When the incoming governor of the Bank of England alludes to the UK being “in crisis” it is time to stand up and take note. One could expect a certain degree of downplaying the reality prior to taking control of the job in July, but not declaring his soon to be new home a crisis zone!
In summary what will the new Governor find in the UK:
- Growth figures released today show that the economy is flatlining with growth of an anaemic 0.3%. Growth has disappeared, and politicians despite their perpetual optimism can not talk it back.
- Latest borrowing figures show that borrowing is not going down as planned and will be significantly higher by the end of the current government’s term (£1.2 Trillion).
- More than a million new jobs have come in the private sector, but most of these jobs are part time.
- The IMF, once supportive of the UK’s austerity programme is now declaring that it’s not working and greater flexibility is needed (read – spending more).
It is little wonder that faced with this situation that Mark Carney has attempted to lower expectations, not only for the economy but also over his likely impact:
“Can central banks provide sustainable growth? No. They can help with the transition, but they can’t deliver long term growth. That needs to come through true fiscal adjustments and necessary structural reforms… Sustainable growth comes from the private sector.”
Quite, but the economy is in the doldrums and with high taxation, an out of control banking sector, and core industries like manufacturing either dead or superseded by Asian economies, recovery will be difficult.
He did highlight the need for change in taxation policy, although this will not be part of his brief at the bank.
“On a personal or corporate level, if there is a persistent ability to avoid tax that means the burden of fiscal adjustment falls on those who are paying their fair share – and they have to pay more than their fair share.”
Simply labelling those that benefit from Britain’s enormously complicated taxation system, which has been developed by the political classes, will do little to stimulate investment. Commentators debate whether the tax system is transparent and whether the division between tax evasion (illegal) and tax avoidance (legal but is it fair) is clear. Yet in developing an overly complex system with much ambiguity, it is little wonder that divisions over fairness and immoral “avoidance” will arise. There is great scope for the whole system to be simplified, and a radical new approach to tax be adopted. Or have the vested interests (usual large corporates) that benefit most from the existing system, too much influence over politicians?
With a greater emphasis on fairness and creativity the politicians and their advisors including the Bank of England could:
- Permanently cut interest rates to zero (outlawing all usury) thereby encouraging equity/partnership financing rather than bank controlled lending and bond markets. They have steadily reduced rates to near zero for the benefits of banks, why not go all the way and enforce it for all transactions.
- Reinstitute gold and silver as currency – as was the situation for the most stable (low inflation/deflation) periods of economic history. With the spectre of increasing inflation and uncertainty over exchange rates amidst the open currency wars, the population needs the certainty and stability that gold and silver currency provide.
- Abolish the Bank of England saving much public expense as control over fiat currency monetary policy (the bank’s main role) will be redundant.
- Abolish all income, and consumption taxes (VAT) and move to wealth oriented and “productive capacity” of the land tax thereby more evenly spreading the taxation burden. Wealth oriented taxes encourage spending and investment whereas income and consumptions taxes discourage successful entrepreneurship and fall more heavily on the poor and middle wage earners.
- Simplify the regulatory environment, implement laws which are clear, consistent and which don’t change with every new politician’s whim. If democracy is so successful why don’t we query the need to forever change legislation with every new parliament.
The above principles all worked well for the Islamic state over hundreds of years. Perhaps western decision makers could take several leafs from the Book that works rather than tinkering around the edges of a system that clearly is “in crisis”.
Jamal Harwood, Economics Editor