Government debt: That’ll be £2.2 trillion, please
The amount of money owed by the Government is huge and rising, says Eamonn Butler, so why aren’t we pursuing simple, effective ways to reduce the burden?
Today is Cost of Government Day. Average taxpayers in Britain now have to work almost half the year – 176 days – to pay their share of the cost of running Gordon Brown’s administration. Every penny we have earned since January 1 has gone to feed the state leviathan. It is only from today that, at last, you have started working for yourselves and your families.
More than five months of our servitude – from New Year until May 14 – were spent working to pay taxes, such as income tax, national insurance, council tax, VAT and many others including the notorious “stealth” taxes. But all that effort was still not enough to feed the monster, and when he had run out of our money, the Chancellor, Alistair Darling, had to borrow – at £20 million an hour – to pay his bills.So for the past six weeks, day in, day out, we have been working to fund that borrowing. No wonder Mervyn King, the governor of the Bank of England, warned yesterday of the “truly extraordinary” scale of deficits.
We have had to put in 10 days’ more work than last year in order to keep the Government afloat. It is not just the money that Brown and Darling borrowed to bail out the banks. It is the fact that every bit of public spending – national and local – is rising faster than taxpayers’ incomes. In 1999 – when Brown had finished with New Labour’s 1997 election pledge to match Conservative budgets – government spending was just 36 per cent of the nation’s income. Now it is a third more – 47.5 per cent this year – and rising.
Not that you can believe official figures. The International Monetary Fund thinks things will be far worse. Our national income will take a knock, and more people will be out of work and receiving benefits from the Government rather than paying it taxes. That makes it probable that public spending will be more than 50 per cent of our income – sending Cost of Government Day into July.
It amounts to a huge surge in the burden of government for those of us trying to earn a crust – twice that in France, and even more than when Britain was reeling from the oil-price shocks in the early 1970s. In fact, it’s not far off the 1940s, when at least we were paying off the cost of saving the world from Hitler.
But then Alistair Darling’s budget predictions have proved just as over-optimistic as his predecessor’s. In November 2008, despite all the drama in the banking industry, his forecasts seemed almost rosy. Now, he expects the Government’s budget shortfall this year and in 2010 to be four times that prediction, with 2011 and 2012 about five times bigger. The gap between what the Government expects to spend and what it actually brings in has risen five-fold, from £120 billion to £608 billion in the space of six months.
At that rate, according to the Institute for Fiscal Studies, it will take 23 years to return government borrowing to anything like normal levels – Gordon Brown’s famous “golden rule”.
And of course, every year you borrow keeps adding to what you owe. Right now, the Government calculates that it owes a total of £2.2 trillion – about £144,000 per household. The figure has trebled since the bank bail-outs. Some traders are beginning to wonder if Britain can actually pay its debts. If they start pulling out, then we really are bust.
And the real picture is worse, because the Government does not record all its debts on the official books. Take all those new schools and hospitals being built on tick at a future cost equal to £5,600 per household; Network Rail’s borrowing, another £1,000 per household; nuclear decommissioning, another £2,750; those generous civil service pensions – a future cost of almost £50,000 per household; not to mention the state pension. Add those in, and the real national debt is twice the official figure.
Do not imagine that all this extra spending and borrowing are the fault of the financial crisis and the need to counter recession – interest payments, social benefits and suchlike. A good half of it is simply feeding the Government’s pre-election spending splurge.
And do not believe the spin that the Conservatives would make 10 per cent cuts to balance the books. They have pledged not to cut education, the NHS, or overseas aid, and they are stuck with the debt repayments and the EU’s demands; even if they cut 10 per cent off everything else, it amounts to just 3 per cent overall. They would be shrinking next year’s spending bill from £717 million to £695 million. That is still more than Labour has ever spent.
“What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom,” wrote Adam Smith. If your family had debts as big as the Government’s, you would know what you had to do:spend less or earn more – and preferably both.
The Government won’t earn more by putting up taxes. The Centre for Economic and Business Research estimates that the proposed 50 per cent top tax rate will make 25,000 people leave the UK, costing 140,000 jobs and reducing revenues. Britain is already overtaxed.
And the private sector has borne nearly the whole burden of the economic downturn. Wages have fallen, and unemployment is heading up to 3 million. But the public sector has been largely unaffected. That is why people are so angry when they see how much of their 176 days’ effort is simply wasted – or abused, as with MPs’ expenses.
The task is to reduce public expenditure without it showing. A freeze on spending and recruitment for a couple of years, then pegging it to inflation, would be surprisingly effective at re-balancing the books. (If spending since 1997 had risen no faster than inflation, we would be spending a third less than we do now, and could abolish income tax, VAT, and council tax entirely.)
Another useful move would be to publish online every cheque the Government signs, so we can see what it is spending and where. Private firms would be able to show what they could do more cheaply. And citizens could point out where they think their money is being scandalously wasted, as with the £300 million on departments’ service contracts, wasted through bad management, or the £200 million lost through bad procurement of hospital buildings.
Then there are the IT projects, such as the NHS records system, that are billions over budget and months or years late (the Department of Employment alone spent £59 million on a computer system that did not work). Exposing such wasteful incompetence would help eliminate it. And do we really need to spend tens of billions on ID cards?
Along with the Royal Mail, we can privatise the Tote, Channel 4, BBC Worldwide, air traffic control and various utilities, which would bring in a handy £20 billion. And we can get rid of central bureaucracy by measures like simply handing head teachers their bit of the budget and telling them to get on and spend it as they see fit, rather than as Whitehall bureaucrats think they should. The same could go for health – give the budget to patients or their doctors, not to layers of bureaucracy such as the strategic health authorities. And the quangos need to be culled again: they have grown in number, cost and power under Brown. For what gain?
