A new research report from the Institute of Economic Affairs‘ (IEA) titled ‘Sharper Axes, Lower Taxes‘ states government spending would be cut by an additional £215bn a year (to around 30% of GDP) and deliver tax cuts equivalent to around £7,500 per household
The research shows how the government could reduce public spending by an additional £215bn. This would mean the government would be spending around 30% of GDP instead of the government’s proposal of around 40%. The IEA’s proposals would deliver average tax reductions equivalent to around £7,500 per household each year.
“Reducing and controlling spending has to contribute more to deficit reduction. So far tax rises have been taking most of the strain, making growth more difficult to achieve. I welcome this source book for making more progress in getting spending to a level taxpayers can afford, and hope the government will take up at least the best ideas from the list.” – The Rt Hon John Redwood MP
The reforms proposed in ‘Sharper Axes, Lower Taxes: Big Steps to a Smaller State‘ could also increase economic growth by 0.75% a year leading to dramatic improvements in long-run living standards.
Delivering a comprehensive spending review by going through government spending area-by-area this report sets out how the government could reform spending and tax policy. It shows that the government’s aspirations – such as ensuring that all have access to decent health care, and providing a welfare system for the less well-off – could be achieved much more effectively with lower government spending.
Some of the biggest spending cuts include: £44bn from health reforms, £46.5bn from reforms to the welfare state and pensions; £17bn from defence; and £12bn from foreign aid. £40bn per annum will also be raised from asset sales. (For a full list of reductions in expenditure, please see the notes to editors).
Opinion poll research conducted for the IEA by ComRes shows overwhelming public support for a much deeper programme of spending cuts.
By the time of the next election, the government is intending to spend around 40% of national income, but 55% of the public who expressed an opinion believe that public spending should be 35% or lower and only 16% want public spending to be measurably more than the coalition is intending to spend (45% of national income or more). 29% believe the coalition has got it about right, favouring the state spending between 35% and 45% of national income.
A much more radical reduction in state spending is particularly popular amongst the young (67% of under 25s and 69% of 25-34 year olds support government spending being reduced to below 35% of national income). There is a broadly equal level of support from voters irrespective of their party political affiliation.
Given a straight choice between the coalition’s plans of government spending of 40% of national income and the IEA’s more radical plan of reducing spending to about 30% of GDP and implementing average tax cuts of £7,500 per household, the overwhelming majority (70%) favour the IEA’s proposal and only 30% favour the coalition plan.
Commenting on the report, Mark Littlewood, Director General at the Institute of Economic Affairs, said:
“The coalition government should listen more to the British people in general and less to organised special interest groups that push for more government spending. Lobbying from interest groups can push tax and government spending well beyond optimal levels.
“This poll makes clear that the public favour a dramatic reduction in the size of government and the right to keep more of their own money rather than surrender it in tax.
“The government needs to adopt a Plan A+. Embracing the sort of proposals in this report would stimulate economic growth, which has remained disappointingly sluggish in the wake of the coalition’s unambitious plans so far.”
Commenting on the report, Prof. Philip Booth, editor of the report and Editorial Director at the Institute of Economic Affairs, said:
“Even under these plans, the government would be spending nearly one third of national income. If the government were limited to such a budget it could still perform the tasks it needs to perform much more effectively. There would be access to good healthcare for all and the poor would still have their incomes topped up but the government would become the servant and not the master of the people again. We would, once again, be able to have a welfare system that did lock people in poverty.
“If the government wants to achieve genuine public service and welfare reform and ensure that health, education and other services are responsive to the people they are intended to serve it must take a long, hard look at these proposals.”
Government spending is currently around 50% of national income. At these levels it is seriously damaging economic growth. Even if the coalition achieves its objectives, there will be only modest reductions in government spending. Nominal spending will rise, real spending will be cut by less than 1% per annum and spending as a proportion of national income will fall back only to 2007 levels – around 40%.
A complete review of government functions could, using the government’s definitions of government spending and national income, lead to further cuts of £215 billion to around 30% of national income.
Under these proposals, the government would also be making fewer unfunded health and pensions promises to future generations, thus putting the public finances on a sound long-term footing.
