French lessons for Miliband and Balls

“Take it from me mate, don’t…”

“Bliss was it in that dawn to be alive” wrote Wordsworth in middle age, reflecting on the euphoria his younger self felt at the French Revolution. Ed Miliband felt a similar sense of elation when François Hollande was elected President of France in May 2012 albeit expressed in slightly more prosaic terms.

Mr Miliband said that President Hollande’s campaign “has shown that the centre-left can offer hope and win elections with a vision of a better, more equal and just world”. Mr Miliband declared “This new leadership is sorely needed as Europe seeks to escape from austerity” and assured us that “I know from our conversations in London earlier this year and from [Mr Hollande’s] victory speech tonight of his determination to help create a Europe of growth and jobs”

Alas, since he spoke of President Hollande’s “determination to help create a Europe of growth and jobs” French unemployment has risen from 10.2% to 10.9% and Britain’s has fallen from 8% to 7.1%. The French economy has averaged growth of 0.13% per year while Britain’s has averaged 0.16% a year.

Mr Hollande’s strategy was to tax and spend France back to prosperity. A raft of new taxes, most notoriously a 75% top rate of income tax, would pay for the hiring of 60,000 new teachers, the creation of 150,000 subsidised jobs, and a reduction in the retirement age. This strategy has failed. Like Louis XIV’s revocation of the Edict of Nantes in 1685 which flooded east London with entrepreneurial Huguenots, Mr Hollande has simply driven the French men and women who can afford to leave out of the country. Those who can’t are left stuck with unemployment and stagnation, Mr Miliband’s “better, more equal and just world”.

Yet, just as Mr Hollande abandons this strategy in favour of a €30 billion payroll tax cut and €50 billion worth of spending cuts in the next two years, ‘austerity’ if you like, Ed Miliband’s Labour Party are committing themselves to it afresh. Last Friday Shadow Chancellor Ed Balls made one of his increasingly rare appearances and committed a post-2015 Labour government to eliminating the deficit by 2020. The tool with which he intends to achieve this is a reintroduced 50 per cent top rate of income tax.

Mr Balls apparently needs to learn the lesson so painfully learned by France; that as per the Laffer Curve, beyond a certain level increasing tax rates ≠ increasing tax revenues. Indeed, in the last two years of the 50 per cent rate, 2011/2012 and 2012/2013, top rate taxpayers paid £41.3bn and £41.6bn in tax respectively. Under the 45 per cent rate that amount has risen to £49.36bn. Ed Balls was immediately in the unusual position of having to explain how he would fund a tax rise.

This presents the Conservatives with an opportunity. David Cameron and George Osborne should be pointing across the Channel and saying that Hollande’s abandoned France of high taxes, high government spending, rising unemployment, and falling growth, is Miliband’s Britain.

Ultimately the high ideals of the French Revolution were drowned in the blood of the Terror, replaced by the dictatorship of Napoleon, and a disillusioned Wordsworth retired to the Lake District and Romantic poetry. What will it take to educate Mr Miliband?

Deficit and debt: Does anyone know the difference?

“OK, so there’s the water in the tub…”

In a recent conversation, a Labour Party member told me that the coalition was “borrowing more than we did in power”. I pointed out that this was wrong, that the deficit, what we are “borrowing”, is, in fact, down by a third under this government. He replied: “The deficit may be but the current government is still borrowing more money than the last government.”

You could write this off as simply the pig-headed economic illiteracy of a paid-up member of the party that helped us into the current mess. After all, Ed Balls, Labour’s man on the economy, can stand up in front of Parliament and say “The national deficit is not rising…er…is rising, not falling” (he was right the first time). But then you hear Nick Clegg say that the coalition is working to “wipe the slate clean for our children and our grandchildren”. Even David Cameron himself announced that “We’re paying down Britain’s debts”.

You begin to wonder if anyone knows what they are talking about. I’ve addressed the issue of what exactly is happening to the British government’s finances before but it seems it needs repeating.

We have two concepts here: a stock and a flow. Think of it like a bathtub. The stock is the water in the bathtub, the flow is the water either flowing in or out of the tub through the taps or plughole.

In this analogy the debt is the stock, the water in the tub; the deficit is the flow, the water pouring in from the tap (if our government was running a budget surplus water would be flowing out through the plughole but we’re some way off worrying about that). In other words, the deficit (flow) is the amount by which the debt (stock) is increasing.

Thus, it is possible to have a situation like we have now where the debt is increasing while the deficit is decreasing (imagine yourself turning off the tap and seeing the flow of water dwindle – water is still flowing into the tub). Borrowing is down, what has been borrowed is up.

