Perhaps a closer connection with reality might be in order?

We will admit to being fascinated by the coming car crash that is the Labour leadership competition. While we’re intensely political here, we’re not party political. But we do think that perhaps a slightly closer connection with reality might be in order. Here’s Jeremy Corbyn’s latest policy idea:

“Under these plans Labour 2020 will make large reductions in the £93 billion of corporate tax relief and subsidies.

“These funds can be used to establish a National Investment Bank to head a multi-billion pound programme of infrastructure upgrades and support for high-tech and innovative industries.

That £93 billion comes from a paper discussed here. That £93 billion also has no connection to this universe that we inhabit. But despite a certain amount of to and fro between the report’s author and your current humble scribe it simply was not possible to convince that report’s author that depreciation is not a subsidy to business. He really is under the impression that capital allowances mean that the government buys stuff for companies to use: rather than just not taxes them on the money they use to buy them for the obvious reason that companies are taxed upon their profits. And the cost of buying something to use to make stuff is obviously a cost of business.

Yet only a couple of weeks after the publication of a report of such obvious fatuity we’ve got it as the cornerstone for a national economic policy after the next election.

All most amusing but we might recommend just a slightly closer connection with reality.

Not that we want to defend Donald Trump but this is outrageous

Donald Trump is not, to put it, mildly, quite our flavour of politician. Yet it is necessary to defend him in this instance. What is being proposed is outrageous:

Mr de Blasio’s administration was already conducting a legal review into the possibility of severing the many contracts with Mr Trump currently on the city’s books.
That review was opened after Mr Trump described illegal immigrants arriving in the US from Mexico as “rapists” and drug dealers during his campaign launch in June, when he declared he would seek the Republican presidential nomination.
“My impression is that unless there has been some breaking of a contract or something that gives us a legal opportunity to act, I’m not sure we have a specific course of action,” Mr de Blasio said on Monday, “but we’re certainly not looking to do any business with him going forward.”

An ideological Turing test in order to do business with the City of New York? Say something that Bill de Blasio doesn’t like or disagrees with and never have lunch in that town again?

The test of whether a politician, a political structure, should have a specific power should be, well, how happy would you be if one of your ideological opponents, one of your enemies, had that power? And this isn’t a power that we want someone to have therefore, is it? Our own opinion is that Trump is somewhere between a blowhard and a fool but he does still have the right to say stupid things in public without the government of anywhere discriminating against him. As do we all in our own moments of foolishness.

A Budget of wasted opportunity

Tory MPs cheered wildly as Chancellor George Osborne unveiled his budget proposals, and Iain Duncan Smith punched the air in delight as the government committed itself to a “living wage” by 2020.  Yet more dispassionate observers watching from afar sighed in disappointment as the Chancellor took not one of the opportunities he had to reshape the economic and political landscape.

It was a very political budget, and it did not need to be.  Five years before an election, the Chancellor could have left his mark by improving the way in which Britain is governed and taxed.  He could have given the country an economic budget to transform its future, but instead he decided to score political points.

If circumstances limited his scope for action now, he could at least have laid down markers for the future basis of a sound economy attractive to investment and promising raised living standards.  Cutting Corporation tax first to 19% then to 18% is good, but he could have announced his intention to later lower it to the Irish level of 12.5%.  That would have sent a clear signal to investors.

The Chancellor made modest changes to tax thresholds, raising the starting level for the basic 20% rate to £10,600 – well below the minimum wage.  What he could and should have done was to simplify the tax system by having only two rates, 40% and 20%, and cutting out many exemptions.  

His lifting of the minimum wage to £7.20 per hour next year and £9.00 by 2020 used the language of the left’s “living wage,” for a political coup, but the reality will be lost jobs for low earners, 60,000 of them according to the IFS.  Osborne’s calculation is that those in minimum wage jobs will thank him, whereas those who now fail to enter minimum wage jobs will not tag him as the author of their misfortune.

Raising the threshold for the death tax (IHT) on housing to £1m for a couple looks good, but will put more pressure on house prices.  It should have applied to all assets to avoid sucking money into housing, and the level should have been £2m. 

The Chancellor could have helped millions by ending stamp duty on shares.  This would have given pension funds a boost, and increased the capital available to firms to expand and create jobs.  

Instead Mr Osborne’s budget plans to raise an additional £9bn in tax revenues by 2020, making this a clear tax-increasing budget.  He could have proposed a tax-cutting, tax-simplifying, spending-cutting budget.  Instead he raised taxes and played politics.  He wasted the opportunity, and there may not be another.

The Financial Misconduct Authority

I never expected to feel sorry for Martin Wheatley who, last week, resigned his position as Chief Executive of the Financial Conduct Authority, but I do. George Osborne gave him a non-job and Wheatley tried to make the most of it, thereby alienating too many people.