Meanwhile, dozens of local government officers are now paid more than £100,000 and retire on generous index-linked pensions – something now almost unknown among the private-sector employees that work to support them. As this newspaper reported yesterday, PricewaterhouseCoopers claims that 96 per cent of companies regard final salary schemes as unsustainable.
About a third of Child Benefit is little more than pin-money for the middle classes. It should be given to the poorest. By taking everyone on the minimum wage out of tax entirely, we would see a stampede into work by those who we presently make better off on benefits.
Another huge saving would be to speed up the plans to raise the pension age, reflecting improvements in health and longevity. This is by far the largest spending change one could make. Yes, many people would not like it – though others would be delighted to avoid forced retirement at 65. But it would be hugely symbolic – a return to honesty in the public finances, and an end of the idea that we can all live at someone else’s expense. If this recession has taught us anything, it should have taught the politicians that.
Dr Eamonn Butler is director of the Adam Smith Institute and author of ‘The Rotten State of Britain’ (Gibson Square Books)
Published in The Telegraph here
It’s GCSE economics: high taxes don’t work
The Chancellor would get a C for his new tax rises and fail history outright. He will also leave the Treasury worse off.
Given the damage that the new 50 per cent tax rate will probably inflict on the UK economy, the Chancellor seems to have been very cavalier about it. When the House of Commons Treasury Select Committee asked how he decided to impose the new rate on everyone earning £150,000 or more, he replied: “There was no science behind it. It was simply my judgment.”
No science? If there is one part of economics that lends itself to scientific analysis, it is tax policy. Taxation has been under the microscope ever since Adam Smith first distilled the principles of good and bad taxation in the 18th century. Two hundred years of evidence later the science is clear: high taxes don’t work. They bring the Treasury less revenue, not more. And on the way, they really mess up your economy.
It’s shocking that the Chancellor, in his desire to wrongfoot the Tories, has simply ignored this evidence. In the science of taxation, he wouldn’t merit a grade C at GCSE. And he would fail history outright, having completely forgotten the lessons of an earlier Labour Chancellor, Denis Healey.
Healey actually relished the “howls of anguish” from the 80,000 people rich enough to pay his top tax rates of 83 per cent – or even 98 per cent for those who lived off investments. But as capital took flight and brains drained from Britain, Healey was forced to go to the IMF for a bailout. Labour’s reputation never recovered and, 30 years ago this week, the country fell sobbing into the arms of Margaret Thatcher.
Despite these economic and political warnings, the Chancellor’s “judgment” is that it makes sense to impose higher taxes not on just 80,000 people but, according to Treasury figures, on 283,000 – the top 1 per cent of UK taxpayers. That’s a lot of folk.
And the tax rise is massive, too. It might sound like just another 10 per cent, but if you’re paying tax at 40 per cent and the rate goes up to 50 per cent, you are actually shelling out 25 per cent more than you did before.
Which means a lot of people face a lot more tax, and Darling’s unscientific tax rise will have a large – and damaging – effect, just as Healey’s did. A 25 per cent tax hike is well worth avoiding, even if you earn £150,000. People will simply hire expensive accountants to find ways round it, or do what Sir Michael Caine is threatening and shift themselves or their money abroad. Or take longer holidays and retire early.
In fact the Treasury itself thinks that 69 per cent of those hit by the new tax will find ways to escape it. That’s why the respected Institute for Fiscal Studies figures that the tax won’t raise anything like the £1.3 billion that Darling forecasts – if it raises anything at all. And the Centre for Economic and Business Research reckons that 25,000 entrepreneurs may simply emigrate, costing the UK £800 million.
Raising taxes, then, can leave the Treasury worse off – a simple piece of tax science popularised by the American economist Arthur Laffer with his “Laffer Curve”, and of which the Chancellor should be fully aware.
And contrariwise, scrapping high tax rates actually boosts both the economy and tax revenues. In 1979 the Conservative Chancellor Geoffrey Howe slashed the top rate from 83 per cent to 60 per cent. Before the cut, the top 1 per cent of taxpayers – Darling’s target group today – paid just 10 per cent of the total tax take. By 1988 they were paying 14 per cent of it.
Then Nigel Lawson cut top rates even more, from 60 per cent to 40 per cent and revenues surged again. By the time of the 1997 election, the top 1 per cent of earners paid a whopping 21 per cent of the total tax bill. By halving the top rate of tax, Howe and Lawson had doubled the amount paid by top earners.
Other countries back up this simple science. The United States has had four big tax cuts over the past century. In 1921, President Coolidge cut the top rate from 63 per cent to 25 per cent. Five years later the top earners (people on incomes over $100,000) were paying 86.3 per cent more than they had before. The economic boost fuelled the Roaring Twenties.
In 1964 President Kennedy cut the top rate from 91 per cent to 70 per cent. Two years later the top 5 per cent of earners were paying 7.7 per cent more in taxes, while the bottom half were paying 9.2 per cent less.
When President Reagan cut the top rate from 70 per cent to just 28 per cent between 1981 and 1988, the share of revenues paid by the top 1 per cent of taxpayers rocketed from 17.6 per cent to 27.5 per cent. He cut capital gains tax as well, from 28 per cent to 20 per cent – and again, revenues leapt by half, from $12.5 billion to $18.7 billion in only two years. The cuts launched the longest period of wealth creation the world has known. And under George Bush’s cuts too the wealthy ended up paying more, not less.
Nearer home, a dozen of the former Soviet countries, including Russia, Estonia and Latvia, have replaced their high, complicated, dysfunctional tax rates with a single-rate flat tax as low as 10 per cent. They enjoyed a huge economic boost as a result. Ivan Miklos, the former Finance Minister of Slovakia, told me that slashing taxes was the only decision he lost sleep over: but in fact his flat tax was a huge success, and Slovakia never looked back.