In the final year of the last Labour government Alistair Darling borrowed £156 billion. In 2012 George Osborne borrowed £99 billion. The deficit had fallen but while ever there is any deficit at all debt will be rising. Another way of putting it is to say that in his last year Darling increased the debt by £156 billion and last year Osborne increased it by £99 billion.

This is why you can have a chart like this…

showing falling deficits coexisting with a chart like this…

showing rising debt.

This might all sound a rather long-winded way of stating the obvious but a ComRes poll late last year found that 49 percent of people wrongly think “The Coalition Government is planning to REDUCE the national debt by around £600 billion between 2010 and the end of this Parliament in 2015”. The correct answer, that “The Coalition Government is planning to INCREASE the national debt by around £600 billion between 2010 and the end of this Parliament in 2015”, was given by just 6 percent.

The British government’s out of control spending is the central issue in British politics today yet there is mass ignorance as to what is really going on with it. In large part this can be attributed to the misleading statements pumped out by the sloppy Cameron and Clegg and the dishonest Balls.

What actually is happening to the British government’s finances under Cameron and Clegg is that the debt is growing and will continue to grow but the pace at which it grows, the deficit, is declining. This is simple stuff even if our politicians struggle with it.

This article originally appeared at The Commentator

The left hated Thatcher because she thrashed them

Margaret Thatcher, 1925 – 2013

On Gee Street in London there is a Stafford Cripps House named after the post war Labour Chancellor. In Fulham there is also a Stafford Cripps House which contains a Clement Atlee Court named after his boss. In East London there is the Kier Hardie Estate, named after the first Independent Labour MP. In Clapton there is a Nye Bevan Estate named after the former Labour minister.

So I was baffled when, today, my various inboxes, feeds, and walls were swamped by left wing friends asking how bothered I was by the passing of Margaret Thatcher. One or two seemed rather put out when I responded that I wasn’t massively. As someone who could be considered a ‘Thatcherite’ I believe in the individual not an individual. I’ll leave the veneration of Dear Leaders to the left with their crumbling municipal buildings.

At 87 Margaret Thatcher lived a long life. Insofar as we can tell about the private life of this most resolutely political of people it was also a rather happy one. The daughter of a provincial, middle class shopkeeper, born during the Depression, she went to Oxford, became a chemist, and then became a lawyer. Elected to Parliament in 1959 after a decade of trying she rose against incredible odds to become the first female leader of a major British political party in 1975 and Britain’s first female Prime Minister in 1979. She was accompanied every step of the way by her beloved husband Denis.

Her period in office was marked by internal division and conflict of a degree not seen under any other prime minister of the century. Thatcher took on the Labour Party (three times), the Argentines, the National Union of Mineworkers, and crushed them all. By the time Thatcher left office even the Soviet Union and its miserable communism were history.

But in 1988 Thatcher gave her famous Bruges Speech in which she stated “We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level with a European super-state exercising a new dominance from Brussels.” For the European federalists, including many in the Conservative Party close to Thatcher’s predecessor Ted Heath who had never forgiven the grocers daughter for beating the grocer, this was a step too far.

In 1990 Thatcher was finally brought down, not by a bunch of troublemakers rioting in Trafalgar Square, but by her own Europhile backbenchers, angered by her refusal to sign up to a single European currency. History has proved Thatcher emphatically right.

She brooded on this betrayal in retirement but, judging by her memoirs, she was fully aware of just what she had helped achieve, even if she was typically modest about it. She had taken Britain from an increasingly chaotic, sclerotic, and socialist place, to a place which was on the up again. Internationally she had restored some of Britain’s old standing and seen off the communist threat.

Both in Britain and abroad, with the help of her great ally Ronald Reagan among others, she had shown that the inevitable, onward march of socialism was nothing of the kind.

And, perhaps most uncomfortably for her detractors, she was popular and remains so. She won three elections on the trot. In 2011 a YouGov poll for The Sunday Times placed her firmly at the top of a list of post-war British prime ministers with a whopping 27 percent, more even than Winston Churchill.

The sainted Clement Atlee, architect of the welfare state, nationaliser of industries, and namesake of a court in Fulham, limped home with just 5 percent of the vote behind Tony Blair and, mysteriously, Harold Wilson. The much-vaunted street parties celebrating her demise might be rather more thinly attended than the guests have convinced themselves.

