IMF praises Gordon Brown and backs Labour's approach to economic stimulus

Mark and Alan M,

I am not saying or advocating what should or should not be taxed.

All I did was answer a simple question : name examples of unearned income and I gave two : ground rent and royalties gained from mineral extraction.

I also added that it seemed that Adam Smith was in favour of enhanced taxation of unearned income in such circumstances.

@Duncan Weldon
Is this the same IMF that Cameron always refer to when he taunts
Brown at PMQ?I am sure no one was surprised when Cameron said that the IMF was wrong.

@ Peter B
But the income from land is taxed. This all goes back to Chris's eccentric suggestion that "rentiers" are not paying tax and/or should pay the entire tax bill.

I agree with you - and you also contend that the landowner (in this case) benefits from the ownershop of that land through unearned income and as such should be taxed on that.

I agree with you but also contend that he is already taxed on that 'unearned' income.

I refer you to my last question - is is the income that is taxed or the earning of it.

@ Alan M,

Your question asked for examples of unearned income, and I gave you two examples.

I, or rather, Adam Smith, did not advocate a tax on mere ownership. Mr Smith's contention was that many times, in the case of land, the landowner did very little or nothing but derived an income, when the land was rented out for agriculture, industry or residential housing.

Ah but ground rents and ordinary rents are both taxed... - the money handed over in rents is declared to hmrc and the appropriate tax on that income is then calculated. In fact all money is taxed, and an additional tax is levied on land and other assets when somebody dies.

The income derived for land is taxed, i.e a farmer who produces wheat on land, sells his crop, deducts his production costs and then pays tax on his profits. The provider of any service which occupies that land is the same.

Tax is levied when that property is bought and sold.

Only people who buy land on which to graze a horse which does not create any subsequent income do not pay tax, because there is no income to tax.

Why would you want to tax people for merely ownership.

It all depends on what you are taxing, the income from the asset or the work that goes into it. The latter is often the greater proportion of the whole than the former!

@ Alan M,

"Can someone please explain to me how any income can be unearned!!"

Alan,

Ground rents and royalties from land ownership (eg mineral extraction) are unearned.

If you don't believe me, maybe Adam Smith may be more your cup of tea : (i) "Both ground rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention on his own" and (ii) "Nothing can be more reasonable than that a fund which owes its existence to the good governance of the state should be taxed peculiarly, or should contribute something more than the greater parts of other funds, towards the support of that government."

Chris I do not think I am missing the point you made - which was that the Tories liked what was happening and jeered at the governemnt who wanted change. This was simply not true. The Tories may not be any better - but it was the fault of Gordon Brown that he allowed the situation to become critical and he is still there allowing it to continue. In fact he made the situation much worse by muddling up the way our financial systems were regulated - he actually had no idea what he was doing and was overly influenced by his friends in the banking system. He still is.

At least the Tories have said they will simplify the regulation so everyone knows who is responsible for it and they can be held to account. Our problems were largely caused by a fault in the regulatory system - and who has been held to account for this failure so far - absolutely non-one!

And the bankers - mostly the same people as before (apart from Fred "The Pensioner" Goodwin - are still there. I do understand why the banking system could not be allowed to collapse, but when they were taken over by the state all the top brass should have lost there jobs and been replaced by competant people.

It will all happen again - belive me. It may take a while - and hopefully Gordon will be replaced with someone who knows what they are doing before it does. But otherwise we are in for another disaster in afew years time.

And as for the IMF - their comments in support of Gordon are meaningless. They had no idea before the banking disaster happened and still dont see what is in front of their eyes!

@Alan -

I think Chris means money that one way or another you have 'saved' or 'invested in property' which has already been taxed at source and is then taxed again and again and again - Brown calls this sort of triple dealing 'prudent' and 'fair' because in Labour's lexicon it only effects the super rich and not 85% of UK citizens who are working to keep a roof over their heads and put by for a rainy day or those who have and are now living on pensions (which of course are taxed at every point Government can get away with!) or living in houses which have umpteen times the value than when they were bought so can clearly afford to pay more on their reduced pensionable income.

Many of us simply think it is all part of the 'rip off' Britain culture avowed by the banks, maybe it just shows how stupid Government is, but fair or prudent it ain't.

