Starmer made another speech on economics on Monday 25th July. It is reported in the Guardian.
Starmer has been trying to pitch Labour as the party of fiscal prudence and will say: “With me and with Rachel Reeves [the shadow chancellor], you will always get sound finances; careful spending; strong, secure and fair growth. There will be no magic-money-tree economics with us.”
From the Guardian,
This article looks at growth and debt, Starmer and Reeves flirtation with Osbornomics and Reeves' rejection of nationalisation on the grounds of cost, I note countervailing views from Murray and Long Bailey and note that Reeves places herself in the sad queue of shadow chancellors undermining Labour's election chances by 'telling the truth'. There's more overleaf ...
Phil Burton Cartledge analyses the political platforms and accountabilities of the Tory wanabee leaders and their fetish with reducing tax by which they mean corporation tax. The FT reports on business’s response to the proposal, which is lukewarm. They point out that only businesses that make a profit pay corporation tax and that for a business of any complexity[1] and with decent accountants, corporation tax is voluntary. The FT article calls for broader support including demand stimulation albeit through tax cuts, but importantly they raise the issue of VAT on energy (but they pay that too) and also investment incentives. VAT at 20% is ridiculous and the Govt. should reduce it; it can now we are out of the EU.
Phil talks about the conflicts in Johnson’s electoral coalition and the victory of the rentier capitalists in gutting any meaningful levelling up programmes, which have been reduced to crude electoral bribes. This is a long-term trend. We used to call it Regional Policy and I looked at New Labour’s failure to put this right; they were driven by unproven meso-economic theories and then polluted the programme with concerns about welfare to work and regional assemblies.
I should add that another cause of the failure of a levelling up programme is the loss of EU funds. While business is arguing for re-joining the R&D fund, Horizon Europe[2], some local authorities are now lamenting the losses of the European Regional Development Fund & European Social Fund. This was worth about €4bn[3] p.a. to the UK. The UK Government has never it seems been particularly good at getting EU money for business and people and yet the UK has many of the poorest areas Northern Europe.
It’s another necessary dimension of the ‘closest possible’ relationship. The regional programmes were first launched on the UK’s accession to the EU as a means of reducing the UK’s net contribution to the EU. It seems we’re missing them now.
[1] This does exclude most patron personal services companies so perhaps the policy is designed for them.
[2] Horizon Europe has rules that create an enhanced ‘multiplier’ effect.
The Govt renewed its list of universities which act as gateways to the High Potential Individual Visa route; graduates from approved top universities can apply to enter the UK. The list is published on the Govt web site; there’s been much comment this time round that there are no African Universities on the list but then there are no Latin American Universities nor Asian Universities apart from the pacific rim. The Govt claim to have used two other lists to construct their list; I have examined the QS index, partly because it’s easy to find and partly because I have looked at it before albeit nearly 13 years ago.
What’s startling is the number of PacRim countries now in the top 50, in 2007, there were very few, in 2021, there are many more. This should not be a surprise as the purpose of the QS index was to allow the Chinese state to plan its university programmes to support their investment led growth plans. We should also note that the QS index is/was biased towards English speaking universities.
Top 60 Universities by Region according to QS
There are no Latin American Universities in the Top 50, nor any African. The only Asian universities in this list are on the Pacific Rim, so none from the Indian subcontinent. The top Indian university is the Bombay Institute of Technology (177) and the top African university is the University of Capetown (226). The European figures (15) include 8 from the UK, and two from France, Switzerland and the Netherlands and one from Germany; the last figure surprises me, I would have thought they’d have more, but it could be as a result of the index methodology, although Switzerland has two institutes in the top 50. China has more in the top 60, than the UK and the EU. The HMG list includes the Karolinska Institute of Sweden, which I cannot find on the QS Index, but it claims 7th. The HMG List includes two US universities not in the top 60, but they claim to have sourced their list from multiple sources.
I would need to think harder about the impact of this route to entry to the country; the focus on the top 60 is clearly discriminatory as is most of the UK’s immigration law. This has even been confirmed by a leaked Home Office report. I predict someone is going to get into a lot of trouble for letting those words stay in the report!
The big and most important conclusion from examining these lists is that China is catching up, it has nine universities in the top 57, of which four are in Hong Kong. We can also note that the EU’s footprint in the top 50 is far lower than it once was as it was overly reliant on the UK’s universities.
