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.