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Westlake Legal Group > Tax and Spending

So we’ve had NHS, policing and immigration plans from Johnson. Stand ready for a schools spending pledge.

So Boris Johnson has pledged 10,000 new police officers, as well as a raft of tougher-sounding anti-crime policies, an Australian-style points-based immigration system (not to mention the relaxion of migration rules for scientists), and £1.8 billion for the NHS.  It isn’t hard to see where he will go next, and soon.

The remaining element of Dominic Cummings’s favourite set of policies – tax cuts for lower-paid workers – may have to wait for a publicity push, because these would need legislation, and the Government has no working majority.  Though the Prime Minister could try them on the Commons anyway, daring Labour to vote them down, as part of an Emergency Budget in October (if there is one).

What is likely to come sooner is a Government commitment to spend at least £5,000 on every secondary school pupil.  ConservativeHome understands that this announcement is written into this summer’s campaigning grid.  But we need no special briefing to work this out for ourselves in any event – and nor does anyone else.  For why peer into the crystal of Downing Street announcements when one can read the book: i.e: Johnson’s Daily Telegraph columns?

For it was in one of these, back during the Conservative leadership election, that he pledged “significantly to improve the level of per pupil funding so that thousands of schools get much more per pupil – and to protect that funding in real terms”.  The £5000 figure was briefed out separarely.  This promise was one of the two main big ticket spending items of his campaign, the other being that undertaking to raise police spending.

“It is simply not sustainable that funding per pupil should be £6800 in parts of London and £4200 in some other parts of the country,” the former Mayor of the capital wrote.  Just as the NHS spending announcement was framed by a visit to hospitals in Lincolnshire and Nottinghamshire, expect any school spending news to be projected by a trip to schools in Leave-voting provincial England: all part of the push to squeeze the Brexit Party.

If that column is any guide, don’t be surprised to see a maths, science and IT element too – which would also be very Cummings – as well as a stress on “giving real parity of esteem to vocational training and apprenticeships”.  There is evidence that these are popular all-round, but especially among older voters.  Gavin Williamson is bound to have a supporting role, just as Priti Patel has had with the weekend’s law and order initiatives, but Johnson will lead.

Like his other spending promises, Johnson’s school pledge may not be deliverable in the event of a No Deal Brexit, and there are inevitably questions anyway about timescale anyway.  But if you want to know what more will be in his campaigning package, look no further.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

“To literally feel terror”

Boris Johnson wants, specifically, to frighten Labour off a no confidence vote and, more broadly, to intimidate the anti-No Deal Brexit Commons coalition before the Commons returns in September.  That means demonstrating that voters are backing him.  That requires improving opinion poll ratings.  And that, in turn, means an August blizzard – yes, such a thing is possible – of policy announcements to prove that his new government “is on your side”.

So to Dominic Cummings’s trinity of an Australian-style points-based immigration system, more NHS spending and tax cuts for lower paid workers we must now add action on law and order.  The new Prime Minister promised 20,000 more police during his Conservative leadership election campaign.  To that we must now add 10,000 new prison places and greater use of stop and search powers – both of which are announced today.

Or rather we would do, if Johnson had a durable majority, and were the future more clear.  The money to fund those new prison places may not be available in the event of No Deal: it may be needed for other measures.  And sweeping changes to sentencing would require leglislation, which the Government is in position to present to Parliament.

None the less, the Downing Street bully pulpit has its uses, and if the Prime Minister want wider stop and search powers to be available, he is in a position to get his way – for as long as he’s in place, anyway.  Today’s push should help.  As Matt Singh writes, there has already been “a substantial Boris bounce”.  It has largely come off the back of Brexit Party supporters, and this latest initiative is aimed at them (as well as Labour working class voters).

So too was the appointment of Priti Patel as Home Secretary.  ConservativeHome is told that there was a collective intake of breath in Downing Street when she said recently that she wants criminals “to literally feel terror”.  Number Ten need not have worried about how that view would go down.  There is “overwhelming support” for it among the public, according to YouGov.

