The United Kingdom Needs another Margaret Thatcher

I was a big fan of Brexit (the United Kingdom voting to leave the European Union), but I’m very disappointed about the subsequent failure to create “Singapore-on-Thames.”

The above clip was my “under-reported story of the week,” as part of the most-recent episode of the Square Circle.

The main argument for Brexit was to escape the European Union, which is destined to become a “transfer union.”

To be more specific, the combination of demographic decline and fiscal decay means the bureaucrats and politicians in Brussels eventually will obtain the power to impose taxes in order to redistribute money to failed economies in places such as Italy and Greece.

Indeed, that process already is underway.

By voting for Brexit, the people of the United Kingdom can escape the sinking ship and thus will not be forced to subsidize the bad policy of other nations.

But there was a second reason to support Brexit, which was to give the U.K. the leeway to become the Singapore of Europe.

Would that be a good outcome? Assuming the goal is more prosperity, the answer unambiguously is yes.

As you can see from the chart, Singapore easily has eclipsed the major countries of Europe.

And the idea that the U.K. might copy Singapore’s pro-market policies has been a big part of the Brexit debate, with libertarians and small-government conservatives cheering the possibility and folks on the left dreading that potential outcome.

Any search engine will find thousands of stories about this topic. Here’s a tiny sampling to give readers a flavor.

Sadly, my friends on the left did not need to worry about the U.K. becoming an outpost of laissez-faire policy.

Boris Johnson won a landslide victory in 2019 by promising the “get Brexit done,” but he then proceeded to raise taxes and expand the burden of government spending.

So what’s the current state of play?

In a story for the Washington Post, William Booth writes that Brexit has been a failure.

Boris Johnson…is…the man who “got Brexit done.” So how is that going? What can be said about the post-Brexit Britain that Johnson is leaving behind? …Most people don’t think Brexit has delivered on its lofty promises… With “get Brexit done” as his slogan, Johnson led his party to a landslide election victory. …he oversaw Britain’s departure from the union with one of the hardest possible versions of Brexit… But the government has struggled to show the benefits. …it is clear that although Brexit has not sunk the British economy, it has not produced a boom, either.

But the relevant question is why there was not a boom.

The simple answer, as I noted in the above interview, is that there was no effort to create Singapore-on-Thames. Indeed, the supposedly conservative Tories, under Boris Johnson, went in the opposite direction.

And that explains why supporters of economic liberalization are not very happy. Opining for the U.K.-based Telegraph, Allister Heath is rather depressed.

Statist ideology, historical naivety, cowardice and short-termism have crippled our country. Orthodox thinking has turned out to be wrong in almost all areas that matter, from the economy to energy to planning. …The electorate noticed, kicking Labour out and voting for Brexit, but the politicians let them down. Nothing really changed… Ludwig von Mises, in his Critique of Interventionism, explains how social-democracy is an unstable middle point between capitalism and socialism. This is especially true today. All problems, even when caused by failed Left-wing policy, trigger increasingly hysterical demands for even more state action. …We have a Tory government, but the political climate is veering hard-Left.

This brings us back to what I said in the interview. Boris Johnson has been deposed as leader of the Conservative Party.

Now there’s a race between Rishi Sunak and Liz Truss to see who will be the new party leader – and thus the new Prime Minister.

Both of them claim they will move policy back in the right direction. I’m guessing Ms. Truss is the better option, but my main point in the discussion was that the United Kingdom desperately needs another Margaret Thatcher.

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The United Kingdom’s Failed Post-War Socialism

I’m in the United Kingdom for the Free Market Road Show and had planned on writing today about the awful economic policies of Boris Johnson, the supposedly Conservative Prime Minister.

Yes, he produced an acceptable Brexit, but otherwise has been a big spender. Sort of the a British version of Trump or Bush.

But I’m going to give Boris a (temporary) pass because I can’t help but vent my spleen about this sign I saw yesterday while touring the Imperial War Museum in London.

As you can imagine, I was irked by this bit of pro-socialist propaganda.

Since when does a government takeover of private industry lead to “a fairer, more caring society”?!?

Maybe that was the intention of the voters who elected Clement Attlee, the Labour Party who became Prime Minister after the 1945 election.

The real-world results, though, were disappointing. Indeed, the sign acknowledges that the post-war recovery was anemic.

But it then put the blame on conscription.

As a sensible Brit would say, this is utter bollocks.

Plenty of other nations drafted men into military service, yet they still managed to enjoy decent growth.

Why did those countries enjoy more prosperity? Because they didn’t copy Clement Attlee’s horrible mistake of nationalizing industry (genuine socialism, by the way).

