Whichever way Rachel Reeves turns she is heading for checkmate. As someone who likes to claim that she was a former junior chess champion, that must make her feel just a little uncomfortable.
Look at the domicile rule. If she goes ahead, as she plans, and abolishes it, including with regard to inheritance tax, then she keeps Labour supporters happy, but it is claimed that she will deliver no net gain for the UK and she will, supposedly, have alienated the ultra-wealthy population of London on whom she and Keir Starmer seem particularly dependent.
On the other hand, if she keeps the rule to protect the £1.5 billion of tax revenue that it is now said by some that she might lose by abolishing it, she will then alienate approximately 10 million pensioners who know that they will have lost out as a consequence of her choice to abolish the winter fuel allowance for them whilst letting 70,000 ultra-wealthy people off tax liabilities of equivalent amount. In electoral terms, that would be an absolute disaster.
There is, of course, another dimension to her choice. The domicile rule is obviously unfair. It is, in my opinion, racist by discriminating on the basis of a person's ethnic origin but, worse than that, it creates a deliberate unlevel playing field that means that people in otherwise almost identical circumstances might pay significantly different amounts of tax, and that will be noticed and resented by the people of this country. The consequence will be that what I describe as tax morale, which is a measure of the willingness of people to pay the taxes asked of them, will fall and as a result, overall net tax yield will decline because of an increase in tax avoidance and tax evasion. What else can she expect when she creates an unlevel playing field with a bias towards the wealthy?
The situation will not improve for her if, as the Financial Times is now suggesting, she restricts pension tax relief on those on higher rates of rates of income tax so that she can maintain the domicile rule for the ultra-wealthy people with a place of origin outside the UK. Most of those higher-rate taxpayers will probably make pension payments. Three million or so of them will, as a consequence, lose out so that 70,000 people might gain. Admittedly, some of those 3 million would never have voted for her, but some undoubtedly did. They, too, are going to be deeply unenamoured by whatever decision she makes.
At the same time, she's created another problem for herself. By wholly unnecessarily committing herself to Jeremy Hunt's ridiculous fiscal rule, which she never needed to do, she has now created an almost impossible dilemma for herself in trying to get out of its consequences. If she does, she will undoubtedly alienate some in the City of London, although whether that really matters or not is open to question. If she does not, then she cannot deliver the change that this country expects, which was the single promise that Labour made before the general election. Yet again, entirely through her own fault and lack of understanding, she has created a political crisis for herself.
This situation is, however, deeper than this examination of the headline issues suggests. There are much more profound political points to make here. The first of these concerns fairness. When government is already unpopular with people in this country, with some willing to vent their anger as a consequence, to create deliberate and very obvious injustices that bias society towards the rich and against everyone else has to be the most stupid political move that anyone could make. Anyone doing so might, quite reasonably, be accused of fanning the flames of far-right populism. The belief that politics, as it is, might not be serving the interests of the people of this country is growing, and that can only be reinforced by the actions that Reeves might take to relax her proposed reform of the domicile rule.
Much the same is true with regard to her position on the so-called national debt. Most people have no clue what this is and have absolutely no understanding of what difference £20 billion either way makes because the sum in question is totally beyond their comprehension, and quite reasonably so. They do, however, know that their local hospital or school is falling down, that the roads need repair, and that there are real problems with delays in the delivery of most public services, including health and social care. In that case, what they realise is that if Reeves caves in, there will be no change. There will, instead, be austerity 2.0. They will not forgive her for that. Moreover, if that is her choice, the case for their rejection of government will grow, and the appeal of fascist alternatives will increase.
Reeves has created a total political nightmare for herself. She is clearly utterly politically incompetent to have done so, but the consequences for the rest of us are deeply significant, and the signs are that she is very unlikely to work out a solution to these problems herself. There may be trouble ahead.
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Thank you again for your insights and energy.
Might it be that, in very basic terms, Rachel Reeves has the choice between favouring/aiding the lenders or the borrowers?
Might it be that the lenders have more powers in the shorter term and that, without the reasonably effective input of the borrowers in the longer term, our society will not be effective enough to produce enough goods and services to provide the wealth gathered by the lenders?
Might it be that the relevant ignorance of the regular citizenry, and their older children, is a submerged policy to benefit lenders?
I am not sure I see how that can be the case
Our political system has increasingly become North American in flavour, particularly in the way and the attitudes to political funding work.
However, the U.S. is a huge country where lies are easier to hide than on our small islands.
Well – let us hope so.
What I always find fascinating is how people are quick to charge people as being incompetent. Reeves is not incompetent, she’s following the plan as agreed on her visit to Washington DC before the GE. She isn’t screwing up, she’s following the plan.
The plan is incompetent
The plan is not incompetent if its aim is to maintain a seriously inequitable society (in both financial and therefore social terms).
You, and I, and others here, are singing from a very different hymn sheet. We would prefer to see a more cohesive and co-operative and egalitarian society, but Rachel Reeves and Keir Starmer apparently don’t.
Whether or not public opinion will be enough to shift them (preferably quite soon) remains to be seen, but I for one am not optimistic. For one thing, the only viable alternative is someone not even you can spot in the Labour Party ranks as a plausible alternative or the Tories we just ejected. Weave nowhere to go at present. Or so it seems.
The Blair (witch) project has nothing to lose in promoting the current regime, and that is the only likely source of any sudden change of direction isn’t it?
‘The plan is incompetent’.
For whom?
You have to give it to the Neo-libs and their followers/co-opted cronies – they are acting in their OWN rational self interest. They are making their own reality. And they are good at it. They are walking it like they are talking it.
Now of course, that does not work for a lot of other people. But the hyper-individualised internal logic of the ‘rational self-interest’ cannot be ignored. It is a form of thought leading to deliberate actions.
