Saturday, 12 December 2009

If I ruled the World…well Britain anyway…

I have had an epiphany! I don’t know where from but perhaps the rage I feel at how lame and feeble a Pre Budget Report that Alistair Darling delivered on Wednesday flipped a switch and turned my thinking upside down!

I don’t think there’s a reasonably intelligent adult in the UK today who doesn’t understand how badly managed our whole economy has been these last 12 years, is there? And we all know and even the MSM does to an extent that cuts have to be made to curb Government spending and borrowing. But Politicians find it hard to make cuts in public spending, even Margaret Thatcher did. Too often the rhetoric (and were seeing it happen today) of it meaning “less teachers, nurses, doctors and police” ad nauseum is bandied around like so much confetti when it need not be.

The state of UK Plc today is dire, If UK Plc was a private company, it would not be just the board getting fired. There would be massive cost-cutting all round. Over the last five years, public spending has grown nearly 7% a year.

What people Politicians seem to forget is that every single penny that Government spends comes from the labours of private enterprise. It actually doesn't make any difference whether Government takes by taxes or borrowing– they are taking capital which would otherwise have been used by individuals and businesses. Once you accept this, it all comes down to the argument that is government better placed to spend that money any better or more efficiently than the private sector or individual during a recession – I know where my money would be placed.

But its private companies that have to take a hit when times are tough. They already have. Ask all those people who are out of work – which I reckon could top 3.5 million if we continue on this path. Add in the millions more who have had to take real pay cuts it no wonder the CBI says that half the UK’s companies plan to freeze pay this year. Two-thirds of them have already imposed recruitment freezes. Yet the finance director of UK plc, in worse debt than any private company and any comparable country, is not proposing cuts or freezes at all. Indeed, he aims to pay his workers another 1% this year in exchange for votes!

So what if, just what if instead of looking at cuts, cuts and more cuts we looked at it the other way?

Instead of cuts why don’t we make a list of all the things that we want and really need to keep i.e. what’s essential, and abolish, cease to pay, stop all the rest?

Let me explain; the deficit this year is forecast at £178 bn. That’s £178 bn of money the government has to borrow above tax receipts to meet the spending commitments it has “promised” to make.

So let’s do some simple arithmetic;

1) We keep State pensions and welfare as they are; that’s £225 billion

2) We keep the same spending on the NHS; £120 billion

3) Education, training, and vocational; £ 60 billion

4) Maintaining Transport and infrastructure; £ 30 billion

5) Debt interest on current levels of debt £ 43 billion

6) Govt core functions; Defence, Law & Order,

and Domestic and Foreign Policy £ 80 billion

Total £558 billion

Tax receipts are forecast (we are in recession) at £528 billion

The shortfall is still £ 30 billion

The question I ask is do we really want or NEED Government to be doing anything other than the essentials listed above? Why do we need to spend more than the £558 bn as it stands? But we could still save more if the political will was there.

We still have a £30 billion shortfall though so that’s the point at which we then need to look at how we spend the money that is required on these core functions. i.e. cuts!

If we came out of the EU we’d save £6 billion on our annual contribution.

On top of that; The Common Agricultural Policy (CAP) costs us £10.3 billion a year; that means that food in the UK would be 5% cheaper on average if we didn’t have to pay this nonsense!

And did you know that £150 million of this CAP goes in subsidies to foreign fishing fleets under the Common Fisheries Policy to fish in our territorial waters, did you know that £264 million of that goes to subsidise foreign farmers mostly the French, and £72 million is for wage costs alone for civil servants in administering the subsidies, they also spend £5.4 million a year on just furniture for all those civil servants!

We have a War & Peace tome of 105,000 pages of EU Regulation, Directives and legislation and these alone are estimated by the CBI and other business bodies to cost business and infrastructure in compliance with them, in the UK in the region of £19 billion p.a.

Leaving Afghanistan would save £3.5 billion a year from the defence budget, as well as lots of lives one cannot price.

