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Cloud cuckoo tax

By Andy Mayer
August 1st, 2011 at 12:35 pm | 1 Comment | Posted in coalition, Tax

On Sunday the Liberal Democrat Chief Secretary to the Treasury, Danny Alexander, echoed the Business Secretary, Vince Cable, that the 50p income tax rate, introduced by the previous Labour government, was unlikely to be scrapped anytime soon. Those saying otherwise, principally Conservatives, were living in “cloud cuckoo land”. The priority of the Coalition government is and remains to deliver tax cuts to low and middle income earners. The rate though could be reviewed in future.

In one sense, the political, Alexander and Cable are absolutely right, the politics of reducing tax on elites is generally poisonous, particularly so in the midst of a stagnant economy, particularly for the Liberal Democrats. To be achieved, politically, it would need to be part of a balanced package to generally reduce tax for everyone. Margaret Thatcher’s governments, for example, reduced all income tax bands, in steps, not just the top rates.

Economically I’m less convinced. The 50p tax rate like all high marginal taxes distorts incentives against work and growth. Highly mobile, highly able professionals, investors, and entrepreneurs can better choose where they work than others. They will be influenced, over time, by relative tax rates, alongside other factors. It is heroically naive to make good-will, inertia, and patriotism the basis of tax policy.

Further whatever the alleged benefits of high taxes in respect of fairness, supporting infrastructure and other public goods, most are benefits that do not make a lot of difference to those expected to foot the bill. There is little evidence that high tax rates raise more money.  

High income tax is an experiment the UK has tried before, concluding an economy that needed an International Monetary Fund bailout in 1976. The tax take, and share of the take, from high earners increased substantially after the top rates were reduced in 1979 and 1988.

The 50p rate, to some extent then, is a cloud cuckoo tax. It will be scrapped eventually. The question is when the political circumstances will be right.


Guido is wrong on capital punishment

By Andy Mayer
July 29th, 2011 at 10:50 am | 7 Comments | Posted in Crime, Libertarians

The launch of the government’s new e-petitions service has inspired Britain’s leading political blogger and libertarian Guido Fawkes to launch a campaign for a vote to restore capital punishment for “child and cop killers”.

“We shall at least see which MPs believe salus populi suprema est lex, and those that put the welfare of child killers above the wider community. Let them be counted.”

He believes such a move would have popular support, and may well be right, instinctive sympathy for murderers is in short supply.

That though should not be enough for a populist liberal or libertarian commentator to reach for the noose.

The principle problem with the death penalty is that to be just it relies on certain guilt. A post-mortem appeal is of value only to the cause of history, not the accused. Life in prison, which should mean life for those Guido is targeting, at least carries some opportunity for compensation.

To believe in the death penalty one must either believe in the infaliability of the state justice system, I suspect Guido does not. Or like the former Conservative MP for Selly Oak, Sir Anthony Beaumont-Dark, a strong influence on my youthful liberalism, that:

“a few miscarriages here and there are worth the price of protecting the public” – 1989, at a speech to KES Birmingham

The few at that time were the recently released Guildford Four, wrongly convicted of 1975 pub bombings, shortly followed by the over-turning of similar convictions for the Maguire Seven and Birmingham Six.

I do not believe those lives are worth the limited comfort of knowing some genuine killers can never kill again. I certainly don’t believe the state can be entrusted to make those choices. Even modern forensic techniques have not eliminated injustices. The death penalty is a tool, open to irreversible abuse and error, not guarantor of individual liberty.

A second reason against capital punishment is deterrence. Perhaps Guido is more compassionate than I am, but I would rather a genuine child killer, like Anders Breivik, spent the rest of their long natural lives facing the consequences of their choices, rather than getting off on early release. Child killers in particular face potential terrors and threats in prison that can see them spend long periods in solitary confinement with only the ghosts of their evil for company. That should be a far worse deterrent than a six foot drop.

Where I would concede change in the current system is that those with no hope of release, should after a minimum sentence be allowed to request assisted suicide. It should though, as with assisted dying for the terminally ill, be their choice and humane. Surely that would be a better reform campaign for a lover of freedom than a returning powers to the state to act as the lynch mob of last resort.

Rupert versus the volanco

By Andy Mayer
July 15th, 2011 at 10:51 am | Comments Off on Rupert versus the volanco | Posted in Media

I am currently observing the decline and fall of the Murdoch Empire with a flickering 3G card ensconced in cottage near a sleepy Cornish hamlet. Observing the Westminster village take on the media village from this outsider’s redoubt is interesting.

News filters through that News of the World staff have been offered up to assuage the angry volcano gods of Parliament. Having not seen eruptions subside, the village Chief tain has generously allowed his high priestess to hurl herself into the caldera as well to protect the inheritance rights of his son, whilst postponing his mooted takeover of the prime real estate in the path of a lava stream.

Meanwhile he and his empire are under investigation by various witch doctors for selling juju-juice unethically obtained from the gall-bladders of goats by non-licensed practitioners operating outside the code of conduct of the snake-oil merchant’s guild.