Mark, I understand the theory behind the plans.

What I do not understand is how they can be afforded and so far have Dave or Gideon explained this.

We are hearing how awful the defecit is and how it must be cut down as soon as possible

Then we hear about tax cuts which I have not seen how they can be afforded ?

That is not logical is it and mixed messages, increase taxes on us normal people and reduce them for business's

no wonder the Tories are reluctant to announce their plans.

Can someone please explain to me how any income can be unearned!!

From the Glasgow Herald:

"Today sees the publication of the report into how local democracy in Glasgow and the surrounding areas could be overhauled in the next five years to take account of the unprecedented squeeze on the public purse and rising demands on core services.

Sir John Arbuthnott, the former chairman of Greater Glasgow’s NHS board responsible for previous reviews revolutionising both health service finances and Scotland’s voting system, was charged with developing a framework for eight councils to save hundreds of millions of pounds by working together to provide key services."

Once again CoSLA and the SNP are stealing a march on Westminster dealing with what is and not what they want it to be.

Ian,

These policies would help get the economy growing again and reduce unemployment. You have obviously got no idea about small businesses and how they start if you think that those who set them up are fat cats.

The Tories' proposals are the sort of thing which Duncan Weldon was proposing on LabourList yesterday (he is also against the Labour government's daft proposal to increase national insurance - what a good way to boost unemployment!).

Chris,

I agree that the gap between the richest and poorest has widened under the present government. I hope that the next Tory government will take the poorest out of direct taxation entirely.

But your stuff about a rentier class is just nonsense. Most "rich" people's assets are their houses and pensions/savings. Save in respect of pension contributions they are the fruits of earned, taxed income. Pension contributions are from untaxed income.

Last time I looked, dividends on shares were taxed. So were capital gains, save on your own house. I wasn't suggesting that these taxes be removed. You appear to think that all taxation on "earned" income could be abolished by increasing the tax on "unearned income". That sounds implausible to me.

And I were living on "unearned income" and this were introduced I'd change country.

There is no hiding place for Labour they already are cutting budgets to local authorities across Scotland by means of Alistair Darlings £500 million savings on the Scottish pocket money for 2010 - 11 having already cut the year on year Scottish pocket money in real terms since 2007 with its knock on effect on LA budgets.

The Scottish response has been the SNP / CoSLA accord signed up to by Labour councils across Scotland in spite of the pressure from Westminster PLP to refuse. Glasgow and North Lanark were the only councils to toe the Millbank line and they have lost out heavily as a result in the horse trading. A lot of both councils fiscal problems being blamed by Bain as 'ripping off Glasgow' are their own fault. The cancelling of the Glasgow Airport Rail Link is directly attributable to Darling's £500 million cut - it was a vanity project with little or no chance of paying for itself. Now with the BBC reneging on their financial deal with Glasgow over the Commonwealth Games not only is the games over running its 'budget' but the Scottish Public capital fund is having to inject another £85 million to Glasgow to make up the shortfall in projected broadcasting income.

If New Labour were not so poisonous to anything the SNP do in Scotland they would do worse than to look at the CoSLA agreement which took 59 ring fenced budgets under Labour and reduced them to 17 that both sides agreed are essential. This in turn has enabled LA's to prioritise on services essential in their areas rather than putting aside money they would not use and have to emergency spend in March to ensure their next year's budget was not cut.

If Cameron has any sense at all he will start selling a SNP style concordat to the English LA's as it fits with his ideas of less and smaller government but he won't because he and his party, like New Labour, do not want power and real control given back to us proles.

The net result will be even more resentment of Scotland as its LA's will appear to be able to provide services that English LA's are making a song and dance about being forced to cut. The Mail / Mirror will trumpet about English largess to Scotland (for different reasons but the impact will be the same) and Wee Eck will move another 5% points towards winning an independence referendum.

When Wee Eck's drip, drip, drip, policy wins I will sit here thinking about how lucky Labour in Scotland will be to be rid of Westminster Labour PLP with its gross incompetence, introversion and lack of sense. Once the dust has settled with the two Scottish Labour factions (Glasgow vs the rest of Scotland) have their fight in the open and the blood letting is finished I maybe lucky enough to see a Scottish Labour party, I could once again vote for, rise from the ashes - sadly an outcome I currently can never see happening.

