For Mr. Miliband: a little elementary economics

Cartoon

I’ve just come back from the hugely successful UKIP Conference in Doncaster — where Ed Miliband has his seat.  As I said in my speech, I had rather hoped to see him in the auditorium.  Maybe he’d like to see a real party conference with a party on the way up, rather than a Labour Party on the way down.  But then (as I added), he probably doesn’t want to be seen anywhere after his near-death experience at the Labour Party Conference.

But the scary thing about Ed is his utter economic illiteracy.  A simple example: he’s going to impose a cap on energy prices, while at the same time setting a target for zero emissions by 2030, which would require massive infrastructure development in renewables and nuclear (and even then is a practical impossibility).  But he simply fails to see that a price cap guarantees that he won’t get the investment, so unless he’s got a forest of money-trees in his back garden, it just ain’t gonna happen.

But it’s when he gets around to taxation that I really wince.  He’s going to apply a mansion tax to houses over £2 million.  With perhaps adjustments and exceptions for postcode, and for elderly people who are asset-rich and income-poor.  Never mind the huge complexities in re-valuation, in anomalies at the margin, and the rest of it.  He simply hasn’t considered the consequences.

A mansion tax would tend to put a dampener on the housing market.  Prices would be at least a little depressed (maybe not a bad thing in itself).  But also people would move less often, and so buy fewer carpets and white goods and so on.  They would employ fewer builders and decorators and gardeners (and at that price level, probably architects).

So Miliband should offset against his proposed tax revenue the loss of all the stamp duty and VAT and other tax revenue that will result from a depressed housing market.  Has he factored that in?  Has he hell!

He believes in static-model economy.  Raise the higher rate of tax from 40% to 50%, and the income from that tranche will go up by 25%.  Basic arithmetic.  But wrong, wrong, wrong — because the economy is dynamic, not static.  A higher rate of tax will mean a bigger black economy.  It will mean people opting for less overtime and lower incomes.  It may mean people will retire earlier, or not bother to make that investment they’d been thinking about, or move abroad.  They may hire a smarter accountant to propose legal loopholes.  Foreign investors will look elsewhere.

Miliband won’t raise the revenue he expected to raise, and it is quite possible that revenues will reduce, not increase.

UKIP wants lower, flatter taxes, not to benefit the rich, but to drive investment, growth, prosperity and jobs.  The problem we face is that economics is counter-intuitive, but the fact remains: high tax rates on the better off damage everyone, including those on low incomes.  When I Tweeted this aperçu, someone replied “Oh, so taxes are only for poor people, are they?”.  Idiot.  The top 1% of income tax payers pay something like a third of all income tax revenue. 

So we must challenge Labour’s glib slogan that anyone wanting to reduce the top rate of tax is “giving money to millionaires”.  For a start, reducing the tax rate is not “giving” anything at all.  It’s just confiscating less of someone’s own money.  And secondly, it’s not giving anything away, because reducing that rate won’t reduce tax revenue, and may actually increase it.

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14 Responses to For Mr. Miliband: a little elementary economics

  1. eddie coke says:

    Exactly, Roger. Plus he should consider the fact that higher taxes make tax lawyers and perfectly legal avoidance schemes relatively more attractive (ie “total taxpayer cost” versus “government revenue trawled in”). And let’s not forget the endless money-printing-presses of both QE and fractional reserve lending – more money in the economy means lower value of money which means higher house prices. Et voila, your little holiday caravan is now in the mansion tax category.

    Most of this stuff is covered in a nice clip, which I might have posted previously (he says it all so well though, that it’s worth a repeat):

  2. Jane Davies says:

    Surely Miliband has not thought up this little scheme all by himself, he must have had help from his ‘advisers’ who it would seem are also economically illiterate.
    Now here’s a thought, what is being done about the 100 and more UK businesses on the FTSE 350 index who have been accused of tax evasion? To name just six Amazon, Starbucks, Facebook, Google, Apple and E Bay a good few billion would be clawed back if these top companies where made to pay up.
    Joe Bloggs cannot get away with tax evasion. We had countless threatening (and I mean THREATENING) letters from the DWP who insisted we owed £1000 in tax for last year and it has taken countless letters and forms to and fro to prove we did not owe this money, but many seniors like us would have been intimidated and paid up due to their bullying tactics, and yet these big companies are let of the hook. It seems it is easier and more lucrative to go after the sort targets, but they met their match with me…I’m not easily intimidated and they also cannot have what I haven’t got! Simple fact of life!

