Towards a level playing field between the high street and online

I welcome the report by the Housing, Communities and Local Government Committee, High Streets and Town Centres in 2030, which calls on the Government to consider the options of an online sales tax and reforms to business rates.

It states:

We believe that high streets and town centres can survive, and thrive, by 2030 if they adapt. Our vision is for activity-based community gathering places where retail is a smaller part of a wider range of uses and activities and where green space, leisure, arts and culture and health and social care services combine with housing to create a space based on social and community interactions.

I spoke at a local business breakfast in Barnstaple recently. I was asked, “How can we revive the high street with online retailers undercutting our businesses?”  and “How can we make it fairer for high street businesses?” Local business owners wanted to know more about our policy to reform business rates – I told them about our proposal to abolish business rates and replace them with a Commercial Landowner Levy. But that wasn’t enough for them – they wanted to know about online sales tax and how we could level the playing field.

Lib Dem leader Vince Cable has said:

While our high streets are going through an extremely difficult time, with the right action from government, councils, businesses and local communities, they can prosper once again.

Instead of trying to recreate the high streets of the past, our towns and cities need to tailor their offer to local tastes and focus on experiences at a time of growing demand for online shopping.

There must be a level playing field between brick and mortar businesses and online companies. Business rates should be replaced with a land value tax that encourages businesses to invest. Local authorities must also be given more power to run their own affairs and support local businesses, as pioneering Liberal Democrat councils are currently demonstrating.

The report includes various recommendations. Two are here:

  • We recommend that the Government urgently assesses the main proposals that we received in evidence, including a sales tax, an increase in VAT, an online sales tax and ‘green taxes’ on deliveries and packaging, and make recommendations for change to provide fast relief to high street retailers.
  • The revenue raised should be used to support the high streets in the following ways:
    • a reduction in business rates for retailers in high streets and town centres;
    • a 12-month holiday for high street retailers from rates increases which result from investments to improvements in property; and
    • an increase in the funding available to local areas through the Future High Streets Fund.

Maybe we would argue the report’s recommendations don’t go far enough, as we are calling for the abolition of business rates. But there is a lot of good in this report, highlighting concerns of businesses up and down the country. High street businesses are calling for reform. Let’s deliver it.

* Kirsten Johnson was the PPC for Oxford East in the 2017 General Election. She is a pianist and composer at

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  • Simon McGrath 21st Feb '19 - 8:06am

    Increasing the rate of VAT on food which people choose to have delivered to their homes seems an odd thing for a liberal democrat to be proposing

  • Joseph Bourke 21st Feb '19 - 11:49am

    Well argued article, Kirsten. It is going to be important that we able to address the issue of a level playing field between the high street and online retailers.
    I think the key reform in the Community Infrastructure Levy is that it is Landlords who will pay busines rates and it will be included in the rent they charge to retailers. The rent they charge is determined by the balance of supply and demand. With so many empty shops there is a surfeit of supply and with a squeeze on retailers profits from online shopping there is a fall in demand for retailing floorspace. This increase in supply and reduction in demand acts to reduce rents to their market clearing price.
    Online retailing is here to stay and surplus shop space wil be converted to other uses – residential or offices. That is the way the propery market works.
    David Raw – A British version taking on some of the principles behind Poujadism lives on in Britain today

  • >home delivered food ordered online ?
    >and ‘green taxes’ on deliveries and packaging

    Well, VAT (at 20%) should already be charged on the delivery service that the elderly etc. pay today.
    Green taxes are a little more interesting, firstly home delivery vans are ideal targets for electric and other ‘green’ fuels and hence by reducing the need for personal journeys typically in petrol/diesel fuelled cars are probably greener than you and I taking our own ‘green’ car to the supermarket. Secondly, from what I’ve seen many delivery services don’t use carrier bags etc. the shopping is loaded directly into reusable crates, which are typically taken away again at time of delivery.

    From what I’ve seen online grocery shopping is one area where prices are broadly similar to the supermarket shelf, just that you don’t get the in-store offers and other ‘perks’ of walking around the store. In fact, I recommend the elderly in my family to take a taxi and go to the supermarket: it is warm and dry, the floor is smooth, so they can walk/shuffle and talk to people – in fact in talking to the security team in Waitrose Newbury, I get the distinct impression that they consider it part of their job to talk to and get to know their elderly customers. So it would seem some supermarkets are already evolving towards “activity-based community gathering place”, the only problem is making money so the bills can be paid.

  • cont.
    As for the various “food/meal box” schemes, then these do need to be more carefully assessed. I was surprised by the sheer volume of packaging being used. Yes, I could reuse the packaging, but there is a limit to how many freezer blocks, wool blankets, etc. I need.

  • Jayne Mansfield 22nd Feb '19 - 8:10am

    @ Kirsten,
    Have you considered why so many now do online shopping?

    I agree with Simon McGrath for the reasons given by David Raw. Across my own family I would add to David’s list, it stretches to encompass, the frail, the disabled, to those those in dual working house holds with children who are time poor and find this form of shopping invaluable when it comes to holding everything together.

    Online shopping has become a necessary way of life, and in my opinion, it is time to accept that and start to conceptualise a different role for our high streets , one that makes them social venues that can’t be replicated online.

  • David Evans 22nd Feb '19 - 8:57am

    benjamin, it is not ‘a successful, efficient business model’ if what it does is avoid paying taxes by exploiting massive loopholes in the tax system to move profits made in the UK into offshore tax havens while exploiting people in a low wage system.

    It is being a parasite, and if you are a liberal, you should realise that.

  • I know a lot of people shop online, but I suspect that the larger factors in the death of the high streets is business rates, high rents, the asset value of property and low incomes. The big companies can afford it which is why you get two Sports Directs, umpteen Costas and Countless Poundlands in small town centres. Pub’s are also dying except the big ones, so are other smaller businesses. I don’t think people are buying a pint or a cup of coffee online. Plus when you take money out of peoples pockets they’re less inclined to shop. We’ve never recovered from the banking collapse and we are increasingly in an uncertain. low wage, high debt, economy.

  • David, I’m not sure why you mentioned my name specifically in your post about VAT on online food, as it has absolutely nothing to do with my post, which was on the merits (as seen by benjamin weenen) of the business model adopted by large online businesses, and nothing more.

