To defend the cuts, Labour must be clear about the size of government

RT @leftfootfwd To defend the cuts, Labour must be clear about the size of government http://bit.ly/9eMcVD

To defend the cuts, Labour must be clear about the size of government http://bit.ly/9eMcVD via @leftfootfwd

.@PeterBowers will be delighted to read this excellent piece by @wdjstraw: http://bit.ly/b9kUN9 I know that @Ed_Miliband has ideas on this!

“One way around this is to target the tax at land”

I’m all in favour of land taxation: but not as a matter of wealth taxation. What we should be doing rather is taxing the imputed rental value of land: Henry George’s thing of LVT.

As to this:

“This protects more public spending”

Come along now, you’re not really still trying to say that all and every quid spent by government currently is either necessary or desirable are you?

why not really try looking at the rest of the world? The Nordic social democracies for example? Sure, they spend lots more on redistribution, on social payments, than we do. But they spend an awful lot less on fiddling with bureaucracy and industry than we do. Denmark, just as one example, is quite possibly the most economically free country in the world (once you take off that redistribution thing).

Seeking to “pick the right size of the public sector” is stupid.

That is like Fabio Capello picking the England team for the world cup in 2008 and then wondering why the team doesn’t perform well 2 years later.

Surely the right size of government, is the most efficient and in different areas that can swing wildly between private, charity and public sector depending on who has the best solution at the time.

In general government is seriously bloated at the moment and a damn good cull is most certainly in order.

Will

Any chance you could look at your analysis of the barrel scraping exercise recently carried out by the poisoned dwarf?

I think that we were looking at £3bill saving net and that would only cover the employer NIC increase not the full NIC package put forward by AD.

Also when you are looking at trends, please concentrate on 2006/08. That shows that Labour was aiming for 39% tax take to cover current expenditure with investment covered by borrowing. That is where we should be aiming for.

The current dog boiling consensus is an attempt by the upper middle class right wing establishment to cut their tax bills when things get better.

They do not want to pay for the 2007/08 welfare state, that is the dividing line in politics. Consequently could you please focus on the long term position after the shock of the Credit Crunch has been dissapated?

Will

Find your argument a bit incoherent. You say the strategic imperative for Labour is to pick what it thinks is the right size of the public sector. But Brown did just that. The problem was, as you rightly point out, he chose a value that was inconsistent with the taxes people are willing to pay. That worked while we were in a housing and financial bubble, but when that ended the fallout was rather costly. By focusing on one side of the equation – the size of the public sector – and not the other – taxes – you repeat Brown’s epoch-making error.

I think you’re trying to square this circle by saying there are loads of really progressive painless taxes that we could impose so we can take our pick of public spending levels. Well, it’s nice that you’ve found these now – would have been even nicer if you’d found them during 13 years of Labour rule.

By the way, why aren’t you arguing for CGT on first homes? I can’t think of a tax that is both more progressive and higher yielding, and it would also remove a very damaging tax distortion.

Thanks for the comments.

Tim, Billy – I think the headline (which admitedly I wrote) puts the cart a bit before the horse. The key point is more about the role than the size of Government. As I see it, you both believe in the intrinsic value of a small state in order to provide personal liberty and I believe in the intrinsic value of a redistributive state to provide personal liberty. What I want costs more than what you want and so my argument is that we need to explain how we would pay for it and the LibCons need to be honest about the impact their cuts would have on some of the social outcomes they claim to care about.

Of course there are a number of things which Government does that are inefficient, wasteful or unnecessary. We should find them and route them out. But I would not include, for example, the Child Trust Fund whereas you probably would. That means that those of us on the left who want more discretionary spending have to explain how we would pay for it through tax. That’s the main point of the post.

Fat Bloke – I completely agree on your “dog boiling consensus” point about the 2007/08 welfare state although we did get there about five years too late (hence running a current spending deficit while the economy was booming). As I pointed out earlier this week the Coalition is intent on a whole series of ideological tax cuts which flies in the face of the claims to fiscal responsibility. Who’s the poisoned dwarf, by the way?

The fact is that the cuts being proposed by the coalition at the moment are going to take us strait back in to recession.

AJ – I don’t think it’s incoherent at all to say that we need to be clear about what our priorities would be, add up what they would cost, and then work to ensure that we have the taxes to pay for them. In future, we should ensure that our current spending is in surplus while the economy is growing so that we have more credibility in arguing for the appropriate stimulus when we fall into recession. That would keep us true to the “borrowing only to invest” argument.

I’m certainly not arguing against CGT on first homes, which to be honest I’ve never looked at. I’d want to know a bit more about which other countries have it, how it would interact with stamp duty, and what the counter-arguments are. If you have anything, please do send it to editor@leftfootforward.org.

1 thing that seems to have struck me, Will, is that Frank Field seems to have learched to the right for his seat with the coalition.

Saying things like there is ‘a clear case for providing more money in the early years to help mothers to stay at home after their child was born’; a clear New Right belief.

Hi Will,

That Social Market Foundation research is total and utter drivel, which looks like it has been written by Treasury wonks who have no common sense.

You know this because you’ve done plenty of actual campaigning – if Labour adopts policy winners like charging people 20 quid to go and see the doctor and privatising the roads then our supporters will think we have gone mad, imagine trying to explain those on the doorstep. It would also completely destroy the coalition of support for the welfare state.

Howard Reed has a much better paper on this subject – it covers ideas like hiring more tax inspectors to collect the tax that people dodge.

[...] Will Straw has run though it at Left Foot Forward, endorsing the SMF argument that taxes must rise i…. [...]

Donpaskini you have a valid point I think about tax avoidence.

Hiring more tax inspectors might cost more in the shortterm, but give Britain the tax revenue owed to it.

Will

I fear you just don’t get it.
We ran with a current account deficit in those years because:

1) Uncertain economic climate — global.
2) To finish of the job of re-inflating the public sector including both improving the services, increasing its scale and raising the real wage levels.
Please remember we had lots to do and it save us from the 2001 global recession.
3) We had room to to do this because of the previous years of surplus.
Golden Rule = Balance the current budget over the economic cycle.