Those who profess to hate Thatcher have committed the error of taking something they believe (or claim to, I’m not convinced many of them are actually serious), repeating it loudly and often to other people who also believe it, and assuming from this fusillade of confirmation that everyone else thinks it as well.

These people can often give you a list of reasons they hate Thatcher, lists which are often so suspiciously similar that you have to question how many are the product of original thought and how many are just being parroted to feign an opinion. Most of them, from the mass unemployment to her supposed destruction of Britain’s industry, are easily dealt with.

But the truth is that she would have been disliked intensely no matter what she did. Owen Jones wrote recently that “Thatcher hate is not kneejerk anti-Toryism, after all, there will be no champagne corks popping when John Major dies, and there was no bunting on display to celebrate the deaths of Ted Heath, Alec Douglas-Home, Harold Macmillan or Anthony Eden.”

But remember that in 1948 Nye Bevan, one of the most venerated and overrated figures in British political history, said, “No amount of cajolery, and no attempts at ethical or social  seduction, can eradicate from my heart a deep burning hatred for the Tory Party.  So far as I am concerned they are lower than vermin.”

Remember also that Bevan didn’t say that about a Conservative Party containing right wing ideologues like Thatcher, Norman Tebbit, or Keith Joseph. He said it about a Conservative Party which contained such Keynesian, welfare-state-loving, consensus-supporting politicians as Harold Macmillan, R. A. Butler, and Alec Douglas-Home.

The left disliked Thatcher because she was a Conservative. It hated her because she thrashed them.

Margaret Thatcher is one of only two British prime ministers to coin an ‘ism’ and unlike the other, Blairism, Thatcherism actually meant something. This is why whether alive or dead she will live on. Her ‘ism’ will be a much more permanent monument than the grey, decayed concrete boxes named after various Labour no marks.

This article originally appeared at The Commentator

Labour and the public finances

The guilty men

The bad economic news which surrounded the budget yesterday seems to have given Ed Balls the confidence to tour the studios telling all and sundry that he has been ‘vindicated’. What’s worse, some intelligent people appear to be falling for this obvious rubbish.

To remember just how obvious and just how rubbish this is I’d refer to this previous blogpost. But I’d also refer you to this, an election briefing from 2010 from the Institute for Fiscal Studies. The whole thing is worth a read but I’ll quote the summary in full…

Total public spending is forecast to be 48.1% of national income in 2010−11, up by 8.2% of national income from the 39.9% Labour inherited from the Conservatives. This would be the highest level of public spending as a share of national income since 1982−83.

• Most industrial countries have increased public spending as a share of national income since 1997. But between 1997 and 2007 – prior to the financial crisis – the UK had the 2nd largest increase in spending as a share of national income out of 28 industrial countries for which we have comparable data. Over the period from 1997 to 2010 – including the crisis – the UK had the largest increase. This moved the UK from having the 22nd largest proportion of national income spent publicly in 1997 to having the 6th largest proportion spent publicly in 2010.

• Spending on public services has increased by an average of 4.4% a year in real terms under Labour, significantly faster than the 0.7% a year average seen under the Conservatives from 1979 to 1997. This is largely due to increases in spending on the NHS, education and transport. Since 2000–01 public investment spending has increased particularly sharply and is now at levels not seen since the mid to late 1970s. Despite large increases in the generosity of benefits for lower income families with children and lower income pensioners social security spending has grown less quickly than it did under the Conservatives.

• Estimates from the Office for National Statistics suggest that public services have improved considerably over the period from 1997 to 2007 with measured outputs suggesting a one third increase in the quantity and quality of public services. But this increase in measured public service outputs is less than the increase in inputs over the same period; in other words productivity has fallen. The relative price of these inputs has also risen, so we find that the “bang for each buck” that we get from spending on public services (output per pound spent, adjusted for whole economy inflation) has fallen more than productivity.

• If the Government had managed to maintain the “bang for each buck” at the level it inherited in 1997, it would have been able to deliver the quantity and quality of public services it delivered in 2007 for £42.5 billion less. Alternatively, it could have improved the quality and quantity of public services by a further 16% for the same cost. But perhaps service quality has improved in ways not captured by the ONS’s measures. Or perhaps we were to bound to see diminishing returns to additional spending when it was increasing so rapidly. To the extent that additional spending boosts output fully only with a lag, we may not yet have seen the full benefit.

How can you say the people responsible for that have been ‘vindicated’?

