The alternative to cuts

[Totally_Baffled]

Hi All

I am just interested in the general view of PSers reference the alternative to the proposed cuts in public spending.

Lets put PO to one side (so this is purely hypothetical!), but assume growth over the next 10 years is low (1.5 -2.0%).

What is the alternative to cuts? I have read on these boards a lot about the Tory/Lord Beria side of the debate, now I just want to understand more about the counter arguments.

Presumably it falls into one or more of the catagories below?

1) Cuts are not necessary - the government can borrow at current levels ad infinitum - the threat to stirling and the UK's AAA rating is nonsense.

2) Cuts are not necessary - the gap can be bridged by closing tax loopholes, and increasing the tax burden on the wealthy. This can be done without causing the wealthy and big business (banks in particular) leaving the country and leaving an even greater hole in the public finances.

3) Cuts are necessary to balance the budget - but over a longer period.

4) Cuts are necessary but could not only be spread over a longer period, but taxes should also be increased across the board. The level of taxation in the UK is not a the point that if raised any further tax revenues would decline (eg - see the laffer curve)

5) A mix of 2,3 and 4?

I think there could be a case for 3, but the others I think have problems...

Im interested in what you think!

[Lord Beria3]

Well you answered most of them yourselve already.

1) A government can only borrow if there is somebody out there prepared to borrow us - and we are competing with the rest of the developed world of money! If we carry on borrowing more than we earn we will see a drop in our ratings, out yield goes up and we go into the danger of a debt spiral. So that is not realistic - look at Ireland, Greece, Portugal etc

2) Interesting one. Done nationally, banks and corporations would only move overseas if we hiked their tax burden as well as superrich individuals/families.

Done internationally, than this has a chance of success, but it will wouldn't bridge the gap between what the country 'earns' and borrows every year.

The problem with the latter, is that most countries are trying to REDUCE their corporation tax bills so we are very much swimming against the tide. Without the latter, any unilateral action would be condemned to failure and reduced tax intake.

3) This merely postpones the inevitable. Cuts in 2011 or 2014, either way its not a pretty choice. As our debt rises, a case can be made that its better to get the pain out of the way now, than in the future.

4) Again cuts spread out is a reasonable enough strategy but higher taxes done unilaterally rather than via a international agreement will only drive the corporations/rich away from the UK to other states.

[Lord Beria3]

A more radical strategy:

1) Do a stealth default via massive QE and inflation rates of4% over 15 years -would make a big impact on the real value of our national debt. Some kind of cuts would still be inevitable - the flaw of this would be that the risks of stagflation for the masses would be higher.

2) Outright default on our debt... go self-sufficient and impose a authoritarian regime on the country. The pluses would be that we would be better prepared for the PO-collapse assuming we got it working.

We would need a strong military because there would be a lot of angry states facing huge losses on their respective banking balance sheets.

The negatives I would have thought are obvious

[RenewableCandy]

The "classic" alternative is to cut different things: wars, historically, are the most expensive enterprises any government gets into. There was no income tax here until (some particular) war with France ran the treasury dry.

Thus, ending involvement in Afghanistan, etc, and not replacing the most-expensive bit of our nuclear arsenel (together with, not having to go round cleanig up after a generation of experiments with various nuclear kit, that's about £80Bn by itself) would go a long way to easing the situation.

Investing in kit that would reduce government's energy expenditure would be a good long-term move if it were at all possible, for example with a very-temporary rise in Council tax (followed by a reduction).

Going after high tax avoiders/evaders could recoup non-trivial sums. Vodafone has recently been let off paying £6Bn of taxes. That's a lot of nurses! The proposed "Robin Hood Tax" on banks and/or some types of financial reansactions would also raise non-trivial sums, while costing ordinary people very little. I think it would dent the economy a lot less than the VAT rise that's coming in tomorrow.

[Totally_Baffled]

Thus, ending involvement in Afghanistan, etc, and not replacing the most-expensive bit of our nuclear arsenel (together with, not having to go round cleanig up after a generation of experiments with various nuclear kit, that's about £80Bn by itself) would go a long way to easing the situation.

Yes this is common counter argument, but the savings are not as big as you think.

The annual budget for the military is circa £35 billion and the trident cost is over 25 years (so it may save £3-4 billion per annum not renewing trident)

We are overspending by £150 billion per annum.

So even if you took that very draconian measure - you would still come up short by circa £110 billion per annum

At the same time you screw some of the UK's biggest companies and the income derived from weapons exports (rightly or wrongly - this is a significant income generator for UK plc - and therefore to UK tax coffers ergo public services!

Also the UK and its interests would be defenceless.

It was never going to be easy this one!!

Going after high tax avoiders/evaders could recoup non-trivial sums. Vodafone has recently been let off paying £6Bn of taxes. That's a lot of nurses! The proposed "Robin Hood Tax" on banks and/or some types of financial reansactions would also raise non-trivial sums, while costing ordinary people very little. I think it would dent the economy a lot less than the VAT rise that's coming in tomorrow

.