Government spending – even in areas such as research and development, investment and education – has little or no beneficial effect on economic growth. The taxation necessary to fund government spending, however, seriously and adversely affects economic growth. A reduction in government spending of the order suggested by our authors would lead to economic growth increasing by more than 0.75% per annum: this would mean that national income would grow by an extra 20% every 25 years.
To finance government spending of around 30% of GDP, taxation could be reduced and simplified.
Although it is difficult to estimate precisely, it would seem feasible that tax could be set at:
A single flat-rate income tax of about 15% on income above the tax threshold, which would be determined by household size.
A single person’s allowance could be around £12,000. Larger households would have much higher tax allowances so that a four-person household on median earnings would pay little income tax.
Corporation tax of 15%.
National insurance rates of about 10% split between employer and employee above a lower threshold than the income tax threshold so that all workers made some contribution.
A value added tax of about 10% across a broad base of spending.
“In this swash-buckling report, the IEA points to the bureaucratic waste holding the economy back, and the tax cuts that would fire jobs growth and promote the three vital economic virtues – enterprise, hard-work and saving.” – Dominic Raab MP
Area of expenditure & Proposed cut (£bn)
Health 44
Education, training and childcare 15.5
Pensions and the elderly 15.5
Defence 17
Foreign aid 12
Income transfers 31
Transport (including first year of road privatisation programme) 30
Privatisation 40
Energy and climate change measures 10
Total ‘headline’ spending cuts £215.5bn
The £215bn is based on the calendar year 2015 and is in addition to the cuts the government has already announced. An additional £27bn cuts in government spending are proposed that the government does not include in its own definition of spending.
Methodology of ComRes poll – ComRes conducted an online survey of 2,050 GB adults between the 8th and 10th July. Data were weighted to be demographically representative of all GB adults. ComRes is a member of the British Polling Council and abide by its rules.
“As George Osborne struggles manfully to save Britain from the disastrous inheritance of a Labour Government which for 13 years spent like a drunken sailor on shore leave, the IEA has ridden to his aid by itemizing billions in potential savings for the ravaged, ill-used taxpayer. This is the British equivalent of the Republicans’ inspiring Ryan Plan in America; a manifesto of genuine hope in the future, rather than the tinsel variety offered by Barack Obama. Sadly, not all the IEA’s ideas are immediately deliverable because of the exigencies of coalition politics at Westminster, but by merely putting these radical, innovative, far-sighted, brave and overdue options in the frame, the IEA has refreshingly reminded us that conviction politics did not die when Margaret Thatcher was overthrown a generation ago.” – Andrew Roberts, historian
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
The name Prince is synonymous with innovation in music. From classy pop classics such as ‘Purple Rain’, ‘Diamonds and Pearls’ and ‘U Got The Look’ through to high class jazz, soul and funk, working with artists such as Miles Davis, Chaka Khan, and George Clinton.
Prince performs at this weekend’s Hop Farm festival in Kent and I’m delighted to have a ticket for the occasion. Check this performance of Superstition out with Stevie Wonder to see what you will be missing if you are not there.
Unlike many performers in rock’s monarchy, a Prince live performance is often different every night. This is because Prince operates from a menu of 300 songs, which the band may be called upon to play at any time, whereas many other artists prefer to perfect and then repeat their set night after night.
I was discussing how Prince achieves such amazing levels of nimbleness and ingenuity with my colleague John Howitt, a professional musician who has performed for Celine Dion, Anastasia and Shirley Bassey to name but a few. We came to a set of conclusions, with parallel lessons for businesses that are interested in being fast, nimble and continuously innovative. Here are a couple:
To reach mastery in improvisation paradoxically requires intensive detailed preparation. What looks like a seamless performance is the result of many hours of preparation and Prince is meticulous in this respect. In business this has been referred to ‘the 10,000 hours effect’ by Tom Peters and, more recently, Malcolm Gladwell. The idea of prepared spontaneity contradicts what some so-called creativity and innovation gurus say on the subject, yet we constantly see parallels across many industries. Sloppy creativity produces sloppy results in many businesses.
Prince is also a master of fusing musical genres and influences outside his core style to innovate. This enables him to still exert a major influence on artists of the 21st Century, such as Lady Gaga, Beyonce and many others. In business, the ability to cross mental boundaries is the parallel skill set, as exemplified by companies such as 3M and Google.