If Johnson somehow survives the autumn without a general election, or wins one with a majority, a further question will arises about all these spending plans – namely, whether or not they’re consistent with the traditional centre-right commitment to fiscal stability.  The Prime Minister could be forgiven for thinking, given the probability of an autumn poll and the uncertainty of any result, that this would be a nice problem to have.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

John O’Connell: Cuts to inheritance tax could help the new government

John O’Connell is Chief Executive of the Taxpayers’ Alliance

The cost of dying is going up. The TPA published work yesterday detailing the taxes and charges involved when someone passes away. Inheritance Tax (IHT) is the obvious money spinner – in 2019-20, the government is projected to receive £5.35 billion from grieving taxpayers, the highest amount ever.

Inheritance Tax (IHT) is unpopular. Some polls put it ahead of other taxes as distinctly unloved – it’s often followed by Council Tax and the Licence Fee. That won’t come as a surprise to many ConHome readers, but it possibly is surprising to left-wing campaigners – who believe that inheritances entrench inequality, and that we must punish an imagined ruling aristocratic class.

Simply, IHT goes against a natural human instinct to make sure your family is looked after when you’re gone. To that end, it’s anti-aspirational – why work so hard to look after your children if the taxman guzzles it all up anyway?

But this is only one of the many ways that the government extracts money from the dead. These charges also include the cost of death certificates, land registry fees, probate and VAT.

All of that means a homeowner living in London, without a spouse or children to pass assets on to, who purchases a coffin and is cremated, faces a cost of death of up to £60,773.

This could rise to £61,308 if the newly proposed probate fees come into force. Under the innocuous sounding ‘Non-contentious Probate (Fees Order)’, Philip Hammond’s Treasury looked set to push ahead with a plan to hike the fees charged for a grant of probate from the current flat rate of £215 (£155 if a solicitor is used) to a sliding scale of fees ranging from £250 to £6,000, based on the value of the estate.

That ignores the fact that the probate service is not optional for many households. Receiving an inheritance is often unexpected and so families may not have had an opportunity to plan. This will often be the case for households on lower incomes, who do not have the resources to consult expensive solicitors. They are the people who will be most unfairly impacted.

Perhaps the cost of dying all seems rather small fry, in relation to delivering Brexit by October 31. But there is likely to be a Budget ahead of the deadline, which will need to encourage investment and win back support for the Conservative Party potentially embarking on a No Deal and General Election. So there could be three interesting elements to consider:

1. Help everyday families.

Philip Hammond’s proposal to whack up probate fees on families that may not have expected an inheritance, and may be cash poor. It is also a disproportionate increase. The level of service involved in a grant of probate is roughly equivalent, regardless of the size of the estate. Therefore, increasing the fees all the way up to £6,000 is extremely difficult to justify. As Guido reported at the time, the Lib Dems had issues with the move, as do the Law Society. It should be immediately junked.

2. Win back support with tax cuts.

The Government should consider increasing the thresholds at which people pay IHT. Consider how this issue was weaponised by George Osborne in 2007 – he dared Gordon Brown to hold an election with a promise to raise the thresholds to £1million. Brown blinked. Popular tax cuts alongside a Brexit-friendly Budget might just help a party aiming to bring voters back onside.

3. Encourage investment.

Simpler taxes are better and in the long-run, IHT should be abolished. But for now, investment is crucial. Leftist groups such as the Resolution Foundation and the Tax Justice Network have been critical of IHT reliefs like Business Property Relief (BPR). In doing so, they argue that reliefs “cost” the Treasury money; that “the government is handing out” money. Such talk is nonsense – it assumes all money belongs to the government and they simply decide to give some of it back. But until we simplify IHT by abolishing it entirely, reliefs like BPR and the Enterprise Investment Scheme can help drive growth and encourage responsible saving. BPR has been a vital tool in helping smaller companies across the UK, via the Alternative Investment Market (AIM), and has a role in ensuring that companies aren’t broken up to meet IHT liabilities, as the government alludes to. So MPs and mandarins must ignore calls from leftwing Twitter hordes and ensure that investment continues apace after the 31st October.

