Taxing ourselves into prosperity

In 1906 Winston Churchill famously said: “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” Unfortunately, there are people who think they can make this work.

There are a few examples of how stupid overtaxing things is. Take the war on tobacco. Now I don’t smoke myself and smoking is clearly very bad for you. But millions do it, and to such an extent that the Treasury collects around £15 billion a year. That’s half what it was 5 years ago. 1 in 4 cigarettes smoked in the UK now  are contraband. That means that the Treasury receives not a penny in tax on them. For a start that represents a massive loss to the exchequer, but more importantly it is a slippery slope that leads to lack of respect for laws, the police and society as a whole. Eastern European imports can be sold for 3 times the price in UK and still give a discount of up to 35%. In effect, government policy has driven law-abiding citizens to consort wholeheartedly with criminals – and approve of them. And guess what – whilst the revenue raised has fallen nearly 50% - and worse than that if you add in inflation - actual rates of smoking have increased. Good old economics tells us when you restrict supply, nature abhors a vacuum. In this case, the black market fills that gap to everyone’s detriment. Unfortunately people have forgotten that Prohibition in the Sates lasted for 13 years spanning the whole of the 1920s and into the 1930s. Far from decreasing alcohol consumption, it increased massively over the period and made the criminals involved in it extremely rich and powerful. Amongst them, reputedly, was Joseph Kennedy, who ended up as Ambassador to the UK. The less said about that the better. But more importantly, the man in the street learned to deal and treat with criminals and regard them as Robin Hoods and even maybe benefactors. Which, I regret to say, they were quite definitely not. To put a figure on it, the taxes lost on tobacco in the UK just now would fund the entire GP service.

There are two ways that progress can be made to increase profits (and growth). You can reduce inputs and keep output the same. Or you can keep inputs the same and increase output. One of the diktats of economics is that you should do the best you can with what you have. Unfortunately those spouting about growth in the UK at the moment have completely forgotten that the idea is NOT to increase inputs, yet REDUCE outputs. But this is exactly what they have done. The wage settlements (and tax increases, and net zero taxes etc etc) across the board have added massively to input costs in all areas  

of the economy, especially the NHS. Yet, because no politician has the guts to insist on change, the output of the NHS in particular continues to fall.

It’s worse than the obvious areas of disaster we all shy away from. Why, for example, have we struggled economically for quite a number of years? Answer: investment has been lacking. Any why is that? Because the Macro situation makes businessmen not so interested to invest here. I’ve said it before but America, with its extremely flexible economy, has run rings round virtually every other economy in the world. Yes China and India are growing rapidly. But in China in particular the State has propped up everything and his dog. There is no solution to the property collapse there. America wholeheartedly embraces the destructive power of capitalism, and they don’t have zombie companies propped up by the State. Their reaction to the 2008 collapse was absolutely correct.Make the companies find their own solutions (albeit helped with loans) all of which got paid back. And you probably know that at the end of the day, no one (I’ll repeat No One) lost a thin dime in Lehman Brothers. Compare that with the most recent final disposal of Natwest (AKA Royal Bank of Scotland). Including lost interest and some leger de main, the loss is more than £30 billion. And by the way, NatWest has just closed its branch in Beverley which has been here (under various names) for more than 275 years. And the nearest branch is now more than 30 miles away. Sorry about that.

Never mind what that could have funded over the period, to the people shovelling out the cash, it wasn’t their money. As somebody remarked as Rolls Royce went bust all those years ago (when they were baulked from getting a new wind tunnel) “Why not? What’s another £7 million (equivalent to about £65 million today) when it’s all going to get written off anyway!?”

Dare I say, no taxation without representation.

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