Cancel foreign aid out of foreign policy saves £10 billion p.a. when were in the black we can consider giving again.

Two other general changes could be made to public sector expenditure.

There should be fundamental reform of public pensions, ending the gold-plated final salary handouts which have all but disappeared from the private sector, and replacing them with more affordable defined-contribution schemes.

In years to come, that reform alone would save literally hundreds of billions. Unions won’t like it but would you rather have a job with a pension or none at all?

Next, as a means of ensuring that the public sector shares the pain of the recession with the private sector, every state employee earning more than, say, £25,000 a year should take an immediate 10 per cent pay cut. Tough yes but this is the age of socialism so share the pain.

In the past decade public-sector pay has far outstripped the private sector; that’s why more than 1,000 council staff now earn more than £100,000 year, and 16 are paid more than the Prime Minister’s £194,250 salary. None of these jobs generate “wealth”.

Such cuts would save £10 billion a year.

Take the welfare spend.

More than 2.6million people are on incapacity benefit and they cost £12 billion a year – or £16 billion if you include associated housing and council-tax handouts.

Estimates suggest that only about 1 million of these are genuinely incapacitated, but still they get more than £100 a week on incapacity benefit, compared with £60 jobseeker’s allowance.

Kicking the scroungers off this system could save £5 billion a year.

How about the tax credit system, which costs the Government £22 billion a year to run?

It’s a shambles, with almost £14 billion lost in fraud and overpayment since tax credits were introduced in 2003. We’ll never get that back but £22 billion p.a. is a big saving.

And all this failed administration costs a fortune: 8,000 staff work at calculating tax credits, at a cost of £ 500 million a year. Dismantle it and go back to direct welfare payments for those who really need them.

The Department for Work and Pensions spends £6 billion a year on administration. How much!!! Even a 30% saving on this saves £2 billion.

The NHS says it spends £2.8 billion a year on managers (the true administrative bill is much higher). Cut both, and savings could be a modest £3billion a year.

And why not scrap the £6 billion ID cards project (and that’s a modest estimate) which will do nothing to help tackle terrorism or immigration, and – like nearly every other government IT project – almost certainly won’t work anyway?

And while were at it why not simplify the tax regime, the basic rate of tax may only be 20% but add in Employee NI that’s going up next year anyway then people are paying in the region of 35% of what they earn if you’re a low earner but over 55% if you’re a moderate earner and over 65% if you’re a high earner.

There comes a Tipping point when people say “I can’t be bothered to work harder as the Government keeps most of it anyway”. This is called the Laffer curve and is explained here. But basically there comes a point where higher tax rates do not always lead to higher tax revenue. At some point, higher tax rates kill economic activity, driving down revenue. It’s getting the balance right between maximising revenue from economic endeavour against allowing that endeavour to profit from its labour.

So why not simplify it, scrap NI for Employer and Employee, introduce a flat rate of tax for individuals and companies that’s balanced right, save on the administration costs alone for collecting just one tax instead of a range of complex ones will save £2 Billion from HMRC budget.

It would also stimulate the economy by allowing people and companies to keep more of what they earn but they would generate more “wealth” from their endeavours ergo more tax revenue long term and the private sector would then be able to absorb the unemployed from the loss of non wealth generating jobs currently.

Now if I’ve done my sums right that’s a total cost saving of £98.8 billion. Net £68.8 billion if you factor in the £30 billion deficit.

Our current national debt stands at £986 billion. With interest payments of £43 billion a year but this has already been accounted for in the budget figures above. We could pay off our national debt within 14 years by applying this total saving each year. Quicker actually as the interest payments would reduce over time too. Maybe even more quicker if you factor in increased revenue from a  reform of the taxaion system, cutting taxes and promotion of wealth generating measures. Why can’t Alistair and Gordon see this, why cant anyone in Westminster see how easy it is to do? Where is the will where is the courage? If we the shareholders in UK Plc had any real power we’d be insisting they do this….

It could be done……

But only if I ruled the world……

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