This is a joke of course.

The credit crisis was directly caused by the private financial sector, and the Tories were not only cheering this financial madness to the echo, but whenever anyone in government had the slightest misgivings the Tories instantly accused them of selling the City short.

That is patently riduculous statement - this government greedily grabbed what tax take it could from a city burgeoning under their control, and with their de-regulation. With a housing bubble allowed to grow out of control and the encouragement to take up personal debt in order to fuel growth and the subsequent spending spree. This was exacerbated by the selling of the gold at rock bottom prices and the mad cap decision to not, 'save some money for a rainy day' - when the sh*t did hit the fan, the cupboard was bare, and Browns gooning mush was looking as perplexed as the rest of us.

Your assumption that your 'hair brained and unproven' schemes will miraculously take us out of the mire this government has dropped us in and allow us to stride forward to a 'better dawn' is vacuous fallacy at the worst and conjecture at the best.

I take real exception to your assertion that Labour are the ones to deal with this. PROVE IT, they've done nothing but cock it up so far.

They stole my money with a tax raid on my pension. They squandered the legacy of the last government which 'babee eeting toreeeeez' aside was in pretty good shape when it was handed over.

What 'Value for Money' is there in paying money to take tax off us and then spending more money to hand it back in credits????????????

Add in the 10p tax fiasco and we get a good picture of the financial illiteracy of these oxygen thieves!!!!!!!!!

Frankly I care not about your hi falutin ideas about how things should be done. The way they are being done is just wrong. And the concept of paying good money to a burglar to pay for him to fix the window he smashed to gain entry is obscene in the extreme.

From the BBC

"Mr Cameron said measures in the budget would include the previously announced plans to cut the rate of corporation tax and tax breaks for new business start-ups."

So thats great then, these cuts would have to be paid for by someone, in a time when tax revenues are declining anyway. So 'norma' people will be either sacked or pay more tax to fund cuts for companies like the banks who messed us up in the first place.

Welcome to Tory world when the normal person suffers and the fat cats just prosper.

Thanks Peter and Richard for the clarification.

the local government cuts will be very interesting because when Thatch took control how many councils did labour have that could be labelled 'looney' ?

Well this time the majority of cuts will fall on Tory run councils, given all their success in recent local elections. The argument that could cause between the central and local parties could be devasting for them.

Given that neither party have been clear on how much and hwta is to be cut it is all guesswork at the moment. Only when we hear the PBR and the next budget will we have a clear idea from labour and then the Tories will have to chip in.

For me the obvious area the Tories could cash in are the tax credits. My family is around £40k per year and I reckon we will see our tax credits removed (around £70 per month) and maybe the threshold moved as low as £20k per year.

The NHS would be political suicide for the Tories though so I expect VAT to go up to 20% and large excise duty increases so reducing our spending power all in one go just as we see some 'green shoots'

@ Richard Blogger,

There's some mixing here between 'spending departments' and 'transfers' ie the NHS and Education are definitely 'spending departments,' but pensions, tax credits and housing benefits are simply shifting money from those who have the stuff to those who don't, via collections in tax and NI.

Social Security is further complicated by 'non-cash' (eg home visits - 'personal social services') and 'cash' (eg pensions, Job Seekers allowance, Attendance allowance, da-da-da).

But - you are right that Local Government will be hit. It's in the Conservative DNA. When they, at the last general election, produced their budget "keeping spending on the NHS, the police and whatever else equal to Labour's plans," I did an analysis and it was LG that was going to take a big hit.

Philip Stevens in the FT had taken a look, at the time, at the Conservatives' plans ; I emailed him my analysis and he replied that I should be a co-ordinator, or something like that, for Labour ....

The clue is in the spending departments (from here billions):

NHS 94
Pensions 63
Education 63
MOD 45
Local Government 37
Tax Credits 24
Housing benefit 17
Disability Benefit 16
DOT 15
Child benefit 11
Home Office 10
Income support 9
Pension credit 8

Look at the big spenders. Of course the Tories say that they won't touch the NHS. My guess is that that will be a promise that Osborne will break in his "emergency budget" (note the emotive language, it gives you a clue about what he is planning). If Cameron gets a large majority then broken promises are moot.

