Key extracts from Ed Mili’s speech on the economy


7:30 am - February 14th 2013

by Sunny Hundal    


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Ed Miliband will today lay down the battle-lines for the Budget and the next general election on the economy, in a speech followed by a joint Q and A with Ed Balls at a training centre.

I wrote more about this speech yesterday, for background.

The key lines Ed Miliband is expected to say:

>> The Conservative vision of a race to the bottom in wages and skills, rewarding those at the very top but leaving everyone else squeezed as never before. Or the One Nation Labour vision.

>> We believe that our economy will only prosper when the vast majority of the people of this country prosper too. We believe it is when working families have confidence and security; when they can invest in their future; and when they can start businesses of their own that Britain will succeed.

>> Britain is at a fork in the road. We can carry on as we are: falling wages, low growth, failure to tackle the deficit. Or Britain can take the path I have outlined: a recovery made by the many, not just a few at the top. A recovery made by building not squeezing the middle. A recovery made by all of us playing our part.

>> Over the last three decades or so, an entire half of the population has earned less than 15 pence of every additional pound Britain has made, while 24 pence in every pound has gone to the top 1% of earners.  That makes it harder for Britain’s economy to succeed.

>> We can’t succeed as a country just by hoping wealth will trickle down from those at the top to everyone else our economy won’t turn around that way.

>> David Cameron talks about a global race. And it is essential that we can compete with China and India and others. But I have to tell you, Britain won’t win a race to the bottom by competing in the world as a low skill, low wage economy.

Labour will…

– break the stranglehold of the big six energy suppliers
– stop the train company price rip-offs on the most popular routes
– introduce new rules to stop unfair bank charges
– cap interest on payday loans.
– create a new technical baccaluarate, to complement A-levels
– give employers the control of the money for training for the first time
– demand that Britain’s employers step up and offer real apprenticeships and training across the country.
– introduce a modern industrial policy that supports those jobs of the future.
– tackle short-termism  of company takeovers being waved through on the votes of speculators and hedge funds
– work with companies to encourage a living wage across our country.
– legislate to split up the banks if the system does not change its culture and properly serve the small businesses of the country.
– change the way regional growth funds work because all too often they prioritise the interests only of big business
– find new ways for businesses to build shared facilities and develop deeper connections with each other.

There’s also an interview with Miliband in the Guardian today, and I suspect they will announce more stuff at last minute.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Talk is cheap. He backed the public sector pay freeze, millions of local government workers haven’t had a pay rise in 5 years while our pensions have been attacked.

An interesting list.

I also note that R4 is saying that Ed M will also announce that taxes will rise on the better off to fund various spending pledges.

I think this is the key. As the likes of Polly Toynbee have been saying for years for too long the UK has wanted Scandavian style services but US style taxes. As the last few years (with its increased levels of borrowing even before crash) you can’t have both.

So although many of Ed M’s specific points may be good I think the country needs to see a more distinct Labour economic policy, one that openly admits that taxes as a whole will rise (though geared to higher earners & asset wealthy) to pay for better public services.

I also think Ed M doesn’t need to be too specific now about actual tax changes. Merely saying that a mansion tax will be introduced and that tax rates for the top third will go up would be sufficient for now.

Some interesting points but nothing on monetary reform. Splitting the banks is essential but not as much as removing their ability to create (print) digital money and issue it into the economy as debt. We will never remove the burden of debt until the law that stops people printing their own money is updated to cover digital money.

4. George Hallam

If you want to “lay down the battle-lines for the Budget and the next general election on the economy”, then how about the five point programme put forward by Lewisham People Before Profit in May 2010?

* Stop private companies milking the state – end all private contracts in the NHS, the prison services, police, army and civil service. This will allow public employees to concentrate on improving services

* Protect our economy by managing our imports and the exchange rate of the pound – this is the only way we can create an environment for the rebuilding of British manufacturing

* Take control of our core industries – renationalise energy, water, transport, telecommunications, steel and shipbuilding – and expand them.

* Tame the City – the current financial system is so unstable and capricious that it is a threat, not just to itself, but to everyone. We need to: reinstate controls on the movement of capital; provide small businesses with a reliable source of finance through local authority banks; use the Post Offices for ordinary bank accounts.

* Stand up to the EU – just about everything we need to do both locally and nationally is against some EU law or directive.