The relationship between welfare and immigration

You give immigrants a bad name

The influx of Romanian and Bulgarian immigrants expected from January 1^st 2014 has lately seen Britain’s politicians running round like headless chickens trying to prevent the obvious and predictable results of their previous actions (or inactions). The idea that people from these countries might come to the UK and avail of its generous welfare system has triggered concerns about immigration. Should we not, instead, be worried about welfare?

Classical liberals and many on ‘the right’ more generally would complain if government prevented a person from Bolton taking a job in Southampton. What right would a politician have to interfere in the mutually agreed employment decision of an employee and an employer? But if this is so, why should government have any more right to prevent a person from Juarez or Lahore taking a job in Minneapolis or Sheffield?

Indeed, if the government erected capital controls such as existed in the post war period to stop people shipping their wealth abroad, many on ‘the right’ would decry an act of confiscatory socialism. But why should the freedom of movement be granted to capital and denied to labour?

Immigration is an area of public policy rarely treated coherently. ‘The left’ frequently defend the free movement of labour (recently anyway) but oppose the free movement of capital. From ‘the right’ it is often the opposite. A common opinion, in pubs and taxi cabs at any rate, is that immigrants come here to sponge off our welfare state and take our jobs, a contradictory sentiment often expressed by the same person in the same monologue.

Some immigrants do travel to the UK to gorge themselves in the trough of its lavish welfare state. I wrote last January of Firuta Vasile, a woman who has apparently done little but leech off the British taxpayer since arriving from Romania in 2008.

Indeed, stories on BBC London about the lack of affordable housing in the capital are often illustrated with an interview with an immigrant demanding that more ‘affordable housing’ be made available by the state. But there is probably no shortage of affordable accommodation wherever they came from and the high prices of London are simply a market signal saying: This place is full up.

Immigrants like Ms Vasile give a bad name to the majority who do travel to Britain wanting to work. But, besides that, they are eroding support for the welfare state itself.

For all the noble notions of a brotherhood of man it remains a fact that people, in the main, feel more empathy with those who are more like them than those who aren’t. We generally care more about people who speak our language, dress like us, worship the same God (or none), watch the same TV programmes etc, than we do about people who don’t. This is one reason why the British or American media will devote hours of coverage to the deaths of American children in Newtown but spend little if any time on the Pakistani or Afghan children killed in drone strikes.

Regrettable as it may be, it is a fact of life that our empathy decreases as our differences with the person being empathised with increase.

The effects of this for a welfare state are as obvious as the effects of throwing your doors open while laying on a banquet of benefits. While people might be quite willing to pay towards a system that they believe is going to help people like themselves they will be considerably less willing to pay towards a system that they perceive benefits people who have very little in common with them. As Stuart Soroka writes

“Immigration has the potential to raise powerful challenges to the political legitimacy of the welfare state. Immigration can unsettle the historical conceptions of community, which define those who are ‘us’, recognized members of existing networks of rights and obligation, and those who are ‘strangers’ or ‘others’ whose needs seem less compelling. According to many commentators, the growing presence of newcomers, especially ethnically distinct newcomers, may erode the sense of social solidarity on which welfare states are constructed”

Or, as Milton Freidman put it: “You cannot simultaneously have free immigration and a welfare state”. The mass immigration overseen by the Labour government which saw millions enter Britain, 371,000 of whom are claiming benefits, has been one of the major factors in the decline in support for the welfare state in Britain. It has led to the serious consideration of a contributory element to welfare.

The answer is that government has no basis in rights to interfere with migration, but neither does it have a duty to subsidise it. If people want to go and work in Britain or the United States, and they can find employment, they should not be impeded. But if they cannot find employment the government should not hand them taxpayers’ money or goods and services purchased with that money.

There is a choice between immigration and welfare. The irony is that by choosing immigration a government of the left did more to undermine the welfare state than ‘the right’ ever did.

This article originally appeared at The Commentator

Is the Conservatives’ economic trump card warranted?

Let’s roll

It is part of Conservative Party mythology that it is repeatedly elected to clean up Labour’s economic messes. Indeed, 1931, 1951, 1979, and 2010 saw Labour bequeath the Conservatives a steaming pile to deal with. The only possible exception was 1970 when, following the calamitous sterling devaluation of 1967, Roy Jenkins wielded the austerity axe and got the British government’s finances into something approaching order.

Yet, truthfully, Britain has been plagued with economic mismanagement from both sides of the Commons and Labour could make much the same complaint of the Conservatives.

