Undermining The Future

MONDAY, NOVEMBER 24, 2008

Undermining The Future

So it's goodbye to New Labour. The leaked increase in our top marginal tax ratewill only raise about £1-2bn pa of revenue, but the message it sends is much more significant.

Despite a mass of evidence to the contrary (see many previous blogs), Labour hasnever believed that lower taxes lift economic growth. And they have certainly never felt comfortable with Lawson's 40% top rate for the "super-rich". As far as they're concerned, if anyone flees the country just because they have to shoulder a fairer share of tax, good riddance, because they're not people we want here anyway.

The 2011 increase to 45% will lift our combined top rate - including the employee National Insurance contribution - to 46%. Which is almost exactly in line with the current OECD average of 46.2%. But that doesn't mean we can get away with it:

• The trend among most OECD competitors is down
• Tax levels in many of the big emerging economies are much lower than in the old OECD

The big picture is that under the cover of a reflationary budget, Brown is unpicking even more of his Thatcherite supply side inheritance. It's back to good old "Keynesian" demand management, the very thing that failed so catastrophically in the 70s.

There's a very real question as whether the fiscal boost will actually work in theshort-term, given that we are all being told we'll have to pay it back in a couple of years. But in the long-term it will leave a legacy of high debt and high tax that will undermine our prosperity for years to come.

Just like Old Labour always did.

PS If you've got any spare cash at all, you should put in a bid for the final remnants of the Georgian silver and Canaletto collection Brown will be auctioning off. For obvious reasons, bidders for the new wave of asset sales will be thin on the ground, and Brown is a desperate forced seller.

SUNDAY, NOVEMBER 23, 2008

Punishing Savers

Death to the rentier class! Plasma tellies for the people!

Lefties hate savers. Ever since kindly old Uncle Karl explained how savers live off the backs of the workers, left-wing governments have routinely taxed them, dispossessed them, and if at all possible, shot them. Private savings are anathema to the well ordered state because they permit bourgeois anti-social elements to ignore the Will of the People.

Comrade Brown has been a real Hero of the Revolution. Among his very first acts on coming to power was the confiscation of tens of billions from private pension funds, and the axing of tax-free schemes for small savers (Peps and Tessas). He has since done everything in his power to encourage indebtedness over savings, not least in his own conduct of the public finances.

Now, of course, those debt chickens are noisily roosting, but rather than encourage saving, his response is more of the same.

First, he nationalised the debts of our banks. As we blogged here, they amount to over 400% of GDP, and we have no idea whether they are backed with assets worth anything like that.

True, by guaranteeing bank deposits, he is protecting savers. But by acting as the banks' guarantor - not to mention the tens of billions of equity capital he's also pumping in - Brown now has the power to direct precisely how the banks conduct their business. And he's directing them to lend even more. He says:

"We've got to get the banks to start lending... We're determined to see banks start lending to families and businesses, to fulfil the commitments they themselves have entered into. The Government have accepted their responsibilities and it's important that other parties accept theirs as well."

Translation: I'm ordering my banks to drop their dogmatic old-fashioned insistence on credit assessment; I don't care that cash-strapped borrowers in a recession may not be able to repay; and if the banks don't play ball, I will nationalise them and despatch Commissar Balls to enforce field discipline.

So it's no surprise that Brown dependent RBS has today announced that it will keep lending to all its small business customers on unchanged terms, even though the world has become a much riskier place for such loans.

And who will pick up the tab for this clear borrower subsidy?

Yup, that's right, savers. If the banks can't rebuild their profitability via increasing loan rates and shutting off dubious borrowers, they'll have to do so by slashing savings rates. Knowing of course that Brown won't lift a finger to protect savers.

And then there's tomorrow's tax 'n' spend "giveaway". As we've blogged before, the main beneficiaries will be Gordo's favoured groups - the ones who routinely consume more than they produce, the ones who can be relied on to spend every penny they get, whether its begged, borrowed, stolen, or handed out to them by a benevolent Commissariat.

The main payers (post-2010) will be wealth producers and savers - the anti-social elements Uncle Karl warned us about. The bourgeoisie who think it's perfectly OK to save and accumulate personal wealth, and to ignore their wider duties.

The clear lesson of history is that it never makes sense to save under Labour. What they don't tax away, they sooner or later destroy through inflation, or by nuking asset values via a collapse in market confidence. Which is why the UK stock market is now 15% below the level Brown inherited way back in 1997, whereas the"cause of all our woes" US market is still 15% up (Dow).

Tomorrow, as soon as we get that VAT cut, the Tylers are off out to blow their few remaining savings on a collection of 60 inch plasma TVs, his and hers Porsche 911 GT2s, and some top-of-the-range cosmetic surgery.

There's no way we're hanging on to savings just so they can be taxed/inflated away in 18 months time.

PS M'learned friend the Village Postmaster makes an excellent point about the prospective cut in VAT. Since VAT is levied on turnover, not on an item by item basis, there is no compulsion on retailers to spread the 2.5% cut evenly across the shop. It would be much more rational for them to load the cut onto items where there'd be the biggest response in terms of extra sales. F'rinstance, booze - Tescos could load the cut on to their famous 22p lager - get it down to say 15p a can. Or fags - what about giving smokers a break? Or petrol? These are all things that have really suffered from having a high tax madman at the controls. And surely nothing would cheer us up more than cheaper booze, fags, and gas guzzling? The Postmaster describes the VAT cut as Gordo's contribution to the marketing budget of our biggest retailers. Sirs Terry and Stuart will be pleased. As will the overseas manufacturers who now supply our shops with virtually everything we'll be buying.