Sunny, you said there wasn’t going to be an ‘intervention’, yet the obvious headline-grabber is the plan to reintroduce the 10p tax rate. That aside, I really hope that the plan for a ‘mansion tax’ simply buys Miliband room for a proper re-evaluation of council tax bands, which might prove far more progressive in the long run.

Does anyone believe him though? It is quite hard to isn’t it.

So, he’s committed to reintroducing the 10p tax rate, funded by a Mansion Tax.

I’m not impressed.

Labour have now moved on to coalition territory with a policy that does basically the same thing as raising the tax threshold, but does it half as much.

Any arguments in favour of cutting tax from 20p to 10p go double for raising the tax threshold (= cutting tax from 20p to 0p). So by making the case for this sort of tax cut, they’re digging their own grave in terms of competing with the coalition parties on ‘helping the low paid’.

Conversely, the arguments *against* raising the tax threshold apply equally to cutting tax to 10p:

1. The distributional impact of both policies is regressive.

Supposing the proposal was to apply a 10p rate on income between £10,000 and £12,000, you get the following pattern:

– households in which no-one earns more than £10,000 gain nothing at all. By definition, then, this policy does nothing to help the poorest households (mainly pensioners, part-time workers, the disabled, and the unemployed).

– households in which two people each earn £12,000 or more gain £200.

– in between, there’s a sliding scale. A typical low-income household with one partner on £12,000 and one on £8,000 gains £100.

At the end of the day, what you end up with is a lot of money in the pockets of households on mid-high incomes, a little money in the pockets of households on low-mid incomes, and nothing at all in the pockets of households on the lowest incomes.

2. It’s just a very inefficient way of reducing the net tax burden on low-income households.

For every £1 these policies put in the pockets of a low-to-mid income households, £2 is put into the pockets of mid-to-high income households. Hence it costs far more than using the tax credits system to increase the net incomes of those low-to-mid income households by the same amount.

3. Because we’re running a deficit, any tax cut increases the pressure to cut spending elsewhere. A tax cut is no use to a low-income household if they just end up losing their tax credits.

OK, Labour say they’ll fund this tax cut through a Mansion Tax. But that Mansion Tax could have funded, say, the restoration of some lost tax credits or benefits to low-income households.

Crudely put: instead of giving £0 to household A on £10,000, £100 to household B on £12,000, and £200 each to households C, D, and E on £20,000, £40,000 and £60,000, we could have given £200 to household A, £100 to household B, £50 to household C, nothing to households D and E – and used the other half of the money to close the deficit or protect spending on services.

As I’ve said many times before, I’m all for reducing the net tax burden on low-income households. But these across-the-board tax cuts are a very expensive way of doing that, and have some unpleasant unintended consequences in distributional terms.

Having said all that – there clearly *is* a need to look at the living standards of middle-income as well as low-income households, and shifting the tax burden from working people’s incomes onto excessive wealth is in itself a good thing to do. But I’d like to think this policy would come as part of a package that would mitigate some of those unintended consequences – e.g. restoring tax credits lost by households who would otherwise fall behind, or finding some way to claw back tax cuts received by high-income households.

@ Sunny

You were right yesterday.

Nobody’s the least bit interested. It’s just more weasel words from another weasel politician.

Why should we be interested?

There is nothing here that would get the economy moving. And the whole thing is content-lite – rhetoric about races to the bottom (with no evidence), a nod in the direction of the politics of envy by referring to the 1%, vague generalities about industrial policy…

Above all, there’s no understanding of how to create a high wage, high skill economy. To do this, we need to cut corporation tax from 24% to less than Germany (15%), because, as the Germans know, the more profitable a company, the higher the wages it pays…

“To do this, we need to cut corporation tax from 24% to less than Germany (15%), because, as the Germans know, the more profitable a company, the higher the wages it pays…”

The pay of industrial workers in Germany might well have something to do with their skills and Germany’s enviable structure for training.

@TONE

Hmmm. Germany’s corporate tax rate is c. 30%.

Ed M’s suggestions today ? Certainly a good idea to bring in wealth taxes and taxes on the unearned property gains of the last few decades. It’s economically efficient to tax wealth more and earnings less. Should have support across the board (even Osborne favours mansion taxes but was over ruled by Cameron). Though will be plenty of property rich Labour supporters who will object. See Joan Bakewell’s article in Telegraph last year bemoaning fact that her £4m house might have to pay a mansion tax.

But why not be more radical ? A £1bn mansion tax is a drop in the ocean.