Here’s my spreadsheet which contains my versions of the two tables, and several pivot tables and charts. …
This needs to reported; the UK Government, is postponing the introduction on import checks on goods arriving from the EU. The announcement was made by the Minister for Brexit Opportunities Rees-Mogg. It is reported in the Guardian with the following comment,
You read that right. Jacob Rees-Mogg, arch-leaver and longtime loather of the EU, is now parroting lines from the remain campaign. He is admitting that implementing Brexit in full, honouring the 2016 promise to take back control of Britain’s borders, would be “an act of self-harm”.There’s plenty to attack here, starting with the nerve of hailing this move as “saving” Britons £1bn, when this was £1bn that Britons would never have had to spend at all if it hadn’t been for Brexit. Or you could share the outrage of British farmers, appalled that, thanks to Brexit, they have been left at a serious competitive disadvantage: they now face onerous and costly checks when they ship their goods across the Channel, while French, Italian or Spanish farmers face no such hassle moving their products in the other direction. Or you could worry along with the British Veterinary Association, which warns that not checking food imports leaves Britain exposed to “catastrophic” animal diseases such as African swine fever – a risk that was reduced when Britain was part of “the EU’s integrated and highly responsive surveillance systems”. Or you could join the lament of the UK Major Ports Group, whose members have spent hundreds of millions of pounds building checking facilities, which now stand unused as “bespoke white elephants”.
Jonathan Frredland – TheGuardian
The BBC also report with a comment from Faisal Islam, their economics editor, although they find a quote to illustrate the benefits, or at least the avoidance of further harm. This is the fourth postponement. The critical politics is that this Government, things that the customs checks are a harm.
Luke Cooper of Another Europe, in an article on Brexit Spotlight also highlights the announcement and concludes with,
This is why the Rees-Mogg announcement shows that the game is up for the British exit from the single market. … This [the asymmetric checking system] is self-evidently unsustainable. If the most nationalistic government in recent British history is not able to fully extricate the country from the European market, then it simply isn’t possible. The question now is when – not if – Britain re-joins the single market.
Luke Cooper – Another Europe
At the beginning of the year, I thought that the critical failure of exit from the single market would be in Northern Ireland but maybe not; the new lorry park in Kent is another pressure point and a number of EU exporters were just giving up on the UK as a market. …
I wrote a short piece on the potential need for the EU to acquire direct taxation powers which led to me checking how much the UK government raised from income based taxes vs. VAT. The article reproduced some charts from Parliament but I was surprised to discover how low a share of government revenue it now represented. The article was written after the budget, which had not really made an impact in my consciousness; it just seemed ‘meh’ to me. It is however yet another turning of the screw in a largely successful attempt to make the working classes pay for the crisis in national income and wealth facing this country.
[He can ] deliver a spring statement – AKA a seismic budget in any other year – that offers nothing to the poorest and most vulnerable members of society while sobbing on their behalf. Who can tell the chamber with a straight face that he is committed to cutting taxes even when the Office of Budget Responsibility is saying that the tax burden is set to go up to 36.3% by 2026: the highest level since the 1940s.
Critics of UK chancellor’s spring statement say it prioritises debt reduction and fails to provide support to lower-income households
Philip Inman
This despite the sub-headline concentrates on the macro-economics, reflecting the argument that since the Govt has borrowed on variable interest rate bonds, as inflation kicks in, they argue they need more money to service the debt. The article concludes by observing that inflation may fall, that soaring energy costs are a drag on prosperity, and that the real reason for increasing tax revenues is to be able to give it back in the run-up to an election.
Despite being under pressure to minimise the effects of the cost of living crisis, driven by Brexit and energy cost inflation and help households across the country who are being forced into poverty, all the budget did was announce a cut on fuel duty, Labour are asking for a VAT cut on energy bills, although instructing Ofgem to implement a price cap would be more effective. He also raised the threshold at which people start to pay National Insurance, which is a means of alleviating the fiscal drag created by freezing the tax free allowance.
From Inman’s article, I also note that Sunak has frozen the income tax free relief for the next four years, together with the IHT limits. The effect of this is that before, people could expect the tax free allowance to rise in accordance with inflation, giving them small amounts of extra disposable income, even if they did not get a pay rise. This has now gone. It will also have the effect of raising the share of income tax paid by the low paid.
He also, in contradiction, to the Tories election promise suspended the pension link with earnings for 2022/23 although he claims to be willing to reintroduce it next year. He has also cut the amount the poorest in our society get by clawing back the uplift paid in 2019-2021.
My segue into this piece was the low proportion of government income attributed to Income Tax vs VAT. The House of Commons Library produced a report called, Tax Statistics: an overview, and my previous article reproduces some charts from it while making the point that treating NI as separate category minimises the impact of employee contributions, which are levied at 12% until one begins to pay higher rate tax and allows Income Tax to be described as more progressive than it is. NIC’s also are paid by employer’s and so clarity on corporate contribution to the exchequer is also reduced.
from the HoC Library Report : Open Parliament Licence v3.0.
VAT is 20%, for the less well paid more than they pay from Income Tax. This needs to be rebalanced.
