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How free is the United Kingdom?

The Heritage Foundation have published the 2014 Index of Economic Freedom which calculated the economic freedom of all countries around the world. The UK came 14th, the United States came 12th. The top 34 are shown below.

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14th place may seem like quite a good place to be until you follow what has happened over time. The report for the UK says the following things:

  • Over the 20-year history of the Index, the U.K.’s economic freedom has declined by 3 points, the second worst performance among advanced economies. Despite notable improvements in trade freedom and investment freedom, the overall gain has been offset by combined declines in the management of public finance and regulatory efficiency.
  • Britain’s economy has been consistently rated one of the world’s 20 freest. However, since 2006, when it reached its highest economic freedom score ever, the U.K. has been largely on a path of declining economic freedom. Expansionary public spending has generated significant budgetary pressure. With government debt over 90 percent of the size of the economy, underlying economic fundamentals generally remain weak.
  • Following the market reforms instituted by Prime Minister Margaret Thatcher in the 1980s, Britain experienced steady economic growth throughout the 1990s, but the government’s size and spending grew significantly under successive Labour governments.
  • Public debt continues to rise, surpassing 90 percent of gross domestic output.

The second worst performer out of the advanced economies proves that the UK government has become too big and bloated. Not only that, but it has terrible control over its spending. The stats for the UK are shown below.

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It is clear that spending controls, such as those used by the Swiss who have been able to reduce government spending from 34%GDP to 20%GDP (2003-2012), are needed in the UK. Switzerland is the 4th freest economy in the world. Over the same period, most countries increased government spending.

Another interesting point is how consistently well, Hong Kong and Singapore have performed. Throughout the 20-year history of the Index Hong Kong has been rated the worlds freest economy every single year. Why is this the case?

  •  Hong Kong has one of the world’s most prosperous economies, thanks to a commitment to small government, low taxes, and light regulation.
  • The standard individual income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The tax system is simple and efficient, and the overall tax burden is around 14 percent of GDP. Government spending remains equivalent to slightly under one-fifth of the domestic economy. Public debt is virtually nonexistent, and a budget surplus has been maintained even in light of increased government spending and tax rebates.
  • Hong Kong is very open to international commerce, with a 0 percent average tariff rate and few barriers to foreign investment. A robust and transparent investment framework, in place for many years, continues to attract foreign investment. The financial sector remains highly competitive and well capitalized, serving as a leading global hub. There are no restrictions on foreign banks, which are treated the same as domestic banks.

But what does being more economically free actually translate to? How does it benefit the people? Here’s how:

Hong Kong GDP (PPP) = $51,494 per capita

United Kingdom GDP (PPP) = $36,941 per capita

Unemployment: HK = 3.3%, UK = 8.0%

Growth: HK = 1.4%, UK = 0.2%

Foreign Direct Investment inflow: HK = $74.6b, UK = $62.4b

Public debt: HK = <0.5% of GDP, UK = 90.3% of GDP

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Nobody should be made to defend their hard earned money

What is the best way for people to escape poverty? By reading the press in the UK at the moment, it would seem that the best way would be too lower the tax on the poorest people in the country and increase taxes on the wealthy. Lowering taxes for the poorest is a good thing and would help them to climb their way out of debt, but taxing the rich more? That is not a good idea. If you want to know what taxing the rich does, just ask France.

France has a hate tax of 75% for top earners. Since it has been implemented a significant number of wealthy people and successful entrepreneurs have fled the country, and most have ended up in London where tax is lower. The media always fail to realise that it is the people with spare money who are the ones who create the jobs (And not just any jobs, but productive ones unlike government services). 

All of this has lead to the owner of Iceland talking in the the media today defending his wealth:

The media have made negative comparisons between your wealth and that of your customers. Does that bother you?

Why is it an issue? My personal wealth is nothing compared to the wealth we’ve created. My hunger for business has resulted in 25,000 jobs and £600m in tax contributions in the past six years alone.

No one should have to defend their own earnings. Especially when they have used the spare money they had to start a successful business that employs thousands of jobs.