Please don’t belittle the legacy, the public sector needed more money and we provided it. Sure it could have been better sp[ent at the margin but please don’t let the concept of the great being the enemy of the good take root.

The Credit Crunch is not part of the norm, an individual economic cycle and its effects should be put to one side.
Equate it to what was needed to be done to win WW2.
Please remember that the Treasury cut back on the re-armament programme in the late 30′s.
They know nothing of the real world, however they are all Hapsburgs in that they forget nothing as well as never learning.

In addition the problems the Treasury has in accurately defoining the boundary between tax evasion and tax avoidance needs to be looked at. Public attitudes need to be looked at, the Tesco DVD / VAT scam needs more publicity, is it really ethical at this time of economic uncertainty?

My thoughts that from 2001 onwards as the tax / capital management industry went into second gear we were losing 1/2% of GDP or £5bill but I may be a bit behind the reality.

Our cry should be total transparency in the private sector.
Our MP’s are rank amateurs on expenses compared to them.
Other areas should be a re-alignment of the CGT / incone tax / Corp Tax so that all those who are set up as one man bands can’t switch their income to suit the prevailing tax rates and regimes.

Again total transparency is required.

On other areas I think we need more info so that the current dog boiling consensus can be shown up for what it really is, a case of the upper middle class wanting tax cuts in te medium term.

Consequently any info on the deficit / national debt position in the 80′s?

Any info on the oil revenues?
The privitisation receipts and how they came to be taken for granted by NL?
The effect of inflation on reducing the headline GDP figure of the national debt?

As you might have guessed, I am accusing Thatch of running a banana republic, great what you can get away with if you have a couple of tame Aussies running the press.

Finally please move beyond the Treasury norms.
The Credit Crunch is a once in 80 years economic event.
It was global and GB / AD’s response will stand the test of time.
Sure it could have ben better, AD was a bit “native” in his analysis.

However Sniffy and the Poisoned Dwarf were a dream team made in hell.
One down and one to go, does Sniffy support the export policies of A’stan or Colombia?

Tea or coffee if you like?

Will

The poisoned dwarf was the shooting star in coalition politics.
Currently spending more time with his mother.

Probably more right wing economically than Sniffy.

RT @leftfootfwd: To defend the cuts, Labour must be clear about the size of government http://bit.ly/9eMcVD << Too right!

“The reason we’ve got a structural deficit is because Gordon Brown won the argument for investment in public services, but never took on the argument for increasing taxes to pay for it.”

That about sums it up. The only thing I would add is that the fact that they are not separate arguments, and we have a deficit because they are treated as such.

Think about it this way. I come up to you and say “I’ll take £10 off you and will spend £10 on you”. Someone else says “I’ll take £10 off you and spend £20 on you”. Who are you going to listen to? I can complain all I want about the fact that he needs to borrow money, you’re still going to listen the the other person.

Mr Sensible and Donpaskini – fully agree on the increased HMRC role in this.

I’ve already outed myself as a former HMIT involved in investigation. Due to Tory myopia, I took vol redundancy in 1996. Complete waste of taxpayer’s money – very expensive career training coupled with 17 years experience.

Completely oversubscribed offer – 3:1 – too. Remember – job for life, so why would so many of us want to go? Because we were never allowed to do the job properly. Example: don’t take on anything too complicated (bigger yield) as it takes too long to settle. When you’re on performance pay (inflation proof bag of Dolly Mixtures) it matters.

Will

Increased VAT affects women (mothers) disproportionately – OECD evidence of this. As well as reduced child benefits. Plus women use, and are employed more in the, public sector. Any cuts which impact on these services destroy any commitment to equality for all. I simply cannot accept this and if Labour do, they’re morons.

Mumsnet were, allegedly, influential in the run up to the elections. I’m not a mum but I do look at the site to see what they’re talking about – they have significant web presence as do you – and I think you’d be surprised at the level of debate there (I was). Don’t underestimate their ability to appreciate the problems involved with welfare to work, for example. I read some of their posts yesterday, and they sound a bit down in the mouth now. You need to get them on board and you won’t do this unless you start looking at ways to distribute the tax burden more fairly. Sod immigration. Tax is the issue.

Richard Murphy at Tax Research UK and his pals estimate £100bn pa is lost through evasion, avoidance and unpaid tax. No increase in tax needed if we concentrate on that then.

28bn of unpaid tax debt was reported by a Treasury Select Committee in November 2009. This is money HMRC has agreed or formally assessed but hasn’t been collected. So what are we waiting for? Give HMRC more power to agdressively collect.

25bn a year is currently lost through tax avoidance schemes. Labour had announced initiatives to deal with some of this. If the tories cut staff, this will be lost – it’s not high priority. This is quite technical work so requires highly trained inspectors. Graduates for example, who will be wasting their lives if there’s a ban on recruitment when they could be contributing to the tax system, personally, rather than collecting benefits and subscribing to the ‘dependency culture’.

Tax evasion is more like £70bn a year. This is non-declaration or fraudulent claims which I used to work on. Easily a reasonable estimate, but again we need to collect it. As an inspector, it was a paper exercise for me. It means nothing without good collection practice. Too much of what I worked on was written off without a robust approach to collection.

More HMRC staff wil rake in a steady stream of tax, plus the buildings they’re vacating through redundancy programmes, are left empty despite being on non-cancellable PFI contracts. Despite some skewed views, we also paid tax and NIC and most of us turned up for work every day too.

Not all increases in tax are unpopular. Most people believe the tax burden should be more fairly distributed and that higher taxes, for the very well off, are acceptable. But they don’t understand the myriad of reliefs/exemptions/schemes available to the same well off which stops even the current tax levels being met. Stamp on them and explain why in the mainstream press, if they’ll print an article that is.

There’s a lot of excellent research at Richard’s site including the paper I think Donpaskini is talking about. Please take a look before formulating a paper.

