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8 June 2024

The 2024 General Election (2)

Tag(s): Politics & Economics, Leadership
The 2024 General Election has started in a somewhat chaotic way for most, maybe all of the parties. Firstly, the Prime Minister Rishi Sunak appears to have made the decision to go to the country six months before he needed to and four months before most people were expecting him to, without consulting his cabinet. Apparently, his audience with the King who has to accept his recommendation only lasted 14 minutes, reducing it to a constitutional convenience rather than a central plank of our constitution. The King’s mother in her incredibly long reign dealt with 15 Prime Ministers and agreed 18 General Elections. This is King Charles’ first and as a matter of courtesy the Prime Minister should have used the occasion to seek the King’s advice. It is also the Prime Minister’s first General Election as PM and already our King is dealing with his second PM in less than two years. He may well be dealing with a third before that two-year period is up.

By calling a General Election at such short notice the Prime Minister has also wasted huge volumes of work and therefore money involving various projects that now all come to a sudden end with no benefit and only cost. Here are a few examples but there will be countless more:
  1. The Public Accounts Committee was involved in several efforts to improve the management of public accounts including an overdue effort to get HM Revenue and Customs to actually answer the telephone when individuals are facing unwarranted tax demands.
  2. The Transport Committee was looking at electric vehicles, a highly complex area as I have reported in these pages several times. Electric vehicles are anything but green and their effect on carbon emissions will be to increase them substantially. If all cars in this country are EVs we will need four times the power stations that we have today and we have not built a new one in decades. And where will this electricity come from? 50% from gas and oil.
  3. The Culture Committee has only recently conducted an expensive trip to Glasgow to discuss minority languages.
  4. The Public Administration Committee had just made an even more expensive trip to Bermuda. It has a new chair and she chaired just one public hearing before the committee was shut down.
There will be many more similar examples of wasted effort, time and money.

We still await the detailed manifestos from all the parties but there are many indications of what will be in them. However, the common link that applies to all the parties is that they all have quite ambitious plans to deal with our many problems but are not demonstrating that they have any clue how to pay for it. We already have the highest burden of taxation since the Second World War when it was partly funded by borrowings from the USA which were only paid back several decades later. All the parties use the mantra that they will be able to pay these bills through economic growth, but we are showing very limited economic growth and almost none when you calculate it correctly by looking at GDP per capita rather than simple GDP.

Again, I have made this point several times on these pages, but it infuriates me that even some leading economists let alone politicians and journalists don’t understand it. One of the reasons why net immigration is so important is this. If our population grows as fast or even faster than our economy then we do not have the resources to pay for all the homes, schools and teachers, hospitals and doctors that are needed and that is why there are shortages of all these things. In yesterday’s newspaper it was reported that there have never been so many vacancies in teaching and the average teacher is now leaving the profession five years after completing training.

Both the major parties are pretending that they won’t increase major taxes like income tax but the Conservatives have already increased it substantially by freezing allowances until maybe 2028 which is bringing more and more people into higher rates of tax. Labour won’t change this or much else despite their claims of change. Much needs to change on our system of taxation for many reasons. Firstly, it’s unfair. Secondly, it is grossly over-complicated. And thirdly, the public finances are in a terrible state.

Let’s take those in reverse order. Debt has never been so high. If the country was a business it would be bankrupt. Government spending plans mean likely spending cuts in most departments of between 1.9% and 3.5%. When George Osborne announced his so-called austerity he in fact increased public spending substantially. The same is likely to happen again unless there is substantial reform, particularly in the civil service which is grossly overmanned but often without meeting the required level of public service.
The complexity of the tax system is well-documented. Nigel Lawson as Chancellor set a fine example by abolishing at least one tax in each of his budgets. The next Chancellor should do something similar starting with stamp duty. It is effectively a tax on people who want to move around the country, often to take up a new job. So we are making them pay a fine when they’re trying to make the economy work better or perhaps just seeking to improve their lives.

The Tories are right to try to get rid of National Insurance. It is a tax on work but it is also a con trick because it was introduced to pay for certain benefits but those are now just financed out of all general taxation. The Treasury makes no effort to distinguish between them.

Council tax is also deeply unfair. It was introduced by Michael Heseltine when he was given the job of financing the local authorities following the failure of the Poll Tax experiment. Poll Tax was based on the sensible idea that all people should pay something towards the services they receive from local authorities such as waste collection and road repair, but a trial in Scotland showed that people would not accept what they saw as a tax on being alive. But Council Tax is assessed on the value of your home. Now it’s a long time since these so-called bands were reassessed and if such a reassessment were to take place the effects for some could be alarming. My wife and I moved into our house 26 years ago. According to local estate agents its value in cash terms is now worth nearly six times what we paid for it. Of course, there has been inflation and we have made some improvements to the property but if we had to pay council tax six times the current level that would be over £27,000 p.a.

Our usage of council services is no greater and, in some cases, less than those living in smaller houses. There are just two of us in the house and so we generate less rubbish for collection than a family of four or more. Both our children are grown up and no longer go to school. They both live overseas so their children don’t use our local schools either.

As to the national debt it is unaffordable. We are just pushing more and more of a burden onto future generations. Paying more and more in taxes is not the answer. No doubt those on the left would like the rich to pay more in taxes but they already do. The top 10% of taxpayers paid 60% of all income tax in 2023-24, up from 35% in 1978-79. The share of income tax revenue contributed by the top 1% of taxpayers rose from 11% in 1978-79 to 29% in 2023-24 despite big cuts in the top rate of tax in the first ten years of that period. Another myth about the rate of tax is that the top rate of tax is 45%. My marginal rate of income tax is 62% according to the way in which allowances are calculated. The problem with that is that there is little incentive to go out of one's way to earn more income when you're only going to keep 38% of it.

However, some wealthy people do get a big advantage in the way that capital gains tax is charged. For example, some people working in financial services firms receive substantial bonuses which they then pretend are capital gains rather than what they actually are which is simply an incentive payment. Another area which could be reformed and which would involve an increase in tax income for the government is inheritance tax. It is exempted from agricultural land, shares in unlisted companies and pension pots. The reasoning for the exemptions for land and shares is to allow family farms and firms to be passed on but land qualifies even if the owner isn't working it, as do any shares in private companies. So I see substantial opportunities for reforms in the taxation system that could lead to a fairer system of tax, a more efficient system of tax and with imagination and ingenuity a system of tax that actually does raise more money for the government without giving the impression of penalising people. But I see no sign of that in the current Election campaigns.

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