We had the Chancellor's spring statement last week and an immediate u turn on scrapping the one and two penny coins. On decimalisation in 1971 1p was equivalent to more than 14p now. The 5p piece was worth not far off the current pound. And the halfpenny, when abolished without much fanfare or regret in 1984, was worth between 1.5p and 2p now. So Hammond's plan was eminently sensible. It seems one of the arguments that swayed him was from charities who pick up worthwhile donations from discarded small change. Not a good enough argument in my view. Time to take a common sense decision and scrap the copper coins. After all what can you spend a penny on nowadays? Not the obvious, that's generally 20p!
More importantly, the chancellor's statement prompted the usual culprits to bang on about austerity, ignoring the fact that, as I have pointed out on numerous occasions, we never had austerity, at least not proper austerity like Greece and Ireland. What they should do is make the case for extra spending on specifics and saying what else they would cut, what taxes they would increase or what new taxes they would implement. Public spending is now at close to 39% of GDP, higher than it was in the years just before the financial crisis. And, as David Smith put it "History tells us we may be close to the natural limits of what can be extracted from the economy in terms of tax." Tax the rich? We already do and pushing it further is risky in terms of the tax base. The top 1% of earners will pay nearly 28% of income tax revenues this tax year and the top 5% nearly half of the total receipts (48.1% is the official OBR projection).
While I have been supportive of the government policy of raising income tax thresholds, started under the coalition, there are risks if it is taken too far. Fewer than half the country's 65.6 million population now pay income tax: 29.9 million people, down from 32.5 million a decade ago. Even allowing for the proportion of the population that is under 18, that's still an awful lot of voters who don't care what the income tax rate is. Which could make it easier for John McDonnell to give rates a big hike, should we be so foolish as to give him the chance. It wouldn't work of course, as many of that 1% would leave. Which wouldn't bother McDonnell as, remember, he wants to smash the system and move on to his real plans.
The tax system should be broadly based as well as progressive.
Meanwhile big business was muted on Brexit last week after the latest Davies-Barnier love-in, sorry agreement on most of the transitional arrangements. They still want a customs union and I suppose are keeping their powder dry for the long term trade deal negotiation. But fewer than 1 in 10 British businesses sell into the EU single market and the views of the wider range of business than the CBI represent are much more nuanced - and some people in business voted for Brexit knowing it will damage their own commercial interests because they could see there was a bigger picture. The British Chamber of Commerce director Adam Marshall has said "There are lots of businesses in the UK who are actually looking forward to leaving the EU."
That said the 1 in 10 statistic is, of course, hugely misleading because not much more than 1 in 10 companies export at all. I don't know what the latest figure is but the FT said it was 10.8% in 2014**, down from 11.6% in 2013. The number of exporting companies had been hit by the then strong pound, so one might expect the post referendum weaker pound to have reversed that trend. Nevertheless, to a first approximation I would suggest that nearly all our exporters export to the EU.
And of course they will still do so under whatever the future trading arrangements are. Big business always campaigns for an easy life and the CBI is nearly always wrong when it makes pronouncements. Just like John McDonnell.
* The David Smith quote comes from his Sunday Times column on 18 March
** UK trade blow as number of exporters falls, Financial Times 12 November 2015.
Really interesting stuff here Phil, I'm sure you will be right over a number of matters. 3 thoughts of my own:-
ReplyDeleteWhilst because of our low wage culture it has become almost a necessity to take the poorest out of paying tax, that also means their stake in society, by financially contributing to it, is lost - that's a worry.
Although a Liberal not a social democrat by instinct I must say that the economic models of the Scandinavian countries seems the most sustainable. How come they can get things right (or righter) and the UK can't?
Finally the Minimum Wage, whilst being well intentioned it has sadly become the target of what to pay rather than the underpinning to protect the most exploited. I'm becoming more and more interested in the Universal Basic Income model that the Scandinavians and Canadians have experimented with.
I also would like to understand more about the Scandinavian "model". However, there was a hilarious Jeremy Clarkson column in the Sunday Times a week ago in which he parodied studies of happiness by country. We score badly but the Finns score highly even though their suicide rate is twice ours. The UK rate of 7 per 100,000 person years puts us two thirds of the way down the table (down being good!). The Finnish rate is well above the EU average of 12. Belgium is higher still at 16. Sri Lanka tops the lot at over 30.I won't do it justice but you can perhaps imagine Clarksonian humour on the lines of a Finn answering a telephone survey "yes, I am very happy" before going back to running his hot bath, tumbler of vodka and razor blade at the ready. What this has to do with Guaranteed Income I've no idea but it's startling that the 4 lowest suicide rates in the world are all in the Caribbean at less than 1 case per 100,000 person years. In Antigua the score was zero in the last WHO data on Wikipedia. So the answer seems to be sunshine, ganja, rum and reggae!
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