The mini budget on Friday has been widely criticised as being largely focused on making life easier for the wealthy and the City Bankers rather than the rest of us. The criticism is fair as it’s a budget that’s driven by a misguided ( to be polite ) belief in Trickle down economics - more a matter of faith for the libertarians than sound economic judgement.
Despite PM Liz Truss’s protestations to the contrary the recent budget will do little to solve the real problem - which is that all UK Westminster Governments ( whether under Tony, Gordon, Dave, Teresa or Bozo or Liz ) pretty much since the end of Empire, have remained in it up to their necks when it comes to what has become state sanctioned tax evasion.
As the Westminster government is heavily involved in aiding and abetting tax evasion. British Overseas territories, including the Cayman Islands, continue help to hide trillions of dollars from many nation’s tax authorities.
Now one reasonable definition of taxation is that it’s the fair dues we all pay to participate in society. Our taxes can be used to fund projects (significant and not so significant) that benefit us collectively and to provide a safety net for society. Tax is and probably always will be (and probably always has been) a subject that stirs people up on both sides of the electoral divide within these islands.
The trick to realising that you have been sold a pup, is first to notice that you have been sold one. The Party formally known as New Labour, the Conservatives and the neo Liberal Democrats have all been hooked on the illusionary idea that either by cutting, reducing taxation for the rich (and corporations) or even perhaps by turning a blind eye to tax evasion, avoidance, etc - that wealth will trickle down from the top to the rest of us. The problem is that wealth just simply does trickle down… it stays with the wealthy.
This questionable theory was pumped out by Ronald Reagan (and Mrs T) in the 1980’s is still remains largely dominant amongst right wing libertarians; it’s not a new theory. US Presidential candidate William Jennings Bryan (in 1896); who noted ‘that if you will only legislate to make the well-to-do prosperous, their prosperity will leak through to those below’. ‘Trickle-down theory’ first appeared in the 1932 US Presidential campaign, when Democrats used it to hammer Republican Herbert Hoover’s plan to engineer economic recovery by making the rich richer.
Some fifty years later even Ronald Reagan’s supporters struggled to sell the idea to their own party, even George Bush (Senior) mocked Reagan’s theories of supply-side economics as ‘voodoo economics’ at least until he got the Vice Presidential slot. On this side of the pond there were even some monetarists who told Mrs T straight that the idea was nonsense and that it would not deliver results - naturally she did not listen.
Across the pond, Reagan’s first budget brought in a moderate reduction in the basic tax rate, this was followed by the a drastic reduction of the top tax rate from 70 to 50 percent and later still to 28 percent. If the theory was correct then, the public coffers should have swelled with enough extra revenue to balance the budget within one to two years. Unfortunately, the theory was incorrect, within the eight years of Reagan’s Presidency the total Federal deficit soared from around $900 million to some $3 trillion dollars.
What followed has been described as an orgy of speculation in stocks, shares and real estate (this was the era of ‘Greed is good’), ordinary Americans stopped saving and started spending. Through the 1980’s there was a near continuous decline in long-term capital investment – on which economic growth and jobs were dependent. To make matters worse the USA went into recession and the Federal Reserve had to raise interest rates to hold down the inflationary consequence of the tax cuts, by 1981/82 unemployment in the USA rose about 10% for the first time since the aftermath of the great depression in the 1930’s.
The gulf between the wealthy elite and the rest of the population became a chasm, the rich got richer and parallels have been drawn between the 1980’s and the Gilded Age of the 1870’s (income tax was abolished in the US and was only reintroduced during the First World War). The 1980’s for the mega rich in the USA was an era of conspicuous consumption and extravagance – yet oddly enough very little of this prosperity tricked down to the American middle and working classes who have become poorer.
Interestingly enough average US family incomes did not return to the level they were at in the 1970’s until 1987 – wile this may have sounded good, the harsh economic reality was that Americans were now working harder and longer – in 1973 an average American worker had 26.2 hours of leisure time per week, by 1987 this was down to 16.6 hours per week and it’s fallen still further.
One result was that jobs were also now less secure, Americans now worked on short-term of temporary contracts in increasingly un-unionised working environments - something that was also mirrored on this side of the pond. For blue-collar workers the 1980’s were a disaster, wages fell through the decade as employers threatened to move production overseas (in the 2000’s they did) because the workers had priced themselves out of employment.
The neo liberal / neo conservative right wing, in the US and here in the UK crowed about how government should not interfere with (or regulate very much) the ‘free market’. This hands off attitude was also duly applied to the US savings and loan industry, laying the groundwork for the collapse that was to follow in 2007.
The only exception to the non state interference rule being that when things went really pear shaped ( and the bankers nearly crashed the US and world economies ) then obviously it was expected that Government would collect the tab. One side effect of all this was fraud, 650 savings and loan companies collapsed, with the $1.4 trillion dollar tab being picked up by the US government.
On this side of the pond, building society after building society were floated on the stock market – and within a few years were readily absorbed by increasingly greedy banks. In the US, exploitative working practices and sweatshops reappeared encouraged by the effective withdrawal of regulation and inspection.
The 1980’s also saw the growth of increasingly powerful media empires and a concentration of power in fewer and fewer hands despite much reputed mantras from government about greater competition and choice for consumers. More and more money drifted offshore particularly in these islands and keeping track of it became more and more difficult.
We are all still living with the consequences of that period in the 1980’s when an ideologically driven obsession with the ‘free market’ and ‘privatisation’. Heaven help anyone who dare question these sacred truths – the very heavens may fall. The problem is that the market was rather than being ‘free’ it was pretty much increasingly unregulated as Governments in the USA and the UK largely looked the other way – tax collections fell and ironically tax evasion soared.
This state of affairs was tolerated by the long time dying Major Government and largely encouraged by the former New Labour governments of Tony Blair and Gordon Brown and barely mentioned by the former Con Dem government. Even the crash has not changed things - there was some talk about tacking tax evasion which was matched by continuing (significant) staff cuts to HMRC - justified by the harsh financial necessities of austerity.
It is interesting because tax evasion and tax avoidance, at least outside of the UK, is rarely out of the headlines with many heavily indebted governments being particularly keen to hunt down every tax dollar / euro / pound that is owed by tax evaders avoiding (unlike the rest of us) paying their fair dues to society.
The Westminster elite privately at least regardless of whatever they say publically, appear to pay scant respect to the idea of fair taxation and fair representation, we now appear to be as close as possible to being governed by the sons of bankers and the sons of the City in the interests of the City (of London).
In the belly of the Westminster beast lies the City, which may explain why the former New Labour government, the former Con Dem coalition government and the current now unrestrained Conservative government ( Mark 3 ) were and remain very reluctant to do anything about the problem as some (but not all) of the city banks are hand in glove with drug dealers, dictators, oligarchs, rogue states and terrorists when it comes to money laundering.
The inertia may be explained by the lure of comfy lucrative seats on the board for former Westminster politicians. There is something else, while the budget may be about feeding bankers and the City, it’s consequences may well have banished the illusion that the Conservative Party is even remotely economically competent - shattering this myth has taken almost as long as it has taken to expose the Westminster establishment’s cozy relationship with state aided and abetted tax evasion.