One area that I think will get cut savagely is local government. For a start, they will need to be put in their place, Cameron will not want to see parts of the country challenging his cuts agenda. Thatcher did the same thing, of course, and capped rate rises to force local authorities to toe the line.

Then there are pensions and benefits:

Pensions 63
Tax Credits 24
Housing benefit 17
Disability Benefit 16
Child benefit 11
Income support 9
Pension credit 8

We have already been told that we will have to retire later. But I reckon the rest of the 85bn above (and the other 17bn I've not listed) will be severely cut.

@Chris,

While your system makes owned capital "work" and if anything could theoretically act as a more potent driver to encourage the wealthy to work and increase their wealth. Of course they might shed the amount of property they own except where said property can actually sustain itself and justify itself economically.

There would be an increased interest in finding economies of scale that reduce the amount of property utilised which would then encourage businesses to use less. In the housing industry the buy to lease would be less profitable in the long term as rents would inevitably increase and they would price themselves out of the market, hopefully encouraging investment to move elsewhere lowering property prices and encouraging the young to purchase a property of their own.

There is a hell of a lot more and we could spend weeks dicussing the short and long-term implications to first, second and third parties Chris. There would obviously be losers in the short term but it certainly appears fairer for the many in the long term, additionaly discouraging large economic entites, but that is dependent of course on the specifics of the tax regime implimented.

@Thomas
"What's the difference between taxing income and taxing that which is bought with that income. Doesn't that deter people from earning in the same way as income tax?"

The difference is that an economy where unearned income and/or gains from privileged property rights is untaxed is typically unsustainable - particularly when combined with debt - whereas an economy where it is taxed is more likely to be sustainable.

The toxic combination of compounding debt and exclusive private property in land has for thousands of years led to wealth becoming unsustainably concentrated in too few hands.

The current iteration is merely the latest.

The Left have just the same blind spot in relation to property rights as the Right. They both assume that only Labour is 'productive', the Left because they actually believe it (following Marx), and the Right because to do so conveniently means that the property privileges that underpin Capital may then remain untaxed.

@ Chris Cook,

Seems like the 'opposition' has gone a bit quiet ....

By the by, one of the most obvious examples of rentier income is oil and Saudi Arabia. Production costs? Maybe three or four bucks a barrel, nowadays. Sales? a barrel or thereabouts presently.

Ah, the beauty of the rights of acquired property - a cornerstone of Conservative belief.

@George

You are missing the point, I think. I am certainly not defending New Labour, who totally swallowed the Kool Aid.

It's just that we can hardly expect more extreme exponents of the same bollocks Economics - ie the dominant Regressive strand of Toryism - to apply the correct remedies when their critique has always been that New Labour was not going far enough down the market road.

I'm reminded of the Tankie Left approach in 1983 when the line was that the problem for Labour was not Socialism, but that Socialism had not actually been tried and that people were crying out for it.

Interesting how Mr. Strauss-Kahn's prediction on unemployment was missed off this piece.

That it will continue to rise throughout 2010.

Still, I guess that's a price worth paying huh?

Reading about Greece's travails today, they are almost trapped in a compound debt spiral, Japan are close. The talk of a sovereign debt crisis would certainly not do the UK any good. Heaven forbid one country goes under, what would that do the money markets?

Is Brown that big and arrogant a gambler? He's gamble the entire UK economy on that?

Both economies have a burgeoning deficit, Greece is trying to finance 14% GDP deficit (wow, how similar), it has a big state to finance too (how uncanny); it also has a massive public sector pension deficit (spooky).

That is why excessive government borrowing is always a bad idea, you are a hostage to many competing fortunes, options are limited and none of the medicine is ever palatable.

The post is just the usual spin so easy to dismiss. We know what the IMF think about our "prudent" ex chancellor and we know that thanks to Brown the next government will need to make cuts that Thatcher would blush at.

I would ask where Labour are going to make the cuts? How are they going to halve the deficit in 4 years as enshrined in law if Brown gets his way? Is Alex against the cuts and tax rises coming in April? Is he for Public Sector spending falling off a cliff as it is now? (You know things are bad when all projects in the NHS over £100 need to go to tender!)

And then the tax bombshell.