Fat Bloke on Tour = Brown fan or economically illiterate
Golden Rule – borrow for capital expenditure.
So every time you build a new house or school you increase borrowing, every time a capital item wears out you increase borrowing to replace it. When you have borrowed more than you can repay sane people stop lending to you.
The Credit Crunch is a result of a few sane people saying “we don’t want to lend you money if you’re not going to pay it back”. It is a bit different from WWII where we paid everyone cash and sold assets to do so until Pearl Harbour and thereafter bought overpriced American armaments on credit. Brown’s economic policy was grab money from raids on non-voting taxpayers (windfall tax, tax raid on Pension Funds, extra tax on North Sea Oil which resulted in a drastic fall in investment and, with a time lag production which is the largest single factor behind the fall in world production and the consequent rise in the oil price) and when you run out of ideas spend money that you don’t have and leave the next Chancellor but one (or, hopefully, two so that you can pass the buck) to pick up the bill. The budget deficit is actually larger than during either world war. Personal bankruptcy is at record levels – 27,358 in the first three months of 2010 (0.11m per annum) despite the introduction of IVAs which don’t count as bankruptcy although the creditors end up badly out of pocket.
“In addition the problems the Treasury has in accurately defoining the boundary between tax evasion and tax avoidance needs to be looked at.” The boundary is between that which is legal and that which is illegal. Any problems that anyone in the Treasury has in defining that boundary should be solved by sending them to a good primary school.
However I do agree that “Other areas should be a re-alignment of the CGT / incone tax / Corp Tax so that all those who are set up as one man bands can’t switch their income to suit the prevailing tax rates and regimes.”
Oil revenues have actually gone down because Brown was too greedy for short term revenue – he expected Blair to resign in less than 10 years so he did not worry about the long-term consequences of his actions.
Hapsburgs are not Bourbons!!
That is in line with his grasp of recent UK history. The government led by Mrs Thatcher reduced national debt, increased economic growth, started paying decent wages to nurses, significantly reduced the gap in income and wealth between the rich and the poor and won a war when attacked – all of which stand in stark contrast to the Blair-Brown and Brown governments (before you quibble, let me point out that a lot of new entrants to nursing have been downgraded to orderlies).
The drag on the re-armament programme in the early-mid 1930s was the opposition by George Lansbury who was leading the faction of the Labour Party that comprised the opposition to the National Government, not the Treasury under Philip Snowden

Will,
You KNOW that VAT is NOT deeply regressive. I have already pointed out that the ONS data contradicts previous absurd LFF claims that were less extreme.
There are sensible ways to increase taxes fairly – such as increasing the individual tax threshold to 40 times the hourly minimum wage and increasing the basic rate of tax to the level at which Ken Clarke left it so reducing the tax burden on the poor and lower/middle income while increasing it on the well-off, limiting the tax breaks on ISAs and pension contributions to the basic rate of tax. One might even abolish all the tax breaks introduced for the benefit of the rich and put the tax consultancy industry out of business – I remember that there were few tears shed for them when Geoffrey Howe “decimated”* their business three decades ago. Alternatively you could align the effective tax rate for those being paid over £.25m pa with those with children on working tax credit by raising the former and reducing the latter. Under Blair/Brown a low/mid-income guy with one kid at university had a marginal tax rate of 81% while the Duke of Westminster paid 40%.
Simplifying the tax system might mean firstly that HMRC staff actually understood it (and did not send out tax return forms with instructions to the taxpayer that were just plain wrong) and so did the taxpayer so reducing the number of innocent errors so that inspectors could spend more time chasing deliberate cheats and secondly that there was less opportunity for tax advisers to “game” the system by converting taxable income to capital gains that were tax-exempt or taxable at a lower rate.
A wealth tax with a cut-off level below the price of an upper-quartile inner-London house would be horrendously and expensive to administer – the same applies to a land tax above the difference between the house price and the building cost. One with a higher threshold level would either bring in relatively little income or have rapidly diminishing returns (like Brown’s north sea oil tax)

*He reduced it by more than two-thirds not by 10% but most journalists don’t know the correct meaning of the word
them 30 years ago

[...] More… [...]

John77 @ 10.36pm

Couple of interesting points, a schoolboy howler by me and a whole load of tripe by you. Your analysis is partial, limited and in the most just plain wrong.

Borrowing to invest has been part of the economics of government for generations. GB codified it and was applauded for doing so. Consequently your simplistic kitchen table conservative viewpoint is wrong.

If national debt runs to 60% of GDP then public sector investment of 3% can be supported using debt without ptting up the GDP value of the national debt year on year. If the debt goes to 80% then a 3% investment figure will actually reduce the national debt over time.

The public sector will always need investment, any attempt to cut investement will either mean reduced standards or a transfer of functions from the public to the private sector.

Your pay as you go attitude will only result in higher taxes or reduced provision. If we build today what is wrong with asking future generations to pay the interest on that investment if they are getting the benefit?

Your take on the Credit Crunch is interesting to say the least, at least you imply that as the Credit Crunch was generated in the private sector, then the private sector does not always get its investment decisions right. I admire your talent for understatement, when it is fully understood the Credit Crunch will be seen as a criminal game of Pass the Parcel where a magic circle generated worthless paper and used usefull idiots in the US to export the rubbish to under capitalised and under funded banks all around the world. Add in the herd instinct and the fear factor of the unknown and we had a Capitalist system undergoing a nervous breakdowm.

Sorry football beckons so just a couple of bullet points:

1) NS oil = 40 year old fields, the output is now 50% approx of the peak, no wonder the tax take is under pressure.
West of Shetland is an old wifes tale, how many dry wells do you need to take this onboard.

2) WW2 debt, figure for 39, figure for 45?
3) WW2 debt, we paid very little cash. 50 destroyers?
Lend Lease in 41, when did it begin? The answer is not Dec 7th.
4) Avoidance / Evasion, static — pull the other one.
The HMRC is 12 months behind the game, they need help. Simplify, publicise, target … any of these will do.
How much Corp Tax does NI / B”Sky”B / Torygraph pay?
How much profit / positive cashflow do they generate?
5) Thatch’s record, will come later.
Your howlers are too good to miss.

john77 Part 2

Thatch and the Falklands = Laugh a minute if it wasn’t for the loss of life.