The new government has come flying out of the blocks and looks set to deliver Brexit by October 31st. The cost of dying may not be top of the list of priorities, but a Budget could be upon us before we know it – now’s the time for good ideas and fighting off bad ones.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

WATCH: Cleverly – Extra NHS funding comes from economic growth

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John Penrose: The conventional wisdom about this leadership election is wrong. Hunt’s spending plans are neither unaffordable nor irresponsible.

John Penrose is MP for Weston-super-Mare and a Northern Ireland Office Minister.

If you listen to the sober-sided, serious economists at the Institute for Fiscal Studies, or to the Chancellor Philip Hammond himself, you’d think the Conservative leadership election is a horrible bidding war of doolally spending promises from Jeremy Hunt and Boris Johnson. Has the party of sound money lost its soul? Betrayed its heritage? Are Margaret Thatcher and Milton Friedman spinning in their graves as leadership contenders try to out-Corbyn each other with unaffordable spending promises?

Well no, not really. I can’t speak for Boris Johnson but, as someone who’s been involved in a lot of Jeremy Hunt’s policy development work, that’s not what we’re doing at all.

Let’s start with the charge that, if it was right to introduce austerity in 2010, we should do the same for Brexit in 2019. Otherwise we aren’t being consistent.

But the problem in 2019 isn’t the same as 2010. Brexit isn’t the banking crisis, thank goodness. And if the problem is different, the answers should be too.

By 2010, Gordon Brown was trying to keep the economy going with huge increases in public spending, paid for with ballooning debt. Something like one pound in every four the Government spent had to be borrowed, to be repaid by taxpayers later. If we’d carried on like that, pretty soon the country’s credit card would have been snipped up and the bailiffs would have been knocking at the door. So we simply had to throttle back, to stop spending money we hadn’t got.

But today is different. Public spending isn’t ballooning and borrowing is under control. We’re living within our means, and there’s even headroom for a bit more spending if we’re careful. We’ve come a long way, and it hasn’t been easy. You can understand why Hammond doesn’t want the next Prime Minister to blow it.

What are today’s problems, if they’re different from 2010? The biggest is that some – although certainly not all – firms are putting off growth-creating investments until after the Brexit fog has cleared. And that no-one knows whether our trade with the EU will be easy or awful once we’ve left.

So it makes sense to spend a bit of money to promote economic growth. Post-Brexit Britain needs a stronger, more dynamic, more energetic, turbocharged economy, so we’re prepared for the challenges of life outside the EU. And Jeremy Hunt’s plans to cut corporation tax to 12 and a half per cent, increase investment allowances and exempt small high street firms from business rates would do exactly that. They would spark economic renewal and investment in UKplc, making us more resilient in economic shocks and recessions, and more productive and efficient so we can grow faster too.

In other words, it’s OK to use different answers in 2019 than in 2010. But what about the charge that we’re making the same mistake as Brown, by spending and borrowing unaffordably?

Hunt is on pretty firm ground here, because he agrees we’ve got to keep the national debt falling relative to the size of our economy. That means borrowing can’t balloon, and we’ll always be able to repay our debts. And his business career helps here too, because his plans to turbocharge post-Brexit Britain’s economy would mean we’d be investing to grow. They’re sensible investments in our economic future, not pale copies of unworkable, hard-left Corbynomic plans.

Nor is he expecting to do everything at once. We’d need to raise defence spending progressively over five years, for example, to allow time to plan. Otherwise you’d simply waste money on the wrong things.

The same goes for fixing illiteracy. That will take ten years, building on the huge progress over the last decade that has seen more pupils being taught in good or outstanding schools than ever before.

And some of the plans would only be temporary, too. The pledge to help farmers adjust to a post-Brexit world has to be a hard-headed, short term plan to help re-equip machinery, buildings and breeding for new global markets, for example. Not a woolly, open-ended subsidy.

The plans have got to be about changing things, so we’re ready for a new world. Not expensively preserving the way they were before we voted to leave. Transformation and preparation, not status quo. But, for Hunt’s proposals at least, they are sound, practical, affordable ideas. And, most important of all, they’re thoroughly Conservative too.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Johnson’s August 3) Delivering campaign pledges – in so far as he can without a durable majority

It is now overwhelmingly likely that Boris Johnson will be the next Conservative Party leader and become Prime Minister.

