Wednesday, June 10, 2009

The effects of a terrible budget...

Today, I am going to drift off our usual fitness related topic a little......I recently was having a conversation with a friend of mine about the recent budget and increases in income tax that were brought in by our embattled chancellor and it was interesting to hear how our opinions differed. He was impassive about the tax raises and feels that those who earn more should pay a lot more...I don't disagree entirely, but I don't believe further increases in income tax are the way forward.

While to many it may seem that raising the income tax of those high earners - many of whom reside in London - is a popular move, I am not so sure it is a good idea, particularly where small businesses are concerned. Many people may feel that this raise won't affect them as it is targeted as those high-end earners, however I do not believe that this tax raise truly benefits the wider economy or does anything to increase spending confidence.

Higher earners create wealth, that is the fact. They spend money in businesses all over the capital and in doing so create jobs for others. Taxing them at source with an income tax rate higher than the U.S, France, and Germany, does nothing for businesses - although it does add a few extra quid to the government pool to spend - perhaps a new moat or flatscreen tv for an MP instead?

Removing money from peoples pockets before they have a chance to actually spend it will do nothing to stimulate growth, in fact it just reduces spending confidence and frustrates the efforts of small businesses who are working their hardest on trying to gain new business. So, what do we do instead to raise revenue? Well, why not tax higher earners at the point where they spend their money rather than before they have spent it? That way people can CHOOSE where to spend their cash, increasing their disposable income, which in turn gets spent in businesses, thereby stimulating growth and employment.

So, we are effectively talking about a form of graduated sales taxation. For example, if you spend £150,000 on a new Ferrari then you would pay a higher rate of 'luxury' tax than if you were spending £6000 on a small eco-friendly car (where you could also benefit from a small cashback and low-cost road fund licence). Would a few thousand extra really bother someone who is prepared to spend that kind of money on a car anyway?

Now, I must supply the large caveat here that I am no economist or expert, and although I might have read Vince Cable's latest book on the topic, I am not saying this is the ideal solution. However, I am already seeing the effect of higher income taxation, in higher earners cutting back on their expenditure, the knock-on effect of which is reduced income to business and cuts in jobs.

I was reading an interview in the Times this weekend with the property entrepreneur Nick Leslau and it was interesting to read his opinions, which you won't be surprised to learn echo my own (perhaps he overheard me chatting to someone....?). His thoughts are that removing wealth creators from the business climate does nothing to stimulate growth - very true if you ask me, and particularly so here in London.

Today, I have been on Radio 5 talking about the tube strike. Personally, I think the Stones said it best "you can't always get what you want" and maybe the tube drivers would do well to look at the many private businesses and individuals who pay the extortionate travel prices here in London - Europe's most expensive city to travel in - and count themselves lucky they still have a job. Many, many people face reductions in hours, pay freezes, and long-term job insecurity - it is hardly likely that any of them will empathise with the RMT's decision. It still seems unclear as to what happened as according to the union leader, deals over pay and redundancies had been successfully brokered, only to be pulled at the last minute by, well we aren't very sure who! The RMT seem to be blaming the mayor in some kind of conspiracy theory, perhaps suggesting he deliberately scuppered the deal. Let's hope that this mess gets sorted and we can all get back to trying to pull us out of this recession.

1 comment:

Liska said...

I made Aegis a wordle: