Sunday

20 May 2012
In place of tinkering: the 2020 Tax Commission

The report which Fraser mentioned last week, from the 2020 Tax Commission, has just been published - you can download the summary here and full report here. Allister Heath, chairman of the commission and a contributing editor of The Spectator, says more here:- It is time for Britain to make a vital choice. Our economy is stagnant, crippled by excessively high public spending, high levels of leverage, a mismanaged and inefficient public sector, an extraordinarily complex and punitive tax system and a public mood that has become increasingly anti-capitalist. There are two options. We can either decide to tweak the status quo – try and keep a lid on public spending, reform bits of the public sector and hope for the best.

In place of tinkering: the 2020 Tax Commission

Saturday

17 Sep 2011
This is going to hurt

There is much to be terrified about in today’s global economy. The eurozone’s death dance, China’s slowdown and America’s inability to create jobs are enough to make the most upbeat investors gloomy. But even these problems pale in comparison with the biggest threat, one with implications so hideous that financiers are reluctant to talk about it even now. The truth is that the economies of rich countries, including the UK, are being kept alive by another and astonishingly under-reported bull market — in government debt. This is the bond bubble; and when it bursts, as it surely will, the result will be a recession far deeper than the crash from which we are trying to recover. This danger is ignored for a very understandable reason: government bonds are so boring that most people pay them no attention.

This is going to hurt

Saturday

30 Jul 2011
Wake up, Osborne!

He has been desperately trying to persuade us that things could be worse, but the truth is that this week’s news is a bitter blow for George Osborne.He has been desperately trying to persuade us that things could be worse, but the truth is that this week’s news is a bitter blow for George Osborne. Our economy only grew by 0.2 per cent this quarter, at a time when he desperately needs stronger growth to generate the tax required to finance public spending and reduce his awful budget deficit. Our chancellor may seem nonchalant but, as he knows, this pitiful growth means less money for the exchequer, and the prospect that Britain will be stuck in a permanent state of semi-stagnation. The coalition government has seemed weirdly insulated from the bleak reality.

Saturday

28 May 2011
Politics: If Greece falls, Britain will suffer

When George Osborne delivered his first budget, Greece made the perfect backdrop. The television news channels had split screens: on the left side, the new Chancellor making the case for austerity. On the right side: riots in Athens as a government confronted the consequences of its profligacy. Now, as then, British eyes are on Greece — but for different reasons. The prospect of a Eurozone banking crisis has now overtaken rampant inflation as the greatest single threat to the British economy.The risk is not Greece itself, which, for all its great difficulties, remains a small and marginal economy. British holidaymakers may quietly pray for the return of the drachma and, with it, the cheap European holiday. But this is where the opportunity ends.

Politics: If Greece falls, Britain will suffer

Saturday

23 Oct 2010

Saturday

9 Oct 2010
The Irish problem

It isn’t spending cutsThose arguing against spending cuts have recently adopted a one-word argument: Ireland. The case it stands for is as simple as it is bogus. Ireland had a deficit, now even worse than Britain’s. It adopted an agenda of sharp public spending cuts, on the same logic used by the British government. The result? A double-dip recession and a fresh round of misery. The lesson from Ireland is that cuts don’t work — and that George Osborne is leading Britain into the swamp. The argument is seductive, but only if one is ignorant about what has just happened in Ireland. It is true that after bouncing back in the first quarter, the economy shrunk again in the second quarter, but such variability is to be expected in any country exiting a slump as severe as Ireland’s.

Saturday

27 Mar 2010

Saturday

13 Mar 2010
Day one: getting us back in business

Dear Treasury Permanent Secretary,Good news: the nightmare is over. We both know that Gordon Brown is one of the greatest economic vandals ever to have resided in Downing Street. And to make Britain competitive again will require hard work. We can start immediately, and without the need for legislation. I’d like the following to be in place by the end of our first 100 days.1) Please draw up plans for a two-year public sector pay freeze, and for a few billion pounds worth of immediate cuts. Rather than trimming spending across all departments, I’d like to axe entire programmes. These will include Sure Start, which would save £1.4 billion a year, and the NHS national programme for IT, saving £1.2 billion. The markets are watching us anxiously.