The history of this is simple. A few months before the 2010 election, George Osborne, then Shadow Chancellor, announced that he would abolish the Financial Services Authority which had grown massively to 3,500 people, too many of them lawyers, who wasted everyone’s time with “compliance”, achieved nothing and signally failed to anticipate, still less prevent, the 2008 financial crisis. Their defence that this was all outside their control, being US driven, was nonsense. The Canadian financial sector is far closer to Wall Street than London is, and, by traditional banking properly supervised, the Canadians slid by gracefully.

Although Osborne was right to axe the FSA, he, being new to the game, failed to recognise the problem created by not explaining what would follow and how supervision would be maintained. FSA executives did not wait to pass “go” and accepted the lucrative offers coming their way. The City does not like uncertainty and panic ensured.

To bring calm, Osborne then announced that no one should fear for their jobs as he would replace, going one better than Hydra, the FSA with three new quangos: The Prudential Regulation Authority, The Financial Conduct Authority and the Money Advice Service. In addition we had the Financial Ombudsman Service and The Financial Services Compensation Scheme (both established by Gordon Brown in 2001). By the PRA becoming part of the Bank of England, the BoE regained its traditional City supervisory role. The Governor’s June encyclical, the Fair and Effective Markets Review, promotes that wider Bank responsibility.

Wheatley’s problem was that we never needed the FCA in the first place (see “Do we need the FCA?” (May 2015)  and “FCA should be ‘terminated at birth’, suggests think tank” (October 2012)). The work for which the FCA took credit was largely conducted by consultants who could have been commissioned by any one. The rest of their “make work” could be done, if it is necessary at all, by the Financial Ombudsman Service, which also needs reform, the PRA and the competition authorities roosting in the myriad branches of the Business Interference and Skills department. It would be easier to reform the Financial Ombudsman Service if they had full responsibility for the job they are supposed to do.

Osborne, faced by dealing with the wrong man in the wrong job, has once again made the wrong decision. The FCA should have been axed, not poor Mr Wheatley. The question now is whether HMT has learnt anything from this experience. One fears not.

MPs in the dark about key policies helping entrepreneurs

The Entrepreneurs Network has released its 2015 Parliamentary Snapshot, which provides insights into the views of MPs about entrepreneurship, and gives the entrepreneurial community a useful perspective on the legislative landscape.

The first main finding is that many views on policy that would impact entrepreneurs are firmly set by party lines. Take, for example, membership of the EU: 58% of Conservative MPs think Brexit would be good for entrepreneurial activity, but only 1% of Labour MPs think likewise. This is a key finding with broader repercussions: some political commentators have claimed that Labour MPs are as Eurosceptic as Conservative MPs, but this suggests that Labour MPs see the benefits of continued membership while Conservative MPs see opportunities for leaving – at least when it comes to entrepreneurship. This is reinforced by MPs’ views of the impact of EU business regulation: 90% of Conservative MPs think exempting the UK from EU business regulation would be positive for entrepreneurs, but only 10% of Labour MPs agree.

This isn’t to say that Labour and Conservative MPs are at complete loggerheads when it comes to pro-entrepreneurial policy: 80% of Conservative MPs and 66% of Labour MPs agree that making it easier for entrepreneurs to move to the UK would benefit the UK’s entrepreneurial landscape. In fact, this was the second most popular policy across the House of Commons.

The second main finding regards MPs knowledge of existing initiatives to support entrepreneurs in the UK. This year’s Parliamentary Snapshot gives us a woeful image of an under-informed legislative body. Although Conservative MPs are in favour of tax cuts, most were unaware of the tax incentives already in place – for example, the Seed Enterprise Investment Scheme. Most Labour MPs support increased spending to support entrepreneurs, but are oblivious to initiatives, like Innovate UK, already in place.

This has consequences for MPs’ sense of how effective these initiatives are. Many in the entrepreneurial community see the Enterprise Investment Scheme (EIS) as essential to the UK’s entrepreneurial success – but Conservative MPs’ support for the scheme dropped from 68% last year to 45% this year, with the remainder largely unaware of it. This policy is widely lauded by entrepreneurs who have raised funds to grow their business.

It’s clear that entrepreneurs need to be more vocal about what works for them, so that MPs are better informed about the challenges the community faces and why supporting entrepreneurs is so essential to support the British economy. To this end, over the coming months and years, The Entrepreneurs Network will ensure that entrepreneurs’ preferences are heard loud and clear in corridors of power and beyond. If MPs don’t know what policies work best on the ground, there’s a serious risk they’ll scrap the policies that have made Britain one of the best places in the world to start a business.