I explored more of Prince’s personal qualities and the relationship with becoming an agile, ingenious and innovative company within the book “Sex, Leadership and Rock‘n’Roll”. John Howitt also draws a distinction between Prince’s level of risk taking on stage versus his experience of working with artists such as Celine Dion, who aims for a perfect, polished performance which can be reproduced night after night.
Both approaches are valid and rest on thorough preparation if you want to reach out for excellence. An object lesson for all – if you want to be a star, know that perspiration is much more important than inspiration. Let’s just see a little more of that prepared spontaneity from Prince via a structured jam called ‘The Everlasting Now’:
We will be exploring aspects of Prince’s approach to improvisation and innovation at the 7th International HR summit event in Athens, Greece on October 20th following on from Dave Ulrich.
Peter Cook leads The Academy of Rock, delivering exceptional conferences and events that blend academic ideas on business with the power of music.
In the words of Rogers, Hammerstein and Captain Sensible, “Happy talk”.
Yes, it’s nice to be happy at work, but that’s only half the story. The Smiths’ classic indie anthem “Heaven knows I’m miserable now” is the modern blues mantra for people stuck in jobs that don’t fit their skills, attitudes, inner or outer desires:
“I was looking for a job, and then I found a job
And heaven knows I’m miserable now”
It may not make you popular as a manager to say
“I’ve got the business blues, cos’ the server is down, my 360 degree appraisal has come out with a mean rating of 3.3 out of 4 and quarterly sales forecasts are down.”
Nor will these lines scan into a 12 bar blues musical format! Nevertheless, part of the leader’s skillset is to find out what gets in the way of high performance and do something about it.
So, this light-hearted blog focuses on some frivolous (and, later on, some not so frivolous) lessons that you can learn from the artform that is the blues.
Most blues begin: “Woke up this morning …” “I got a good woman” is a bad way to begin the blues, unless you stick something nasty in the next line like, “I got a good woman, with the meanest face in town.” You can’t have a blues that begins: “I got a good manager, who sets meaningful performance goals and critical success factors.” It’s a cathartic artform.
The blues ain’t about systematic creative problem solving, blue ocean strategy brainstorming sessions, option formulation or scenario planning: You stuck in a ditch, you stuck in a ditch – ain’t no way out. Sometimes you gotta deal with people at work who believe there ain’t no way out…
Blues can take place in New York City, but not in Rochester or any place in Canada. Hard times in Minneapolis or Canterbury is probably just clinical depression. Chicago, St. Louis, and Kansas City are still the best places to have the blues, not York, Bath or Slough. You cannot have the blues in any place that don’t get rain, nor in a high tech R&D centre.
If death occurs in a cheap motel or a shotgun shack, it’s a blues death. Stabbed in the back by a jealous lover is another blues way to die. So are the electric chair and substance abuse. You can’t have a blues death if you expire during a strategy meeting, a team building day, on an overnight stay at the Holiday Inn, or while receiving liposuction.
People with names like Michelle, Amber, Jade, Les and Heather can’t sing the blues no matter how many men they shoot in the ‘twin blues towns’ of Memphis, Milton Keynes or Milan.
As far as corporate life is concerned, it’s easy to find examples of customer service that give you the blues. Just try establishing human contact with the average ISP or mobile phone company and you will see what I mean. Yet, some other companies stand out in terms of the excellence of their service. In the banking sector, my favourite is First Direct, who, hire people that are fond of talking and doing things about other people’s problems. A refreshing change and especially so, when one considers that the words banking and service rarely fit into the same sentence.
And finally, the blues need not a negative musical genre as some people may think. It can be a cathartic release for the performers and the audience alike. Here’s “The Credit Crunch Blues”, written and performed by a Housing company as part of their annual conference on high performance. They certainly gave their heart and soul to this performance, even though all the staff were amateurs and none had given a performance on a stage in their lives:
Peter Cook is The Rock’n’Roll Business Guru and leads The Academy of Rock, delivering exceptional corporate events that blend business and music. He appears at the Customer Service Training Network Awards on July 8th, delivering a cameo performance and keynote entitled “The Customer Service Blues”.