In 1929 Ramsay MacDonald’s Labour took over an economy wrecked by the attempt of Stanley Baldwin’s Conservative government to peg sterling to gold at pre-World War One parity. In both 1964 and 1974 Harold Wilson inherited the messy aftermath of pre-election booms engineered by Conservative chancellors Reg Maudling and Anthony Barber respectively. In 1987 the Conservatives inherited the messy aftermath of a pre-election boom they themselves engineered.

The Conservatives’ playing of their economic competence trump card always required a fair bit of bluff.

Recent developments suggest that George Osborne might think of delving into the same old bag of Conservative chancellors’ tricks as Maudling, Barber and Lawson. This government has nailed itself to the mast of the economy. Put simply, if the economy is growing healthily come 2015 the Conservatives will win. If not they are toast.

So far it’s not looking good. News that GDP contracted by 0.3 percent in the fourth quarter of 2013 meant that the UK economy continues to flat line. This is nothing to do with so called ‘austerity’ but the entirely predictable and unavoidable consequence of a massively indebted economy trying to reduce its indebtedness.

Either way, whether the dreaded ‘triple dip’ is avoided or not, it is looking increasingly unlikely that GDP growth in 2015 will be of the magnitude necessary to bring re-election.

So with 2015 approaching, Cameron and Osborne might come to look favourably on incoming Bank of England governor Mark Carney consummating his flirtation with Nominal GDP Targeting (NGDPT).

NGDPT starts from the observation that money supply targets proved a poor rudder for monetary policy due to problems of defining the money supply and changes in velocity, and inflation targeting proved unable to prevent asset price inflation. With NGDPT the idea is that the central bank sets a path for nominal GDP growth and manipulates the money supply sufficiently to achieve it.

So, if it’s decided that nominal GDP should grow by 5 percent a year, and nominal GDP looks to be increasing above that rate, the monetary authority engages in the sale of securities so as to suck money out of the economy to get nominal GDP growth back on target.

Likewise, if nominal GDP was growing at a rate below 5 percent, the situation we are currently in, the monetary authority engages in the purchase of securities so as to pump money into the economy and get nominal GDP growth back on target.

NGDPT and the market monetarists who propose it have faith in the power of monetary policy. Austrian liquidation or Keynesian liquidity traps can be blasted out of existence with a sufficient charge of base money. Or, as Ben Bernanke put it in one of market monetarism’s foundational statements:

“the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

You can see the attraction of all this to Cameron and Osborne but will they be allowed to get away with it? The mass production of sterling dictated by NGDPT in our current predicament would, in theory, have the effect of reducing sterling’s value on the exchange markets which will make imports into Britain more expensive and Britain’s exports to everywhere else cheaper.

In practice this is exactly what has been happening. The massive expansion of its balance sheet by the Bank of England has seen sterling crash by 15 percent since 2008 which has propped up British exports (it is this avenue which wasn’t open to Ireland).

But if you devalue to boost your exports of goods and services, any increase in those exports is matched by a reduction in someone else’s. This is why the competitive devaluations of the 1930s, as countries scrambled for a share of diminishing world trade, became known as ‘beggar they neighbour’.

And it looks unlikely that our neighbours are going to let themselves be beggared by Britain’s NGDPT. The Federal Reserve continues to buy $85 billion of bonds each month. In Japan Shinzo Abe is pushing an inflation target of 2 percent in a bid to boost its flagging exports. This will come at the expense of German exports which might cause policymakers in Berlin look more kindly on François Hollande’s calls for a devaluation of the euro. The race is on to see who beggars who first.

This article originally appeared at The Commentator

Your cut out and keep guide to how Labour wrecked the economy

The Golden (Conservative) Years

* When Labour came to office in 1997 they inherited falling debt, inflation, and unemployment and rising GDP. They were committed to Conservative spending plans.

* The budget deficit, which had fallen from £51 billion in 1993 to £29 billion in 1996, continued to fall and surpluses were recorded in each of the years from 1998 to 2001.

* Government debt fell from 42 percent of GDP in 1996/1997 to 30 percent of GDP in 2001/2002.

* Unemployment fell from a little over 2 million in 1997 to 1.5 million in 2001.

The Spending (Labour) Years

* In June 2001 Labour were reelected with a barely reduced majority. Two weeks later Gordon Brown says

“Every time in recent decades when the British economy has started to grow, Governments of both parties have taken short-term decisions which too often have created unsustainable consumer booms, let the economy get out of control and sacrificed monetary and fiscal prudence”

Brown ignored this advice himself.

* Between 2001 and 2007 tax receipts rose by 40 percent.

* This was still not enough to fund Brown’s new found passion for spending; in the same period government spending increased by 54 percent in real terms.