If the tax on the wealthy was even lower than it is now, it would mean they would have more money to plow into the economy, creating prosperity and jobs. Additionally, this lower tax rate would attract other entrepreneurs from across the world to the UK. The graph below shows the top tax rate and federal income from 1930 to 2010 in the US. It shows revenues can increase when the rich are taxed less because the economy becomes much more productive.

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You may argue that with all these tax cuts, that the government would have to reduce in size, effecting local services. I have always believed that government should be as small as it possibly can be and local services can be, and should be run by the local people, not the bureaucrats controlled by MP’s and Lords in Westminster.

 

We should not love our NHS

State run healthcare causes enough problems as it is. But when it is run by a government in debt, who must cut their spending, there is inevitably going to be a staffing crisis.

In the news today, it was found that the UK has fewer doctors per 1,000 people than almost all other EU countries! In the report (Eurostat regional yearbook 2013):

  • The UK had 2.71 practising doctors for every 1,000 people – fewer than countries including Bulgaria, Estonia and Latvia.
  • The UK ranked 24th out of the 27 European nations, only beating Slovenia, Romania and Poland.

So what did the union GMB say?

Enough is enough, there can be no more cuts to budget or staffing.

Why, in these sorts of articles (not just in the Telegraph, but in fact all other media outposts in the UK), do they not consider other options, such as splitting up the NHS into more manageable chunks, or privatising services such as GP practices to save the taxpayer and government money?

The only positive thing that has happened to the NHS over the past 10 years is the abolishment of 23,000 unnecessary admin jobs which are the types of jobs that are created when things are run by the government.

ps. will somebody please raid the guardian and destroy this horrifying meme which is designed to destroy the healthcare debate in the UK. Thanks =]

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When will it become illegal for politicians to print money

If politicians are allowed to print money to cheat the system, why are we not? Over the past 50 years, it seems as though people have forgotten how economies function. Some economies do well and prosper, some economies do badly and fail. If it fails, the politicians must answer to their citizens why they got it wrong and they should be accountable for their actions.

If this natural process is interrupted by printing money from thin air to postpone an upcoming crisis then no one learns the lesson. Here are some examples of how money in circulation has increased dramatically over the past 30 odd years:

The US:

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The UK:

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The eurozone:

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Japan:

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China:

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India:

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and some fun cartoons:

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Increasing government burden does not promote growth or prosperity

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VAT itself is actually the only fair tax that is used in the UK at the moment. This is because the rate is the same for everybody. However, I question whether it is even necessary when it has been proven that the most effective way of promoting growth, is by lowering taxes. Particularly when that tax forms part of a double/triple/quadruple taxation system. For example my monthly wage gets taxed, then with the money left over I pay my energy bills, which are also taxed, I go to the shop and by some food, again this is taxed, then I also have to pay council tax, next I put petrol in my car, tax, then I buy a ticket for the train to get to work, tax, and I could carry on all day. Would it not be more simple to phase out VAT and to implement a universal flat income tax to relieve the hardworking families of the UK? A tax system is most effective when ordinary citizens can work out their tax returns with a piece of paper, a pen and a calculator.

The faux-conservatives and the squishy tory-liberal coalition

Now I know I like to cite Dan Mitchell from the CATO institute a bit too much. But he has correctly pointed out that the UK is a good model for showing how the laffer curve works.

A funny thing often happens on the way to soaking the rich: They don’t stick around for the bath. Take Britain, where Her Majesty’s Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before. That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown’s government introduced in its final days in 2010, up from the previous 40% rate. So, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010. The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

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He also points out the three main points which explain why the laffer curve works:

  • When tax rates increase, sometimes people engage in tax avoidance, lowering their tax liabilities legally.
  • When tax rates change, sometimes people choose to alter their levels of work, saving, and investment.
  • And when tax rates go up, sometimes people resort to illegal steps to protect themselves from the tax authority.

Finally, I love how he refers to the current government as the squishy Tory-Liberal coalition. I now like to call the tory party the faux-conservatives. They could go much further with their tax cuts and reducing the burden of government but they seem to have lost their backbone.

My favourite alternative flag if Scotland were to leave the UK

My favourite alternative flag if Scotland were to leave the UK

I know Scotland are more likely to stay as part of the UK than to leave, but I have always believed that the devolution of power and state is a good thing.