  • Joseph Bourke 22nd Feb '19 - 12:41pm

    The days of free trade are long gone. If we exit EU on WTO tems we will see tariffs of 40% to 45% on foodstuffs like Cheese.
    Trying to dictate to businesses and consumers how and where they should do their shopping is the anti-thesis if Liberalism. Online shopping and home delivery is here to stay and is offered by all the big supermarkets operating in the UK .
    The UK is an outlier among European countries in not levying VAT on food. As the late Sir James Mirrlees advised
    The UK applies a zero rate of VAT to far more goods and services than most other countries. Reduced and zero rates of VAT (for example on food) are often justified as a way of helping people on low incomes. But this is an expensive and highly inefficient way of doing so. Charging a reduced rate of VAT on domestic fuel consumption has all these defects and, in addition, effectively subsidises energy use and encourages carbon emissions.
    VAT should be extended to nearly all spending. This would reduce complexity and avoid costly distortions to consumption choices. The money raised can be spent on cutting income taxes and raising benefits in a way that is broadly distributionally neutral, and that protects work incentives, although inevitably there will be winners and losers from such a change.
    It is hard to apply VAT to financial services in the same way that it is applied to other goods and services. But a tax broadly equivalent to VAT should, and we believe could, be applied”
    VAT on food could raise £25 billiion+ and would go along way to restoring welfare benefits (incresing them for those most in need), funding healthcare and social care costs and supporting strugglig councils.
    It is oftern argued that the lowest income decile pays more proprtioally in tax than the highest income decile because of indirect taxes. it is rarely mentiomed that these indirect taxes are princially alcohol and tobacco duties and fuel duty.
    We know how to allocate the profits of multi-national companies fot tax. American states that levy corporate taxes have been doing it for years on companies that operate across the USA using a weighting based on assets, employees and sales in each individual state. It is not difficult if the will is there.

  • Peter Hirst 22nd Feb '19 - 1:26pm

    I see a High Street where people come to meet, chat and have a coffee while performing a few retail activities, mostly from people they know or where they want a little advice or specific requirements. So the right mix of offerings, including access to cash is important. Charity shops can play a part in this mix as can cafes, restaurants, pubs and advice centres. And free parking.

  • Martin Land 22nd Feb '19 - 1:27pm

    Progress is progress.

  • Phil Beesley 22nd Feb '19 - 4:09pm

    @Roland: “Green taxes are a little more interesting, firstly home delivery vans are ideal targets for electric and other ‘green’ fuels and hence by reducing the need for personal journeys typically in petrol/diesel fuelled cars are probably greener than you and I taking our own ‘green’ car to the supermarket.”

    Home delivery of groceries by car started in the late 1920s. It was cheaper than carting — horse and carriage. Home delivery from the butcher and grocer ended in the 1950s. For 40 years, vehicle manufacturers tried to make the economics work.

    21st century delivery systems depend on somebody at the end to pick up the goods, or for them to be dumped somewhere. It works for some people.

  • The entire tax and welfare system wants a rethink for the digital age. Taxes like corporation tax are hard to police and should simply be scrapped. It’s much more efficient to place a tax on what people buy, spend and earn as money hits bank accounts.

    The problem with this idea is it’s hard to implement without people unwittingly getting hurt in the process. But it’s time is coming I feel

  • Re VAT: based on a speed read the report isn’t entirely unambiguous but it talks only of “an increase in VAT” – not an EXTENSION which is what including food would involve. I don’t imagine the civil servants who wrote this report would confuse the two.

    I believe VAT is popular with politicians because it’s arguably the easiest way to raise vast sums without taxing any of income, profit or capital gains. However, VAT is a really bad tax in that it raises the breakeven cost of doing business and hence ultimately the cost of living.

    As for high street business rates, the system is hopelessly broken. A better plan would be to replace them with an (initially) business only Land Value Tax that would automatically capture the value of premium warehouse locations such as those near airports or motorways while simulataneously reducing those on most high streets.

  • @Gordon

    On VAT

    All taxes increase the cost of doing business and therefore the cost of living. Income tax increases the cost of living. And indeed has the disadvantage of making labour more expensive so encouraging its substitution by machines (robot don’t pay income tax – or not yet at least!).

    It’s main disadvantage is that it is somewhat regressive – we had this argument ad nauseam when the coalition increased VAT. If memory serves me right it hits the middle the hardest pro rata – as at the moment the poorest spend less on VATable goods and get recompensed if VAT goes up as inflation goes up and benefits (most of the time!) go up by inflation. And the richest spend less of their income on consumer goods.

    The “logical” thing would be to extend VAT to everything. It is a bit bizarre that Jaffa Cakes attract no VAT because they are cakes but chocolate digestives do – because they are biscuits!

    But this probably wouldn’t be politically feasible as VAT is seen as a tax on “luxuries” or at least non-essentials which isn’t true.

    My earliest memory on tax is having to fork out an extra 1p of my pocket money for a mars bar when the Tories increased VAT!

    The reason politicians do like VAT if they can get away with slapping it on is consumers seldom get a receipt itemising the VAT they are paying so they don’t know they are! A bit like National Insurance – particularly employers’ NI.

  • Joseph Bourke 23rd Feb '19 - 1:44pm

    Taxes have both macroeconomic effects and microeconomic effects. So called deadweight losses are primarily (but not exclusively) a microeconomic feature. In the UK we have allocated in recent decades an average of approximarely 40% of national income to the provision of public services. That spending is mainly funded by taxes (including a circa 2% inflation tax). It equates to 2 days work of five that we give up in return for the public services we all receive and provision of state pensions for the elderly (just as they provide pensions for the elderly during their working lives) and the maintenance of a welfare safety net.
    Different taxes will have varying levels of impact at the microeconomic level. Revenues from alcohol, tobacco and fuel duty will decline as these levies increase and consumption of these goods falls. That is the intention, just as the plastic bag levy is designed to discourage the use of plastic.
    Increasing higher rate taxes on income (particularly jumping from 20% to 40%) can disincentivise additional effort to increase income just as high withdrawal rates for Universal credit can leave people in a benefit trap where they are better off not working.
    VAT on food will reduce consumption or more pertintley the vast levels of food waste that is a feature of modern Britain. The reallocation of tax revenue from those that spend most on more expensive food purchases to those whose spending is concentrated on cheaper discounted food can aid in addessing both the very high levels of food waste and support for those at lower income levels.
    At the macroeconomic level taxes that incentive productive activity can contribute to increasing per capital GDP. Taxes that disincentivise productive activity can depress productivity and national income.
    This was the focus of the Mirrlees Review concluding ” Britain’s tax system is ripe for reform in ways that could significantly increase people’s welfare and improve the performance of the economy.”

