Wednesday, 3 March 2021

What the UK budget should be in 2021...but won't be.

 Most of the budget this year appears to have been leaked, those running the Tory party can't resist speaking to Journalists - I guess when an ex-Journalist is the big boss, this culture is bound to arise (and Michael Gove is two, so 2 of the top 3 in Government - must be a first?).

Anyway, we can re-read the grim old news later. 

The key thing is what should be done. As I said on Monday, now is no time for a full budget in the midst of the pandemic, better to delay it. However, the outlines of good Governance and a way forward can be set out so that businesses have time to adapt:

1) A slow move away from property business rates to digital and sales volume rates. Less fixation on corporate taxes and more encouragement for companies to invest, employ and succeed. This will help re-balance the economy away from London too in the long-term

2) A real need to focus on productivity - the high immigration environment of the last 20 years has taken a big toll on productivity, investment is needed across UK PLC, including infrastructure to support it like 5G roll out etc. Tax breaks for business investment and research are essential. 

3) A debt re-organisation, the UK has massive debts but is paying record low interest. Longer term gilts with lower yields should replace short-term 10 year loans. the savings for the future are huge. 

4) Pension relief needs to be hugely improved, there is no point the state playing an ever greater role in older peoples' lives when they could be persuaded to save if it avoided a lot of tax.

5) Financial reforms - almost impossible with the sclerotic FCA - but a new funds structure to compete with Luxembourg, freer trading regulations for the City to entice more investment, simple regulation and encouragement for digital currencies - all these will help the City and its huge tax base thrive. 

6) Continue most of the support for the economy until after it has re-opened as this will pump prime it for expansion although it will stoke some inflation. 

I wonder how many of the the above will actually be done, worryingly I think only one or two at best.


Monday, 1 March 2021

David Cameron is right - no new taxes now

Rishi Sunak, so beloved of the media last year as Chancellor giveaway, had a harder time addressing the media ahead of the UK Budget this week. over the weekend. 

He has been harassed by panicky mandarins into raising some taxes to plug the enormous deficit caused by the Covid pandemic inspired economic shutdown. 

However, as David Cameron said last week. We don't know how deep the damage really is until we re-open the economy. It might well bounce back fairly well. 

Of course, there are hundreds of billions blown on furlough and tax collection is well down, there is a huge hole in the Government balance sheet. But the same is true across the world. Raising taxes on business is his favourite idea, along with taxes on entrepreneurship. 

Given the current impact of Brexit, this is the worst idea of a tax rise. Right now, we need to stop businesses relocating to Luxembourg, Dublin and elsewhere in the EU. Having paying businesses leave the Country for the EU is a loss in a zero sum game. 

Instead, the Chancellor should be doing a mini-budget, introducing some austerity to public spending ex-NHS and reducing the furlough scheme from April. Then, when hopefully things are more normal in the Autumn better stock can be taken of what needs to be done to pay for the pandemic over future years. 

All that really matters is that we get Government income and tax rises at the right level to start reducing the debt as a percentage of GDP in 2022 - anything before that is likely to have a net negative impact on an already sclerotic economy. 

Tax rises during lockdown is surely the worst idea yet from the Treasury! If you had too, then maybe a digital tax on online sales as part of the great re-balancing around business rates and the changing economic model - but in theory these should be tax neutral changes in any event. 

Friday, 26 February 2021

Scrapping Sentinel: Massive Government Mistake

My special subject being aired now.  For the past 12+ years, the RAF has operated the Sentinel R1, a very capable and sophisticated piece of surveillance kit that all you one-time aircraft spotters will know about, and the rest can read more here

The Sentinel has been of extraordinary value to HMG, in ways that will not find detailed expression in the public domain but you can readily imagine.  (Start by searching on Operation Shader to get the general idea.)  Osborne, that f*****g 'genius' whose entry in the history books will be 100% damning, decided to scrap them for cost-cutting reasons but Cameron was persuaded (well, begged by our allies) not to follow through, so they were given a 5-year life extension.

But now their last mission has been flown, and there's no 1-1 replacement in sight.

I despair. 

ND

Wednesday, 24 February 2021

Are wild markets a late stage symptom of the policy disease?

 When can we be rid of this virus? No, not Covid, the Federal Reserve. 

Yes, I know, you think I am about to enter a conspiracy world of who owns the Fed and how it is all some cabal of Jeremy Corbyn's deepest and closest friends. 

Well, sorry to disappoint, but instead there is a huge story here. When Tesla fell on Monday 20%, erasing in truth only a month or so's gains, Bitcoin fell in sync. Suddenly, Jerome Powell, chair of the Federal Reserve, decided to remind the markets that the Fed would not remove the trillions of excess liquidity from the economy anytime soon. The liquidity is a feature, not a bug of the current system. 