I spotted this flag on the BBC website today. I love the inclusion of black and yellow. Particularly because you can believe that the black is from the cornish flag (which is by far the best county in England).

The United Kingdom is no longer a democracy

The United Kingdom is no longer a democracy.

What is the definition of a democracy? I don’t normally cite wikipedia but I thought their definition was apt: 

Democracy is a form of government in which all eligible citizens participate equally—either directly or through elected representatives—in the proposal, development, and creation of laws. It encompasses social, economic and cultural conditions that enable the free and equal practice of political self-determination.

Political self-determination. Such an elegant way of saying that the people of the country should determine their own destiny. 

So what if I told you that the UK is no longer a democracy. That it instead transfers the majority of its powers to Brussels (EU). You would probably argue that I am wrong because even though EU law overrides a vast number of UK laws, we do elect MEP’s who are our representatives.

What is the most important role of democracy? It is the ability for the people to remove any representative in power who they don’t agree with as a majority. The fact that not one single taxpaying citizen in the UK can remove any of the european commssion members is why we no longer live in a democracy. We have no control over the rule makers.

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What about VAT Mr Osborne?

On the face of it, VAT is actually the fairest type of tax. This is because its a flat tax that treats everyone equal and does not punish those who are successful like income tax. However, VAT is still a tax which gives government more money to spend. I feel the the UK VAT of 20% is very high and it drives a wedge between pre-tax income and post-tax consumption.

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Sorry for yet another obama cartoon, but he is trying to implement a VAT tax in america.

THE DEATH TAX

The death tax (or inheritance tax) is just another way for the government to confiscate your money. The graph below is very scary indeed. It shows all the sensible countries who don’t implement a death tax, including Hong Kong and Switzerland who are pro free market, anti regulation states, and those countries who do.

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The UK and USA have higher rates than Greece, Spain, France, Belgium and Venezuela! That says an awful lot. The death tax should be scrapped in the UK. This will allow people to plow more money back into the economy instead of the government spending it on the non-productive sector.

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And we all lived profitably after

Profit has a bad reputation in the UK. This can be down to many things but the main problem is people don’t understand what profit is.

Profit increases everybody’s standard of living. No matter what ‘class’ you are or where you come from, profit allows the individual to improve his life. This means that when profit is not achieved, living standards either stay the same or reduce.

People who criticize profit do so because people have achieved it in devious and bad ways. So shouldn’t we criticize the people who do this instead of profit itself? If I were to steal food from you, is that the foods fault or is it my theft?

Put simply, profit is benefiting from the fruits of your labour. If anyone wants to criticize it who also picks up a pay slip every month then that is hypocrisy.

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UK production, construction and services

Take a look at this graph from the office of national statistics:

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Firstly, it shows how volatile the construction sector is in the UK. Secondly it shows that the UK services industry is booming while production has never really recovered from the crash.

The production side of the economy is directly effected by regulation and taxes, where as the services industry is propped up by government spending. The more the government spends, the more it has to tax. High taxes stifle growth in the production side of the economy and this reduces output. If our output is reduced the country suffers from a trade deficit and a budget deficit. The most effective way of reducing both is to produce more than you buy.

EU red tape is also having a massive impact on our productive sector and churns out new legislation every week.

Obama, Cameron and Milliband are all the same

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The way it should work

The way governments in the UK and US should work is that they pass laws with the backing of the majority of their citizens, especially on decisions which potentially have a huge impact on the daily lives of those people. 

This is unlike regimes such as the EU and China who appoint officials to write new laws, which are then approved by parliament, without involving the public at all.

But recently, these values the UK and US hold most dear, are being forgotten. One example, is of course the passing of the EU Lisbon Treaty strait through the british parliament without a referendum for the public to decide. The second, is described by this great William Warren cartoon:

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The vast number of taxes suffered by UK citizens

The vast number of taxes suffered by UK citizens

Whenever I look at this chart, I always realise that 3/4 of these taxes are unnecessary and are a huge burden on taxpayers and the economy. Just imagine how much the economy could take off without the likes of petrol, vehicle and inheritance duties. For one, I could afford to buy a car!

UK spending increases

UK spending increases

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