  • Peter Martin 23rd Feb '19 - 2:36pm

    @ JoeB,

    “The days of free trade are long gone. If we exit EU on WTO tems we will see tariffs of 40% to 45% on foodstuffs like Cheese.”

    I don’t know why you say these things because you know very well they aren’t true!

    The WTO doesn’t insist on any tariffs at all! If we want 0% we can have 0% !

  • Nonconformistradical 23rd Feb '19 - 3:11pm

    “Green taxes are a little more interesting, firstly home delivery vans are ideal targets for electric and other ‘green’ fuels and hence by reducing the need for personal journeys typically in petrol/diesel fuelled cars are probably greener than you and I taking our own ‘green’ car to the supermarket.”
    Might be true provided the supermarket has a rational delivery scheme – I’m accustomed to seeing several Tesco vans coming along in quick succession in my rural area. Which I suppose might be due to customers in a particular area needing radically different delivery times.. but doesn’t seem to be necessarily more efficient than getting one’s shopping oneself – especially if it can be combined with other activities e.g. on the way home from work.

    “Secondly, from what I’ve seen many delivery services don’t use carrier bags etc. the shopping is loaded directly into reusable crates, which are typically taken away again at time of delivery.”
    And dodgy hygene issues pertaining to said crates have been publicised in the media – involving several supermarkets. Not impressed!

  • Joseph Bourke 23rd Feb '19 - 3:32pm

    Peter Martin,

    we are dealing with the real world here not Brexiteer fantasies.This ariticle by Dairy UK Chairman, Paul Vernon, discusses the issue

    “…falling back on to World Trade Organisation (WTO) rules would either ‘block’ UK exports and EU imports or lead to huge price rises for shoppers. If you take cheese as an example, WTO tariffs on dairy will do what they are designed to do…They will stop trade. The WTO tariff on cheese is of the order of 40 to 50 per cent, depending on the variety.
    We do not make 50 per cent margins in this sector, so the ability to absorb [the cost] is minimal, if not non-existent. [Tariffs] would either block trade, or they would be reflected in consumer prices.
    The reflection in consumer prices will have the knock-on consequence of reducing demand for dairy, so it is a vicious circle.”

  • Peter Martin 23rd Feb '19 - 5:16pm

    Mr Paul Vernon sounds like he’s grinding his political axe and being untruthful too!

    The 40%, or whatever, is the maximum tariff. We can have whatever lower tariffs we choose to have providing we stick to WTO rules and treat everyone equally.

  • Peter Martin,

    the EU is by far the UK’s largest trading partner in terms of both imports and exports. The EU already trades with countries with which it has no free trade agreements under WTO terms. The EU WTO tariffs on dairy products average around 36% with Cheese products in excess of this. These are the trading terms available to the UK on its exports in a no-deal Brexit and would massively increase the price of UK exports of dairy products.
    Were the UK to waive tariffs on imports, it would risk driving UK producers out of business, as they would be unable to compete with the lower costs imports from the EU and elsewhere.

    Hence the conclusion of the Chair of Dairy UK that “…falling back on to World Trade Organisation (WTO) rules would either ‘block’ UK exports and EU imports or lead to huge price rises for shoppers.”

  • Peter Martin 24th Feb '19 - 8:21am

    @ JoeB,

    This discussion is getting off the point of the original post so I’ll keep it short.

    1) There are no tariffs on EU imports at the the moment so we don’t need to impose 45% tariffs on things like EU dairy products to protect our agriculture. Which countries are going to supply us with all this ultra cheap food anyway? I’d set the tariffs at half their current rate, for starters, and see how it goes. I don’t know about anyone else, but I can live quite happily without Gouda cheese.

    2) We’ve had getting on for three years to sort out these issues via a trade deal with the EU. Do they want a free trade deal or not? It’s their call. If they don’t, why are we wasting our time talking to them?

  • Joseph Bourke 24th Feb '19 - 12:39pm

    Peter Martin,

    when it comes to cheese. I prefer English Cheddar myself. However, under WTO the EU is obliged to impose the same level of tariffs that it applies to other ‘most favoured nations’. In the agricultural sector that impacts dairy farming above all. On import tariffs the UK has to balance the sustainabiity of farming against food prices. If UK tariffs are significantly lower than tariffs UK farmers face on exports, British farmers are placed in an uncompetitive positiion.

    The Char of the Dairy UK in giving evidence to the Environment, Food and Rural Affairs commitee was asked whether the UK could increase production if imports became more expensive because of tariffs. Replying he said:
    “If we were to become self-sufficient, we would need to produce another 3.3 billion litres of milk, which is an extra 20 per cent. If you look at dairy in isolation, we could grow dairy output, but if we end up with a WTO situation, it will not just affect dairy, it will affect the whole agri-food sector.You will have a scenario where you have a number of different sectors looking to grow and competing for the available resources.
    Obviously there has to be growth and investment at farm level, there has to be growth and investment at processor level and there has to be a market for it.”

    Raised concerns about the industry’s ability to increase production without overseas workers, he said “The question we have to ask ourselves, and we do not have the answer to, is who is going to work in these factories, who is going to work on these farms? Where is the available labour to drive that production growth?”

  • @ Michael 1 – ”All taxes increase the cost of doing business and therefore the cost of living.

    That’s a view routinely advanced by neoliberal propagandists; the usual argument is along the lines that any profits tax must ultimately force prices higher thus to be ultimately paid by consumers. However, that not correct – or only very weakly and indirectly so.

    Firms price their output at whatever the market will bear (to be sure estimating that price is an uncertain and error-prone business, but they must take their best shot at it) and crucially, they rarely if ever have complete pricing freedom. Consequently, taxes on profits must come out of those profits – and the more competitive a market is the more there is a hard price ceiling – so profit taxes are paid by the firm, not by its customers.

    In contrast, taxes that are payable irrespective of a firm’s profitability directly increases the breakeven cost of sales. Similarly, VAT take some of the available pricing ‘headroom’ which amounts to the same thing.

  • @Gordon

    um…. some interesting points. Simplistically a tax on an input – whether labour, capital or raw materials increases the cost of that input and so is likely to increase the price. Indeed there is a double effect because demand goes down and so fixed costs are increased per unit sold so increasing the price further.

    Essentially profits is the cost of getting capital investment just as wages are the cost of labour. You ask me to give you money for an equity share of the company, you will invest in machinery, your input prices will go down (say labour costs go down per unit) , your output prices will go down and you can sell more as I am more competitive than my competitors and you will have a share in those increased profits and a company that is worth more. If those profits are now taxed and thus reduced I may well say sorry mate, I can invest in a company – may not in this country or in other investments – that makes higher profits etc.

