back to article Bloody George's Budget: How bad is it really?

Oooh, I do love a good budget. It's an opportunity to poke fun at all the nonsensical misunderstandings of economics that politicians are prey to. Even if someone proposes something sensible you can be sure that the opposition to it will be rooted in a misconception of reality. So, what does this budget have for us today? …

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  1. Anonymous Coward
    Dead Vulture

    tl;dr

    ...but it's a coalition budget, not a torry budget.

  2. Steven Jones

    I feared the worse

    That is I feared the worst when an El Reg ventured on this subject, but I'm pleasantly surprised. A good summary,

    Incidentally, I did leave a comment against the Guardian's comment column yesterday to the effect that the those quoting Keynes in favour of keeping government expenditure were not evident when Gordon Brown and Alastair Darling were running increasing large deficits at a time when they should have been in surplus. The Guardian was also promoting the use of "moderate" inflation to reduce the real value of government debt which, of course, is simply a type of default and a grab from people's savings.

    As far as freezes on public sector pay is concerned (one assume that includes MPs), then if that didn't happen there would be an even larger reduction in public sector employment than there would otherwise be. One of the reasons that unemployment hasn't become worse than it has in the private sector is exactly because of this sort of wage restraint.

    As for the bankers. Well many are culpable, but it was the policies of many western governments (not just the UK's) which created a climate of cheap credit and over-extension of both private and public debt.. As sure as night follows day a credit crunch will arrive to bring it all crashing down once over-inflated assets and are used as collateral for increased borrowing.

    1. Anonymous Coward
      Dead Vulture

      Worse to come?

      Certainly the running deficit going in to the Banking collapse has placed the country in a bad spot to be pulling our economy back on its feet, that over-managed, mismanaged, and double-speaking government will not be missed. With the out going government in mind (and the poor egangment with the deficit during the election) it was a relief to finally get the real picture as to how we are going to tackle an unprecedented level of debt.

      That said the Banking and finance sectors got away with murder.

      Yes, governments and regulators could and should have done something, but the post-war consensus was and remains the same that the public sector is better kept away from the markets. The budget makes a 2 billion a year provision, but it'll be a long time before 2 billion totals enough to even underwrite one bank let alone banks. A banker touting the current levy is like an lord of old being able to pay of a peasant's family after killing the father while stampeding through the family's home after a fox, except of course bankers are getting it for cheap.

      Stretching the fox hunting lord metaphor a bit further and I find that there no laws to stop wild riding and similarly there are no changes in law or regulation to curtail the behavior of banks and the market. Plans were floating around to tax actual transactions (though not as the Robin Hood brigade would have it), a fractional tax to act as a dampener on the market tendency to pump out products (i.e., mortgage derivatives, as was) and dissuade commodity market predators from engineering destabilising price hikes. Granted you'd need to move such a plan internationally, but that little disincentivising skim would have helped bolster the emaciated 2 billion as well as actual change the culture that, as said, remains unchanged and would at least show the banking sector was willing to tighten their belts with everyone else they dropped in it.

      1. Mark 65

        Re:Worse to come

        "That said the Banking and finance sectors got away with murder."

        Given the size of the UK finance sector and the desire to get out of this mess at some point it's probably best not to shoot the goose that laid the golden egg even if it did shit on the dinner table afterwards.

  3. David Simpson 1
    FAIL

    Issuu

    An IT news site hasn't heard of Issuu ?

    Oh Dear.....

    1. Jon Axtell

      Tim Worstall

      Tim is not an IT person. He's a metal person. Specifically Scandium

  4. The old man from scene 24

    Just to try out an idea...

    Why not scrap taxation altogether and simply agree that the government will print a certain amount of money each year for government expenses? Just think - no more tax returns, no more money spent on policing taxation, no more slipping through the cracks with tax free dividend & CGT income, no more low income traps, easily predictable inflation, ...

    It seems like such a good idea that we'd already be doing it if there wasn't some disastrous downside. So what *is* the downside?

    1. Will 28

      I'm no expert, but at a guess

      The easily predicatble inflation would be easily predictably huge. That's great if your pay is going up relative to inflation, but savings would be diminishing rapidly, encouraging no-one to save. No-one would lend with anything other than at massive interest rates, as otherwise the money back would be worthless. I believe Mugabe is a fan of your philosophy, but it really hasn't turned out so well over there.

      Then again, as said - I'm no expert. Just can't see that level of inflation being workable.

    2. xenny
      Thumb Down

      Which is a bad idea

      The downside to the govt printing all the money it needs is that if gov't expenditure is~40% of GDP, the amount of money in circulation increases by more than 40% (more because the other 60% of GDPs worth of money is recycled, and spent more than once, imagine you spending your pay packet in a pub, the money ends up in a brewers pay packet later on).

      That give you easily predictable, insanely high levels of inflation. I'd anticipate higher than Rhodesia, and certainly more than 100% per year. Also, as the money supply is growing so fast, returns on savings will be negligible, so savers will get nothing in the way of interest on their savings, so the elderly etc will be disadvantaged.

      So, is that enough of a downside?

    3. Richard 12 Silver badge

      Hyper-Inflation is the downside

      When you print money, there's more money in the system, and therefore the value of that money goes down.

      So printing lots of money causes lots of inflation.

      Print too much, and you get Zimbabwe, 1930's Germany etc. People being paid with a wheelbarrow full of notes and desperately trying to buy things that afternoon before it becomes worthless the next day.

      Inflation is effectively the rate of reduction of the value of money.

      All that said, Governments do create money all the time. They try to hide it, but they do.

    4. Steve 151
      Stop

      Inflation

      Your inflation would indeed be predictable - Weimar Republic predictable

      The money supply would increased by £690 Billion a year (based on 2009 spending)!!

    5. tumbleworld
      Coat

      Simple really.

      The downside is that the wealth that people have saved decreases. This is a particular issue for the rich, who find themselves automatically losing large chunks of money every month, but no-one really likes to see their nest-egg steadily vanishing. Besides, there's a high overlap between wealth and political power -- on both sides of the floor -- so it's never going to happen.

    6. Ian Rogers

      Three major deciduous forests buying one ship’s peanut

      May I refer you to the works of Douglas Adams, in particular the bit where the Golgafrinchans adopt leaves as legal tender...

    7. LaeMing

      The problem with printing money

      is that the bits of paper (bits of cheap metal; numbers on a computer) have no value in themselves. Their value is in what they represent, which is a portion of the issuer's wealth. Dumping more money into circulation without an increase in real wealth simply spreads the wealth more thinly across the increased number of notes. No actual wealth is generated and everyone with existing money finds what they have on them is suddenly worth a good deal less in real spending power.

