Monday 4 March 2019

Capitalism is empowering - so says the HMRC

A quick take as all the media speculation today is that Philip Hammond has a nice strong hand to play in the Spring budget statement.

Government spending, relatively, has been kept under control during austerity and finally, ten years after the crash, it seems as though the public finance are finally in a better state. Of course, we now have around 70% more debt as a nation (from one trillion to £1.7 trillion since 2010), but at least day to day things are looking better.

The main driver for this though is not growth. The UK economy has been OK, but not very inspiring for a number of years. Low productivity compounded with excess labour supply has given the feeling on expansion whilst the currency decline has hidden some of the downsides of the wages squeeze relative to the world.

So with little growth, how come the Government is able to balance the books? Austerity is only a part of it. The Government spends less now than it did in 2010. Back when the Tories took office, spending was £715 billion by the Government, not it is £707 billion for the year. If you think about years of inflation added to that original figure, then the fiscal squeeze over what was being spent is around £200 billion per annum. Even if you take the pre-crash spending, there is still nearly £70 billion of expected spend missing.

However,  the big jump in the last year still is in income taxes. these have risen by nearly 10% in the past three years. Much stronger than GDP growth and inflation would suggest. The main driver of these is self-employment taxes. These were super strong this year, which has allowed the Government some fiscal wiggle room.

For me the takeaway is that the move to self-employment gets people creative and innovative and in the end they end up working harder, earning more and paying more taxes. The days of mass manufacturing and mass employment meant that (say today as per the NHS) collective bargaining limited opportunities for people to keep any benefits of harder work. In today's world, working harder pays better; yes there are issues with Uber etc effectively increasing supply to markets and reducing pay - but the fact that individuals can do something about it is both capitalistic and also rewarding - both them and the Government.


Harry O said...

The downside is, as is imminently about to happen, HMRC are going to tax self employed as employed, due to the real time taxation that changes in March.

dearieme said...

If he cancels HS2 I shall give him a merry cheer.

Anonymous said...

Just going to say, the tax changes to dividends are already making self employment less appealing, and for us IT types the IR35 changes likewise.

I can see the Treasury's problem, as the middle class shrinks, real median wages remain obstinately below 1997 levels, and the high income types (and their companies) employ creative accountants, the tax has to come from somewhere.

It doesn't seem to occur to our rulers that a welfare state needs a solid tax base, and that means people who can afford to pay tax - or maybe it has, and they don't care.

I guess the days when working class people used to open their wage slips and curse roundly at the amount of tax they were paying (I remember it from the early 80s) have gone, only one day to perhaps return after a lot of major unpleasantness. The post-WW2 settlement has been dead now for some 30 years.

hovis said...

Anon 4.50pm, I suspect the working class people you refer to still curse loudly at the amount of tax taken whilst the services they supposedly pay for are removed. The welfare state's dead weight of cost is due to an ever smaller base of contributors while non-contributors (and now past contributing) has grown massively.

Post WW2 settlement dead indeed for at least 30 years, the cracks papered over for so long.

Anonymous said...

PS - the latest Dominic Cummins is interesting/scary. We are apparently doomed, and there's a price to pay for outsourcing our manufacturing (and especially electronics) to the Far East. ND might be interested. Sorry about the length.

"I wrote in 2004 about the farce of the UK aircraft carrier procurement story (and many others have warned similarly). Regardless of elections, the farce has continued to squander billions of pounds, enriching some of the worst corporate looters and corrupting public life via the revolving door of officials/lobbyists. Scrutiny by our MPs has been contemptible. They have built platforms that already cannot be sent to a serious war against a serious enemy. A teenager will be able to deploy a drone from their smartphone to sink one of these multi-billion dollar platforms. Such a teenager could already take out the stage of a Downing Street photo op with a little imagination and initiative, as I wrote about years ago"

The drone industry is no longer dependent on its DARPA roots and is no longer tied to the economics of the Pentagon’s research budgets and procurement timetables. It is driven by the economics of the extremely rapidly developing smartphone market including Moore’s Law, plummeting costs for sensors and so on. Further, there are great advantages of autonomy including avoiding jamming counter-measures. Kalashnikov has just unveiled its drone version of the AK-47: a cheap anonymous suicide drone that flies to the target and blows itself up — it’s so cheap you don’t care. So you have a combination of exponentially increasing capabilities, exponentially falling costs, greater reliability, greater lethality, greater autonomy, and anonymity (if you’re careful and buy them through cut-outs etc). Then with a bit of added sophistication you add AI face recognition etc. Then you add an increasing capacity to organise many of these units at scale in a swarm, all running off your iPhone — and consider how effective swarming tactics were for people like Alexander the Great."

‘A very, very small quadcopter, one inch in diameter can carry a one- or two-gram shaped charge. You can order them from a drone manufacturer in China. You can program the code to say: “Here are thousands of photographs of the kinds of things I want to target.” A one-gram shaped charge can punch a hole in nine millimeters of steel, so presumably you can also punch a hole in someone’s head. You can fit about three million of those in a semi-tractor-trailer. You can drive up I-95 with three trucks and have 10 million weapons attacking New York City. They don’t have to be very effective, only 5 or 10% of them have to find the target.'