Agreed IF we can avoid these people buggering off (legally) to elsewhere to avoid tax.

[RenewableCandy]

I don't mean standing-down the Forces altogether, just that we should pick our priorities more judiciously. It was obvious to anyone with a history book that Afghanistan wasn't going to work, it was obvious even to me that Iraq was pointless and had no proper "aim".

It's a classic riposte that financiers and the like give, about leaving the UK. But at least to some extent, it's bluff. Rightly or wrongly the UK has a reputation, connotations if you like, of Fair Play. This is worth an awful lot to a business, especially if like Finance it's dealing with something abstract. They'll weigh up the pros and cons, they won't just beetle off automatically.

[Totally_Baffled]

I don't mean standing-down the Forces altogether, just that we should pick our priorities more judiciously. It was obvious to anyone with a history book that Afghanistan wasn't going to work, it was obvious even to me that Iraq was pointless and had no proper "aim".

I know you were, but I was just taking the extreme example that even if you did remove the military - you still dont dent the £150 billion figure.

It's a classic riposte that financiers and the like give, about leaving the UK. But at least to some extent, it's bluff. Rightly or wrongly the UK has a reputation, connotations if you like, of Fair Play. This is worth an awful lot to a business, especially if like Finance it's dealing with something abstract. They'll weigh up the pros and cons, they won't just beetle off automatically

I suspect there is some truth in this - but then Kraft recently bought Cadbury and off they go to Switzerland!! grrrr

Would they have stayed if our tax regime was lower? Dunno...

[RenewableCandy]

I get your point about something "everyday" and sort-of fungible like chocolate but I've actually been around businesspeople talking about setting-up (at least in the virtual world) and how a UK address/website really does reassure potential customers/clients.

I have this theory that fair-ness/goodwill is, like any other resource, being over-raided by the unscupulous, meanwhile they and the rest of the business world haven't yet cottonned on to the simple fact that, without some degree of trust floating around, "business" as we know it would be impossible.

[postie]

Would they have stayed if our tax regime was lower? Dunno...

It aint a race to the bottom. We could end up with the lowest corporation tax in the world... and still they'd find ways to avoid paying it.

Tax the rich. simple.

It won't drive away jobs. It wont. Cos they make money here.

Any nonsense about higher tax on higher earners is bollox.

Tax the wealthy.

VAT is a tax on all...

[biffvernon]

Indeed. But VAT taxes those who go shopping most, most.

Governments, of whatever flavour and to their shame, seem very bad at taxing the rich. We can, as individuals, take the matter into our own hands.

Don't go shopping from shops owned by rich people. Buy from small independents, co-ops and worker-owned enterprises. Avoid the big corporates and branded goods. The rich guys are only rich because we give them money. Stop doing it.

[AndySir]

I think we've had similar discussions before with the aim being streamlining the tax system. Short version was there's not enough 'rich' to tax (people in the 50% bracket) and that any appreciable increase in revenues has to come from people earning in the £20-£50k range simply because of the volume of people in those ranges. Obviously that kind of tax raise would be political suicide.

I forget who said it, but taxation was summarised as the art of plucking a goose to obtain the most feathers with the least squawking. Taxing the rich produces little for a LOT of squawking - being rich seemingly making your opinions broadcastable news in this country.

There is also plenty of waste which can be eliminated in every department. There's not a week that goes by that you don't look at some idiocy and think, who is in charge of this? Why? The trouble there being that every government recognises that and every government promises to reduce. Unfortunately a government's power to reduce waste largely consists of saying "Jolly well stop that," in increasingly complicated ways. Transferring functions to the private sector (where you can fire the incompetent more easily) simply seems to exchange waste for corruption, as amply evidenced by the PPP schemes.

So I don't have sweeping solutions to national problems - ask me about problems in Glasgow local government and I'll have much to say. I suppose that's is my hope for a grand solution: a combination of local solutions to smaller problems.

[DominicJ]

rich people are mobile, that means they can leave.
They do, frequently.
My sisters just moved to north carolina.
200,000 people a year leave the uk.

The idea that EUrope is this magical place the world cant survive without is laughable, my job needs a laptop and internet connection, sure as hell doesnt require a uk postcode.

[AndySir]

rich people are mobile, that means they can leave.
They do, frequently.
My sisters just moved to north carolina.
200,000 people a year leave the uk.

The idea that EUrope is this magical place the world cant survive without is laughable, my job needs a laptop and internet connection, sure as hell doesnt require a uk postcode.

I dunno, I'm not sure I'd trust an accountant based in Turkmenistan. Mobility of the rich is a moot point anyway since anyone willing to become a tax exile may happily pay no tax. The race to the bottom has ended in that respect.

[woodpecker]

rich people are mobile, that means they can leave.
They do, frequently.
My sisters just moved to north carolina.
200,000 people a year leave the uk.

The idea that EUrope is this magical place the world cant survive without is laughable, my job needs a laptop and internet connection, sure as hell doesnt require a uk postcode.

