Chancellor downgrades Moodys downgrade

Originally published February 2013.

As predicted in an earlier post (4th Feb - "Cameron's 'hard-won economic credibility' is a sham") the UK has lost its AAA rating with one of the three major credit rating agencies. It is unlikely to be the last. The reasons cited by Moodys are poor economic performance (zero growth) and high and rising debt levels. In a bizarre response by the Chancellor he used the Moodys statement as a justification of the Government's current policies. Despite the fact that he had previously claimed that the loss of AAA status would be 'humiliating' and 'a disaster' for the previous government (which it, by the way, managed to avoid) he appears to believe that this downgrade is confirmation that the economy is 'on the right path'. Apparently loss of confidence by the agencies is only a disaster for Labour administrations. Osborne's response failed to even mention the lack of economic growth as a factor. Instead he again focused on the need to reduce debt. This is complacent and short-sighted in the extreme - without growth there is no chance of reducing the deficit and paying back the debt. Without government spending to stimulate growth the only option in the end will be to implement punitively high levels of taxation on the income and existing assets of the UK's taxpayers, and to reduce welfare to a rump.

No-one should be surprised that Osborne continues to choose his current path rather than that of fiscal stimulus - this is where his political prejudices naturally lead him. Keynesian stimulus is anathema to him. He is quite happy to use this crisis as an excuse to further his political objective of winding down the state. He firmly believes that if he simply 'gets the Government off the backs of the people' the markets will take care of the rest. Hence he is on course to reduce government spending to the lowest percentage of GDP in the G20 by 2017 (around 27% of GDP versus around 50% in 2010 - lower even than the United States, a byword for poor public services). Anyone who still thinks he is really only trying to pay off the debt needs to think again - make no mistake, this is a political mission and he appears not to care who gets hurt. And with reductions on this scale a lot of people will get hurt.

If Osborne's priority was really to restore health to the economy he would look at capital measures to stimulate growth, such as a concerted house-building programme, and at measures to mobilise the wealth tied up in property and land. The massive amount of wealth transferred from poor to rich over the last 30 years needs to be redistributed so that it is spent rather than it being idly hoarded, in order to create economic activity. Closing the gap between rich and poor will be healthy for the economy as the poor tend to spend the money. Unfortunately this won't happen - the Government's reduction of the deficit 'by a quarter' is almost entirely down to capital spending cuts so these are unlikely to be reversed (and smoke and mirrors with 4G auctions and QE proceeds - the deficit in current spending has actually come down by only 6% so far; so the real pain is still to come). And Osborne has ruled out any form of land or wealth taxes.

So, as admitted by Clegg, the capital spending cuts were a massive mistake but the Chancellor will continue to plough on with his wrong-headed policies and the public will continue to buy it. But not, I suspect, for all that much longer.

A Question of Fairness

Originally published February 2013.

Under the cover of their austerity program, the Government are hacking back at the protection given to the most vulnerable and disadvantaged in society - from the disabled and the unqualified to the plain and simple dim and unemployable. It is both necessary and electorally popular that the Government reduce the current benefits bill and balance this with tax rises, in order to bring down the structural deficit in current spending, however judging by the pronouncements by some ministers and their more obnoxious backbenchers it seems they still believe that the poor bring it upon themselves and that the cuts are a just punishment for the feckless and the workshy. We all remember those people we went to school with who had no interest in their own education, who disrupted lessons, who bullied, started fights, smoked behind the bikesheds, bunked-off, got in trouble with the police, etc and it is tempting when we see that they end up in poorly-paid jobs or unemployed to say 'tough - it's your own fault'. But the reality is that it is rarely entirely their own fault. Sure, given two people in identically poor circumstances one may manage to make it out and make something of their life and the other may remain trapped in a cycle of generational deprivation, but the odd success story here or their doesn't justify writing off the rest - it's illogical and defies statistical analysis - it's plain daft to think that everyone can follow the same path out of poverty. The Tories and their electoral appeal however feeds on and re-enforces this popular perception. It appeals to the basest, most unpleasant aspects present in everyone's personality to a greater or lesser degree; it asks us to give in to hate, give in to divide-and-rule, give in to vilification and finger-pointing. The reality is most people on benefits or in low-paid employment had parents in similar circumstances; if your parents don't value education or don't hammer home it's importance to you then in today's ultra-competitive jobs market what chance do you really stand of breaking the cycle? How does blaming the individuals help solve the problem long term? And the Government's assault on those claiming disability benefit is even more wrong-headed; how can we blame those with disabilities for their own circumstances? I suspect it is driven by the popularly held Tory-media-inspired idea that in reality they are in the main fraudulently 'on the sick' with there being only a minority of genuine claimants.