I finish with Statista’s charting of the Gini Coefficient over time., which measures the level of income inequality in our society,
Statista UK Gini Coefficient over time , used under Statista Terms of Use
We have the lowest social security net in Europe, the lowest pensions and amongst the most strongly regulated Unions. Something’s got to give. …
I was considering the EU’s NextGenerationEU and the idea that this was the tipping point into a fiscal union. I am not sure because the EU’s tax raising powers are as pre 16th Amendment United States; it cannot tax people or companies. This led me to consider the proportion of Govt. income rasied through income tax and other sources. This is a blog in two part, the first on the EU & the 16th amendment, the second on UK income tax and income equality. I comment on direct taxes and and the 16th by writing the following,
While looking at EU common tax policy, I thought about the need of the US to pass a constitutional amendment to allow federal direct taxation since previously the US required direct taxes to be apportioned to the States. The amendment is the 16th, and was designed to permit Income Tax an overcome a Supreme Court ruling which prohibited it; which came in two years later and has never been repealed. The Constitution Center has a review of the amendment arguing that the 16th only authorises income tax and the court has for instance constrained capital gains taxes. The Atlantic, also comments although the latter is more a history.
Dave Levy
The obvious development of income tax within the US led me to have a look at just how much of the UK Govt’s income is raised through income tax, the most progressive tax we have. The House of Commons Library has described the 2020/21 tax revenue sources, it seems that they’re no longer posting it out to everyone.
from the HoC Library Report : Open Parliament Licence v3.0.
The report landing page also has a chart showing the proportion by source over time, and its remarkably consistent. I also note that Income Tax is separated from NI and while some NI is paid by the employer most is paid by the employee. The Govt gets 43% of its income from these two sources and on top of this charges 20% of what one spends. There is also a compulsory private sector pensions levy on workers too, which does not appear in this chart. No wonder the low paid are struggling.
made by Dave Levy, from the HoC Library Report : Open Parliament Licence v3.0.
The separation of NI from Income Tax also permits them to claim that “The 10% of income taxpayers with the largest incomes contribute over 60% of income tax receipts”.
This was published on the London 4 Europe web site, arguing that the Euro and “Banking Union” are potential political obstacles to rejoining. I just observe that the author has not caught up with the change in macro-economic management, the Stability and Growth Pact has serious credibility problems given the numerous breaches. We can hope that with a new coloured government in Germany the deficit fetishism of the EU will be weakened. Secondly, banking regulation is global and emanates from the G7 and BIS in Basel. The EU has little room for manoeuvre, although of course, should it be in a position to join BIS that would change things. This is an article designed to show how clever the author is and fails in that goal.
The ECB, Frankfurt CC DFL 2011 BY-SA
I note the article focuses on Sweden, which has agreed to adopt the Euro and not Denmark which has an opt-out. When we get to negotiating re-entry, the size of the UK economy and the sterling zone will be issues which may lead to us being given an opt-out or a Swedish deal, although I was interested to note that Nordea, Sweden’s largest bank has moved to Finland to locate in the Eurozone.
A serious analysis will come later, when both parties need an answer dealing with transaction volume, prudential regulation and fundamentally macro-economic policy. Let’s note that we had an opt-out of the compliance clauses of the SGP, we doubt we’ll be getting that back.
Macro-economics will be a problem if we have a left led Labour Govt., that wanted to pursue a policy of full employment but more importantly will be the need to meet the democracy criterion of the Copenhagen Criteria, where parliamentary sovereignty, the House of Lords and first past the post together may be seen as obstacles. Starmer’s Labour lacks the will to confront the issue of rejoining the EU but would probably welcome the shackles of today’s Stability and Growth pact. Actually, the Stability & Growth Pact is a serious barrier to rejoining for the Left; perhaps the sterling zone will save us from that too. …
A twitter correspondent posted a chart on European electricity prices, showing the UK as significantly more expensive. Is this legacy Thatherism, or Brexshite? Bit of both it would seem. There's more below/overleaf ...
The article is written by, Wendy Bradley, assistant professor of strategy, entrepreneurship, and business economics at Southern Methodist University’s Cox School of Business, and Julian Kolev, an economist at the United States Patent and Trademark Office. The article describes their methodology, and links to their paper. They define the launching of Bittorent as a shock and examine the intellectual property development of vulnerable companies to that shock.
“When comparing the IP strategies of software firms at risk of piracy (the treatment group) against those of not-at-risk firms (the control group), we find that our treatment group significantly increases its innovative activity after the piracy shock in terms of R&D expenditures and granted copyright, trademark, and patent applications,”
Bradley & Kolev – Software Piracy and IP Management Practices: Strategic Responses to Product-Market Imitation (August 2021)
Interestingly it seems, that Entertainment software companies behave differently. although the academic work done, as quoted in the article does not suggest that piracy reduces the supply of content.
Basically the big software firms use their superior cost structures, achieved by size and source code ownership to increase the rate of innovation to keep their customers coming to them. The entertainment companies don’t. I don’t think they look at the size and cost of investment into regulatory barriers to entry, both buying the laws they want, and pursuing newly created malefactors.
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