      See any number of collapsing Northern European or African nations from the last two decades for a demo of where this leads.

    8. Tony S
      Boffin

      Printing money

      Governments do print money - large amounts. Once upon a time, the amount of money printed was based upon the amount of gold / silver / other precious metals / jewels etc. That was done away with quite a while back.

      Essentially, the amount of physical money (or even electronic money) in use is just a representation - and it doesn't match the actual value of assets held. It could be argued that it is a representation of the ability of the country to produce tradeable products or services, but it is a bit more complex than that.

      As for the downside of printing extra money - I would refer you to the Weimar Republic or Zimbabwe. It's called hyperinflation and you wake up tomorrow and a loaf of bread is £10,000,000 - and then by lunch time, it has doubled in price.

    9. Steven Jones

      A thought experiment with your big idea...

      Think about it - if the UK government printed £400bn to pay the bills this year and they did so for five years running that's an extra £2 trillion that will be pumped into the economy. In ten years it's an extra £4 trillion. Just print money each year and it accumulates - to put this in perspective, the UK GDP is less than £1.5 trillion. That money won't just sit there - people will try and spend it. The problem is that there is only a limited amount of goods and services any economy can produce at a given time and the results is inflation - lots of it, so the government would either have to print more and more of it and you get Zimbabwe/Weimar Republic/name-your-own-banana-republic hyperinflation. The currency becomes even more worthless beyond the country's borders (who is going to take it when the government will print even more the next year). If you don't print more and more money and print the same fixed amount every year then you still get inflation, albeit not as much, but the government would get less for its fixed amount of money and be unable to pay its bills in full which would get worse year by year.

      In fact you can view this hyper inflation as an aggressive tax whereby the government rapidly wipes out the value of your cash savings in order for them to be able to buy services and goods as only they can print more money at ever larger denominations.

      In fact there has been some "printing" of money going on in the UK (called quantitative easing) with the Bank of England buying government bonds with money it doesn't really have (although that's about putting liquidity into the banking systems and not paying government bills - although it as the useful effect of keeping the interest rates that have to be paid by the government on gilts lower than it might otherwise be). The penalty of this, if these are not resold onto the market at some later point is inflation as more money washes around the economy. During the 1970s a lot of western governments learnt the hard way about the inflationary effects of the money supply running out of control.

      (nb. it is normal for there to be some growth in the money supply as economies expand - it's when it gets excessive that it causes big problems).

    10. The next Phil but one
      Stop

      Inflation!

      So what *is* the downside?

      An inflation rate of 40% a year is a massive drag on growth, no matter how predictable it is. Plus, you've just eliminated *the* major demand for £s on a day to day basis: the necessity of collecting enough of them to pay your taxes. In your scenario I'd expect the private sector to go underground as much as possible & move to some other medium of exchange.

      What might be sensible is to stop bothering with the ludicrous idea that the government should borrow money at interest in order to fund a short term deficit: there's a decent case to be made that deficit spending *should* simply be printed.

  5. Alastair 7

    Thank you

    I'm sure that there will be endless raging and to-and-froing in the comments here, but I'd just like to say thanks for an interesting insight in the budget.

    Whether we would care to admit it or not (and I suspect most here won't), the intricacies of the budget are over the heads of those of us that don't study it for a living. So thank you for simplifying it for this pleb.

    1. HighlightAll
      Megaphone

      A good article but a complete picture?

      The coalition have been accused today of trying to solve the problem too quickly and also of not going after the banks more harshly. And for ideological reasons (the lib dems lost the argument.)

      There is a sum of cash missing. Get it from the banks who can be you're friend or from the poor and the middle classes who don't have a voice?

      A reduction of 25% in public services is going reduce the ability of the poor and the middle class to spend. Not to mention the damage it is going to do to front line services. That damage could have been mitigated if the reduction were 20% and the cash regained over a longer period.

      Pain for three years then some good news and then an election... The Tories are working within a window of opportunity rather then looking at the long term potential to solve the problem.

      Conspiracy: did this article come up short for a reason?

      1. Adam Salisbury
        FAIL

        From another planet?

        If you take a look at the insane spending on bloated, worhless, ill-conceived projects in Government IT ALONE you'd know that the cuts can be made without a reduction of frontline services. If services do suffer it'll be as result of department budget holders bringing their axes down in the wrong places.

        1. Anonymous Coward
          Megaphone

          The cuts are already happening

          The cuts are already happening. A lot of FUD surrounding the crisis has already befuddled some managers. A youth centre closing allowing the kids to seek other opportunities in the neighbourhood and poor management leading to the break up of a team doing GoodWork in my organisation.

          "If services do suffer it'll be as result of department budget holders bringing their axes down in the wrong places."

          How much faith do you have in your managers?

  6. Anonymous Coward
    Grenade

    Sovereign Default

    ...is the issue here and people in Europe should face it or learn Greek. And then Chinese, because that will be the major remaining labour market for ten years after an actual default.

    We have to get the arse out of the mud NOW and have balanced budgets. If we can't make it this year, we cannot make it until we have a nice little Sovereign Default.

  7. Paul Landon
    Troll

    Capital Gains Tax

    Thanks to Tim Worstall for declaring his interest by confessing to being part of the Adam Smith Institute. The most uncontentious adjective applicable to the ASI is "Thatcherite", with their slavish belief in total privatisation, a flat rate tax and a state as small as possible.

    If you look at the cited table it does NOT show a reduction in CGT income for "a decade and a half".

    Why the hell should someone who makes their money from capital or who has liquid capital pay less tax than me or anyone who makes their living from their labour?!

    One of the reasons why CGT income may drop if the rate is increased to Income Tax levels is that CGT is often an avoidance mechanism for those with capital, and if the taxation rates are equal we would see a drop in that mechanism; god forbid the effect on growth if directors paid themselves a simple salary.

    Anyone with 3 years liquid capital and a flexibility with how one is paid (think rich beggars and directors of other people's companies) could effectively take some of their income as a capital investment (shares? share options?) and invest it in a 3 year buffer. 3 years later they take the capital gain on the investment as their income and reinvest some more for 3 years. This gives them a tax threshold and a much lower rate.

    A lower rate CGT is basically saying that £1000 made from investing capital is worth more than £1000 earnt from your labour.

    It is shameful that Blair/Brown spent 13 years pandering after Daily Mail readers rather than Labour's principals.

    1. adrianww

      The problem...

      ...with the whole CGT argument, as I see it, is that CGT sort of covers two rather different groups of people.