* The number of British households receiving more in benefits than they paid in taxes rose from 43.8 percent in 2000/2001 to 48 percent in 2007/2008.

* Even though the economy was growing Labour ran deficits in the fiscal years ending 2002, 2003, 2004, 2005, 2006, 2007 – all before a single banker needed bailing out.

* Between 2001 and 2008 Gordon Brown added over £200 billion to British government debt.

* British government debt increased from 30 percent of GDP to 35 percent on the eve of the crisis.

* Between 2001 and 2008 British government debt payments rose from £21 billion a year to £31 billion.

Then, in 2008, came the worst economic crash since the Depression. 

Labour and the welfare bill

…and I’ve got some magic beans to go with that

Last week Britain’s coalition government, a bunch of “ideologically-crazed demagogues”, launched a “brutal assault” on “the poor”. Or so said Owen Jones. So what form did this heinous act of heartless, senseless barbarity take? It voted to increase some benefits at the rate that earnings increase rather than at the (sometimes higher) rate that prices increase.

That’s it.

The hysterical tone in which much of the left conducts debate in this country is crippling our ability to have a serious discussion about how to bring under control a government debt which is set to have risen by 60 percent by the end of this parliament even after so called ‘austerity’. Eminently sensible measures on Housing Benefit or legal aid have brought predictions of a “final solution” or the end of justice in Britain.

The simple, central fact of British political life is that the government’s debt is rocketing by £326 million every single day. If even reasonable changes to Housing Benefit, legal aid, or welfare, which consumes one third of all British government spending, generate such apoplectic fury from the left, how on earth are we supposed to make even a start on tackling our out of control debt? It’s a serious question. Too serious, it appears, for the likes of Owen Jones.

But what was Labour up to while the coalition was engaged in this Blitzkrieg on the poor? It was making impassioned speeches and voting for benefits to increase faster than the wages which pay for them.

In truth the divide between those who pay for and those who receive benefits is no longer as clear as it once was. We have always had universal benefits paid to even the rich, hence the spectacle of a journalist from a family on a six-figure income wailing about having her Child Benefit taken away.

But besides that we have another toxic legacy of Gordon Brown. During Labour’s time in office he erected a thicket of benefits so baffling, vast, and labyrinthine that much of the country ended up snared in it. Ever greater numbers of people in work started to receive welfare and, bizarrely, Labour regard this as an achievement.

The thinking behind it was cynical. Like some mob boss in Vegas putting everyone on the payroll so no one would ever grass him up to the Feds, Brown reasoned that if he could play sugar daddy to a sufficiently large section of the British public by showering them with benefits they would never vote him out of office. It’s why the number of British households receiving more in benefits than they paid in taxes rose from 43.8 percent in 2000/2001 to 48 percent in 2007/2008. That, you’ll remember, was a period of economic growth.

Compare the essential fiscal promises of the two parties. The Conservatives say ‘Vote for us and you can keep what you earn’; Labour says ‘Vote for us and we’ll take money off someone else and give it to you’

Labour, quite simply, would cease to have any point if it wasn’t for the confiscation of wealth and its redistribution to its supporters. Thus we had the nauseating spectacle of David Miliband, who earned £125,000 for 15 days work as a director of Sunderland, accusing the welfare bill of being “rancid” as he argued for people on an average wage of £26,500 to pay more than the £3,100 per year they already do towards welfare.

Two-time Labour Prime Minister Harold Wilson once said that “The Labour Party is a moral crusade or it is nothing.” It is now worse than nothing. It is a cynical, vote-buying machine, funded with other people’s money. That’s what they trooped through the lobbies for last week.

This article originally appeared at The Commentator

Taxpayer funding for political parties? Why not pensions for life for armed robbers too?

Not the only bubble that’s burst

Whether it’s General Motors or RBS, no failing enterprise has ever truly breathed its last before gasping the plea for taxpayer funding. ‘Dinnergate’ provided the opportunity for Britain’s failing political parties to utter the immortal words.

In the general election of 1951 Labour and the Conservatives got over 95 percent of the vote between them. Labour got 13.9 million votes, the victorious Conservatives, by a quirk of the electoral system, 12.6 million. In the general election of 2005 labour and the Conservatives got just over 67 percent of the vote between them. The victorious Labour party got 9.5 million votes, the Conservatives 8.7 million. Losing that sort of market share is catastrophic.

Though obscured by First Past the Post the trend in British politics in the post war period is clear; a decreasing number of British voters are interested in either main party.