Saturday

6 Mar 2010
Britain must be saved from the financial abyss

A few months ago, Alistair Darling was asked how long he thought his government could continue to borrow £600 million a day. Might creditors one day refuse? The Chancellor gave an oblique reply. ‘When you walk over ice, you never know it is too thin — until you fall through.’ He said no more, but his message came across. If the bottom falls out of the British economy, it will do so instantly and dramatically. There will be no warning.For some time now, Gordon Brown’s government has been walking on the thinnest of ice. But it has been helped, ironically, by the widespread expectation of its electoral annihilation. The money markets — which decide daily whether to extend the financial lifeline upon which the Prime Minister now depends — had priced in a clear Tory victory.

Britain must be saved from the financial abyss

Thursday

4 Mar 2010
Britain on the brink

It is a calculation that should fill all of us with an immense sense of dread: there is now a 72.2 percent chance of a hung parliament. Or so says Michael Saunders, Citigroup's chief European economist and the one man in the City everybody listens to when it comes to the interaction between parliamentary politics and the financial markets. His model, which incorporates the standard data about the Westminster first-past-the post system, and into which he has fed all of the latest polls, also suggests that there is just a 6.2 percent chance of strong Tory majority, a 19.1 percent chance of a weak one and 2.5 percent chance of a Labour majority. Given the terrible state of our public finances, and Britain's desperate need for a strong government with a clear commitment to fiscal reform, all of this is little short of disastrous, as I argue in today's cover story in the magazine.

Britain on the brink

Wednesday

9 Dec 2009
Darling’s budget was bad. Osborne’s complicity was worse

There was much that was absurd about Wednesday’s pre-Budget Report, from Alistair Darling’s failure to outline a realistic plan to prevent Britain’s national debt from exploding, to his risibly over-optimistic long-term growth forecasts. Public spending will jump again next year, we’re told. Schools, hospitals and police will be protected from cuts if Labour wins the election — which, plainly, it has not the slightest expectation of doing. This was about political positioning, banker-bashing, with a new bonus tax, and pretending to the electorate that a few efficiency savings and National Insurance tweaks will be enough to rescue Britain. The intention was to deceive voters, with the pain only kicking in after the election.

Wednesday

28 Oct 2009
Why is Osborne obsessed with bonuses?

It is hard to work out what the bankers did to George Osborne. Perhaps he was refused an overdraft at a formative age. Whatever it was, he is taking his revenge, saying that the large British banks should only be allowed to pay trivial cash bonuses. The plan has its political attractions — focus groups tell him no punishment is too harsh for the City of London — but also three significant economic drawbacks. It is vindictive, ineffective and it fails to address the true reason for the crash.Let us first examine this on a practical level. Cash bonuses would be outlawed, but banks would still be able to pay their staff as many millions as they want in shares (how the Treasury would feel seeing its stake in the Royal Bank of Scotland diluted, and bankers paying low capital gains tax rather than high income tax, remains unexplained).

Wednesday

23 Sep 2009
Savage cuts are the safer option

If John Maynard Keynes were alive today, he would be appalled at the disastrous state of our public finances. He is loved and hated in equal measure as the man who made pump-priming during downturns intellectually respectable. But nothing he ever wrote could be used to justify the scandalous mess in which Gordon Brown has landed Britain.Not only has Keynes been body-snatched by advocates of big state spending, but he finds himself in the battleground for the next general election. At Labour’s conference next week, the Prime Minister will say that Labour must be re-elected precisely because it will cut spending by less than the Tories. David Cameron’s attempt to reduce the fiscal deficit more quickly, he will argue, will tip the economy into a new recession.

Thursday

23 Apr 2009
A shameless Budget

It's official: enterprise, hard work, education, success and aspiration are no longer valued in Britain. Yesterday's Budget, by far the most irresponsible in recent history, marked the final death of the New Labour project, which was meant to reconcile social democratic policies with a competitive economy. From next year, anybody earning between £100,000 and £112,950 will be hit by a marginal income tax rate of 60 per cent as their personal allowance is wiped away ­ the real rate will hit 61.5 per cent with national insurance. After that, the tax rate will fall back to 40 per cent for a while ­ 41.5 per cent with the new national insurance super-rates. After £150,000 it will jump to 50 per cent ­ or 51.5 per cent including NICs; meanwhile, pension tax relief will gradually halve until earnings hit £180,000 a year, when it will fall to just 20 per cent.

