Reforming Chancellors need cash in hand to escape from Gilmore's Law
nce in a generation, so Gordon Brown said when he took office as Chancellor, comes the chance for a radical reform of tax. How right he was, and what a shame that he muffed it, and how hard he has made it now, for himself and for anyone else who aspires to his job. For reform, a chancellor needs cash in hand. If he just redistributes the burden, taking more from some taxpayers and less from others — this law was laid down by Rosalind Gilmore when she was at the sharp end of the Treasury — he makes some people happy and some people cross, but those who are happy will not be so happy as those who are cross are cross. Classic example: Margaret Thatcher's poll tax, not invented in the Treasury. Those who were cross were cross enough to put a stop to it. Judged by the terms of Gilmore's Law, this Chancellor was relatively lucky. Kenneth Clarke had put the public finances in order and, when he left, the revenues were on a roll — but his successor soon found ways of spending them, and his new ideas for raising more were not as painless as he thought. Now that so many pension funds are deep in deficit, hitting them for an extra £5 billion a year no longer looks clever, and where exactly has the money gone? In his term of office, public spending has risen by more than half, and he is now forecasting budget deficits for so far ahead that they might even see him out. After that, future taxpayers will have to provide for them. As for reform, it may have to wait for the next generation.
National shavings
By the oddest coincidence, Gordon Brown and his new shadow, Oliver Letwin, both came up this week with their ideas for saving money. The Chancellor's was fed to the Financial Times, which takes in stories like these with an open mouth and an uncritical eye. His latest adviser, Sir Peter Gershon, says that new ways of procuring goods and services could economise on civil servants and save i15 billion. As a rule, when this happens, the civil servants reappear in agencies and quangos and cost just as much — but the Gershon report would have served the Chancellor's purpose if it spiked his shadow's guns. Undeterred, Mr Letwin fired his counter-barrage. He has plans for saving even more money than Sir Peter: £35 billion, in fact. How would he hope to do that? Very
slowly. The Department of Health is now issuing fruit and vegetable vouchers to the deserving poor, to reduce their waistlines, and he would not care to be accused of snatching the plums from their mouths.
Over the limit
Soon after the next election hut one, if Mr Letwin were still at the Treasury, he would have held public spending back until it only accounted for 40 per cent of the nation's income. Only! A hundred years ago it accounted for 10 per cent, and half of that went on defence, and this was a prosperous countn,. Two costly wars later, Keynes still thought that 25 per cent was about the limit of what could be easily borne. High taxation, Professor Tim Congdon now argues, is a drag on economic efficiency — a disincentive to work and to saving, expensive to collect and to enforce, and an encouragement to cheating. Europe, the world's most highly taxed continent, may now test these propositions to the limit. 'The privatisation of health and education, says Mr Congdon helpfully, 'would reduce the ratio of government spending by about 12 to 15 per cent in most advanced countries. Income and corporation taxes could be abolished.' We shall not hear that from Mr Letwin, though. Instead, he gamely promises to spend more and more on health and education. Even if no other spenders forced his hand, if the line held and if his nerve held, it would be a long time before Gilmore's Law could start to work in his favour.
What taxes cost
For a model of how not to tax, Mr Letwin could turn to the Mayor of London. Ken Livingstone. His congestion charge, which was supposed to pay for buses, cannot even pay for itself. It costs more to collect than it yields, so he wants to extend it, and has ordered consultative pamphlets in ten languages, including Vietnamese. The true cost of some of the Chancellor's imposts would defy justification in any known language. He has built an elaborate structure of credits and payments on the back of the Pay As You Earn system, and obliges employers to hire extra pay-clerks to do his clean or dirty work for him. Collecting his Pensions Credit is so much like hard work that half of those who could, don't. Coming shortly: a new kind of tax, on pre-ownership — don't ask, just pray not to find out what it is. The Finance Bill, which is the tax-gatherer's charter, has increased by three times in weight under his stewardship. The whole tangle of tax and National Insurance and benefits cries out for simplification, but any Chancellor brave enough to set out on it would have to contend with Gilmore's Law. It can scarcely be done where there is no oil to spare for the wheels, when the public finances are rocky and public spending is out of control. All the more reason to tackle them now. Then tax reform can succeed.
Pooh's corner
The $66 billion bid for Walt Disney has thrown the Magic Kingdom into turmoil, and I learn that a management buyout is being prepared for the House at Pooh Corner. Pooh is leading it himself, and would be a robust chief executive. The backers jibbed at Tigger's demand to be finance director — bouncing, they thought, was out of place in this role, and, besides, he reminded them of Robert Maxwell. They preferred Eeyore, knowing that he never looked on the bright side, so that any surprises from him would be nice ones. Tigger gets marketing, Owl gets strategy, Kanga gets Almost Human Resources. Piglet and Roo will be squeaking away in public relations. Compliance looks like Rabbit's job (It was a good day for putting up a notice signed Rabbit') and a team of his friends, led by Very Small Beetle, is crawling all over the business plan. Disengaged and patronising, Christopher Robin would be a corporately correct parttime non-executive chairman, unless Sainsbury's, which has been playing and missing, now tries to bid him away. In other groups whose interests relate to Disney's — the media, for instance — the Pooh Corner buyout is being watched closely. It is an example that may well be followed.
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