Tuesday, August 29, 2006

Bush tax cuts

Human Events explain how those Bush tax cuts meant the revenues came pouring in. Big time. Something for both Dave and Gordon to read and learn.

A song for Dave?

Try this cheery little number from New Zealand

Big City Law firms

Some organisation of second rate professionals published a report today on the experiences of homosexuals in law firms. Most entertaining is the claim reported in the papers that solicitors regular attendance at both strip clubs and rugby games was somehow homophobic, when the former is only really a sign of having more money than either taste or sense. In my many dealings with city law firms I have noted the machismo, but only from female lawyers. Although obviously not from the bird at Herbert Smith who sort of fancies me.

The TaxCutter recommends that the Law Society spends its time on more useful matters, such as informing its members as to how to add value, ending the closed shop practices - especially at the Bar, and teaching its membership rudimentary maths and the concept of materiality.

Monday, August 28, 2006

Guardian gives the green light for cutting stamp duty on shares

The pledge to abolish stamp duty on shares passed its first test today when Manchester Guardian attacked the proposal with its usual ignorance of the financial world. The Guardian's comments are of course in red

"The awkwardness of the party's stance - promising to put economic stability above cuts, and to focus on helping the poorest in society" - the policy most helps anyone with a pension. Anything to encourage the low level of pensions savings, especially among low to medium earners should be highly welcomed.

"Treasury sources said cutting stamp duty would primarily benefit the wealthy." In proportionate terms it most helps those planning to make contributions into their pension funds and other long-term savings. All too predictably, the Guardian ignores the fact that measures that increase the UK's competitiveness generally translate into more jobs, and better paid jobs at that.

"The people who benefit directly [from axing stamp duty] will be merchant bankers and traders. Think what you could do with the £4bn it will cost." The Guardian won't let research or basic knowledge of city finance get in the way of its polemics. The biggest payers are Pension Funds and Life Assurers. Merchant bankers arrange the sale of shares, they don't pay for them. Stamp Duty is usually passed onto the ultimate holder of the shares, banks holdings of equities are actually relatively small.

If the Guardian wanted to make its outdated socialism more accurate it should have mentioned that since Gordon Prudence Brown ended dividend tax credits, and hence made debt more attractive post-tax than equity, then UK investors have invested more in debt. Compared to 1997, a notably higher percentage of UK shares are held by overseas investors, they will benefit from this policy, and are likely to increase their investment in the UK as a consequence.

Sunday, August 27, 2006

Ending Stamp Duty on Shares

Today's Telegraph showed that the Conservatives will cut Stamp duty on shares. It won't win many votes directly, cutting income taxes will do that best. However, its a well-thought through policy for the health of the country that will greatly assist in convincing the public that only the Tories can handle the economy. Here's some of the benefits
  1. It will provide a boost to individual's long term savings in pension funds and life assurance policies . Pension Funds, Life Assurers and ISAs are the largest payers of stamp duty on shares - so the burden most falls on the long term savings of your typical voter. The cut will assist in reducing the long-term savings gap, the biggest structural flaw in the nation's accounts.
  2. This policy will make the UK more competitive on an international basis. The Netherlands has just announced the abolition of its own capital duty.
  3. It removes a market distortion between debt and equity investment. Buying and selling debt carries no stamp duty, selling equities/shares does. There's no logic for this distortion, indeed regulators and rating agencies would normally prefer equity investment
  4. Raising revenue in other forms, not necessary to my mind, would increase economic stability. Revenues from stamp duty on shares are highly volatile, being £4.5bn in 2000-01 and dropping to £2.5bn in 2002-03/2003-04.
  5. Upfront taxes on capital hurt more than taxes on profit. Stamp duty is effectively charged when payments are made into a Pension Fund, which are then used to buy shares. Hence the tax penalises pensions from day one to final receipt of annuity, as it prevents the accretion of return on the amount of stamp duty paid, ab initio
  6. The City, pension funds, banks, life assurers and corporates in general would be liberated from the administrative hassles of stamp duty, and especially Stamp Duty Reserve Tax
  7. It will Fulfill a broken promise of the 1992 Conservatives General Election Manifesto

Grave Diggers

The good work of SeadogBytes is shown in this post

Monday, August 14, 2006

The Lib Dem Stealth Tax Commission: The Findings

Review of the Lib Dem Tax Commission Paper “Fairer, Simpler, Greener” or more appropriately “Stealthier, Stealthier, Stealthier

Overall, this is an uninspiring document. The LibDems have wasted the opportunity to come up with substantial and good tax reforms, especially for business.