Sunny Jim / 76 + 78 = Sorted out the junta big style.
Thatch / 81 = She wanted to be a cutter and not a warrior.
Just exactly did she do for the war effort in WW2?
Answer: The square root of very little is the polite response.
Sold the Invincible / dropped the LPD capability / got rid of the Endurance.
That was the plan announced to the world in the 81 budget.
Consequently she lost the Falklands, the forces won them back.
More troops were killed under her watch in the 80′s than were lost in the noughties.

Thatch and national debt / deficit.
She cut the national debt, that I do agree with.
But how did she do it?
Inflation / oil revenues / privitisation is the answer.
What was the average annual deficit in the 1980′s?
What was the average annual level of inflation in the 1980′s?
Consequently she was a snake oil saleswoman of the highest order.

Gap between rich and poor = You are having a laugh?
What figures are you using?

Decent wages for nurses?
I don’t think so, how come there were so may vacancies in 97?
Again, any info on this? Lets be having it.

1930′s re-armament — I talked about late 30′s Treasury interference.
You talked about early 30′s political trends.
Consequently you either don’t understand my original question or you do and are trying to obfuscate?
The Treasury has a long history of knowing the price of everything but the value of nothing.

Fat Bloke on Tour
My analysis is limited because there are only 24 hours in a day and writing an economics dissertation takes longer. It is NOT, however, wrong. I don’t have 24 hours to spare so this will have to come in instalments.
Borrowing to invest has been the practice of *private companies* for generations – but they have to generate enough income from the investment to both pay interest on the debt and to repay it when it matures. It has not been the practice of governments which until Keynes’ ideas gained popularity were expected to balance their budgets except during major wars after which they were expected to repay their debts. [5% War Loan was due to be repaid in 1932 but some of it was rolled over into 3.5% War Loan]. Public sector accounting does not include depreciation – in fact until recently a lot of public sector accounts were purely cash flow statements that us poor taxpayers are not allowed to use when submitting tax returns (a few of us are allowed to use to a cash basis for payments but not for income). So Brown claimed to be prudent because he was “only” borrowing to fund gross capital expenditure rather that net capital investment. He did NOT codify existing practice – he changed it and pretended to be prudent when introducing a practice that would lead to escalating debt. Originally budgets were supposed to be balanced, then governments started to borrow during wars and repay debts after the war ended, then Keynes introduced the idea of running a deficit at/near the bottom of an economic cycle which he expected to be balanced by a budget surplus at/near the top which would repay the borrowings which could be interpreted as a fiscal balance over an economic cycle. Brown introduced the idea of a fiscal balance – excluding GROSS investment – over an economic cycle. If you cannot see the difference between Keynes and Brown, then you are economically illiterate.

“If national debt runs to 60% of GDP then public sector investment of 3% can be supported using debt without ptting up the GDP value of the national debt year on year. If the debt goes to 80% then a 3% investment figure will actually reduce the national debt over time.”
This statement makes no sense. You seem to be quoting the conclusion of someone else who has made assumptions that you do not state and who does not know the difference between a value and a ratio. The assumptions include a significantly faster growth in real GDP than we have seen in 1997-2010.

The public sector will always need investment, any attempt to cut investement will either mean reduced standards or a transfer of functions from the public to the private sector.
Of course the public sector always needs investment – school buildings have to be replaced when they become unsuited to children’s needs, new schools have to be built in areas where there are more children; similar comments apply, mutatis mutandis, to hospitals, government offices, courts, prisons etc.
To suggest that I am opposed to necessary public sector investment is unjustified (are you indulging in typical Brownian smear tactics?). If they are necessary then the government must raise taxes to pay for them. What else is the purpose of taxation?

“Your pay as you go attitude will only result in higher taxes or reduced provision.” Well, Duh – but only in the short-term: in the longer term the extra interest on the extra debt will increase taxes until the future government cuts back on provisions. Unless you can con people into lending money to the government at a negative real rate of interest spending more than its income will in the longer term result in higher taxes or reduced provision compared to a balanced budget [whether annually in Victorian fashion or over the economic cycle in the Keynesian fashion]

“4) Avoidance / Evasion, static — pull the other one.” Where did I say that? I repeat “The boundary (between avoidance and evasion) is between that which is legal and that which is illegal.” Are you a friend of Damian? That may sound OTT but you sound like it when you write that sort of thing. Avoidance has soared under Brown because he has created a morass of new regulations that HMRC do not understand and vast numbers of tax breaks for the rich (including, apparently, one where investors in UK-produced films can claim tax relief on three times their net investment).
We all want to reduce evasion: are you able to understand that if tax rules were simplified then less time would be spent on finding (by tax advisers) and checking (by tax inspectors) on legal avoidance schemes and more time could be spent by tax inspectors on tackling evasion?

@ Fat Bloke on Tour
Credit Crunch simply means when people find it difficult to borrow.