A Contractor Company, also known as an umbrella company, can help your business by allowing you to effectively work as an employee rather than having to set up as a limited company. This is especially important following the government’s implementation of the IR35 legislation, which makes it more difficult to operate as a limited company when carrying out contracting work.
An umbrella company acts as an employer to independent contractors who carry out work, usually through an agency, under a temporary contract. The umbrella company will receive a timesheet from the contractor and issue an invoice to the agency. When the invoice is paid, the umbrella company will pay the contractor through PAYE. An added benefit is that some income can often be offset through claiming expenses for travel, accommodation or meals.
There are many benefits associated with working through an umbrella company. The most apparent benefit is that the umbrella company will deal with all of the tax and national insurance payments that the contractor is required to make. This means that the contractor does not need to worry about the IR35 legislation, as it does not affect contractors who work through an umbrella company.
IR35 was introduced in response to a problem where employees were switching to contractor status but still working for only one employer, in the same way as when they were only employees. They are known as “disguised employees”, as the only difference was that they were working for the company through an agency rather than directly.
The former employee could then set up a limited company and they gained advantages when it came to paying tax and national insurance. IR35 set out a number of tests that must be met to determine employment status and it has led to many problems for contractors who operate under a limited company status.
Another benefit is that a contractor working through an umbrella company does not need to worry about any of HM Revenue & Customs latest tax clampdowns, as they can be sure all the appropriate taxes have been paid. The contractor company will also deal with any legal and contractual obligations and will usually offer professional indemnity and employers/public liability insurance.
The contractor has the benefit of continuing to work independently with the earnings potential that this style of working provides, but at the same time does not have the administrative responsibility that goes alongside. The earnings figure after deductions is likely to be accurate and there is no big tax bill at the end of the year.
An umbrella company can be used by any type of contractor in any industry. Contractors are often used by firms as it is easier to manage changing staffing requirements and they do not have to worry about all of the same legal requirements that they do with permanent employees.
The umbrella company will charge a fee and this fee will vary between different umbrella companies. They might also provide differing levels of service to the contractors they employ.
Before setting up to work in this way, you should make sure you have the skills needed to be able to consistently find work as a contractor in your field and also that work is available.
UK Finance Minister George Osborne is set to make a speech today in the House of Commons outlining the UK coalition governments’ recommendation to ring-fence banks’ retail divisions.
Though this is the main business news today, this idea was first muted back in April when the Independent Commission on Banking (ICB), which was set up in 2010 to examine ways to reform the banking sector after the credit crisis.
The ICB recommendation was not to entirely separate banking groups’ altogether, but suggested retail banking should distance itself from investment banking, effectively working as different business units under one parent holding company.
The ICB also recommended that top retail banks should hold a minimum core Tier 1 capital ratio of 10 percent. This equates to 3% higher than the 7% recommended by the Basel committee of global banking supervisors.
Furthermore, the Commission suggested Lloyds may have to sell more branches on top of an order by European regulators for it to divest some 600 branches following its bailout by the UK government during the credit crisis.
There was a fall in shares in this morning’s market trading, as word spread of George Osborne’s speech and the UK Government backing for the ring-fencing recommendations today.
UK banks believe the recommendations to ring-fence retail banking from riskier trading operations needs further debate. But the Conservative -Liberal coalition government may use this in an attempt to gain public support by showing they are reforimng the banking industry without damaging the UK’s competiveness in world finance.
Speaking on Radio 4’s Today Programme, Angela Knight British Bankers’ Association chief executive said:
“There are a lot of issues and a lot of details that need to be thought through and need to be discussed.”
The four main banks – Lloyds, HSBC, RBS and Barclays have differing views on the ring-fencing proposal. Lloyds favour a broad ring-fence including far more assets than a set-up supported by Barclays and RBS. While HSBC has previously stated that all banking book assets should go into the ring-fence, which would include mortgages, corporate loans and all long-term assets it holds being protected by a government guarantee.
HSBC and Lloyds are equally concerned that a narrow model would create a funding mismatch, whereby the ring-fence would be “overfunded” and not able to use extra deposits to fund its portfolio outside, which would have to be funded in wholesale markets.