    The independent and relatively impartial IFS reviewed the parties’ plans on corporation tax ahead of the 2017 General Election. It noted: “Increasing rates will raise less revenue in the medium to long run because firms would respond by investing less in the UK. This in turn would depress economic activity and lead to fewer jobs and lower wages. There is a very high degree of uncertainty about how large these effects are but estimates suggest that they may be substantial. The potential size of these effects is an indication of why the OECD and others judge corporation tax to have a particularly damaging effect on economic growth.”

    And: “All taxes are paid by people and corporation tax is no different. Higher rates can reduce the returns to company owners (shareholders), but there is also evidence that a significant share of the burden is passed to workers in the form of lower wages.”

  • Peter Martin 24th Feb '19 - 4:50pm

    @ JoeB,

    You can check out relative food prices on this link.

    Canadian and Australian food prices are at least 10% cheaper than France.

  • Joseph Bourke 24th Feb '19 - 6:11pm

    I would agree that the IFS has established its credentials as an independent and reliable source of analysis.
    The classical system of Corporation Tax (CT) does not differentiate between a company’s distributed and retained earnings and its shareholders are treated as being completly independent of the company. In this system, the company is liable to CT on all its income and gains, and the shareholder is liable to income tax on dividends and capital gains tax on gains from shares. It is often criticised for its distortionary effects on the economy because the sysyem gives rise to double taxation of dividends and is not neutral between debt and equity capital. This was the system the UK had from 1965 to 1973.
    In 1973, the UK adopted the imputation sysytem of CT whereby shareholders received a basic rate tax credit to reflect the fact that CT had been paid on profits. Only higher rate taxes were paid on dividends.
    Under the coaltion a patial imputation system wasintroduced. The rate of CT was reduced and the tax credit for dividends was withdrawn. Dividends within the basic rate are now taxed at 7.5% (with a £2,000 dividend allowance), at 32.5% for 40% tax payers and at 38.1% for 45% tax payers.
    The incidence of the tax is primarily seen in the cost of equity capital, as Michael 1 suggests, which finds its way through to pricing and investment decisions.
    The Mirrlees tax review recommended an allowance for corporate equity (ACE) as a means of removing the tax preference given to interest and borrowings over equity. This preference has seen very high levels of leveraging in many businesesses, particularly those controlled by private equity firms, and a trend towards share buybacks over dividends concentrating share ownership in fewer hands.

  • @Peter Martin

    I suspect the difficulty with tariffs on WTO rules is something you raised in another thread – game theory and the prisoner’s dilemma. If you impose tariffs on me, I am going to impose them on you.

    The “logical” thing for any country IMHO is to have no tariffs. If it can be produced cheaper elsewhere, take it and get on with what you are good at doing. But we know that doesn’t happen. And farmers are, as we are seeing, a very powerful political lobby group. Of course if the EU27 have 30%-50% tariffs on agriculture, the UK farmers are going to bleat and say it is unfair unless we have the same. Gove is proposing substantial tariffs on agriculture which have been condemned by Prof Patrick Minford, the leading Brexiteer economist as bad for Brexit. But this is the political reality, Professor.

    More important than tariffs are non-tariff barriers. The pro-Brexit (but pro-EEA) group the Leave Alliance highlights this saying: “One can say, unequivocally, that the UK could not survive as a trading nation by relying on the WTO Option”.

    Roderick Abbott, former deputy director of WTO thinks: “quitting the EU with no deal and relying simply on WTO rules would be a hard landing indeed for both goods and services.”

    Jaguar Land Rover estimated because components cross the channel several times, Brexit could cost them £1.2 billion a year. It is not surprising that car manufacturers, up until now one of our strengths, are quitting the UK. Services where we have a £20 billion surplus with the EU are probably hit harder than goods by no deal. The Mayor of London’s report on Brexit let alone No Deal saw tens of thousands of jobs leaving London – with knock-on effects for the rest of the UK.

    Now if only we could be part of a big free trade block with minimum standards on the environment, labour and safety! That was ideally quite close by! Surely that couldn’t exist – could it?

    On Numbeo, it has “Recommended Minimum Amount of Money for food (2400 calories, Western food types)” cost as £5.59 a day in the UK, £7.23 in Canada and £6.72 in Australia. Some of its pricing is a little questionable – it has Milk in the UK at 22p for 0.25 per 0.25 litre (below Canada at 33p) but 6 pints cost £1.50 in the supermarkets or 11p per 0.25 litre.

  • @Peter Martin – “Which countries are going to supply us with all this ultra cheap food anyway? “

    Funny that, as a Brexit supporter, you raise this question; when it has been the Brexiteers who have been telling us that outside of the EU we will be able to import cheap food from countries queuing up to do business directly with the UK…

  • Peter Martin 25th Feb '19 - 9:00am

    @ Roland,

    It’s not going to be ultra-cheap. No-one is saying that. As JoeB rightly says we are going to have to set tariffs to strike a balance between protecting our agricultural sector, on the one hand, and the provision of cheap food on the other. In that sense the situation won’t be any different in principle between what happens now in the EU. With the big exception that it will be a matter for a democratically elected government in Westminster to decide, and not some unelected bureaucrat, on where that balance needs to be struck.

    If you look around the world you’ll see that the EU is a relatively expensive area to purchase food. See the link I posted at 4.50pm yesterday. If we leave the EU I wouldn’t expect the price of food to change much. Maybe a slight decrease but that also depends on what happens to the pound.

    Remainers seem to be less clear in their expectations. On the one hand we’ll all be starving and in need of EU food parcels due to food being too expensive. On the other hand UK farmers will go out of business because they won’t have anyone to buy their production.

    It obviously can’t be both. Except in the minds of the ultra remainers!

    @ Michael1,

    “If you impose tariffs on me, I am going to impose them on you.”

    Yes I accept there is temptation to think this way. However, if we take a less emotional approach, there are very good reasons for setting any import tariffs to suit ourselves and not in retaliation to what others do. If UK tariffs are lower than EU tariffs the problem of patrolling the Irish border to ‘defend’ the Single Market and Customs Union becomes much more of an EU problem than a UK problem.

    It will give us a the moral high ground. We’ll be able to point out that we are the ones in favour of free(er) trade and they are the ones in favour of protectionism.