That the Chieftain’s aides were often slipping the same witch doctors canisters of the stuff to treat their patients whilst the village guards were bribed with nuts and berries not to notice, is off course entirely beside the point. The witch doctors have a score to settle after various friends of the Chieftain exposed their practice of demanding extra offerings for rituals of dubious worth.

The long oppressed pygmy tribes, more frequent victims of the Chieftain’s disdain than wrath, are cock a hoop. They are claiming credit for being right about the Chieftain all along, despite spending a vast amount of their own energy trying to attract his attention with primitive dancing displays and occasionally writing op-eds for his village newsletters.

I think it unlikely then that this crisis will see the pygmies taking over the village, and even more unlikely that any dilution in the power of the Chieftain will lead to a flowering of pygmy-friendly pluralism. Village feuds have a habit of turning into long-running tit-for-tat vendettas and power struggles rather than holding hands around the camp-fire in a show of mutual respect.  

The illicit trade in gall-bladders should, we all hope, subside. It is at any rate already illegal in the village and persuading the guards to enforce tribal law by hurling a few of their dozy leaders and most egregious nut-crunchers in the volcano should help revitalise their love of justice.

Whether the Chieftain and his empire will survive remains an open question. His pending grilling at the hands of the various tribal councils for the effective redistribution of tar and feathers should not prove fatal, but will impede his movements. His reputation for being master of this volcano has gone, but then there are other villages. Sometimes it’s best to just get in the canoe and paddle to a different island.

A strike against children

By Andy Mayer
June 30th, 2011 at 7:54 am | 8 Comments | Posted in Pensions, Public Sector Reform

Today’s strike action, principally by members of the NUT (teachers) and PCS (public sector workers) unions, is a strike against children in defence of privilege.

It is strike against children in the small sense of depriving many of a day of the education their parent’s taxes have paid for.

It is strike against children in the deeper sense that what the Unions demand is for future generations to carry the burden of their  privileged pension commitments today.

There are many detailed points of due process and politics that contribute to this dispute. Underlying it is a battle over two very simple point of principles.

Whether or not those of us who can afford to fund our retirement should do so.

Whether or not there should be equivalence between public and private sector provision.

In the private sector principle one is settled. Final salary schemes are being replaced by defined contribution schemes.

In the public sector there is still a pervading sense of unreality that the trillion pound gap between promises and payments can be bridged without reform.

On question two old arguments dishonestly claiming public sector are particularly poorly paid or that the work is radically different to the private sector are deployed by the same people who argue for fairness and equity in many other areas of public life.  

What reform is proposed is not even equivalence with the private sector (bar retirement ages), just a less generous form of defined benefit based on career average earnings. It is a modest, generous, and reasonable reform, around which discussions are still in process.

Public sympathy in that regard, which is currently fairly balanced, is unlikely to warm to the Union cause.

They deserve to lose. They will lose.

If they don’t our children, and theirs, will pay the price. 

The government should hold their nerve.

The People’s Bank is in the red…

By Andy Mayer
June 23rd, 2011 at 10:37 pm | Comments Off on The People’s Bank is in the red… | Posted in Banks, Liberal Democrats

I confess, like most commentators on this matter, I’m less than thrilled by the idea of the People’s Banks – giving everyone a small stake in the  nationalised entities RBS and Lloyds.

Whilst I can see the populist appeal, I’m not clear why it’s better to get our money back through an administrative equivalent of the national ID card database. Rather than just selling them off and reducing the debt. In fact it might guarantee we don’t get the money back.

The government for example may be wise to sell the banks at a loss (to avoid worse losses later), or break them up in order to maximise value. This scheme, holding shares in trust, would prevent the former, and make the latter more difficult.  

It’s also not clear to me why a body with 46 million shareholders (or more) would be any better run (fiscally) than the nearest equivalent, the Treasury. With a national referendum required for every AGM, the temptation would be for bank governance to be overtaken by activism on a raft of single issues unrelated to the business of running a good bank. Positions on the Board would become attractive targets for publicity seekers. Dull  but talented executives actually good at making money, if current public attitudes in polls are typical, would be regularly sacked on the grounds of ‘being greedy bankers’.

A problem particularly likely during the period the shares remain in trust. The shareholders, at that point have few incentives to be responsible. They own a share of nothing.

This is not a problem generally true in with share ownership. If you’re an investor with something to lose you care passionately about whether or not your investment has just voted cut rates to the point of making a loss in the name of fairness, loan money to high risk small businesses with a good lobby, or commit 0.7% of revenue to CSR.

Banks are financially successful because they are not run like democratic governments. Banks mostly target and invest in probable success. Governments, for reasons of equity, fairness or other political values, tend to do quite a lot of the exact opposite.

Turning a bank then into a proxy for government is not necessarily going to lead to a windfall for anyone. And if that doesn’t happen, the long-term political dividend will be negative.