One point that has come up in discussion is the potential to double and triple-hat. Not only will it ensure we cover the gamut of the Cabinet Posts, it'll give us more scope during potential Coalition negotiations and ensure that we don't get too down if things aren't going swimmingly for our main portfolio. I'd suggest taht we use this post to register our preferences so Stefan can make an informed decision.
Personally, I'd love the Energy Portfolio to go with my main one. A third one would probably have to be Work and Pensions since my first post left that portfolio with not much else to do ...
Tuesday 26 June 2012
Departmental Spending Changes
This from AndyC's PM.
Posted via this as I can't create a new post on the blog from my work account (I can comment but not post - the joys of being locked into IE6!)
Current Government spending breakdown in detail is at http://www.hm-treasury.gov.uk/d/pesa_2011_chapter1.pdf
The most useful tables (in my opinion) are the ones comparing expenditure in real terms (1.4 Resource Budgets, 1.7 Capital Budgets).
We should all have a look and suggest changes to the budgets. Bear in mind that beyond the levels in my Tax-and-benefits post (which includes £5bn spend on house building), the closing of tax loopholes will bring in an extra £11.8bn, which I propose spending rather than saving.
Note that AME is very difficult to control; however, I reckon that a withdrawal from Afghanistan could free up £2bn per year from the Defence AME budget (leaving Defence RDEL and CDEL unchanged)
My personal take has capital DEL increasing from 39.2bn in 2013-14 (nominal expenditure in table 1.6) to £61.2 bn as a capital stimulus (mainly on housing (£8.8bn), transport (more than doubling current transport CDEL, focussed on road building/dualling: £7.7bn), Energy & Climate change £3.3bn (again, more than doubled, focussed on energy generation - details later), and BIS +£3.3bn (from 0.75bn) - assuming that BIS will be where the space program is lodged ...
To pay for this, I'm cashing in all of the tax avoidance savings, £2bn from withdrawing from Afghanistan and reducing the International Development CDEL from £1.95bn to £0.9bn - back to 2008/9 levels (still a slight increase in real terms from 2007/8, before the Crash)
RDEL I'm (in my proposal) keeping level but shifting cash from the Cabinet Office (0.5bn) and Int Dev again (3.5bn; again back to 2007/8 levels) to BIS (£1bn - towards a reduction in student fees and a restoration of some research funding cuts), Energy and Climate Change (£1bn - towards restoring subsidies for solar panels on housing) and Education (£2bn, but I'm not sure what to spend it on ...)
All suggestions more than welcome. That's just my stab at prioritisation.
Monday 25 June 2012
Macroeconomic stance, Departmental spending and Bank Capitalisation
More thoughts from the Treasury:
1 - NGDP Targetting. Raised by Theo in the Ideal UK thread and promptly misunderstood by everyone there: NGDP targetting can be explained as having the Central Bank target the SUM of inflation and GDP growth. That is, targetting nominal GDP (thus the name) rather than real GDP or inflation separately.
There is some belief that the Bank of England is engaging in a practical form of this already, as they haven't raised interest rates to combat the persistent high inflation that we've had through much of the recession - because to do so would likely choke off whatever growth there is. This manifests the core tenet of NGDP targetting: increasing interest rates to reduce inflation is a very bad idea in a bust; reducing interest rates to increase inflation (demanded by a symmetrical target) is a very bad idea if the economy is already booming. An NGDP target of 5% (for example) would aim as follows:
- GDP growth of 4%; inflation 1%
- GDP growth of 3%, inflation 2% (the implicit target during the Brown Years)
- GDP growth of 0%, inflation allowed up to 5% (to raise interest rates would be very foolish for the economy and high inflation erodes the value of debt - very useful when the "stabilisers" kick in and the cyclical deficit is therefore high.
It appeals on the grounds of elegance - it's a self-feedback mechanism on the economy and inflation. I'd institute it promptly with the caveat that whenever one element (either real GDP or inflation) becomes greater than 80% of the sum, a meeting is held between the Governor of the Bank of England and the Chancellor in order to ensure the target is appropriate and no other action needs to be taken.