Just think Alex - just as people get the wage packets for the first time since the April tax grab they will be voting in a GE. Sure people, especially the poor will be delighted and swarm back to Labour as a result.

What I find most worrying though are the comments below. Enough to drive most people away from Labour for good if any of these ideas were put as actual policy. That the same people have the audacity to complain about voodoo economics and then spout such nonsense is laughable.

@Sam

"In which case I'd be very interested to know where you think people should live as you seem to be calling for the demise of all privately-owned dwellings."

Far from it.

I have written and argued here ad infinitum in favour of a tax on the rental value attributable to land/location - as opposed to that attributable to private investment in a location, which should not be taxed.

Such a tax on location rental value raises around 35% of tax in Hong Kong, and until recently c30% of tax in Denmark. These taxes would otherwise have fallen on earned income, which I disagree with.

@Mark

A rentier receives rent by way of unearned income or gains from privileged property rights. It may well be a term that has fallen out of use, but I think that it is long overdue a renaissance.

To distinguish income as between a productive Public and Private enterprise sector and an unproductive rentier sector is infinitely more appropriate than the ludicrous - and Orwellian - distinction between Private = productive and Public = unproductive definition beloved of the Greed Tendency.

Gordon Brown introduced a quite sensible approach to 'capital gains' in which people who built up & sold their own business were essentially taxed 10% (cf 40% under the Tories) & those who speculated on the stock market, had 2nd homes etc paid around 40% (I'm oversimplifying a bit). Unfortunately this was abolished in the name of 'simplicity' by Darling so now everyone pays 18% on their gain - whether they are 'socially useful' or just speculators.

It was interesting that entrepreneurs had to wait for a Labour government for a significant tax break. Presumably Tory grandees thought that such people were smelly little men who couldn't be invited for a weekend in the country.

@Mark

An excellent piece of total obfuscation.

The wealth of this country, has once again become concentrated in very few hands. Different hands compared to 150 years ago, I grant you - although many of the landed aristocracy are still pretty 'landed'.

But don't take my word for it.....

In the past decade, the gap between the richest and the poorest got wider. Indeed, inequality is now at a record high. The very poorest in our society got poorer and there are more of them. The incomes of the bottom ten percent actually fell by £6 per week between 2002 and 2008 before housing costs, and £9 per week after housing costs.

....that was, of course, that well known pinko subversive David Cameron, just a few days ago.

You are - like the other apologists for the Greed Tendency who patrol this site - attempting to defend the indefensible.

Can you justify why you, or anyone else, should not be taxed on the unearned income or gains you receive from the privileged property rights society confers upon you?

Mark,

Just as Tesco 'raises' money from the private sector. Where do you think Tesco gets its money from to provide the goods and services that it does? From individuals spending their money at Tesco.

Put it this way : if an employee of the Acme Widget company decides to shop at Tesco, you would not dream of saying that the Acme Widget Company generates the money to pay for Tesco - but that is exactly what happens, in a million and more different suppliers of a huge variety of 'economic output'

Now, of course, everyone in the country cannot be employed by the state as a doctor/nurse/teacher - in no particular order of need, we need water, food, a roof over our heads, wood for the fire in winter and clothing to survive at a subsistence level.

In our present state of 'life as we know it', we also need and want, as appropriate, electricity, gas, cars, telephones, doctors, nurses, teachers, motorways, railways, Twitters, LabourList .... I hope you get my drift.

In theory, everyone can be employed by the state to provide the goods and services that people consume - in practice, well, that's another story ....

@Chris Cook

You're point about rentiers deriving income from property, knowledge and other streams seems odd. You say that the appriopriate source of most taxation should be from this source. It seems to me that these income bringing sources will be for the most part bought using taxed income.

What's the difference between taxing income and taxing that which is bought with that income. Doesn't that deter people from earning in the same way as income tax?

IMO there needs to be a completely different structure of our economy. Income tax comes in at a far too low level of income. Inheritence tax is no longer levied on the very rich alone but also on those who bought a house 20 years ago and now own it outright - we're not talking about wealthy people. Private Equity companies and executives make massive profits by taking on massive leverage and don't need to improve the target company at all to profit (assuming a rising equity market). We have social mobility lower than a generation ago. We have no manufacturing base on which to build a successful economy. These are all things that need changing.