A number of the measures, not least in relation to capital gains and pensions are potentially very harmful, and the better measures are in nearly all cases contradicted by corresponding bad measures. In that sneaky LibDem way, a number of the taxraising measures are strongly of the stealth tax flavour, eg increased Vehicle Excise Duty and reduced tax relief for pensions, whereas the 3 main tax cuts mentioned, ie raising the threshold at which tax becomes payable, increasing the 40% income tax rate threshold, and 1p (possibly) off corporation tax are clearly visible tax cuts.


The few graphics look plundered from a 70s textbook. Figure 4 makes very little, if any, sense. Figure 7 compares the UK to high tax jurisdictions. Figure 8 has unlabelled axis and ignores the impact of local income tax. The average A level is better presented. That's now and not 20 years ago.

Assessment of LibDem proposals

HIT – increasing the threshold at which income becomes payable, taking many of the additional 3.6m taxpayers since Labour took power out of the tax net

MISS – there’s no mention of making the corresponding adjustments to the tax credit regime

MISS – lower earners will be hit harder by the higher Vehicle Excise Duties, as they will form a higher proportion of their net earnings

HIT – reducing the marginal tax rate by 2% to 20%

MISS – increasing the marginal tax rate by the local income tax rate, 4.5% (a low estimate) with the introduction of a local income tax, meaning a net higher marginal tax rate for most families and individuals by at least 2.5%, when taking the 2 measures into account.

HIT – increasing the threshold at which income tax becomes payable at the 40% band

MISS – Reducing tax relief for pension contributions for higher rate taxpayers to 20%. Money that goes into pension funds would then become “dry income”, ie you have to pay 20% tax on it, even though you won’t see the underlying cash until retirement. In practice this will be a very problematic measure. There is also no measure to reduce taxation on pension payments so none are taxed at the higher rate. This negates much of the increase in the threshold. Virtually all commentators recognise the UK is facing a pension crisis, this measure will only worsen the problem. A vicious, unnecessary and unwise stealth tax.

HIT – General anti-avoidance rule, this part is well-written

MISS – No corresponding tax cut to be shared amongst all taxpayers. Note also, there’s no mention of any particular legislation that could be removed. The Australians who are mentioned, also have considerable anti-avoidance rules. A GAAR does not reduce avoidance as much as simplified and more consistent tax law would.

HIT – increasing the amount of tax raised at local level

MISS – the contradictory policy to harmonise corporate tax rules, but not rates, across Europe

HIT – reducing corporate tax by 1p

MISS – its not enough. The reliefs to be abolished are not mentioned or stated other than some discussion around R&D

HIT – graduated stamp duty land tax, ie the higher rate is only payable above the threshold

MISS – the lost revenues, from one of the simpler taxes to collect, have not been included in the LibDems calculations, and would more than wipe out their £1.3bn contingency. A more appropriate measure might be to have a single rate of Stamp Duty Land Tax.

MISS - The continued support for Local income tax, the tax that hits 2 earner families hardest and increases marginal tax rates, creating a disincentive to work. The alleged administrative savings forget the basic problem, that many people do not work where they live, and employers would need to separately monitor the rates of each employees tax bill to fit the borough or county they lived in.

MISS – the implication on page 32 that small business deliberately understates taxable profits.

MISS – The environmental taxes are an attack on the use of motor vehicles, already taxed far beyond their cost, and are an attack on individual choice. There is also no corresponding commitment to increase expenditure on public transport. The environmental taxes are potentially regressive and may hit families hard, and may mean the cost of second car gets so expensive the second earner in a family may decide not to be employed.

MISS –Vehicle Excise Duty of up to £2,000 a year.

MISS – 5.1.3 “There have been two major problems with past efforts at so-called “green taxation”. The first is that so called green taxes have often been used as stealth taxes to boost general government revenue” . So the LibDems propose a new raft of them.

5.1.5 Note the comment that the congestion charge had to be increased to deter congestion. The congestion reduced due to the fact that pre-imposition of the charge both excessive roadworks were performed and the green man at pedestrian crossings was switched on for longer, in each case to twist the statistics. The charge went up to pay for the Mayor’s excessive expenditure.

MISS – Aircraft take-off taxes. Aircraft might well choose to miss out the UK altogether, taking their business with them.

MISS – Inheritance tax. Taxing lifetime gifts is daft, an individual should be free to dispose of their wealth as they choose. The inheritance tax paragraphs are especially confused and non-committal.

MISS – Land taxes. How do you value land separately from the property attached to it? It would also be administratively inconvenient to launch an entire new tax.