2 - Bank Capitalisation. Often forgotten in talks of monetary policy (too often it is seen as a "one club golfer" strategy of manipulating interest rates) this is an element which is often left unmoved. It is wise not to manipulate too many variables in any case and a little stability is never a bad thing - however the fraction of deposits retained looks as though it was incorrectly set at Basel II. I would not change it during the recovery - we have enough of a liquidity issue as it is - but I would seek to reconvene the international financial ministers community to explore whether we need a consensus at a different level of capitalisation (for example, under Basel II, banks were required to keep capital of 8% against loans, but only 4% against short-term liquid securities and 1% against lending to sovereign banks: thus the ultra-willingness to lend to Greece (for example) during the boom and the shift from loans to securitised trades to reduce the amount of capital required and increase leverage was a rational response. As it turned out, those securitised trades were poorly understood and a bloody bad idea! Basel 3 (coming into effect 2013) won't help things as it stands).
3 - Departmental annual spending rollover. A long-term bugbear of mine (ever since the first time I handled a large budget in the public sector) has been the handling of underspends against a budget: the budget is "punished" for inaccuracy by having any unspent funds withdrawn and the next years budget reduced by a corresponding amount. Thus any late deliveries of goods or services can really screw you up and overestimating the requirements in one year can be fatal. The standard reaction is that whilst overspends are regrettable, underspends are to be avoided like the Devil himself and every Department tries a lunge of last-minute spending in the Financial Year to consume their remaining budget (I know of one car park outside an Officers Mess in Lincolnshire that's bee resurfaced every March for decades ...). My proposed solution is that any underspend gets rolled over into the next year's budget and the following budget is unaffected. A Top Level Budget holder can voluntarily surrender any amount of budget at the end of the year in return for a bonus amount to be spread amongst his/her staff.
1 - NGDP Targetting. Raised by Theo in the Ideal UK thread and promptly misunderstood by everyone there: NGDP targetting can be explained as having the Central Bank target the SUM of inflation and GDP growth. That is, targetting nominal GDP (thus the name) rather than real GDP or inflation separately.
There is some belief that the Bank of England is engaging in a practical form of this already, as they haven't raised interest rates to combat the persistent high inflation that we've had through much of the recession - because to do so would likely choke off whatever growth there is. This manifests the core tenet of NGDP targetting: increasing interest rates to reduce inflation is a very bad idea in a bust; reducing interest rates to increase inflation (demanded by a symmetrical target) is a very bad idea if the economy is already booming. An NGDP target of 5% (for example) would aim as follows:
- GDP growth of 4%; inflation 1%
- GDP growth of 3%, inflation 2% (the implicit target during the Brown Years)
- GDP growth of 0%, inflation allowed up to 5% (to raise interest rates would be very foolish for the economy and high inflation erodes the value of debt - very useful when the "stabilisers" kick in and the cyclical deficit is therefore high.
It appeals on the grounds of elegance - it's a self-feedback mechanism on the economy and inflation. I'd institute it promptly with the caveat that whenever one element (either real GDP or inflation) becomes greater than 80% of the sum, a meeting is held between the Governor of the Bank of England and the Chancellor in order to ensure the target is appropriate and no other action needs to be taken.
2 - Bank Capitalisation. Often forgotten in talks of monetary policy (too often it is seen as a "one club golfer" strategy of manipulating interest rates) this is an element which is often left unmoved. It is wise not to manipulate too many variables in any case and a little stability is never a bad thing - however the fraction of deposits retained looks as though it was incorrectly set at Basel II. I would not change it during the recovery - we have enough of a liquidity issue as it is - but I would seek to reconvene the international financial ministers community to explore whether we need a consensus at a different level of capitalisation (for example, under Basel II, banks were required to keep capital of 8% against loans, but only 4% against short-term liquid securities and 1% against lending to sovereign banks: thus the ultra-willingness to lend to Greece (for example) during the boom and the shift from loans to securitised trades to reduce the amount of capital required and increase leverage was a rational response. As it turned out, those securitised trades were poorly understood and a bloody bad idea! Basel 3 (coming into effect 2013) won't help things as it stands).
3 - Departmental annual spending rollover. A long-term bugbear of mine (ever since the first time I handled a large budget in the public sector) has been the handling of underspends against a budget: the budget is "punished" for inaccuracy by having any unspent funds withdrawn and the next years budget reduced by a corresponding amount. Thus any late deliveries of goods or services can really screw you up and overestimating the requirements in one year can be fatal. The standard reaction is that whilst overspends are regrettable, underspends are to be avoided like the Devil himself and every Department tries a lunge of last-minute spending in the Financial Year to consume their remaining budget (I know of one car park outside an Officers Mess in Lincolnshire that's bee resurfaced every March for decades ...). My proposed solution is that any underspend gets rolled over into the next year's budget and the following budget is unaffected. A Top Level Budget holder can voluntarily surrender any amount of budget at the end of the year in return for a bonus amount to be spread amongst his/her staff.
