tax

Over at Aurea Mediocritas (Golden Mean), blogger TonyD discusses local rich bloke, Peter Hargreaves of Hargreaves Lansdown, who was recently interviewed by the BBC for the Politics Show West.

I left a comment at Tony’s blog, of which this post is an extension.

The BBC’s reason for interviewing Mr Hargreaves was his stance against recent changes to UK tax law to create a 50% band for income tax. His comments to the Times were:

“I won’t pay. I’ll leave,” said the 63-year-old entrepreneur, echoing the words of hundreds of businessmen.

“Why wouldn’t I? If I stay I’ll pay half a million more a year in tax. If I leave the country I can save £3m a year. It’s almost like the government is offering me a bribe worth £3m a year to go and live abroad.”

As the only right-winger in the village, (although the old language of left and right in politics isn’t very useful anymore) here’s my commentary.

Peter Hargreaves wasn't particularly eloquent in his BBC interview – in which he more or less repeated his comments from the Times interview. This is what he should have said:

Wealth is not finite. If one person becomes more wealthy it doesn't mean that someone else becomes less wealthy. If you make your money in a market economy where you are freely offering services, then the reason you can make money is because you are creating value for someone else.

If someone is fortunate enough to become wealthy, then they continue to benefit the economy in numerous ways simply by virtue of having the wealth, since it can be invested to create new jobs,  or given away to charitable causes. Even If that wealth is just left in the bank then it is available to loan out to other people, so they can purchase assets, start businesses or use in other ways to improve their lives.

No one should feel they have to apologise for being successful. The most patriotic thing that anyone can do with their money is to keep it out of the hands of Westminster (and Local Government), since politicians tend to spend money foolishly. To understand why, one can refer to a useful model expressed by economist Milton Friedman:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.

In the BBC interview, as in much of the rest of the media, Peter Hargreaves was tarred as a “Financial Services” expert and thus lumped in with the small minority of bankers who ran their organisations into the ground, and then managed to wangle enormous amounts of our money to keep themselves in business. But he’s a stockbroker, not a banker.

Lending money to people who couldn't afford to repay it (Sub-Prime Lending) was foolish. The banks who bet their shareholders equity on this absurd concept should have gone out of business, or more likely ended up doing a debt-equity swap or similar transaction which would end up with the shareholders losing most of their investment. Instead, the UK government gave banks lots of our money. So now we've got dodgy banks that nobody trusts and a huge bill. The current economic problems in the UK are not down to some sort of global malaise, nor are they (solely) down to a few bankers; the blame is solidly pinned to the politicians. (and the stockbrokers certainly weren’t involved).

Chris Hutt, whose Green Bristol Blog is the place to find some exciting ideas about attractive and elegant cycling routes for the city, added some thoughts in the comments at Aurea Medocritas.

James, I'm inclined to agree with much of what you say but do you not recognise that those who acquire wealth often do so without necessarily creating any? […N]ot all buyers and sellers are smart enough to realise (or greedy enough to care) that they are getting a bad deal. [..] There's nothing wrong with wealth per se but do you not think that big disparities in wealth tend to undermine social coherence? [Full comment here]

to which I reply:

And who are you to tell someone that what they think they want is not what they really need? Who are you to demand another free citizen defer to your intellectual “smarts” in regard to the way they spend their own earning?

Define social coherence for me (is it the same as social justice as we're still working on a definition of that one?). You contend that it is the fault of those with money that those without as much money suffer envy. That is certainly a logically consistent reason to take  money from those who have earned it, but another alternative would be to dig out the Ten Commandments and point to No. 10:

You shall not covet your neighbour’s house; you shall not covet your neighbour’s wife, or male or female slave, or ox, or donkey, or anything that belongs to your neighbour.

There is no (absolute) poverty in the UK. And I for one have never been very fond of relativism. Still, let's all agree that some people have become wealthy by improper means. The best thing we can do now is to go through our parliamentarians' expenses receipts to see whether there are grounds to get any of it back.