Alistair Darling, by contrast, has made several mistakes all at once. His new tax is so high that people will do their darnedest not to pay it. He won’t pull in the revenues he needs to pay off his spiralling public debts.
At the same time, his changes to allowances and national insurance further complicates a tax code that runs to 10,000 pages – great for accountants and tax bureaucrats, perhaps, but not for the rest of Britain.
Third, he has forgotten that “the rich” don’t just inherit their money any more. Most of them today earn it. His new tax on work will simply drive the UK’s entrepreneurial spirits – and their money – abroad.
It’s science, Mr Darling. But it’s not rocket science.
Dr Eamonn Butler is director of the Adam Smith Institute and author of The Rotten State of Britain
Published in The Times here
Why taxing the rich could make us poorer
Hope springs eternal in the breasts of politicians. None more so than Alistair Darling’s in his Budget speech.
He conceded that Britain’s economy was in a bad way. It would shrink by 3.5 per cent this year, rather more than the one per cent dip he forecast only in November. But hey, every country is in a bad way right now, and by 2011-12, the UK will be growing again at a record, rip-roaring rate of 3.5 per cent. Crisis? What crisis?
Unfortunately, British Budgets tend to unravel pretty quickly. Ever since the £5bn “stealth tax” on pension funds that Gordon Brown somehow forgot to highlight in his 1997 budget speech, and which helped to kill half of Britain’s workplace pension plans, people listen to the Chancellor with more than the usual scepticism.
We only had to wait a couple of days before the Office for National Statistics punched a hole in the Chancellor’s optimism. It reckoned that the UK economy had just suffered the biggest six-month fall since records began, in 1948, and much more than the Government had assumed.
The International Monetary Fund piled on even more gloom by predicting that this year’s drop in British growth would actually be 4.1 per cent, and that the economy would also shrink next year.
It is all bad news for a government trying desperately to borrow its way out of the crisis while soaking the “rich” by raising the top tax rate to a confiscatory 51.5 per cent.
There comes a time when short-term borrowing turns into a long-term problem. Already, with the increase in the top income-tax rate, the Government is beginning to look desperate.
This is all eerily reminiscent of Denis Healey, the Labour Chancellor of the late 1970s, who promised to “tax the rich until the pips squeak” with rates as high as 83 per cent on income from work and 98 per cent on investment income. In the end, he had to ask the IMF for an embarrassing bail-out.
The trouble with taxes is that raising them above a certain level becomes counter-productive. People will find it economical to hire expensive accountants to avoid paying the full amount. If everything else fails, they may take themselves and their money abroad to gentler tax jurisdictions, as the actor, Sir Michael Caine, just threatened to do.
The Treasury claims that the new 50 per cent rate will bring in £1.3bn next year, but the Institute for Fiscal Studies says it might not raise anything at all, since perhaps 70 per cent of top earners will either evade or avoid it. The Centre for Economic and Business Research thinks that as many as 25,000 top earners may leave the country, costing the Government – and the London financial market – hundreds of millions of pounds in lost tax revenues and investments.
Taking 51.5 per cent of people’s earnings sends all the wrong signals. It suggests – absurdly – that the Government is better at spending our money than we are. Higher taxes will simply induce people to spend less and leave entrepreneurs with less for investment, neither of which will help Britain recover.
When Margaret Thatcher slashed the top rate to 40 per cent, high income earners actually paid more, and contributed a far bigger proportion of total revenues, than they had before. Even former Labour Prime Minister Tony Blair denounced the 50 per cent tax rate as “wrong, seriously wrong”.
Interestingly, while higher income earners are supposed to bleed for the nation and businesses have been hit by the full force of the recession, government workers and their generous index-linked pensions have been left largely unscathed.
And what of the Conservatives? They are the clear favourites to win next year’s election. It would then fall to David Cameron to sort out Britain’s debt. Will he have the steel to bring the public finances back into order?
He has spent much of the last few years trying to make the Tories look kinder, gentler – majoring on social justice rather than tax cuts. He’s even said that, although the new 50 per cent rate was a “pathetic piece of class-war posturing” rather than sound economics, removing it would “not be a high priority” for any future Conservative government.
Although Mr Cameron may have tried to rebrand the Conservatives, he still shares one of Mrs Thatcher’s core principles – that a nation, like a family business, has to balance its books.
He must know that if he becomes Prime Minister and fails to deliver a leaner, sounder, less indebted government, his party will be finished. Even worse, so will be Britain.
Dr Butler is director of the Adam Smith Institute and author of The Rotten State of Britain: Who Is Causing the Crisis and How to Solve It, published by Gibson Square Books, price £12.99.
Published in the Yorkshire Post here
Is Britain Finished?
Dr Eamonn Butler points out that the Government will find it increasingly hard to pay off its huge debt, whilst warning of the problems that could occur if the Government goes through with the increased tax percentage on the rich.
The country’s only chance is a leaner, sounder and less indebted government.
Hope springs eternal in the breasts of politicians. None more so than in Alastair Darling, Britain’s chancellor of the exchequer, as he delivered his annual budget speech to Parliament last week.
He conceded that Britain’s economy was in a bad way. It would shrink by 3.5% this year, rather more than the 1% dip he forecast only in November. But hey, every country is in a bad way right now, and by 2011-12 the U.K. will be growing again at a record, rip-roaring rate of 3.5%. Crisis? What crisis?
Unfortunately, British budgets tend to unravel pretty quickly. Ever since the £5billion “stealth tax” on pension funds that Gordon Brown somehow forgot to highlight in his 1997 budget speech and which helped to kill half of Britain’s workplace pension plans, people listen to the chancellor with more than the usual skepticism, waiting until the number-crunchers expose the real figures a few days later.