Lib Dem defence policy.
First of all, In order to get my most controversial view out the way, I think Trident does need replacing. Secondly, I have some ideas regarding the defence of this United Kingdom if the Shadow Cabinet is ready for them.
EU Referendum
Moving this here from Makemakean's PM so that we can discuss it better.
Gentlemen,
In the establishing of our manifesto, I believe this issue can be the single hardest one to decide about. I won't deny that in my heart I yet remain a Europhile, but I have come to the conclusion that it has become indefensible to keep Britain in the EU without an actual mandate to do so. With now over 70% demanding a referendum in the polls, you can no longer deny that refusing the people a referendum is an obstruction of democracy.
To be concrete: The question is no longer if we should hold a referendum, but when.
Now, from reading AndyC's Ideal UK (in my opinion an excellent list of ideas), I see that our Shadow Chancellor outright wants to leave the EU. From this I can only infer that he wishes for a referendum to go ahead as soon as possible after the election. Personally, I am split, and would ideally like to put it at two years after the election (i.e., in 2014).
My reasoning is simple, at the moment I believe the Eurocrisis can yet reach some sort of stabilization within a year or so, and thus an immediate referendum, followed by a likely exit by the UK could inflict massive damage to the European economy, thus hurting the UK severely. In two years time, however, things would be different. To appeal to the LibDem Europhiles among us, if the seas of the European economy have finally flattened out and the storm has come to an end, then the Yes2Europe side is likely to win, and the EU has in some sense been vindicated as a project.
However, if the tempest of the markets is still raging, and the crisis has but gone worse, then I hope that you will agree with me that no intellectually honest person (not even the most devout Europhile) can any longer consider the EU project to be anything but a failure that must be brought to an end as soon as possible. I would say that in this situation, the ideal would be to apply for membership in the far more decentralized EFTA and work for it to replace the EU in the role of providing an open, common, European market.
Thus, I hereby send this question to you: When would you suggest is the best time to hold a referendum?
Best Wishes,Max.
Wednesday 20 June 2012
Tax and Benefits system
This is going to be a long one, for which apologies in advance. However, the following system is designed to:
- Simplify and clarify tax arrangements
- Remove the vast majority of tax loopholes (as it turns out, a Jimmy Car-style arrangement is impossible under this system)
- Reward and encourage work at all levels
- Remove the Benefits Trap
- Encourage growth
- Avoid losers through the change as much as possible
Impossible? Maybe. Let's give it a go:
1 - National Insurance is abolished. Both for Employers and Employees. However, most of this is loaded onto the relevant income taxes for clarity. Thus corporation tax becomes 35% (from 24% today; the small business rate is also abolished but the Flat-rate VAT system for companies with small turnoveris retained and lowered from 12-15% to 10% to balance this) and income tax also becomes 35% (from 20%/40%/45% today). The flattening of the tax bands is not a highly regressive step - they are in effect 20+12; 40+2, 45+2 (so 32/42/47) today. The higher rate at the bottom end is more than balanced by the next step; the lower rate at the top end by the third step ...
2 - The tax-free allowance is also scrapped. So are Tax Credits. So is JSA, Income Support, Housing Benefit and Council Tax Benefit (however, DLA, Carers Allowance and Incapacity Benefit are retained). These are all replaced by a Citizens Basic Income payable to every citizen in the UK at the following rates:
0-17: £40/week (payable to parents)
18-21: £75/week
22-64: £100/week
65+: £140/week
All income is taxed, with the exception of dividends from shares in companies which pay all their corporation tax in the UK (as in effect they have already been taxed at 35%). The IR35 unit in the Inland Revenue is abolished as there are no loopholes left for people to use here anymore. Note that income from loans is also taxed at 35% - however loan repayments garner tax deductible status which is used to directly reduce the repayments.
3 - Council Tax, Land Duty Stamp tax and Inheritance Tax are scrapped. they are replaced by a Land Value Tax on residential properties charged at 1.2% of value annually with the first £80,000 exempted. The average value of this is slightly above the average value for Council Tax but is far more progressive. Pensioners may elect to have their contributions "rolled up" and taken out of the estate on death - effectively trading an exemption from the equivalent of Council Tax for an optional Inheritance Tax.