There needs to be a new approach to ownership. Shareholders do not have nearly enough power. It is their capital at risk after all. The owners of private companies have total control and yet shareholders have virtually no say in management decisions.

The most pressing problem is a problem of banks. We have a situation where the public own 40% of LloydsHBOS and more of RBS and

@Bill

Great. You understand that shareholders don't earn their dividends or gains.

Ever heard of a landlord? Tenants pay rent to landlords - or didn't you know?

I'm not saying that all such unearned income should be expropriated - which you seem to think. Mugabe Land Grab here we come, eh?

My point is that people who benefit from economic 'rents' from privilege should be taxed in respect of their unearned income or gains.

What's your problem with that? Do you actually prefer being taxed on your earned income?

Chris - I seem to recall that it was our New Labour government who were the friends of the bankers - literally in some cases. And they had no misgivings whatsoever about what the banks were doing, because their activitoes appeared to show that our economy was growing; for which the government claimed the credit. But as we all know - and many of us knew long before - it was all a mirage built on sand.

But, unlike the Tories, the governemnt were in a position to stop it by regulation and legislation - what are governents for? But they didn't, either through incompetance, or because they hoped it would go on for long enough for them to leave office so they could blame the Tories when it did all fall apart.

You can fool some of the people some of the time .... But Gordon Brown has fooled us long enough.

Sounds clever, Peter, but at present expenditure does not equal income.

More seriously, the government spends money. It has to raise the money which it spends. It does not raise new money from its own expenditure, but from the private sector.

Put more simply, if everyone in this country was employed by the state as either a doctor, nurse or teacher, where would the money come to pay them?

Mark,

"If all that happened in this country was the National Health Service and public education, where would the money to pay for it come from?"

Exactly from the same place as if all of health service and education provision was privately provided - from aggregate income.

All money does (in this context, at least) is provide a medium of exchange for all the goods and services that we, in aggregate, produce. It is immaterial, in economic terms, whether the goods and services are provided by the private or public sector.

"Output = expenditure = income."

@Chris Cook
Apart from the frustration caused to , I imagine, just about everybody by your use of a term which means nothing to most people, you have yet to explain who these "rentiers" are. I think you'll find that the bulk of equities are directly or indirectly held by the people who will provide my (and your) meagre pensions. If there really are individuals who live entirely on the dividends from investments, will you be paying them in times like these when there is no dividend and the value of their holdings falls? Or are you just really a communaire kleptocrat?

I wonder when the Tories will tell us how they are going to cut the deficit quickly (in detail, not just macho noises). Probably after the election, if they can get away with it.

Just what are they going to cut to meet their targets? And what tax rises will be necessary (VAT at 25%?).

@ Ian Robathan,

"Of the defecit which is reckoned to be around £180bn this year, how much of this defecit is account for by the banks ?"

Ian, I can't speak for the whole year fiscal 2009/10, but the answer looks like, "Not very much."

At the end of 2008 Q4, net debt was £733 billion in total, of which £140 billion was in 'financial sector interventions.'

At the end of 2009 Q3, net debt was £823 billion, of which £142 billion was in 'financial sector interventions' ie just another £2 billion went the banks' way.

Source : ONS : Table PSF1 'Public Sector Summary Balances' refers.

Of the £142 billion spent so far on 'propping up the banks', £100 was incurred in 2007 Q4, following the collapse of Northern Rock, and £40 billion in calendar 2008.

I would not be surprised if total borrowing is slightly less than forecast come the end of the current fiscal year ....

You can be sure that when the original £175 billion was forecast in Budget 2009, HM Treasury threw everything in, including the proverbial kitchen sink (they'd have been incompetent not to have done so). It depends on how their assumptions have worked out ....

Unemployment seems to be stabilising at present (which may mean less benefits payable than assumed) and equities have increased dramatically since the spring (provided trading volumes have held up, more stamp duty lolly). We can only wait and see ....

A rentier is someone whose income comes from investment and therefore does not have to work. Chris is living in the nineteenth century.

Chris,

I make no such assumption: someone on benefits will pay tax when they buy cigarettes or alcohol (as well as when they buy their own clothes, rather than clothes for their children) for example. But this does not really generate new money for the government: it is just the government getting the same money back.

