Daniel Hannan is Director-General of the Institute of Economic Affairs
Do we not understand how rapidly we are sliding into poverty? Or do we not care?
We calmly discuss which taxes John Healey is going to raise without questioning the premise. We beg the question, talking of more hikes as “inevitable”, as if we did not already have the highest taxes since the 1940s.
Let me spell out the problem using figures from the Centre for Economics and Business Research.
On current trends, our standard of living will fall behind Lithuania in five years’ time and behind the Czech Republic in six.
The deadweight of taxation and debt have pushed us steadily down the league tables, from 12th place at the beginning of the century to 24th today. If nothing changes, we will fall to 46th by 2050 – a middle-income nation. Along the way, we’ll be overtaken by Romania, Georgia, Turkey and Moldova. Yes, Moldova.
This is not some statistical trickery, some prestidigitation with numbers. We can observe the immiseration around us. We see it in the closed pubs, the boarded-up shops, the profusion of charity and low-budget outlets. We hear it in the resigned tone of young graduates sending out unanswered job applications. We feel it in the judder of unfilled potholes under our tyres. We learn it from friends who are leaving for higher salaries and lower taxes in the UAE or Australia or even Portugal.
None of this is inevitable. It is the direct result of choices we have made – and, depressingly, that we continue to make.
People respond to incentives. If we put up their taxes, so that they keep a smaller portion of what they earn, they will be less productive. Likewise, if we hand them money unrelated to what they produce, they will be less productive. There may be other arguments for redistributive taxation; but there is no world in which it does not damage growth.
Similarly, if we have regulations that inhibit risk-taking, privilege some sectors over others and prevent companies from acting in the most efficient way, those firms become less productive. Again, some regulations might be necessary – those that prevent pollution, for example – but let’s not pretend that they boost the economy.
These are not radical, left-field ideas. They are basic economic orthodoxy, demonstrable in theory and proven again and again in practice. Yet, at some point in the early twenty-first century, we (in common with most of Western Europe) gave up on them.
We say we want growth, but our revealed preferences tell a different story. We want growth only insofar as it does not mean cutting benefits, or lowering the minimum wage, or building on the Green Belt, or charging people to use the NHS, or allowing skilled immigration, or raising the pension age, or embracing imports. In other words, we don’t want growth. Cushioned by generations of accumulated wealth, we struggle to imagine the dirt poverty to which we are condemning our descendants.
This year, we will spend £303bn on benefits. It is hard to convey quite how vast that sum is. It is not only bigger than last year’s defence budget; not only bigger than the NHS budget; but bigger than both combined.
How entitled we have become. Ours was the country of Adam Smith and David Ricardo and Margaret Thatcher, the country that introduced the world to free contract, secure property and open markets. Those ideas made us the richest nation in the world. Yet our generation cares nothing for them. We choose to disregard our fathers and disinherit our children. We choose mediocrity. We choose penury. Shame on us.
Honestly Daniel, I’m bewildered by this statement.
All I read is, any old reason to cut government costs so you, the taxpayer doesn’t have to foot the tax bill! Without giving any thought to the impact on those people affected and no coherent replacement for the dilemma you point out our grandchildren will face! It’s a big to Kate to shut the stable door! The horses have bolted decades ago!
Can’t you get it? For every pound government doesn’t get to the bottom of our pile, the more exponentially speaking is taken from their ability to SPEND. And the more they don’t have to SPEND then, the less profits are generated in our collective businesses.
The whole business model of our nation relays on there being sufficient SPENDING of sufficient money to make it work!
There isn’t sufficient money or SPENDING in our productive economy to generate sufficient revenues to keep everything going. And if that goose that lays the golden egg of tax revenues is underfunded and then that’s the reason why our governments tax take us insufficient!
Making it more insufficient by decreasing government SPENDING and decreasing the tax take as a result won’t do anything! Except make it worse.
Come on, please, you have to start going better!
Sticking to your mantra of cut, cut and cut more gets exactly that nowhere! No growth insufficient money in the pot and insufficient tax take forever more.
Look, we obviously have insufficient money in circulation! Surely you must see that!?
Look at the indicators. No growth. Stagnation, people having to borrow to afford basics. Huge personal and now galactic sized government debt. The need for constant bank production if leveraged money to fill the pot! Less tax take from more taxation. Unaffordable mortgages you name it it’s unaffordable to the vast majority.
Whilst at the same time you ignore the need for money to rotate. Through our hands as well as the government at the same time our system allows trillions of pounds to be unspent by those holding it in banks here and abroad. Vast sums that should be revolving and rotating through all our hands not stuck in the pockets of the few rich. Who have so much unspent money that they loan it back to us and our governments!
Yes the ones who are big SPENDING their money are now lending it to us instead of exchanging it for our products and work effort!
No, they don’t have to SPEND it because loaning it is much more lucrative. Because we’re the stupid lot who keeps having to pay for that privilege. With not just taxation but with our future earnings and profits not getting anywhere.
It’s not rocket science Daniel. If our system allows trillions to be taken out of our economic pot, money that isn’t taxed at all or SPENT then surely that’s the pit of money we need to get moving? Not cutting our government SPENDING that’s needed! Because that money is the small amount being rotated. It’s more prudent surely to get the pit of money that’s not contributing to flow the vast pit of untaxed money that should be supplying the revenues to have surpluses but deficits! Surely that’s the pot if money that needs to be flowing??????
Daniel any idiot can shout cut! It takes a bit more thought to put the right system in place.
How can you expect the right tax take if most of our money isn’t being spent or taxed?
Do we are relying on an ever decreasing pot to sustain our country?
Honestly no wonder we’re in this position. If that’s the best we can expect.
When will it start to sink in? You can’t just look at this position in a two dimensional set of accounts? We need four dimensional thinking Daniel.
Money has to flow unfettered throughout our hands for us to have sufficient not just to live but pay our way and that of our government by the simple vehicle if SPENDING money. Not sitting on it. And if it’s not being SPENT then why not? And why isn’t it even being taxed???
You’re all looking at this through that blinkered prism of two dimensions. You must have a better route back to us once we SPEND it! We all need others to SPEND so we can get it back again! Three dimensions! And in a fast time, four dimensions. Because if money isn’t returned to our tax paying productive economic pot then que surprise! We can’t afford sufficient tax!
You must either make money move so those who have those vast amounts spend it or tax the life out of it so it is better to Spend it rather than hold it or rather withhold it! But do you fo that? Or suggest it? No!
And let’s get this bit through. Tax is only triggered by SPENDING. It’s SPENDING that triggers all taxation.
Whether it’s the SPENDING of businesses on the wages and taxes of their employees to the benefits recipients who are unemployable SPENDING all their money on those businesses that pay the income taxes of their employees with the money from those benefit recipients?
Ego contributes more to tax take? The person who is on benefits who SPENDS 100% of their incomes? Or the richest person who doesn’t spend a penny of this month’s income and so pays no tax and contributes 0% to the pot that does? There you have it. The real tax payers are those who SPEND all their incomes.
The non taxpayers are the ones who don’t SPEND.
The other area with a massive impact on UK growth and increasing adverse impact on government finances is UK net zero.
Economically, such UK policies can have a very small and insignificant impact of global emissions, hence on mitigation of any future costs of climate change. But inefficient policies are having a very significant impact on households disposable income, industrial costs and government expenditure.
Note that global emissions are still rising, so any claims of joining the rest of the world in combating climate change are invalid.