MISS – Removing taper relief and business asset taper relief. Only the LibDems could propose to abolish one of the better measures Gordon Brown introduced. If you take the disposal of a business, the income may already have been taxed at 40%, the capital gain on disposal would then be taxed again at 40%, and then inheritance tax might also apply at 40%. This can give rise to an effective 78% tax rate on such earnings (40% +40% of 60%, plus 40% of 36%). And in addition, you only get 20% relief for any pension contributions, but can be taxed at 40% on then when you draw the annuity. This move could greatly restrict and discourage entrepreneurial activity, and hence job creation, and is simply a ridiculous idea. The more sensible measure would be a simple abolition of both capital gains tax and inheritance tax, or to increase the thresholds and to reduce the rates. In fact the LibDems former policy of a 50% tax rate for income over £100,000 was potentially more sensible.


MISSING THE POINT – The LibDems accept the government and HMRC’s bizarre premise that tax is a behaviour-neutral concept when estimating the costs of these measures. Any sensible analysis of tax cuts and rises, both in the UK and more recently elsewhere, shows that tax clearly does influence behaviours and hence a strictly pro-rata approach to costing.

£8.1 bn is a large increase in revenues from environmental taxes. Surely if these work, then they do not raise any money as they have discouraged behaviour. I consider that revenues would actually increase if marginal rates of tax were lowered based on experience overseas and in the UK in the 1980s. However, as the introduction of local income tax combined with the income rate tax cuts would cause a net increase in marginal rates, the actual impact of the 2 policies is likely to be to reduce revenues as incentives for additional work are reduced.

It is an incredibly insular survey. The LibDems rarely, if at all, refer to any other jurisdiction’s tax reforms, apart from some obscure taxes in Denmark. LibDems - please note, everyone else in Britain also lives in the global economy. There is no mention of the Irish, Eastern European, Australian, Canadian or American experiences in cutting taxes. On Business tax there is no mention of the international perspective at all, other than the LibDems clear indication of their willingness to surrender tax-law making powers to Brussels. Bet that doesn't get a big mention at the next election.

Comrade - Don't Get Angry

The TaxCutter, not pictured, can recommend a game of "Comrade, Don't Get Angry!", invented by Czech hippies during the communist era.

Resembling a black-humoured cross between Game of Life and Monopoly, players must accrue funds to escape the Iron Curtain. Risks on the equivalent of chance cards include giving Blood for the cause and catch Hepatitis, and persuading the National cycling team to train near Chernobyl (apparently really happened - most have died of cancer since)

Wednesday, August 09, 2006

SHOCK: CCHQ in good tax campaign

OK, it only relates to bed and breakfasts, but go to the party site and there's a well-written piece with a great graphic. Labour often spends the silly season leaking suggested ways of raising more tax to the press, as it experiments to see which will be least politically damaging and can be included in the next Budget.

The TaxCutter applauds CCHQ on this good work, and looks forward to more in the same vein.

State not to organise Margaret Thatcher's funeral

As a far more appropriate tribute, the event will be organised by the spontaneous order of the market.

Tuesday, August 08, 2006

The candidates respond

Two mayoral candidates responded to my eMail suggesting the following policies



The responses are below:

Dear Damon

Thanks very much for your email. As you can imagine, things are a bit hectic at the moment so I have not had time to review your ideas in detail. But I will definitely do so over the summer as I begin to pull together a policy platform.

With best wishes,

Nick Boles

Dear Damon,

Thank you for getting in touch. I am pleased that you enjoyed my website. I have tried from the start to set out a full policy platform for the government of London by a Conservative Mayor, that addresses the need for reform of London's public services and is at the same time a practical policy agenda given the strategic character of the Mayor's powers. My starting point is that London needs a Mayor that will add value by bringing the complex range of bodies involved in governing London from central government departments to the London boroughs, along with the private sector.

I enjoyed your blog and you and I are essentially agreed on what amounts to a public service reform agenda in a free society. If I may I will make a general comment on the powers of the Mayor. The Mayor cannot legislate for social policy in London. You, for example, refer to pre-nuptial agreements, something that I have a lot of time for, but the Mayor has no power to change family in London, such as the law relating to marriage and divorce proceedings.

The Mayor of London likewise has no powers over national tax policy. As former adviser to the Chancellor of the Exchequer I think that it is difficult to have national public services funded by different regional tax regimes for income, corporation and value added taxes. What is required is a broadly neutral tax system that is principally focus on raising revenue, with high tax thresholds and low tax rates to pay for public expenditure programmes that meet the test of yielding more economic and social benefits than the cost of the taxes that go to pay for them.