Indeed, while the United Kingdom was becoming the “sick man of Europe,” West Germany boomed in large part because it went in the other direction, getting rid of dirigiste policies such as price controls.

There is a happy ending to this story.

Margaret Thatcher was elected in 1979 and privatized industries – in addition to other pro-growth reforms such as spending restraint and tax-rate reductions.

As a result, the United Kingdom in a very short period of time managed to overtake Germany in the Fraser Institute’s rankings for economic liberty.

I’ll close with a thoughtful and magnanimous offer.

I’ve corrected the mistaken wording on the sign at the Imperial War Museum. I hereby offer – free of charge – this new version.

P.S. It’s a long program, but I strongly encourage readers to watch Commanding Heights: The Battle of Ideas, which tells the economic history of the 20th century. You’ll learn how Thatcher saved the U.K. economy and how Reagan saved the U.S. economy.

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Britain’s Big-Government Tories

After the people of the United Kingdom voted to escape the European Union, I wondered whether the Conservative Party would “find a new Margaret Thatcher” to enact pro-market reforms and thus “take advantage of a golden opportunity” to “prosper in a post-Brexit world.”

The answer is no.

The current Prime Minister, Boris Johnson, deserves praise for turning the Brexit vote into Brexit reality, but his fiscal policy has been atrocious.

Not only is he failing to be another Margaret Thatcher, he’s a bigger spender than left-leaning Tory leaders such as David Cameron and Theresa May.

Let’s look at some British media coverage of how Boris Johnson and Rishi Sunak (the Chancellor of the Exchequer) have sided with government over taxpayers.

Allister Heath of the Telegraph has a brutal assessment of their profligacy.

Rishi Sunak’s message, repeated over and over again, as he unveiled a historic, epoch-defining rise in public spending financed by ruinous tax increases. It was a Labour Budget with a Tory twist and the kind of Spending Review that Gordon Brown would have relished… the cash was sprinkled in every possible direction. Sunak is Chancellor, but he was executing Boris Johnson’s cakeist vision: a meddling, hyperactive, managerialist, paternalistic and almost municipal state which refuses to accept any limits to its ambition or ability to spend. …The scale of the tax increases is staggering. …This will propel the tax burden from 33.5 per cent of GDP before the pandemic to 36.2 per cent by 2026-27, its highest since the early 1950s… The picture on spending is equally grim: we are on course for a new normal of around 41.6 per cent of GDP by 2026-27, the largest sustained share of GDP since the late 1970s. …The Budget and Spending Review are thus a huge victory for Left-wing ideas, even if the shift is being implemented by Right-wing Brexiteers who have forgotten that the economic case for Brexit wasn’t predicated on Britain becoming more like France or Spain. …Labour shouldn’t be feeling too despondent: the party may not be in office, but when it comes to the economy and public spending, they are very much in power.

Writing for CapX, James Heywood explains one of the adverse consequences of big-government Toryism.

Simply stated, the U.K. will go from bad to worse in the Tax Foundation’s International Tax Competitiveness Index.

…in the Cameron-Osborne era, the Conservatives focused on heavily on making Britain competitive and business-friendly, with significant cuts to the headline rate of corporation tax. …in his recent Tory conference speech, Boris Johnson trumpeted the virtues of an ‘open society and free market economy’, promising that his was a government committed to creating a ‘low tax economy’.  Unfortunately, when it comes to UK tax policy the direction of travel is concerningly divorced from the rhetoric. The latest iteration of the US-based Tax Foundation’s annual International Tax Competitiveness Index placed the UK 22nd out of 37 OECD countries when it comes to the overall performance of our tax system. …Nor does the UK’s current ranking factor in the Government’s plans for future tax rises. …the headline rate of corporation tax had fallen to 19% and was set to fall to 17% by 2020. That further fall had already been cancelled during Sajid Javid’s brief stint as Chancellor, in order to pay for additional NHS spending. At the last Budget, Rishi Sunak went much further, setting out plans to gradually raise the rate from 19% to 25% in April 2023. That is a huge tax measure by anyone’s standards… On top of that we have the recently announced Health and Social Care Levy… If we factor all these new measures into the Tax Foundation’s Competitiveness Index, the UK falls to a dismal 30th out of 37 countries.

For what it’s worth, the United Kingdom’s competitiveness decline will be very similar to the drop in America’s rankings if Biden’s fiscal plan is enacted.

In other words, there’s not much difference between the left-wing policy of Joe Biden and the (supposedly) right-wing policy of Britain’s Conservative Party.

No wonder a British cartoonist thought it was appropriate to show Rishi Sunak morphing into Gorden Brown, the high-tax, big-government Chancellor of the Exchequer under Tony Blair.