He may well face a no confidence vote in September, and the Brexit extension expires at the end of October in any event.

So he and his new team will have to hit the ground running in August. We continue our series on what he should do during that month and late July before the Commons is due to return on September 3.

– – – – – – – – – –

According to our weekly updated list, Boris Johnson has made some 25 policy pledges during the Conservative leadership election.  In the probable event of a general election in the autumn, he won’t be able to deliver on many of them.  And he will soon have a working majority of only three in any event.

Which surely rules out a Special Budget in September.  It would have to contain more provisions for No Deal, and wrapping them up in this way would only encourage MPs to vote them down.  He would do better to try any that he needs on the Commons piecemeal.

MPs would also vote down any tax cuts “for the rich” – a category who they would collectively argue includes those who pay the higher rate of income tax, the threshold of which Johnson has promised to raise.

It would be impossible in effect to cut income tax rates in time for a snap election anyway, though the Commons might nod through a rise in the national insurance threshold for lower paid workers, another of his pledges.

But just because Johnson can’t do everything – or even anything much that requires a Bill – doesn’t mean that he can only do nothing.

Governments have greater discretion on spending than tax.  So, for example, he could start to deliver on increasing funding per pupil in secondary schools and raising police numbers.  That would come in handy with an autumn election looming.

The latter move would go hand in hand with a battle with Chief Constables and others over the best use of new resources.  Voters want to see more police on the streets and more use of stop and search.  Johnson’s new Home Secretary should pile in.

And while he will have little legislative room for manoeuvre, he will be able to propose some relatively uncontentious Bills for September – settling the status, for example, of EU citizens.

Then there are measures that he could announce the new Government will not proceed with, as well as those that he wants to proceed with.  Theresa May is providing a growing list of the former.

Not to put too fine a point on it, he should take an axe to parts of her legacy programme – including, as Henry Hill has argued, the hostage to fortune that is the proposed Office for Tackling Injustices.

He will also want to show a direction of travel on some major policy issues.  We do not believe that refusing to commit to a reduction in immigration is sustainable.  As a starting-point to establishing control, he could do a lot worse than take up the Onward proposals floated on this site yesterday by Mark Harper.

There is a limited amount that the new Government will be able to do a in single month – not least when the new Prime Minister is bound to be out of London for parts of it, Parliament isn’t sitting, there is a new Brexit policy to get into shape, and the threat of a no confidence vote in September.

What Johnson can do is form a team, shape a Cabinet – of which more later – begin the Brexit negotiation’s new phase, and show what his priorities are: police, schools and infrastructure, with a particular stress when it comes to the latter on the Midlands and the North.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Iain Mansfield: Brexit by October 31. Stop using the Left’s language. And stand for skilled workers. Essentials for our next Prime Minister

Iain Mansfield is a former senior civil servant, winner of the Institute of Economic Affairs Brexit prize and a Conservative councillor candidate. He writes in a personal capacity.

Our next Prime Minister will take office at the most challenging time since the 1970s. Not only is there Brexit – an issue of fundamental national importance, that has destroyed the last two Prime Ministers and poses an existential challenge to the future of the Conservative Party – but the old political assumptions are changing. Across the West, traditional voter coalitions are shifting, as citizens reject centrist compromises. Flatlining productivity, unaffordable houses and millions of voters feeling abandoned, either culturally or economically, are just some of the challenges they will face.

Many of those who voted for David Cameron in 2010 are lost to the party, alienated by Brexit. In Britain today, age and education level are better predictors of a person’s vote than class. To win a general election, our next Prime Minister must forge a new coalition of voters that unites the traditional Tory shires with the left-behind Leave voters in the Midlands and North. Even more importantly, they must deliver authentic right-wing policies that address the causes of ordinary working people’s dissatisfaction. People want change and, if the Conservative Party does not deliver it, they are likely to seek answers in the flawed blandishments of Jeremy Corbyn’s socialism.

