The FT has an editorial this morning that it says signals the start of a series to be published by it on tax reform. Since I am spending much of my time considering that issue at present, I welcome that.
However, their framing is unfortunate. That begins with this statement:
UK public services, after years of lacklustre economic growth and the “austerity” of the 2010s, are particularly overstretched.
That is hard to disagree with, but it is contextualised by saying:
All this is happening while the tax burden — how much revenue it raises as a proportion of its economy — is already high by historic standards, and is set to reach its highest since the second world war.
The word 'burden' is significant: it makes clear precisely how the FT views tax. Tax is not a positive contribution within the framework of the overall economy, which is how I see it, but something to be suffered.
As a result, the FT jumps on so say:
Further tax rises are politically unrealistic — whichever party wins next year's election. So is cutting back public services. Yet taking on significant additional borrowing would be unwise. Britain's debt pile is now roughly the size of its entire economy, the highest level since the early 1960s. Its interest costs, as a proportion of revenue, are the highest in the developed world.
The message clearly implied is that an insoluble conundrum is being faced. That is a premise that I do not accept. I think that what that suggests is that a paradigm shift in thinking about how to meet real needs is required. The FT is clearly not willing to go there. This is apparent from its preferred solution, which is:
Turbocharging economic growth is the best way to plug spending needs. It results in bigger income and corporation tax revenues. But Britain's productivity growth — which underpins the long-term expansion of the economy — has been subdued for more than a decade.
That is pure neoliberal (and totally unsustainable) thinking when what we face is very obviously the result of the failure of neoliberalism and the fact that it has created the climate crisis we are now in.
The FT goes on to suggest that there are few quick fixes, before reeling off a list of complaints about complexity that come straight out of the Taxpayer's Alliance handbook for moaning.
What also becomes apparent is that the FT thinks that all reforms must be about promoting growth: that is the goal to be achieved. The meeting of needs is not. That means that as a consequence of the premise of this exercise it is doomed not to work. Nor can it work: growth that challenges sustainability is not now a way out of anything.
That said I agree with the FT's conclusion:
Tax reform is not easy, but the prospect of trying to govern effectively without enough revenue is worse.
I agree that revenue is needed, but the FT is ignoring the fact (for fact it is) that tax does not, of course, pay for anything. It controls inflation arising from spending. That is a fundamental point the FT has not got as yet. Nor has it understood much else about tax, including the six reasons to tax, which are:
1) To ratify the value of the currency: this means that by demanding payment of tax in the currency it has to be used for transactions in a jurisdiction;
2) To reclaim the money the government has spent into the economy in fulfilment of its democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.
I agree with the FT that we need tax reform. What we do not need is tax reform to perpetuate the status quo.
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This is an interesting article, I dont agree with some of it
https://www.sambowman.co/p/britain-is-a-developing-country?r=vst
but what is interesting is
But there is one problem. There is virtually no recognition of how bad things are among British elites. Stefan Dercon, author of Gambling on Development, has a theory about what allows developing countries to experience sustained economic growth: they need their elites to come to an agreement to pursue it. The reforms needed to grow are painful and unpopular in the short-run.
If the FT wants to talk about Growth, or Tax Reform, or much else then this I suggest summarises a lot of our problems
In a world where mainstream and social media are dominated by the blatantly dishonest the Financial Times by comparison can seem like the only rational, evidence based source of news left, but that is to forget the readership it is trying to appeal to. The clue is in the name.
By comparison with the ONS the Migration Watch website used to provide reliable, easily accessible, detailed figures about immigration and emigration but you had to mentally vaccinate yourself against their editorial content.
I think it’s worth remembering that these articles should at least take into account historical perspectives too. Why is it always ‘since the war?’
At the end of the Napoleonic wars, debt to GDP was roughly at 260% What happened? We went on the biggest tear of economic growth in human history, the debt shrunk relative to the size of the economy.
So growth cures debt, cuts lead to bigger debt in the long run.
I would say that I’m not sure growth is the ultimate aim here, but I do think there is a lot of untapped capacity in the economy when we consider where we need to be on a transition to a low carbon economy. We just have to be braver and say ‘we need to borrow more now to invest and grow the economy for the future.
Another way to frame it of course, is that the public debt are private savings. There is at least a trillion £s sloshing about the city of London doing nothing productive, so let’s use it and invest in things that matter to people.
Martin Wolf had an article on an important tax change – The Land Value Tax.
https://www.ft.com/content/fadfbd9e-29ca-4d53-b69a-2497cc3ed95d
He also recommended a paper by 4 esteemed economists
Summary paper https://cepr.org/voxeu/columns/post-corona-balanced-budget-fiscal-stimulus-case-shifting-taxes-land
The Times also suggested the multiple land tax system should be replaced with a land-value-tax .
https://www.thetimes.co.uk/article/five-big-ways-to-fix-britains-broken-tax-system-d2l8wkrxl
A different ‘migration watch’.
https://www.scientificamerican.com/article/how-migrating-birds-use-quantum-effects-to-navigate/
Something to enjoy on your ‘timeout’ as autumn approaches, Richard?
Kind regards.
Thanks
We’ll be back to migration soon
August is a weird birding month – everything has happened or is waiting to happen