      On the one hand, you have Mr Moneybags with oodles of cold hard cash that they can drop into some convenient investment vehicle and then draw down at a later date taking advantage of CGT rates rather than income tax. These are the people to whom I believe you are referring - and they are the people to whom _everyone_ refers when bemoaning the inherent, unfair naughtiness of CGT.

      However, on the other hand, you have a large (in fact, very large) number of small business owners and family firms. Many of whom have invested all of their spare cash (and more) in their businesses. Cash which, in many cases, has already been taxed at income tax rates, since it originates in the savings that the small business owner managed to scrape together while working in a previous "normal" job. These small business owners get relatively little financial return in the short term - the creditors, the tax man, the staff, the bank, Hell, just about _everybody_ gets paid before the owner does (in general and if you're running your business in a legitimate manner).

      Other than the satisfaction of being your own boss (which can be great at times but negligible at others), there's not a lot to look forward to. Well, except for the day when you can grow the business to the point where you _either_ pay yourself a huge salary just for sitting on your yacht all day _or_ sell it for a profit and recoup all the money, time and work that you've put in over the years. But if everyone decides that, after all that time and effort and paying corporation taxes and bank interest and putting in their own money (that had already been taxed) and what-have-you, then you're going to tax the bejeesus out of whatever they do manage to make out of the whole game, well, they might as well just say "Sod you!", sack all the staff, shut up shop and get out with whatever they can before signing on the dole (not that they'll now be eligible for any benefits of course, regardless of whether they've got any money or not, but it's the thought that counts).

      So there's the problem you see? Of course, the Entrepreneur's lifetime relief allowance does cover this situation to a large extent (thankfully), so no-one needs to be too worried about it at the moment. However, I think it would be better if the two different capital investment situations were treated in a more separate and distinct manner (since who is to say that the Entrepreneur's relief idea won't just evaporate in some future budget, leaving people to face whatever CGT regime and rates happen to be current at that time).

      Answers on a postcard please?

    2. Anonymous Coward
      Anonymous Coward

      Because it's not all about you

      "Why the hell should someone who makes their money from capital or who has liquid capital pay less tax than me or anyone who makes their living from their labour?!"

      It's about what's best for the economy as a whole. Something which I think this article covered very well.

    3. Mark 65

      @Paul Landon

      You see this is the problem with left-wing envy-politics. The desire to chase down those rich bastards and squeeze them for every cent. Rich people avoid tax because they can. They have expensive lawyers, accountants and tax consultants that make it so. Chase them all you like but you'll end up spending more on collection than you'll receive. This is one of the main arguments for flat-rate taxation as opposed to tiered levels with high top rates which inherently provide an incentive towards avoidance. Administration is also less costly.

  8. Anonymous Coward
    FAIL

    Erm why not

    Why not use the VAT leveraged from all the devices used to connect to this broadband, like the VAT on computers which is kinda ironic that a computer is deemed a luxury item and yet the the ability to have broadband is deemed a right [confused]. By using private money you expose the public to be ripped off and if its profitable then why dont the goverment have the basic infrastructure and lease usage to private companies to provide the end-user service. no monopol, assured QOS and any profit wiill be fed back into the infrastucture and worst case the country instead of the usual public company bullshit which is. 99% underpaid peons doing all the work and some red-cheeked muppet who sits there screwing the staff over so the balance sheet looks good so it can pay shareholders and generaly hype there company and drive the shareprice up, which means nothing beyond how well they screw over there suppliers and staff and there cunsumers at the end of the day - thats it in a nutshell.

  9. John Smith 19 Gold badge
    Thumb Up

    "Tobias and Jocasta's second pony groom"

    Nice.

    Seriously this does seem like a fairly reasoned budget. I would presume that Osborne would *not* have picked 28% at random when he had the whole Treasury modeling team to give him a clear picture of what would (and would not) work.

    I also suspect the public sector freeze on people *above* £24k will seem pretty reasonable and diffuse any cries of "Unfair to the nurses/cleaners/porters etc".

    It's impossible to say but I wonder if it would have been *so* reasonable and balanced *without* it being a coalition?

  10. The Cube
    Thumb Up

    Well fork me.....

    That was a coherent, rational, reasonable and fairly objective look at the budget. Thanks!

    On another note, did you realise that you were writing for the Register? Did nobody fill you in that you are supposed to blame it all on the UK arms industry (because they are to blame for most things), crooked politicians or some other scapegoat?

    I must also applaud you on managing to hide in a "free market think tank" with views like that. You are supposed to foam at the mouth and tell us that all state interference is evil and leads to communism which causes masturbation and child abuse which attracts illegal immigrants and damages property prices.

    Oh, and congrats indeed on slipping "arbitrage intertemporal desires" into an article not in the economist ;-) (it's worth a quick Wiki read if you don't know what it is)

    1. Anonymous Coward
      Thumb Up

      "Stick to the Daily Mail"-type comments

      I agree it was common sense and not ideological.

      It's only really bigoted Guardian readers who need to view classic liberal economics as "baby-eating Right Wingers", so they can avoid listening to the arguments.

      The Lefties on the other hand have become a cult: State good, everything else bad.

    2. Happy Camper
      Thumb Up

      He kinda did obey El reg rules

      He did hint and indeed point towards this problem being 'Brown' and 'Darling.' Not corrupt just inept. Spending money during the good years on the millenium dome, ID cards, stupid patient summary care records, quangos etc. etc. Instead of saving and using it wisely.

      Good article though.

  11. breakfast Silver badge
    Flame

    The problem will be...

    VAT going up another couple of percent, the continuing escalator and the upwardly fluctuating price of oil are going to be putting the price of petrol at the pump up past £1.30 pretty soon.

    I think there will come a point where this presents a very serious problem for the british people and the government have to alleviate it somehow. I think a reaction like we saw in 2000 is to be expected...

    1. Anonymous Coward
      Thumb Down

      Insignificant

      The average motorist does somewhere around 14000 miles a year. Assuming an average car with, say, 40MPG fuel consumption, that translates (very approximately) to 1500 litres/year.

      For the little-old-lady who just needs a car to go shopping, the figures are more likely 5000 miles @ 50MPG, so ~ 500 litres/year or less.

      An extra 20p/litre is therefore going to cost between £100 and £300 more per year, or between £2 and £6 per week, which is largely insignificant in the overall cost of running a car (insurance, servicing, depreciation).

      Fuel costs make a big difference to commercial users, and to the cost of goods shipped by road, but for private car users the pain is more imaginary than real. That is shown by the way that fuel sales drop sharply after a price rise, but rapidly return to previous levels.