We only had to wait a couple of days before the Office for National Statistics punched a hole in the chancellor’s optimism. It reckoned that the U.K. economy shrank 1.6% in the last quarter of 2008, and another 1.9% in the first quarter of 2009 — the biggest six-month fall since records began in 1948 and much more than the government had assumed. The International Monetary Fund piled on even more gloom by predicting that this year’s drop in British growth would actually be 4.1%, and that the economy would also shrink next year, when the chancellor had counted on a turnaround. It is all bad news for a government desperately trying to borrow its way out of the crisis while soaking the “rich” by raising the top tax rate to a confiscatory 51.5%.
Another popular British sport is watching the government default on its borrowing estimates. The last time the government managed to stay within its own budget deficit forecast was in 2000. Recently, the difference between planned and actual borrowing has become spectacular. In his 2008 budget, the chancellor figured he might have to borrow £70 billion between now and 2011. Last week, his estimate was five times that — £348 billion. By 2013-14 he will need £703 billion of debt finance, twice as much as he forecast just five months ago. Britain would be borrowing for the next 22 years — and that’s on Mr. Darling’s heroic economic assumptions, which can’t possibly be met.
* * *
Britain’s Labour leaders have been keen to blame bankers, particularly American ones, for the country’s woes. To some extent, though, Labour leaders have brought this crisis on themselves. They saw financial services, not manufacturing, as Britain’s future and encouraged it. Financial wizards left Manhattan for London, attracted by the lower taxes and easier regulatory environment. The City’s financial market boomed, contributing 8% of GDP and 15% of all corporate taxes. But Britain’s heavy reliance on financial services left it seriously exposed when the banking crisis finally hit.
Add to this the imprudence of the public sector and private households. Over the past 10 years, Britain has grown on the back of government and consumer spending, both fuelled by debt. But while households are now cutting back and paying down their debt, the government is spending and borrowing even more.
There comes a time when short-term borrowing turns into a long-term problem. Britain’s government debt is still triple-A rated, but a recent auction of U.K. government paper failed to sell in full and some traders already price it lower than some commercial companies’ debt. Britain’s government could find it harder and more expensive to borrow the huge amounts it seeks.
Already, the government is beginning to look desperate. Mr. Darling plans to hike the top income tax rate from 40% to 50% (plus 1.5% compulsory National Insurance contributions) on people earning more than £150,000. By scrapping certain tax deductions, those making more than £100,000 would also have to pay higher taxes.
This is all eerily reminiscent of Denis Healey, the Labour chancellor of the late 1970s, who promised to “tax the rich until the pips squeak” with rates as high as 83% on income from work and 98% on investment income. In the end, he had to ask the IMF for an embarrassing bailout.
The trouble with taxes is that above a certain level, raising them is counterproductive. People will find it economical to hire expensive accountants to avoid paying the full amount. If everything else fails, they may take themselves and their money abroad to gentler tax jurisdictions, as the actor Michael Caine just threatened to do.
The Treasury claims that the new 50% rate will bring in £1.3 billion next year, but the Institute for Fiscal Studies says it might not raise anything at all, since perhaps 70% of top earners will either evade or avoid it. The Center for Economic and Business Research thinks that as many as 25,000 top earners may leave the country, costing the government — and the London financial market — hundreds of millions of pounds in lost tax revenues and investments.
Taking 51.5% of people’s earnings sends all the wrong signals. It absurdly suggests that the government is better at spending our money than we are. Higher taxes will simply induce people to spend less and leave entrepreneurs with less for investment, neither of which will help Britain recover.
When Margaret Thatcher’s government slashed the top rate to 40%, high income earners actually paid more, and contributed a far bigger proportion of total revenues, than they had before. Even former Labour Prime Minister Tony Blair denounced the 50% tax rate as “wrong, seriously wrong.”
Interestingly, while higher income earners are supposed to bleed for the nation and businesses have been hit by the full force of the recession, government workers and their generous index-linked pensions have been left largely unscathed.
And what of the Conservatives? There has to be a general election in Britain before June 2010, and with an 18-point lead in the polls, they are the clear favorites. It would then fall to party leader David Cameron and his colleagues to sort out Britain’s debt mountain. Will he have the steel to bring the public finances back into order?
He has spent much of the last few years trying to make the Tories look kinder, gentler — majoring on social justice rather than tax cuts. He’s even said that, although the new 50% rate was a “pathetic piece of class war posturing” rather than sound economics, removing it would “not be a high priority” for any future Conservative government.
But that’s because although Mr. Cameron may have tried to rebrand the Conservatives, he still shares one of Mrs. Thatcher’s core principles — that a nation, like a family business, has to balance its books. Already he is calling for a “government of thrift” where civil servants get paid for “producing more with less, not less with more.” Like the Iron Lady, he warns of the evils of debt and inflation.
He must know that if he becomes prime minister and fails to deliver a leaner, sounder, less indebted government, his party will be finished. Even worse, so will be Britain.
Dr Butler is director of the Adam Smith Institute and author of “The Rotten State of Britain: Who Is Causing the Crisis and How to Solve It” (Gibson Square Books), published last month.
Published in the Wall Street Journal here
With recent police activity, anti-terror adverts and CCTV everywhere no wonder we’re all scared stiff
Big Brother state? Britain has more CCTV cameras than the rest of Europe put together.
So it has now become one of the main causes of anxiety. Among all the other worries that people face – the recession, crime, hospital superbugs and terrorism – a new fear has emerged: that of the Big Brother state.
According to a survey by the Mental Health Foundation, we are a pretty fearful lot. In fact, more than seven million of us are living with some sort of anxiety problem.