The 10p tax is a bit sillier. Right, of course, that the low paid should pay less tax but raising thresholds is a better and simpler way of doing this. Introducing an extra band just complicated matters and puts back the day when Nat Insurance can be merged properly into income tax.

shinsei1967 @ 11:

Fair point. Though the national rate of corporation tax in Germany is 15%, the local rate can be up to another 17%.

Bob B:

“The pay of industrial workers in Germany might well have something to do with their skills and Germany’s enviable structure for training.”

Undoubtedly. But, as Chris Dillow has observed, one study in Europe showed that “in the long-run, 92% of any rise in corporation tax falls upon wages.” Furthermore, as Chris says, high profits lead to higher wages.

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/04/corporate-tax-incidence-some-evidence.html

Wow, I hadn’t seen a figure that high from Chris Dillow.

But yes it is certainly true that if corporation tax was abolished then the result would have to be (one of, or a a combination of):

– lower product prices
– higher salaries for workers
– higher salaries for fat cat directors
– higher dividends for shareholders

And seeing as dividends and salaries are taxed higher than corporate profits the Treasury would actually take higher revenue.

I wonder whose pay would get most of the benefit from a cut in the UK’s corporation tax rate?

According to this, the average renumeration of CEOs compared with the average yearly employee pay went up from a multiple of 69 in 1999 to a multiple of 145 in 2009, which isn’t bad going for CEOs.
http://www.telegraph.co.uk/finance/jobs/8546801/Chief-executive-pay-vs-average-worker-pay-in-graphs.html?image=1

According to Wednesday’s Guardian:

“The real value of UK workers wages fell back to 2003 levels in 2012, following several years of pay freezes and economic restructuring, according to official figures.

“After three decades of strong growth, real wages peaked in 2009, data from the Office of Narional Statistics shows. Since then, inflation has outstripped wage increases, leaving earnings at their lowest level in real terms in nine years.”

” tackle short-termism of company takeovers being waved through on the votes of speculators and hedge funds ”

Restricting new buyers after a bid is announced to six or even 12 months before they have voting rights would be a reasonable measure. It is just custom in the UK that companies allow shareholder votes to be weighted by how many shares the holder owns. However, there is no legal right in the UK for every share to have a vote. Other countries especially France do not practice that dubious form of corporate democracy. Hence why it is easier for overseas companies to takeover UK companies compared to other countries. One should not get economic nationalist about the issue, as some do thrive with foreign ownership replacing useless UK management.

Most mergers and takeovers are not +ve for shareholder value. But they are +ve for mergers & acquisitions advisors bank balances. In recent years, hedge funds have been swing voters in many takeovers. They have obviously got an incentive to vote in favour of the bid to profit from the merger arbitrage. Therefore, even if the bid is not in the interests of the company, shareholders or employees, the swing votes can be the difference. The Cadbury takeover would probably not have happened without them. I don’t see what would be lost by restricting their voting rights. Although, they would argue they get a better price for shareholders, but that is premised on the bid being successful come what may. It should be pointed out that merger arbitrager speculation is not risk-free as they will lose money if they the takeover does not proceed.

More worrying is the remarkable coincidence that so many of them appear to build up a holding in a company shortly before a bid is announced. Have the two Eds any plans to address that, because that is free money and is rarely investigated.

Richard W

To my knowledge, it has been well known for decades that the share prices of companies subject to take-over bids often tend to rise before the bid is made public. The question is what to do about it.

The usual “explanation” is that shrewd market operators made good guesses about what was likely to happen and backed their hunches to make money. The truth is that to prove criminal “insider trading” involves costly surveillance.

In the last few years, stock market regulators on both sides of the Atlantic have stepped up their market surveillance to trap insider traders, hence reports like this in the FT last July:

Six jailed in UK for insider trading
http://www.ft.com/cms/s/0/f5e265b4-d7d4-11e1-9980-00144feabdc0.html

@ Shinsei:

“Certainly a good idea to bring in wealth taxes and taxes on the unearned property gains of the last few decades”.

How exactly, and what problem are you trying to solve?

You should know, by the way, that property is already taxed.

@Jack C

1) Problems with property being untaxed ? Well as governments need to raise tax somehow it is more economically efficient to tax wealth rather than income. So property should taking a bigger share of burden (and earnings less).

2) Property gains on main home aren’t taxed. Yes there’s stamp duty on initial purchase. A one-off few percent. You might claim that council tax is a property tax but it is really just a graduated tax to pay for local services. And it is pretty insignificant. As we all know a £15m mansion in South Kensington pays the same £2500 charge as a £500k flat. Back in 70s and 80s these 6 bed banker’s houses paid the equivalent (in today’s money) of £30k in rates.

