Taxes as a percentage of GDP have risen to a seven-decade high in the UK
Our June Global Market Perspective notes that UK taxes as a percentage of GDP are at their highest in decades! The issue elaborates on how government actions often make a nation’s financial conditions worse – not better. An excerpt is below:
As mood waxes negative and economies worsen, governments will attempt to reverse the decay. The two charts below, however, are a good example of our long-standing view that government measures can only ever worsen financial conditions. Despite a six-decade downtrend in disposable income across UK households, total taxes as a percentage of GDP have risen to a seven-decade high. (You read that right: Taxes in the UK are now worse than the mid-1960s when the Beatles released “Taxman”!)
In a March 8 Bloomberg Opinion piece, “The UK Wants to Make Your Money Everyone’s Money,” columnist Merryn Somerset Webb recapped the many ways that governments extract resources and worsen economic performance through inflation, default or reneging on promised services. Her views of Chancelor Jeremy Hunt’s new spending plan are especially relevant:
There was an announcement of a consultation to extend the UK’s Individual Saving Account regime, which allows savers to invest up to £20,000 ($25,600) a year in a wrapper that protects their gains and income from tax. The idea is to allow an extra £5,000 a year but to require it be invested only in British-listed firms.
Interpolating a bit here, Hunt could work to slash government spending, return the money to citizens, and permit taxpayers to fund or build businesses that they like. Instead, he will work to incentivize investments into British firms regardless of whether those investments are sound.
There is also to be a series of requirements for pension funds to publish details of their allocations to UK investments with the clear intention that the transparency should automatically lead to an increase. And if it does not? “The government will review what further action should be taken if this data does not demonstrate that UK equity allocations are increasing.”
Here, again, Hunt could work to remove regulations and allow British firms to become world-class businesses into which pensioners happily and voluntarily invest their money. Instead, he will try to penalize pension funds for failing to invest in UK businesses whether those investments are sound or not. Webb goes on to quote financial market historian Russell Napier who observed that, because governments can’t afford to pay for all the things we need, “mobilizing private savings to meet political goals will become the new normal.”
He and she are right, and it’s one of dozens of ways that government intervention will worsen the downturn.
Our Global Market Perspective discusses some of the other ways that government hinders rather than helps.
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