This increasing lack of interest in either the Conservatives or Labour has also been reflected in falling membership numbers. Perhaps counter intuitively for the self proclaimed party of the working man, Labour party membership has always lagged Conservative party membership. But, even so, in 1953 Labour had more than 1 million members and the Conservatives had 2.8 million.

With occasional reverses Labour party membership fell steadily until 1979 by which time it had fallen by a third to 666,000 members. Then came the Winter of Discontent and, as well as losing power to Margaret Thatcher, Labour lost a staggering 318,000 members in one year.

By the late 1960s the Conservatives had fallen to 1.1 million members but held steady until the early 1990s. From 1 million members just prior to Thatcher’s ousting in 1990 membership had halved to 500,000 in 1992.

But even these figures now look like some halcyon age of mass participation. By 2010 Conservative party membership had slumped to 177,000 while Labour was enjoying a “surge” in membership to 60,000 – a disappointing crowd at Old Trafford. No wonder that Britain’s political parties now find themselves in the position of a busted bank or bankrupt car company.

In the absence of membership fees the effect has been a reliance on ever fewer donors giving ever more money. Lord Ashcroft kept the Conservatives going almost single handed in the wilderness years after 1997. Labour, out of power and drifting to the left, holds little appeal for those with bulging wallets; Labour received just 13 private donations in the year from September 2010. Labour is now reliant on the trade unions (who themselves represent just a fraction of the workforce they used to) for over 80 percent of its funding.

The politicians’ ever greater flattery of their ever fewer donors is a nauseating sight and when it doesn’t cross the line into the criminal it certainly radiates a sleazy impression, as with Cameron’s latest kerfuffle.

The proposal for taxpayer funding of political parties is usually floated in the wake of such scandals. Perhaps because the threat of bankruptcy is very real for the Labour party (a rare example of politicians practising in private what they do in office) the demand for taxpayer funding has come loudest from the left. In the wake of Dinnergate, a Conservative scandal remember, the New Statesman carried articles by Labour MP Denis McShane and Mehdi Hasan arguing for taxpayer funding of political parties. As McShane put it, there is a need “for democracy to pay for democracy”

There is nothing of the sort. There is, instead, simply the desperate desire for members of failing enterprises like Britain’s major political parties to be bailed out. If you won’t give them your money voluntarily they will take it straight out of your paycheque.

Hasan quoted the Independent’s Mary Ann Sieghart saying that “our government was being corrupted by shady donors” so we must introduce taxpayer funding. This idea, that because we cannot trust politicians to raise money honestly we must give it to them in taxes, is absurd. By that way of thinking we would ‘punish’ armed robbery by giving the robbers pensions for life.

The question few seem to ask is why this is happening. Why are our major political parties becoming so noxious that Labour, with a 10 point lead in the polls, can lose a safe seat to a sectarian bigot? Why do 72 percent of voters see the Conservative party as “out of touch”? Answer that and you have a solution to party funding which doesn’t involve taxing people more.

There are long term secular trends. In terms of voting the decline can be attributed to some mixture of weakening class identification and growing disillusionment with both main parties’ inability to deliver on their grand promises. In terms of membership people join thing things less than they used to whether it’s political parties or the Dennis the Menace Fan Club.

But there’s another factor. Why should people give money to people who don’t like them? When Gordon Brown was overheard calling a lifelong Labour voter a “bigoted woman” just for asking some valid questions about immigration he revealed more than he knew. He revealed that the Labour party is run by a metropolitan elite which views its core voters in places like Rochdale as a bunch of unreformed hicks.

The same goes for the Conservatives. The strategy behind Team Cameron was that if they alienated enough of their core vote they would attract enough Guardian readers to more than make up for it. It failed. In the Telegraph Iain Martin wrote that “A fundamental miscalculation was the decision by this group to ape Mr Blair and define themselves in opposition to their party and their core supporters.” You can understand why Conservative party members might balk at giving money, or votes, to people who view them like this.

The truth is that both Labour and the Conservatives are run by people who don’t like Labour or Conservative voters very much. Those voters are entitled to keep their hands in their pockets and not have them picked by taxpayer funding.

This article originally appeared at The Commentator

Why Charlie Elphicke’s priorities are wrong

The NTE Party – Not Taxed Enough

There is a strand of thought in the Conservative party which holds that the party’s failure to win the last election was because they are insufficiently like the Liberal Democrats or Labour; respectively, a party which has popularity levels that would make Gary Glitter wince and one so bereft of ideas that the only thing they needed to worry about being stolen in a recent break in to its leader’s office was the tea bags.