I’ll close with the observation that conservatives and libertarians in the United Kingdom need to create their own version of the no-tax-hike pledge.

That pledge, organized by Americans for Tax Reform, has helped protect many (but not all) Republicans from politically foolish tax hikes.

It is good politics to have a no-tax pledge, but I’m much more focused on the fact that opposing tax hikes is good policy.

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Boris Johnson’s Fiscal Policy: Politics over Prudence

Two years ago, I wrote about how two former Prime Ministers in the United Kingdom, David Cameron and Theresa May, did a very good job of restraining spending.

On average, spending increased by only 1.8 percent per year last decade, which helped to substantially reduce the fiscal burden of government relative to the private economy.

That was an impressive result, and it adds to the collection of success stories showing what happens when governments obey fiscal policy’s Golden Rule.

That was the good news.

The bad news is that spending restraint evaporated once the pandemic began.

The worse news is that the current Prime Minister, Boris Johnson, has no intention of restoring fiscal discipline now that the coronavirus is fading away.

The Wall Street Journal opined on the new budget that was just released by the supposedly conservative government.

London has spent some £407 billion ($568 billion) on pandemic relief since last year… This has blown a hole in public finances, with the fiscal deficit expected to be around 10% of GDP this year. …Britain’s political class, and especially the governing Conservative party, …faces pressure to “pay for” all this relief. …an increase to the corporate profits tax rate to 25% from 19%…freezing previously announced increases in the thresholds for personal income-tax brackets. This tax hike on the sly is estimated to raise an additional £18 billion starting next year from beleaguered households who discover inflation pushing them into higher brackets. A holiday on the stamp duty on property purchases will expire in October, walloping households as the recovery is meant to begin. …The government’s Office for Budget Responsibility estimates that by 2026 tax revenue as a share of GDP will be 35%, the highest since 1969. The Institute for Fiscal Studies, a think tank, estimates that the additional £29 billion in annual revenue expected by 2026 amounts to the largest tax increase in any budget since 1993. …This Tory government came to power promising to unleash Britain’s entrepreneurial businesses for a post-Brexit growth spurt, and freeing those animal spirits is even more important after the pandemic. A super-taxing budget is a huge gamble.

The WSJ focused on all the tax increases.

Allister Heath’s column in the Daily Telegraph informs us that the bad news on taxes is a predictable and inevitable consequence of being weak on spending restraint.

For the past 50 years, the Tory party had believed that high tax rates, especially on income and profits, were bad for the economy and had strived to cut them. Today, this is no longer true… The Tory taboo on increasing direct rates of taxation…is over… Britain will continue its shift to the Left on economics, sinking ever-deeper into a social-democratic, low growth, European-style model… Johnson, sadly, is planning to increase spending permanently by two percentage points of GDP and taxes by one. He is a big-government Conservative… the main problem facing the public finances longer-term isn’t the economic scarring from the pandemic, but the fact that the Tories are determined to keep increasing spending as if Covid never happened. …Reaganomics is over in Britain, dead and buried, as is much of the economic side of Thatcherism.

Here’s a chart from the U.K.’s Office of Budget Responsibility (OBR), which shows both taxes and spending as a share of gross domestic output (GDP).

I’ve added some text to show that there was fiscal progress under Thatcher, Cameron, and May, along with fiscal profligacy under Blair (and during the coronavirus, of course).

I also used OBR data to construct this chart, which shows inflation-adjusted spending over the past five decades, as well as projections until 2025.

The most worrisome part of the chart (and the biggest indictment of Boris Johnson) is the way spending climbs at a rapid rate in the final four years.

P.S. Because of my strong support for Brexit, I was very happy that Boris Johnson won a landslide victory in late 2019. And he then delivered an acceptable version of Brexit, so that worked out well. However, it definitely doesn’t look like he will fulfill my hopes of being a post-Brexit, 21st century version of Margaret Thatcher.

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U.K. Election Week, Part V: A Tory Landslide for Brexit and Beyond

I was very surprised by the 2016 election in the United States, but I didn’t have a rooting interest, so I watched the results mostly for reasons of morbid curiosity.

Because of my support for Brexit, by contrast, I was intensely interested in the results of yesterday’s election in the United Kingdom.

So you can imagine my joy when the BBC announced at 10:00 last night that Boris Johnson and the pro-Brexit Conservative Party were going to win a landslide.

Here are maps showing the results, as well the seats that changed hands (it’s a parliamentary system, so a party that wins a majority of seats can form a government).

At the risk of oversimplifying, the Conservative Party (the Tories) prevailed because they picked up dozens of working class seats. Like American Democrats (at least in 2016), the Labour Party has been captured by the urban left and lost touch with ordinary people.