    2. Geoff Campbell Silver badge
      Grenade

      Cost of petrol/diesel

      The British people have had an alternative for the last 12 years to my knowledge, and probably longer. LPG is cheap and readily available, and the higher petrol goes, the shorter the payback period is.

      Of course, it is only cheaper due to lower taxation, which *could* change overnight. But I've been hearing that for the last twelve years, and it hasn't happened yet, in any serious sense.

      Cue lots of whining from people who could change, but won't....

      GJC

  12. Francis Begbie
    Alert

    Blame where it belongs

    If blame is indeed to placed, I'd put it firmly on the shoulders of the so-called economic theorists. I don't believe we've had a truly ideologically-driven budget since the Blessed/Cursed Margaret (pick your preference).

    Theorists are trying to come across all learned and knowing - trying to make it appear like a science. You know the scenario, the policy wonk states "A, B therefore C" and we all nod along knowingly.

    It's never worked. Never. Yet we continue to pay respect (unearned at that) to these rarified and abstract views which exist only in the mind of the theorist and their XLS files.

    So for a wonk to claim suppositions as fact, like this article, is a bit hard to swallow. Come back when there is a proven economic model with a real-world successful track record and try again.

  13. Anonymous Coward
    Anonymous Coward

    re Marginal Deduction Rates

    It's wrong to say that the increase in basic allowance will reduce the marginal deduction rate of people returning to work - according to the Treasury's figures changes to the tax credit taper mean that the opposite is true and more people will face a higher MDR (see p69 of the red book).

    Also, recent IMF research would disagree with this articles justification for reducing corporation tax, with the paper at http://www.imf.org/external/pubs/ft/wp/2010/wp1073.pdf showing that a stimulus of government investment increased GDP by 9 times the amount of an identical stimulus used for reducing corporate taxes. One of their conclusions was "Temporary expansionary fiscal actions are most effective when the fiscal instrument is spending or well-targeted transfers".

    This budget offers little stimulus for the growth we need.

    1. Mark 65

      Surely

      But surely the Government stimulus is temporary in nature and unsustainable in the long term (just see most European Govermentment deficits as proof) and that what they are trying to do is stimulate the long term sustainable growth which comes from corporations paying taxes. When the public sector is around 50% of GDP me thinks that Government stimulus is not going to be forthcoming.

    2. John Smith 19 Gold badge
      Happy

      @Oddly

      "showing that a stimulus of government investment increased GDP by 9 times the amount of an identical stimulus used for reducing corporate taxes. "

      Perhaps I am being a little dense here but wasn't that what the *last* government tried? Something they called a fiscal stimulus package (although it seems to have all gone to UK banks)

      This also implies you have some money *left* to inject into the economy.

      That does not seem to be the case with the UK governments finances.

      1. Anonymous Coward
        Anonymous Coward

        Bad budget for investment

        @John

        If you don't think there is money left to invest then, by definition, you also can't cut afford to cut taxes as that means the government has less money coming in with which to pay off the deficit. It's also worth noting that the Office for Budget Responsibility has lowered their growth forecasts by 0.3%/£5Bn for the next year following this budget as they believe its effect will be to slow the rate of growth.

        @ Mark

        Re long term growth: if you reduce corporation tax from 28% to 24% then the taxable income and capital gains on which it is charged will have to grow by 17% before you are even taking in the same amount of money and this seems like quite an ask at the present time.

        When you also consider that the previous allowances for investment are being reduced to pay for the reduction in corporation tax it means that these changes are actually worse for manufacturing and industries based on long term investment such as pharmaceuticals. Meanwhile industries with high profits but low investment, such as supermarkets, stand to profit the most but I think most people would find it hard to argue that the industries with the highest profits needed help at this time.

        One of the effects of this focus is that in four years time the reduction in corporation tax for banks will outweigh the increase from the bank levy so banks will actually be paying a lower overall tax bill.

        1. John Smith 19 Gold badge
          Happy

          @Oddly

          I was presuming the OP thought the UK Government still *had* money to invest in the UK economy.

          My point was this is *not* a like for like situation. There is *no* money to put into the economy, so while it *may* be a more efficient way to stimulate an economy (if you *have* the option to do so) the UK government does not.

          No money. Money all gone. Nein gelt. Non L'argent.

          1. Anonymous Coward
            Anonymous Coward

            so no tax cuts either then

            My last point was that a tax cut has the same effect on the balance sheet as an investment - if you can't afford to invest then you can't afford to cut taxes. No money means no tax cuts but I don't see you saying that we can't have them.

            If you do decide to try and intervene then investment is more efficient than tax cuts.

  14. Adam Williamson 1

    eternal growth

    "And we do indeed want to have as much growth as we can while still raising the money to pay for the things we want from government."

    I'm assuming the 'we' here is the Adam Smith Institute, and you're not presuming to speak for all of humanity. Because a significant and increasing chunk of it is waking up the idea that the unquestioning pursuit of eternal growth is the ultimate cause of quite a lot of the social _and_ economic problems that seem to crop up with baffling regularity, despite the fact that we're all allegedly getting richer (and hence happier) all the time.

    Some interesting bits in the article, though I'm not sure your argument about this budget being really Keynesian quite holds up. You argue that Osborne's trying to reduce structural rather than cyclical deficit, but both of these are ultimately abstractions; there's really only one 'deficit'. Whatever the ultimate aim, the fact remains that the _action_ is to cut spending and raise taxes at a time of recession, which is clearly _not_ Keynesian. It's something of a theoretical point, though, because if you asked Keynes what he would do about the current situation his answer would likely be 'don't get into it in the first place'. I guess the most correct stance is simply to say they Keynes has little to teach us about the present situation, since (as you correctly pointed out) we arrived in it through extremely non-Keynesian behaviour.

    1. Steve 151
      Stop

      If eternal growth is so bad, explain...

      at what time in the last thousand years would you rather have lived then?

      Growth is not dependent on increased consumption, it is rather a case of increasing productivity i.e. doing more with less - year after year after year. Entirely desirable.

      1. Adam Williamson 1

        False logic

        "at what time in the last thousand years would you rather have lived then?"

        You seem to assume that all progress - fr'instance, in the fields of civil rights, or health - is the same as, or at least inextricably linked to economic growth, which I would suggest is in fact not the case. Hence your question is a false one. Even if I answer that I quite like now, that doesn't mean economic growth is the reason why.

        "Growth is not dependent on increased consumption, it is rather a case of increasing productivity i.e. doing more with less - year after year after year. Entirely desirable."

