When he accepted his latest promotion the new Chancellor of the Exchequer, Rishi Sunak, could not possibly have imagined what he was letting himself in for. However, one advantage of the many challenges he faces is absence of any precedent for their sheer scale - and hence the scope for original thinking in dealing with them.
For those of us struggling to get a grip on the relief-measures he has just introduced, the language used in the media can always be relied on to give a clue. For example, reviving the Covid-stricken economy with tax “giveaways”. Well, we know there’s no such thing, don’t we?
When anyone in government talks about giving something away, it’s always instructive to ask yourself how they got it in the first place. It’s likely that the “free giveaway” should be renamed “reduced takeaway” – or even more likely that the Exchequer doesn’t actually “have” what it is about to “give”. After all, if the hundreds of billions being lavished on “schemes” were conjured into existence by the central bank’s computer mouse what is it that’s actually being “given”?
The story of the Sorcerer’s Apprentice provides an apt analogy. The apprentice is fed up fetching water with a bucket, so when his master is away he enchants a broom to do the work for him, using a magic spell for which he has no training. The floor is soon awash, but now the apprentice realizes with horror that he can’t stop the broom because he doesn’t know the magic word for that. So he splits the broom in two with an axe, but each of the pieces becomes a whole broom that takes up a bucket and continues fetching water, now at twice the speed. The resulting deluge floods the entire room.
By the time the master returns and ends the spell, huge damage has been done. He declares: “Only a master should invoke powerful spirits”. Indeed!
Take the Chancellor’s decision to reduce the rate of VAT from 20 to 5 per cent. Who do you suppose will benefit? No doubt costs to the public of some items and services will fall, but the reduced rate also provides many businesses with an opportunity to make up some of the ground lost during the lockdown by effectively raising their own prices to gain at least a slice of the notional VAT reduction.
[I shall not go into it now but, again, the language gives the game away. A value-added tax is most definitely not a tax on value-added; it is an unvarnished sales tax, and just as all taxes stifle the target on which they are levied, so a sales tax inhibits trade in goods and services.]
In exactly the same way, ask yourself who will benefit from the removal of stamp duty for property transactions below £500,000. Will house prices fall as a result? Some, no doubt, but not by the full amount of stamp duty saved. That’s not how markets work. The extent of its impact will be largely determined in regional markets, reflecting in turn the risk appetites of house-buyers and sellers. The notional price reduction will in many cases be at least partly offset by sellers seizing the opportunity to raise their asking prices.
All this raises the obvious question: if these giveaways are now such a brilliant idea, and have such a wonderful way of releasing market forces from the shackles of tax-based interference, who were the idiots that imposed them in the first place? You already know the answer: the same people!
If the Chancellor were capable of joining the dots in his endeavours to revive suffering High Streets he would require the uplift in land values that follow grants of planning consent to be split between the land-owners and local councils – instead of enriching just the owners, who haven’t lifted a finger to earn it. Just think what a vast reduction in business rates and council tax that measure would facilitate! But our apprentice-chancellor didn’t get the relevant training in his years at Goldman Sachs, Stanford or the Treasury.
Then there is his “Kick-Start” scheme to stimulate youth employment that will cost the state some £6,500 for each job, payable to employers who offer a 6-month work placement to people of between 16 and 24 already claiming Universal Credit - which, remember is a benefit that incorporates 6 other formerly separate benefits.
The “Jobs-Retention Bonus” is Mr Sunak’s centre-fold post-furlough giveaway. Its potential, however, is dubious because companies are unlikely to take back staff they no longer require just for the sake of a relatively trifling bonus of £1,000 per head. This is not radical. It’s just fiddling. It’s in the same mindless mould as the whole “minimum wage” sticking plaster syndrome, rooted in the quasi-humanitarian socialist dream.
A fashion goods firm called Boo-Hoo in Leicester has been dragged through the mire for allegedly paying its largely immigrant staff sweatshop wages. Exploitation? Perhaps, whatever that may mean. Everything is relative. Would the employees prefer to return to their countries of origin? Try asking them what they would earn there. They are not chained to their factory workbenches in Leicester and are not forced to remain with Boo-Hoo. But why not compel Boo-Hoo to pay them the “minimum wage”? Indeed, why not? Even if that would mean having to close the factory and put all those workers out on the street?
A case, once again, of unadulterated state interference and expediency trumping principle. I am a heartless bastard, I know!
Again, at a time when the nation stands on the brink of a calamitous recession and a currency collapse of unprecedented dimensions, where is a leader capable of comprehending and implementing the required joined-up response so desperately needed?