On the wider question which you raise, there is nothing humble about your opinion, but it is completely wrong.

The old rentier class was killed off by inflation in the last century: if your money was in gilts you were stuffed.

Most shares in quoted companies are now owned by pension funds and other vehicles for the pooled investments of ordinary people.

There are some today who have put aside money from taxed income to provide income for their retirement. At present most of them are suffering from low interest rates and poor investment returns. The value of my private pension fund (no public sector gold plating for me, alas) fell by one third in 2007-8.

If you have capital these days you can (i) put it in a sock under the bed; (ii) invest in shares or property; (iii) put it in a bank; (iv) lend it to the government.

Your view that rentiers "own the system" raises two questions. The first is who you class as rentiers. The second is what you mean by "the system". But given that we have universal adult suffrage, I would have thought that on any view of the former, you are wrong.

Chris Cook: I'm not sure who or what you are referring to exactly. But if by "rentiers" you mean people who gain an income from renting a property then I can categorically assure you that rental income is taxed at the taxpayer's highest rate. You must have meant something different as anyone who has ever filed a tax return knows that tax has to be paid on ALL income.

Interesting view though. I assume you also disapprove of people who have gained income from owning and selling their houses.

In which case I'd be very interested to know where you think people should live as you seem to be calling for the demise of all privately-owned dwellings.

@Alan M

This is a joke of course.

The credit crisis was directly caused by the private financial sector, and the Tories were not only cheering this financial madness to the echo, but whenever anyone in government had the slightest misgivings the Tories instantly accused them of selling the City short.

The Tory remedies plastered over ConservativeHome are quite bonkers Voodoo economics.

@Mark
You assume that tax must necessarily come from earned income.

The appropriate source of most taxation is IMHO the unearned income or gains which rentiers derive from their privileges of private property over land, knowledge and non-renewable resources (among others), and limitation of liability.

There is nothing whatever productive about rentiers - rather the reverse - they are in fact a drain on the productive public and private sectors. In a fair fiscal system taxation would be levied largely upon them, with little, if any taxation of earned income. Since rentiers own the system, such a transition is politically impossible.

But Peter, what he said is spot on and I would imagine the politicans also believe this, certainly labour supporters would.

Steph Flanders blog is on this exact point

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/11/tories_tweaking_their_message.html

and clearly as we know the Tories are in a bit of a mess.

But can anyone clear this up for me.

Of the defecit which is reckoned to be around £180bn this year, how much of this defecit is account for by the banks ?

how much by the normal spending of the govenrment, NHS, benefits etc. ?

What I am trying to say is IF the economy picks up and the banks get more and more capitial stable then would we not start to see an inflow of funds ?

so is this year just a one off ?

Alex, Pity you left out the qualifier on bail outs from Dr Strauss - Kahn:

"Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.

"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates.

"I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future," he said."

I am continuously astonished by those who believe that Labour, having taken us into this crisis, and exacerbating this crisis, and creating a Zimbabwesque economy of printing money to fill the spending gap, with a deficit bigger than that at the end of the second world war. Is the right bunch to fix the problem - it is akin to letting the person who crashed your car fix it... Nonsensical.

Peter,

If all that happened in this country was the National Health Service and public education, where would the money to pay for it come from?

The public sector is financed by taxes (and, these days, on the never never) and, the money has to come from outside the public sector - the income tax and NI paid by NHS employees does not generate money for the public sector, it merely reduces the net cost of those employees.

If an operation is carried out in the private sector, then the organisation which carries it out (or the insurer which funds it) will receive money from the patient (from taxed income) which will pay for the employees (who will pay income tax and NI) and may even generate a profit (which will be subject to capital gains tax). This generates money to pay for the public sector.

If an operation is carried out by the NHS, then the total cost is paid out of taxation. The carrying out of the operation does not generate tax revenue.

I would agree that paying NHS employees will generate some tax: they will pay VAT, excise duty etc and even when they spend their money on items such as books or children's clothes (which are not subject to VAT), they will be doing so in the private sector and so helping to generate tax from that sector.

Mark,

"In the end, it is the private sector which generates the money to pay for the public sector"

Mark, this is an economic fallacy. Think ....