The Credit Crunch arose when enough people got worried about the ability of the borrower to repay. Of course this arose in the private sector – if you have notionally limitless funds then you do not need to worry about bad debts (which is why the banking sector in eastern Europe was almost universally a horror story in 1990). I musn’t mention the Landesbank that was the worst European victim of unwise lending to Americans lest I be accused of anti-feminism.
“the private sector does not always get its investment decisions right.” Again, Duh. Nobody always gets his/her/its investment decisions right because those decisions rely upon someone’s best estimate of future out-turns. When a private sector business gets its investment decisions wrong the sufferers are the owners of the business and some of those who lent to it. When the public sector gets it wrong the losers are the taxpayers, not those who made the decisions.
The banking crisis is not the same as the credit crunch, as young Will with his PPE degree can explain more lucidly than I. The US banking crisis was, in part but only in part, due to the securitisation of mortgages that were generated by mortgage brokers who took on no risk when issuing them, which created moral hazard. A major reason why those brokers have not been sued by the banks is because the cost of litigation would exceed the returns (pity, I think that future behaviour might be improved if those who were responsible for persuading people to take on debts that they could not repay were seen to be punished, but that is beside the point).
The UK banking crisis was created by the son of a New Labour Life Peer who generated a run on a solvent bank with significant positive net worth, with support from HM Treasury under Brown and Darling who retrospectively changed the capital requirements for UK banks, demanding that they increase their capital in a month by more than the average annual net investment in LSE quoted companies by investors. For more than a century, while the BoE was in charge of banking supervision, there was no run on a UK bank. Since Brown transferred banking supervision to the FSA there have been three.When Lloyds took over HBOS they estimated “negative goodwill” as £15billion – i.e. the bank which New Labour spin doctors suggest was a basket case needing government support was not only not bust it was worth £15 billion more than Lloyds paid for it. Even after the the further rise in corporate and individual bankruptcies and the most conservative audit they can get the surplus of HBOS net assets over the price paid is some £12 billion.
“3) WW2 debt, we paid very little cash. 50 destroyers?
Lend Lease in 41, when did it begin? The answer is not Dec 7th.”
Wikipedia says that we paid gold until we had virtually run out but actually the government seized and sold UK-owned assets in the US as well as using up most of our gold reserves. The 50 destroyers were swapped for assets that the USA tried to acquire for its own defence when Joe Kennedy told Roosevelt that Germany was going to win – Churchill refused to hand them over unless he got something in return and in the end got 50 destroyers – a big discount to the value to the USA of the assets exchanged. Lend Lease officially started earlier in 1941 but the value of supplies prior to Pearl Harbour was trivial: as the total amount of loans (later repaid) under Lend Lease in four years of war was less than £7 billion (the amount hidden by Alastair Darling from Gordon Brown to reduce his desired pre-election spending spree according to the weekend press) your nit-picking about my reference to Pearl Harbour (a memorable event) instead of Roosevelt’s signing the Lend-Lease act (so unmemorable that even I had to look it up) shows that you care more about scoring irrelevant debating points to offset your howler (you have not yet revealed why you claim I have committed one).

“1) NS oil = 40 year old fields, the output is now 50% approx of the peak, no wonder the tax take is under pressure.
West of Shetland is an old wifes tale, how many dry wells do you need to take this onboard.”
BP’s original oil well in Kuwait from c.1931 was still steadily producing (not pumping – it didn’t need a pump) oil until Saddam invaded and then wrecked the oilfields. So firstly, 40 years is not exceptional for primary production from an oilfield. Secondly most North Sea oilfields are younger – often a lot younger. Thirdly I pointed out that the reason the tax take was under pressure was due to Brown’s tax changes that reduced the net return to the oil companies on investment in secondary and tertiary recovery projects below their return-on-investment thresholds. Fourthly as I explained (did you actually read it) the fall in the tax take is due to the fall in production which is due to the fall in investment as a result of Brown’s tax grab that boosted tax receipts in the very short term at the expense of the UK’s longer-term GDP and tax revenues.
The phrase is “old wives’ tale”; BP had three producing fields West of Shetlands last time I looked. Why do you introduce this piece of nonsense?
I do not have to hand figures for 1939 or 1945 government debt but numerous people have pointed out that the increase in debt since 1997 exceeds any previous level of total debt.

@ Fat Bloke on Tour
Part 2 – You are obviously reacting badly to the football or too many lagers.
What the *** do you mean by “Sunny Jim / 76 + 78 = Sorted out the junta big style.”? I cannot comment on something where I cannot guess what you are trying to say.
“Just exactly did she do for the war effort in WW2?
Answer: The square root of very little is the polite response.”
What did you do? OK I did nothing because I wasn’t born until after the war. When I was young I knew a goodly number of people who had fought in one or other World War but not any more as they have died of old age. I shall not bother to check the average annual SURPLUS in the 1980s as you admit that Mrs Thatcher’s governments educed the national debt
“Gap between rich and poor = You are having a laugh?
What figures are you using?”
Those supplied by HMRC and ONS under Brown’s control. It is NOT funny: it is appalling. The only justification for Old Labour was that they reduced the gap between the rich and the poor.
I was complaining about this three or four years ago; the share of national wealth owned by the lower 50% had fallen by two-thirds under New Labour.

John77

Couple of interesting points and a couple of illuminating insights but overall it is still tripe.

Regarding Lease Lend the trigger point was the 1940 presidential election. Once that was out the way FDR started the tanks etc rolling. Loots of them made it to NA in time for 1941.

However nothing on Maggie / Falklands / Treasury interference / nurses pay …

NR went under because it had expanded hugely on the mortgage front without the same level of expansion on the deposit side and consequently had to generate funds from wholesale markets at ever frequent intervals.

Blaming RP on the BBC is just right wing excuses for a major market failure. Once the wholesale capital makets dried up it was a goner.

The Treasury was useless at banking supervision, but quite good at building lifeboats. What about the secondary banking crisis in the 70′s, third world debt in the 80′s and BCCI in the 90′s, well 90′s ish?

Debt is not the issue at the moment, the level of demand is.
The history of the 1930′s is that we can’t thrift our way back to prosperity. Most of the proponents of the Treasury view recanted in time, strange how we now seem to have a new generation of adherents although they now go by the name of dog boilers.

Did Thatch borrrow only for investement?
How much did she borrow?

Finally values and ratios, any chance you could understand and talk about the national debt as a percentage of GDP.

I said instalments
Nursing pay was raised by 22% in 1980, by another 12% in 1982 (so by 37% in just over two years) and Thatcher set up an independent pay review body for nurses in 1983 because the 12% was a compromise between what the nurses asked for and what the government reckoned it could afford. At that point they were still underpaid (because nursing wages had lost real value i.e. risen by much less than inflation under Wilson and Callaghan) but the Review body was intended to bring their pay into line with comparable public sector workers and take the subject out of the political arena.

Inflation in the 1980s averaged 6.7% – less than half the 15.5% pa average under the Wilson/Callaghan Labour government
Thatcher inherited a budget deficit of 6% of GDP which had been turned into a small surplus by the time she resigned
255 British servicemen were killed in the Falklands War – 474 have been killed in Afghanistan so far
Defence spending was less than 20% of Central government spending in the early 1930s but grew progressively faster from 20% in 1934/5 to 25% in 1935/6, 32% in 1936/7, 45% in 1937/8 and 56% in 1938/9. It rose by a factor of six in five years (the %ages are of a total increased by the rising defence spending). It then trebled in 1939/40 after the war started. I don’t know where you got the story of Treasury interference to reduce defence spending but it doesn’t seem to have been very effective.
According to HM Treasury National debt rose by £13.2bn in World War II and they estimate that it rose by £428 bn under New Labour.
I *can* talk about the National Debt as a %age of GDP but the definition of GDP makes it much too easy to manipulate so I prefer not to do so.