Net immigration into the UK is almost 200,000 p.a..

Many emigrants are retirees. Many immigrants (2/3) are workers or adult students.

These days, many retiree emigrants return, for example when they discover that in their chosen country there is absolutely no social support for the sick, and you don't even get meals in local hospitals (relatives are expected to queue up in the corridor morning, noon and evening with meals and the hospital corridors resemble shanty towns). Many of them appear to try to stay under the radar locally, to avoid paying high local taxes. (It's often a myth that taxes are lower in their chosen country - taxes are lower if you lie about where you live - they mostly claim to still live in the UK - and if you lie about your income and your assets/wealth, and if you only accept cash payments etc.) That's certainly true in Spain, where around 600,000-700,000 British retirees attempt to live under the radar, in addition to the 350,000 British retirees who declare themselves as such locally.

I've come across quite a few businesses that pretend to operate in the UK. e.g. outsourcing accountancy services (owned and operated by UK-qualified accountants) with a non-UK office and no 'real' UK presence but with an 0845 or other UK telephone number that redirects all calls to a number in another part of the world. They realise the value of a UK presence and are quite clear they would not get the work if they were more up-front in public about their operations. It's their UK qualifications and their UK telephone number that provide reassurance to potential clients.

There are quite a few countries I would never operate a business from, regardless of corporation tax rates or income tax rates.
- Countries where employer costs are phenomenal,
- where employment laws are crazy,
- where many laws are bonkers but most are unenforced (and it can take up to 8 years to get a legal hearing) but bribes help to smooth non-enforcement,
- where it takes 8+ months and costs five grand+ to set up a company (compared to 2 hours and 60 quid in the UK),
- where business debts are effectively unenforceable,
- where firms will send around a bunch of heavies to enforce a business agreement because the courts are a joke,
- where many companies operate three, four, five or more sets of completely (astonishingly) different accounting records, each for a different audience,
- where employees have payslips written in pencil that are kept in the company safe (in other words, employees never get a true record of what a company has actually paid them and what deductions have been made),
- where a government representative will go through each line of all your bank statements every year, because everybody, absolutely everybody, lies about everything, and nobody trusts anyone, and hence...
- where carrying around attache cases stuffed with cash is a standard way of doing business (500 euro notes are a favourite, as you can stuff a lot of money in a small space),
- where lawyers, bank managers and notaries (those so-called pillars of society) are all leading figures in telling enormous lies in the documents they create,
- where taxes may bear no relation to actual business income or profit, but can be based on random things like the size of your desk or the size of your city, or just a made-up (by the government) number, and where a huge proportion of businesses pay tax on this sort of basis (rather than on actual income or profit)
- where prosecutors and judges pursue charges against (small-moderate sized) business people in order to extort money from completely innocent people (delivery of cash is made in aforementioned attaches cases, often in a car park), (and where, by the by, being convicted of murder is no bar to returning to service as a police officer),
- where every state institution is riddled with corruption and making under-the-counter payments to state officials is a standard way to do business,
- where getting a public sector job can be mainly down to whether or not you are a member of a particular political party; and where it's then impossible to fire the person appointed, so mostly they don't bother to do any work,
- where just about every 'professional' (e.g. doctors, dentists, lawyers, accountants) demands payment in cash, because they are all, all fiddling,
- where the idea of meritocracy does not exist as part of the national culture; hence the people who get promoted are generally the longest serving, not the ones with any competence in anything,
- where you can only deal with the public sector in person, by standing in a very long queue (no phone, no email)
- where almost the entire population pays 'professionals' to stand in queues for them for everything to do with the State e.g. renewing car tax or registering as self-employed or paying some tax, in order to avoid around 5-10 days of queuing a year,
- where, when the hard times arrive and business income drops, it is much cheaper for you to declare a business bankrupt and make the entire workforce unemployed than it is to make one or two people redundant.
- where the electricity goes off at unpredictable times (a few hours a week, or many hours a day every day) and hence broadband, tills, computers, lighting... (When M&S had a mainland Europe presence, they learned the hard way that you need big-time generators in order to keep your shops operating in certain European countries.)

Some countries have most or all of the above 'issues'.

Mostly, employers/entrepreneurs only find out about the above once they have already moved and/or tried to establish, by which time it's far too late. Many people assume doing business will be much the same in most countries, and that is far from the case. For those in the know, the UK makes a great centre for doing business owing to legal certainty, legal enforcement and the courts system and small claims court, employment law, employer costs, transparency and information, including transparency of business information etc. Those are some of the many reasons why many choose the UK.

[emordnilap]

Don't go shopping from shops owned by rich people. Buy from small independents, co-ops and worker-owned enterprises. Avoid the big corporates and branded goods. The rich guys are only rich because we give them money. Stop doing it.

+101% Biff. It needs saying and it needs repeating and it needs examples.

People are seemingly so enmeshed with corporate branding that they are unable to comprehend such actions, let alone act.