Mr Brightside: Who Pays the Ferryman? 

 

“People, they rush everywhere 

Each with their own secret care” 

 

One of the most often used sayings is “you get what you pay for”

 
It is commonly accepted that our public services, and infrastructure are poor, victims of 14-yrs of austerity, and years of neglect. We all take them for granted, expect them to work, and complain when they don’t. Collectively we all fund them through taxes and national insurance contributions (“NIC”).  

Continual tax cuts have meant years of underinvestment to a point when they are failing. Everyone is quick to complain but no one wants to pay. The message is very simple, accept failing services are a cost of low taxation, or put you money where your mouth is. 

This week we have had two moaners, retailers and farmers. 

In a letter sent by the British Retail Consortium (“BRC”) with 79 signatories, including Tesco, Boots, Marks & Spencer and Next, they warns the chancellor of the financial impact of a £7bn increase in annual costs, including the impending increase in the national living wage and employer NICs. 
 

‘accept failing services are a cost of low taxation, or put you money where your mouth is’

 
The BRC said absorbing the impact “For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale,” the letter says. “The effect will be to increase inflation, slow pay growth, cause shop closures and reduce jobs, especially at the entry level. This will impact high streets and customers right across the country.” 

The letter says retailers are already starting to make “difficult decisions” and “the sheer scale of new costs and the speed with which they occur create a cumulative burden that will make job losses inevitable, and higher prices a certainty”.     

Addressing the Treasury Committee the BoE governor, Andrew Bailey, was asked if the Bank had not modelled how many jobs will be lost due to the rise in employers’ national insurance rates? He quoted the Office for Budget Responsibility’s forecast of 50,000 job cuts. 

Whereas Nadine Houghton, a national officer at the GMB, said: “Multibillion-pound businesses pleading poverty because they’re being made to pay more to support public services is utterly pathetic. 

“Most of these companies’ fortunes are already subsidised by the taxpayer, they pay very low wages which then have to be topped up by in work benefits. It’s only right that they should now contribute a bit more to rebuilding our country.” 

I thought it would be interesting to see how the four businesses named were performing. The latest profits figures are; Tesco pre-tax profits hit £2.3bn, M&S, Boots £237.6m, and Next £1.005bn. 
 

“Multibillion-pound businesses pleading poverty because they’re being made to pay more to support public services is utterly pathetic”

 
The fact they are happier to sack people, rather than cutting their profits shows, yet again, how today’s capitalism serves the few (investors) at the expense of the majority (workers).  

Turning to the farmers. I will readily admit to being a townie, which makes me an opinionated know-nothing!   

This week thousands of  farmers descend on Whitehall protesting about the imposition of Inheritance Tax (“IHT”) on their businesses. 

Accompanying them was the usual assortment of hangers on seeking to benefit. There was Nigel Farage in a flat cap, pristine Barbour jacket, mustard trousers and green wellies. The classic “I asked my tailor what one wears for the country”, whilst forgetting that wellies in town aren’t required unless you’re Paddington Brown. He had clearly forgotten the problems Brexit has caused farmers. 
 

‘wellies in town aren’t required unless you’re Paddington Brown’

 
Another dressed for the day was Victoria Atkins, the shadow environment secretary, in union jack jacket, looking like a  second-hand Spice Girl. She was accompanied by the new Tory leader who clearly isn’t aware that most  farmers don’t have fond memories of the past 14 years. In fact, many farmers tend to believe they have been screwed over by both the Tories and Labour.  

One of the leaders of the protest is the newfound celebrity farmer, Jeremy Clarkson, who in 2021 told the Times that he bought his Cotswold farm as a tax avoidance measure, explaining he said that because he was too embarrassed to say he wanted to have his own pheasant shoot. 

Prior to Labour’s recent budget farming businesses qualified for 100% relief on IHT tax on agricultural and business property. But now the tax is being imposed on farms worth more than £1m, with an effective rate of 20% on assets above that threshold, rather than the normal 40% rate for inheritance tax. 

The £1m threshold for farmers paying inheritance tax could be £3m for a couple, once various exemptions were taken into account. 

Given that farms were previously exempt, it is not surprising that this has caused upset. Very few people want to pay more tax – especially on family-owned assets to which they are attached. 
 