But here’s the data that I find most encouraging.

When asked before the election about why they might be worried about a Corbyn government, every single group of voters (even Corbyn supporters!) was concerned that he would spend too much money.

And many of them also were concerned he would damage the economy.

Why is this data encouraging?

Because we’re always told about polls suggesting the people support bigger government. I’m skeptical of these polls because they basically ask voters whether they would like Santa Claus to exist. So it’s not a big surprise the people say they want free things from government.

This data, however, suggests that – when push comes to shove – they understand that freebies aren’t free. As Margaret Thatcher warned, left-wing governments eventually will run out of other people’s money.

Now that Boris Johnson has won and has a big majority, what comes next?

I’m assuming a genuine Brexit will happen (yes, politicians have a nasty habit of doing bad things, but I can’t imagine Johnson engaging in the level of betrayal that would be required to strike a deal for a Theresa May-style Brexit in name only).

So I’ll be watching two other issues.

1. Will Boris become the next Margaret Thatcher? I’ve already fretted that he’s too sympathetic to big government, but hopefully he pursues a pro-market agenda. Lower tax rates and genuine federalism (explained here by the Institute of Economic Affairs) would be a good place to start.
2. Will the U.K. and E.U. agree to a good trade deal? In hopes of avoiding regulatory competition, the European Union doubtlessly wants any future trade deal with the U.K. to be based on regulatory harmonization. That would be very bad news. The U.K. should pursue a pact based on genuine free trade and mutual recognition.

Fingers crossed for good answers to these questions.

P.S. Regarding yesterday’s election, there were some big losers other than the Labour Party. The people who sell property in places such as Monaco, Cayman Islands, Jersey, Bermuda, and Switzerland doubtlessly are disappointed that there won’t be an influx of tax refugees escaping a Corbyn-led government.

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U.K. Election Week, Part III: Remembering Margaret Thatcher

For two simple reasons, I want Boris Johnson to win a clear majority tomorrow in the elections for the British Parliament.

1. He’s not a lunatic socialist, like Jeremy Corbyn, the leader of the Labour Party and the British version of Bernie Sanders.
2. He’s promised a real Brexit, meaning the U.K. escapes a doomed-to-decline, ever-more-dirigiste European Union.

Beyond that, his platform is not terribly exciting for supporters of limited government.

Which makes me all the more nostalgic for Margaret Thatcher, the only good British Prime Minister in my lifetime (just as Ronald Reagan was the only good President in my lifetime).

I’ve previously shared two great videos of Thatcher, one about the real source of government funds and the other about the poisonous ideology of class warfare.

I can’t imagine Boris Johnson giving either speech.

Or making this statement.

Or giving these remarks.

As far as I know, Boris Johnson isn’t hostile to free markets and limited government.

He just doesn’t seem animated by a desire to shrink the public sector.

Thatcher, by contrast, was so sound on such issues that “Thatcherism” is now a term to describe good economic policy.

In a book review for City Journal, Alberto Mingardi celebrates Thatcherism.

Forty years on, Margaret Thatcher’s election as Great Britain’s first female prime minister still looks miraculous. …Right after World War II, Labour prime minister Clement Attlee, overly optimistic about the capacity of government to do great things, laid the foundations of the British welfare state. …The postwar economic consensus was so robust that it became known as Butskellism, since the policies of Rab Butler, the Conservative chancellor of the Exchequer from 1951 to 1955, and his Labour predecessor Hugh Gaitskell were indistinguishable. The glory days of interventionism didn’t last, however. By 1979, a third of the British workforce was employed by government, directly or indirectly, yet unemployment continued to rise throughout the 1970s. Inflation rose to double digits, exceeding 25 percent… Thatcher recognized the economic crisis as a failure of politics. She offered a gospel of government retrenchment and individual initiative that sounded outdated. She wanted to make people responsible again for their economic destinies, instead of entrusting their fates to state guidance. This meant denationalizing the British economy. Before Thatcher took office, “privatization” was a word out of science fiction; ten years after she left office, it was a global norm. She changed England and, by changing England, changed the world. …Thatcher aimed to stimulate self-reliance and independence, and she saw these virtues threatened by the culture of passivity that statism engenders. …the British political establishment always looked down on this shopkeeper’s daughter. And yet Thatcher’s defining quality, and the reason why we still speak of Thatcherism, is that she told people things that they didn’t want to hear.

And here are some excerpts about Thatcherism from a column by Roger Bootle for the U.K.-based Telegraph.