        Yes, this is the most commonly used fig leaf. It doesn't seem to be remotely borne out by reality, though. Australia *is* running out of water. So is lots of Africa. Everyone else *is* running out of oil. Give it a few years and we might be a bit screwed when it comes to food. This'll be fun.

        1. Steve 151

          OK then

          point me to one field in which progress has been made in the absence of economic growth...

          Resources don't tend to run out, they become uneconomic to recover until the price rises high enough to make it profitable. Take oil for instance - it is perfectly possible to manufacture oil from coal; the Germans relied upon this method during WW2. I seem to recall that is costs around $100 a barrel to do this, which is uneconomic when it can be drilled for for less than $60 a barrel. If the oil price was consistently higher than $100 a barrel, it would be profitable to manufacture it rather than drill it. We aren't going to run out of coal any time soon (think thousands of years).

          Nuclear powered desalination plants could provide unlimited water; I suspect that there are many other, cheaper options that could be explored before that were necessary though.

          Economic growth creates resources rather than destroying them. I recommend reading Julian Simon to anyone who doubts this.

        2. Andrew Orlowski (Written by Reg staff)

          Re: Bedwetting

          Adam you're on dodgy ground again. This time it's your anti-science, anti-creativity logic creating a self-fulfilling dystopia. You seem doom everywhere (and as with any primitive religion, every natural event is a sign, a portent of doom):

          - "Australia *is* running out of water. "

          The reservoirs are full.

          - "Everyone else *is* running out of oil."

          We've been "running out of oil" for as long as I can remember Then we find ways of bringing more to the surface cheaply. Then when synthesizing hydrocarbons becomes cheaper we'll do that. And after that we'll move on to something else.

          The point your fail to understand is that the problem has never been a lack of energy, only our technical constraints on accessing it.

          "Give it a few years and we might be a bit screwed when it comes to food. This'll be fun."

          This is why your viewpoint is called "bedwetting". Food productivity has gone up, and more potentially productive land is available.

          The main people keeping modern methods out of Africa are people like you.

  15. Anonymous Coward
    Anonymous Coward

    Well considered...

    ...article. The only one I've read so far that actually talks about real economic cause and effect and not bad for an analysis produced so quickly.

    The lefties moaning on about Keynesian policies being our saviour should have thought about that 5 years ago.

    And as for cossetted public sector workers (not all of them, I agree - but there are plenty who are) living with the restraint the rest of us have had to for the last couple of years wouldn't go amiss.

    Personally I'd like to have seen the personal allowance raised - 12k, 15k even - vastly simplifying the tax system, removing millions from the income tax system (therefore reducing admin costs, a nice bonus for business and government) and the money lost raised instead through consumption taxes - yes, VAT, and all the others.

    It's about time we started charging a nominal amount for people to visit their GP or A&E to discourage the timewasters - my missus is a GP, and you wouldn't believe the stories.

    Anyway. Thanks again. That's two in a row by Tim that show surprisingly well considered thoughts for around here - lets see more please!

    1. Intractable Potsherd
      Thumb Down

      @AC

      I downvoted you because, whilst I agreed with most of what you said, especially the personal allowances for income tax, I can never agree with any further dilution of the provision of healthcare free at the point of need. If any GP doesn't like dealing with the people that feel that they need her/his services, it is time for her/him to get out and do something else. Dermatology is usually a good place for doctors that don't want to do bother much with patients, and it tends not to have much actual on-call work, whilst keeping the same levels of pay.

  16. Mike Brown
    Thumb Up

    title? nah....

    good article, well thought out, and you clearly know your stuff.

    I agree that the budget was pretty good. Take with one hand, give with the other, and everyone wins and suffers (kinda) the same.

    Good job Gideon!

    and good article Tim

  17. Anonymous Coward
    Pint

    Child Benefit and other anomalies

    I notice the poster glossed over the fact that wealthy families will still be being paid child benefit - but obviously thats fine? - I'd quite happily do without ours but you can't pay it back - hopefully they'll deal with this anomaly in the upcoming spending review (or would it piss off the core vote too much) - it would save a shed load of money if it was means tested . CGT should have been raised further ,the personal allowance is I think £8K + and you already get indexation added - it hardly seems equitable that if you invest in assets (shares etc) that make a stonking gain you are taxed at a far lower rate than if you'd actually done some work to make the additional money (unless you count ringing your stockbroker as work) - you also only pay the tax when you sell the assets so with decent rollover provision you might actually encourage people to reinvest in companies/shares (also the 2006 link is chartist rubbish if you can't prove a mechanism). Its another missed opportunity - I wonder how much lobbying went on...... But we haven't seen the impact of the departmental cuts yet so to pass a complete judgement at this stage is missing the point.........

    Beer because theres no change there either .........

    1. Daren Nestor

      Child benefit..

      "I notice the poster glossed over the fact that wealthy families will still be being paid child benefit - but obviously thats fine?"

      Harsh! You know that changing that would be political suicide. Think of the children! Freezing the rates and getting the money to where it's needed in another manner makes sense

    2. Ken 16 Silver badge

      means tested?

      That's one of those things which costs more than it saves - though linking payment to parents reported income makes more sense. In most cases a little fraud is cheaper than a lot of testing.

      1. Mark 65

        Similar to Oz

        In Oz they have two child benefits that I know of, Family Tax A and Family Tax B. To get them you need to estimate your income for the following year - one of them is unobtainable if it's above a certain level. You can either have it paid periodically or at the end of the tax year when the estimate becomes an actual. Same thing for the next year and so on. If you earn more than the estimate they'll claw back the money for periodic payments or just adjust the final one for end of year. Not sure how things work when you lose a job etc and don't intend finding out. Seems a much better (for the Government) model.

  18. Anonymous Coward
    Thumb Up

    I'm impressed with the article

    I'm very impressed with the quality of this article - the analysis is quite interesting (I've no idea if it's right or wrong though). Unlike the BBC's coverage of the budget, I think I may have learnt something here.

  19. Z80
    Thumb Down

    a descriptive heading or caption

    I guess this "cool" and "easier to use" Issuu contraption is described as easy-to-browse due to it not having any sort of search tool at all? I'll stick to an easy-to-search pdf thankyou very much.

    1. Jerome 0

      Flash? PDF?

      Close, but no cigar. Screw Flash, screw PDF. I'm firmly of the opinion that the best way to show this kind of document on the web is a new-fangled invention known as "HTML".