With regard to local authority finance the big difficulty is that many local authorities do not have a tax base that can raise the revenue needed to pay for local services such as schools and social care. The result is that they are dependent on central government grants that cover around 70 per cent or more of their spending. Each potential source of local tax base whether it is property, sales or income has inherent difficulties. The key thing is that spending should not rise so high that these problems become aggravated. The Council Tax was bearable when it was invented in the early 1990s and nationally raised about £7.5 billion. This year it will raise around £21 billion and will have more than doubled under Labour since 1997. The heart of the problem in my view is not so much the structure of the tax, but the amount of spending that means that taxes have to be so high.

My first priority is Police reform to tackle crime. I agree with the 'Broken windows' approach, but it could not be properly implemented in London without fundamental reform of the management of the Police starting with a review of the Police Act and a Police force that is accountable to Londoners. That is why I am campaigning for these changes that are imperative if we are to grip crime. This reform of the Police has to be combined with a general reform of the management of the tube and the fire service so that Londoners get results from the huge amounts of money they are spending from their taxes. It is my intention to make the City Hall budget sweat and to start with a zero-based budget.

This agenda of public service reform is radical and substantial and that will require huge amounts of political will and purpose to bring about. It is my intention to focus on these issues that directly affect Londoners and are within the strategic policy remit of the Mayor; and in the context of the Mayoral election to step aside from other important national social and economic issues where the Mayor of London has no direct policy responsibility or capability for decision. One of the main criticisms I have of the present Mayor is that he allows himself to get distracted too easily from the task of sorting out London's problems where he has direct responsibility and influence.

Thank you for getting in touch.

All good wishes,


Vote Lee for Mayor

Another week, another Dave gaffe. This time he postpones the Mayoral election until a "celebrity" goes forward. I haven't a clue who Nick Ferrrai is.

Maybe Londoners might want to ignore the literati version of Jade Goody and elect someone who is good at the job. Or even better someone who will be good at not doing the job... Dr Rotherham's views are pretty close to the party membership, too close for DC's liking.

Sunday, August 06, 2006

The TaxCutter recommends

Reform and The Smith Institute's publication on Public Sector Reform 2006-2010 contains the best argued, researched, factually backed and presented analyses of the state of each of the NHS, Education and the Police that have been produced for a long time. Better than others, Reform see through government spin to the reality.

These essays deserve a wide readership.


Wednesday, August 02, 2006


Well done for Conservative Home for spotting this total waste of Licence-payers money


"....the population's admirable health is surely one of the key reasons why Castro is still in power. "

And there was me thinking it was to do with there being no elections and political oppression.

Note this comment

"In 1997 A group of 18 Cuban doctors exiled in the United States released a statement denouncing the Cuban Government and specifically Fidel Castro. They claimed that in Cuba -"the medicines and equipment, even the bedsheets and blankets, (are) reserved for regime elites or dollar-bearing foreigners, to the detriment of our people, who must bring their own bedsheets, to say nothing of the availability of medicines."

Cuba actually had a very good longevity before Castro came to power and the years of American rule early in the twentieth century wiped out certain diseases. Bizarrely, most of the advocates of the Cuban health service believe the stats the Cuban government publishes.

Try this link


Laughing in jest...

but just wait..... there's something coming to end that laugh

Tuesday, August 01, 2006

Oliver Letwin on tax cuts - the record so far

Oliver Letwin was in today's Evening Standard moaning about tax cuts and how great economic stability is again.

In the 2005 election Oliver promised £4bn of tax cuts. This is less than 1p off the standard rate of income tax. Its less than the A$12bn the Australian government tried to cut off income tax in 2000, with a third of the population - of course as typical tax revenues actually increased.

What happens. At the start of the election the only measure announced is that OAPs will pay less Council Tax. What measures follow, a sensible but complex one on increasing pension savings for basic rate taxpayers, too difficult for voters to easily understand, and a cut in Stamp Duty on properties, launched as an exclusive in the FT, hardly a paper with a mass readership.

Tax cuts did not work in 2005 for the simple reason the ones promised were too little and too vague, addressed at particular target groups of voters. If the tax cuts had been larger and to income tax and aimed at all voters, like they were in 1970, 1979 and 1983 then we might have won votes. Granted Oliver wasn't helped by having to fight a marginal, the then leader's insistence on the Howard Show, or some of the lefties in CCHQ being against tax cuts as a concept but its a big mistake to confuse the 2005 manifesto with a proper taxcutting agenda.

I found that many of the public perceptions of Oliver are highly unfair on a very reasonable man. But please Mr Letwin use your political nous to distinguish between poorly presented, confused rushed policy and a properly thought through and well argued tax cutting agenda - like the ones John Howard and George W Bush got elected and re-elected on.

PS The photo here actually is from the Shadow Cabinet page on the Tory party website.