No previous British Prime Minister has had an ism named after them. …and if such an ism had been conjured up, it would surely not have been about economics. …“Thatcherism” was both substantial and essentially about political economy. …The main high intellectual influences, coming via Keith Joseph, were from Friedrich von Hayek and Milton Friedman. …Baroness Thatcher was ideological by nature. …When she first burst onto the stage it was a time for isms. Domestically, the 1970s had been a period of crisis. At various points, not just the economy but the whole system of democratic government in Britain seemed at the point of collapse. …Baroness Thatcher would have seen her ideological enemy then as “socialism”, which had brought the country low: excessive levels of government spending and taxation, lax financial discipline… Much of it was just the traditional liberal economic agenda, developed in the 19th century – free markets, free trade, competition, a small state, requiring only low levels of taxation, and financial probity. …Saying that this was just a retread of old 19th century liberalism doesn’t convey how radical these ideas were at the time, after decades in which markets were held under suspicion and even in a supposedly capitalist country like the UK, the state’s role in the economy was overwhelming. …there was more to Thatcherism than simply the liberal agenda. Classical liberalism was fleshed out with some more homespun beliefs – in value for money, efficiency, self-reliance, saving and wealth accumulation.

Warms my heart!

Speaking of which, I finally found some video of Margaret Thatcher’s famous line about socialists running out of other people’s money.

Shifting topics, nobody knows with total confidence whether Thatcher would have supported Brexit.

She was sympathetic to the original concept of Europe as a free-trade zone.

But as the free-trade pact began morphing into a pro-centralization supra-national government, she became increasingly hostile.

This video captures some of that skepticism.

For what it’s worth, I’m confident she would have been on the right side and supported Brexit.

I’ll close with an overall assessment of Thatcher’s overall economic record.

We’ll start with the United Kingdom’s score from Economic Freedom of the World.

As you can see, there was a dramatic increase in economic liberty during the Thatcher years.

The scores from EFW, which only exist in every fifth year, don’t exactly coincide with Thatcher’s tenure, but the trend is unmistakable.

Conversations with British experts lead me to state that she had three amazing accomplishments.

1. Radical reductions in tax rates on income, with the top rate falling from 83 percent (98 percent for investment income) down to 40 percent. Unsurprisingly, the rich paid more tax with lower rates, just as happened when Reagan lower the top tax rate.
2. Ending capital controls, meaning that people actually had the freedom to take money out of the country (many supposed experts advised against this liberalization, much as so-called experts advised Erhardt not to remove price controls in post-WWII Germany).
3. Industry privatization, which meant undoing the pure socialist policies that resulted in the nationalization of major industries (gas, telecom, steel, coal, transport, etc) and gave government ownership and control over the means of production.

Her only notable bad policy is that she increased the value-added tax.

I also give Thatcher credit for a better-than-expected record on spending restraint (the same is true for David Cameron), and I also think she deserves praise from helping to bring inflation under control.

To be sure, this simplified assessment only skims the surface. And it doesn’t address “sins of omission,” such as her inability to pare back the the country’s creaky government-run health care system (though she did some incremental reforms, such as internal markets).

Nonetheless, the bottom line is that Thatcher was an amazingly successful Prime Minister. For all intents and purposes, she saved the United Kingdom.

P.S. If you want to see my assessments of American presidents, I’ve looked at Reagan, Clinton, Hoover, Nixon, the second Bush, and Obama.

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U.K. Election Week, Part II: Political Humor

I realize the prospect of a hard-core socialist government for the United Kingdom isn’t funny. Nor is it amusing to think that the political class could undo Brexit and leave the country trapped inside a slowly dying European Union.

So many people are in no mood to laugh about what might happen in Thursday’s election.

Nonetheless, here’s some election-themed humor from London.

We’ll start with this modernized version of this classic scene from Love, Actually.

But two can play at this game.

Here’s an ad from a Labour candidate.

The choice at this election… #LoveActually #MerryXmas #Tooting pic.twitter.com/laP589NlMm

— Dr Rosena Allin-Khan (@DrRosena) November 22, 2019

Let’s not forget that there’s another political party, the Liberal Democrats.

Though they are a distant third place.

Unless, of course, pollsters are very creative in how they ask questions.

As is the case in the United States, many voters in the United Kingdom are not happy with their choices.

So this cartoon, featuring Guy Fawkes, who tried – but failed – to blow up Parliament in the early 1600s, makes a lot of sense.

Let’s close with some attention to the major candidates for Prime Minister.

Boris Johnson of the Conservative Party has a reputation for liking the opposite sex (sort of a British version of Bill Clinton).

Which has created some opportunities for amusing satire.

Most of the humor involving Jeremy Corbyn, by contrast, revolves around his statist ideology.