4 - There will be a major social housing building programme - today we have approximately 750 million people on the waiting list for social housing (and, incidentally, about 2 million people who are in social housing who earn too much to be eligible for Housing Benefit). The average tenancy length is c. 30 years. To remove the disincentive to move out once on ones feet, social rents are to be charged at 20% of gross incomes. For those at the bottom, this is lower; for those better off, it starts to approximate rents in the private sector. The Government will also pay 75% of all moving fees for someone moving out of social housing. I'm allocating £10bn per year to this programme; this should build approximately 100,000 units per year and provide a decent stimulus to the economy as well as help to moderate overall house prices.
5 - ISAs, TESSAs, PEPs are abolished - these mainly benefit upper-middle-class savers only, who should be happy enough at the lower tax rates in any case. Most tax credit schemes for companies (eg R&D Tax Credits) will be scrapped; if there is any need for subsidies, they will be explicit subsidies.
6 - There are two main classes of losers from the tax'n'benefit changes (well, three if you count those employing tax avoidance schemes who'll see virtually all loopholes vanish in simplicity): Wealthier pensioners and young single mothers. The former may lose out because private pensions never attracted NI before - this will be offset to a large extent by the fact that the Citizens Basic Income at age 65 is significantly larger than the pension, so the effects aren't very noticeable. We're talking small numbers losing small amounts and this is more than balanced by the poorer pensioners being significantly better off. Young single mothers will be provided for by a series of well-equipped and plush mother-and-baby homes, provided to all single mothers with babies up to the age of 3 years old. These are to be well run, well outfitted and well supported (£150 million per year to be made available for them). All education up to A-level and apprenticeship level to be encouraged and supported; free childcare for any young mother working or in education or training in these establishments. Staff will be well paid and equipment well sourced; I'm putting £250 million per year aside for these facilities.
7 - During the transitional period until sufficient social housing is available for those who need it (before enough who don't need it move out and more is constructed), Housing Benefit is payable to those in the private sector as before. I'm allocating £5bn per year for this.
8 - Planning Gains to be paid to the relevant Local Authority rather than central government. This will encourage the granting of planning permission (overriding NIMBYism) without causing untrammelled and uncontrolled development by ensuring that the appropriate incentive goes to the appropriate body (as the Local Authority will have to deal with any increase in local costs and requirements by a development, it is appropriate that they should receive the planning gains).
Overall effect is closely cost neutral (I make it zero change +/- £3bn dependant on assumptions; this may be unduly pessimistic as most tax avoidance schemes become impossible and the collection rate should increase significantly). The small shift away from corporation and income tax onto LVT is pro-growth to the tune of c. 0.2% per year of GDP; the construction boost is a larger stimulus and I expect the supply-side reforms of the incentive changes to those formerly in the Benefits Trap (for many, a marginal effective rate of 95.5% from tax, NI, Tax Credit withdrawal, HB withdrawal and CTB withdrawal will convert to 35-55%. To put it another way, the least beneficial will be a ten-fold retention in marginal earned income for the poorest in the Benefits Trap).
- Simplify and clarify tax arrangements
- Remove the vast majority of tax loopholes (as it turns out, a Jimmy Car-style arrangement is impossible under this system)
- Reward and encourage work at all levels
- Remove the Benefits Trap
- Encourage growth
- Avoid losers through the change as much as possible
Impossible? Maybe. Let's give it a go:
1 - National Insurance is abolished. Both for Employers and Employees. However, most of this is loaded onto the relevant income taxes for clarity. Thus corporation tax becomes 35% (from 24% today; the small business rate is also abolished but the Flat-rate VAT system for companies with small turnoveris retained and lowered from 12-15% to 10% to balance this) and income tax also becomes 35% (from 20%/40%/45% today). The flattening of the tax bands is not a highly regressive step - they are in effect 20+12; 40+2, 45+2 (so 32/42/47) today. The higher rate at the bottom end is more than balanced by the next step; the lower rate at the top end by the third step ...
