Politics and Economics

The UK would benefit by leaving the EU

The EU is trying to reconcile the differing social and political aspirations of its diverse 28 member states. The UK has a long, proud and independent history in these areas. It created the model for modern democracy. It initiated and developed common law that protects all and is a model for the rest of the world. It has bravely fought for social justice including establishing trial by jury, abolishing slavery and fighting the Nazis. It is rightly suspicious of delegating these responsibilities to largely unelected and unrepresentative European bureaucracies that do not share its cultural and social heritage.

The UK joined the Common Market when it was primarily a free trade zone. This was for predominantly economic reasons and at a time when it was “the sick man of Europe”. Undemocratic militant unions, the troubles in Northern Ireland and run-away profligate socialism were devastating its economy. These problems have since been solved and it is Europe that is in an economic malaise. The UK’s recovery from the last great recession has been hampered by the poor economic performance of its European partners.

It is right that the people of the UK should be given a choice on whether to continue membership in a referendum. Since it joined the Common Market in 1973 it has morphed from a trading zone to the EU super state, with ambition to dictate social, political, economic and foreign policy. A new democratic mandate is required for this massive change of circumstance.

Few in the debate believe that Britain cannot manage its political, social and foreign policy at least as well as the EU. Sovereignty of its own Parliament can ensure it can tailor these issues to better match the specific will and needs of its electorate, without interference from unrepresentative politicians from other independent states.

It is the UK’s economic future that is driving many to consider staying in the EU. However the UK is still a large economy and one with which many countries would want to trade. As a newly Independent state the UK could set up a new free trading zones and agreements with its more affluent northern European partners – Germany, Netherlands, Scandinavia, Ireland – and any other countries who were competitive enough to join.

The Common Market was set up in an age when geographical proximity was essential for the trading of goods and services.  In the modern, online, connected world physical borders and geographical proximity are irrelevant for much of the world’s trade. The UK’s free trading agreements could therefore be extended to include countries with which the UK has strong language and cultural links but no geographical proximity: Australia, New Zealand, Canada, South Africa and and India. It could further cement its “special relationship” with the world’s biggest market – the USA.

Many of the services in which the UK excels (financial and legal services for example) can be done largely online. Meetings can be held by videoconference. Ideas can be shared online with collaborative software. As can scientific and industrial research. So we can also add digital technologies into the mix: telecommunications, media; advertising; marketing and market research. The UK has unique world-class skills in the production of films, television programmes and computer games. Professional sport is a very affluent and growing industry. Cultural and language links will allow particular benefits in the free trading of all these industries and services – more than could be achieved within the language and culturally diverse European market. The ease with which physical goods are currently circulating between these countries would naturally ensure they were also included in these free trade agreements.

The UK would be further benefited by not being tied to countries creating an economic drag on the EU and consequently the UK: Greece, Spain, Portugal and Italy.  Their expensive social policies and the strait jacket of the Euro will ensure their economic woes will not be quickly or easily be remedied.  Without the EU the UK would be free to open up better opportunities with more diverse economies such as China and Japan.

These new trading blocks and agreements would be based solely on economic free trade. This would eliminate most of the social and political tensions and the subsequent market distortions and bureaucracy created by the EU super state structure and ambition.

Leaving the EU would be a short-term economic risk but with time and ambition the lost economic benefits could be mitigated and then massively exceeded. Over-and-above the long-term economic benefits the UK would also regain the freedom to follow its own unique democratic, political, cultural and social destiny.

 

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Politics and Economics

Why We Cannot Increase Taxes On The Rich

In the UK we have an annual £100,000,000,000 + deficit which is bloating our £1,400,000,000,000 + debt. The current interest payments are greater than the defence budget.

Remember in Britain more than half the adult population receive more in benefits than they pay in tax i.e. the majority are supported by a minority of tax payers – so the “rich” are already contributing.

Let’s try a thought experiment.  If we taxed everybody at 100% of his or her income we would collect very little tax.  Few people would work for no money.  If we set income tax at 0% we would collect no money. Therefore (logically) there is an optimum top tax rate whereby we collect the most tax.  Labour believed this was 40% for all but one month of their 13-year rule.  The current administration thinks it is 45%.  However all agree that taxing too much collects less tax.  We are just arguing about the correct percentage.

But can we squeeze the rich some more? A simple calculation:  Suppose we ask all people earning over £100,000 to pay an additional £30,000 tax per year on top of the tax they currently pay?  Totally ludicrous of course, as most earn little more than £100,000 and couldn’t find it, and those that earn significantly more (the one’s we all really want to tax) can easily move country and pay us no tax at all.  The constraints on incentives and resulting talent drain would make this whole concept fanciful as a way of raising revenue……but just for the sake of illustration let’s suppose it was possible…..

We have 500,000 people in the UK who earn more than £100,000 in salary (personal taxation, PAYE and Schedule D) so, best case scenario, we’ve raised £15 billion.  We’ve reduced the deficit from £105 billion per year to £90 billion per year.  Now what?

There are others who take their income in other ways e.g. company dividends, investments, trusts etc.   However these people are not tied to the UK by employment and can easily move to a more tax friendly country if the tax regime becomes punitive.  The recent experience of the socialist President Hollande of France in trying to raise significant tax from “the rich” shows that this is not practical.  He failed to raise any significant revenue.  Any increase in his take of tax was negated by a reduction in economic activity, as the incentives to do business in France were reduced, and rich citizens fled to Belgium, Switzerland and the UK.

Tax revenue will get nowhere near reducing the deficit, let alone the debt.  Micturition and hurricanes spring to mind.  Massive public spending cuts are inevitable.

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