For instance, here’s an Advent Calendar from the Labour Party.

And here’s a look at the future if Corbyn wins the election.

Brits will have free broadband, but maybe not anything else.

Reminds me of this satirical poster from Obama’s 2012 campaign.

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U.K. Election Week, Part I: The Threat of Corbynomics

I’m currently in London for discussions about public policy, particularly the potential for the right kind of free-trade pact between the United States and United Kingdom.

I deliberately picked this week for my visit so I also could be here for the British election. As a big fan of Brexit, I’m very interested in seeing whether the U.K. ultimately will escape the slowly sinking ship otherwise known as the European Union.

But the election also is an interesting test case of whether people are willing to vote for socialism. The Brits actually made this mistake already, voting for Clement Attlee back in 1945. That led to decades of relative decline, culminating in a bailout from the International Monetary Fund.

Margaret Thatcher then was elected in 1979 to reverse Attlee’s mistakes and she did a remarkable job of restoring the British economy.

But do voters understand this history?

We’ll find out on Thursday because they’ll have the opportunity to vote for the Labour Party, led by Jeremy Corbyn, who is the British version of Bernie Sanders.

And he doesn’t hide his radical vision for state control of economic life. Here’s how the Economist describes Corbyn’s agenda.

…the clear outlines of a Corbyn-led government emerged in the manifesto. Under Labour, Britain would have a larger, deeper state… Its frontiers would expand to cover everything from water supply to broadband to how much a landlord may charge a tenant. Where the state already rules, such as in education or health, the government would go deeper, with the introduction of free child-care for pre-schoolers and a “National Care Service” for the elderly. …The government would spend £75bn on building 100,000 council homes per year, paid for from a £150bn “transformation fund”, a pot of money for capital spending on public services. Rent increases would be capped at inflation. The most eye-catching proposal, a plan to nationalise BT’s broadband operations and then offer the service free of charge… Surviving policies from 2017 include a plan to nationalise utilities, alongside Royal Mail and the rail network, and a range of new rights for workers, from a higher minimum wage to restored collective-bargaining rights. All told, government spending would hit 45.1% of GDP, the highest ratio in the post-war era outside of a recession and more than in Germany… To pay for it all, very rich people and businesses would be clobbered. Corporation tax would rise to 26% (from 19% now), which Labour believes, somewhat optimistically, would raise another £24bn by 2024.

As reported by City A.M., the tax increases target a small slice of the population.

Jeremy Corbyn…is planning to introduce a new 45 per cent income tax rate for those earning more than £80,000 and 50 per cent on those with incomes of £125,000 or more. The IFS…estimates that would affect 1.6m people from the outset, rising to 1.9m people by 2023-24. Labour’s policy would add further burden to the country’s biggest tax contributors, with the top five per cent of income tax payers currently contributing half of all income tax revenues, up from 43 per cent just before the financial crisis.  But the IFS warned the amount this policy would raise was “highly uncertain”, with estimates ranging from a high of £6bn to an actual cost of around £1bn, if the policy resulted in a flight of capital from the UK. Lawyers have previously warned that high net worth individuals are poised to shift billions out of the country in the event of a Corbyn government.

Is that a smart idea?

We could debate the degree to which upper-income taxpayers will have less incentive to be productive.

But the biggest impact is probably that the geese with the golden eggs will simply fly away.

Even the left-leaning Guardian seems aware of this possibility.

The super-rich are preparing to immediately leave the UK if Jeremy Corbyn becomes prime minister, fearing they will lose billions of pounds if the Labour leader does “go after” the wealthy elite with new taxes, possible capital controls and a clampdown on private schools. Lawyers and accountants for the UK’s richest families said they had been deluged with calls from millionaire and billionaire clients asking for help and advice on moving countries, shifting their fortunes offshore and making early gifts to their children to avoid the Labour leader’s threat to tax all inheritances above £125,000. …Geoffrey Todd, a partner at the law firm Boodle Hatfield, said many of his clients had already put plans in place to transfer their wealth out of the country within minutes if Corbyn is elected. …“There will be plenty of people on the phone to their lawyers in the early hours of 13 December if Labour wins. Movements of capital to new owners and different locations are already prepared, and they are just awaiting final approval.” …On Thursday, Corbyn singled out five members of “the elite” that a Labour government would go after in order to rebalance the country. …The shadow Treasury minister Clive Lewis went further than the Labour leader, telling the BBC’s Newsnight programme: “Billionaires shouldn’t exist. It’s a travesty that there are people on this planet living on less than a dollar a day.

Some companies also are taking steps to protect shareholders.