And the proliferation of surveillance equipment such as CCTV cameras (of which we have more than the rest of Europe put together) only makes people more worried of the very things the cameras are designed to tackle: crime and terrorism.
It is ironic that something which is supposed to put our minds at rest has exactly the opposite effect.
But there is also a darker side to the proliferation of monitoring equipment which should also be a cause of great concern to us all.
The evidence can no longer be ignored that after a decade of New Labour, Britain has become a far worse place for honest citizens to live their lives as they please, away from the eyes and ears of the state.
In the name of ‘efficiency’ and ‘national security’, our civil liberties have been systematically eroded.
We have calmly allowed our rulers to grab enormous and unprecedented power. They claim it is needed to protect us from criminals, but in fact they are using it to bully and enslave us with a litany of regulation and red tape.
Police and other state officials have turned from our servants into our masters.
We have granted these sweeping powers to our rulers on the understanding they would only be used against the most determined and brutal terrorists.
But, in fact, they have been used to browbeat ordinary, honest, tax-paying citizens – particularly when they oppose the Government’s point of view.
Now they can be used to check on your rubbish bins, an extension to your home, or even that you do actually live where you claim to live when applying to a local school.
If Taliban extremists ever did bring Britain under their control, you might imagine that the first thing they would abolish would be our right to free speech. But they wouldn’t need to. We’ve already done it for them.
It’s already a crime to demonstrate your views peacefully, or heckle a politician, or even wear a T-shirt making fun of one.
Meanwhile, the Freedom of Information Act, which is meant to allow us access to what is happening, is under threat of being watered down to the point of being pointless.
The 7/7 bombings showed that terrorism is a real threat; so is organised crime.
But as Dame Stella Rimington, head of MI5 from 1992 to 1996, has made clear, it is far better to deal with those risks rather than frighten people into accepting new laws that actually enslave us.
Typically, the Home Office has defended its approach as ‘proportionate’ – which simply shows that it has no concept of how authoritarian it has become.
Home Secretary Jacqui Smith is behind the plans for the new ‘super database’ to record all our emails, internet searches and phone calls, just in case one of us might be a wrong ‘un.
If the police do pick us up, she wants to keep us under interrogation for up to six weeks without trial.
That’s worrying, because now the police can arrest us, not just for serious crimes, but for even the most trivial reasons. And with the hundreds of sweeping laws New Labour has brought in, or the 3,609 new offences that it has created since 1997, there’s quite a choice.
The police – plus 1,407 other official bodies – can now impose on-the-spot fines for things as trivial as dropping an apple core. Refuse to pay up and you’ll be arrested and tried.
Now, even photographing a policeman could land you with a ten-year jail sentence.
Under Section 76 of the 2008 Counter-Terrorism Act, any picture ‘likely to be useful to a person committing or preparing an act of terrorism’ is strictly banned.
A new series of ominous TV adverts certainly does nothing to allay people’s fears, but rather increases them. The sound of a normal street scene is described as ‘the sound of a bomb not going off’ because someone had reported some suspicious activity.
While being alert to threat is commendable, there is the danger of making people afraid of just about anything.
And if you do fall foul of these sweeping new powers, once arrested, your DNA will be swabbed and added to the largest DNA database in the world, with 4.8 million samples.
Youth is no defence. Of the 722,464 swabs taken in 2006-7, some 350,000 were taken from children under 15.
It took a six-month legal battle to get the DNA of one 13-year-old boy, falsely accused of writing graffiti, removed from the database.
In fact, the police are incentivised to make criminals of us, rather than prevent crime.
In London last year, three officers wasted half the night by holding a 19-year-old student for five hours before cautioning him for holding open the door of a lift in an Underground station.
But then police chiefs can get up to £15,000 in annual performance bonuses depending on how many people they spot-fine, caution or charge.
So be careful near the end of the month when they are trying to fill their monthly quotas.
The whole system encourages the police to go after the easy targets – the peaceful, unthreatening, decent majority – rather than the criminals and terrorists they should focus on.
The TV licensing advertisements sum up this nightmare as eloquently as anything.
We’re told in no uncertain terms: ‘Your town, your street, your home. It’s all in our database. It’s impossible to hide.’
Well, I agree that people should pay their taxes. But these bullyboy tactics wouldn’t look out of place in Stalin’s Russia.
It is impossible to hide. Britain has more CCTV cameras than any other country. The number of speed cameras alone has trebled in the past six years.
Some 800 organisations can have our phones tapped, including, of course, all those local councils who suspect you might be leaving your wheeliebins out too early.
There is something dark in New Labour’s psychology that makes it regard such oppression as ‘proportionate’. Its need to keep control of a perpetually wayward party mutated into a desire to control a bloodyminded public.
And New Labour really believed it knew what was best for us. If our traditional rights and institutions – trial by jury, habeas corpus, Parliament and the judiciary – got in the way, they could quite legitimately be swept aside.
This week, more than 100 climate change protesters were arrested before they protested about anything, but just because of what they might do.
So now we are defenceless against even more oppression. And that’s not just my view.
In a speech at Exeter University recently, David Blunkett – the former Home Secretary – warned that a planned government ‘super-database’, storing people’s emails, internet traffic and other personal data, would be a threat to individual rights.
And Sir David Ormand – Whitehall’s former security and intelligence co-ordinator – has warned that the Government’s plans to gather ever-increasing amounts of data on citizens ‘will involve breaking everyday moral rules’.
The International Commission of Jurists has suggested that countries like Britain were doing the terrorists’ jobs for them, enacting laws that undermine the very values and freedoms they claim to be protecting. Even at the highest levels, there is clearly unease at the extent of ‘Big Brother Britain’. Let’s hope these alarms are loud enough to wake us up to the full horror of what we’ve created. No wonder we’re all so worried.