  20. Anonymous Coward
    FAIL

    Slash & Burn

    Firstly this problem was not cause by Government spending during the good years, in fact it is quite obvious that spending led to a better society in general. The problem was cause by private enterprise taking risks on things that not even the rating agencies let alone laymen politicians understood. So I think we can safely put to bed the notion of Labour being to blame for the financial situation no amount of Government saving during the "Boom period" would have helped with this. The Labour Governments saved Northern Rock and Natwest because it had no choice and in addition it slashed VAT to 15% to promote spending and growth keeping people in jobs and saving the Economy from falling into a spiral of depression.

    1) Cutting jobs in the public sector does not mean equal and alternative jobs will be created in the private sector.

    2) Cutting consumer expenditure will stifle private business growth the 20% VAT increase and 8.1% unemployment will effectively cost jobs in the retail sector and private health sector in particular.

    3) Imposing a banking levy without full G20 agreement will cause the loss of investment. More investment will be lost than will be gained by breaks given to the minority capital in the Small Business Sector.

    4) Reducing pay at the high end of the public sector may facilitate "Brain Drain" this was an issue the Conservatives railed against in Private Banking it is odd that they see it as not having the same effect in the public sector.

    5) Cutting benefits to those that have no actual qualifications will not precipitate them returning to work in a market that has barely any jobs for Graduates and Apprentices let alone the completely

    unskilled who will now have little or no access to adult education or training due to education cuts. taking them off benefits and forcing them into crime or untaxed work will have the opposite effect the Government intends.

    Overall this is a budget that has no long term inducements to the creation of growth or building for the future by placing education and skills in the hands of those who need it in order to find work. We will probably see the creation of jobs in some specialist sectors but an overall massive net loss of jobs across both the public and private sectors will inevitably lead to a real recession. There is no need to pay off money this quickly we have 14 year guarantees on the sovereign debts and money to come back from the Banks as they move back into Private Ownership. All we needed to was to ensure that we are paying the debt off in a stable manner to prove our commitment not this insane slash and burn budget.

    1. RIch 24

      nerrrr....

      Whilst Neu-Labour didn't cause the global financial problems, more prudent (ah the irony) Government saving during the good times would have buffered the effects. Having said that the previous Tory government were no better. No north sea oil sov fund for us.

      And knocking a few points of VAT temporarily just cost businesses a bit more in accountants and stationary. SO I suppose it might have stimulated those sectors.

      And high end brain-drain in the public sector? Not likely from my experience.

    2. Anonymous Coward
      Thumb Down

      Did you actually read the story?

      The 'risk taking' of banks just tipped us over the edge, we will probably get most of the money spent propping up the banks when we sell the shares. Also that very risk taking was what funded Labours boom, generating extra activity in the economy.

      The key point here is the structural deficit was growing in the 'good times' under Labour when they should have been paying off the debt, even according to their own 'Golden Rule'.

      On VAT @ 15% the article pointed out that VAT rates have the least effect on growth of any tax for the same return. So basically Labour could have have promoted better growth by cutting just about any other tax. Not to mention a lot the money for the few extra sales would have actually stimulated imports more than internal growth.

      I could go on about your other facile points but I fear you are not actually listening to anything that doesn't fit with your world view, just like Labour.

      1. Anonymous Coward
        Anonymous Coward

        Hmmm.....

        I'm not sure how British banks buying bad US loan books induced to people to pay more tax or spend more in the consumer economy...

        If the banks tipped us over the edge then you saying that even without the financial crisis economic failure was imminent, that is total nonsense.

        I think you fail to understand that reducing a Tax like VAT has a greater effect on people confidence and purchasing choices. This entire budget is going to contract the economy without meeting the targets for paying of this debt that the Tories have set. There will be less jobs and more unemployment the private sector will not be able to create those missing jobs.

        My world view is simple. Will the cuts actually end up costing us more than the things we are cutting ? That we will not know until it's done but I am not too optimistic. For the record I do not support Labour I personally find it a party that is run by Machiavellian chancers, but behind them are members that care about people, unlike the the Tories. None of them have managed this country at all well and they will continue to grind it into the ground.

        1. Anonymous Coward
          Grenade

          Re: Hmmm.....

          Gordon Brown (I assume it is you)

          The reason that banking wasn't the root cause of the structural deficit is simple:

          - during the banking and housing boom, your government recieved a lot of tax income from these instituions

          - during these years, government spending expanded due to this increased income and there was a deficit of around £40 billion

          - when the banking crisis began, the additional income disappeared

          - in addition, the government nationalised some banks (this increased the national debt by around £100 billion, but had a minimal impact on the deficit for debt servicing)

          - since the banking crisis, the Labour government continued to spend on public services and incentives to get the economy started leading to a deficit of around £160 billion.

          I'm not convinced that VAT increases will be bad for the economy - those that can afford the cost increase will continue to spend, those that can't will (hopefully) reduce their debt. It may hurt the big retail chains (i.e. the supermarkets) but it may also stop them taking over the high streets completely.

          For your world view - if the current costs are unaffordable, who will pay for them?

          I know you've had a falling out with some Labour politicians, but have you really left the party?

          Hope this helps

    3. Steven Jones

      Slash & Burn?

      There a good deal of complacency in this posting. Without going into the plentiful evidence there is for the structural deficit and future public liabilities that were being built up in the second half of the last administrations 13 years in power, then let's consider the point you make that much of the UK's debt is long dated and therefore we aren't so exposed and can take our time paying it down.

      That conveniently ignores the problem that the government will have a heavy borrowing requirement to cover the next few years current expenditure, even if we don't have (like the Greeks) to borrow so much to pay out on maturing government bonds (a position for which we can thank the more responsible fiscal behaviour of some past government, and the first Labour term which paid some attention to the health of public finances - plus the "soft default" caused because of past high inflation devaluing the real level of debt.

      Given that the government will still, even on these forecast, have to borrow a few hundred billion pounds on the financial markets then the price of this borrowing would undoubtedly go higher as lenders factor in the risk factors of default (including the soft default-by-inflation that has happened in the past). That financing requirement is still huge, and there was already considerable evidence that the markets had been increasingly reluctant to take on sterling debt. Of course it's impossible to prove that this would happen, but once the markets do take fright, then the austerity measures that would have to be imposed would be many, many times worse than anything we've seen to date.

      In fact the biggest danger in the whole thing is not what the UK government is doing - it's the synchronisation of similar measures over many western governments. It was these effects that so prolonged the depression thrrough much of the 1930s. Those factors are largely out of our hands, but one thing is for sure. No single government can spend its way out of a global depression if that is what happened.