    As the UK is a net importer of food it really doesn’t make any sense to have high tariffs. We can’t grow such things as bananas and oranges. So why have any tariff at all on those items?

  • Peter Martin 25th Feb '19 - 9:30am

    To get back to the point of the original article (sorry for any previous digression) , I would say Government will be fighting a losing battle if they try to prevent the growth of internet commerce to ‘protect’ the High Street. Maybe some shops will have to be redeveloped for other purposes. Just as a many ex-cotton mills in Lancashire have been redeveloped in flats, for example.

    Having said this Local Government is going to have to get its funding from somewhere. Taxes at local level, unlike at National level, do work in the way everyone imagines they do. If the Local government doesn’t collect the revenue it can’t spend the proceeds.

    So maybe there will have to be a local element to VAT in the future or a local element to income taxation. There should be an increased element to central funding rather than a decreasing one as we see at present.

  • Daniel Walker 25th Feb '19 - 10:42am

    @Peter Martin “With the big exception that it will be a matter for a democratically elected government in Westminster to decide, and not some unelected bureaucrat”

    The Common Customs Tariff of the EU is set by the European Council, who are elected heads of government of the member states.

  • Peter Martin 25th Feb '19 - 1:00pm

    @ Daniel Walker,

    And whenever was anything changed in the EU by popular pressure and the workings of a popular democracy?

  • Daniel Walker 25th Feb '19 - 1:22pm

    @Peter Martin

    You’re moving goalposts (You said the CCT was set by “unelected bureaucrats”; this is not so, so you’ve moved on to popular pressure)

    However, I was personally involved (albeit very peripherally, I think I wrote to my MEPs) in the successful campaign for the EU parliament to overturn the 2005 Software Patents directive, so even before the Treaty of Lisbon enhanced the EU Parliament’s powers and allowed for European Citizens’ Initiatives this was possible.

  • Peter Martin 25th Feb '19 - 1:45pm

    @ Daniel Walker,

    To our politicians, democracy, and elections, is popular pressure. If they’re running a government and we aren’t too happy about how they are going about it we can vote them out. Despite what they might say publicly, they are avid watchers of opinion polls. Even if they doing exactly what they said they would do in the previous election they can’t turn around and say that nothing can change because that’s what everyone supposedly agreed to some long time previously.

    But that’s the way the EU operates. No changes are possible to the euro because those countries who signed up to it, supposedly knew what they were signing when they agreed to ratify the Maastricht Treaty. But of course most people aren’t economists. They really had no idea of how badly it would all turn out.

    With all due respect to anyone who thinks the “2005 Software Patents directive” is a key measure of EU success, most people would disagree. They want a eurozone that works for everyone to provide economic prosperity and jobs. If the mainstream parties can’t promise that, or the voters don’t believe them, then you’ll see the rise of the far right everywhere, and the continued disintegration of the EU.

  • Daniel Walker 25th Feb '19 - 2:23pm

    @Peter Martin

    I started off by pointing out that one of your statements (“unelected bureaucrats”) was incorrect. Which it was.

    I didn’t put forward the <b<rejection of the 2005 Software Patents Directive as a “key measure of EU success”, I put it forward as an example of something changing in the EU “by popular pressure and the workings of a popular democracy”. Which it was. You were incorrect again.

    I didn’t mention the Euro, of which we are not a member and, even if we hadn’t got a formal opt-out, membership is de facto voluntary (c.f. Sweden), but in any case it has reformed several times, most recently the Euro Plus Pact. You may not agree with the direction of reform, but it has changed, and therefore your third argument was also incorrect.

    The rise of the far-right in Europe is a matter of serious concern, but it is not confined to the Eurozone, or even EU member states. Making decisions based on things that are not true is not the way to combat it.

  • @ Michael 1

    Everything is connected so a change in any one element can have knock-on effects on many others, but we shouldn’t be too concerned about capital.

    IIRC it was Adam Smith who pointed out that labour’s share of the economy (wages & salaries) is the one cost that we should aim to increase while all others should be decreased. Yet the received wisdom of the last 40 years or more (often perversely advocated in the name of Adam Smith) has been to make capital (read: those who own and control it) top dog. For the 99% who don’t have much capital this has been a disaster – for example real wages in the US have barely risen since the mid-1970s and insecurity is up everywhere – given fake dignity by calling it things like the ‘gig economy’ or ‘internships’.

    We now desperately need a change in perspective to put the interests of people first and to relegate capital to a subservient status. The mere suggestion of this will give members of the 1% apoplexy but, FWIW, in any moderately wealthy society like the UK the shortage isn’t of capital but of good investment opportunities. Absent enough productive investment opportunities and with too much capital in too few hands, money flows into speculation which, as Keynes understood, is highly damaging, saying, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

    And, just as Keynes understood, the capital development of the UK today is being very badly done indeed. The government has completely lost the plot and is ignoring its own rules wholesale while much private sector activity has been diverted into speculation.

  • Peter Martin 25th Feb '19 - 3:05pm

    @ Daniel Walker,

    Just on a point of information: The European Council doesn’t pass laws. So, no matter how democratic you think it might be, I’m not clear on how they can set tariffs if they don’t make or pass the laws to implement them.

  • Daniel Walker 25th Feb '19 - 3:24pm

    @Peter Martin
    Ah, indeed, my mistake. It is the Council of the European Union (formerly called the rather clearer Council of Ministers), not the European Council, which as you say has no legislative power. Interestingly, this joint regulation indicates that the Parliament also has involvement in some cases.

  • Joseph Bourke 25th Feb '19 - 3:55pm

    Gordon, in responding to Michael 1’s comment (“…a tax on an input – whether labour, capital or raw materials increases the cost of that input and so is likely to increase the price”), you reference Adam Smith in pointing out that labour’s share of the economy (wages & salaries) is the one cost that we should aim to increase while all others should be decreased.

    Taxes are a cost but to quote Oliver Wendell Holmes, Jr “Taxes are the price we pay for a civilized society”.The issue then becomes where and how best to levy taxes.

    Adam Smith considered the topic of taxes on agricultural land (which he called ‘the ordinary rent of land’), houses (‘house-rents’) and residential land values (‘ground-rents’) in The Wealth of Nations (Book 5, Chapter 2) he concluded that:

    “Ground-rents, so far as they exceed the ordinary rent of land, are altogether owing to the good government of the sovereign, which, by protecting the industry either of the whole people, or of the inhabitants of some particular place, enables them to pay so much more than its real value for the ground which they build their houses upon… Nothing can be more reasonable than that a fund, which owes its existence to the good government of the state should be taxed peculiarly, or should contribute something more than the greater part of other funds, towards the support of that government.”

