Football taxes


What Michel Platini hasn’t been able to achieve from Geneva is the destruction of the Premier League’s superiority over the rest of Europe. As continually evidenced by the achievements of the ‘Top 4’ over the past few years in the European Cup (otherwise known as the Champions League). After this report in the Sunday Times (Arsene Wenger warns of Premier League Tax bomb) he’s probably opened the bubbly and sent messages of congratulations to Brown and Darling, telling them that at the end of their tenures in Whitehall they’ve assured jobs at UEFA.

Mr Wenger is correct in highlighting how the latest tax increases may well impact negatively on the sport and coupled with the falling pound it can only make importing the top stars pricier. Obviously the clubs will channel these higher costs in two directions, raising the prices to sponsors and tickets, merchandise prices etc. to the fans. At the end of the day (you can’t write a blog about football and not have the number one cliché in there) the fans are the ones who will be stumping up the cash to pay for higher tax rates albeit via higher sponsor prices (Sky, BBC, Setanta, ITV etc.) and higher direct costs. The ordinary taxpayer is being squeezed from all sides and is past the squeaking stage.

Unfortunately for Platini, Brown and Darling the football clubs will find ways around the higher tax bills, and the Premier League gravy train will continue to move forwards. Brown and Darling will face declining tax revenues as players, managers and owners move their holdings overseas, to warmer and kinder climes. Brown and Darling have made the UK a terrible place to do business (and live), they’ve ensured wealth will not be settling on these shores, unless it is taken by force. Britain has become akin to the Wembley pitch: in serious need of renewal, while the Head Grounds Man needs to be fired due to habitual incompetence.

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

Blog Review 944


The importance of property rights to economic development: one of those things that's difficult to overstate.

For we've a number of historical examples showing the problems of not having them.

What declaring CO2 as a pollutant might mean in practice.

It might well be true that some people cannot manage their lives: but that does not mean that there are people capable of managing the lives of all of us.

The John Bates Clark Medal: not everyone is happy with the latest recipient.

Don't sweat that national debt stuff. We'll just do what we did before, default on it.

And finally, see, they've gone already.


Thrift, waste and reform


Unsurprisingly, in response to the dreadful state of public finances, David Cameron has promised an age of 'thrift' if brought to power.

However, his polices (though welcome) are still somewhat thin on the ground:

  • shame overpaid civil servants, with a "people's right to know" scheme
  • publish all items of public spending over £25,000 on a website
  • publish all public sector salaries over £150,000

Cameron is at present focusing on the clearly evident problem of government waste, and of course a ‘Phibbs List’ approach to all areas of government would be very welcome; however, in truth a peek here shows that without radical reform, the public purse will stay firmly in the red indefinitely (with or without tax rises). Principally, pensions and health care need structural reform if the overheads of government are to be cut back.

The next government needs to be reminded of the proven benefits of free markets. As Milton and Rose Friedman argue in their classic book Free to Choose, there are only four ways to spend money:

  1. Spend money on yourself
  2. Spend money on other people
  3. Spend other people’s money on yourself
  4. Spend other people’s money on other people

Now you don’t need to be an economist to know which is the most efficient.

The confiscation of passports and driving licences


Citizens having their identification confiscated by unelected government officials for failing to complying with the state – It’s the type of scene we might expect from an old war movie set in Nazi Germany. But if the government gets its way, these authoritarian stamps on our liberty will could soon become reality in 21st century Britain.

Under current plans the government would give power to the Child Support Agency (and their impending successor the Child Maintenance and Enforcement Commission) to confiscate the passports and driving licences of parents refusing to pay child support. Initially, the Conservatives objected the move, but it will now be included in the Welfare Reform Bill.

The fact that the state feels it has the right to encroach upon an individual’s freedom to the extent of removing their driving licence is madness and ill thought out, while the significance of the driving licence is an obscure aspect to the legislation. A worrying aspect of the plans is that private firms could also be given the power to remove passports without a court order.