      Make no mistake - excessive indebtedness is borrowing against the future of generations to come. It's far too easy to characterise profiligate current account expenditure as some investment in the future when it is just storing up a financial crisis. Various western governments (not just the last UK one) allowed the conditions for a massive financial crash to occur, and I don't mean by just letting banks play with dangerous toys. They simply allowed to much indebtedness to be built up (public and private) so that a financial crash of some sort was inevitable. That increased levels of public expenditure were justified on the basis of the tax revenues from inflated asset prices and increasingly ephemeral profits based on financial houses of cards built without foundations is a failure of government and, whilst most people were having a party, then it's human nature not to question it. Unfortunately populist governments, pundits with rose tinted spectacles and the general inability of the British public to understand anything much of economics conspires to produce this mess - blaming bankers alone is a nonsense. They deserve all the kicks they get - but they are not, ultimately, the cause of this - just an aggravating factor that tipped us over the edge.

      1. This post has been deleted by its author

  21. Tim Worstal

    It does you know

    "If you look at the cited table it does NOT show a reduction in CGT income for "a decade and a half"."

    I did say that the numbers were not inflation adjusted. They are nominal numbers. So he real value of the CGT take didn't get back to the late 80s level until 2006. Using the RPI that is. It's arguable that we should use GDP, not inflation, for a larger economy should throw off more capital gains, in which case CGT still isn't at late 80s levels in revenue.

  22. Steve Pettifer
    Flame

    Look North

    @Franco Begbie - not that I know much about economics worth a damn, but I'm pretty sure Worstall pointed to the example of the Scandinavian economies which exercise a more extreme form of this kind of economic theory and they're in pretty good health. Certainly a good deal better than ours. Thus I believe your criteria of "proven economic model with a real-world successful track record" have been met, no?

  23. S Larti
    Thumb Up

    Interesting stuff!

    Another excellent article from Tim Worstall. I may have to start using El Reg as a source of serious comment rather than entertaining hyperbole!

  24. DaWolf

    interesting article

    but this "So, to sum up, this is a budget that has more real Keynesianism in it than Brown or Darling ever managed;" is nonsense.

    Regardless of the difference between structural and cyclical debt, trying to reduce either in the middle of a recession is anti-keynesian.

    Tim must know that, so unfortunately he's talking the party line here.

    1. Laurie
      FAIL

      No.

      We're curently in growth, albeit very small, therefore not "in the middle of a recession"

      Do keep up.

  25. John H Woods Silver badge

    Child and Marriage 'benefits'

    These so-called benefits exist because there are no tax allowances where, arguably, there should be some. If my salary were split 50:50 between me and my non-earning wife, we would be hundreds of pounds better off every month. If any reasonable allowance were made for the children, it would be much larger than 'child benefit'.

    I don't mind paying the extra tax, but I do mind being told that the 'nuclear' family is supported, rather than taxed more heavily.

    The joke about the pony groom was funny but, remember Tobias and Jocasta's benefit is only about 100 per month - less if they have an older sibling. That won't keep a pony in a stable for more than 2 weeks, let alone pay for a groom. In fact - it's just about enough to pay for school dinners at 2.50 a day. Ok, some people could do without it, but It would cost so much to make it means tested it would not be worth it.

    I think a lot of bureaucratic waste goes into deciding who has what and managing overcomplex taxation and benefit systems. I'd be in favour of a radical approach - everyone gets a flat 'benefit' of x per week and every one pays tax of y percent on every single penny they earn. No poverty trap, no disincentive to earn - even just a few hours per week, no means testing, no benefits paid to non-citizens and best of all - hundreds of thousands of people moving from non-productive jobs - eventually - to ones which are worthwhile.

    1. Intractable Potsherd
      Thumb Up

      @John H Woods

      What you are talking about is known as "the Citizen's Income", amongst other things. There are various sites dealing with it following a Google search. Some years ago I did some research on it, and found that the savings in administration costs alone would more than pay for themselves in any tax lost. Also, it rewards those that take the weight off the state by doing things like looking after children or relatives. Some will grumble because it seems to allow people to "get away" with not working, but they are only a minority, and the Citizen's Income would allow many people to get out of the trap whereby they can't afford to work because they lose out when they do (as described in Tim's article). From my way of thinking, it is a logical, sensible, and practical thing to do. However, the fact that no country has ever tried it means that it is either a very good idea, or a very bad one - take your pick!

  26. max allan

    VAT, diminishing returns?

    In the same way that a CGT rise causes people to avoid it, surely a VAT rise is going to cause more people to avoid it, by buying from overseas and hoping that it doesn't get caught at the border.

    It's already ridiculously cheap to buy product direct from Hong Kong or similar through various websites like dealextreme. Yes, some of it's crap, but at a fraction of the price of UK goods, you can just buy another one.

    This doesn't help anyone. Extra world resources are consumed making multiple crap products and the government misses out on more VAT.

    It's fortunate that a lot of stuff isn't practical to ship, or expensive enough to guarantee being caught on the way in....

    1. Anonymous Coward
      Anonymous Coward

      Avoid VAT?

      "In the same way that a CGT rise causes people to avoid it, surely a VAT rise is going to cause more people to avoid it, by buying from overseas and hoping that it doesn't get caught at the border."

      Not really. Yes you can get CDs/DVDs from the Channel Islands which makes them a bit cheaper, but generally you buy the stuff you want directly. The increase in VAT is also not that much to make people really think about buying overseas with all the added hassle factor. The lowering of the VAT rate to 15% didn't make people suddenly buy more stuff. With the same change in the other direction, it won't make people suddenly stop buying more stuff.

      With 17.5% VAT a product priced at £9.99 actually cost about £8.50. With 20% VAT the final price is £10.20. However bear in mind that a lot of products are priced at £x.99 where x is some random number. So in some cases the manufacturer might take a cut to keep the price at £9.99, in other cases they'll increase the VAT included price to £10.99. Swings and roundabouts but generally no much change except for the really expensive stuff like 42" LCD TVs.

  27. Tom 38

    Why be AC, just to be a Labour apologist

    I think you'll find that Labour's spending is what caused us to be crippled by bailing out the banks. Other countries have had to bail out banks, without being left in the enormous debt that the UK is in.

    The main reason we are in so much debt is government spending exploded under Labour, and it was never put into check, even as the world economy crashed around around them, Labour continued to spend more and more money. There is one man to blame for the current economic state of this country; he's Scottish, and he thinks he is God's gift to macro-economics.

    1. Anonymous Coward
      Anonymous Coward

      .... Riiight

      So how would even a Balanced Budget for the past 5 years have made any difference more than a few billion to this current deficit?

      Yes the only other country to be able to bail out banks in to the level we have are the US and they can do as they wish... they print the worlds reserve currency, we don not have that luxury.