In that context, there are three essentials that our next Prime Minister must prioritise for the good of the people, the nation and the party:

  • Leave the EU by 31 October, on WTO terms if needed.
  • Openly champion conservative values rather than speaking the language of the left.
  • Reposition the party as the natural home of the skilled working and lower middle classes.

Leave the EU by 31 October, on WTO terms if needed

Not only is delivering on the outcome of the referendum a democratic imperative, it is vital for the continued existence of the party. Recent polling shows that, if we have not left the EU, the Conservatives are likely to suffer devastating losses in a general election; these figures could be even worse if large numbers of members, councillors or even entire associations defect to the Brexit Party. Many members have held on over the last few months purely out of hope that the next Prime Minister would deliver where May failed: another betrayal in October would see these members permanently lost.

Leaving with a deal is preferable, if some changes to the backstop can be agreed and Parliament will pass it. If not, as I have argued previously on this site, we have nothing to fear from No Deal. Preparations for such should be put into top gear on the first day in office. The Prime Minister must make clear that they will under no circumstances ask for an extension; and that they are, if needed, prepared to systematically veto any measure put forward by the EU on regular business if the UK is for some reason kept in. While every effort should be made to secure a deal, if it cannot be reached, Parliament must be faced with the simple choice of permitting a WTO exit or voting no confidence in the Prime Minister – a gamble, admittedly, but one that is preferable to another disastrous extension.

Openly champion conservative values rather than speaking the language of the left

In recent years too many Conservative politicians have allowed our opponents to define the playing field. We cannot beat the socialists by adopting the language and assumptions of socialism. Our next Prime Minister must stop feeding the narrative of identity, grievance and division, with its assumption that an individual’s potential is defined by their characteristics, that so-called ‘burning injustices’ are solely the responsibility of the state to address, and that the government always no best.

Changing the narrative will be a long endeavour. The systematic appointment of those with conservative values into key ministerially appointed positions; an authentically right-wing approach to policy making in Whitehall; and the withdrawal of state funding from the network of organisations that maintain the left’s grip on the policy narrative are essential. But over and above this, the Prime Minister must be willing to personally stand up and champion individual liberties and freedoms; to condemn progressive authoritarianism and to be visibly proud of Britain, our culture and the rich global heritage of our citizens.

Reposition the party as the natural home of the skilled working and lower middle classes

Young, metropolitan graduates may once have been natural Conservatives, but no longer. There is little hope of reversing this in the immediate aftermath of Brexit. Instead of squandering our effort here, our new Prime Minister should instead make the party the natural home of the skilled working and lower middle classes, particularly in the midlands and north.

Such voters have a natural affinity to the traditional conservative values of low tax and individual liberty, but also greatly value and rely day-to-day onn strong public services. This places the Conservatives in a difficult position after a decade of austerity: Labour made hay campaigning on cuts to police numbers and falls in per pupil spending in 2017. But how to fund significant increases in core services without raising taxes or alienating core Conservative voters, such as via the disastrous proposals on social care in the 2017 manifesto?

To find the funding the next Prime Minister must be bold enough to slay the progressive sacred cows that soak up billions annually in public funding. Three immediately spring to mind:

With the additional £15 billion plus a year, the Prime Minister could at a stroke increase police funding by 25 per cent (£3 billion), boost school funding per pupil by 20 per cent (£8 billion) and increase spending on social care by 20 per cent (£4 billion). And then split the proceeds of further growth between public services and tax cuts.

As well as this, we should champion the interests of the high street, enterprise and small businesses and oppose crony corporatism. Multinational companies that make use of aggressive tax avoidance, abuse their market position or actively work against UK sovereignty should not enjoy government grants, procurement or time in No. 10. Fundamentally, our next Prime Minister should spend more time listening to the Federation of Small Businesses and less time listening to the CBI.

Conclusion

As members, we have two candidates set before us. Both are able politicians and tested leaders who represent the best the Parliamentary party has to offer. As we assess who should be not just our next leader, but our Prime Minister, we should do so against their ability to deliver these vital elements.