A shameless Budget

Wednesday

22 Apr 2009
A predictable guru

There is only one politician who has emerged from the recession with his reputation enhanced. Yes, you’ve guessed right: I’m referring to Vince Cable, the ubiquitous grey-haired, sober-suited deputy leader of the Liberal Democrats. Even many Tories would feel reassured were Cable, who exudes reasonableness, to become Chancellor; broadcasters with little understanding of finance defer to him, with the BBC treating him as a cross between a living saint and a Nobel laureate in economics. A former chief economist at Shell, he is always at the other end of a mobile phone; journalists know they can count on better copy talking to him than anything on offer from the Tories. Yet as his disappointing new book reveals, his analysis of the crisis and policy recommendations are mundane at best and dangerous at worst.

Saturday

1 Nov 2008
The great downhill bicycle ride

A little over a year ago, when it was already obvious to virtually everybody that the boom was over, the City’s Panglossian crowd came up with one last, seemingly profound, argument to allow them to continue to deny reality. Going by the ugly name of ‘decoupling’, the theory was that the emerging economies were no longer reliant on exports to the West. America and Europe could plunge into recession, the argument went, but Indian and especially Chinese consumers would take over, allowing their economies to shrug off the West’s downturn. Like assumptions underpinning the boom years, this one has since been found wanting. With the British economy shrinking, much of Europe performing little better and America in a deep funk, demand for imported consumer goods is declining.

Wednesday

20 Feb 2008
The grim state of public finances

Once again, Gordon Brown has got away lightly with his gross mismanagement of the economy. Today's public finances statistics were less bad than feared, thanks to strong revenues from income and corporation tax in January, but they were pretty grim nevertheless. That is not the impression one gets scanning today's almost universally positive headlines, however. So here is a reality check: in the financial year 2007/08 to date, public sector net borrowing -- the main measure of the budget deficit -- has already reached £26.5bn. This is a cool £6bn more than over the same period last year, and represents a horrific deterioration in the health of the public finances. Far from having regained control of the exchequer's purse strings, Brown and Alistair Darling are still on course to breach their £38bn deficit forecast for the financial year as whole.

The grim state of public finances

Wednesday

23 Jan 2008
Fleecing non-doms is the thin end of a bad wedge

Allister Heath says that Brown’s poll tax on Britain’s 114,000 non-domiciled residents will drive away talent when our economy most needs it. Shame the Tories would do the sameYou would have thought that with the economy weakening, the stock market sliding, house prices tanking and Northern Rock’s botched rescue a daily humiliation, Gordon Brown would be doing all in his powers to help the City of London weather the gathering storm. Instead, he appears intent on making life even more difficult for it.His reckless plan to crack down on Britain’s 114,000 non-domiciled residents, including many of the City’s most important financiers, will be the most damaging in a long list of spectacularly ill-timed tax hikes due this year.

Wednesday

9 Jan 2008
The economy in 2008: chilly showers but no hailstorms

Allister Heath forecasts that Britain’s economy will suffer less than America’s, but that homeowners and consumers will still feel the pain — and blame it on Gordon BrownFirst, the good news: there will be no recession next year in Britain. But while avoiding ‘the Big R’ will be some cause for celebration, the overall outlook for 2008 remains bleak. The economy will not shrink but it won’t grow by much either. And there will be plenty of pain to go round. House prices will fall noticeably, which means that most members of the property-owning majority will become poorer — the first drop in wealth levels in more than a decade. The fallout from the demise of the great housing boom and the effects of the global credit crunch will be felt across the economy, with defaults and repossessions rising sharply, loans becoming more expensive and harder to obtain and thousands of buy-to-let investors hitting the buffers.

Saturday

8 Dec 2007
Braced for a new oil shock? Relax, this isn’t the 1970s

Those of us born in the late 1970s have a great advantage when it comes to understanding today’s oil market: we cannot remember Opec embargoes, nor the double-digit inflation and bitter recessions they triggered. So while many of our elders and betters were predicting Armageddon as the price of oil climbed inexorably over the past couple of years, we younger ones took the surge in our stride — rightly, as it turned out.There is little doubt that the black stuff will soon cost at least $100 a barrel, while a litre of petrol routinely tops £1. But the British and global economies have changed so much over the past 40 years that they can now handle it. This is not to say it will be painless; merely that these days, other economic shocks — especially anything that affects the credit and banking systems — matter far more.