Eamonn Butler is Director of the Adam Smith Institute and author of The Rotten State Of Britain published by Gibson Square Books.
Published in the Daily Mail here
What to expect in the Budget
After a decade of reckless spending, the government’s kitty is bare and its debts are mounting. In November, Alastair Darling said the economy would shrink just 2%, but predicted, Micawber-style, that it would turn up in mid-2009. Well, the economists’ consensus is that it actually shrank 3.7%, and that it’s hardly going to turn up this year at all.
Unemployment’s already 2 million, heading for 3.2 million. That’s a lot more people drawing benefits and not paying taxes. And there’s those expensive bank bailouts to pay for. So the Chancellor is borrowing wildly. Again, the economists’ consensus is that he borrowed £160 billion in 2008-09 and will need another £167 billion this year. That’s a whopping £100 billion more than he anticipated in November. It’s borrowing on a scale not seen since World War II. Then, we were fighting a war. Now, we’re just borrowing to pay off our debts.
The Institute for Fiscal Studies says the national debt could climb to 73% of GDP – 84% if you add the bank bailouts. That’s scary (scarier still if you include the future costs of nuclear decommissioning, PFI schools and hospitals, and civil servants’ gold-plated pensions).
Getting out of debt like that will take years – even if spending is cut back. But with places like Derbyshire putting their council tax up 8.7% and Whitehall’s generous budgets being set until 2011, there’s scant chance of that.
Still, after June 2010 it will be the Tories’ problem, so expect Darling to announce giveaways and gimmicks (like electric cars) now, and large tax rises that bite after the election. But what we really need is to slash regulation and tax on the people who, unlike politicians, can really create jobs – investors and employers.
Dr Eamonn Butler is Director of the Adam Smith Institute and author of The Rotten State of Britain.
Published in the Spectator here
Do we need a radical shake-up of boards?
The whole issue of bank governance will now be reviewed by two independent inquiries: the first headed up by that old regulatory standby, Sir David Walker, a former chairman of the Securities & Investment Board (SIB); the second by the Financial Reporting Council, which is rethinking best practice guidelines for boards.
It is increasingly apparent that directors of major bulge bracket banks are falling down in their ability to ensure shareholder influence over corporate strategy and control. Part of the problem is that non executive directors appeared not to understand what banks were getting up to, particularly when it came to trading such complex financial instruments as a CDO cubed. Indeed, it would be fascinating to know whether they could provide a definition of any of the many credit derivatives traded by the banks. Economists are fond of referring to this dilemma as an asymmetry of information problem, in other words the full time employees of the bank may know about things, but the non executive part-time directors sure don’t.
Lord Myners, the City minister and former chairman of Marks & Spencer and Gartmore, the fund manager, has urged both independent inquiries into board governance to “go outside the conventional framework” by testing unorthodox models. He suggests that non executive directors might attend classes on corporate governance (Myners himself might fail the test on ensuring proper accountability for retirement packages granted to outgoing CEOs). He also raises the important issue of whether non-executive directors should have their own full time secretariats.
The non-executive directors at both RBS and HBOS appear to have ducked asking awkward but pertinent questions of their CEOs. This is puzzling since the boards included some highly intelligent and successful people – no one who has ever met Sir Steve Robson, the former Treasury mandarin who served on the RBS board for over eight years would describe him as a shrinking violet. It is also rumoured that some non-executive directors threatened to resign after arguments with Sir Fred ‘the shred’ Godwin. However, the record shows that no one ever did.
It is disturbing to discover that some leading institutional shareholders, notably Legal & General, have criticised the boards of major banks for ignoring their views. When Legal & General sought to dismiss the chairman and chief executive of RBS following the rights issue held in 2008, their expressed opinion was overruled by the board. This led Peter Chambers, Legal & General’s CEO to tell the Treasury select committee that, “One would have to conclude that non executive directors were not effective in controlling the actions of the executive directors ”. Legal & General was one of the three largest shareholders in RBS.
The wide ranging issues centering on non executive directors’ proper role in the banking sector is one that will be discussed at our next REG roundtable and the debate will be led by Mark Austen, who sits on the board of Standard Bank and was previously global head of banking & finance at PWC. We will return to this issue as the debate hots up.
Keith Boyfield is the chairman of REG, the ASI’s regulatory evaluation group.
Save the tax havens – we need them
What is it about tax havens that makes the G20 leaders so keen to crack down on them? Outrage against all those Russian mafia bosses secretly laundering their prostitution and protection racket money through Luxembourg or disgust at Third World dictators being able to siphon millions of their people’s money into numbered Swiss bank accounts in case they need to make a quick exit one day?
Or is it just envy – the feeling of unfairness that billionaires can sip cocktails on their yachts off Bermuda, paying nothing in tax, while poorer mortals like us have to work and slave?
It’s probably a combination of all three, because G20 politicians have hated tax havens for so long that they’ve started to believe their own spin on the subject. But the business of tax havens is actually far more prosaic than any of these rather exotic images. And the real reason why our leaders hate them is that they simply can’t stand the competition.
If you want to pay less tax – as about five billion of the world’s population doubtless do – you have two options. You can evade taxes, concealing your income from the authorities, which is, of course, illegal. Or you can avoid taxes, which is perfectly legal. You might simply claim the full deductions allowed by the tax authorities or maybe move your money into a place where taxes are lower.
It’s avoiders, not evaders, who are the tax havens’ staple customers. The image of drug money being washed through the Cayman Islands is the stuff of thrillers rather than reality. Criminals generally launder money at home because it’s far riskier to move it across borders. The bread and butter of tax havens is people like you or me, who put their modest life savings into a respected investment company in the Isle of Man. And we do it because that way our savings don’t get clobbered for capital gains tax every time our account manager decides to sell one batch of shares and buy another.