Both have committed to delivering Brexit by October 31 – but which one has the ability, the genuine will and the courage to do so by any means necessary? Both are true-blue Conservatives – but which one will truly champion our values, taking the battle to our adversaries with the eloquence and conviction of a Thatcher or a Churchill? Both recognise the importance of reaching out to new voters – but which one can devise and push through the policies needed to unite the Tory shires with the Leave voters of the north? Consider carefully and cast your vote.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Mark Harper: If the Conservative Party is not the party of sound money, then what on earth are we for?

Mark Harper is a former Chief Whip, and is MP for the Forest of Dean.

Recently, I made my first ‘appearance’ on BBC Radio 4’s Dead Ringers, where they said that the only interesting thing about me was being a Chartered Accountant.  Now, this may not make me Box Office – but at least I know how to balance the books.

As the Conservative leadership race has gone on, both candidates have increased the amount of taxpayers’ money they have spent. Between them, adding up estimates by the independent and respected Institute for Fiscal Studies (IFS), the two remaining candidates have already clocked up tax and spending promises of around £51 billion per year.

The recent BBC documentary series on Margaret Thatcher reminded me of a fundamental truth that she talked about at the 1983 Conservative Party Conference: ‘If the State wishes to spend more it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay—that “someone else” is you. There is no such thing as public money; there is only taxpayers’ money’.

And that truth is one of the reasons why I’m a Conservative. If the Conservative Party is not the Party of sound money, then what on earth are we for?

What do I mean by sound money?  There are two effective checks on state spending: it’s Government committing to live within its means, and ensuring people keep more of their own money.

In other words, reducing debt as a share of the economy, and reducing the tax burden.

Living within your means is clearly something that Labour doesn’t believe in – you only have to look at their policies. Take John McDonnell’s plan to nationalise the water industry in England for instance; according to the Social Market Foundation, that could cost as much as £90 billion and add five per cent to the national debt.  Lots of cost with no benefit to consumers or citizens.

When we came to power in 2010, taking over from Labour, the Government was borrowing £1 in every £4 we spent.  The budget deficit was just under ten per cent of the size of the economy, at £150 billion a year.  We had to make difficult decisions to get the public finances back under control and Labour opposed us every step of the way.

Despite Labour’s opposition, we have reduced the cash deficit to £42.9 billion—down by over 70 per cent —and the deficit as a proportion of the size of the economy is down by 75 per cent to 2.4 per cent.

We should remember, and stick to, our 2015 and 2017 Manifesto commitments to reduce national debt as a share of GDP.

The tax burden is at a 50 year high.  That’s not a comfortable place for a Conservative Government to be. As Conservatives, we want to reduce the tax burden over time to allow hard working people to keep more of their own money. Recent polling by the Onward think tank showed that the majority of people, both young and old, want to keep more of the money they earn.

We do not help people with the cost of living by putting their taxes up. Our focus should be on reducing taxes for lower and middle income earners. We should always remember that the purpose of taxes is only to raise what is necessary to pay for public services and things which only the state can do, such as defence and security.

As Conservatives, we should also recognise that there is a difference between rates of tax and how much revenue is raised from them.  Conservative chancellors from Nigel Lawson to George Osborne have recognised that cutting tax rates, reducing allowances and simplifying the tax system can lead to collecting more tax revenue. Lawson did this with income tax, Osborne with corporation tax.

There are always many pressures on public spending. We need to invest in social care, our schools and colleges, policing and the NHS.  One of the biggest challenges facing the new Prime Minister will be their approach to public spending and the need to set priorities.

A good policy to follow would be to go back to the pre-financial crash Conservative policy to share the proceeds of growth between tax cuts, spending increases and reducing debt. Each year we should look at the growth and tax forecasts made independently by the Office for Budget Responsibility (OBR), and the pressures on public services to reach a balanced approach.

These decisions need to be taken in a careful, thoughtful way using methods which already exist like a Comprehensive Spending Review and the annual Budget. The Government has already announced a Comprehensive Spending Review which will set out spending plans for the next few years, until just beyond the next General Election. It’s going to require some very tough decisions, to be made by the new Prime Minister and Cabinet.