    Smith wrote Land speculators as those who profit “by keeping the market constantly understocked, by never fully supplying the effectual demand”. While productive members of society earn money to pay their taxes, landowners are unproductive earners who pay their taxes through land rent, which is paid by people who generate economic activity.In distinguishing between tax on land and the tax of buildings, Smith opined “The rent of a house may be distinguished into two parts, of which the one may very properly be called the Building-rent; the other is commonly called the Ground-rent….Ground-rents are a still more proper subject of taxation than the rent of houses … nothing could be more reasonable.”

    These principles underpin the recently adopted policy on Business rate reform

  • Daniel Walker 25th Feb '19 - 3:57pm

    Incidentally, I suspect one thing about the EU we can agree on is that it isn’t very good at naming things. To be fair, it isn’t the only intergovernmental organisation with that issue, or presumably the Extremely Large Telescope would have a better name (although it is exactly what it says on the tin)

  • Kirsten Johnson is right that we need a ‘level playing field’ between the high street and online – currently conspicuous only by its total absence. That has big implications for retail prices, employment and the environment.

    It used to be (you have to go back around 60 years) that each retail trade (then selling overwhelmingly through the high street) had characteristic mark-ups reflecting their costs – high for greengrocers (because perishable) and furniture (because needing lots of expensive display space) and lower for most groceries (because less perishable and high stock turn).

    Since then retailing has been swept by wave after wave of innovation – the rise of supermarkets, move to out of town sites, better packaging, computerised stock control, modern warehouses, online sales etc.

    All these innovations work to cut the cost of doing what retail does – in essence, taking goods in bulk from producers/farmers etc. and making them available to consumers in small portions at convenient locations. For a retailer that’s measured by their gross margin – the selling price less the buying price and excluding everything else – staff costs, rent, rates, heating etc.

    So, add all the innovations together and the retail share of the total supply chain from field/factory to plate/new TV will obviously have plummeted. Except it hasn’t; it’s soared more often than not. So, what gives?

    The answer is that, enabled by legislative changes, the industry structure has changed to give more power to the biggest retailers at the expense of everyone else – smaller rivals, suppliers and customers.

    In policy terms that means that reforming business rates and the like, though merited, misses the main issue entirely. Transformative change will happen only when the unequal buying power of Big Retail vs independents is addressed by legislating that the same trade price must apply to all, large and small alike (with the obvious exception that actual delivery cost differences be allowed).

    That would enable small chains/independents to compete on price hence keeping the big oligopolist retailers honest. It would transform high streets very fast and for the better.

    This isn’t fanciful. Just such a law used to be part of US anti-trust (i.e. anti-monopoly) legislation and worked well until Reagan directed the Commerce Department not to enforce it.

  • @Gordon

    Thanks for your further comment.

    Let me say firstly I am not against a relatively high rate of tax – I would have Government spending of at least 40% of GDP. And I am not against taxing wealth or “capitalists”.

    I was defending my position that it is not necessarily who the tax is levied against that “actually” pays it or who it solely affects. It can be thought we don’t like those nasty big businesses lets slap a tax on their profits.

    But as I pointed out the IFS – not really with an ideological axe to grind – does note the considerable negative effect that high corporation tax has on employment and wages.

    If I have a pound to invest I can invest that anywhere in the world (ignoring exchange rate risk) if the return is less in this country because of corporation tax then I am more likely to invest that elsewhere or companies have to increase prices to make more profit to compensate me.

    But I should be taxed on that income when I receive my share of the profits. And there is a case to be made that income tax and NI should be combined and levied on dividends. It won’t happen though because employers’ NI like VAT is a hidden tax.

    There are also many changes that I would make to the tax system including more land taxes as advocated by Joseph Bourke etc. etc.

    On wages: average real wages have grown significantly in the UK and I believe the US There is a graph in an IFS from 1980 in this IFS document . What has happened is that wages for manual workers haven’t increased much. But people by and large aren’t manual workers any more – vast swathes have moved into office jobs, healthcare, teaching, computer programming etc. Clearly manual workers are under pressure from competition from the developing economies and robots.

    Clearly there are issues around the gig economy etc. but there were also issues in the 1970s and earlier among people who worked but weren’t paid for it. In the 1970s housewives (and it was mainly women) would do the household work unpaid – now household gadgets, ready meals, smaller families have reduced that burden. And women are freer to work.

    Essentially the only thing that makes the workers of the world richer is capital investment.

  • Daniel Walker 25th Feb '19 - 9:40pm

    @Peter Martin

    Okay, I got the Councils mixed up earlier, easily done given the admittedly daft similarities of names, but I did know they were separate organisations and who is on them. Anyone who cares to know that can, it’s not a secret. It should be taught better in schools, and the media should mention it more, but this whole “On well, no one knows Thing X” bit is only valid if Thing X is hard to discover. It’s like saying Sainsbury’s shouldn’t sell milk because “most people” can’t tell you exactly how much it is for 2 pints, when they are perfectly happy to tell you.

    I am no fan of the Party List system we use for MEPs in Great Britain, which does have drawbacks, some of which you have mentioned, but it is disingenuous to suggest it is the fault of the EU; The EU does not require particular systems, just that they are “broadly proportional” (for example, Northern Ireland, Malta, and the Republic of Ireland use STV, which does involve voting for particular candidates, so the UK could solve that problem easily if we so wished)

    “All that is necessary is they can vote one way or the other at election time and know that it is going to make some sort of difference.”

    “They” may think that, but given that approximately half the votes are completely meaningless due to the vagaries of FPTP they’d be wrong, unless they live in a marginal.

    “In any case, there’s little chance of anyone getting rid of people like Juncker. Maybe it’s technically and theoretically just about possible through the democratic system, but in reality it’s way too difficult.”

    Juncker, who is President of the European Commission, can be gotten rid of by the Eu Parliament…hang on, I’ve written this before. In reply to one Peter Martin, with whom you may be familiar, so I shan’t repeat myself, other than to say it has literally happened.

    You do not need a degree in political science to understand the EU’s structures. They are no more complicated than most governments. (they seem a bit odd to British people because we don’t have a written constitution, I suspect)

    The EU Parliament is more than a rubber stamp body. It can amend and ultimately reject laws, and does so. It approves and amends the budget, it (de facto) picks the President of the Commission, etc.