Property gains on your main home are taxed eventually, ie once the gain has been realised.

Part of the problem is in calculation. Would expenditure on the house, say fixing the roof, lead to a tax rebate, or an increase in tax due to increased value?

How much would this cost the government during a slump in values?

Neither would this tackle the housing shortage (the cause of the excessive gains).

@Jack C

“Property gains on your main home are taxed eventually, ie once the gain has been realised.”

No they’re not. Your primary residence is entirely free of any capital gains tax.

Buy a big house in Primrose Hill in 1980 for £100,000 and sell it for £4m in 2013 and it is all tax free.

(And you had the mortgage payments subsidised by MIRAS tax relief for most of the 80s)

Had you put the money in the bank instead you’d have paid income tax on the interest. Had you invested in the stock market you’d have paid income tax on the dividends and capital gains tax on any gain.

We have a tax system that aims to encourage home ownership (a good thing) but also that encourages rampant house price inflation (bad for the next generation) and a system that encourage “investment” in bricks and mortar rather than more economically useful investment in British businesses.

@20:

Cap Gains: applying this every time you move would prevent people moving. Assuming that you sell then buy, gains on your previous house would be balanced by the increased cost of your new house. Eventually, you pay tax on the entire value of the house (post-death).

“but also that encourages rampant house price inflation”

No, that’s lack of supply. Other things being equal, and over time, house prices shouldn’t increase in real terms. Maintaining this should be a key responsibility of all governments. The key point being, as you rightly say, that excessive increases are are an additional cost for the next generation.

Home ownership should be as wide as possible, because as it allows wealth to be built at all income levels.

It is claimed that Britain is “over-shopped” on the evidence of not only the numbers of vacant shops on high streets but also the numbers of charity shops on high streets. The observable amount of vacant office space suggests that Britain also has too much office space – or office space in the wrong places.

That all seems rather paradoxical when compared with frequent claims that the system of planning approvals for development is holding back approvals for housebuilding. How come too many shops and offices but not enough housing?

To what extent, if any, has Britain’s tax system contributed to over investment in shops and offices?

@Jack C

1) I don’t disagree that lack of supply/too much demand has the major impact on house prices. But the tax system doesn’t help.

2) You could have CGT on your primary property with taper relief for inflation. And abolish stamp duty. I don’t disagree that there would be problems for the first few years. Largely because house prices have got so far out of kilter. So you could have one-off mansion tax and then introduce CGT on primary properies going forward. The idea being to keep house price inflation in line with normal CPI or earnings.

3) Well “you” don’t pay tax on your property when you die. Your children get £325,000 of your gross assets (£650,000 if you include your spouse) tax free and then “they” pay 40% on any amount greater than that. And technically they aren’t pay tax on the capital gain of the property they’re paying tax on its value (regardless of whether your £1m house was bought last year for £1m, or 20 years ago for £100,000).

But where’s the gain?

Even if I downsize or move out of London, consider this:

a) I had a house in London worth 500k.
b) I now have a house in the country worth 250k plus 250k in cash.

My “wealth” has not increased. I will, however, now being paying tax on any investment income from the 250k in cash.

In my own case, and I don’t suppose I’m unusual, the cost of ownership (including essential repairs, but not voluntary improvements) is similar to the increase in value.

I’m not convinced that you’re going to see much tax out of this. There may even be rebates.

@Jack C

I don’t think any plan to charge CGT on first properties is aimed at 500k properties.

A bit like CGT on shares. You get 10k gain per year free. The CGT is designed to raise money from the rich rather than the well off.

Similarly with property CGT. I’d aim it at people making millions on London property rather than people making 100k.

I would say that the introduction of a technical baccalaureate is a good move. If someone leaves with poor A levels it sets them behind people with good A levels and looking bad, but if that person focuses their skills on technical qualifications they will show they have skills which genuinely are practical, rather than shoddy A levels painting a bad picture of them. They need to be different to acedemics, not worse.

27. Alexis ShelCrooke

@pagar: coming from a thick tory daily mail reader (who possibly inbreeds) that’s a compliment

Oh and a UKIP nut.

So many points, so little substance…

But I do like the one about the last three decades, helping highlight the failure of the last Labour Government.

They love to criticise Tory ‘trickle-down’ economics, but could Labour really manage to move away from their ‘trickle through’ the public sector…?


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