Thursday, 1 April 2010

Tax To The Rescue

Today's furore on the Government's proposal to add 1p to National Insurance is caused by a letter signed by 23 top business people in the Daily Telegraph which says that they back Tory plans to scrap the increase.

Ostensibly, they believe it is a 'Tax on Jobs' and that after steering their companies through the recession, now is not the time to compromise corporate recovery by increasing tax burdens. Naturally, the Government says that they have to cut the budget deficit and so how else are they to make inroads as this would raise £19bn toward that goal - and is actually only a fraction of the ever increasing problem.

I think it is more fundamental than this. On the one hand, the Government finally recognises the need to cut the deficit and then argues that it should not cut spending as this jeopardises Britain's economic recovery, so it says it must raise taxes and therefore individuals and business should make the necessary compensation for lack of cuts. So the burden is transferred to business to make the cuts in order to afford the amount needed - the circular argument here is that the payroll bill rises and this threatens jobs which in turn puts an increased burden on the Welfare State if Unemployment rises again.

On the other hand, if Government does not tackle the budget deficit, they have at least realised that Britain risks major issues on the bond market where it is so heavily reliant on raising debt - if our credit rating gets affected by market confidence in our ability to repay then we join Greece and Dubai as being the world economic pariahs and our bonds will become junk.

But the real issue is this, to my mind. The whole economic mess we are in came from appalling hubris and suicidal economic policy over a long period. The Credit Crunch arrived with the recession and banks rolled over like nine pins. Who had to come to the rescue? The taxpayer. We have been used as the crutch for the economy and the banking industry is making the same mistakes all over again at our expense. As we still reel at the magnitude of the problems and gasp in awe at the incredible cost of the bailouts, we are the ones expected to have to pay for more stupidity - the basic mismanagement of the economy as well.

Even successful businesses strive to contain the growth in costs and gain efficiencies at the best of times, let alone the worst. There is no point in spending money if it does not give a tangible return in that vain. And so to Government. The now ingrained belief is that if we stop spending a single penny then the whole economic recovery will implode and we would be plunged back into recession is clouding the need to re-evaluate what is important in terms of spending in Britain. And this is a typical economic dogma from the Government who seem to go to bed each night to read the same pages of the same economics book that got us into the mess we are in.

The stupid voters seem to take it all in. As we foot the bill for all this, the banking idiots who got us into this mess are making bumper 'profits' and are making huge bonuses once again thanks to us resetting the levels of debt they clocked up - we actually created the money for them to earn, it is that simple. It could not have been more stupid. But that's economics for you - it isn't for logical folk like us. We are the ones who sit bemused and just keep paying more of our earnings back into the pot to be wasted all over again.

The point that these business types make, which they do not make loud enough, is that the Government should go find the inefficiencies and save some money first before coming to the supposed limitless trough that is the taxpayers' pockets and goodwill. If this is just the start of it, would it not be nice to know before the Election just how much we are to be fleeced for over the next 6 years to get to the mythical halved deficit?

Because if it goes not come in spending cuts, guess who will be paying.