It is this strain of thought which recently led Francis Maude to say that it was the Conservative party’s stance on gay marriage which would decide its electoral fortunes, a view which suggests he hasn’t spent much time canvassing lately.

It is also this strain of thought that has led Charlie Elphicke MP to write a piece for ConservativeHome titled ‘We should target overseas tax dodgers, help the low-paid and only then abolish 50p’

In a country whose government is borrowing £450 million per day, whose national debt is rising at £4,000 per second, yet which is seeing the merest trim of government spending Mr Elphicke has deduced that the problem is not that we are spending too much, but that we are not taxing enough.

At the heart of this lies what has motivated much of the opposition to the coalition’s attempts to get Britain’s ruinous borrowing under control: the idea that things can carry on as before; all we need to do is find someone else to keep paying for it.

The twist in Elphicke’s argument – what sets it a couple of millimetres apart from the sort of thing you get from any number of Dave Sparts – is that instead of targeting ‘the rich’, however defined, Elphicke has non-doms in his sights.

“We should learn from these international lessons” Elphicke thunders. Which international lessons? Well, there’s Spain with its 23 percent unemployed and the United States which, Elphicke notes approvingly, doesn’t “sit there worrying about non-domicile status. They just tax everybody, everywhere”

Well, they haven’t been taxing the increasing number of Americans who have been renouncing their citizenship rather than stump up to two countries’ governments when they only live in one. And Elphicke doesn’t address the rather obvious point that we might actually want to attract these people. He says that “This measure (taxing non-doms on their worldwide income not just that earned in the UK immediately) would raise between £500m and £1bn” annually, one or two days government borrowing in other words. But he doesn’t say whether this figure takes into account the negative effect on inward investment this would have.

As the Telegraph reported, when the £30,000 levy on non-doms which Elphicke celebrates was introduced in 2007, 16,000 of them upped sticks and left. As the Telegraph said

“The latest Treasury estimate is that 5,400 non-doms paid the levy in its first year, worth £162m in tax – way below original estimates. But how much revenue did the Treasury lose by the 16,000 non-doms leaving?

 Well, again according to Treasury estimates, non-doms pay £4bn in income tax and another £3bn in other taxes such as capital gains, VAT and stamp duty. So if 11.5pc of non-doms left in 2008-2009, as Inland Revenue figures show, then it’s not unreasonable to estimate that must equate to about £800m in lost taxes”

Can our battered finances really afford a repeat of this fiasco? They might have to. Just this last weekend the Financial Times carried a report that the number of non-doms in the UK has fallen by 16 percent since the levy was introduced. Now George Osborne is rumoured to be planning to raise it to £50,000.

If there’s no economic logic to all this neither does Elphicke even attempt to offer a moral justification. But then he appears to subscribe to the other foundational myth of the ‘anti cuts’ movement, namely that all government spending is good and, therefore, so is all tax. Tellingly, Elphicke makes no mention of spending cuts in his article.

But the truth is that there is much government spending which is a complete waste, especially following Labour’s spending spree over the last few years.

Labour more than doubled spending on education but we slumped from 7th in reading, 8th in maths and 4th in science in 2000 in the Programme for International Student Assessment rankings to 17^th, 24^th and 14^th respectively in 2008. Labour doubled spending on health but productivity, at best, only “probably improved”. It’s little wonder that people aren’t simply sitting still to be taxed to pay for all this waste.

Rather than dreaming up probably self defeating plans to find new pips to squeak Elphicke would be better off attacking this colossal misuse of taxpayers’ money. The truth is that there is much public spending which is not virtuous and, by extension, there is much taxation which is not virtuous. Some tax, quite frankly, ought to be avoided.

Elphicke is correct that moves should immediately be made to make the first £10,000 earned tax-free but this should be paid for, not with further taxes, but with genuine cuts to runaway government spending, not the glorified budgetary topiary which is the cause of so much misguided fuss.

Elphicke says that “As Conservatives we are committed to fairness and social justice”, well, who isn’t? The real question is what form you give these malleable phrases. He says “That means we believe everyone should pay a fair share” – again, who would disagree?

But it ought not to be the job of the Conservative party to define ‘fairness’ as “tax everybody, everywhere”. After all, besides wooly phrases like ‘social justice’ and ‘fairness’, the Conservatives are supposed to believe in the sovereignty of the individual and over his or her rights over their property. This is especially so when so much of this tax goes to support wasteful spending.

Leave defending that sort of nonsense to Labour and the Liberal Democrats.

This article originally appeared at The Commentator