Nick Clegg: Fool or Charlatan?

Let me start with a disclaimer: I knew Nick Clegg reasonably well in my first parliamentary term (1999/2004), when he was the sole elected Lib-Dem MEP for the East Midlands.  I debated against him once or twice (with some success).  He is a pleasant and likable young man, and so far as I was able to judge, perfectly decent and straightforward, even if hugely deluded on the EU issue.  I never for a moment saw him as a future Deputy PM, and he still looks to me like a boy sent to do a man’s job, and finding it tough going.

The Lib-Dems, like Labour, are deeply attached to the top 50% rate of income tax, not for any identifiable economic reason, but because it demonstrates “fairness” in these hard times.  It is, however, difficult to see that a tax which deters inward investment, drives high-value executives — and businesses — out of the UK altogether, undermines our competitiveness, stunts growth, increases unemployment and makes us all poorer, can be described as “fair”.

On the Conservative benches, there is strong pressure to drop the 50% rate ASAP.  But Danny Alexander, Lib-Dem Chief Secretary of the Treasury, has described this idea as “Cloud Cuckoo Land”.

Nevertheless, the signs are that George Osborne (God bless him) is determined to do just that, at the earliest opportunity.  The Lib-Dems have not publicly accepted that, but they are preparing the ground to do so, suggesting that if the 50% rate goes, we need to find some new way of punishing success, and they are resurrecting their old idea, beloved of Vince Cable, of a “mansion tax”.

Nick Clegg is reported as saying that revenue from the Mansion Tax would be needed “to replace the revenue from the 50% rate”.  And this brings me to my question: fool or charlatan?  Clegg knows (or ought to know) that a tax rate this high collects no additional net revenue at all, and indeed probably reduces revenues, for all the reasons with which we are familiar, and which I outlined above.  It raises no extra revenue in the short term, and by depressing growth and investment ensures lower revenues in the longer term.  If he doesn’t know this, he is a fool.  If he does know this, but refuses to admit it, he is a charlatan.  But because I like the guy and I don’t want to be unkind, I’ll offer him a let-out.  Perhaps, just perhaps, he’s merely a prisoner of years of woolly knee-jerk Lib-Dem left-wingery, and can’t quite find his way out.

Warren Buffet has muddied the water by urging that in America the rich should pay more tax.  But he argues that on the grounds of personal morality, not economic policy, and he has in effect answered his own question by becoming one of the world’s largest charitable donors.  The great thing about wealth creation linked to fair and moderate tax rates is that, as we see in America, it promotes philanthropy on a vast scale.

There is overwhelming evidence that progressive taxes depress growth, while flat taxes promote growth.  The Laffer Curve shows that there is an optimal level for tax rates to maximise revenues.  Set rates higher, and you depress revenues and growth.

I heard a commentator on the BBC arguing for higher taxes on the rich.  “I earn more, so it’s fair that I should pay more”.  Of course.  If you earn twice as much, it’s fair you should pay twice as much (which is what happens under a flat tax).  It’s not fair you should pay four times as much, as we do today, or many more times as much, as some are calling for.

Fortunately Osborne understands all of this.  He is determined, rightly, to make the UK a more attractive place to do business and to invest.  So we need radical action on tax.  A report in today’s Telegraph covers a Centre for Policy Studies paper pointing out that while we cheerfully talk about a top rate of 50%, the real top rate for some higher earners, taking account of National Insurance and the clumsy claw-back of allowances, is as high as 66%.  This is like the bad old days before the Thatcher revolution.  We have to learn those lessons all over again.

So Osborne must move fast to scrap the 50% rate.  He must rule out any talk of a Mansion Tax.  He must set out a road-map to make the UK a business-friendly, low-tax environment.  And one more thing.  He and the government must have a change of heart on green policies and renewable energy.  If he doesn’t, energy costs alone will be enough to scupper the British economy.

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9 Responses to Nick Clegg: Fool or Charlatan?

  1. Peter Hulme Cross says:

    “He and the government must have a change of heart on green policies and renewable energy. If he doesn’t, energy costs alone will be enough to scupper the British economy”

    Absolutely right!