I don’t think that we can get into arguments about cognition here.
It is instead as Clive Parry talks a lot about – fairness – it is about ethics and principles which are sadly lacking. That to me does not show a lack of intelligence.
It’s a lack of something else, because essentially what we are looking at here decisions about choices.
Anyway, I’d better get on with work……………….
A number of well raised issues. There are three basic problems with the current government – 1) they lack the knowledge or skills to do the job they are supposed to do; 2) their understanding of economics is very limited so they have adopted the free-market, orthodox economics approach; 3) their inability to see how the electorate regards the choices they are making, basically hitting those who cannot afford it and cutting already weakened services.
Harping on about how bad the previous lot were gets a little tedious after a while and is no excuse for bad policy choices.
More of the electorate see them as the same as the conservatives with the refrain “They are all the same.” Nigel Farage must be rubbing his hands with glee!
[There are two problems facing opponents of the Government – 1) division between progressives and conservatives; and 2) an understandable lack of knowledge about economics which the government relies on as they can keep saying that you cannot spend more than you have got which ties in with households and spending.
“1) they lack the knowledge or skills to do the job they are supposed to do”
It depends on what the job is that they were hired to do and who hired them.
Who hired them or who “got” them hired is the most important issue that determines doing “the job they are supposed to do”.
@ Bay Tampa Bay
Spot on. I agree totally. We know this team is bought and paid for by vested interests.
It was said (wrongly) about Sunak that “…he was quite a decent administrator but just bad at politics”. It appears that Rachel Reeves is cut from the same cloth – except her administrative skills are, as yet, unproven.
She clearly comes from Colbert (finance minister under Louis XIV) school. “The aim of taxation to pluck the most feathers for the least hissing”. It now appears that changing the non-dom rules may not raise as much as forecast (although who knows?) and the “hissing” has started.
She needs to stand up and say that whatever the resulting gain/loss in revenue, our tax system must treat all long term residents of this country fairly. If non-doms (or anyone else) don’t like the UK inheritance tax rules then they need to make a case for change within our democratic system – not just opt out.
Oddly, Colbert would not have approved of the cut in Winter Fuel Allowance – lots of hiss and not many feathers…. but I guess it is all about who does the hissing!
“It was said (wrongly) about Sunak that “…”he was quite a decent administrator but just bad at politics”
Sunak is a managerial technocrat. This works in the Silicon Valley, at Goldman Sachs and a country like India where local corruption is rampant plus very widespread thus requiring management not leadership.
It will not work and cannot function in the UK or USA for the “head honcho in-charge” where leadership is the most necessary qualification for success.
I don’t know if it’s still the case but at one point Norway had the best benefit system going. High tax = excellent infrastructure and excellent service provision. Excellent unemployment benefits but only payable for one year then it’s a choice of paid employment, voluntary work or military service with the UN. Now I know that the last name will be complete anathema to some if not all readers but surely with the way things are going it may be necessary to ‘bite the bullet’ pun intended.
I admit I am not at all sure that all of that is correct and I have not got time to check
Might it be that we are experiencing a conflict of Capitalism types between currently promoted “Financial Capitalism”, which is being governmentally preferred to previously dominant “Resource Producing Capitalism”, sometimes referred to as “Industrial Capitalism”?
Might the latter have needed and, to some extent, contributed to, infrastructure resources, physical such as transport, housing etc. and services such as health services, whereas the former seems not to need them and sees them as opportunities for financial exploitation?
If this is the case, then Colin’s comment above fits, as a form of financial capitalism seems to be behind the current foreign policy/policies of the U. S. A., as explained in the attached article from which these questions come.
https://michael-hudson.com/2024/09/u-s-foreign-policy-and-economic-shifts-trump-vs-harris-debate-analysis/
I understand that the USA does not permit non dom status. I believe that some individual US states do not apply income tax to residents.
Why is the UK fretting over withdrawing non dom status? Oh I forgot the UK super rich can only operate in/live in the UK with special tax breaks.
And the main stream media peddles the myth that if the rich leave the sky will fall down.
Don’t expect Free Gear Kier and his cohorts to challenge the current economic orthodoxy.
@John Fairhall
“I believe that some individual US states do not apply income tax to residents.”
Correct. It is up to individual states to choose to apply or not to apply a “state” income tax.
Florida does NOT have a State income tax but our state sales tax is higher than most states. All State of Florida sales tax revenues stay in the state.
The city where I live in Florida also levies the .5% local option sales tax. The .5% local option sales tax revenues stays with the city.
And you have no VAT – quite exceptionally
@Richard
Correct. There is no VAT anywhere in the USA.
“And you have no VAT – quite exceptionally”
I find I have little or no idea how a sales tax differs from VAT.
What is VAT if not a sales tax with a different name?
They function totally differently
Try this https://tax.thomsonreuters.com/blog/what-is-the-difference-between-sales-tax-and-vat/
I view VAT as a kind of sales tax irrespective of the slightly different functions they perform.
Some state sate sales taxes do not apply if the object is to be removed from the country imminently with evidence that this will be the case being provided at the sales point.
Richard,
Thanks for the link on VAT vs Purchase/Sales tax.
I had never really understood why it was called value added tax. I do now, but as an end user it makes little difference to me what it is called or how it functions. I just pay it 🙂
regarding the winter fuel allowance, if there was a plan, rather than removing it for all but those on pension credit etc. why did they not simply remove the standing charges and increase the Kwh prices. That way, those using the least energy, maybe living and heating just one room, will benefit as more of their money will go to heat their homes and those using more energy will pay more! Very green and very fair. I would be one paying more and that’s fair.