Few honest people have qualms against clamping down on criminals. But despite all the Godfather-style spin, it’s actually the rest of us whom the politicians want to clamp down on. They figure – correctly – that if we remain at liberty to put our money in the Virgin Islands or some other place where taxes are lower, we are likely to do just that. And our ability to escape puts limits on just how much they can tax us.
This explains why even Gordon Brown is calling for curbs on tax havens, despite the fact that many of them, including the Channel Islands, are British dependencies. Other countries want even tougher sanctions.
It’s pure financial protectionism. The G20 leaders signed a communiqué praising free trade and deploring anticompetitive barriers in goods and services. That’s because leaders don’t make goods and services. But they do make taxes and are really keen to keep out the competition in that sector. They don’t mind us shopping around the world for the cheapest goods, but they certainly do mind us shopping around for the cheapest taxes.
They have only themselves to blame. It’s not just that governments seem unable to rein in their bureaucracies and keep their costs under control. It’s that they have made taxes so complicated. The last time I looked, the UK tax code ran to 9,973 pages, and that was back in 2007. Complexity inevitably creates loopholes – which lean, nimble tax havens are delighted to help people exploit.
Many countries have lower taxes on foreigners who invest there. That’s because they figure their own residents are largely captive. But they know that international investors can put their money anywhere in the world, so countries have to make themselves attractive in order to pull them in. When you have two different tax rates for the same thing, however, you must expect trouble. And you get it. What happens is that domestic investors simply send their money to a tax haven, then send it back again as if it were “foreign” investment and pocket the difference in the rates.
You can’t blame the tax havens for this kind of wheeze. The root cause is high and complicated taxes. The surest way for the G20 to get rid of tax havens would be to cut and simplify their own taxes – to take on the competition directly.
Until they do, that competition serves a useful purpose for the public. It does make politicians think twice about adding to tax rates or complexity. In particular it limits the burden they can put on savings and investment – the engine of economic growth.
If tax havens boast some of the highest living standards on the planet, that’s got very little to do with money laundering. It’s because low taxes encourage enterprise, stimulate growth and promote personal freedom, too. Rather than trying to kill tax havens, wouldn’t the world be better if our politicians instead sought to beat them at their own game?
Published in the Sunday Times here
The Turner Review: a case of poacher turned gamekeeper?
Turner, very much a New Labour technocrat, has been undertaking a tour of the television studios to pronounce that markets cannot be trusted to be self-correcting. In this context, he likes to refer to recent academic work by behavioural economists, notably Robert Schiller, and the self reinforcing herd effects observed by Nobel Laureate Daniel Kahneman, Paul Slovic and Amos Tversky in their classic work, Judgment under uncertainty: heuristic and bias.
However, a crucial factor contributing to our current financial malaise was the fact that the regulator, in the shape of the FSA, which has a payroll of over 2,500, did not fulfil its statutory role in providing robust regulatory oversight. In the case of Northern Rock, for example, the FSA failed to monitor the bank’s increasingly risky activities. Indeed, FSA officials did not even bother to write up notes on meetings with the bank, nor did it conduct any benchmark comparisons with the way in which the bank ran its business.
Lord Turner wants to implement a raft of new regulatory controls on banks and other financial institutions operating in London. He also favours hiring many more regulators – 200 specialists have already been hired – and paying them handsomely. This threatens to encourage many firms in the sector to move to more congenial jurisdictions. It would be far wiser to implement the existing regulations and jettison the rules that proved redundant or incapable of rigorous enforcement.
From 2000 to 2006 Turner earned a good living as Vice Chairman of Merrill Lynch Europe, a leading investment bank that was rescued from bankruptcy last year by Bank of America. It is noteworthy that neither the American or British regulatory authorities intervened to curb the risky strategies pursued by Merrill, which never missed an opportunity to promote its brand image as the ‘thundering herd’. Nor for that matter does one remember Lord Turner speaking out at the time about the apparently remunerative business initiatives followed by his well-paid colleagues.
While bankers have certainly demonstrated that markets are rarely perfect, there is also such a thing as regulatory failure. The FSA in Britain and the SEC in the US demonstrate that regulators were often asleep on the job, and that the panoply of rules and regulations were simply not applied. Before heading down a path triggering many new and costly statutory requirements, regulators would be well advised to focus on how they can implement existing regulations in a more effective manner.
Keith Boyfield is the chairman of REG, the ASI’s regulatory evaluation group.
A short history of the social rights myth
The development of ‘rights’
The term ‘right’ has come to characterize anything to which either the government or the citizenry feel they can make a fundamental claim to – but this is to express a deep misunderstanding of rights and their traditional link to civil liberties. Instead, a definition of rights has evolved which people almost universally accept but which remains false and untrue to their original intention. Rights began as protections against what the state could not do to a citizen; now they have become what the government must do for an individual.
The concept of rights first developed with 17th and 18th Century writers such as Hobbes, whose argument centred on the natural rights of humans to their own life and a freedom to socially contract with one another for protection, and Locke, who argued for non-interference by the state. People found themselves under physical threat from others and formed states to provide mutual protection. They knew that they could better secure themselves collectively than individually. Naturally, given that the state was formed to protect the right to life, the state could not remove that right without the due process. Locke’s contribution was to add liberty and property to the list of natural rights.
Manifestations of these rights appear throughout the great documents of western civilization. By the time of the American Revolution and the publication of The Wealth of Nations (1776), fundamental rights of citizens against their government had been established in England; and soon after enshrined in the United States’ Bill of Rights. These were the rights outlined by a nation newly free of unrepresentative rule, a clear example of the potential abuses of the state. They outlined and reiterated the liberal rights against arbitrary imprisonment and the interference of the state.