    • Ex-expat Colin says:

      Jane…D. Telegraph letters here today:
      Frozen pensions for Britons abroad
      :http://www.telegraph.co.uk/comment/letters/11131430/Frozen-pensions-for-Britons-abroad.html

      I am locked in with the DWP over my mothers estate..nearly 2 years and I have the local Tory MP helping. If your problem is serious, and sound as if it is, then write by recorded mail to IDS directly. I have done that before to Ed Balls wife when she was running(?) the DWP. Only I threatened them with harassment proceedings…fixed in 2 weeks.

      Labour hanging around is a worry…so are the Tories!

      • Jane Davies says:

        Thanks Colin I saw this….Sheila Telford represents the International Consortium of British Pensioners (ICBP) who are actively fighting the injustice of frozen pensions.

        Our locking of horns with the DWP took six months to resolve and as they insist on using surface mail many of their demands for such & such to be sent by a certain date were past the deadline before we even received them. Our air mail costs at $2.50 a shot (minimum) soon mounted up, all to prove that they were wrong in the first place.
        Have you tried this route Colin? http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm

        Good luck…..

      • Jane Davies says:

        Regarding the article in the Telegraph….protempore (me) has commented and laid out the hypocrisy and absurdity of the frozen pension scandal.

      • Ex-expat Colin says:

        The organisations we refer to here (DWP/HMRC) are in a seriously dire state. Its the same firm anyway. You realise it once something they are tasked to deal with (simple arithmetic/logic stuff), heads south nose down for too long. But it gets worse as you slowly discover that any route to solution has a block or two designed in. Thats apart from the tea breaks and sick leave….whatever.

        HMRC (LiverpoolCumbernauld) can pump out all manner of auto letters but is very patchy in terms of continuing adequate communication with a customer(?). For example it has difficulty understanding what a receipt is, how to construct one and post it. My local tax office is/was better by miles…fortunately.

        DWP (Newcastle/Gloucester) similar to above, very poor letter constructs and an inability to manage monies that are sent to it using its on-line service with required reference numbers. About £500 of a pension over payment demand languished in their account(s) unknown to them for a year….last year on my late mothers behalf. They don’t want to reply to letters sent to them..or loose them? I mean, its a complaint letter that you are invited on their website to send ?? I need to get stuff in writing.

        Another complaints approach I recently spotted was via the Parliamentary and Health Service Ombudsman. Trouble is an MP has to sponsor your complaint on a form (assess story + sign it). So I went to the local Tory who avoided this complaint process and enquired with DWP himself. MP’s have a direct link to such Depts. The overpayment nonsense above was discovered and and I was told that I should expect such inadequacies of the DWP…too big. A bit more to it than that. This little game trips along (stop/start) with me on a very short fuse poking at them, and thats not fun.

        It is contempt emanating from the highest levels of Gov. Inadequate procedures and I am sure low quality staffing. Pay peanuts get monkey’s – not quite peanuts at the top though…is it?

        So your side of the pension system is a problem and so is my side. UK deaths are reported via the Land Registry to DWP and its there that the stupid and almost unbelievable games begin. Modern Britain…my ar*e!! I had enough trouble in the Middle East with the remnants of the British Civil Service, but had quick ways round it.

        Not sure what the letter to the D. Teleg will do…with whats in government likely nothing. I hope to live long enough to see this Westminster gang turned on their heads.

        End of rant.

    • Of course these corporations are not doing “evasion”. Generally speaking, they’re doing perfectly legal avoidance, and they have a fiduciary duty to their shareholders to pay as little tax as they legally can. So don’t blame Starbucks: blame the excessively complex UK tax code for being shot through with holes. Over to you, Mr. Osborne.