‘One of the biggest investors in farmland is James Dyson, and it’s no secret he acquired the land as a tax hedge’

 
There is a simple reality; revenue is required if we are to improve our neglected public services. Tax increases are therefore inevitable, and there is no good reason why farmers should continue to be given preferential treatment. Their tax exemptions have been abused by wealthy people seeking to avoid taxes, and it may have been better had the tax been better targeted tax, to take more from bigger, wealthier landowners.  

These wealthy investors are having a similar impact on the price of farms as buy-to-let investors have had on residential property, distorting the price of farms, stopping would-be farmers being able to buy and forcing them to rent at an inflated price.   

One of the biggest investors in farmland is James Dyson, and it’s no secret he acquired the land as a tax hedge. 

The numbers speak for themselves highlighting once again, that the main beneficiaries of the existing regime are a highly privileged group. Between 2018 and 2020, nearly £600m in inheritance tax relief went to about 200 estates with an average value of £6m. Each claimed more than £1m in relief.  

There is a harsh reality to the this persistent need for low taxes; we are a poor country with a small percentage of very rich people. 

Many of you will likely dislike that summary, but here is the evidence… 

More than one in three children and a quarter of adults are living in poverty in the UK as deprivation levels rise to the highest in the 21st century, according to a landmark report. 
 

‘we are a poor country with a small percentage of very rich people’

 
The study by the Social Metrics Commission (“SMC”), which uses measures recently adopted by the UK government, found the cost of living crisis had plunged 2 million more people into severe hardship since 2019. 

In total, more than 16 million people are defined as living in poverty, or 24% of the UK population – the highest since comparable records began in 2000. 

Children accounted for the biggest rise of any social group falling into poverty, the report found, with an extra 260,000 on the breadline since before the Covid pandemic, meaning a record 36%, or 5.2 million children, were in deprivation. 

The SMC report is significant as it measures a family’s resources, not just their income, and is widely accepted to be the most accurate definition of poverty in the UK. This measure was adopted in June, by the then Conservative government announced plans to adopt this broader definition of , called “below average resources”. It includes inescapable costs, such as childcare, the extra costs of being disabled, plus rent, mortgages and a family’s liquid assets, such as stocks and shares, that can easily be exchanged into cash. 

Under the government’s current definition, which measures only average income and housing costs, 18% of the UK population was defined as being in absolute poverty in the year to March 2023, including 3.6 million children. 

With the new model, which is set to be adopted by the Department for Work and Pensions (DWP), 1.6 million more children are in poverty than under the current definition. 
 

‘more than 16 million people are defined as living in poverty, or 24% of the UK population’

 
Philippa Stroud, the chair of the commission, said: “Whilst this report shows that poverty rates are now higher than at any point this century, they have never fallen below 21% over that same timeframe. 

“This shows the real challenge facing us all in ensuring that we move the dial on poverty in the UK and ensure that as many people as possible can enjoy a life free of poverty.” 
 

‘whilst the popular media like to paint the poor as idle slackers that isn’t the case’

 
The report highlights a rise in the number of disabled people living in poverty since the pandemic, rising by 1.8 million since 2019-20 to 8.7 million in 2022-23. More than half of all people in severe hardship in the UK (54%) live in a family that includes a disabled person. 

Nearly one in 10 of the 16 million people in poverty were in families in full-time work, according to the study, illustrating how record levels of inflation affected those in permanent employment. Almost 5 million of those in poverty were part of a household in full- or part-time work 

So, whilst the popular media like to paint the poor as idle slackers that isn’t the case. But, of course, perception is a person’s reality, therefore many believe that they are idle, living off the state. 

Much the same distortion can be applied to their reporting on Labour’s tax increases. 

Whatever the Tory media might report, even if the true number of farms affected by the proposed changes is higher than official estimates, it will represent a tiny fraction of the total number of estates annually covered by IHT, and they will still have preferential treatment, paying half the rate the rest of us will, and with more time to find the money. 
 

‘they need to overcome the perception that taxes are paid by industrious people for the benefit of lazy’

 
The same distortion has been applied to the imposition of VAT on private school fees. Only about 6% of children attend those schools, but their families are overrepresented in the ranks of Fleet Street editors. 

Labour’s problem is that they campaigned on the basis of very few tax increases (non-doms, school fees), as such they don’t have a mandate for more wide-ranging, universal tax rises (or just to reverse unaffordable Tory tax cuts). This leaves chancellor Reeves with little options other than targeted revenue raids to balance the books, each of which is likely to aggravate some sectional interest group with lobbying power disproportionate to the number of people and sums involved. 