The same is the case with our own Bank of England, but we have not had a huge run up in share prices and other assets like the US. Here, Government debt has easily absorbed all the extra debt created by the Central Bank. 

In the US, we are seeing crazy wild markets. Bitcoin and other digital currencies are hitting all time highs, SPAC's (Special Purpose Acquisitions Companies) are literally raised like South Sea bubble entities - "for reasons for which no one is to know the purpose." Sadly, I see the FT and lawyers etc rushing to promote shell companies in the UK and to try to get SPAC's registered here. 

SPAC's are a sign though, as are the crazed valuations of a few successful stocks. There is not much to invest in and there is far, far too much money chasing it. Private Equity sits on its largest amount of 'dry powder' - money raised but not deployed, ever. This is getting put into SPAC's to 'deploy' it but really it is just moving around savings and charging fees to the investors. 

With the markets the way they are, the underlying economy is in a wild phase itself with Covid smashing some sectors and boosting others. Forcing technology change in a year that would have taken a decade before. 

Central banks have created this monster and Governments love it - after all for them it is the magic money tree come true. Massive extra spending and no inflation. If inflation comes about then it is easy to cancel the fantasy QE bonds so goes the Central Bank theory and reduce money supply.

See below for what we are really doing though - a huge currency debasement strategy with apparently limited inflation impact. 



I am thinking hard on how this ends. In 2006, a huge run up in credit and debt ended in Great Recession, which was entirely predictable for 2 years beforehand. Here we see the Central Banks juicing the market and Covid providing both the spark but also the cover. My base case is the blow off phase lies ahead of us still - perhaps after another run up of asset prices. In reality the end phase must be some serious inflation or, if the Central Banks execute on slimming their balance sheets, huge deflation and bust. Either way, it is not a happy ending. 


Tuesday, 23 February 2021

Census and Civilisation

The government publicity machine has limbered up into a state of high activity preparing the ground for the 2021 Census.    I view this as a very big deal.

There are probably some libertarians out there who view the census as either an outrage, or as a silly exercise to be ignored and maybe even evaded.  Can't agree; I'm squarely with Caesar Augustus and William of Normandy in these matters.  The keeping of accurate public records is essential to civilisation as we know it.  (Some even say it's the primary legitimate function of government.)  Obviously it can be portrayed as a tool of subjugation, but that's ridiculous: if there's to be government at all, it must be properly informed.  Someone once wrote (Orwell?) that until some date early in 20thC, a law-abiding English gentleman need never come into day-to-day contact with the authorities.  Well, maybe, but along with other hitherto scrupulous public record-keeping we have a fine and lengthy tradition of accurate census-taking every 10 years, interrupted only by WW2: and nobody got to exempt themselves from it.

Except, that is, until this century, when the government started getting mealy-mouthed about kicking the doors in of people who won't cooperate.  Well, it would be too dangerous for the census agents, wouldn't it?  And maybe they didn't want to know exactly how many beds-in-the-shed were not being reported, because of, errrr, sensitivities.  So then we resort to "statistical methods" - like calculating how many people live in *recalcitrant* towns by measuring the sewage, FFS!  And who knows what indirect methods they'll be falling back on this time around, to fill in the gaping holes that we may confidently predict will still be left after their publicity drive, "primarily online" data gathering, and isolated "support" visits to dwellings.  Obviously they have a covid excuse this time, but there's no doubt they were never going to replicate the old-school 100% blitz on doorsteps by enumerators to collect the forms, check the contents and attempt to suss out the dubious stuff & report to higher management for the boot-boys to follow up.

Any pre-emptive willingness to accept anything less than 100% survey is an absolute, abject abrogation of government responsibility.  "Why you should take part?  - To help make sure you and your community get the services you need ..."  Well, I suppose that's a perfectly sensible, positive pitch in PR terms - and, to be fair, the words 'must', 'by law', 'offence', and 'fined up to £1,000' do appear on that website.  

But I guess we are all pretty sceptical as to whether this writ will run in certain districts we could all name.   Just now a mighty controversy rages about why BAME communities are disproportionately "vaccine-hesitant", even when strikingly against their prima facie best interests**.  Sometimes we hear that it's because they distrust the authorities generally.  Worthy bland appeals to self-interest notwithsanding, this "general distrust" seems highly likely to extend to official data-gathering, does it not?

Incidentally, if I prove to be wrong about this I will be the first to applaud.  Because it really needs to be done, and done properly.  A government that doesn't even know its people is not really a legitimate government at all, it's just a big, lazy, cowardly, ignorant, hulking factor in the background of people's lives.

ND

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**  (OK, the comments page is there for you to take issue with this ...)