged by numerous reports of large families living at no cost to themselves in huge, overpriced houses in particular.

The critique of the proposals coming from the Left, notably from Lib Dem Guardianista Tim Leunig, is fatally flawed because socialist economics fails to recognise that the economy is dynamic. You can’t change one input to the system without others shifting in response – both when macro market forces and micro human behaviour are involved.

The flaw comes when they crunch the numbers. Leunig’s Guardian piece claims to calculate that the benefits cap would leave people living on 62p a day. The most crucial element of his workings is that a 4-bedroom house in Tolworth costs £400 a week. That’s true right now, but it wouldn’t be the case once a cap has been brought in.

The truth is that some of the main beneficiaries of overly high benefits are private landlords. They may not get payments from the DWP direct, but they reap the cash anyway through inflated rents, secure in the knowledge that every time they put the price up, benefits levels are raised to pay them. This is a racket, exploiting the foolishness of officials in pumping more and more money out and the absence of taxpayer power to rein in this behaviour.

Tim Leunig is right that if rents were fixed as they are now then his hypothetical family would pay£400 a week. But rents aren’t fixed, they are fluid. If you remove a large amount of cash from the system then prices will fall. By arguing for the system to remain as it currently is, rather than accept a cap, this supposed “progressive” is effectively fighting the corner of benefit-farming landlords.

There are knock-on benefits to removing the artificial inflation in rents, too. If renting property out becomes less profitable, the desire and the financial means to buy-to-let will be reduced, helping to address the shortage of affordable housing that is so often highlighted as a problem.

This is why we can expect IDS to be intensely relaxed about this fight gaining so much publicity. When it comes down to it, he has public opinion and solid economics on his side.

#Fail to the Thief

Posted on December 07, 2011

So Thom Yorke of Radiohead appeared at Occupy London last night to play a gig in support of their aims.

Whilst most of what Occupy stands for is so vague it’s almost impossible to pin down – even when they try to do so themselves – it is perfectly clear they claim to be for the poorer “99%” and against the rich “1%”. In their world the 1% are responsible for all ills, their wealth should be redistributed and they are fundamentally immoral by simple virtue of their wealth.

But which group does Thom Yorke fall into? With over 30 million record sales worldwide, it’s hard to see how he is part of the 99%…

Or do their principles of class war not apply when it’s someone left wing who’s been raking in the cash?

Reasons for a referendum

Posted on December 05, 2011

One thing was always clear about the Government’s EU “referendum lock” – the EU’s defenders were always going to claim it didn’t actually justify a referendum. Whether they did it outright in the wording, or later in a tortured limbo around what that wording meant, is irrelevant.

So it has come to pass now that the first proposed treaty changes since the lock was passed into law have hoved into view. Nick Clegg has rushed straight out, his face painted blue with a delightful ring of yellow stars scattered across his cheeks, chin and forehead, to announce that proposals for fiscal union among the Eurozone countries are not eligible for a referendum as they don’t constitute a transfer of sovereignty from Britain to Brussels.

Underlying this is the argument being pushed by the Conservative leadership that, as Tim Montgomerie reported it, an EU referendum would “plunge Britain’s economy into chaos”.

But it is this latter argument which undermines the former.

As we can now see from the crisis hanging over us – a crisis that has emerged as a direct result of the Euro’s disastrous creation and the ongoing, eternal grind of ever closer union – losing sovereignty is not just about Brussels being able to directly overrule Britain. It is also about whether we are losing the ability to build a successful, sustainable economy on our own terms.

EU integration has made Britain more economically vulnerable to crises on the Continent, a problem which is compounded by the fact that it has also made such crises far more likely. At the same time as our exposure to EU risk has increased, the Single Market’s aggressive protectionism has forbidden us from diversifying by trading freely and fully with other economies around the world – particularly with the BRICs.

In effect, they have tied a weight to our feet, dragging us down into the ocean depths, and bound our hands, stopping us trying to swim upwards.

The decision by a core group of EU countries to integrate through a single currency has diluted our sovereignty by reducing the effectiveness of the measures the British Government might take to boost our economy. As we are currently seeing, you don’t have to be in the Euro to be screwed by its failure.

Can they seriously claim that fiscal union in the Eurozone – a step which is likely to bring down even worse disaster on all our heads – won’t have a similar effect?

We are tied to the Eurozone through our EU membership – as a result, their fate does affect our fate. That’s why we have a veto on these proposals for fiscal union. And that’s why the British people should get a referendum on whether that veto is used.

 

Mandy’s McAvity memory loss on the origins of the Euro crisis

Posted on November 15, 2011

Peter Mandelson has been industriously digging himself a hole over the Eurozone crisis. Normally a fervent debater and a nimble performer when it comes to picking his words carefully, he got a bit of a shoeing from Paxo on Newsnight last night.

It can’t have been comfortable for the Prince of Darkness, but there are further troubles ahead if he sticks with the line of attack that he has chosen.

We’re choosing to be outside [the Eurozone] and not showing up at those Councils and bodies where the decision-making and economic discussions of the Eurozone are taking place

The problem he faces on this one is a curmudgeonly, sociopathic Scotsman called Gordon Brown. Back when Brown was Chancellor he was notorious for not bothering to attend the meetings of ECOFIN – the council of EU Finance Ministers. When the group met, McAvity Brown more often than not was nowhere to be seen.

As the FT reported in 2006:

Gordon Brown, Britain’s chancellor of the exchequer, has not been to Brussels for a single meeting this year….Mr Brown has the worst attendance record, going to barely half the meetings since 1999. In 2004 he made it to a little over a third of meetings.

The difference between then and now is that while today’s Government are refusing – rightly – to take part in building a new Euro bailout package, which would be as expensive as it would be unpopular, back then Brown was skipping the very meetings which sowed the seeds of the current Eurozone crisis.

Around that table in the late 90s and the early years of the 21st Century a consensus developed that it was acceptable for the vast majority of Eurozone countries to brazenly breach the Stability and Growth pact, running huge deficits and piling up vast national debt mountains.

Now that is crashing down on all our heads leaving Britain, Europe and even the whole world to pay a heavy economic price.

Brown opted out of those meetings, passing up a chance to warn of the consequences of the Eurozone countries’ actions. Then, of course, Mandelson went on to help him limp on as Prime Minister for three miserable, costly years.

Does the good Lord really want to start this argument?