      • catalanbrian says:

        Good grief, Mr Helmer. Something we can agree on. As you say, the directors of these companies have a fiduciary duty to their shareholders to minimise tax payments, which is why here is good reason to close the tax havens, most of which are either British Crown Territories or British Overseas Territories, where many of those avoiding tax tend to take their profits. I agree that the UK tax legislation is shot through with holes, but that is what happens when things just grow, like Topsy. A full overhaul and rewrite is required, but is anyone prepared to do this, or do anything about tax havens? I doubt it, so we might as well all shut up and forget about it.

      • Jane Davies says:

        Well “Mr Osborne” has done bugger all up to now, I wonder why? The cynic in me says it’s in his and his best buds interest not to or this outrage would have been fixed long ago. The DWP is a shambles, I and my fellow campaigners for pension justice have numerous boilerplate letters from an individual named….. wait for it……Goff Daft….(Really, you just couldn’t make this up, or maybe they have!) They never answer any questions just churn out the same old garbage and avoid the subject by spouting the current government’s waffle. We pay them, whether it’s peanuts or pounds, to screw us every which way and if we dare to complain we are then bullied and threatened in the hope we will be intimidated and back down. The tail has been wagging the dog for so many decades it’s now regarded by many politicians to be the norm so we must put up and shut up. Well not me…not until I’m in a pine box!

  3. Ben Jamin' says:

    So, reduced HPs though MT = less VAT

    Higher HP=higher mortgage payments= less VAT

    Not really seeing the difference.

    The only economic effect of the MT is to reduce selling prices and rents. On it’s own it does not reduce GDP. As a replacement from taxes on work and enterprise, it increases GDP.

    Milton Friedman endorsed property taxes, like the MT that de-capitalise land rent.

    Who needs the economic lesson again?

  4. C.KAY says:

    Had my own business a few years ago,doing about 60 hours a week on average,getting taxed to f###,for what.Then it came to me,the most valuble time in your life is your free time and the time you spend with your kids and as yet they haven`t found a way of taxing that!.So sold up did a bit of this, still doing a bit of that and having a reasonably nice life style, loads less stress,but nice to know that I`m not contributing much to that lot in Westminster or all their minnions,and paying as little tax as is legally possible,makes me feel good!

  5. Mike Stallard says:

    I don’t think you understand Mr Miliband at all.
    He is the puppet of Mr McCluskey and the TUC who pay about 90% of his Party’s bills. The Labour Party is in debt and the donors say what happens. They want – as usual – better pay and conditions for their members and to hell with everyone else. They simply are blind to the economy, to the deficit, to encouraging the more adventurous, to growing bureaucracy and, later, to inflation and bankruptcy. They just don’t care.
    Someone literate in economics like Ed’s brother, Dave, would be a disaster for the Party which would split right down the middle as it would have done if our Tony had not been such a publicity genius.

  6. Jane Davies says:

    Canadian prime minister Stephen Harper has been mauled by the press and opposition parties this week for flying Barroso and Van Rompuy back to Brussels at the taxpayers expense in the “government” airbus. Cost $300,000. All so that these two idiots could attend an unscheduled cocktail party which meant they would miss their pre-booked flight. So why not re-book a flight on an airline if attending this jolly was so important? Harper was very scathing of governments wasting tax dollars when he was in opposition and yet he does this. Why oh why can we not have politicians who are not two faced hypocrites and liars? They must exchange ideas on how to screw the taxpayers whenever they all meet at these G8 summits, perhaps compare notes on what they have got away with.

  7. Patryk says:

    It’s all good mr Helmer, but how does it compare with UKIP’s luxury tax? Milliband will impose a tax on properties over £2m while Farage will impose a 25% tax on shoes over £200.

    I also have an issue with you talking sense when criticising Labour and then not applying the same logic to your own party. You say that economy is dynamic, therefore an increase in tax rates doesn’t mean an income in revenue. Agreed. But in labour market the economy is similarly dynamic. A job “taken” by an immigrant doesn’t mean there are fewer jobs for the UK nationals as the demand this immigrant puts on products creates jobs in other areas. Besides, immigrants (especially EU ones) create jobs and set up companies at a higher rate than UK nationals clearly benefiting the economy (and you know very well that “the economy” simply means local population). What is it, mr Helmer, hypocrisy, ignorance or just plain old party tribalism?

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