National Grid (NG.) and SSE (SSE) are certainly not adopting a wait-and-see approach to the general election. Both companies have moved ownership of large parts of their UK operations overseas in a bid to soften the blow of potential nationalisation. With the Labour manifesto reiterating the party’s intention to bring Britain’s electricity and gas infrastructure back into public ownership, energy companies (and their shareholders) face the threat of their assets being transferred to the state at a price below market value.

The Corbyn agenda violates the laws of economics.

It also violates the laws of math. The Labour Party, for all intents and purposes, wants a big expansion of the welfare state financed by a tiny slice of the population.

That simply doesn’t work. The numbers don’t add up when Elizabeth Warren tries to do that in the United States. And an expert for the Institute for Fiscal Studies notes that it doesn’t work in the United Kingdom.

The Institute for Fiscal Studies has told ITV News Labour's manifesto spending and taxation pledges are "colossal" and "not credible".

Read more: https://t.co/9IqX8DFX44 pic.twitter.com/6a8iJUyLWN

— ITV News (@itvnews) November 21, 2019

The bottom line is that Corbyn and his team are terrible.

That being said, Boris Johnson and the current crop of Tories are not exactly paragons of prudence and responsibility.

They’re proposing lots of additional spending. And, as City A.M. reports, Johnson also is being criticized for promising company-specific handouts and protectionist rules for public procurement.

In a press conference today, Johnson promised to expand Britain’s state aid regime once the UK leaves the EU. “We will back British businesses by introducing a new state aid regime which makes it faster and easier for the government to intervene to protect jobs when an industry is in trouble,” a briefing document said. Head of regulatory affairs at the Institute of Economic Affairs (IEA) Victoria Hewson said support for state aid was “veiled support for cronyism.” …A spokesperson for the Institute of Directors said: “It’s not clear how these proposals will fit with ambitions of a ‘Global Britain’. The Conservatives must be wary of opening a can of worms on state aid, it’s important to have consistent rules in place to resist the impulse of unwarranted protectionism.” Johnson also promised to introduce a buy British rule for public procurement. …IEA economics fellow Julian Jessop said: “A ‘Buy British’ policy is pure protectionism, and it comes with heavy costs.

Perhaps this is why John O’Connell of the Taxpayers Alliance has a rather pessimistic view about future tax policy. Here are excerpts of a column he wrote for CapX.

Theresa May’s government implemented a series of big state, high tax policies. Promises of no strings attached cash for the NHS; new regulations on net zero; tax cuts shelved and the creation of more quangos. After his surprise non-loss in the election, Corbyn shifted even further to the political left, doubling down on his nationalisation plans. All in all, the 2017 election result was terrible for people who believe in a small state. …A report from the Resolution Foundation found that government spending is rising once again, and likely to head back towards the heights of the 1970s over the coming years. The Conservatives’ recent spending review suggests state spending could be 41.3% of GDP by 2023, while Labour’s spending plans could take it to 43.3%. This compares to the 37.4% average throughout the noughties. Based on the manifestos, Labour are working towards a German-sized state, while the Tories’ plan looks more Dutch. Unsurprisingly we see this mirrored by the tax burden, which at 34.6% of GDP has already reached a fifty-year high. It is likely to increase further. …British taxpayers are presented with something of a Hobson’s choice: Boris Johnson will see taxes increase and spending shoot up, while Jeremy Corbyn has £1.2 trillion worth of unfunded spending rises just waiting to become unimaginable tax hikes for everyone. Whoever you vote for, you’ll get higher taxes, the question is just about how high.

Let’s close by looking at the big picture.

Here’s a chart showing the burden of government spending in the United Kingdom since 1900. I’ve augmented the chart to show the awful trend started by Attlee (in red) and then the positive impact of Thatcher (in green).

You can also see that Tony Blair and Gordon Brown did a bad job early this century, followed by a surprisingly good performance by David Cameron.

Now it appears that British voters have to choose between a slow drift in the wrong direction under Boris Johnson or a rapid leap in the wrong direction under Jeremy Corbyn.

Normally I would be rather depressed by such a choice. I’m hoping, however, that Brexit (assuming it actually happens!) will cause Boris Johnson to make smart choices even if he is otherwise tempted to make bad choices.

P.S. Unsurprisingly, Corbyn has been an apologist for thugs and dictators.

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Time to Worry about U.K. Fiscal Policy?

I’m glad that Boris Johnson is Prime Minister for the simple reason that “Brexit” is far and away the most important issue for the United Kingdom.

Whether it’s called a Clean Brexit or Hard Brexit, leaving the European Union is vital. It means escaping the transfer union that inevitably will be imposed as more EU nations suffer Greek-style fiscal chaos. And a real Brexit gives the UK leeway to adopt market-friendly policies that currently are impossible under the dirigiste rules imposed by Brussels.