2 - The tax-free allowance is also scrapped. So are Tax Credits. So is JSA, Income Support, Housing Benefit and Council Tax Benefit (however, DLA, Carers Allowance and Incapacity Benefit are retained). These are all replaced by a Citizens Basic Income payable to every citizen in the UK at the following rates:
0-17: £40/week (payable to parents)
18-21: £75/week
22-64: £100/week
65+: £140/week
All income is taxed, with the exception of dividends from shares in companies which pay all their corporation tax in the UK (as in effect they have already been taxed at 35%). The IR35 unit in the Inland Revenue is abolished as there are no loopholes left for people to use here anymore. Note that income from loans is also taxed at 35% - however loan repayments garner tax deductible status which is used to directly reduce the repayments.
3 - Council Tax, Land Duty Stamp tax and Inheritance Tax are scrapped. they are replaced by a Land Value Tax on residential properties charged at 1.2% of value annually with the first £80,000 exempted. The average value of this is slightly above the average value for Council Tax but is far more progressive. Pensioners may elect to have their contributions "rolled up" and taken out of the estate on death - effectively trading an exemption from the equivalent of Council Tax for an optional Inheritance Tax.
4 - There will be a major social housing building programme - today we have approximately 750 million people on the waiting list for social housing (and, incidentally, about 2 million people who are in social housing who earn too much to be eligible for Housing Benefit). The average tenancy length is c. 30 years. To remove the disincentive to move out once on ones feet, social rents are to be charged at 20% of gross incomes. For those at the bottom, this is lower; for those better off, it starts to approximate rents in the private sector. The Government will also pay 75% of all moving fees for someone moving out of social housing. I'm allocating £10bn per year to this programme; this should build approximately 100,000 units per year and provide a decent stimulus to the economy as well as help to moderate overall house prices.
5 - ISAs, TESSAs, PEPs are abolished - these mainly benefit upper-middle-class savers only, who should be happy enough at the lower tax rates in any case. Most tax credit schemes for companies (eg R&D Tax Credits) will be scrapped; if there is any need for subsidies, they will be explicit subsidies.
6 - There are two main classes of losers from the tax'n'benefit changes (well, three if you count those employing tax avoidance schemes who'll see virtually all loopholes vanish in simplicity): Wealthier pensioners and young single mothers. The former may lose out because private pensions never attracted NI before - this will be offset to a large extent by the fact that the Citizens Basic Income at age 65 is significantly larger than the pension, so the effects aren't very noticeable. We're talking small numbers losing small amounts and this is more than balanced by the poorer pensioners being significantly better off. Young single mothers will be provided for by a series of well-equipped and plush mother-and-baby homes, provided to all single mothers with babies up to the age of 3 years old. These are to be well run, well outfitted and well supported (£150 million per year to be made available for them). All education up to A-level and apprenticeship level to be encouraged and supported; free childcare for any young mother working or in education or training in these establishments. Staff will be well paid and equipment well sourced; I'm putting £250 million per year aside for these facilities.
7 - During the transitional period until sufficient social housing is available for those who need it (before enough who don't need it move out and more is constructed), Housing Benefit is payable to those in the private sector as before. I'm allocating £5bn per year for this.
8 - Planning Gains to be paid to the relevant Local Authority rather than central government. This will encourage the granting of planning permission (overriding NIMBYism) without causing untrammelled and uncontrolled development by ensuring that the appropriate incentive goes to the appropriate body (as the Local Authority will have to deal with any increase in local costs and requirements by a development, it is appropriate that they should receive the planning gains).
Overall effect is closely cost neutral (I make it zero change +/- £3bn dependant on assumptions; this may be unduly pessimistic as most tax avoidance schemes become impossible and the collection rate should increase significantly). The small shift away from corporation and income tax onto LVT is pro-growth to the tune of c. 0.2% per year of GDP; the construction boost is a larger stimulus and I expect the supply-side reforms of the incentive changes to those formerly in the Benefits Trap (for many, a marginal effective rate of 95.5% from tax, NI, Tax Credit withdrawal, HB withdrawal and CTB withdrawal will convert to 35-55%. To put it another way, the least beneficial will be a ten-fold retention in marginal earned income for the poorest in the Benefits Trap).
Test post.
If this works, welcome to the AH.com Lib Dem blog, and many thanks to Theo (Ice-Eyes) for setting this up.
The way this is envisaged to work is that all members will suggest policies (preferably in their portfolio areas) and the rest will debate them to get some kind of consensus.
We'll also tag them by the portfolio area (eg 'Party Direction', 'Treasury', 'Foreign', 'Home', 'Justice', 'Defence', etc.). 'Meta' will be used for posts about posting (like this one).
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