John77

As ever your usual dogs breakfast of the interesting and the totally mental.

National debt as a % of GDP = Cut the crap, stop trying to obfuscate using cash figures. For comparison purposes over time the GDP figure is the only one that makes sense.

Late 1930′s re-armament = Treasury cut back the RN’s destroyer programme. I think some of the build slots were taken up by the RCN, but the Treasury penny pinched all the way to Sept 39.

There is also evidence of Treasury interference in the cruiser build programme during the war and the post Ark Royal 2 design studies for the next generation of aircraft carriers always had to look over their shoulders to see what the Treasury view was.

Severe case of the price of everything but the value of nothing.
In that case bigger ships meant bigger dockyard facilities and they didn’t want to pay for either.

However all that is just mood music to the main act of the moment, the use of the credit crunch inspired deficit to drive through serious reductions in the TB/GB welfare state to generate tax cuts for the upper middle class establishment.

They are all dog boilers now.

*You* are talking crap.
Gordon Brown increased reported GDP by increasing public sector salaries faster than inflation. Are you economically illiterate or a GB fan? There is no Blairite third way to this question.

What evidence?
You keep asking me to produce figures but assume the divine right to make allegations with no supporting evidence.
If you do have evidence I am willing to “listen” – actually read – but you have produced nil so far

For comparison purposes over time only the inflation-adjusted cash figure makes sense because public sector accounts are on a cash basis and no-one has data that would convert them onto a UK GAAP basis (the horrendous IFRS basis is less useful and would probably produce an epidemic of baldness in the Treasury). You would like me to say that Wilson’s 1974 government was a model of fiscal prudence because inflation was so high that cumulative public sector debt declined as a %age of GDP up to the point that they had to appeal the IMF for rescue. There is a reason for that – insurance companies with life assurance policies fixed in money terms (a large majority issued before the Wilson-Healey hyperinflation were) had to buy government debt that gave a positive nominal but negative real return to meet the new standards introduced by the DTI under Wilson. The net result was a massive transfer of wealth from widows to Wilson’s government.

The credit crunch means that you can only borrow money if the lender expects you to pay it back.
When I was young and for the preceding N centuries (where N denotes a large number) that was the norm. If you think that strange, I refer you back to my original diagnosis.
The deficit is NOT down to the credit crunch. It is a pity that you did not read (or were unable to read) my earlier posts. The deficit is largely down to Brown’s borrowing to fund GROSS investment instead of NET investment and partially to his breaking of his so-called “golden rule” to only borrow (over the economic cycle) to fund gross investment. Alastair Darling’s team claimed that the “structural deficit” was 6.9% of GDP – the OBR reckons that is a significant understatement and that underlying GDP growth is around 2-3% pa. Even if Darling’s 2.75% pa is right, a 6.9% deficit is unsustainable which is why we have a credit crunch. If we stick to Brown’s fiscal policies the we shall never (no, not just not in my lifetime but never) repay our debts so any sane person will not lend to us.
I want a reduction in the effective tax rate for the working poor rather than the bloody rich (not middle-class) New Labour establishment as you would know if you had read my earlier posts on Liberal Conspiracy.

If you want to know how much profit a UK company makes and how much tax it pays you can check it out via the LSE site for free (if it is quoted) or the Companies House website for £1 a download.
Are you taking the mickey?

An apology would be in order – but I don’t expect one.
Fat Bloke on Tour has alleged that I committed schoolboy howlers but has produced not a scrap of evidence, claimed that the data I quoted from HM Treasury was “totally mental” (has he been reading too much from Guido Fawkes). He tries to suggest that a cruiser could not have been built at Harland & Wolf because the berth used for the “Titanic” wasn’t big enough!!!
I give up.

John77

Stop it, stop it, stop it, for the sake of the NHS stop it!!!
I am in danger of laughing myself to an early grave.

Consequently in no particular reverse order:

The schoolboy howler was mine — I mentioned Hapsburgs instead of Bourbons.
Income distribution data has been schewed by the appearance of 3% of the population who seem to have little income but a quite high level of consumption. Add in the Top 1% who have shot through the roof and the real world TB/GB record is quite good.
Audacious class aircraft carriers — the Treasury didn’t want to pay for the new dry docks and the work needed to tart up Devonport and Portsmouth harbours.

Next up @ 1.42:
Corporation tax, any deficit reduction programme starts there. Any thoughts on the PLC’s wanting to move to tax havens?

And again @ 1.24:

Sane people have lent to us, sane people are lending to us and sane people will lend to us in the future. AD had a plan to get the deficit down to a manageable level without provoking riots on the streets. The big issue here is political Treasury forecasts, breaking the link between GDP and tax to magnify future deficits – interesting, very interesting.
Structural deficit now at 8% within an 11.1% overall deficit after an 80 year financial event – interesting very interesting.
Deep recession with little or no bounceback in a growing global economy – interesting, very interesting.
The deficit has ballooned because of the Credit Crunch – GB/AD had planned for a fiscal tightening that was blindsided by global events.
Golden rule = Borrow to invest, no issue I will even be as bold as to include the word “net”.

And again @ 12.53

We seemingly have moved on to resource based accounting.
The concept of depreciation has entered into the national accounts.
74/75 Hyperinflation – Try post colonial raw material inflation amplified by a war, it is a better fit and AB’s input to the inflation of the mid 70′s should never be forgotten.
Wilson inspired DTI changes to pension company funding – Don’t know enough to comment.
IMF rescue – Treasury inspired financial coup more like, interesting, very interesting.

And again @ 12.28
GB = 80/20 rule, happy with his overall contribution to Labour party politics and his role in government.
I do have reservations over his ability as a politician, the Dunf West by-election was a particular shambles.
However I do think that history will be very good to him.