Saturday

17 Nov 2007
Darling is out of his depth

For a man who has been Chancellor of the Exchequer for just over four months, Alistair Darling has certainly made some powerful enemies. In fact, it’s hard to think of anybody important with whom he hasn’t fallen out.Sir Ronald Cohen, the private equity king who is one of Labour’s most prominent business supporters, has criticised Darling’s proposed increase in capital gains tax. Cohen is not alone: Darling has managed the unprecedented feat of uniting all of Britain’s business lobby groups against this destructive, ill-thought-out measure. He has been chided by Mervyn King of the Bank of England over his mishandling of Northern Rock. And there is no love lost between Darling and Baroness Vadera, the Prime Minister’s most trusted adviser.

Saturday

20 Oct 2007
Darling must scrap his tax attack on entrepreneurs

Gordon Brown can’t stop himself from meddling, even with his own good ideas. Soon after he moved into No 11 Downing Street, he introduced one of the best pro-growth capital gains tax regimes in the world. Last week his Chancellor Alistair Darling, with Brown grinning approval beside him, undid much of that good work in one fell swoop. Their primary target was the City’s private equity industry; but their destructive 80 per cent tax hike will also ensnare farmers, entrepreneurs, small companies quoted on the Aim market, life assurance companies, 1.7 million employees who participate in company share schemes, business angels and venture capital funds, to name but a few. Combined with a previously announced corporation tax rise from 19 per cent to 22 per cent for small firms, this makes Britain a dramatically less friendly place for entrepreneurs from next April, when the changes are due to kick in.

Saturday

29 Sep 2007
Northern Rock: morally hazardous

First we heard about ‘sub-prime mortgages’; then it was ‘collateralised debt obligations’; now it’s the turn of ‘moral hazard’ to appear on the Ten O’Clock News.Jolted out of prosperous complacency by market turmoil, the public has started to care about economics: strange jargon and obscure concepts previously familiar only to investment bankers are going mainstream.The best way to understand moral hazard is to reflect on how taking out insurance changes our behaviour, encouraging us to take greater risks and less care of our possessions. A holidaymaker without travel insurance is more likely to keep an eye on his baggage than one who can claim compensation if it’s lost or stolen. The threat of moral hazard is in fact a central concept in modern life.

Saturday

18 Aug 2007

Thursday

5 Jul 2007

Friday

29 Jun 2007
Brown wins over a critic

One of the strangest appointments to Gordon Brown’s new government is undoubtedly that of Digby Jones, the former boss of the CBI, as the new trade promotion minister. When he was first appointed to the helm of the CBI, he was relatively pro-Brown; but as time went on and as his members increasingly complained of the huge increase in tax, spending and red tape under the then Chancellor, Jones gradually began to see sense and became far more critical of the Labour government. By the end of his tenure, he was an out-and-out critic of Brown; calling him for a quote on the latest misguided government initiative became an increasingly rewarding journalistic enterprise. So it is now intriguing that he has agreed to work for Brown – and a clear stroke of genius by the new prime minister to have succeeded in co-opting one of his critics.

Saturday

23 Jun 2007
It’s wrong to punish private equity

It will come as little consolation to Guy Hands, the financier who complained this week that he must be the last person in Britain still prepared to defend the private equity industry’s generous tax breaks. But I have a confession to make: I, too, am opposed to clobbering private equity funds — and if that makes us fellow champions of a lost cause, then so be it. The current rather weird tax regime would admittedly never be chosen by someone redesigning it from scratch — but in the present climate, any change will succeed only in punishing one of Britain’s most successful industries while raising little or no revenue for the Exchequer. Trade unions’ calls for huge tax rises on the industry must be resisted. Partners in private equity funds such as Permira or KKR often earn a 20 per cent cut of any profits from restructuring, turning around and reselling the businesses they buy out: their share of the swag is called ‘carry’ or ‘carried interest’.

Sunday

6 May 2007
France’s only hope for reform triumphs

It is now almost certain that Nicolas Sarkozy has been elected France’s next president, in a stunning victory for the centre-right candidate. This is great news for all of us who believe that France must urgently reform if it is to reverse years of relative decline and extricate itself from the dark pessimism which it has being gripped by for far too long. Sarko is far from perfect and displays worrying anti-capitalist and protectionist tendencies; but he was France’s only hope and should now be given the benefit of the doubt. The latest estimates from exit polls published on the website of Le Soir, the Belgium newspaper, are that Sarko has grabbed between 53% and 56% of the vote, against 47%-44% for Segolene Royal, the socialist candidate.