  • Peter Martin 26th Feb '19 - 7:56am

    @ Gordon,

    in any moderately wealthy society like the UK the shortage isn’t of capital but of good investment opportunities.

    Presumably you feel the rate of return on any investment is too low. A falling rate of profit – leading to the demise of capitalism was predicted in the 19th century by none other than Karl Marx!

    @ JoeB,

    I never quite managed to pin you down on just what a LVT actually means. As a Lib Dem you probably don’t like the idea of Nationalisation without compensation but essentially that’s what all taxes are. LVT, which is a wealth tax on land ownership, is no exception. A modest rate of 1% means it takes 100 years (excluding interest calculations) to extract the full value of the land from an owner. A higher rate, obviously, takes much less time.


    Yes you’re quite right that there’s a case to be made to abolish corporation tax. They are too easily avoided by the multinationals. But it will have be replaced by something and that’s the difficulty.

  • Alex Macfie 26th Feb '19 - 1:06pm

    I was also involved in teh campaign to reject the 2005 Software Patents Directive, as well as another, more recent successfly campaign, to get MEPs to reject the so-called Anti-Counterfeiting_Trade_Agreement (ACTA) (a misnomer, as it was not a “Trade Agreement”). Like the Software Patents Directive, this was intended to impose maximalist intellectual property laws that would benefit only large companies to the detriment of small businesses and real creators. Both the Software Patents Directive and ACTA were rejected by MEPs after they had been nodded through by national governments in the Council, with little national Parliamentary scrutiny. In the case of ACTA, which was a plurilateral agreement involving the EU and several other countries including the US, the vote in the European Parliament was practically the ONLY opportunity for legislators to have a binding vote on it. And the EU rejection of ACTA torpedoed it entirely.

  • @ Michael 1 (with apologies for late reply – I’ve have been having connectivity problems).

    I don’t argue that tax is invariably paid by those it’s levied on – clearly it isn’t. But I do say that VAT and some other taxes including NI add directly to business costs. Profits taxes on the other hand don’t add directly although there are some indeed indirect costs, not least that investment may be less attractive where profits taxes are higher.

    However, I don’t believe the latter effect is hugely important for the reasons given earlier. If it were the UK should be cleaning up on investment given it has tax rates little more than half Germany and other key competitors per your first IFS link.

    FWIW I wouldn’t rely too much on the IFS’s brief comment on the subject. For one thing I question how truly independent it is given that much of its income comes directly or indirectly from government coffers. I don’t suppose the government has a hand on the tiller but if you were in their position would you make a habit of undermining the intellectual foundations on which that government’s most cherished policies were built?

    Economics is more akin to theology than, say, physics in that different ‘schools’ reach different conclusions. As with theology those conclusions are, as often as not, designed to prop up existing power structures which use their powers of patronage to keep it that way. So, most working economists, whether in academia, government or banking, adhere to the ‘neoclassical school’ even though it easily falsifiable. It’s difficult for academics who don’t to get published in leading journals – or get jobs in government or government-supported think tanks.

    On wages I got the 99% wrong (a redrafting I didn’t check carefully enough). IIRC in the US it’s the bottom half of the income distribution that has seen little real income growth since the 1970s. The next tranche up has done slightly better, the top 10% rather well, the top 1% extraordinarily well, and the top few dozen individuals have cleaned up. That’s all assuming official inflation indices are fair measures whereas many think they understate actual inflation.

    All that means that average figures are just arithmetic abstractions.

  • @ Joseph Bourke,

    I think you mistake my meaning. The point I was trying to make is that technological change over recent decades has massively improved the cost efficiency of most sectors of the economy. E.g. manufacturing costs have tumbled (in real terms and adjusting for quality and specifications) as productivity has soared.

    Retail has similarly benefited from new technology. And in retail that should translate into getting by with lower gross margins, the appropriate measure of its cost efficiency.

    So, if a retailer in 1919 with only manual techniques could survive on, say 100% mark-up, his modern descendent with vastly better technology should be able to get by with the same level of profitability on, say 50% or even 33% mark-up and customers’ pounds would go a lot further. (NB: this argument is only about gross margins, so overheads are external to it.)

    But it hasn’t worked out like that – as far as I can judge gross margins for ‘Big Retail’ have gone up to levels that would astonish their WW1 era ancestors. Why?

    Higher property and wage costs may be part of the answer, but they’ve also affected manufacturing so that’s not a convincing excuse. We need to look at the laws and practices that shape retailing.

    These allow retailers’ buying prices to be mainly determined by the size of the retailer – bigger buyers get lower prices and that drives consolidation into a ever-smaller number of more dominant players in each retail sector and, in due course, higher selling prices too. The result is both oligopsony (few buyers) and oligopoly (few sellers) and that drives ever-fatter gross margins.

    For instance, between 1994 and 2009 farmgate prices for milk stayed roughly level despite high cost inflation but retailers’ gross margins soared driving the retail price of milk up by nearly 50% (they’ve fallen since because of the impact of Aldi & Lidl).

    Legislate to remove the ‘might is right’ dynamic and the high street will boom even as prices fall putting far more back into people’s pockets than is remotely possible with welfare (and at no cost to the taxpayer!) while more and better local shopping would also be greener.

    And the great thing is that such laws exist (though not in the UK) so this isn’t fanciful but tried and tested.

  • Joseph Bourke 26th Feb '19 - 6:43pm

    Peter Martin.

    Land Value Tax (LVT) follows the same principles as any property tax. Assessing business rates at 49.3p in the pound of the rental value of business property is not nationalisation without compensation anymore than assessng council tax on residential property values by bands is. LVT uses site value or land rental value only as the tax base and excludes that value of buildings or investments in plant and machinery.
    This article discusess the rationale for a shift away from reliance on taxes on labour towards a greater reliance on taxation of wealth arguing:
    “The harder you work, the more productive you tend to be, yet the more tax you end up paying. As a society we should be incentivising productivity not punishing it. Rather than tax the wealth that is earned, we should be looking for ways to tax the wealth that is unearned. Second, income tax exacerbates wealth inequality. Warren Buffet famously lamented that his secretary pays more tax than he does. It’s because income is taxed heavily, while wealth is not.
    The way that most seek to better their lot, particularly those who start out with nothing, is through their labour. Yet we tax labour. The wealth of those at the top, meanwhile, does not derive so much from their labour as it does from the appreciation in the value of their assets – their houses, their land, their property, their companies, their stocks, their shares, their fine art. Assets are taxed at much lower rates for the most part. In many cases they are not taxed at all. When one group is taxed more than the other, the gap between the two will inevitably grow.
    Meanwhile, the stealth taxes that are inflation, low interest rates and quantitative easing are another attack on the worker, because they devalue money. The worker who relies on his salary sees its value debased, while asset prices are actually pushed up and further out of his reach.
    It is because of our tax system that we have created in the UK this culture of rentier-ism. As a society, I argue that we should not be taxing labour, but some thing else – land.
    Not just the land, but the mineral wealth, the airspace, the broadcast spectrums – anything that is there through nature, rather than human endeavour.”