By this time, however, a sense was growing of further capabilities of cooperative efforts, beyond national defence and internal policing. Ideas began to form around other activities that people could agree to better achieve collectively, rather than singularly. These were often services that, by their implementation, would benefit the public at large and retained the original spirit of the state as a cooperative effort of individuals to better achieve their idea of the good life. By this time, education and provisions for the ill were often seen as beneficial to society and socially desirable; even Adam Smith, in Book V of The Wealth of Nations, called for a rudimentary education ensured by a government.
Smith paints a picture of a parish tutor, perhaps subsidized by the community coffer but employed primarily by the student’s parents to ensure his effort. Smith’s mention of education might be used to advocate the universal policies of today, but we must remember that his vision of education was drastically different. Smith saw education as a public good that served not just the individual, but also the community: the major benefit being a more educated populace. He argued that, “An instructed and intelligent people besides are always more decent and orderly than an ignorant one.” The education of the populace was so important for the proper functioning of society that public funding may be beneficial, when properly directed.
Smith, however, and the writers of the liberal cannon which followed, never would have referred to education or any other public good as a ‘right’. It was a service that the public had decided would be advantageous to their community, and its benefits were aimed more at the community than the individual.
Over time, however, states began to implement policies and programmes intended to ease the pressure on individuals from certain negative externalities of early capitalism and the Industrial Revolution. In its infant forms, England’s Poor Laws and ‘poor houses’ provided a minimal level of care to keep people from complete destitution. The US had enshrined traditional liberal rights in the Constitution, but by the end of the 19th century many of the newly formed Western states included in their constitutions a guarantee to social services like education, disability and old age care. While these were not federal programmes (not yet), states had enshrined in their constitutions the guarantee to citizens of social services, indicative of the populist sentiment of the day. Although populist ideas were growing, the classical conception of rights continued to have strong advocates. In the 1830s, Jeremy Bentham referred to classic rights not as ‘rights’ but as ‘securities against misrule’. This is perhaps the most accurate characterization of rights in the liberal tradition, disallowing the confusion that has occurred today in the idea of social rights.
The rise of the welfare state
A real turning point in welfare policy came in the first half of the 20th century and in the subsequent changing conception of the state. Before both the world wars, economists like JA Hobson and LT Hobhouse had begun advocating economic interventionism and ‘welfare economics’ – plans to alter the workings of the economic system itself to benefit the poor. After the Second World War this thinking took hold most strongly in Europe and the UK and, to a lesser extent, in the US. Nationalized medicine, pensions, and welfare handouts became the norm in Europe while in the US the policies of the New Deal and Great Society implemented a number of programmes for the very poor or very sick. These programmes reflected a growing thought in the western world that the state could, through planning, could perhaps change the material relations of society to the benefit of all. State planning became paramount, and the belief spread that a proper government could not just alleviate problems, but potentially solve them.
In 1938 Harold Macmillan wrote The Third Way, in which he pushed for an expansion of social programmes. This would become indicative of the post-war political consensus. He outlined what he called the ‘human charter’ of social programmes of the state: “the items [the charter] contained might be presented either as rights that the individual is entitled to demand from society or as obligations that society owes to the individual.” Here is one of the first manifestations of social rights, representative of the perversion of the rights originally formulated by liberal theorists, as well as the ‘public good’ writers such as Smith outlined. Smith advocated a social good, like the education of children, that might be recognized as important to the population as a whole but perhaps not best achieved individually, so that it could be subsidized by a local government to ensure its provision. Examples like the subsidization of medical care, based on the notion that a country is undeniably better off when the populace is healthy, do not stray far from the original intent of Smith’s writings. However, perceived rights to health care and its provision through a centralized and hierarchical system do. They misunderstand the difference between a social good and a right.
The problem with ‘social rights’
The problem emerges when programmes such as the government provision of health care or education become so entrenched that the populace cannot imagine a different state of affairs. The programme is institutionalized and centralized to such an extent that private alternatives seem inconceivable. Soon, people are claiming a ‘right’ to these services, because it has become something which a western liberal government cannot exist without providing, much like a guarantee to free speech or the freedom to practice a religion. Today, many services have been provided for so long that the people begin to see them not as a good public service that the government has endeavoured to provide, but a service to which they hold an intrinsic claim; something no government can deny them.
Macmillan himself, albeit inadvertently, laid out the problems of social rights. In defending the increase in welfare provisions, he argued that the increase isn’t a new idea, but the logical conclusion of an old one – the obligation of a state to its citizens. But as soon as one decides a state has material obligations to its citizens, the possibilities for extension are endless. To what will we have a right next?
A further problem is that the material involvement in the life of an individual opens up that life to state inspection and interference. If the state pays the rent, is the home still a private residence free from intrusion? If the state provides health care can it order you not to smoke, or drink, or eat fatty food? Issues similar to these are arising today because of the heavy involvement of the state. What happens when a right to non-interference and the obligation of a state to interfere collide?
Conclusion
Social programmes and ‘rights to them’ represent a fundamental change in thinking about the state that had begun in the early 20th century but took its true form in the post-war years: that the state could and should manipulate economic conditions and provide social programmes in order to improve the lot of the general citizenry. Macmillan advocated the idea of social rights in 1938. Today, social rights are so accepted that no one need advocate for them, and challenging them has become politically unacceptable. This is a cause for real concern.
The provision or subsidization of locally accountable public goods intended to benefit society as a whole might fall under the natural role of the state, assuming the community agrees to their value. But claiming a right to a centralized and hierarchical programme involving massive state control does not. Indeed, it threatens the legitimate rights citizens have against their government.
Ultimately, people have rights to life, to liberty, and to property. The provision of public goods is simply a matter for the populace and, latterly, the government of the day.