      1) Labour's spending on public projects during good financial periods would have paid off in better infrastructure and higher employment had it been allowed to continue without interdiction of totally unexpected Financial Crisis.

      2) The majority of the deficit will be paid for by the sale of the banks... whose fault it indeed is for this mess. To argue as the Tories do that this entire mess is all Labour's fault is plainly false.

      3) Reduction in VAT and bailing out the banks saved this economy from a depression... these measures were fully supported and advocated by all parties.

      Personally I don't like any of the parties... Tories a blatantly corrupt, Labour have the moral compass of Machiavelli and Liberal Democrats seem to be willing to sell out their principles for a taste of power. How any of these Parties believe they are leading this country anywhere but into the mire I do not know. This my friends will be the continuing failure of the Political Class.

  28. Anonymous Coward
    Thumb Up

    Good Article

    Actually made me feel a little more positive about the all the extra money the budget will cost me.

  29. Dan 10
    Thumb Up

    Good Article

    I watched the budget updates and my laymans view was that it appeared pretty fair and reasonable. Glad to see that a more in-depth analysis has come to the same conclusions. Ok, so the author probably has his own biases rooted in the ASI, but all the arguments against the budget so far have come from foaming-at-the-mouth idiots like Harriet Harman and a load of morons that were out protesting yesterday before anything had even been announced.

    As an aside, the price rises due to VAT should be the same levels as the price reductions that we saw when Brown made that pointless temporary change. Would anyone like to bet how much *more* retailers will manage to add onto prices?!

  30. Basic

    Larry Laffer

    "However, and here's something that many find hard to swallow, there really is something called the Laffer Curve."

    NSFW-ish http://harveyjames.livejournal.com/45343.html

  31. Dom 8

    I'm curious, can anyone answer this question?

    Has any post war government managed to "save" the budget surplus for the next recession. It seems to me that there is too much temptation for the government to "do" something with all that suprlus, ie tax cuts or public spending. As we know, governments are notoriously bad at planning past the next general election. Wouldn't it be better for the Bank of England or someone independent to set some of that suprlus aside, in effect to decide how much the government of the day can spend?

    1. Steven Jones

      Saving for the next recession

      It has happened, although not for great periods of time. Surpluses were generates in 1948 (although that was with the carry over from wartime tax regimes so isn't relevant). Then there was 1967-71, 1987-1990 and 1997-2002. The period from 1987 to 2002 shows the "classic" Keynesian cycle of a growth period followed by the early 1990s recession, a growth in the deficit and a return to surplus in 1997 which is where Gordon & Tony got their hands on the reigns. In their first term they had promised to retain the Conservative spending targets (which give or take the odd bit of PFI fiddling) they largely did. The second term was when considerable growth in public sector expenditure started and we we heading for a 4-5% deficit before the financial crisis really hit home. Note that the peak of borrowing this time is 4% higher than in John Major's time. This one is going to be much more difficult to bring under control - the same pictures, albeit of various severity, is being played out all over the west.

      http://news.bbc.co.uk/1/hi/uk_politics/8262514.stm

      Incidentally, it's worth looking at government debt. That (unlike the deficit) went down in Maggie's early years, but that wasn't because of government cuts - that was the carry over of lots of inflation which destroyed the value of Government bonds (and people's savings).

      The following shows the history

      http://www.outofrange.net/wp-content/uploads/2009/11/uk_debt.png

      You can see the high level's of national debt incurred during WWI staying high through the depression (which hit the UK early and then dropping in he late 1930s before the huge peak in WWII. It then fell steadily, but much of that was the effect of inflation.

  32. The Indomitable Gall

    Long-term & short-term

    From TFA

    "And what we know about these different effects is that consumption taxes, ie VAT and excise taxes on booze and baccy, have the least effect upon growth for the money they raise. Then income taxes in the middle and the two taxes which are worst for the negative effects they have on growth compared to the amount they raise are capital taxes and corporate profit taxes.

    (This is quite distinct from the obvious truth that while companies can collect taxes they can't actually pay them. Corporate taxes are paid by some combination of the shareholders, customers and workers: in the UK at present the best guesstimate is that 70 per cent of corporation tax is paid by the workers in the form of lower wages.)"

    Now this I don't doubt, but here you're talking in absolute terms. Right now, we have a lot of pre-existing factors to take into account.

    Put quite simply, most UK employers have instituted pay freezes. A change in corporation tax isn't going to alter that. So while next year's pay packets *might* benefit, this year the corporations will be pocketing the cash and the workers' outgoings will increase without any concommitant increase in income.

    So while I can see why theoretically this *should* be the right thing to do, in practice it's a bit of a bugger for the overriding majority of the population.

    1. Chris 263

      Missing the main point

      'Put quite simply, most UK employers have instituted pay freezes. A change in corporation tax isn't going to alter that. So while next year's pay packets *might* benefit, this year the corporations will be pocketing the cash and the workers' outgoings will increase without any concommitant increase in income.'

      That's missing the main point. Even if what you say above is true, the main point wasn't that workers do better or badly under different corporation tax rates (although their pay is indeed affected by it). The point was that any cost to a business has to be borne by some combination of workers (reduced pay), shareholders (reduced dividends), and customers (increased prices).

      When a corporation is taxed, the corporation is merely a legal fiction by which taxes are taken from these three groups of people. To say the 'corporations pocket the cash' is meaningless. It will be shareholders and customers that ultimately 'pocket the cash'. Corporations can collect taxes. Only people can pay taxes. This isn't economic theory so much as undeniable nature of reality. So if corporation tax is cut, regardless of what share the workers do or do not get, what they don't get, the share holders and customers will get instead. Given that many people are in all three roles, the net effect of a reduction in corporation tax is that a large number of people are now better off. Workers who do not benefit from a payrise instead benefit from cheaper goods and healthier pension pots.

  33. Tim Worstal

    Yup

    "What you are talking about is known as "the Citizen's Income", amongst other things."

    Indeed, lovely idea. About the only thing I agree with the Green Party about. There was a very good book explaining it in the American economy (properly worked out numbers etc) called "In Our Hands". By Charles Murray (yes, he of the Bell Curve but this one about a citizen's income isn't all over the place on race like that one is).

    If a library has it, worth a read....don't think it ever came out in paperback so probably not worth purchasing unless you're a real policy wonk.

  34. Anonymous Coward
    Badgers

    Not so much a comment on the article, but...

    ... I've "shared" a few Register articles on my Facebook page, but can never find an El Reg icon to put next to it. Are the icons something Facebook control, or can you create one for sharing purposes?

    (Posting anonymously because I feel like it.)

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