    Perhaps Osborne does understand this but the odds are stacked against any change of Energy policy.

    A majority of MPs of all Parties voted for the Climate Change Act 2008, and until that is repealed it will be difficult or even impossible to change energy policy..

    Cameron is a “true believer” in “climate change” and the need for “green solutions”. He supports Huhne at the Dept of Energy. and these two between them are a huge obstacle to any change in energy policy.

    High energy costs will undermine our whole economy very efficiently yet that is Government policy, as you point out. It is utter madness. How is it these people ever got elected??

  2. Axel says:

    This is the same Nick Clegg, whose wife Miriam Gonzalez Durantez, had accepted a lucrative job with a major Spanish wind farm firm, just weeks after her husband became Deputy Prime Minister. Miriam Clegg joined the board of Acciona which has been awarded government subsidised windmill contracts in Britain.

  3. Peter Hulme Cross says:

    And as for Nick Clegg…

    If he loses his seat at the next Election, which is quite possible, Cameron will no doubt appoint him as an EU Commissioner and he will disappear off to Brussels where he belongs.

    The Eu elite think of him as “one of their own”.

  4. Lazarus says:

    Sorry Roger but I don’t understand your argument at all. I will admit to not being a financial whiz but I cannot see how a 50p tax rate, or any tax rate on personal earnings, “deters inward investment, drives high-value executives — and businesses — out of the UK altogether, undermines our competitiveness, stunts growth, increases unemployment and makes us all poorer”.

    Unfortunately I do not earn enough to reach this tax threshold but I am no fan of stepped taxes linked to earnings and agree they are not fair.

    However I do know several people on such a rate and they are in no position to directly contribute to inward investment or the countries competitiveness any more than I am. They will not be leaving the UK because this is where their job is. How can any tax on personal income do all you claim?

    The only real way to drive inward investment, growth, competitiveness and employment in business is low business taxes either directly or through enterprise zones. Even giving people 100% of their income will not do what you say, just give people more disposable with no guarantee that it will even be spent in this country.

    • Thanks Lazarus. Of course some people can’t move, but many high-earners have great flexibility. Pop stars can domicile themselves anywhere. A hedge fund can move with its key staff to Zurich or Hong Kong. HSBC considers moving to Hong Kong. Many companies have already moved. This is fact — it’s happening now!

  5. Lazarus says:

    You talk about financial institutions and previous employment. How much additional employment do you seriously think the examples you use can create in the UK?

    I accept that the examples you mention are businesses that move or consider to move because they can operate more cost effectively elsewhere. But it isn’t because a few of their top execs are paying 50% tax. It is because the whole business is cheaper to relocate and this has little to do with the rate of income tax and everything to do with business taxes and wages.

    • Sorry Lazarus, but I’m afraid you’re just wrong. Very large numbers of the highly-paid (who provide a huge slice of toal tax reveue) are free to move. Many have done so, or will do so. Others have chosen not come to the UK in the first place. Many more 50% tax-payers will have hired clever accountants, or done less overtime, or decided against new projects — why bust a gut to earn more if you’re paying over 60% to the government? And these people in turn would have hired many more of the lower-paid in their businesses. There is overwhelming evidence from many countries over several decades that high tax rates depress economic activity and growth.

      • Lazarus says:

        I agree with what you say about the unfairness of the tax system and I understand some are in a position to avoid it but I cannot accept that those that do would be in any better position to create employment here.

        You have only managed an example of financial institutions, which are global anyway. Where are the industries and manufacturers? They create jobs much more than a few highly paid pen pushers in banks and they have not moved off shore because of personal taxes but corporate and business ones.

        Interestingly you have supported my position in another recent post;

        “Despite all the talk of rebalancing the economy, and making the UK a good place for investment, we have little to show for it. A series of reports from business organisations accuses the government of failing to live up to its rhetoric, and delivering little on the growth agenda. Rather than rebalance the economy by promoting manufacturing”

        Shame you used it as a misguided opportunity to bash the future energy market.

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