Finally, are there a team of you wring under the name John77 or do you like talking to yourself in print?

Brown’s real world record on income distribution is bad and is worse than you think because the Gini coefficient that the ONS use is based on taxable income and ignores the greatly increased amount of tax-free income from ISAs (greatly increased over the last 13 years through growth of old PEPs/ISAs and additions of new ISAs), SIPPs and the conversion of taxable income in capital gains, taxable at a lower rate and excluded from their analysis of income. You only realise how bad it is when you look at the changes in wealth distribution – the numbers are impossible unless a lot of the rich had negative spending. I was actually quoting the two-thirds fall in the share of wealth owned by the lower 50% of the population. Oh, and that is after the homeless are excluded from the stats as well as being excluded from unemployment and every other benefit.
Re-armament – at the beginning of 1937 the Baldwin government decided on a rearmament programme costing £1,500 million over five years which they would mostly meet out of taxation would require them to borrow £400m and in the debate on 17th and 18th February Attlee and the Labour party opposed it. While you may be right that the Treasury didn’t want to pay for work at Portsmouth and Devonport (I don’t have any data on that), the main opposition to rearmament came from the Labour Party, not the Treasury.
Corporation tax – there are so many companies moving some operations to lower-tax areas that I have lost count. The bit that sticks in my memory is that more than half the quoted companies underwriting at Lloyd’s of London have redomiciled to Bermuda! Another has gone to Dublin and BRiT insurance, despite its name to Holland. A lot of companies (not just British ones) have gone to Dublin. So using corporation tax to reduce the deficit involves calculating the trade-off between tax rates and companies relocating in or out of the UK.
The obvious place to start o deficit reduction is simplifying the tax system and charging capital gains at income tax rates.
“Structural deficit now at 8% within an 11.1% overall deficit after an 80 year financial event – interesting very interesting.” No, not very interesting: the structural deficit should be zero and if it was the total deficit would be manageable. The 8% is what the deficit would be without a financial crisis and the 3% is the effect of the financial crisis (even if as Darling said 6.9% and 4% that still means that the structural deficit is WORSE than the effect of the financial crisis. So Brown’s contribution is worse than the effect of something you compare with the 1930s slump – on the OBR’s calculation it is more than twice as bad. “The deficit has ballooned because of the Credit Crunch – GB/AD had planned for a fiscal tightening that was blindsided by global events.” No, the credit crunch has made the deficit more visible – previously the tax on imaginary bank profits, windfalls from stamp duty on house sales at bubble prices and Brown’s continual borrowing from the future by bringing forward tax receipts had concealed the size of the deficit, which was worrying enough at the stated figures. “history will be very good to him” – only if it chooses to forget everything he has done.
Resource-based accounting – which nobody understands – is not relevant to PSBR figures.
The 74/5 hyperinflation was caused by the massive pay award to the miners and other public sector trade unions. The oil price rise contributed a small amount but that of cocoa so little that it can be ignored. “post colonial raw material inflation amplified by a war,” is just tripe – the only post-colonial raw materials were tea, coffee (except that most of our coffee came from S America not Sri Lanka or Kenya) and cocoa – unless you include American wheat (Nigeria supplies very little of our oil and had no impact on the oil price, which was determined by Arabs and Iranians, both former imperial powers) and we were not at war. Gold and diamonds are not raw materials to anyone except a jeweller.
Sane people will lend to us in the future if they think that we shall repay them, but not if we stick to Brown’s policies. The BoE was buying gilts by the bucketfull for a year because the desire to lend to us spiralled down when Darling admitted that we had a structural deficit – previously Brown’s spin doctors and their media allies/lackeys had pretended that the deficit didn’t really exist or was just a consequence of the economic cycle that Brown had claimed to abolish. The BoE purchase programme led enough investors to assume that they could get their money back by selling to the BoE to avoid a Greece-style collapse in gilt prices. Following the election confidence has partially returned because the new government is committed to eliminating the deficit by 2015 as against halving it. A 6.9% structural deficit with a target of 3.5% and a 2% growth rate in real GDP is a formula for disaster.
Brown’s “Golden Rule” was iron pyrites. Even if he had only borrowed for net investment it would have been too lax but he pretended to be prudent while running a fiscal policy that increased debt every year (or would do before cyclical revenue boosts at the top of an economic cycle). Then he compounded the damage by pretending that his policy was meeting this fiscally unsound basis when it was even worse.

There’s only one of me but there is a limit to the amount of explanation I can give at a go, especially after midnight after a long day.
“Wilson inspired DTI changes to pension company funding – Don’t know enough to comment.” Since I didn’t mention this because I thought it too difficult to explain, I suspect that you do know something. The depth of the 1974 bear market was caused by new DTI regulations that effectively forced life assurance companies to sell equities when the price went down – when they became more attractive investments to anyone with an IQ bigger than his/her shoe size – and switch into gilts which gave a negative real return. The rebound in January 1975 came because once some share prices rose the insurers could buy more equities and this had the same self-feeding effect as the late-1974 decline.
Are you accusing the ex-communist Denis Healey of a coup against his own party on behalf of the Treasury? The IMF rescue came because the UK could not pay its external debts and have enough left over to pay for its food and raw material imports. You appear to be as blind as Brown to the need to pay our bills if we want to get anyone to supply us in the future.
Do you know what a deep recession feels like?
OK you just don’t understand that the GDP growth figures under New Labour are distorted by the increase in public sector pay rates and the inclusion of payments for child care that was previously unpaid/not recorded/undertaken by the mother and similar items. That is forgiveable – most people got fooled. There is no way of reliably calculating the value to the householder of a Bobby on the beat outside his/her house to deter burglars and vandals – it is actually quite a lot more than the policeman’s wages. So the formula for GDP includes public services by government employees (librarians to refuse collectors) that have no direct charge to the beneficiaries at cost. That is, in itself, a perfectly reasonable attempt to provide an honest answer. However if you increase public sector pay faster than inflation (or, more relevantly public sector productivity plus inflation) you generate a completely spurious increase in reported GDP. Under New Labour public sector pay has risen not only significantly faster than private sector pay so that crude public sector average pay is higher than that in the private sector (much higher when you adjust for the differential pension costs) but also MUCH faster than inflation plus productivity so using their GDP figures not only flatters GDP growth but also significantly understates the rise in debt:GDP since 1997. Both under Wilson*in the 1970s and Blair/Brown the workers in the unions that financed Labour reaped rewards not given to other public sector workers (except in 1997-2010 top civil servants whose pay was used to calculate a “fair” salary for MPs)
*Callaghan was less bad which is why the public sector unions tried to blackmail him and found themselves with Thatcher instead
“The schoolboy howler was mine” – so are you going to apologise for “Your howlers are too good to miss.” when you have still failed to produce a single example?