It is perfectly reasonable for leadership candidates to set out their preferred direction of travel in specific areas of tax and spending, but the scale of those commitments should be determined by the new Prime Minister and Cabinet in a proper, balanced process.

The new Conservative Leader and Prime Minister has three tasks – deliver Brexit, govern as a Conservative, and beat Labour at the next general election. Key to defeating the Labour Party will be to win the argument on the economy. And winning the argument on the economy means winning the argument for lower taxes, for sensible levels of public spending (which involves making tough choices) and for reducing the burden of national debt.

As this leadership race comes to an end, we should not lose sight of the real finishing line – the next general election. We need to ensure that we finish this leadership contest in a better position to win it.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Natalie Elphicke: It’s time to break free from the long shadow of the financial crisis

Natalie Elphicke OBE is the Chief Executive of The Housing & Finance Institute.

A decade on from the financial crisis we are still feeling the effects. Growth is too low, our economy still too unbalanced and too often different groups in our society are set against each other in arguing over the slices of a cake that simply hasn’t been growing fast enough. It’s time to break free from the long shadow of the financial crisis. The next Government must seize the opportunities to rebuild the enterprise economy and to forge an aspiration nation.

More than a decade ago the financial world as we knew it went into free-fall. Never in recent decades have the global financial markets been more fragile; have so many individual livelihoods and prosperity hung on a thread. I was working in housing finance at the time, as one of the City’s foremost structured finance lawyers for my specialist area; working on complex transactions amounting to many billions of pounds; managing business-to-business relationships with some of our country’s most important banks.

As the financial crash hit it affected every type of finance: credit lines for small business, development finance, mortgage lending, trade finance, project finance and even government debt itself. That translated into housing market instability, business failures and a scarcity of finance that simply hadn’t been seen since before the ‘big bang’ of the 1980s. Trust in the financial system itself was in jeopardy as people scrambled to remove cash from banks and building societies.

It was truly a global crisis, the financial equivalent of multiple meteor strikes. The impact of the financial crash was severe. It has also been long lasting. The decisions taken in the immediacy of the financial crisis continue to impact on our political environment today, more than a decade on. This is true particularly around access to housing choices, mortgages, savings and passive wealth creation that had become as everyday an expectation as free access to the National Health Service. The continuing impact is also felt in a lack of confidence in the very institutions on which we rely –political as well as financial.

The financial crash in technical terms is extraordinarily complex. However, it is also pretty simple. The international economic dependency on cheaper and cheaper finance had created its very own ‘Ponzi’ scheme: a lending magic roundabout where everyone chased the bottom of the barrel while laying off the worst of their lending decisions on to ‘other people’. Not quite realising that the ‘other people’, when the music stopped, were actually each other and themselves. Under-priced riskier finance had been passed and split from one institution to another and back again. It had contaminated the whole money pool.

The political responses and interventions to the financial crash were extraordinarily complex. Yet they too were also pretty simple: the central banks and political leaders of the main financial centres around the world worked together to intervene to stop the dam breaking. They prevented the very worst that should have been the natural economic consequence: a recession that could have been more severe than the 1930s’ American depression. A seismic global recession that could have reversed the economic gains of decades. That could have put Western industrialised countries back into the dark ages on productivity and growth.

Fortunately, these interventions were successful. Plans forged over pizza, the boardroom and in the offices of the central banks from countries all over the world stabilised the financial system. Deals done, crises seen off and yet more crises averted. Panic managed, institutions restructured, nationalised, bought and sold. Keep calm and carry on.

Yet this action has a financial tail, in other words a cost and consequence that continues beyond the crisis. It has a political tail as well, a political cost and consequence that continues to this day. Shortly after the financial crash a young colleague of mine said at least she would be able to afford a house now, with repossessions expected to spike and house prices projected to fall. That didn’t happen. Several years later she bought a partly owned (shared ownership) property on a new estate. House prices had continued to rise, but her wages and savings didn’t keep pace.