Their mantra of sparing “working people” and targeting “those with the broadest shoulders should bear the heavier burden” don’t get much traction. The rich and their media friends are clever at distorting numbers, E.G., so and so paid £500k in tax without saying what the percentage is, usually because its lower than what the rest of us are tasked with. 

The only way to get sustainable consent for the project Starmer and Reeves are undertaking is to hammer home the case for public goods funded by public subscription. For this to work they need to overcome the perception that taxes are paid by industrious people for the benefit of lazy. 

PM Starmer did sort of try to deal with this when, in opposition, he described the NHS as the “crowd-funded solution for all of us”. Since then he has been too defensive and negative. As Reagan once said,  in politics, “If you’re explaining, you’re losing”. 
 

‘he needs to improve their lot, which means dealing with inequality and providing services fit for purpose, funded truly by those with the broadest shoulders’ 

 
Labour need to look to the US to see what could happen if they fail to deliver. The fact that, from nowhere, Reform polled 14.3% of the vote, tells us that people are losing faith with mainstream politicians. It is predominantly working-class voters who are changing their allegiance, E.G., the red wall. As an example, in the past 50 years, the number of Americans who believe the Democrats “represent the working class” has plummeted, while the numbers who believe they “stand up for marginalised groups” has dramatically risen, now exceeding the former. 

This was summarised in an ad by Republicans, which said: “Kamala is for they/them; President Trump is for you”. 

Where the tax burden falls is another issue. In the US, the Democratic administrations of John F Kennedy and Lyndon B Johnson in the 60s, gave tax cuts to big businesses and affluent Americans the most. While the tax burden of the average US family nearly doubled between the 1950s and the election of Ronald Reagan, corporate taxes as a share of gross federal receipts fell by a third. 

This means that the government spending projects of those eras, like the anti-poverty measures of the Great Society, were largely paid for by middle-income Americans, which, in-turn, encouraged a backlash against the beneficiaries of the programmes, demonised as the undeserving Black poor. 

If Starmer is to deliver change he need to take the majority with him. To do that he needs to improve their lot, which means dealing with inequality and providing services fit for purpose, funded truly by those with the broadest shoulders 
 

“Just look at all those hungry mouths we have to feed
Take a look at all the suffering we breed” 

 
 

‘It’s becoming almost impossible to write anything without looking across the Atlantic, if, for no other reason, than to learn from the Democrats’ mistakes to make sure our own pound shop Trump doesn’t come to power.

This week has seen two entities complaining about the impact of the budget. Both of which might be better served considering why a record 36%, or 5.2 million children, live in what the government calls deprivation.

Of the two, the BRC perhaps went under the radar. Their gripe is around the NIC increase for employers, Personally, I have little sympathy with the bigger businesses. Most articles have quoted Tesco, Next, etc., but a quick look at their profits shows plenty of fat. They have two choices, cut costs, usually by firing workers, or absorb the additional costs. The latter could be achieved by increasing prices, or reducing profits. Two of the three scenarios will impinge on those at the bottom of the social scales. The third, reducing profits, impacts investors.

If we were all in this for the greater good, we would opt for the third, but that would mean reduced dividends, which clearly can’t even be considered.

The farmers’ demo was much higher profile. I see no good reason why the farmers should have beneficial tax treatment; end of.

Where both measures fall down are in the execution. It is the small businesses  who will suffer disproportionately with the increase in NIC, and it is the small / medium size farmers who will suffer disproportionately with the imposition of IHT.

Despite telling us the tax burden will fall on the broadest shoulders it doesn’t. Trump won by appealing to middle-America, Starmer isn’t ever going to win by appealing to Jeremy Clarkson.

What all of this comes down to is no one wants to pay, but everyone wants things to be improved. The two are diametrically opposed, you cannot have both.

People need to either put their money where the mouth is, or shut their mouths.

Lyrically, we start with “Ferry Across the Mersey”, written and made famous by Gerry and the Pacemakers, however, I much prefer the cover by Frankie Goes to Hollywood 

We finish with a little known  but powerful song by Queen, “Is This The World We Created?”

Enjoy,

Philip’

 

@coldwarsteve
 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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