The theoretical basis for
reducing taxes on the highest paid is that they will invest the money saved in
ways which boost economic growth. It’s a sweeping assumption. There is no doubt
that ‘some’ of the money will be invested like that, but no-one knows how much,
and it isn’t the only option. Some will simply be spent, which is another way
in which the economy might be boosted a bit. But some will be saved, and no
doubt a significant amount will find its way into secretive offshore tax havens.
One of the big unknowns at the heart of the gamble is how the money ends up
being split between those four options. That in turn depends on the
calculations that those in receipt of the unexpected windfall make before
deciding what is in their own best interests. And one of the factors in those
calculations will be expectations about the future, which make it unlikely that
much of the money will end up being used as the government might wish.
Investing in new businesses
and innovation is a long term decision, so one obvious question is whether
those making the decisions really believe that this is a good time to be taking
long term decisions. With a government which looks as though it might, just
about, limp through to an election in two years time, but which has an obvious
potential for collapse a lot sooner than that if things go horribly wrong; with
a major war raging in Europe, whose progress and outcome, to say nothing of its
effect on energy availability and prices, remains highly unpredictable; and a
pandemic which is far from being over with the potential for large new waves,
many are likely to conclude that ‘certainty’ is a little lacking at present.
Major investments look to be riskier than they have been in the past, and the
rate of return on savings may be a better bet for many.
We know that interest
rates on both borrowing and saving
are likely to be rising, a trend which the not-a-budget-at-all will only accelerate,
whilst the volatility
of the pound adds to uncertainty. All that
also has a negative impact on a willingness to take investment risk, and
provides a positive incentive to find a safe haven for cash, whether overseas or
in the UK itself. And one of the safest havens of all in the UK is government
bonds, the interest rate on which rose sharply in the aftermath of the ‘fiscal
event’. There is a common belief that when the UK government borrows money, it
borrows it from other countries or overseas investors; but in reality, most
borrowing is on the domestic market. Most is, effectively, borrowed
from UK citizens; sometimes directly, but more often through financial
institutions, such as pension funds, investment funds, banks and insurance
companies. In a sense, therefore, most of us (through our pension funds etc.)
are actually lending money to the government, even if we don’t realise it. This
is, on the whole, something which benefits most of us. It’s worth noting,
though, that the wealthier people are, the more money they are likely to have
in their pension pots (as well as insurance, investment funds, banks etc.), and
the more, therefore, that they lend the government. The interest on those
loans, however, is paid by all taxpayers, even those who have loaned precisely
nothing, either directly or indirectly, to the government. It’s one of the
hidden ways in which wealth is transferred from those who have little to those
who already have a lot, and that transfer is far more significant than the
intergenerational transfer as which it’s sometimes inaccurately painted (the
nonsense about future generations paying for today’s borrowing), because future
generations, collectively, will inherit not only the liability but also the
asset. The issue is that the people inheriting the asset aren’t the same ones
who inherit the liability; it’s an inequality issue, not a generational one.
There is another effect here.
Those traders who have been betting so substantially against the pound in
expectation that the budget would lead to a crash have not only made small
fortunes for their banks, they have also made it certain that interest rates will
go up – maybe this week, and possibly even as soon as today.
The traders can now receive bumper
bonuses for their efforts, pay less tax than they previously would have done, lend
the difference to the government, and be paid for the privilege at the higher
rates of interest which they themselves have done so much to bring about.
Verily, this is a government which giveth with one hand and then giveth a bit
more, just to be certain, with the other. To the select few.
1 comment:
Yet another episode in the sordid programme of sucking the wealth out of the country and into the coffers of the select few. Winners aren't always the same people but they are generally to be found in a small cluster of elites who couldn't give a shit about the vast majority of the hard working people of the UK and their dependents.
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