John77

Thanks for all your effort.
However it wasn’t so much an answer but a cry for help.

Your answers on the income distribution issue only proved one thing:
You are a good shot — one bullet, both feet.

You try to do down GB’s legacy and only end up highlighting the skims and scams that the middle class use to disguise income.

You then move onto wealth distribution and then seem to forget about the effect of asset price inflation in generating returns for the wealthy without the need for their income to rise. I fear you have put forward the best defence of Child Trust Funds I have yet heard.

Consequently will you be writing to Dave the Rave / Sniffy / Cleggy / the poisoned dwarf to complain?

Regarding the structural deficit, I could just about believe the AD split — 6.9% Cyclically adjusted / 4% caused by the recession.

Given that the 6.9% figure includes 3.5% of net investment then the remaining 3.4%, large though I think it is, can be sorted out without causing riots on the streets.

The move to put the figure up to 8.0% is a case of the blind leading the deaf. The Treasury struggles to understand the concept of the structural deficit and the output gap and the OBR strugles to put forward a rational case for using the Treasury methodoligy and data.

I think dog’s breakfast from a coterie of dog boilers would be the best way of putting it.

I take your point about sorting out the various rates of CGT / IT / CorpT.
However I do wonder what you think of Dublin:

Tax haven that needs sorting out?
Giant tax avoidance centre to aid US companies “smuggle” profits out of the EU?
Over-priced green theme park selling its soul for the tourist dollar?

The issue of companies which generate large amounts of excess funds in the UK and then refusing to pat tax on them by way of some fancy footwork by their accountant needs to be looked at, publicity at first, then law changes and finally direct action if required.

A good quality public humiliation would be a good first step to keep the sharp end of business practise honest.

I will finish on the issue of depreciation and resource based accounting. You claimed that depreciation was not part of the UK budgeting process and that the accounts were expressed on a cash only basis.

Well depreciation is part of the UK buget process and resource based accounting is now the norm. KC published a white paper on the issue and GB implemented it.

Fat Bloke on Tour
Cut out the ignorant smears – it just shows you are ignorant. To avoid distortion from the housing bubble I was using data published by HM Treasury on wealth excluding value of houses and the same result – that the share owned by the lower 50% fell by two-thirds to 2% – comes from taking wealth at the end of 2003 when the stock market was within a few %age points of the bottom of the bear market. (The fall was presumable more than two-thirds by the end of the Brown era but the data is only shown to the nearest 1% so a further fall of less than 25% doesn’t show up). Asset price inflation for investors from 1997 to the end of 2008 – the last published figures was less than inflation. An early Child Trust Fund invested in the stock market is worth less now in ‘real terms’ (adjusted for inflation) than when it started: the All-Share index has risen by less than 20% since mid-1997 while the RPI has risen by 42%; if it is invested in cash it is losing value steadily. You think that is an argument for CTF?
Either you are stupid, too lazy to check the data, or you are deliberately lying.
You quote a figure for net investment when HM Treasury do not have the means to calculate the correct figure for depreciation on public sector infrastructure because they know neither the expected lifetime of most items nor the cost of replacing them. A figure of 3.5% of GDP for net investment by the public sector is just not plausible when the NHS is closing hospitals faster than opening them and a figure for depreciation for 2009/10 fiscal year that is one-ninth of capital investment implies either a massive public works programme that we should be able to see from our windows – nine year’s worth of capital spending in one year – or the depreciation figure is wrong. The capital investment is mostly just plans for future spending, so I wouldn’t trust that depreciation figure – more New Labour spin to make their spendthrift ways look prudent.
HM Treasury publish figures on their web site in cash terms. The PSBR figures that I quoted are in cash terms. The National Debt is (negative) cash. I said that “*for comparisons over time* only the inflation-adjusted cash figure makes sense because public sector accounts are on a cash basis and no-one has data that would convert them onto a UK GAAP basis”. You claim that I am wrong because a (fictitious) figure is used for depreciation in current accounts. That does not enable you to convert 1970s or 1980s accounts onto a UK GAAP basis. So for comparison purposes you can only use a cash basis (preferably adjusted for inflation). Incidentally, if they could calculate depreciation (which I don’t believe they can at any acceptable cost) the public sector accounts would still not be on a UK GAAP basis. Do you even know what UK GAAP involves? Also depreciation charges wouldn’t affect the PSBR or National Debt figures even if they could be calculated properly.
You have carelessly (or carefully) misquoted me.
Your series of insults are merely a cover for your inability to provide a valid defence for Brown – “skims and scams” are mostly a result of his obsessional tinkering with the tax system for political or PR ends without caring about the economic effect e.g. the tax break for film production that enabled the likes of Wayne Rooney to claim tax relief on three times their net investment.

John77

Time to move on.
The big issue at the moment is the structural deficit.

However one final issue:
You jump between the relative and the absolute too much for my liking.
With the national debt, you are absolute, it has to be a cash figure not a % of GDP.
When it comes to personal wealth, it is all relative, you use a % figure so that you can show a decrease.
I wonder why?

I can only quote the data that HM Treasury and/or ONS produce; unfortunately the Good Lord did not grant me omniscience
If you think that it is odd that, under Brown, they only produced selections of data, then you should tell them so. I think that the answer is, almost certainly, that different officials had different views as to what is important (although I have many times felt that the choice of which statistics to produce was influenced by New Labour’s spin).

John77

Treasury officials being partial and slanted in the info they release?
Shock horror gasp, surely not!?!