Categorised | Conservatives, General, Labour, Lib Dems |

Gordon Brown, its time to introduce tax cuts

At prime ministers questions time, Gordon Brown, once again, decided to take all the credit for “creating 3 million new jobs” and none of the responsibility for the ‘bust’ brought about by the credit funded boom that was his creation. Instead, he avoided all of the questions he was asked and once again, came out with the same old mantra, that the problem was the fault of the Americans and the bankers. Nothing new there then.

He did imply, however, that he believed that the government should invest in times of recession, a sort of embracing of the Keynesian approach. However, John Maynard Keynes did not suggest that government should simply spend, but that there should be a balance. He also argued, that it was possible that if government used borrowed money wisely, it could be self-financing. For example, most people want to work, which means that given the opportunity, they will not be a burden on the state, but an asset. In addition, companies want to sell their goods, at a fair price, employ people, succeed and therefore, be an asset to the state.

To achieve this, people need to have money to spend, yet the state takes nearly 50% of what we all earn. That is way, way too much. A reduction in direct taxation, would be much less expensive than building new schools and hospitals earlier than was originally intended. Moreover, a construction boom will be very limited in terms of assisting the wider economy. What we need is more money in peoples pockets, which they can invest in buying goods and services offered by retailers, service providers and manufacturers. In other words, a natural stimulus, not a false one.

If people feel poorer, then they will push their employers to pay them more, this adds a further burden to struggling businesses and places inflationary pressures on the wider economy. In addition, public sector workers, who account for some 20% of all employees in the UK are starting to get increasingly vocal about higher wage increases and they are backing this up with threats of industrial action. This is no good to anyone. Furthermore, if they succeed in getting higher wages, this will be a cost borne directly by the taxpayer and will inevitably result in a cut in services as the public sector attempts to balance the books.

We know that a boom based on easy credit is not the answer, nor does the equity in a property really amount to tangible wealth. The Keynesian approach advocated, amongst other things that borrowing to provide tax cuts can provide an aggregate increase in demand and, that properly targeted, it could be self-financing, because demand will create or save jobs and people that are employed, are not a burden on the state. In addition, companies that are selling goods, will be pay tax and sell goods that, for the most part, attract VAT.

A cut in direct taxation would have an immediate and tangible affect on the publics ability (not necessarily willingness) to spend. If this would was coupled with a substantial, perhaps 2 or 2.5% cut in bank base rates, then the benefits would multiply as would the potential speed of recovery. The government has indicated that they want to spend £12bn to create a database to spy on the public, apart from the fact that this is both unnecessary and a massive attack on our civil liberties, it is also something that is a nice to have, rather than a need to have. That notwithstanding, even if they proceeded with this database, the chances are, the contract would be awarded to an American company! Yet this £12bn, could ‘fund’ a 5% cut is direct taxation for nearly 3 years, if you were to ask the public what they would sooner have, there are no prizes for guessing their likely preference.

In addition, the government is intending to proceed with the £13bn NHS computer system. There is no proof that the system will work, nor has their been a sensible cost/benefit analysis. This project should be shelved and the money used to invest into small and medium sized businesses. I wrote an article yesterday, outlining some of my own ideas to assist small businesses. These companies employ 50% of our workers, some 13.5m people and provide nearly half of our output. An investment in this area, could secure jobs, companies and tax revenues.

It is true, governments cannot prevent a recession, but they can, through careful management of their (our) finances, targeted initiatives and the shelving of non-essential investment programmes, reduce the length and severity. Had the conservative party not nailed their colours to the mast, with an austerity assessment of the UK economy, claiming that “the cupboard was bare”, then they could have proposed this type of solution. Instead, they must either say that they got it wrong, or the Labour government, if they are bright enough to steal the initiative, will be able to come out of this smelling of roses.

For what it is worth, I am not convinced that this government, or the other political parties will want to endorse my suggestions, because they seem more interested in telling us what won’t work, rather than what might. It is this dithering and indecision that will damage this economy. Whatever action is taken it needs to be bold, decisive and meaningful. Therefore, in summary, my suggestions are as follows:

  1. Shelve the £13bn investment in the NHS computer system
  2. Cancel the proposed £12bn Big Brother Britain database
  3. Reduce direct taxation by 5% for a minimum period of 3 years
  4. Implement a package of incentives and tax reductions for small business
  5. Instruct the independent Bank of England to slash rates from 4.5% to 2%
  6. Ensure that all taxpayer funded banks pass on the full cut immediately, which should encourage the others to follow or lose

My suggestion will cost a tiny fraction of what the government has already invested into the banking system and provide a tangible stimulus to the economic activity of this country. Above all, it may just ensure that we can watch the news and receive some good news. If the government introduced, or the other parties proposed such an initiative, I do not believe anyone, other than a few discredited bankers and economists (who already got it wrong), would criticise the move. The bottom line is it is our money and we should be allowed to keep more of it and decide where we will invest it.


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