  • Peter Martin 26th Feb '19 - 7:59pm

    @ JoeB,

    “Rather than tax the wealth that is earned, we should be looking for ways to tax the wealth that is unearned.”

    The point of tax is to stop us spending the money rather than because the Govt needs the money per se. It creates the fiscal space for the Govt to do its own spending without creating inflation. If I have to pay a fair chunk of my income in tax I’m definitely not going to be able to buy the things that I might like to have bought otherwise. That’s not just a hypothetical statement BTW! I’ve never bought a new car for example which I probably would have done if I’d not had to pay so much tax!

    It’s quite common for individuals to be asset rich but income poor. So any move to tax wealth is going is going to adversely affect them. They’ll probably have to sell some of their assets to pay the tax on their total assets. So that’s why I just make the obvious point that taxation of assets is no different in principle from at least a partial Nationalisation without compensation. If you have to sell an acre of land to pay the tax on your other acres of land it’s really no different to the State taking that acre of land away from you.

    Should the State do that? Well maybe they should if the political priority is to reduce asset based inequality. But it may not create the fiscal space for the Government to spend more if the taxation hasn’t stopped anyone spending more.

    Yes, I agree with you on mineral rights, the electromagnetic spectrum etc. But the ownership of those assets hasn’t previously been claimed in the same way that land has been claimed. So there’s little or no political problem for the State to claim ownership and sell them off or rent them out.

  • Joseph Bourke 26th Feb '19 - 11:41pm

    Peter Martin,

    tax is collected continually as we earn and spend money, transact business, buy property and sell or bequeath assets. The level of tax collected from various sources is fairly consistent over the business cycle at around 36% to 37% of GDP in the 2010s. This issue is how and from what sources taxes are collected to least impede economic growth and to fairly distribute the burden of taxes.
    Land generates rents. The rents are the source of income from which LVT is paid. If the Land has no or mimimal rental value (as with most agricultural land) it is exempt from Land taxes.
    Low income homeowners in high value properties can currently claim council tax relief. Such discount schmes may be continued onder and LVT scheme.
    Tax deferral schemes are also common around the world, including Ireland, Denmark, the US and Canada. Often these are available to those over or nearing retirement age , but may also be available to those with children, those facing financial difficulties and/or through means-testing. And in the UK, local authorities already offer deferred payment agreements for some social care costs. Cross-party proposals for reform of social care funding point to a need for a national deferral infrastructure in any case.
    With LVT you decide how much tax you pay by choosing how you earn income and the value of land you wish to secure for your personal use. If you choose to earn income from wages or producing goods and services or occupy a lower value property you will pay less tax and can buy a new car instead.

  • Peter Martin 27th Feb '19 - 9:25am

    @ JoeB,

    This is all very well but you’re still hung up on the idea that the Government needs to raise taxes to get the money to spend. It doesn’t. It raises taxes to dampen down the economy by stopping us spending. Taxation is primarily a way of inflation control.

    Let’s go back to your example of Warren Buffet and his secretary. If you increase taxes on him then it won’t change his lifestyle one jot. He has, by all accounts, a relatively frugal lifestyle anyway. So raising taxes on him won’t give the Govt more fiscal space. On the other hand taxes on his secretary will possibly stop her taking that summer vacation to Florida. It will have an effect.

    So does this mean we don’t bother to increase taxes on Warren Buffet? No it doesn’t. We should still do that for reasons of social justice and to reduce inequality even though it doesn’t raise any extra spending money.

  • Joseph Bourke 27th Feb '19 - 11:28am

    Warren Buffet was making the simple point that most of his income is tax sheltered capital gains on which he paid propotionally less tax than his cleaner who’s income came from wages and was subject to income tax and social security insurance.
    If his cleaner wants to take a vacation in Florida she will probably put it on her credit card and pay 15% or 20% interest to the card company, that may wel be owned by Warren Buffet and other holders of capital. If she is renting or buying a home, much of her after tax income will be absorbed by rents or mortage payments to private equity landlords or financial institutions that have invested accumulated capital in property or mortgage lending.
    LVT seeks to shift the burden of taxation from earned income to unearned income. Renting or lending on buildings is a socially beneficial and productive activity. Renting or lending on naturally produced assets like land that is not produced is rent-extraction from the productive economy and the single greatest cause of rising wealth inequality.
    Shifting taxes from productive activities to rent-seeking activities incentivises and enhances productivity. Inreased productivity is what grows national income and the tax base with it.

  • Peter Martin 27th Feb '19 - 12:32pm

    @ JosephB,

    I’m sure we agree, albeit for different reasons, that the rich need to pay more taxes.

    We all probably agree too, that we need to reduce the inequality between rich and poor. The UK GDP is just about $40,000 dollars each. This includes everyone. Including new born children and 90 year olds who don’t work at all. So we can help the poor by sharing it out more equitably. That’s obvious.

    Or, if we think that $40k dollars isn’t enough we can do what we can to increase this. I notice that you’ve had a discussion with MichaelBG who is of the opinion that GDP can be grown by more active participation by govt in the economy. I have to say he’s right. We know from history that, when we have a national emergency like a war, the Government can really make things happen. So, how about, without actually putting the economy on a war footing, using some of the same methods to get us out of of trouble?

    We know, from observation, what happens when the Govt sits back and expects the private sector to somehow just provide the growth on its own. It can work for a little while if you create a credit bubble, but when that deflates, as all bubbles do, then you’re left with economic stagnation. We see that in Italy right now. There won’t be any growth in Italy until austerity economics is abandoned and the Italian government is allowed to adjust its spending to fine tune its economy. The Italian government could introduce a land tax or increase its land taxes but would it make any real difference and get them out of trouble? IMO it wouldn’t. It would be just another tax.

    Maybe, if you have other ideas, you could outline a plan for them to do that? Because the Italian govt isn’t a currency issuer what I was saying about the lack of need for Govt not to have to raise taxation revenue to be able to spend doesn’t apply. So there may be some scope for your methods to work there.

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