I  don't want society to be riven by such envy and such jealousy - the relatively well-off being so envious of the meagre benefits bestowed upon the poor. So, there is going to be a choice ahead of us - either choose the Tory route of driving down benefits below subsistence levels to minimise the cost to the state so the 'problem' can be contained. And then turn a blind eye to the outcomes and continue to say it is their own fault. I don't think choosing that option makes us a better society - only more individualistic, less caring, shallower and uglier. Alternatively we try, for the greater good, to break the cycle of social exclusion by investing massively in early years education and continuing through primary and junior to secondary schools to counteract the negative impact of pupils' own circumstances and the malign influence of the worst parents. Sure-Start was one of Labour's greatest success stories but has been systematically dismantled, as was Building Schools for the Future, by a short-sighted government that has chosen the path of least resistance - that of slash and burn.

How to pay for the required investment in education though? There are two aspects to this - firstly I would like to see Labour commit themselves to a national (regionally adjusted) living wage. This would remove the massive taxpayer subsidy to poor employers - currently the Government is spending billions on in-work benefits simply because employers can get away with paying inadequate wages. This is insane - you and I are contributing directly to the bottom line of exploitative employers and it has to be stopped. The cost in additional unemployment is estimated at 160,000 jobs, which given the reduction in the benefits bill is perfectly manageable.

Secondly I would like Labour to commit to a serious annual wealth tax and a reduction/elimination of inheritance tax. It is simply unacceptable that the richest people in this country currently pay marginal rates of tax as low as 10%. Madness. They are able to do this, and it is perfectly legal, as they are able to minimise their income and capital gains for tax purposes, whereas a tax on wealth (assets) is far harder to avoid - for example property cannot be shifted to a lower tax regime. An argument that was deployed by Tory commentators against Vince Cable's proposal for a mansion tax, a watered-down version of a wealth tax, was that it would be unfair to impose a property tax on the asset-rich and cash-poor such as retirees, who have worked hard all their life to own their own home and don't have the income to pay the tax liability that would result; apparently it wouldn't be fair to ask them to pay the tax bill. When I heard Kirsty Allsopp, the daughter of former Christie's chairman Charles Henry Allsopp, 6th Baron Hindlip make this argument, I almost threw the radio into the garden. Compare and contrast to the bedroom tax! It made me laugh this morning when I saw Jeremy Hunt announce that people's houses would be protected from having to fund their care in old age 'the home you have lived in all your life'; what a contrast to the bedroom tax where he expects people to up-sticks and move out as soon as they have a spare room, which the Government sees as an over-indulgent luxury. Let's offer pensioners some of the same solutions offered to housing benefit claimants - rent the spare room out, downsize, etc. Sounds heartless? Whats the difference? Besides, there are plenty of other options available to release capital tied up in their home without moving out, and your average run-of-the-mill retiree is not the primary target of a wealth tax anyway - the target is the multi-millionaires and multi-billionaires paying accountants to sweat the figures to get the income tax bill down as far as is legal.