This blows the rule of law, accountability, democracy and liberty out of the water. This legislation would usurp and bypass the age-old notion of a fair trial by jury to the unelected.

We can only hope that the Lords Constitution Committee rejects this legislation and that the next government we have understands the meaning of freedom.

Peter Huber's prudent policies


Peter Huber has brilliantly put together all the arguments of a prudent carbon policy.

First of all we have to acknowledge the fact that we are unable to control the global mobilization of carbon-based energy because 80% of fossil oil worth $ 40 trillion is under the control of 'nasty' people. Secondly, the anti-nuclear bias of the greens after Chernobyl has increased the pollution of our planet because the coal industry was the main beneficiary. Thirdly, developing countries are sitting on trillions of cheap coal that they will use regardless of the West’s obsession with de-carbonizing the planet. Fourthly, 1.2 billion people of the industrialized West don’t even control the demand for carbon anymore, the 5 billion poor people that are meanwhile emitting 80% of greenhouse gases have taken over and their per-capita emissions are rising much faster than ours can possibly fall using de-carbonizing technology. As a result and fifth it is plainly absurd that the planet can be saved with just 1 or 2 % of the world economy.

On wind power, Huber accurately states:

Windmills are now 50-story skyscrapers. Yet one windmill generates a piddling 2 to 3 megawatts. A jumbo jet needs 100 megawatts to get off the ground; Google is building 100-megawatt server farms (in Lithuania with 78 % nuclear electricity production, FH). Meeting New York City’s total energy demand would require 13,000 of those skyscrapers spinning at top speed, which would require scattering about 50,000 of them across the state, to make sure that you always hit enough windy spots.

The worst thing we should do is sharply increase the cost for coal-based electricity. For using this to power our passenger cars would actually lower carbon emissions because these big power plants are much more efficient in burning carbon than individual gasoline engines. And finally Huber makes a very good case for sequestration of carbon on the inescapable assumption that in our 21st century economies carbon emissions will keep growing. But focusing on better land use and reforestation worldwide over the next 50 years will do.

Blog Review 943


Here's the big question. Just where did all the money go?

And will a million voters sign up to tell Gordon where he needs to go as a result?

An interesting point. For a bank to get TARP funds requires filling out a 4 page form. To give that same money back requires 16 pages...

Everyone likes blaming the securitization of loans for the problems: but without a revival in that market the problem just isn't going to get solved.

More on credit: to those politicians who think that credit card companies charge too much. Why aren't you launching your own credit card and cleaning up by competing?

Yet more evidence that the environment is a luxury good. As we get richer we use less of it.

And finally, how little Republicans are made.

The cost of bureaucracy


I always knew that this was true, true at least to my own prejudices, but someone's now gone and actually proven it. We're often told that bureaucracy in hte spending of public money is neccessary, and essential manner of protecting the taxpayers' funds. But it can be that the  cost of the bureaucracy doing the protecting is higher than the value of the protection:

...we show that the $40,000 (Canadian) cost of preparation for a grant application and rejection by peer review in 2007 exceeded that of giving every qualified investigator a direct baseline discovery grant of $30,000 (average grant).

The bureaucracy used to filter the funds to those researchers deemed worth exceeds the costs of simply giving the money to all researchers that apply.

Which leads to an interesting game that can be played. What we see here is that the cost of administration is higher than the produce of that administration. We're not saying that "frontline services" need to be cut, not at all. We're purely stating that at times and in places the cost of selecting who gets the public money and how is so high that we can simply dole it out without doing any such selecting. We'll get, in fact, more front line servies (in this case research) for the same money. The only people who would lose are the administrators themselvesand we'll all weep a bitter tear for them now, won't we?

The game is of course to see which other similar bureaucracies we think we could abolish and get this benefit from. More services for the same money?

As a start I would propose the Regional Assemblies.  Large numbers of the quangos (The Dairy marketing bods for example, the Arts Council maybe?). Much of the NHS oversight panels and management boards. The BERR.

Well, make your own lists, this really could be a game for all the family. Which parts of the bureaucracy would make us better off by their abolishment?