But just because Johnson appears to be good on Brexit, this doesn’t mean he deserves good grades in other areas. For instance, the UK-based Times reports that the Prime Minister is on a spending spree.

Boris Johnson is planning to spend as much on public services as Jeremy Corbyn promised at the last election and cannot afford the tax cuts he pledged in the Tory leadership campaign, a think tank has warned. The prime minister’s proposed spending spree would mean Sajid Javid, the chancellor, overshooting the government’s borrowing limit by £5 billion in 2020-21, according to the Institute for Fiscal Studies, which said that the government was “adrift without any fiscal anchor”.

Ugh, sounds like he may be the British version of Trump. Or Bush, or Nixon.

In a column for CapX, Ben Ramanauskas warns that more spending is bad policy.

…with Sajid Javid making a raft of spending announcements, it would seem as though the age of austerity really is over. …So it would be useful to look back over the past decade and answer a few questions. Does austerity work? …As explained in the excellent new book Austerity: When it Works and When it Doesn’t  by Alberto Alesina, Carlo Favero, and Francesco Giavazzi, it depends what you mean by austerity. …The authors analyse thousands of fiscal measures adopted by sixteen advanced economies since the late 1970s, and assess the relative effectiveness of tax increases and spending cuts at reducing debt. They show that…spending cuts are much more successful than tax increases at reducing the growth of debt, and can sometimes even result in output gains, such as in the case of expansionary austerity. …Which brings us onto our next question: did the UK actually experience austerity? …the government’s programme was a mild form of austerity. …Then there is the politics of it all. It’s important to remember that fiscal conservatism can be popular with the electorate and it worked well in 2015 and to a lesser extent in 2010. The Conservatives should not expect to win the next election by promising massive increases in public spending.

Moreover, good spending policy facilitates better tax policy.

Or, in this case, the issue is that bad spending policy makes good tax policy far more difficult.

And that isn’t good news since the U.K. needs to improve its tax system, as John Ashmore explains in another CapX article.

…the Tax Foundation…released its annual International Tax Competitiveness Index. The UK came 25th out of 36 major industrialised nations. For a country that aims to have one of the world’s most dynamic economies, that simply will not do. …Conservatives…should produce a comprehensive plan for a simpler, unashamedly pro-growth tax system. And it should be steeped in a political narrative about freedom… Rates are important, but so is overall structure and efficiency. …a more generous set of allowances for investment, coupled with a reform of business rates would be a great place to start. We know the UK has a productivity problem, so it seems perverse that we actively discourages investment. …As for simplicity, …it’s possible to drastically reduce the number of taxes paid by small businesses without having any effect on revenue. Accountants PwC estimate it takes 105 hours for the average UK business to file their taxes… Another area the UK falls down is property taxes, of which Stamp Duty Land Tax is the most egregious example. It’s hard to find anyone who thinks charging a tax on people moving house is a good idea…in the longer term there’s no substitute for good, old-fashioned economic growth – creating the world’s most competitive tax system would be a fine way to help deliver it.

To elaborate, a “more generous set of allowances for investment” is the British way of saying that the tax code should shift from depreciation to expensing, which is very good for growth.

And simplicity is also a good goal (we could use some of that on this side of the Atlantic).

The problem, of course, is that good reforms won’t be easy to achieve if there’s no plan to limit the burden of government spending.

It’s too early to know if Boris Johnson is genuinely weak on fiscal issues. Indeed, friends in the UK have tried to put my mind at ease by asserting that he’s simply throwing around money to facilitate Brexit.

Given the importance of that issue, even I’m willing to forgive a bit of profligacy if that’s the price of escaping the European Union.

But, if that’s the case, Johnson needs to get serious as soon as Brexit is delivered.

Let’s close by looking at recent fiscal history in the UK. Here’s a chart, based on numbers from the IMF, showing the burden of spending relative to economic output.

Margaret Thatcher did a good job, unsurprisingly.

And it’s not a shock to see that Tony Blair and Gordon Brown frittered away that progress.

But what is surprising is to see how David Cameron was very prudent.

Indeed, if you compared spending growth during the Blair-Brown era with spending growth in the Cameron-May era, you can see a huge difference.

Cameron may not have been very good on tax issues, but he definitely complied with fiscal policy’s golden rule for spending.

Let’s hope Boris Johnson is similarly prudent with other people’s money.

P.S. If you want some Brexit-themed humor, click here and here.

P.P.S. If you want some unintentional Brexit-themed humor, check out the IMF’s laughably biased and inaccurate analysis.

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