And before anyone shouts that this would hit the 'wealth creators' please take a look at how well trickle-down has worked in the USA - the 400 wealthiest people in the States now have assets worth more than the combined assets of the bottom 50% of the population. Low taxes on the wealth creators, combined with trickle-down is an abject and total failure it has merely resulted in a huge transfer of wealth from the poor to the rich. A rising tide apparently does not lift all boats. This is not acceptable for Britain; we can do better than that. If we are serious about breaking the pattern of social exclusion and social immobility we need to get serious about wealth taxes and the living wage.

Gay marriage - get over it!

Originally published February 2013.

What on earth is behind the furore inside the Conservative party over gay marriage? I totally fail to understand it. Apparently up to 180 Tory MPs including several cabinet members are planning to vote against, and grassroots members are up in arms. I applaud David Cameron for doing the right thing for once.
I fail to understand how this generates so much opposition. To those Tories who do oppose it I can only respond "Some men prefer their partners to be men, some women prefer women - get over it! " They are not paedophiles. They are not a threat to you. And you can be sure they are not remotely interested in you. Permitting them the same rights as heterosexual couples will not undermine the fabric of society. If opposition is on the grounds that it puts the CoE in an awkward position then that just demonstrates how disconnected from modern Britain the Church has become (the Tory party at prayer after all?). That's a problem for the Church to sort out and shouldn't be allowed to delay fair treatment for gay couples.

Thatcher and her cronies had the same narrow-minded attitude back in the 1980s and has been proved to have been comprehensively wrong and utterly misguided. It seems some 'modern' Tories are determined to repeat the same mistake.

Cameron: 'It's THEIR money'

Originally published February 2013.

David Cameron stood up at the last Conservative Party conference and lambasted Ed Miliband for describing George Osborne as 'writing a cheque to the country's millionaires' by proposing to cut the top rate of tax. Cameron went on to say of the tax cut for these income millionaires 'Well I've got news for Ed Miliband - it's THEIR money' (his emphasis). I was struck by the utter naivety of this statement at the time. Down the years I have often heard this argument from people in all walks of life who resent paying tax, but it seems particularly prevalent amongst Conservative supporters. It is so simple-minded and populist that I was surprised Cameron resorted to it, but then he seems to have found his level recently - his being that of The Daily Mail and its infantile commentary. What it fails to take into account is how people make the money on which they are required to pay tax. It fails to note that without a wealth of economic, social, political and historical infrastructure behind them no-one would be making a penny and we would all be bartering with each other. Incidentally, as an aside, that 'infrastructure' includes the workforce from whose labour money is generally made - that workforce has to be housed, fed, educated, kept healthy etc. The development and maintenance of this infrastructure costs money and that is what their taxes are paying for. Anyone who begrudges their tax bill should instead look upon it as rent paid for their use of the infrastructure provided to them by the state both historically and currently in order that they can function in an economic capacity and make 'their' money. The rent people pay is in proportion to the benefit that they derive.

I feel this is particularly apposite this week when the Poll Tax 2.0 is looming into view with the abolition of the Council Tax benefit by central government. People who have no income are going to be asked to start paying a proportion of their council tax bill for the first time. From the standpoint I outlined above they should be paying no tax as they have no income. Indeed that is the point of the Lib-Dems' push to take the lowest earners out of taxation altogether - one of their only two positive contributions to government (the other being their stopping of boundary reforms). However the Conservatives in their mean-minded conviction that basically everyone should pay a flat-rate of tax (go on, you can admit it, most Tories believe this in their heart of hearts) cannot rid themselves of the desire to make sure everyone pays something - Eric Pickles I believe called it 'ending the something for nothing culture'. Correct me if I am wrong but I am fairly sure he is old enough to have lived through Poll Tax 1.0, but seems to have failed to learn the lesson. This fatal addiction to ensuring even the poorest pay tax, driven by a narrow interpretation of what tax actually is, will cost the Conservatives dear in the long-run.