If you pay BUPA insurance premiums, and have your appendix taken out - what's the difference (in economic terms) between your neighbour paying tax and having his appendix taken out?

Absolutely none. Same service (removal of appendix), quite possibly performed by the same saw-bones, to the same standard.

Not all government spending is part of a "fiscal stimulus". Therefore you can cut government spending without cutting the fiscal stimulus. It a classic, and classically false, Brown dividing line to say that those in favour of reining in government spending asap are against any fiscal stimulus.

Meanwhile, government borrowing makes it harder and more expensive for the private sector to borrow (you try borrowing from your bank at 0.5% pa) and the need to raise taxes (eg the proposed hike in national insurance contributions) increases the burden on the private sector. In the end, it is the private sector which generates the money to pay for the public sector (even if it does so by employing those educated in the public sector, private sector employees are treated on the NHS etc etc).

Hi Ian

I have not made my mind up on trident ( so could be persuded either way) , What i am worried about is that we have the leadership making more promises that they know they cany keep , This leads onto wastage and effincey savings , If they are to do them now why not in the good years? The PBR will be one of two things , A report on whats good for the country or one that is good for Mr Brown , And no doubt some of it will unravel within hours (like the 10p tax and the new promise of free social care,Funded by cuts to benifits for the disabled) , Afetr Mr Blair left office i was hoping for change but i have servely disapointed.

ricki

Tory voodoo economic policy is barking mad, and is their Achilles Heel.

It is disingenious to suggest Ricki that there would be no cuts, there has to be.

So has growth comes, tax revenues rise the defecit will naturally decline, so from that point of view it will decline, the big question between the two is how quick and how harsh. I believe it can be managed through natural wastage and the cancellation of projects like trident.

but we have no answers, yet, but the PBR in a couple of weeks will give us a very good clue to our thinking.

So this would be the same IMF that told Brown repeatedly from 2002 to 2008 that our asset prices were ridiculously over-valued, consumer debt was out of control, government deficits during a boom were a mistake and our housing market was unsustainable?

And Brown chose to ignore them then didn't he?

As for fiscal stimulus, the VAT cut was also widely derided as a waste of tax money and also as a percentage of GDP, it was woefully inadequate.

Yet fiscal stimulus like, say, a 10p income tax rate were abolished.

Every other G8 country is out of recession, except us. Instead of the spectre of deflation which never happened yet was spun straight from the Treasury we now face the prospect of stagflation.

The budget deficit is heading into new and very scary territory, the US, Germany, Japan and even France can export their way out of debt.

What can we do in the UK? Nothing, we are a hostage to the money markets now. That is absolutely nothing to be proud of.

Still, I'm sure too that the 1.5m people Labour have put out of work over the last 18 months can take comfort from Mr. Strauss-Kahn's warm words.

Hi Ian

Mr Brown has said we will halve the deficit in 4 years , We are already attacking the poor (welfare reforms) , How is Mr Brown going to halve defict ? what will they cut? At the moment the poor have no party in parliment tovote for , It Red torys or blue torys ?

ricki

I am still struggling to see how the Tories can bring down the defecit 'as quick as possible' without massive front line service cuts, with less than 8 months to an election the fact they are too scared to tell us exactly how should worry everyone who believes that society is there to look after the poor and needy.

and I am not sure how chucking tens of thousand's out on the dole helps recovery ?

Well said, Strauss-Kahn.

The IMF is going through a very sensible phase.

They also said recently that:

“during recessions associated with financial crises, fiscal policy tends to have a more significant impact, which is consistent with other studies that find that fiscal policy is more effective when economic agents face tighter liquidity constraints. The lack of a statistically significant effect from monetary policy during financial crises could be a result of the stress experienced by the financial sector, which hampers the effectiveness of the interest-rate and bank-lending channels of the transmission mechanism of monetary policy”

In total contrast to Tory claims that we should tighten fiscal policy to allow monetary policy more room for action.

Hi Labourlist

This is the same IMF that warned about our debt and housing boom that Mr Brown igonored from 2003 onwards , Whatever the leadership say it will be the poor who pay for the bankers and there political masters , But the leadership contunie to suck up to bankers and there friends and the poor will be worse off , Until the poor have representtation in parliment then the bankers and there politcal masters will stay on the gravy train at the expenses of the poor .

ricki