The lessons of Lehman
As Lehman Brothers becomes the biggest business failure in the US, one must remember that entrepreneurship is about risk and reward.
Reward: The employees of Lehman have collectively made hundreds of millions in bonus, and now they’re out on the street looking for new jobs (that includes £4,500 in the UK, ominously). It’s a pity that their bonuses – their rewards for failure, if you like – cannot be clawed bank and handed back to the creditors of Lehman. But such bonuses are cunningly used as an accounting measure to reduce profits and, therefore, corporation tax paid.
Risk: They got it wrong and now they are paying big time for their failure. John McCain is right to describe the financial services sector in the US (AKA Wall Street) as a ‘casino’ – well, the same is true of the City of London’s investment banks. And entrepreneurship can be very much a ‘casino’ if people take extraordinary risks. Or are extraordinarily stupid, as was the case with Lehman.
What does this mean for tax cuts?
I argued on this blog about a year ago that the Taxpayers’ Alliance (TPA), with its brilliant team including Matthew Elliott, Matthew Sinclair and Tim Aker amongst others, has won the argument on tax. Since then,
- Labour made a hamfisted attempt to reduce a tax that it raised in the first place (10p).
- The Conservatives, on the other hand, have about two tax reducing commitments: first, to increase the stamp duty threshold for homeowners from £175k to £250k; and secondly, to increase the inheritance tax threshold to £1m or £2m for married couples. The first favours ordinary people and first-time buyers, and the second largely favours the relatively wealthy (although, as Ian Hislop pointed out on Have I Got News For You, it’s so popular with a large section of the electorate “because they’re going to get the house”).
- The Lib Dems are now the only party that offers tax cuts for the lower paid and middle-income people who are most devastated by the credit crunch. It would have been better had ‘Ozzy’ Osborne ( our next Chancellor of the Exchequer, at only 13 🙂 ) had used those billions to help the poorer and middling sections of society, the true coping classes. This is the obvious next step for the Tories if they are to hold any hope of gaining Lib Dem held seats. While Eastleigh, Solihull and others are in the bag, the Conservatives can forget Nick Clegg’s Sheffield Hallam or Vince Cable’s Twickenham (unless the latter retires as an MP) – people there can vote with their social conscience for the ‘nice liberals’ AND vote for tax cuts.
Tim Aker of TPA points out that:
The Lib Dems have already made a bold stand in putting the case for lower government spending, a move that even outflanks the Conservative message of higher public spending as all part of the ‘sharing’ deal between the government and taxpayer. But the silver bullet in twenty-first-century British politics is staring the Liberal Democrats in the face. In presenting the case for lower taxes on the lowest paid, they should embrace the call to take those in poverty out of income tax by significantly increasing the income tax threshold to the government’s valued level below which poverty begins. Whereas Lady Thatcher locked in the support of the C2 and D voting classes when the government allowed council tenants to buy their own council houses, the same opportunity is there for any party to take the next logical step and to take the poorest out of income tax.
Absolutely spot on, of course, so it is time for the Tories to sit up and listen. It’s all very well being 20 points ahead, but the Lib Dems are still an electoral threat in many places.
Not just that, but it is also morally right to cut taxes on the poorer and middling sections of society who are being skewered by Brownite economic policy and the credit crunch – mortgages, petrol prices, food prices, etc. It is they who elected one of the Tories’ best and most compassionate MPs, Edward Timpson, in Crewe & Nantwich. He is someone whose parents fostered over 30 children and Timpsons is one of the best employers around.
It is time for some compassion on tax too. Now. Or, if not, at least in time for the next general election, which may be sooner than many people expect.
What has this to do with Lehman? Simple. We’re in this mess largely because of the Wall St and City of London ‘casino’, and the Brownian policy vacuum that doesn’t know how to deal with the credit crunch. Ordinary people are suffering – we need to stimulate the economy to ease their financial (and thus emotional) strain, as well as making entrepreneurship attractive, and reviving the housing market. Tax cuts are a good way to start this process.
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