That is the legacy problem that politicians face today. In shoring up the dam, those who had something to lose, mainly didn’t lose. At least nowhere near the numbers or the scale that was expected. While those who didn’t have the same extent of financial assets to lose, primarily the poorer and younger generations, lost their opportunity to gain in the way that immediately preceding generations had been able to. The generation before them was able to build up a stock of wealth, whereas too often this generation has built up a stock of debt.

The decision to maintain the status quo, to plug the dam, wasn’t altruistic. The scale of the projected failure could have all but overwhelmed the country’s housing and social systems. Reviews of previous housing crises demonstrated the social and economic futility and destruction in the system of mass repossession, house price collapse and re-homing/ re-jobbing/ re-schooling. But bad debt is like a poison; it needs to work its way out, to wash through the financial system. The long journey over the last decade has been one intended to purge the system, but to do so through a slower and softer landing rather than a sharp and catastrophic one.

However, the cycle of economic shocks has also traditionally brought economic rejuvenation. Avoiding the worst of the shock has meant that the economic rejuvenation has been more muted than might otherwise have been the case. That is a problem that we are still today grappling with, where large parts of our economy remain subject to economic drift.

It is by no means certain that any economy will naturally revert to significant economic growth. Other major G7 economies, such as Japan, have faced long term ‘flatlining’, little or no growth that has persisted over many years. The UK is not quite Japan. Yet it hasn’t seen the energy or the dynamic growth that is necessary to fight in post-war or post-shock years. Neither has it seen the big political decisions to unequivocally support growth and prosperity for all.

That is the big political challenge of today. What we call the ‘inter-generational’ crisis in other times would be recognised as the equivalent of the post Second World War years or 1970s poor years. But unless we experience a 1980s-style period of dynamic growth, the country will simply continue to argue about how to divide the cake. Pitting free TV licences against free access to university; quarrelling over whether to subsidise home ownership or social rent, when we need both; rationing our help to those in need, when we should be a land of more and plenty. What is needed is a Government unashamedly committed to growth and economic expansion in the post-Brexit era.

The new Prime Minister needs to dream a dream for all of us, and then put in place the political measures to make it a reality. The re-birth of the enterprise economy and the aspiration nation. To commit to growth, prosperity and opportunity for all.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The poll which should give those backing a 2050 zero emissions pledge pause for thought

Last week I warned that Philip Hammond was right to be concerned about the idea of promising to fulfil far-off radical goals on climate change without actually explaining, debating or gaining popular consent for the vast up-front costs involved.

Avoiding such honesty is not only irresponsible and cynical – deceitful, even – it is unwise and risks a backlash by declaring something to be so important that campaigners believe they can justify bypassing the hard work of bothering to engage with the people about what it is they are proposing.

There are pretty clear headline numbers from YouGov and others for general questions on the theory of acting on the issue, particularly among the young. These findings are normally used to justify skipping the grubby question of the costs and practicalities entirely.

But yesterday, Sky Data published a poll which illustrates the problem with this rather well, and should give pause to anyone who thinks it is that easy:

Westlake Legal Group Screen-Shot-2019-06-13-at-12.29.35 The poll which should give those backing a 2050 zero emissions pledge pause for thought ToryDiary Tax and Spending Tax Sky Data Public Spending Polling Philip Hammond MP Opinion Polls Deficit debt

That is a pretty stark demonstration of the issue. Yes, ask people “should we act” or “is it a priority” and they will say yes. But currently if you ask people where the money should come from to do so – tax, borrowing (which is, after all, just deferred tax), or lower spending elsewhere, then they reject all three.

And this isn’t a question of older voters rejecting action that they young want – with all the usual caveats about cross-cutting polls, Sky doesn’t find a majority of 18-34-year-olds supporting any of the three options, either. They are pretty much average on all three: 42-37 against tax rises, 50-22 against increasing borrowing, and 74-10 against cutting public services.

Either the proposal has to change, or those pushing for it have to actually come clean with the people who will foot the bill about how much it will cost to fulfil, and win their consent. Otherwise the debate will happen further down the line, which helps nobody.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com